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6 Sergio and Gerard each inherited a half interest in a property, ‘Hilltop’, in October 2005. ‘Hilltop’ had a probate value
of ￡124,000, but in November 2005 it was badly damaged by fire. In January 2006 the insurance company made
a payment of ￡81,700 each to Sergio and Gerard. In February 2006 Sergio and Gerard each spent ￡55,500 of the
insurance proceeds on restoring the property. ‘Hilltop’ was worth ￡269,000 following the restoration work. In July
2006, Sergio and Gerard sold ‘Hilltop’ for ￡310,000.
Sergio is 69 years old and a widower with three adult children and seven grandchildren. His annual income consists
of a pension of ￡9,900 and interest of ￡300 on savings of ￡7,600 in a bank deposit account. Sergio owns his home
but no other significant assets. He plans to buy a domestic rental property with the proceeds from the sale of ‘Hilltop’,
such that on his death he will have a significant asset which can be sold and divided between the members of his
family.
Gerard is 34 years old. He is employed by Fizz plc on a salary of ￡66,500 per year together with a performance
related bonus. Gerard estimates that he will receive a bonus in December 2007 of ￡4,500, in line with previous
years, and that his taxable benefits in the tax year 2007/08 will amount to ￡7,140. He also expects to receive
dividends from UK companies of ￡1,935 and bank interest of ￡648 in the tax year 2007/08. Gerard intends to set
up a personal pension plan in August 2007. He has not made any pension contributions in the past and proposes to
use part of the proceeds from the sale of ‘Hilltop’ to make the maximum possible tax allowable contribution.
Fizz plc has announced that it intends to replace the performance related bonus scheme with a share incentive plan,
also linked to performance, with effect from 6 April 2008. Gerard estimates that Fizz plc will award him free shares
worth ￡2,100 each year. He will also purchase partnership shares worth ￡700 each year and, as a result, will be
awarded matching shares (further free shares) worth ￡1,400.
Required:
(a) Calculate the chargeable gains arising on the receipt of the insurance proceeds in January 2006 and the sale
of ‘Hilltop’ in July 2006. You should assume that any elections necessary to minimise the gain on the receipt
of the insurance proceeds have been submitted. (4 marks)
参考答案
更多 “ 6 Sergio and Gerard each inherited a half interest in a property, ‘Hilltop’, in October 2005. ‘Hilltop’ had a probate valueof ￡124,000, but in November 2005 it was badly damaged by fire. In January 2006 the insurance company madea payment of ￡81,700 each to Sergio and Gerard. In February 2006 Sergio and Gerard each spent ￡55,500 of theinsurance proceeds on restoring the property. ‘Hilltop’ was worth ￡269,000 following the restoration work. In July2006, Sergio and Gerard sold ‘Hilltop’ for ￡310,000.Sergio is 69 years old and a widower with three adult children and seven grandchildren. His annual income consistsof a pension of ￡9,900 and interest of ￡300 on savings of ￡7,600 in a bank deposit account. Sergio owns his homebut no other significant assets. He plans to buy a domestic rental property with the proceeds from the sale of ‘Hilltop’,such that on his death he will have a significant asset which can be sold and divided between the members of hisfamily.Gerard is 34 years old. He is employed by Fizz plc on a salary of ￡66,500 per year together with a performancerelated bonus. Gerard estimates that he will receive a bonus in December 2007 of ￡4,500, in line with previousyears, and that his taxable benefits in the tax year 2007/08 will amount to ￡7,140. He also expects to receivedividends from UK companies of ￡1,935 and bank interest of ￡648 in the tax year 2007/08. Gerard intends to setup a personal pension plan in August 2007. He has not made any pension contributions in the past and proposes touse part of the proceeds from the sale of ‘Hilltop’ to make the maximum possible tax allowable contribution.Fizz plc has announced that it intends to replace the performance related bonus scheme with a share incentive plan,also linked to performance, with effect from 6 April 2008. Gerard estimates that Fizz plc will award him free sharesworth ￡2,100 each year. He will also purchase partnership shares worth ￡700 each year and, as a result, will beawarded matching shares (further free shares) worth ￡1,400.Required:(a) Calculate the chargeable gains arising on the receipt of the insurance proceeds in January 2006 and the saleof ‘Hilltop’ in July 2006. You should assume that any elections necessary to minimise the gain on the receiptof the insurance proceeds have been submitted. (4 marks) ” 相关考题
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12 At 1 July 2004 a company had prepaid insurance of $8,200. On 1 January 2005 the company paid $38,000 forinsurance for the year to 30 September 2005.What figures should appear for insurance in the company’s financial statements for the year ended 30 June2005?Income statement Balance sheetA $27,200 Prepayment $19,000B $39,300 Prepayment $9,500C $36,700 Prepayment $9,500D $55,700 Prepayment $9,500
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(b) Explain how the non-payment of contributions and the change in the pension benefits should be treated inthe financial statements of Savage for the year ended 31 October 2005. (4 marks)
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Additionally the directors wish to know how the provision for deferred taxation would be calculated in the followingsituations under IAS12 ‘Income Taxes’:(i) On 1 November 2003, the company had granted ten million share options worth $40 million subject to a twoyear vesting period. Local tax law allows a tax deduction at the exercise date of the intrinsic value of the options.The intrinsic value of the ten million share options at 31 October 2004 was $16 million and at 31 October 2005was $46 million. The increase in the share price in the year to 31 October 2005 could not be foreseen at31 October 2004. The options were exercised at 31 October 2005. The directors are unsure how to accountfor deferred taxation on this transaction for the years ended 31 October 2004 and 31 October 2005.(ii) Panel is leasing plant under a finance lease over a five year period. The asset was recorded at the present valueof the minimum lease payments of $12 million at the inception of the lease which was 1 November 2004. Theasset is depreciated on a straight line basis over the five years and has no residual value. The annual leasepayments are $3 million payable in arrears on 31 October and the effective interest rate is 8% per annum. Thedirectors have not leased an asset under a finance lease before and are unsure as to its treatment for deferredtaxation. The company can claim a tax deduction for the annual rental payment as the finance lease does notqualify for tax relief.(iii) A wholly owned overseas subsidiary, Pins, a limited liability company, sold goods costing $7 million to Panel on1 September 2005, and these goods had not been sold by Panel before the year end. Panel had paid $9 millionfor these goods. The directors do not understand how this transaction should be dealt with in the financialstatements of the subsidiary and the group for taxation purposes. Pins pays tax locally at 30%.(iv) Nails, a limited liability company, is a wholly owned subsidiary of Panel, and is a cash generating unit in its ownright. The value of the property, plant and equipment of Nails at 31 October 2005 was $6 million and purchasedgoodwill was $1 million before any impairment loss. The company had no other assets or liabilities. Animpairment loss of $1·8 million had occurred at 31 October 2005. The tax base of the property, plant andequipment of Nails was $4 million as at 31 October 2005. The directors wish to know how the impairment losswill affect the deferred tax provision for the year. Impairment losses are not an allowable expense for taxationpurposes.Assume a tax rate of 30%.Required:(b) Discuss, with suitable computations, how the situations (i) to (iv) above will impact on the accounting fordeferred tax under IAS12 ‘Income Taxes’ in the group financial statements of Panel. (16 marks)(The situations in (i) to (iv) above carry equal marks)
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4 Ryder, a public limited company, is reviewing certain events which have occurred since its year end of 31 October2005. The financial statements were authorised on 12 December 2005. The following events are relevant to thefinancial statements for the year ended 31 October 2005:(i) Ryder has a good record of ordinary dividend payments and has adopted a recent strategy of increasing itsdividend per share annually. For the last three years the dividend per share has increased by 5% per annum.On 20 November 2005, the board of directors proposed a dividend of 10c per share for the year ended31 October 2005. The shareholders are expected to approve it at a meeting on 10 January 2006, and adividend amount of $20 million will be paid on 20 February 2006 having been provided for in the financialstatements at 31 October 2005. The directors feel that a provision should be made because a ‘valid expectation’has been created through the company’s dividend record. (3 marks)(ii) Ryder disposed of a wholly owned subsidiary, Krup, a public limited company, on 10 December 2005 and madea loss of $9 million on the transaction in the group financial statements. As at 31 October 2005, Ryder had nointention of selling the subsidiary which was material to the group. The directors of Ryder have stated that therewere no significant events which have occurred since 31 October 2005 which could have resulted in a reductionin the value of Krup. The carrying value of the net assets and purchased goodwill of Krup at 31 October 2005were $20 million and $12 million respectively. Krup had made a loss of $2 million in the period 1 November2005 to 10 December 2005. (5 marks)(iii) Ryder acquired a wholly owned subsidiary, Metalic, a public limited company, on 21 January 2004. Theconsideration payable in respect of the acquisition of Metalic was 2 million ordinary shares of $1 of Ryder plusa further 300,000 ordinary shares if the profit of Metalic exceeded $6 million for the year ended 31 October2005. The profit for the year of Metalic was $7 million and the ordinary shares were issued on 12 November2005. The annual profits of Metalic had averaged $7 million over the last few years and, therefore, Ryder hadincluded an estimate of the contingent consideration in the cost of the acquisition at 21 January 2004. The fairvalue used for the ordinary shares of Ryder at this date including the contingent consideration was $10 per share.The fair value of the ordinary shares on 12 November 2005 was $11 per share. Ryder also made a one for fourbonus issue on 13 November 2005 which was applicable to the contingent shares issued. The directors areunsure of the impact of the above on earnings per share and the accounting for the acquisition. (7 marks)(iv) The company acquired a property on 1 November 2004 which it intended to sell. The property was obtainedas a result of a default on a loan agreement by a third party and was valued at $20 million on that date foraccounting purposes which exactly offset the defaulted loan. The property is in a state of disrepair and Ryderintends to complete the repairs before it sells the property. The repairs were completed on 30 November 2005.The property was sold after costs for $27 million on 9 December 2005. The property was classified as ‘held forsale’ at the year end under IFRS5 ‘Non-current Assets Held for Sale and Discontinued Operations’ but shown atthe net sale proceeds of $27 million. Property is depreciated at 5% per annum on the straight-line basis and nodepreciation has been charged in the year. (5 marks)(v) The company granted share appreciation rights (SARs) to its employees on 1 November 2003 based on tenmillion shares. The SARs provide employees at the date the rights are exercised with the right to receive cashequal to the appreciation in the company’s share price since the grant date. The rights vested on 31 October2005 and payment was made on schedule on 1 December 2005. The fair value of the SARs per share at31 October 2004 was $6, at 31 October 2005 was $8 and at 1 December 2005 was $9. The company hasrecognised a liability for the SARs as at 31 October 2004 based upon IFRS2 ‘Share-based Payment’ but theliability was stated at the same amount at 31 October 2005. (5 marks)Required:Discuss the accounting treatment of the above events in the financial statements of the Ryder Group for the yearended 31 October 2005, taking into account the implications of events occurring after the balance sheet date.(The mark allocations are set out after each paragraph above.)(25 marks)
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(b) Ambush loaned $200,000 to Bromwich on 1 December 2003. The effective and stated interest rate for thisloan was 8 per cent. Interest is payable by Bromwich at the end of each year and the loan is repayable on30 November 2007. At 30 November 2005, the directors of Ambush have heard that Bromwich is in financialdifficulties and is undergoing a financial reorganisation. The directors feel that it is likely that they will onlyreceive $100,000 on 30 November 2007 and no future interest payment. Interest for the year ended30 November 2005 had been received. The financial year end of Ambush is 30 November 2005.Required:(i) Outline the requirements of IAS 39 as regards the impairment of financial assets. (6 marks)
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(b) Misson has purchased goods from a foreign supplier for 8 million euros on 31 July 2006. At 31 October 2006,the trade payable was still outstanding and the goods were still held by Misson. Similarly Misson has sold goodsto a foreign customer for 4 million euros on 31 July 2006 and it received payment for the goods in euros on31 October 2006. Additionally Misson had purchased an investment property on 1 November 2005 for28 million euros. At 31 October 2006, the investment property had a fair value of 24 million euros. The companyuses the fair value model in accounting for investment properties.Misson would like advice on how to treat these transactions in the financial statements for the year ended 31October 2006. (7 marks)Required:Discuss the accounting treatment of the above transactions in accordance with the advice required by thedirectors.(Candidates should show detailed workings as well as a discussion of the accounting treatment used.)
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(ii) The property of the former administrative centre of Tyre is owned by the company. Tyre had decided in the yearthat the property was surplus to requirements and demolished the building on 10 June 2006. After demolition,the company will have to carry out remedial environmental work, which is a legal requirement resulting from thedemolition. It was intended that the land would be sold after the remedial work had been carried out. However,land prices are currently increasing in value and, therefore, the company has decided that it will not sell the landimmediately. Tyres uses the ‘cost model’ in IAS16 ‘Property, plant and equipment’ and has owned the propertyfor many years. (7 marks)Required:Advise the directors of Tyre on how to treat the above items in the financial statements for the year ended31 May 2006.(The mark allocation is shown against each of the above items)
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2 The draft financial statements of Rampion, a limited liability company, for the year ended 31 December 2005included the following figures:$Profit 684,000Closing inventory 116,800Trade receivables 248,000Allowance for receivables 10,000No adjustments have yet been made for the following matters:(1) The company’s inventory count was carried out on 3 January 2006 leading to the figure shown above. Salesbetween the close of business on 31 December 2005 and the inventory count totalled $36,000. There were nodeliveries from suppliers in that period. The company fixes selling prices to produce a 40% gross profit on sales.The $36,000 sales were included in the sales records in January 2006.(2) $10,000 of goods supplied on sale or return terms in December 2005 have been included as sales andreceivables. They had cost $6,000. On 10 January 2006 the customer returned the goods in good condition.(3) Goods included in inventory at cost $18,000 were sold in January 2006 for $13,500. Selling expenses were$500.(4) $8,000 of trade receivables are to be written off.(5) The allowance for receivables is to be adjusted to the equivalent of 5% of the trade receivables after allowing forthe above matters, based on past experience.Required:(a) Prepare a statement showing the effect of the adjustments on the company’s net profit for the year ended31 December 2005. (5 marks)
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2 Graeme, aged 57, is married to Catherine, aged 58. They work as medical consultants, and both are higher ratetaxpayers. Barry, their son, is aged 32. Graeme, Catherine and Barry are all UK resident, ordinarily resident anddomiciled. Graeme has come to you for some tax advice.Graeme has invested in shares for some time, in particular shares in Thistle Dubh Limited. He informs you of thefollowing transactions in Thistle Dubh Limited shares:(i) In December 1986, on the death of his grandmother, he inherited 10,000 ￡1 ordinary shares in Thistle DubhLimited, an unquoted UK trading company providing food supplies for sporting events. The probate value of theshares was 360p per share.(ii) In March 1992, he took up a rights issue, buying one share for every two held. The price paid for the rightsshares was ￡10 per share.(iii) In October 1999, the company underwent a reorganisation, and the ordinary shares were split into two newclasses of ordinary share – ‘T’ shares and ‘D’ shares, each with differing rights. Graeme received two ‘T’ and three‘D’ shares for each original Thistle Dubh Limited share held. The market values for the ‘T’ shares and the ‘D’shares on the date of reorganisation were 135p and 405p per share respectively.(iv) On 1 May 2005, Graeme sold 12,000 ‘T’ shares. The market values for the ‘T’ shares and the ‘D’ shares on thatday were 300p and 600p per share respectively.(v) In October 2005, Graeme sold all of his ‘D’ shares for ￡85,000.(vi) The current market value of ‘T’ shares is 384p per share. The shares remain unquoted.Graeme and Catherine have owned a holiday cottage in a remote part of the UK for many years. In recent years, theyhave used the property infrequently, as they have taken their holidays abroad and the cottage has been let out asfurnished holiday accommodation.Graeme and Catherine are now considering selling the UK country cottage and purchasing a holiday villa abroad.Initially they plan to let this villa out on a furnished basis, but following their anticipated retirement, would expect tooccupy the property for a significant part of the year themselves, possibly moving to live in the villa permanently.Required:(a) Calculate the total chargeable gains arising on Graeme’s disposals of ‘T’ and ‘D’ ordinary shares in May andOctober 2005 respectively. (7 marks)
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4 Assume today’s date is 5 February 2006.Joanne is 37, she was born and until 2005 had lived all her life in Germany. She recently married Fraser, aged 38,who is a UK resident, but who worked briefly in Germany. They have no children.The couple moved to the UK to live permanently on 9 October 2005. Joanne was employed by an American companyin Germany, and she continued to work for them in the UK until the end of November 2005. Her earnings from theAmerican company were ￡5,000 per month. Joanne has not remitted any of the income she earned in Germany priorto her arrival in the UK.Joanne resigned from her job at the end of November 2005. The company did not hold her to the three months noticestipulated in her contract, but still paid her for that period. In total, Joanne paid ￡4,200 in UK income tax under PAYEfor the tax tear 2005/06.Joanne also wishes to sell the shares she holds in a German listed company. The shareholding cost the equivalent of￡3,500 in September 1986, and its current value is ￡21,500. She intends to sell the shares in March 2006 and toinvest the proceeds from the sale in the UK. Joanne has made no other capital disposals in the year.Prior to her leaving employment, Joanne investigated the possibility of starting her own business providing a Germantranslation service for UK companies, and took some advice on the matter. She paid consultancy fees of ￡5,000(excluding value added tax (VAT)) and bought a computer for ￡2,000 (excluding VAT), both on 23 October 2005.Joanne started trading on 1 December 2005. She made sales of ￡2,000 in December, and estimates that her saleswill rise by ￡1,000 every month to a maximum of ￡7,000 per month. Joanne believes that her monthly expenses of￡400 (excluding VAT) will remain constant. Her year end will be 31 March, and the first accounts will be drawn upto 31 March 2006.Although Joanne has registered her business for tax purposes with the Revenue, she has not registered for VAT andis unsure what is required of her in this respect.Required:(a) State, giving reasons, whether Joanne will be treated as resident or non-resident in the UK for the year ofassessment 2005/06, together with the basis on which her income and gains of that year will be subject toUK taxation. (3 marks)
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For this part, assume today’s date is 15 August 2005.5 (a) Donald is aged 22, single, and about to finish his university education. He has plans to start up a business sellingcomputer games, and intends to start trading on 1 April 2006, making up accounts to 31 March annually.He believes that his business will generate cash (equal to taxable profits) of ￡47,500 in the first year. Heoriginally intended to operate as a sole trader, but he has recently discovered that as an alternative, he couldoperate through a company. He has been advised that if this is the case, he can take a maximum gross salaryof ￡42,648 out of the company.Required:(i) Advise Donald on the income tax (IT), national insurance (NIC) and corporation tax (CT) liabilities hewill incur for the year ended 31 March 2007 trading under each of the two alternative businessstructures (sole trade/company). Your advice should be supported by calculations of disposable incomefor both alternatives assuming that in the company case, he draws the maximum salary stated.(7 marks)
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(b) Donald actually decided to operate as a sole trader. The first year’s results of his business were not as he hadhoped, 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 to31 March 2008.In order to raise funds to support his business over the last 15 months, Donald has sold a painting which wasgiven 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 (afterindexation of ￡249 and taper relief of ￡975).Required:(i) Calculate the chargeable gain on the disposal of the painting in November 2006. (4 marks)
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6 Alasdair, aged 42, is single. He is considering investing in property, as he has heard that this represents a goodinvestment. In order to raise the funds to buy the property, he wants to extract cash from his personal company, BeezerLimited, whose year end is 31 December.Beezer Limited was formed on 1 May 1998 with ￡1,000 of capital issued as 1,000 ￡1 ordinary shares, and tradeduntil 1 January 2005 when Alasdair sold the trade and related assets. The company’s only asset is cash of￡120,000. Alasdair wants to extract this cash from the company with the minimum amount of tax payable. He isconsidering either, paying himself a dividend of ￡120,000, on 31 March 2006, after which the company would haveno assets and be wound up or, leaving the cash in the company and then liquidating the company. Costs of liquidationof ￡5,000 would then be incurred.Since Beezer Limited ceased trading, Alasdair has been taken on as a partner at a marketing firm, Gallus Co. Heestimates his profit share for the year of assessment 2005/06 will be ￡30,000. He has not made any capital disposalsin the current tax year.Alasdair wishes to reinvest the cash extracted from Beezer Limited in property but is not sure whether he should investdirectly in residential or commercial property, or do so via some form. of collective investment. He is aware that Gallus Co are looking to rent a new warehouse which could be bought for ￡200,000. Alasdair thinks that he may be ableto buy the warehouse himself and lease it to his firm, but only if he can borrow the additional money to buy theproperty.Alasdair has a 25% shareholding in another company, Glaikit Limited, whose year end is 31 March. The remainingshares in this company are held by his friend, Gill. Alasdair is considering borrowing ￡15,000 from Glaikit Limitedon 1 January 2006. He does not intend to pay any interest on the loan, which is likely to be written off some timein 2007. Alasdair does not have any connection with Glaikit Limited other than his shareholding.Required:(a) Advise Alasdair whether or not a dividend payment will result in a higher after-tax cash sum than theliquidation of Beezer Limited. Assume that either the dividend would be paid on 31 March 2006 or theliquidation would take place on 31 March 2006. (9 marks)Assume that Beezer Limited has always paid corporation tax at or above the small companies rate of 19%and that the tax rates and allowances for 2004/05 apply throughout this part.
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3 Assume that today’s date is 10 May 2005.You have recently been approached by Fred Flop. Fred is the managing director and 100% shareholder of FlopLimited, a UK trading company with one wholly owned subsidiary. Both companies have a 31 March year-end.Fred informs you that he is experiencing problems in dealing with aspects of his company tax returns. The companyaccountant has been unable to keep up to date with matters, and Fred also believes that mistakes have been madein the past. Fred needs assistance and tells you the following:Year ended 31 March 2003The corporation tax return for this period was not submitted until 2 November 2004, and corporation tax of ￡123,500was paid at the same time. Profits chargeable to corporation tax were stated as ￡704,300.A formal notice (CT203) requiring the company to file a self-assessment corporation tax return (dated 1 February2004) had been received by the company on 4 February 2004.A detailed examination of the accounts and tax computation has revealed the following.– Computer equipment totalling ￡50,000 had been expensed in the accounts. No adjustment has been made inthe tax computation.– A provision of ￡10,000 was made for repairs, but there is no evidence of supporting information.– Legal and professional fees totalling ￡46,500 were allowed in full without any explanation. Fred hassubsequently produced the following analysis:Analysis of legal professional fees￡Legal fees on a failed attempt to secure a trading loan 15,000Debt collection agency fees 12,800Obtaining planning consent for building extension 15,700Accountant’s fees for preparing accounts 14,000Legal fees relating to a trade dispute 19,000– No enquiry has yet been raised by the Inland Revenue.– Flop Ltd was a large company in terms of the Companies Act definition for the year in question.– Flop Ltd had taxable profits of ￡595,000 in the previous year.Year ended 31 March 2004The corporation tax return has not yet been submitted for this year. The accounts are late and nearing completion,with only one change still to be made. A notice requiring the company to file a self-assessment corporation tax return(CT203) dated 27 July 2004 was received on 1 August 2004. No corporation tax has yet been paid.1 – The computation currently shows profits chargeable to corporation tax of ￡815,000 before accountingadjustments, and any adjustments for prior years.– A company owing Flop Ltd ￡50,000 (excluding VAT) has gone into liquidation, and it is unlikely that any of thismoney will be paid. The money has been outstanding since 3 September 2003, and the bad debt will need tobe included in the accounts.1 Fred also believes there are problems in relation to the company’s VAT administration. The VAT return for the quarterended 31 March 2005 was submitted on 5 May 2005, and VAT of ￡24,000 was paid at the same time. The previousreturn to 31 December 2004 was also submitted late. In addition, no account has been made for the VAT on the baddebt. The VAT return for 30 June 2005 may also be late. Fred estimates the VAT liability for that quarter to be ￡8,250.Required:(a) (i) Calculate the revised corporation tax (CT) payable for the accounting periods ending 31 March 2003and 2004 respectively. Your answer should include an explanation of the adjustments made as a resultof the information which has now come to light. (7 marks)(ii) State, giving reasons, the due payment date of the corporation tax (CT) and the filing date of thecorporation tax return for each period, and identify any interest and penalties which may have arisen todate. (8 marks)
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2 Benny Korere has been employed as the sales director of Golden Tan plc since 1994. He earns an annual salary of￡32,000 and is provided with a petrol-driven company car which has a CO2 emission rate of 187g/km and had alist price when new of ￡22,360. In August 2003, when he was first provided with the car, Benny paid the company￡6,100 towards the capital cost of the car. Golden Tan plc does not pay for any of Benny’s private petrol and he isalso required to pay his employer ￡18 per month as a condition of being able to use the car for private purposes.On 1 December 2006 Golden Tan plc notified Benny that he would be made redundant on 28 February 2007. Onthat day the company will pay him his final month’s salary together with a payment of ￡8,000 in lieu of the threeremaining months of his six-month notice period in accordance with his employment contract. In addition thecompany will pay him ￡17,500 in return for agreeing not to work for any of its competitors for the six-month periodending 31 August 2007.On receiving notification of his redundancy, Benny immediately contacted Joe Egmont, the managing director ofSummer Glow plc, who offered him a senior management position leading the company’s expansion into EasternEurope. Summer Glow plc is one of Golden Tan plc’s competitors and one of the most innovative companies in theindustry, although not all of its strategies have been successful.Benny has agreed to join Summer Glow plc on 1 September 2007 for an annual salary of ￡39,000. On the day hejoins the company, Summer Glow plc will grant him an option to purchase 10,000 ordinary shares in the companyfor ￡2·20 per share under an unapproved share option scheme. Benny can exercise the option once he has beenemployed for six months but must hold the shares for at least a year before he sells them.The new job will require Benny to spend a considerable amount of time in London. Summer Glow plc has offeredBenny the exclusive use of a flat that the company purchased on 1 June 2003 for ￡165,000; the flat is currentlyrented out. The flat will be made available from 1 September 2007. The company will pay all of the utility billsrelating to the flat as well as furnishing and maintaining it. Summer Glow plc has also suggested that if Benny wouldrather live in a more central part of the city, the company could sell the existing flat and buy a more centrally locatedone, of the same value, with the proceeds.On 15 March 2007 Benny intends to sell 5,800 shares in Mahana plc, a quoted company, for ￡24,608. Histransactions in the company’s shares have been as follows:￡June 1988 Purchased 8,400 shares 6,744February 1996 Sale of rights nil paid 610January 2005 Purchased 1,300 shares 2,281The sale of rights, nil paid, was not treated as a part disposal of Benny’s holding in Mahana plc.Benny’s shareholding in Mahana plc represents less than 1% of the company’s issued ordinary share capital. He willnot make any other capital disposals in 2006/07.In addition to his employment income, Benny receives rental income of ￡4,000 (net of deductible expenses) eachyear. He normally submits his tax return in August but he has not yet prepared his return for 2005/06. He expectsto be very busy in December and January and is planning to prepare his tax return in late February 2007.Required:(a) Calculate Benny’s employment income for 2006/07. (4 marks)
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3 On 1 January 2007 Dovedale Ltd, a company with no subsidiaries, intends to purchase 65% of the ordinary sharecapital of Hira Ltd from Belgrove Ltd. Belgrove Ltd currently owns 100% of the share capital of Hira Ltd and has noother 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 whichto offset losses in the year ended 31 March 2006. In the year ending 31 March 2007 the company expects to makefurther tax adjusted trading losses of ￡55,000 before deduction of capital allowances, and to have no other incomeor gains. The tax written down value of Hira Ltd’s plant and machinery as at 31 March 2006 was ￡96,000 andthere will be no fixed asset additions or disposals in the year ending 31 March 2007. In the year ending 31 March2008 a small tax adjusted trading loss is anticipated. Hira Ltd will surrender the maximum possible trading lossesto 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 andto 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 factoryfor ￡277,450 making a capital gain of ￡84,217. A claim was made to roll over the gain on the sale of the factoryagainst 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 unquotedcompany resident in the country of Morovia. Atapo Inc sells components to Dovedale Ltd as well as to othercompanies 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 willpay a dividend to Dovedale Ltd of ￡105,000. It can be assumed that Atapo Inc’s taxable profits are equal to its profitbefore tax. The rate of corporation tax in Morovia is 9%. There is a withholding tax of 3% on dividends paid tonon-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. Youare not required to calculate any capital gains in this part of the question. (4 marks)
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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 companythat 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 accumulateda large cash balance of ￡180,000, which is to be used to purchase a new factory. However, Bill and Ben havereceived an offer from a rival company, which they are considering. The offer provides Bill and Ben with twoalternative 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 offerterms 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 March2006 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 youranswer. (5 marks)
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6 Andrew is aged 38 and is single. He is employed as a consultant by Bestadvice Co and pays income tax at thehigher rate.Andrew is considering investing in a new business, and to provide funds for this investment he has recently disposedof the following assets:(1) A short leasehold interest in a residential property. Andrew originally paid ￡50,000 for a 47 year lease of theproperty in May 1995, and assigned the lease in May 2006 for ￡90,000.(2) His holding of ￡10,000 7% Government Stock, on which interest is payable half-yearly on 20 April and20 October. Andrew originally purchased this holding on 1 June 1999 for ￡9,980 and he sold it for ￡11,250on 14 March 2005.Andrew intends to subscribe for ordinary shares in a new company, Scalar Limited, which will be a UK basedmanufacturing company. Three investors (including Andrew) have been identified, but a fourth investor may also beinvited to subscribe for shares. The investors are all unconnected, and would subscribe for shares in equal measure.The intention is to raise ￡450,000 in this manner. The company will also raise a further ￡50,000 from the investorsin the form. of loans. Andrew has been told that he can take advantage of some tax reliefs on his investment in ScalarLimited, but does not know anything about the details of these reliefsAndrew’s employer, Bestadvice Co, is proposing to change the staff pension scheme from a defined benefit schemeto which the firm and the employees each contribute 6% of their annual salary, to a defined contribution scheme, towhich the employees will continue to contribute 6%, but the firm will contribute 8% of their annual salary. Themajority of Andrew’s colleagues are opposed to this move, but, given the increase in the firm’s contribution rateAndrew himself is less sure that the proposal is without merit.Required:(a) (i) Calculate the chargeable gain arising on the assignment of the residential property lease in May 2006.(2 marks)
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1 Alvaro Pelorus is 47 years old and married to Maria. The couple have two children, Vito and Sophie, aged 22 and19 years respectively. Alvaro and Maria have lived in the country of Koruba since 1982. On 1 July 2005 the familymoved to the UK to be near Alvaro’s father, Ray, who was very ill. Alvaro and Maria are UK resident, but not ordinarilyresident in the tax years 2005/06 and 2006/07. They are both domiciled in the country of Koruba.On 1 February 2007 Ray Pelorus died. He was UK domiciled, having lived in the UK for the whole of his life. For thepurposes of inheritance tax, his death estate consisted of UK assets, valued at ￡870,000 after deduction of allavailable reliefs, and a house in the country of Pacifica valued at ￡94,000. The executors of Ray’s estate have paidPacifican inheritance tax of ￡1,800 and legal fees of ￡7,700 in respect of the sale of the Pacifican house. Ray leftthe whole of his estate to Alvaro.Ray had made two gifts during his lifetime:(i) 1 May 2003: He gave Alvaro 95 acres of farm land situated in the UK. The market value of the land was￡245,000, although its agricultural value was only ￡120,000. Ray had acquired the land on1 January 1996 and granted an agricultural tenancy on that date. Alvaro continues to own theland as at today’s date and it is still subject to the agricultural tenancy.(ii) 1 August 2005: He gave Alvaro 6,000 shares valued at ￡183,000 in Pinger Ltd, a UK resident tradingcompany. Gift relief was claimed in respect of this gift. Ray had acquired 14,000 shares inPinger Ltd on 1 April 1997 for ￡54,600.You may assume that Alvaro is a higher rate taxpayer for the tax years 2005/06 and 2006/07. In 2006/07 he madethe following disposals of assets:(i) On 1 July 2006 he sold the 6,000 shares in Pinger Ltd for ￡228,000.(ii) On 1 September 2006 he sold 2,350 shares in Lapis Inc, a company resident in Koruba, for ￡8,270. Alvarohad purchased 5,500 shares in the company on 1 September 2002 for ￡25,950.(iii) On 1 December 2006 he transferred shares with a market value of ￡74,000 in Quad plc, a UK quoted company,to a UK resident discretionary trust for the benefit of Vito and Sophie. Alvaro had purchased these shares on1 January 2006 for ￡59,500.Alvaro has not made any other transfers of value for the purposes of UK inheritance tax. He owns the family housein the UK as well as shares in UK and Koruban companies and commercial rental property in the country of Koruba.Maria has not made any transfers of value for the purposes of UK inheritance tax. Her only significant asset is thefamily home in the country of Koruba.Alvaro and his family expect to return to their home in the country of Koruba in October 2007 once Ray’s affairs havebeen settled. There is no double taxation agreement between the UK and Koruba.Required:(a) Calculate the inheritance tax (IHT) payable as a result of the death of Ray Pelorus. Explain the availabilityor otherwise of agricultural property relief and business property relief on the two lifetime gifts made by Ray.(8 marks)
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2 Clifford and Amanda, currently aged 54 and 45 respectively, were married on 1 February 1998. Clifford is a higherrate taxpayer who has realised taxable capital gains in 2007/08 in excess of his capital gains tax annual exemption.Clifford moved into Amanda’s house in London on the day they were married. Clifford’s own house in Oxford, wherehe had lived since acquiring it for ￡129,400 on 1 August 1996, has been empty since that date although he andAmanda have used it when visiting friends. Clifford has been offered ￡284,950 for the Oxford house and has decidedthat it is time to sell it. The house has a large garden such that Clifford is also considering an offer for the house anda part only of the garden. He would then sell the remainder of the garden at a later date as a building plot. His totalsales proceeds will be higher if he sells the property in this way.Amanda received the following income from quoted investments in 2006/07:￡Dividends in respect of quoted trading company shares 1,395Dividends paid by a Real Estate Investment Trust out of tax exempt property income 485On 1 May 2006, Amanda was granted a 22 year lease of a commercial investment property. She paid the landlorda premium of ￡6,900 and also pays rent of ￡2,100 per month. On 1 June 2006 Amanda granted a nine yearsub-lease of the property. She received a premium of ￡14,700 and receives rent of ￡2,100 per month.On 1 September 2006 Amanda gave quoted shares with a value of ￡2,200 to a registered charity. She paid broker’sfees of ￡115 in respect of the gift.Amanda began working for Shearer plc, a quoted company, on 1 June 2006 having had a two year break from hercareer. She earns an annual salary of ￡38,600 and was paid a bonus of ￡5,750 in August 2006 for agreeing tocome and work for the company. On 1 August 2006 Amanda was provided with a fully expensed company car,including the provision of private petrol, which had a list price when new of ￡23,400 and a CO2 emissions rate of187 grams per kilometre. Amanda is required to pay Shearer plc ￡22 per month in respect of the private use of thecar. In June and July 2006 Amanda used her own car whilst on company business. She drove 720 business milesduring this two month period and was paid 34 pence per mile. Amanda had PAYE of ￡6,785 deducted from her grosssalary in the tax year 2006/07.After working for Shearer plc for a full year, Amanda becomes entitled to the following additional benefits:– The opportunity to purchase a large number of shares in Shearer plc on 1 July 2007 for ￡3·30 per share. It isanticipated that the share price on that day will be at least ￡7·50 per share. The company will make an interestfreeloan to Amanda equal to the cost of the shares to be repaid in two years.– Exclusive free use of the company sailing boat for one week in August 2007. The sailing boat was purchased byShearer plc in January 2005 for use by its senior employees and costs the company ￡1,400 a week in respectof its crew and other running expenses.Required:(a) (i) Calculate Clifford’s capital gains tax liability for the tax year 2007/08 on the assumption that the Oxfordhouse together with its entire garden is sold on 31 July 2007 for ￡284,950. Comment on the relevanceto your calculations of the size of the garden; (5 marks)
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(b) The directors of Carver Ltd are aware that some of the company’s shareholders want to realise the value in theirshares immediately. Accordingly, instead of investing in the office building or the share portfolio they areconsidering two alternative strategies whereby, following the sale of the company’s business, a payment will bemade to the company’s shareholders.(i) Liquidate the company. The payment by the liquidator would be ￡126 per share.(ii) The payment of a dividend of ￡125 per share following which a liquidator will be appointed. The paymentby the liquidator to the shareholders would then be ￡1 per share.The company originally issued 20,000 ￡1 ordinary shares at par value to 19 members of the Cutler family.Following a number of gifts and inheritances there are now 41 shareholders, all of whom are family members.The directors have asked you to attend a meeting to set out the tax implications of these two alternative strategiesfor each of the two main groups of shareholders: adults with shareholdings of more than 500 shares and childrenwith shareholdings of 200 shares or less.Required:Prepare notes explaining:– the amount chargeable to tax; and– the rates of tax that will applyin respect of each of the two strategies for each of the two groups of shareholders ready for your meetingwith the directors of Carver Ltd. You should assume that none of the shareholders will have any capitallosses either in the tax year 2007/08 or brought forward as at 5 April 2007. (10 marks)Note:You should assume that the rates and allowances for the tax year 2006/07 will continue to apply for theforeseeable future.
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5 Crusoe has contacted you following the death of his father, Noland. Crusoe has inherited the whole of his father’sestate and is seeking advice on his father’s capital gains tax position and the payment of inheritance tax following hisdeath.The following information has been extracted from client files and from telephone conversations with Crusoe.Noland – personal information:– Divorcee whose only other relatives are his sister, Avril, and two grandchildren.– Died suddenly on 1 October 2007 without having made a will.– Under the laws of intestacy, the whole of his estate passes to Crusoe.Noland – income tax and capital gains tax:– Has been a basic rate taxpayer since the tax year 2000/01.– Sales of quoted shares resulted in:– Chargeable gains of ￡7,100 and allowable losses of ￡17,800 in the tax year 2007/08.– Chargeable gains of approximately ￡14,000 each tax year from 2000/01 to 2006/07.– None of the shares were held for long enough to qualify for taper relief.Noland – gifts made during lifetime:– On 1 December 1999 Noland gave his house to Crusoe.– Crusoe has allowed Noland to continue living in the house and has charged him rent of ￡120 per monthsince 1 December 1999. The market rent for the house would be ￡740 per month.– The house was worth ￡240,000 at the time of the gift and ￡310,000 on 1 October 2007.– On 1 November 2004 Noland transferred quoted shares worth ￡232,000 to a discretionary trust for the benefitof his grandchildren.Noland – probate values of assets held at death: ￡– Portfolio of quoted shares 370,000Shares in Kurb Ltd 38,400Chattels and cash 22,300Domestic liabilities including income tax payable (1,900)– It should be assumed that these values will not change for the foreseeable future.Kurb Ltd:– Unquoted trading company– Noland purchased the shares on 1 December 2005.Crusoe:– Long-standing personal tax client of your firm.– Married with two young children.– Successful investment banker with very high net worth.– Intends to gift the portfolio of quoted shares inherited from Noland to his aunt, Avril, who has very little personalwealth.Required:(a) Prepare explanatory notes together with relevant supporting calculations in order to quantify the tax reliefpotentially available in respect of Noland’s capital losses realised in 2007/08. (4 marks)
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(c) In October 2004, Volcan commenced the development of a site in a valley of ‘outstanding natural beauty’ onwhich to build a retail ‘megastore’ and warehouse in late 2005. Local government planning permission for thedevelopment, which was received in April 2005, requires that three 100-year-old trees within the valley bepreserved and the surrounding valley be restored in 2006. Additions to property, plant and equipment duringthe year include $4·4 million for the estimated cost of site restoration. This estimate includes a provision of$0·4 million for the relocation of the 100-year-old trees.In March 2005 the trees were chopped down to make way for a car park. A fine of $20,000 per tree was paidto the local government in May 2005. (7 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find,in undertaking your review of the audit working papers and financial statements of Volcan for the year ended31 March 2005.NOTE: The mark allocation is shown against each of the three issues.
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1 Stuart is a self-employed business consultant aged 58. He is married to Rebecca, aged 55. They have one child,Sam, who is aged 24 and single.In November 2005 Stuart sold a house in Plymouth for ￡422,100. Stuart had inherited the house on the death ofhis mother on 1 May 1994 when it had a probate value of ￡185,000. The subsequent pattern of occupation was asfollows:1 May 1994 to 28 February 1995 occupied by Stuart and Rebecca as main residence1 March 1995 to 31 December 1998 unoccupied1 January 1999 to 31 March 2001 let out (unfurnished)1 April 2001 to 30 November 2001 occupied by Stuart and Rebecca1 December 2001 to 30 November 2005 used occasionally as second homeBoth Stuart and Rebecca had lived in London from March 1995 onwards. On 1 March 2001 Stuart and Rebeccabought a house in London in their joint names. On 1 January 2002 they elected for their London house to be theirprincipal private residence with effect from that date, up until that point the Plymouth property had been their principalprivate residence.No other capital disposals were made by Stuart in the tax year 2005/06. He has ￡29,500 of capital losses broughtforward from previous years.Stuart intends to invest the gross sale proceeds from the sale of the Plymouth house, and is considering twoinvestment options, both of which he believes will provide equal risk and returns. These are as follows:(1) acquiring shares in Omikron plc; or(2) acquiring further shares in Omega plc.Notes:1. Omikron plc is a listed UK trading company, with 50,250,000 shares in issue. Its shares currently trade at 42pper share.2. Stuart and Rebecca helped start up the company, which was then Omega Ltd. The company was formed on1 June 1990, when they each bought 24,000 shares for ￡1 per share. The company became listed on 1 May1997. On this date their holding was subdivided, with each of them receiving 100 shares in Omega plc for eachshare held in Omega Ltd. The issued share capital of Omega plc is currently 10,000,000 shares. The share priceis quoted at 208p – 216p with marked bargains at 207p, 211p, and 215p.Stuart and Rebecca’s assets (following the sale of the Plymouth house but before any investment of the proceeds) areas follows:Assets Stuart Rebecca￡ ￡Family house in London 450,000 450,000Cash from property sale 422,100 –Cash deposits 165,000 165,000Portfolio of quoted investments – 250,000Shares in Omega plc see above see aboveLife insurance policy note 1 note 1Note:1. The life insurance policy will pay out a sum of ￡200,000 on the death of the first spouse to die.Stuart has recently been diagnosed with a serious illness. He is expected to live for another two or three years only.He is concerned about the possible inheritance tax that will arise on his death. Both he and Rebecca have wills whoseterms transfer all assets to the surviving spouse. Rebecca is in good health.Neither Stuart nor Rebecca has made any previous chargeable lifetime transfers for the purposes of inheritance tax.Required:(a) Calculate the taxable capital gain on the sale of the Plymouth house in November 2005 (9 marks)
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2 Assume that today’s date is 1 July 2005.Jan is aged 45 and single. He is of Danish domicile but has been working in the United Kingdom since 1 May 2004and intends to remain in the UK for the medium to long term. Although Jan worked briefly in the UK in 1986, hehas forgotten how UK taxation works and needs some assistance before preparing his UK income tax return.Jan’s salary from 1 May 2004 was ￡74,760 per annum. Jan also has a company car – a Jaguar XJ8 with a list priceof ￡42,550 including extras, and CO2 emissions of 242g/km. The car was available to him from 1 July 2004. Freepetrol is provided by the company. Jan has other taxable benefits amounting to ￡3,965.Jan’s other 2004/05 income comprises:￡Dividend income from UK companies (cash received) 3,240Interest received on an ISA account 230Interest received on a UK bank account 740Interest remitted from an offshore account (net of 15% withholding tax) 5,100Income remitted from a villa in Portugal (net of 45% withholding tax) 4,598The total interest arising on the offshore account was ￡9,000 (gross). In addition, Jan has not remitted otherPortuguese rental income arising in the year, totalling a further ￡1,500 (gross).Jan informs you that his employer is thinking of providing him with rented accommodation while he looks for a houseto buy. The accommodation would be a two bedroom flat, valued at ￡155,000 with an annual value of ￡6,000. Itwould be made available from 6 August 2005. The company will pay the rent of ￡600 per month for the first sixmonths. All other bills will be paid by Jan.Jan also informs you that he has 25,000 ordinary shares in Gilet Ltd (‘Gilet’), an unquoted UK trading company. Hehas held these shares since August 1986 when he bought 2,500 shares at ￡4.07 per share. In January 1994, abonus issue gave each shareholder nine shares for each ordinary share held. In the last week all Gilet’s shareholdershave received an offer from Jumper plc (‘Jumper’) who wishes to acquire the shares. Jumper has offered the following:– 3 shares in Jumper (currently trading at ￡3.55 per share) for every 5 shares in Gilet, and– 25p cash per shareRequired:(a) Calculate Jan’s 2004/05 income tax (IT) payable. (11 marks)
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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)
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问答题The cost of hiring a private rail carriage is shared equally by all the passengers who paid an exact number of pounds which was less than ￡100 each. The carriage has seats for 50 passengers and the total bill amounts to ￡1887. How many seats were not occupied?
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