(ii) Calculate the probability of the net profit being less than ￡75 million. (2 marks)
题目
(ii) Calculate the probability of the net profit being less than ￡75 million. (2 marks)
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第1题：
(ii) Advise Benny of the amount of tax he could save by delaying the sale of the shares by 30 days. For the
purposes of this part, you may assume that the benefit in respect of the furnished flat is ￡11,800 per
year. (3 marks)
正确答案：
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第2题：
(ii) Advise Mr Fencer of the income tax implications of the proposed financing arrangements. (2 marks)
正确答案：
(ii) The income tax implications of the proposed financing arrangements
Mr Fencer has borrowed money from a UK bank in order to make a loan to Rapier Ltd, a close company. The interest
paid by Mr Fencer to the bank will be an allowable charge on income as long as he continues to hold more than 5% of
Rapier Ltd. Charges on income are deductible in arriving at an individual’s statutory total income.
Mr Fencer will receive interest from Rapier Ltd net of 20% income tax. The gross amount of interest will be subject to
income tax at either 10%, 20% or 40% depending on whether the income falls into Mr Fencer’s starting rate, basic rate
or higher rate tax band. Mr Fencer will obtain a tax credit for the 20% income tax suffered at source. -
第3题：
James died on 22 January 2015. He had made the following gifts during his lifetime:
(1) On 9 October 2007, a cash gift of ￡35,000 to a trust. No lifetime inheritance tax was payable in respect of this gift.
(2) On 14 May 2013, a cash gift of ￡420,000 to his daughter.
(3) On 2 August 2013, a gift of a property valued at ￡260,000 to a trust. No lifetime inheritance tax was payable in respect of this gift because it was covered by the nil rate band. By the time of James’ death on 22 January 2015, the property had increased in value to ￡310,000.
On 22 January 2015, James’ estate was valued at ￡870,000. Under the terms of his will, James left his entire estate to his children.
The nil rate band of James’ wife was fully utilised when she died ten years ago.
The nil rate band for the tax year 2007–08 is ￡300,000, and for the tax year 2013–14 it is ￡325,000.
Required:
(a) Calculate the inheritance tax which will be payable as a result of James’ death, and state who will be responsible for paying the tax. (6 marks)
(b) Explain why it might have been beneficial for inheritance tax purposes if James had left a portion of his estate to his grandchildren rather than to his children. (2 marks)
(c) Explain why it might be advantageous for inheritance tax purposes for a person to make lifetime gifts even when such gifts are made within seven years of death.
Notes:
1. Your answer should include a calculation of James’ inheritance tax saving from making the gift of property to the trust on 2 August 2013 rather than retaining the property until his death.
2. You are not expected to consider lifetime exemptions in this part of the question. (2 marks)
正确答案：(a) James – Inheritance tax arising on death
Lifetime transfers within seven years of death
The personal representatives of James’ estate will be responsible for paying the inheritance tax of ￡348,000.
Working – Available nil rate band
(b) Skipping a generation avoids a further charge to inheritance tax when the children die. Gifts will then only be taxed once before being inherited by the grandchildren, rather than twice.
(c) (1) Even if the donor does not survive for seven years, taper relief will reduce the amount of IHT payable after three years.
(2) The value of potentially exempt transfers and chargeable lifetime transfers are fixed at the time they are made.
(3) James therefore saved inheritance tax of ￡20,000 ((310,000 – 260,000) at 40%) by making the lifetime gift of property.
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第4题：
4 (a) For this part, assume today’s date is 1 March 2006.
Bill and Ben each own 50% of the ordinary share capital in Flower Limited, an unquoted UK trading company
that makes electronic toys. Flower Limited was incorporated on 1 August 2005 with 1,000 ￡1 ordinary shares,
and commenced trading on the same day. The business has been successful, and the company has accumulated
a large cash balance of ￡180,000, which is to be used to purchase a new factory. However, Bill and Ben have
received an offer from a rival company, which they are considering. The offer provides Bill and Ben with two
alternative methods of payment for the purchase of their shares:
(i) ￡480,000 for the company, inclusive of the ￡180,000 cash balance.
(ii) ￡300,000 for the company assuming the cash available for the factory purchase is extracted prior to sale.
Bill and Ben each currently receive a gross salary of ￡3,750 per month from Flower Limited. Part of the offer
terms is that Bill and Ben would be retained as employees of the company on the same salary.
Neither Bill nor Ben has used any of their capital gains tax annual exemption for the tax year 2005/06.
Required:
(i) Calculate which of the following means of extracting the ￡180,000 from Flower Limited on 31 March
2006 will result in the highest after tax cash amount for Bill and Ben:
(1) payment of a dividend, or
(2) payment of a salary bonus.
You are not required to consider the corporation tax (CT) implications for Flower Limited in your
answer. (5 marks)
正确答案：
As a result, Bill and Ben would each be better off by ￡15,005 (69,142 – 54,137). If the cash were extracted by way
of dividend.
Tutorial note: In this answer the employers’ national insurance liability on the salary has been ignored. Credit would be
given to a candidate who recognised this issue. -
第5题：
The following financial information relates to HGR Co:
Statement of financial position at the current date (extracts)
The finance director has completed a review of accounts receivable management and has proposed staff training and operating procedure improvements, which he believes will reduce accounts receivable days to the average sector value of 53 days. This reduction would take six months to achieve from the current date, with an equal reduction in each month. He has also proposed changes to inventory management methods, which he hopes will reduce inventory days by two days per month each month over a three-month period from the current date. He does not expect any change in the current level of accounts payable.
HGR Co has an overdraft limit of $4,000,000. Overdraft interest is payable at an annual rate of 6·17% per year, with payments being made each month based on the opening balance at the start of that month. Credit sales for the year to the current date were $49,275,000 and cost of sales was $37,230,000. These levels of credit sales and cost of sales are expected to be maintained in the coming year. Assume that there are 365 working days in each year.
Required:
(a) Discuss the working capital financing strategy of HGR Co. (7 marks)
(b) For HGR Co, calculate:
(i) the bank balance in three months’ time if no action is taken; and
(ii) the bank balance in three months’ time if the finance director’s proposals are implemented.
Comment on the forecast cash flow position of HGR Co and recommend a suitable course of action.
(10 marks)
(c) Discuss how risks arising from granting credit to foreign customers can be managed and reduced.
(8 marks)
正确答案：
(a)Whenconsideringthefinancingofworkingcapital,itisusefultodividecurrentassetsintofluctuatingcurrentassetsandpermanentcurrentassets.Fluctuatingcurrentassetsrepresentchangesinthelevelofcurrentassetsduetotheunpredictabilityofbusinessactivity.Permanentcurrentassetsrepresentthecorelevelofinvestmentincurrentassetsneededtosupportagivenlevelofturnoverorbusinessactivity.Asturnoverorlevelofbusinessactivityincreases,thelevelofpermanentcurrentassetswillalsoincrease.Thisrelationshipcanbemeasuredbytheratioofturnovertonetcurrentassets.Thefinancingchoiceasfarasworkingcapitalisconcernedisbetweenshort-termandlong-termfinance.Short-termfinanceismoreflexiblethanlong-termfinance:anoverdraft,forexample,isusedbyabusinessorganisationastheneedarisesandvariableinterestischargedontheoutstandingbalance.Short-termfinanceisalsomoreriskythanlong-termfinance:anoverdraftfacilitymaybewithdrawn,orashort-termloanmayberenewedonlessfavourableterms.Intermsofcost,thetermstructureofinterestratessuggeststhatshort-termdebtfinancehasalowercostthanlong-termdebtfinance.Thematchingprinciplesuggeststhatlong-termfinanceshouldbeusedforlong-terminvestment.Applyingthisprincipletoworkingcapitalfinancing,long-termfinanceshouldbematchedwithpermanentcurrentassetsandnon-currentassets.Afinancingpolicywiththisobjectiveiscalleda‘matchingpolicy’.HGRCoisnotusingthisfinancingpolicy,sinceofthe$16,935,000ofcurrentassets,$14,000,000or83%isfinancedfromshort-termsources(overdraftandtradepayables)andonly$2,935,000or17%isfinancedfromalong-termsource,inthiscaseequityfinance(shareholders’funds)ortradedbonds.ThefinancingpolicyorapproachtakenbyHGRCotowardsthefinancingofworkingcapital,whereshort-termfinanceispreferred,iscalledanaggressivepolicy.Relianceonshort-termfinancemakesthisriskierthanamatchingapproach,butalsomoreprofitableduetothelowercostofshort-termfinance.Followinganaggressiveapproachtofinancingcanleadtoovertrading(undercapitalisation)andthepossibilityofliquidityproblems.(b)Bankbalanceinthreemonths’timeifnoactionistaken:Workings:ReductioninaccountsreceivabledaysCurrentaccountsreceivabledays=(8,775/49,275)x365=65daysReductionindaysoversixmonths=65–53=12daysMonthlyreduction=12/6=2daysEachreceivablesdayisequivalentto8,775,000/65=$135,000(Alternatively,eachreceivablesdayisequivalentto49,275,000/365=$135,000)Monthlyreductioninaccountsreceivable=2x135,000=$270,000ReductionininventorydaysCurrentinventorydays=(8,160/37,230)x365=80daysEachinventorydayisequivalentto8,160,000/80=$102,000(Alternatively,eachinventoryday=37,230,000/365=$102,000)Monthlyreductionininventory=102,000x2=$204,000OverdraftinterestcalculationsMonthlyoverdraftinterestrate=1·06171/12=1·005or0·5%Ifnoactionistaken:Period1interest=3,800,000x0·005=$19,000Period2interest=3,549,000x0·005=$17,745or$18,000Period3interest=3,517,000x0·005=$17,585or$18,000Ifactionistaken:Period1interest=3,800,000x0.005=$19,000Period2interest=3,075,000x0.005=$15,375or$15,000Period3interest=2,566,000x0.005=$12,830or$13,000DiscussionIfnoactionistaken,thecashflowforecastshowsthatHGRCowillexceeditsoverdraftlimitof$4millionby$1·48millioninthreemonths’time.Ifthefinancedirector’sproposalsareimplemented,thereisapositiveeffectonthebankbalance,buttheoverdraftlimitisstillexceededinthreemonths’time,althoughonlyby$47,000ratherthanby$1·47million.Ineachofthethreemonthsfollowingthat,thecontinuingreductioninaccountsreceivabledayswillimprovethebankbalanceby$270,000permonth.Withoutfurtherinformationonoperatingreceiptsandpayments,itcannotbeforecastwhetherthebankbalancewillreturntolessthanthelimit,orevencontinuetoimprove.Themainreasonfortheproblemwiththebankbalanceisthe$2millioncapitalexpenditure.Purchaseofnon-currentassetsshouldnotbefinancedbyanoverdraft,butalong-termsourceoffinancesuchasequityorbonds.Ifthecapitalexpenditurewereremovedfromtheareaofworkingcapitalmanagement,theoverdraftbalanceattheendofthreemonthswouldbe$3·48millionifnoactionweretakenand$2·05millionifthefinancedirector’sproposalswereimplemented.GiventhatHGRCohasalmost$50millionofnon-currentassetsthatcouldpossiblybeusedassecurity,raisinglong-termdebtthrougheitherabankloanorabondissueappearstobesensible.Assumingabondinterestrateof10%peryear,currentlong-termdebtintheform.oftradedbondsisapproximately($200mx2)/0·1=$4m,whichismuchlessthantheamountofnoncurrentassets.AsuitablecourseofactionforHGRCotofollowwouldthereforebe,firstly,toimplementthefinancedirector’sproposalsand,secondly,tofinancethecapitalexpenditurefromalong-termsource.Considerationcouldalsobegiventousingsomelong-termdebtfinancetoreducetheoverdraftandtoreducethelevelofaccountspayable,currentlystandingat100days.(c)Whencreditisgrantedtoforeigncustomers,twoproblemsmaybecomeespeciallysignificant.First,thelongerdistancesoverwhichtradetakesplaceandthemorecomplexnatureoftradetransactionsandtheirelementsmeansforeignaccountsreceivableneedmoreinvestmentthantheirdomesticcounterparts.Longertransactiontimesincreaseaccountsreceivablebalancesandhencetheleveloffinancingandfinancingcosts.Second,theriskofbaddebtsishigherwithforeignaccountsreceivablethanwiththeirdomesticcounterparts.Inordertomanageandreducecreditrisks,therefore,exportersseektoreducetheriskofbaddebtandtoreducethelevelofinvestmentinforeignaccountsreceivable.Manyforeigntransactionsareon‘openaccount’,whichisanagreementtosettletheamountoutstandingonapredetermineddate.Openaccountreflectsagoodbusinessrelationshipbetweenimporterandexporter.Italsocarriesthehighestriskofnon-payment.Onewaytoreduceinvestmentinforeignaccountsreceivableistoagreeearlypaymentwithanimporter,forexamplebypaymentinadvance,paymentonshipment,orcashondelivery.Thesetermsoftradeareunlikelytobecompetitive,however,anditismorelikelythatanexporterwillseektoreceivecashinadvanceofpaymentbeingmadebythecustomer.Onewaytoacceleratecashreceiptsistousebillfinance.Billsofexchangewithasignedagreementtopaytheexporteronanagreedfuturedate,supportedbyadocumentaryletterofcredit,canbediscountedbyabanktogiveimmediatefunds.Thisdiscountingiswithoutrecourseifbillsofexchangehavebeencountersignedbytheimporter’sbank.Documentarylettersofcreditareapaymentguaranteebackedbyoneormorebanks.Theycarryalmostnorisk,providedtheexportercomplieswiththetermsandconditionscontainedintheletterofcredit.Theexportermustpresentthedocumentsstatedintheletter,suchasbillsoflading,shippingdocuments,billsofexchange,andsoon,whenseekingpayment.Aseachsupportingdocumentrelatestoakeyaspectoftheoveralltransaction,lettersofcreditgivesecuritytotheimporteraswellastheexporter.Companiescanalsomanageandreduceriskbygatheringappropriateinformationwithwhichtoassessthecreditworthinessofnewcustomers,suchasbankreferencesandcreditreports.Insurancecanalsobeusedtocoversomeoftherisksassociatedwithgivingcredittoforeigncustomers.Thiswouldavoidthecostofseekingtorecovercashduefromforeignaccountsreceivablethroughaforeignlegalsystem,wheretheexportercouldbeatadisadvantageduetoalackoflocalorspecialistknowledge.Exportfactoringcanalsobeconsidered,wheretheexporterpaysforthespecialistexpertiseofthefactorasawayofreducinginvestmentinforeignaccountsreceivableandreducingtheincidenceofbaddebts.