ACC 3013 Taxation
Assessment 3: Written assessment (report writing)
Weight-35% (25% for report + 10% for individual written defense)
CLO 3: Compute the taxable income and tax liability of business entities
CLO 4: Explain various issues related to value added tax (VAT)
|Names of the students and IDs||1. ____________________________ 2._____________________________ 3._____________________________ 4._____________________________|
|Final marks/grade for the report|
|Date of moderation|
Report writing activity involves applying the knowledge learnt from the course in a more practical and broader scenario than that given in the textbook and study materials. You are also expected to evaluate the information given in the case and recommend the viable solutions where required. The information about operations of a UK resident trading company Sports Folks Ltd is given on the following pages. You are required to complete all the tasks given at the end of the case.
Individual written defense (10%) will be conducted in the week following submission of your reports.
- You will work in the teams of minimum 2 and maximum 4 students.
- Submit your answers in the form of report on or before 22 November 2020
- Your instructor will conduct individual written defense through BBL
- Show all computations clearly and give explanations wherever required/possible. Try to demonstrate as much as possible, your knowledge and skills when computing figures or giving explanations of your answers/choices.
Sports Folks Ltd is a UK resident company. The company trades in sports goods and wears. All products are taxable unless stated otherwise. Sports Folks Ltd buys goods from local manufacturers for distribution in England and some other European Countries. Company prepares its accounts to 31 March each year. The statement of profit or loss prepared in accordance with the international financial reporting standards (IFRS) for the year ended 31 March 2020 is given below:
Net sales (N.2) 17,500,800
Cost of goods sold (N.3) (13,450,000)
Gross margin 4,050,800
Impaired debts (N.4) 12,500
Selling costs (N. 5) 120,500
General & administrative (N.6) 588,900
Legal, professional and trade fees (N.7) 92,800
Repairs and renewals (N.8) 65,300
Vehicles maintenance (N.9) 225,000
Leasing cost (N.10) 14,200
Employee costs (N.11) 1,305,800
Rent & rates (N.12) 320,000
Operating profit 995,800
Rental income (N.13) 56,350
Bank interest received (N.14) 32,000
Dividends received (N.15) 141,650 230,000
Interest expenses (N. 16) (67,500)
Profit before taxation 1,158,300
1. Sports Folks Ltd
Sports Folks Ltd acquires products, stores in warehouses if needed and transport to retailers as per the orders received. Headquartered in Cardiff, Sports Folks Ltd employes 250 staff personnels for marketing, distribution and and administartion functions. Sports Folks Ltd maintains its own fleet of delivery trucks and hires full-time drivers.
2. Net sales
Quarterly sales for the year ending on 31 March 2020 are given below. All sales made within England are standard-rated but that made to VAT registered traders in other European countries are zero-rated. Sales made to the retailers within England are made on 45-day credit and 2% dicount is offered for the prompt payment. Sales made to traders in EU member states are made on credit of 20 days without any prompt payment discount. Goods sold are nonrefundable but exchangeable within 10 days. Sales figures in below given table are before any prompt payment discount.
|Quarter||Sales in England||Sales in England||Sales to EU||Total|
|(discount not availed)||(discount availed)||traders||Sales|
|April 19-June 19||2,890,500||405,000||1,120,000||4,415,500|
|July 19-Sep 19||5,320,000||600,000||950,600||6,870,600|
|Oct 19-Dec 19||2,205,500||315,800||666,816||3,188,116|
|Jan 20-Mar 20||2,312,460||0||740,540||3,053,000|
Sales figure reported in the statement of profit or loss is the net of discounts and has been computed as follows:
Gross sales 17,527,216
Less: prompt payment discount (1,320,800 x 2%) (26,416)
Net sales after discounts 17,500,800
3. Cost of goods sold
Cost of goods sold includes purchase price paid to the vendors (manufacturers) and other costs associated with acquiring inventories. Sports Folks Ltd purchases goods on credit of 45 days and is offered 5% dicount for prompt payments. Goods are exchangeable within 15 days of the delivery. All purchases and costs of acquiring goods are standard rated.
|Quarter||Purchases||Purchases||Other costs of||Total|
|(discount not availed)||(discount availed)||acquiring inventories|
|April 19-June 19||3,350,000||410,000||89,500||3,849,500|
|July 19-Sep 19||4,100,000||296,500||91,200||4,487,700|
|Oct 19-Dec 19||2,430,890||80,000||64,000||2,574,890|
|Jan 20-Mar 20||2,560,000||120,000||65,100||2,745,100|
Beginning inventories April 1, 2019 750,000
Cost of purchases, net of discount (906,500 x 5%) 13,611,865
Ending inventories March 31, 2020 (911,865)
Cost of goods sold 13,450,000
Beginning and ending inventories include total cost of goods available in company stores for sales and/or goods in transit from the manufactrers to company warehouses on first and the last day of the accounting period respectively.
4. Impaired debts
On 31 March 2020, Sports Folks Ltd wrote off an impairment loss of £12,500 in respect of
two invoices. First invoice of £7,000 in the name of Rex Traders Birmingham was due on 10 June 2019. Second invoice of £5,500 in the name of Nasir Traders London was due on 15 January 2020.
5. Selling costs
Selling costs include:
Gifts to the customers (wall clocks bearing company name costing
£70 per customer) £9,000
Advertising and promotions £60,500
Entertaining UK customers 7,500
Entertaining overseas customers 7,500
Gifts to suppliers 12,500
6. General and administartive
General and administartive expenses include:
Donations to B&B Foundation (an approved charity), Sports Folks received
a free advertisement in the charity’s monthly magazine £11,500
Donations to approved charities (qualifying) 10,000
Political donations 8,500
Fine for health and safety breach 4,200
Penalty on late payment of taxes to HMRC 800
7. Legal, professional and trade fees
Fee paid for accounting and audit services £18,000
Annual subscription to business and trade association 2,000
Legal fee in connection with the trade financing (Note 16) 8,700
Charges paid for debt collections 15,000
Legal fee in connection with acquiring and registering new trucks 21,300
Legal fees in connection with a new 40-year lease 7,500
Professional fee paid to counsellor hired for terminated employees 20,300
8. Repairs and renewals:
Annual heating maintenance contract charges for company owned
premises (cover the period from 1 April 2019 to 30 March 2020) £35,000
Repainting business premises 13,500
Built new offices for the staff 16,800
9. Vehciles maintenance
Include fuel cost and the cost of maintaining company’s delivery trucks and motor cars
under the use of company’s employees and directors. All motor cars are used for
20% private mileage by the employees and directors.
10. Leasing cost
The leasing cost of £14,200 is in respect of a motor car that has CO2 emissions of 125 grams per kilometer.
11. Employee costs
Employee costs include salaries and wages paid to staff and workers.
Employee costs include:
Sports Folks Ltd’s national insurance contributions £80,500
Annual staff party £21,300
Gifts to the employees 7,000
Ignore employees’ NICs payable on salaries and wages earned.
12. Rent and rates
Include rent and rates paid on warehouses/stores let in for the business purposes.
13. Rental income
Rental income is received in respect of an office space let out by Sports Folks Ltd to an
unconnected entity. The amount of rental income reported in the statement of profit or
loss is the amount taxable for the financial year 2019.
14. Bank interest
The bank interest was received on 31 March 2020. The bank deposits are held for non-trading purposes.
Dividends reported in the statement of profit or loss were received from another UK
16. The interest payable is in respect of the company’s 3.25% loan stock. The loan stock was
used to finance the company’s trade activities. The interest amount given in the statement
of profit or loss is the amount accrued on 31 March 2020.
17. The tax written down value of Sports Folks Ltd’s main pool assets on 1 April 2019 was £1,340,500. Following assets were acquired and disposed during the year to 31 March 2020:
5 May 2019 Purchased delivery trucks £342,000
10 July 2019 Purchased new motor car CO2 emissions 45g/km 7,500
14 Sep 2019 Purchased motor car CO2 emissions 100g/km 21,800
15 Dec 2019 Purchased equipment 18,400
10 Jan 2020 Sold a motor car CO2 emissions 95 g/km 4,000
15 March 2020 Sold equipment 11,200
Original costs of motor car and equipment sold are £8,400 and £9,000 respectively.
Assume, Sports Folks Ltd has no special rate pool item. All acquisitions and disposals are subject to standard rate of VAT.
18. Company’s VAT periods end on 30 June, 30 September, 31 December and 31 March in an year. For the purpose of computing VAT liability, quarterly data of taxable expenses and supplies included in the statement of profit or loss is as follows.
|Quarter||Standard rated||Zero rated|
|expenses & supplies||expenses & supplies|
|April 19-June 19||415,380||12,300|
|July 19-Sep 19||270,400||8,900|
|Oct 19-Dec 19||332,000||14,000|
|Jan 20-Mar 20||190,700||5,200|
Compute tax adusted trading profit using the information given in statement of profit or loss and notes for Sports Folks Ltd for the accounting period ending 31 March 2020. Start with the profit before taxation of £1,158,300 and list all of the items in the statement of profit and loss and in notes indicating by the use of a zero (0) any items that do not require adjustment. Assume that Sports Folks Ltd claims maximum available capital allowances. (10 marks)
Compute taxable total profits for the period ended 31 March 31, 2020. (1.5 marks)
Compute Sports Folks Ltd’s corporation tax liability for the period ended 31 March 2020.
Compute Sports Folks Ltd’s VAT liability for each quarter. Take into account all the taxable sales, purchases, and expenses as well as adjustments when computing output and input VAT for each quarter. Show all computations and/or give explanation where possible. (8 marks)
HM Revenue & Customs have launched Making Tax Digital Rules (MTD) for VAT periods on or after 1 April 2019. Evaluate the benefits of MTD regime for the businesses and HMRC compared to the online submissions (some businesses can still submit VAT returns electronically).