(ii) The use of the trading loss of Tethys Ltd for the year ending 31 December 2008; (6 marks)

题目

(ii) The use of the trading loss of Tethys Ltd for the year ending 31 December 2008; (6 marks)


相似考题
参考答案和解析
正确答案:
(ii) Tethys Ltd – Use of trading loss
– The two companies will not be in a group relief group as Saturn Ltd will not own 75% of Tethys Ltd.
– For a consortium to exist, 75% of the ordinary share capital of Tethys Ltd must be held by companies which each
hold at least 5%. Accordingly, Tethys Ltd will be a consortium company if the balance of its share capital is owned
by Clangers Ltd but not if it is owned by Edith Clanger.
– If Tethys Ltd qualifies as a consortium company: 65% of its trading losses in the period from 1 August 2008 to
31 December 2008 can be surrendered to Saturn Ltd, i.e. £21,667 (£80,000 x 5/12 x 65%).
– If Tethys Ltd does not qualify as a consortium company: none of its loss can be surrendered to Saturn Ltd.
– The acquisition of 65% of Tethys Ltd is a change in ownership of the company. If there is a major change in the
nature or conduct of the trade of Tethys Ltd within three years of 1 August 2008, the loss arising prior to that date
cannot be carried forward for relief in the future.
Further information required:
– Ownership of the balance of the share capital of Tethys Ltd.
更多“(ii) The use of the trading loss of Tethys Ltd for the year ending 31 December 2008; (6 marks)”相关问题
  • 第1题:

    (ii) Using the previous overhead allocation basis (as per note 4), calculate the budgeted profit/(loss)

    attributable to each type of service for the year ending 31 December 2006 and comment on the results

    obtained using the previous and revised methods of overhead allocation. (5 marks)


    正确答案:

  • 第2题:

    (b) Comment (with relevant calculations) on the performance of the business of Quicklink Ltd and Celer

    Transport during the year ended 31 May 2005 and, insofar as the information permits, its projected

    performance for the year ending 31 May 2006. Your answer should specifically consider:

    (i) Revenue generation per vehicle

    (ii) Vehicle utilisation and delivery mix

    (iii) Service quality. (14 marks)


    正确答案:

    difference will reduce in the year ending 31 May 2006 due to the projected growth in sales volumes of the Celer Transport
    business. The average mail/parcels delivery of mail/parcels per vehicle of the Quicklink Ltd part of the business is budgeted
    at 12,764 which is still 30·91% higher than that of the Celer Transport business.
    As far as specialist activities are concerned, Quicklink Ltd is budgeted to generate average revenues per vehicle amounting to
    £374,850 whilst Celer Transport is budgeted to earn an average of £122,727 from each of the vehicles engaged in delivery
    of processed food. It is noticeable that all contracts with major food producers were renewed on 1 June 2005 and it would
    appear that there were no increases in the annual value of the contracts with major food producers. This might have been
    the result of a strategic decision by the management of the combined entity in order to secure the future of this part of the
    business which had been built up previously by the management of Celer Transport.
    Each vehicle owned by Quicklink Ltd and Celer Transport is in use for 340 days during each year, which based on a
    365 day year would give an in use % of 93%. This appears acceptable given the need for routine maintenance and repairs
    due to wear and tear.
    During the year ended 31 May 2005 the number of on-time deliveries of mail and parcel and industrial machinery deliveries
    were 99·5% and 100% respectively. This compares with ratios of 82% and 97% in respect of mail and parcel and processed
    food deliveries made by Celer Transport. In this critical area it is worth noting that Quicklink Ltd achieved their higher on-time
    delivery target of 99% in respect of each activity whereas Celer Transport were unable to do so. Moreover, it is worth noting
    that Celer Transport missed their target time for delivery of food products on 975 occasions throughout the year 31 May 2005
    and this might well cause a high level of customer dissatisfaction and even result in lost business.
    It is interesting to note that whilst the businesses operate in the same industry they have a rather different delivery mix in
    terms of same day/next day demands by clients. Same day deliveries only comprise 20% of the business of Quicklink Ltd
    whereas they comprise 75% of the business of Celer Transport. This may explain why the delivery performance of Celer
    Transport with regard to mail and parcel deliveries was not as good as that of Quicklink Ltd.
    The fact that 120 items of mail and 25 parcels were lost by the Celer Transport business is most disturbing and could prove
    damaging as the safe delivery of such items is the very substance of the business and would almost certainly have resulted
    in a loss of customer goodwill. This is an issue which must be addressed as a matter of urgency.
    The introduction of the call management system by Quicklink Ltd on 1 June 2004 is now proving its worth with 99% of calls
    answered within the target time of 20 seconds. This compares favourably with the Celer Transport business in which only
    90% of a much smaller volume of calls were answered within a longer target time of 30 seconds. Future performance in this
    area will improve if the call management system is applied to the Celer Transport business. In particular, it is likely that the
    number of abandoned calls will be reduced and enhance the ‘image’ of the Celer Transport business.

  • 第3题:

    (ii) The percentage change in revenue, total costs and net assets during the year ended 31 May 2008 that

    would have been required in order to have achieved a target ROI of 20% by the Beetown centre. Your

    answer should consider each of these three variables in isolation. State any assumptions that you make.

    (6 marks)


    正确答案:
    (ii) The ROI of Beetown is currently 13·96%. In order to obtain an ROI of 20%, operating profit would need to increase to
    (20% x $3,160,000) = $632,000, based on the current level of net assets. Three alternative ways in which a target
    ROI of 20% could be achieved for the Beetown centre are as follows:
    (1) Attempts could be made to increase revenue by attracting more clients while keeping invested capital and operating
    profit per $ of revenue constant. Revenue would have to increase to $2,361,644, assuming that the current level
    of profitability is maintained and fixed costs remain unchanged. The current rate of contribution to revenue is
    $2,100,000 – $567,000 = $1,533,000/$2,100,000 = 73%. Operating profit needs to increase by $191,000
    in order to achieve an ROI of 20%. Therefore, revenue needs to increase by $191,000/0·73 = $261,644 =
    12·46%.
    (2) Attempts could be made to decrease the level of operating costs by, for example, increasing the efficiency of
    maintenance operations. This would have the effect of increasing operating profit per $ of revenue. This would
    require that revenue and invested capital were kept constant. Total operating costs would need to fall by $191,000
    in order to obtain an ROI of 20%. This represents a percentage decrease of 191,000/1,659,000 = 11·5%. If fixed
    costs were truly fixed, then variable costs would need to fall to a level of $376,000, which represents a decrease
    of 33·7%.
    (3) Attempts could be made to decrease the net asset base of HFG by, for example, reducing debtor balances and/or
    increasing creditor balances, while keeping turnover and operating profit per $ of revenue constant. Net assets
    would need to fall to a level of ($441,000/0·2) = $2,205,000, which represents a percentage decrease
    amounting to $3,160,000 – $2,205,000 = 955,000/3,160,000 = 30·2%.

  • 第4题:

    (c) Assuming that Stuart:

    (i) purchased 201,000 shares in Omega plc on 3 December 2005; and

    (ii) dies on 20 December 2007,

    calculate the potential inheritance tax (IHT) liability which would arise if Rebecca were to die on 1 March

    2008, and no further tax planning measures were taken.

    Assume that all asset values remain unchanged and that the current rates of inheritance tax continue to

    apply. (6 marks)


    正确答案:

     

  • 第5题:

    (b) Calculate the corporation tax (CT) liabilities for Alantech Ltd, Boron Ltd and Bubble Ltd for the year ending

    31 December 2004 on the assumption that loss reliefs are taken as early as possible. (9 marks)


    正确答案:

    (b) Schedule D Case I calculation
    The three companies form. a group for both group relief and capital gains purposes as all shareholdings pass the 75%
    ownership test. The calculation of the corporation tax liabilities is as follows:

  • 第6题:

    (b) Explain by reference to Hira Ltd’s loss position why it may be beneficial for it not to claim any capital

    allowances for the year ending 31 March 2007. Support your explanation with relevant calculations.

    (6 marks)


    正确答案:
    (b) The advantage of Hira Ltd not claiming any capital allowances
    In the year ending 31 March 2007 Hira Ltd expects to make a tax adjusted trading loss, before deduction of capital
    allowances, of £55,000 and to surrender the maximum amount possible of trading losses to Belgrove Ltd and Dovedale Ltd.
    For the first nine months of the year from 1 April 2006 to 31 December 2006 Hira Ltd is in a loss relief group with Belgrove
    Ltd. The maximum surrender to Belgrove Ltd for this period is the lower of:
    – the available loss of £41,250 (£55,000 x 9/12); and
    – the profits chargeable to corporation tax of Belgrove of £28,500 (£38,000 x 9/12).
    i.e. £28,500. This leaves losses of £12,750 (£41,250 – £28,500) unrelieved.
    For the remaining three months from 1 January 2007 to 31 March 2007 Hira Ltd is a consortium company because at least
    75% of its share capital is owned by companies, each of which own at least 5%. It can surrender £8,938 (£55,000 x 3/12
    x 65%) to Dovedale Ltd and £4,812 (£55,000 x 3/12 x 35%) to Belgrove Ltd as both companies have sufficient taxable
    profits to offset the losses. Accordingly, there are no losses remaining from the three-month period.
    The unrelieved losses from the first nine months must be carried forward as Hira Ltd has no income or gains in that year or
    the previous year. However, the losses cannot be carried forward beyond 1 January 2007 (the date of the change of
    ownership of Hira Ltd) if there is a major change in the nature or conduct of the trade of Hira Ltd. Even if the losses can be
    carried forward, the earliest year in which they can be relieved is the year ending 31 March 2009 as Hira Ltd is expected to
    make a trading loss in the year ending 31 March 2008.
    Any capital allowances claimed by Hira Ltd in the year ending 31 March 2007 would increase the tax adjusted trading loss
    for that year and consequently the unrelieved losses arising in the first nine months.
    If the capital allowances are not claimed, the whole of the tax written down value brought forward of £96,000 would be
    carried forward to the year ending 31 March 2008 thus increasing the capital allowances and the tax adjusted trading loss,
    for that year. By not claiming any capital allowances, Hira Ltd can effectively transfer a current period trading loss, which
    would be created by capital allowances, of £24,000 (25% x £96,000) from the year ending 31 March 2007 to the following
    year where it can be surrendered to the two consortium members.

  • 第7题:

    (b) Explain the advantages from a tax point of view of operating the new business as a partnership rather than

    as a company whilst it is making losses. You should calculate the tax adjusted trading loss for the year

    ending 31 March 2008 for both situations and indicate the years in which the loss relief will be obtained.

    You are not required to prepare any other supporting calculations. (10 marks)


    正确答案:

    (b) The new business
    There are two tax advantages to operating the business as a partnership.
    (i) Reduction in taxable income
    If the new business is operated as a company, Cindy and Arthur would both be taxed at 40% on their salaries. In
    addition, employer and employee national insurance contributions would be due on £105 (£5,000 – £4,895) in respect
    of each of them.
    If the new business is operated as a partnership, the partners would have no taxable trading income because the
    partnership has made a loss; any salaries paid to the partners would be appropriations of the profit or loss of the
    business and not employment income. They would, however, each have to pay Class 2 national insurance contributions
    of £2·10 each per week.
    (ii) Earlier relief for trading losses
    If the new business is operated as a company, its tax adjusted trading loss in the year ending 31 March 2008 would
    be as follows:

  • 第8题:

    (ii) Calculate the corporation tax (CT) payable by Tay Limited for the year ended 31 March 2006, taking

    advantage of all available reliefs. (3 marks)


    正确答案:

     

  • 第9题:

    5 (a) Carver Ltd was incorporated and began trading in August 2002. It is a close company with no associated

    companies. It has always prepared accounts to 31 December and will continue to do so in the future.

    It has been decided that Carver Ltd will sell its business as a going concern to Blade Ltd, an unconnected

    company, on 31 July 2007. Its premises and goodwill will be sold for £2,135,000 and £290,000 respectively

    and its machinery and equipment for £187,000. The premises, which do not constitute an industrial building,

    were acquired on 1 August 2002 for £1,808,000 and the goodwill has been generated internally by the

    company. The machinery and equipment cost £294,000; no one item will be sold for more than its original cost.

    The tax adjusted trading profit of Carver Ltd in 2007, before taking account of both capital allowances and the

    sale of the business assets, is expected to be £81,000. The balance on the plant and machinery pool for the

    purposes of capital allowances as at 31 December 2006 was £231,500. Machinery costing £38,000 was

    purchased on 1 March 2007. Carver Ltd is classified as a small company for the purposes of capital allowances.

    On 1 August 2007, the proceeds from the sale of the business will be invested in either an office building or a

    portfolio of UK quoted company shares, as follows:

    Office building

    The office building would be acquired for £3,100,000; the vendor is not registered for value added tax (VAT).

    Carver Ltd would borrow the additional funds required from a UK bank. The building is let to a number of

    commercial tenants who are not connected with Carver Ltd and will pay rent, in total, of £54,000 per calendar

    quarter, in advance, commencing on 1 August 2007. The company’s expenditure for the period from 1 August

    2007 to 31 December 2007 is expected to be:

    Loan interest payable to UK bank 16,000

    Building maintenance costs 7,500

    Share portfolio

    Shares would be purchased for the amount of the proceeds from the sale of the business with no need for further

    loan finance. It is estimated that the share portfolio would generate dividends of £36,000 and capital gains, after

    indexation allowance, of £10,000 in the period from 1 August 2007 to 31 December 2007.

    All figures are stated exclusive of value added tax (VAT).

    Required:

    (i) Taking account of the proposed sale of the business on 31 July 2007, state with reasons the date(s) on

    which Carver Ltd must submit its corporation tax return(s) for the year ending 31 December 2007.

    (2 marks)


    正确答案:
    (a) (i) Due date for submission of corporation tax return
    Carver Ltd intends to cease trading on 31 July 2007. This will bring to an end the accounting period that began on
    1 January 2007. A new accounting period will commence on 1 August 2007 and end on the company’s accounting
    reference date on 31 December 2007.
    Carver Ltd is required to submit its corporation tax return by the later of:
    – one year after the end of its accounting period; and
    – one year after the end of the period of account in which the last day of the accounting period falls.
    Accordingly, the company must submit its corporation tax returns for both accounting periods by 31 December 2008.

  • 第10题:

    (iii) Advice in connection with the sale of the manufacturing premises by Tethys Ltd; (7 marks)


    正确答案:
    (iii) Tethys Ltd – Sale of the manufacturing premises
    Value added tax (VAT)
    – The building is not a new building (i.e. it is more than three years old). Accordingly, the sale of the building is an
    exempt supply and VAT should not be charged unless Tethys Ltd has opted to tax the building in the past.
    Taxable profits on sale
    – There will be no balancing adjustment in respect of industrial building allowances as the building is to be sold on
    or after 21 March 2007.
    – The capital gain arising on the sale of the building will be £97,760 (£240,000 – (£112,000 x 1·27)).
    Rollover relief
    – Tethys Ltd is not in a capital gains group with Saturn Ltd. Accordingly, rollover relief will only be available if Tethys
    Ltd, rather than any of the other Saturn Ltd group companies, acquires sufficient qualifying business assets.
    – The amount of sales proceeds not spent in the qualifying period is chargeable, i.e. £40,000 (£240,000 –
    £200,000). The balance of the gain, £57,760 (£97,760 – £40,000), can be rolled over.
    – Qualifying business assets include land and buildings and fixed plant and machinery. The assets must be brought
    into immediate use in the company’s trade.
    – The assets must be acquired in the four-year period beginning one year prior to the sale of the manufacturing
    premises.
    Further information required:
    – Whether or not Tethys Ltd has opted to tax the building in the past for the purposes of VAT.

  • 第11题:

    (b) Using the information provided, state the financial statement risks arising and justify an appropriate audit

    approach for Indigo Co for the year ending 31 December 2005. (14 marks)


    正确答案:
    (b) Financial statement risks
    Assets
    ■ There is a very high risk that inventory could be materially overstated in the balance sheet (thereby overstating profit)
    because:
    ? there is a high volume of metals (hence material);
    ? valuable metals are made more portable;
    ? subsidy gives an incentive to overstate purchases (and hence inventory);
    ? inventory may not exist due to lack of physical controls (e.g. aluminium can blow away);
    ? scrap metal in the stockyard may have zero net realisable value (e.g. iron is rusty and slow-moving);
    ? quantities per counts not attended by an auditor have increased by a third.
    ■ Inventory could be otherwise misstated (over or under) due to:
    ? the weighbridge being inaccurate;
    ? metal qualities being estimated;
    ? different metals being mixed up; and
    ? the lack of an independent expert to identify/measure/value metals.
    ■ Tangible non-current assets are understated as the parts of the furnaces that require replacement (the linings) are not
    capitalised (and depreciated) as separate items but treated as repairs/maintenance/renewals and expensed.
    ■ Cash may be understated due to incomplete recording of sales.
    ■ Recorded cash will be overstated if it does not exist (e.g. if it has been stolen).
    ■ Trade receivables may be understated if cash receipts from credit customers have been misappropriated.
    Liabilities
    ■ The provision for the replacement of the furnace linings is overstated by the amount provided in the current and previous
    year (i.e. in its entirety).
    Tutorial note: Last replacement was two years ago.
    Income statement
    ■ Revenue will be understated in respect of unrecorded cash sales of salvaged metals and ‘clinker’.
    ■ Scrap metal purchases (for cash) are at risk of overstatement:
    ? to inflate the 15% subsidy;
    ? to conceal misappropriated cash.
    ■ The income subsidy will be overstated if quantities purchased are overstated and/or overvalued (on the quarterly returns)
    to obtain the amount of the subsidy.
    ■ Cash receipts/payments that were recorded only in the cash book in November are at risk of being unrecorded (in the
    absence of cash book postings for November), especially if they are of a ‘one-off’ nature.
    Tutorial note: Cash purchases of scrap and sales of salvaged metal should be recorded elsewhere (i.e. in the manual
    inventory records). However, a one-off expense (of a capital or revenue nature) could be omitted in the absence of
    another record.
    ■ Expenditure is overstated in respect of the 25% provision for replacing the furnace linings. However, as depreciation
    will be similarly understated (as the furnace linings have not been capitalised) there is no risk of material misstatement
    to the income statement overall.
    Disclosure risk
    ■ A going concern (‘failure’) risk may arise through the loss of:
    ? sales revenue (e.g. through misappropriation of salvaged metals and/or cash);
    ? the subsidy (e.g. if returns are prepared fraudulently);
    ? cash (e.g. if material amounts stolen).
    Any significant doubts about going concern must be suitably disclosed in the notes to the financial statements.
    Disclosure risk arises if the requirements of IAS 1 ‘Presentation of Financial Statements’ are not met.
    ■ Disclosure risk arises if contingent liabilities in connection with the dumping of ‘clinker’ (e.g. for fines and penalties) are
    not adequately disclosed in accordance with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’.
    Appropriate audit approach
    Tutorial note: In explaining why AN audit approach is appropriate for Indigo it can be relevant to comment on the
    unsuitability of other approaches.
    ■ A risk-based approach is suitable because:
    ? inherent risk is high at the entity and financial assertion levels;
    ? material errors are likely to arise in inventory where a high degree of subjectivity will be involved (regarding quality
    of metals, quantities, net realisable value, etc);
    ? it directs the audit effort to inventory, purchases, income (sales and subsidy) and other risk areas (e.g. contingent
    liabilities).
    ■ A systems-based/compliance approach is not suited to the risk areas identified because controls are lacking/ineffective
    (e.g. over inventory and cash). Also, as the audit appointment was not more than three months ago and no interim
    audit has been conducted (and the balance sheet date is only three weeks away) testing controls is likely to be less
    efficient than a substantive approach.
    ■ A detailed substantive/balance sheet approach would be suitable to direct audit effort to the appropriate valuation of
    assets (and liabilities) existing at balance sheet date. Principal audit work would include:
    ? attendance at a full physical inventory count at 31 December 2005;
    ? verifying cash at bank (through bank confirmation and reconciliation) and in hand (through physical count);
    ? confirming the accuracy of the quarterly returns to the local authority.
    ■ A cyclical approach/directional testing is unlikely to be suitable as cycles are incomplete. For example the purchases
    cycle for metals is ‘purchase/cash’ rather than ‘purchase/payable/cash’ and there is no independent third party evidence
    to compensate for that which would be available if there were trade payables (i.e. suppliers’ statements). Also the cycles
    are inextricably inter-related to cash and inventory – amounts of which are subject to high inherent risk.
    ■ Analytical procedures may be of limited use for substantive purposes. Factors restricting the use of substantive analytical
    procedures include:
    ? fluctuating margins (e.g. as many factors will influence the price at which scrap is purchased and subsequently
    sold, when salvaged, sometime later);
    ? a lack of reliable/historic information on which to make comparisons.

  • 第12题:

    (b) Explain what effect the acquisition of Di Rollo Co will have on the planning of your audit of the consolidated

    financial statements of Murray Co for the year ending 31 March 2008. (10 marks)


    正确答案:
    (b) Effect of acquisition on planning the audit of Murray’s consolidated financial statements for the year ending 31 March
    2008
    Group structure
    The new group structure must be ascertained to identify all entities that should be consolidated into the Murray group’s
    financial statements for the year ending 31 March 2008.
    Materiality assessment
    Preliminary materiality for the group will be much higher, in monetary terms, than in the prior year. For example, if a % of
    total assets is a determinant of the preliminary materiality, it may be increased by 10% (as the fair value of assets acquired,
    including goodwill, is $2,373,000 compared with $21·5m in Murray’s consolidated financial statements for the year ended
    31 March 2007).
    The materiality of each subsidiary should be re-assessed, in terms of the enlarged group as at the planning stage. For
    example, any subsidiary that was just material for the year ended 31 March 2007 may no longer be material to the group.
    This assessment will identify, for example:
    – those entities requiring an audit visit; and
    – those entities for which substantive analytical procedures may suffice.
    As Di Rollo’s assets are material to the group Ross should plan to inspect the South American operations. The visit may
    include a meeting with Di Rollo’s previous auditors to discuss any problems that might affect the balances at acquisition and
    a review of the prior year audit working papers, with their permission.
    Di Rollo was acquired two months into the financial year therefore its post-acquisition results should be expected to be
    material to the consolidated income statement.
    Goodwill acquired
    The assets and liabilities of Di Rollo at 31 March 2008 will be combined on a line-by-line basis into the consolidated financial
    statements of Murray and goodwill arising on acquisition recognised.
    Audit work on the fair value of the Di Rollo brand name at acquisition, $600,000, may include a review of a brand valuation
    specialist’s working papers and an assessment of the reasonableness of assumptions made.
    Significant items of plant are likely to have been independently valued prior to the acquisition. It may be appropriate to plan
    to place reliance on the work of expert valuers. The fair value adjustment on plant and equipment is very high (441% of
    carrying amount at the date of acquisition). This may suggest that Di Rollo’s depreciation policies are over-prudent (e.g. if
    accelerated depreciation allowed for tax purposes is accounted for under local GAAP).
    As the amount of goodwill is very material (approximately 50% of the cash consideration) it may be overstated if Murray has
    failed to recognise any assets acquired in the purchase of Di Rollo in accordance with IFRS 3 Business Combinations. For
    example, Murray may have acquired intangible assets such as customer lists or franchises that should be recognised
    separately from goodwill and amortised (rather than tested for impairment).
    Subsequent impairment
    The audit plan should draw attention to the need to consider whether the Di Rollo brand name and goodwill arising have
    suffered impairment as a result of the allegations against Di Rollo’s former chief executive.
    Liabilities
    Proceedings in the legal claim made by Di Rollo’s former chief executive will need to be reviewed. If the case is not resolved
    at 31 March 2008, a contingent liability may require disclosure in the consolidated financial statements, depending on the
    materiality of amounts involved. Legal opinion on the likelihood of Di Rollo successfully defending the claim may be sought.
    Provision should be made for any actual liabilities, such as legal fees.
    Group (related party) transactions and balances
    A list of all the companies in the group (including any associates) should be included in group audit instructions to ensure
    that intra-group transactions and balances (and any unrealised profits and losses on transactions with associates) are
    identified for elimination on consolidation. Any transfer pricing policies (e.g. for clothes manufactured by Di Rollo for Murray
    and sales of Di Rollo’s accessories to Murray’s retail stores) must be ascertained and any provisions for unrealised profit
    eliminated on consolidation.
    It should be confirmed at the planning stage that inter-company transactions are identified as such in the accounting systems
    of all companies and that inter-company balances are regularly reconciled. (Problems are likely to arise if new inter-company
    balances are not identified/reconciled. In particular, exchange differences are to be expected.)
    Other auditors
    If Ross plans to use the work of other auditors in South America (rather than send its own staff to undertake the audit of Di
    Rollo), group instructions will need to be sent containing:
    – proforma statements;
    – a list of group and associated companies;
    – a statement of group accounting policies (see below);
    – the timetable for the preparation of the group accounts (see below);
    – a request for copies of management letters;
    – an audit work summary questionnaire or checklist;
    – contact details (of senior members of Ross’s audit team).
    Accounting policies
    Di Rollo may have material accounting policies which do not comply with the rest of the Murray group. As auditor to Di Rollo,
    Ross will be able to recalculate the effect of any non-compliance with a group accounting policy (that Murray’s management
    would be adjusting on consolidation).
    Timetable
    The timetable for the preparation of Murray’s consolidated financial statements should be agreed with management as soon
    as possible. Key dates should be planned for:
    – agreement of inter-company balances and transactions;
    – submission of proforma statements;
    – completion of the consolidation package;
    – tax review of group accounts;
    – completion of audit fieldwork by other auditors;
    – subsequent events review;
    – final clearance on accounts of subsidiaries;
    – Ross’s final clearance of consolidated financial statements.
    Tutorial note: The order of dates is illustrative rather than prescriptive.

  • 第13题:

    Required:

    (iii) A firm of consultants has offered to undertake a study on behalf of Envico Ltd which will provide perfect

    information regarding seminar attendance during the forthcoming year.

    Advise the management of Envico Ltd with regard to the maximum amount that they should pay to

    consultants for perfect information regarding seminar attendance and comment briefly on the use of

    perfect information in such decisions. (5 marks)


    正确答案:
    (iii) If attendance = 100 then management would opt for room size A which would produce a contribution of £832,000 x
    0·2 = £166,400.
    If attendance = 200 then management would opt for room size B which would produce a contribution of £2,163,200
    x 0·5 = £1,081,600.
    If attendance = 400 then management would opt for room size D which would produce a contribution of £6,656,000
    x 0·3 = £1,996,800.
    Therefore the expected value of perfect information would be the sum of the expected values of the three possible
    outcomes which amounts to £3,244,800. Thus, if the information is correct then management should be willing to pay
    up to £3,244,800 – £1,497,600 = £1,747,200 for the information. In practice, it is unlikely that perfect information
    is obtainable. The management of Envico Ltd are really buying an information system that will provide them with a signal
    which may prove to be correct or incorrect! For example, the consultants may predict that demand will be for 300
    seminar places, however there still remains the fact that there is a likelihood of actual demand being for either 100,
    200 or 400 seminar places. One should be mindful that imperfect information which may be, say only 75% reliable,
    might still be worth obtaining. Other than when the value of imperfect and perfect information are equal to zero, the
    value of perfect information will always be greater than the value of imperfect information.

  • 第14题:

    (ii) Comment briefly on the use of its own tree plantations as a source of raw materials by Our Timbers Ltd.

    (3 marks)


    正确答案:
    (ii) The use of its own tree plantations as a source of raw materials not only ensures available supplies of timber but may
    also demonstrate that the directors of Our Timbers Ltd are mindful of the need for careful planning in the consumption
    of natural resources. This concern with the need to protect the environment will enhance the reputation of Our Timbers
    Ltd as an environmentally-conscious organisation which in turn may translate into a source of competitive advantage
    since contemporary thought is very much focused on the environmental responsibilities of organisations with particular
    regard to the use of natural resources such as timber.

  • 第15题:

    (b) The marketing director of CTC has suggested the introduction of a new toy ‘Nellie the Elephant’ for which the

    following estimated information is available:

    1. Sales volumes and selling prices per unit

    Year ending, 31 May 2009 2010 2011

    Sales units (000) 80 180 100

    Selling price per unit ($) 50 50 50

    2. Nellie will generate a contribution to sales ratio of 50% throughout the three year period.

    3. Product specific fixed overheads during the year ending 31 May 2009 are estimated to be $1·6 million. It

    is anticipated that these fixed overheads would decrease by 10% per annum during each of the years ending

    31 May 2010 and 31 May 2011.

    4. Capital investment amounting to $3·9 million would be required in June 2008. The investment would have

    no residual value at 31 May 2011.

    5. Additional working capital of $500,000 would be required in June 2008. A further $200,000 would be

    required on 31 May 2009. These amounts would be recovered in full at the end of the three year period.

    6. The cost of capital is expected to be 12% per annum.

    Assume all cash flows (other than where stated) arise at the end of the year.

    Required:

    (i) Determine whether the new product is viable purely on financial grounds. (4 marks)


    正确答案:

     

  • 第16题:

    (b) Donald actually decided to operate as a sole trader. The first year’s results of his business were not as he had

    hoped, and he made a trading loss of £8,000 in the year to 31 March 2007. However, trading is now improving,

    and Donald has sufficient orders to ensure that the business will make profits of at least £30,000 in the year to

    31 March 2008.

    In order to raise funds to support his business over the last 15 months, Donald has sold a painting which was

    given to him on the death of his grandmother in January 1998. The probate value of the painting was £3,200,

    and Donald sold it for £8,084 (after deduction of 6% commission costs) in November 2006.

    He also sold other assets in the year of assessment 2006/07, realising further chargeable gains of £8,775 (after

    indexation of £249 and taper relief of £975).

    Required:

    (i) Calculate the chargeable gain on the disposal of the painting in November 2006. (4 marks)


    正确答案:

     

  • 第17题:

    3 On 1 January 2007 Dovedale Ltd, a company with no subsidiaries, intends to purchase 65% of the ordinary share

    capital of Hira Ltd from Belgrove Ltd. Belgrove Ltd currently owns 100% of the share capital of Hira Ltd and has no

    other subsidiaries. All three companies have their head offices in the UK and are UK resident.

    Hira Ltd had trading losses brought forward, as at 1 April 2006, of £18,600 and no income or gains against which

    to offset losses in the year ended 31 March 2006. In the year ending 31 March 2007 the company expects to make

    further tax adjusted trading losses of £55,000 before deduction of capital allowances, and to have no other income

    or gains. The tax written down value of Hira Ltd’s plant and machinery as at 31 March 2006 was £96,000 and

    there will be no fixed asset additions or disposals in the year ending 31 March 2007. In the year ending 31 March

    2008 a small tax adjusted trading loss is anticipated. Hira Ltd will surrender the maximum possible trading losses

    to Belgrove Ltd and Dovedale Ltd.

    The tax adjusted trading profit of Dovedale Ltd for the year ending 31 March 2007 is expected to be £875,000 and

    to continue at this level in the future. The profits chargeable to corporation tax of Belgrove Ltd are expected to be

    £38,000 for the year ending 31 March 2007 and to increase in the future.

    On 1 February 2007 Dovedale Ltd will sell a small office building to Hira Ltd for its market value of £234,000.

    Dovedale Ltd purchased the building in March 2005 for £210,000. In October 2004 Dovedale Ltd sold a factory

    for £277,450 making a capital gain of £84,217. A claim was made to roll over the gain on the sale of the factory

    against the acquisition cost of the office building.

    On 1 April 2007 Dovedale Ltd intends to acquire the whole of the ordinary share capital of Atapo Inc, an unquoted

    company resident in the country of Morovia. Atapo Inc sells components to Dovedale Ltd as well as to other

    companies in Morovia and around the world.

    It is estimated that Atapo Inc will make a profit before tax of £160,000 in the year ending 31 March 2008 and will

    pay a dividend to Dovedale Ltd of £105,000. It can be assumed that Atapo Inc’s taxable profits are equal to its profit

    before tax. The rate of corporation tax in Morovia is 9%. There is a withholding tax of 3% on dividends paid to

    non-Morovian resident shareholders. There is no double tax agreement between the UK and Morovia.

    Required:

    (a) Advise Belgrove Ltd of any capital gains that may arise as a result of the sale of the shares in Hira Ltd. You

    are not required to calculate any capital gains in this part of the question. (4 marks)


    正确答案:
    (a) Capital gains that may arise on the sale by Belgrove Ltd of shares in Hira Ltd
    Belgrove Ltd will realise a capital gain on the sale of the shares unless the substantial shareholding exemption applies. The
    exemption will be given automatically provided all of the following conditions are satisfied.
    – Belgrove Ltd has owned at least 10% of Hira Ltd for a minimum of 12 months during the two years prior to the sale.
    – Belgrove Ltd is a trading company or a member of a trading group during that 12-month period and immediately after
    the sale.
    – Hira Ltd is a trading company or the holding company of a trading group during that 12-month period and immediately
    after the sale.
    Hira Ltd will no longer be in a capital gains group with Belgrove Ltd after the sale. Accordingly, a capital gain, known as a
    degrouping charge, may arise in Hira Ltd. A degrouping charge will arise if, at the time it leaves the Belgrove Ltd group, Hira
    Ltd owns any capital assets which were transferred to it at no gain, no loss within the previous six years by a member of the
    Belgrove Ltd capital gains group.

  • 第18题:

    (c) Calculate the expected corporation tax liability of Dovedale Ltd for the year ending 31 March 2007 on the

    assumption that all available reliefs are claimed by Dovedale Ltd but that Hira Ltd will not claim any capital

    allowances in that year. (4 marks)


    正确答案:

     

  • 第19题:

    (b) (i) Compute the corporation tax liability of Speak Write Ltd for its first trading period on the assumption

    that the IR 35 legislation applies to all of its income. (2 marks)


    正确答案:

     

  • 第20题:

    (ii) Any increase or decrease in the group’s budgeted corporation tax liability for the year ending 30 June

    2008 due to the restructuring on the assumption that trading losses will be used as efficiently as

    possible. (8 marks)


    正确答案:

    (ii) The budgeted corporation tax liability for the year ending 30 June 2008
    Following the proposed restructuring, Rapier Ltd will be carrying on four separate trades. The current year loss arising
    in the Dirk trade can be offset against its total profits. Its three subsidiaries will be dormant and will not be associates
    for the purpose of determining the rate of corporation tax.

  • 第21题:

    3 Palm plc recently acquired 100% of the ordinary share capital of Nikau Ltd from Facet Ltd. Palm plc intends to use

    Nikau Ltd to develop a new product range, under the name ‘Project Sabal’. Nikau Ltd owns shares in a non-UK

    resident company, Date Inc.

    The following information has been extracted from client files and from a meeting with the Finance Director of Palm

    plc.

    Palm plc:

    – Has more than 40 wholly owned subsidiaries such that all group companies pay corporation tax at 30%.

    – All group companies prepare accounts to 31 March.

    – Acquired Nikau Ltd on 1 November 2007 from Facet Ltd, an unrelated company.

    Nikau Ltd:

    – UK resident company that manufactures domestic electronic appliances for sale in the European Union (EU).

    – Large enterprise for the purposes of the enhanced relief available for research and development expenditure.

    – Trading losses brought forward as at 1 April 2007 of £195,700.

    – Budgeted taxable trading profit of £360,000 for the year ending 31 March 2008 before taking account of ‘Project

    Sabal’.

    – Dividend income of £38,200 will be received in the year ending 31 March 2008 in respect of the shares in Date

    Inc.

    ‘Project Sabal’:

    – Development of a range of electronic appliances, for sale in North America.

    – Project Sabal will represent a significant advance in the technology of domestic appliances.

    – Nikau Ltd will spend £70,000 on staffing costs and consumables researching and developing the necessary

    technology between now and 31 March 2008. Further costs will be incurred in the following year.

    – Sales to North America will commence in 2009 and are expected to generate significant profits from that year.

    Shares in Date Inc:

    – Nikau Ltd owns 35% of the ordinary share capital of Date Inc.

    – The shares were purchased from Facet Ltd on 1 June 2003 for their market value of £338,000.

    – The sale was a no gain, no loss transfer for the purposes of corporation tax.

    – Facet Ltd purchased the shares in Date Inc on 1 March 1994 for £137,000.

    Date Inc:

    – A controlled foreign company resident in the country of Palladia.

    – Annual chargeable profits arising out of property investment activities are approximately £120,000, of which

    approximately £115,000 is distributed to its shareholders each year.

    The tax system in Palladia:

    – No taxes on income or capital profits.

    – 4% withholding tax on dividends paid to shareholders resident outside Palladia.

    Required:

    (a) Prepare detailed explanatory notes, including relevant supporting calculations, on the effect of the following

    issues on the amount of corporation tax payable by Nikau Ltd for the year ending 31 March 2008.

    (i) The costs of developing ‘Project Sabal’ and the significant commercial changes to the company’s

    activities arising out of its implementation. (8 marks)


    正确答案:
    (a) Nikau Ltd – Effect on corporation tax payable for the year ending 31 March 2008
    (i) Project Sabal
    Research and development expenditure
    The expenditure incurred in respect of research and development will give rise to an enhanced deduction for the
    purposes of computing the taxable trading profits of Nikau Ltd. The enhanced deduction is 125% of the qualifying
    expenditure as Nikau Ltd is a large enterprise for this purpose.
    The expenditure will reduce the profits chargeable to corporation tax of Nikau Ltd by £87,500 (£70,000 x 1·25) and
    its corporation tax liability by £26,250 (£87,500 x 30%).
    The budgeted expenditure will qualify for the enhanced deduction because it appears to satisfy the following conditions.
    – It is likely to qualify as research and development expenditure within generally accepted accounting principles as
    it will result in new technical knowledge and the production of a substantially improved device for use in the
    industry.
    – It exceeds £10,000 in Nikau Ltd’s accounting period.
    – It relates to staff costs, consumable items or other qualifying expenditure as opposed to capital items.
    – It will result in further trading activities for Nikau Ltd.
    Use of brought forward trading losses
    The development of products for the North American market is likely to represent a major change in the nature and
    conduct of the trade of Nikau Ltd. This is because the company is developing new products and intends to sell them in
    a new market. It is a major change as sales to North America are expected to generate significant additional profits.
    Because this change will occur within three years of the change in the ownership of Nikau Ltd on 1 November 2007,
    any trading losses arising prior to that date cannot be carried forward beyond that date.
    Accordingly, the trading losses brought forward may only be offset against £158,958 ((£360,000 – £87,500) x 7/12)
    of the company’s trading profits for the year. The remainder of the trading losses £36,742 (£195,700 – £158,958) will
    be lost resulting in lost tax relief of £11,023 (£36,742 x 30%).
    Tutorial note
    The profits for the year ending 31 March 2008 will be apportioned to the periods pre and post 1 November 2007 on
    either a time basis or some other basis that is just and reasonable.

  • 第22题:

    (b) Calculate the amount of input tax that will be recovered by Vostok Ltd in respect of the new premises in the

    year ending 31 March 2009 and explain, using illustrative calculations, how any additional recoverable input

    tax will be calculated in future years. (5 marks)


    正确答案:
    (b) Recoverable input tax in respect of new premises
    Vostok Ltd will recover £47,880 (£446,500 x 7/47 x 72%) in the year ending 31 March 2009.
    The capital goods scheme will apply to the purchase of the building because it is to cost more than £250,000. Under the
    scheme, the total amount of input tax recovered reflects the use of the building over the period of ownership, up to a maximum
    of ten years, rather than merely the year of purchase.
    Further input tax will be recovered in future years as the percentage of exempt supplies falls. (If the percentage of exempt
    supplies were to rise, Vostok Ltd would have to repay input tax to HMRC.)
    The additional recoverable input tax will be computed by reference to the percentage of taxable supplies in each year including
    the year of sale. For example, if the percentage of taxable supplies in a particular subsequent year were to be 80%, the
    additional recoverable input tax would be computed as follows.
    £446,500 x 7/47 x 1/10 x (80% – 72%) = £532.
    Further input tax will be recovered in the year of sale as if Vostok Ltd’s supplies in the remaining years of the ten-year period
    are fully vatable. For example, if the building is sold in year seven, the additional recoverable amount for the remaining three
    years will be calculated as follows.
    £446,500 x 7/47 x 1/10 x (100% – 72%) x 3 = £5,586.

  • 第23题:

    (ii) Audit work on after-date bank transactions identified a transfer of cash from Batik Co. The audit senior has

    documented that the finance director explained that Batik commenced trading on 7 October 2005, after

    being set up as a wholly-owned foreign subsidiary of Jinack. No other evidence has been obtained.

    (4 marks)

    Required:

    Identify and comment on the implications of the above matters for the auditor’s report on the financial

    statements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending

    30 September 2006.

    NOTE: The mark allocation is shown against each of the matters.


    正确答案:
    (ii) Wholly-owned foreign subsidiary
    ■ The cash transfer is a non-adjusting post balance sheet event. It indicates that Batik was trading after the balance
    sheet date. However, that does not preclude Batik having commenced trading before the year end.
    ■ The finance director’s oral representation is wholly insufficient evidence with regard to the existence (or otherwise)
    of Batik at 30 September 2005. If it existed at the balance sheet date its financial statements should have been
    consolidated (unless immaterial).
    ■ The lack of evidence that might reasonably be expected to be available (e.g. legal papers, registration payments,
    etc) suggests a limitation on the scope of the audit.
    ■ If such evidence has been sought but not obtained then the limitation is imposed by the entity (rather than by
    circumstances).
    ■ Whilst the transaction itself may not be material, the information concerning the existence of Batik may be material
    to users and should therefore be disclosed (as a non-adjusting event). The absence of such disclosure, if the
    auditor considered necessary, would result in a qualified ‘except for’, opinion.
    Tutorial note: Any matter that is considered sufficiently material to be worthy of disclosure as a non-adjusting
    event must result in such a qualified opinion if the disclosure is not made.
    ■ If Batik existed at the balance sheet date and had material assets and liabilities then its non-consolidation would
    have a pervasive effect. This would warrant an adverse opinion.
    ■ Also, the nature of the limitation (being imposed by the entity) could have a pervasive effect if the auditor is
    suspicious that other audit evidence has been withheld. In this case the auditor should disclaim an opinion.