CHAPTER 6: TRADING PROFITS – BASIS OF ASSESSMENT

PART A: MULTICHOICE/MULTI-PART MULTICHOICE QUESTION

Answer the following questions:
1. Gordon has been trading for many years making up his accounts to 31 May each
year. His taxable trading profits are as follows:
y/e 31 May 2018 £12,000
y/e 31 May 2019 £14,000
y/e 31 May 2020 £18,000
What is the taxable trading profit taxed in 2019/20?
A £12,000
B £14,000
C £17,333
D £18,000
2. Florrie started trading on 1 September 2019. She decided to make up her accounts
to 30 April each year.
In the eight months to 30 April 2020, Florrie had taxable trading profits of £8,000.
She estimates that her taxable trading profits for the year to 30 April 2021 will be
£15,000.
What is the taxable trading profit taxed in 2019/20?
A £6,000
B £4,667
C £7,000
D £8,000
3. Ursula started trading on 1 January 2019. She decided to make up accounts to 31
October each year.
Her taxable trading profits are as follows:
p/e 31 October 2019 £3,000
y/e 31 October 2020 £23,760
y/e 31 October 2021 £31,000
What are the overlap profits?
A £900
B £4,710
C £3,960
D £4,860
4. Ross ceased trading on 31 March 2020. His taxable trading profits were:
y/e 31 December 2018 £6,800
y/e31 December 2019 £5,600
p/e 31 March 2020 £4,500
Ross had £2,300 of overlap profits on commencement.
What is the taxable trading profit for 2019/20?
 A £10,100
B £7,800
C £6,400
D £2,200
5. Anne and Jane have been in partnership for many years making up accounts to 30
November. The profit-sharing agreement of the partnership is that Anne is entitled
to an annual salary of £1 0,500 and Jane is entitled to an annual salary of £12,300.
They are also entitled to interest at 5% on capital introduced to the partnership.
Anne has capital of £52,500 and Jane has capital of £34,500. Any remaining profits
are shared equally.
For the year ended 30 November 2019, the taxable trading profit of the partnership
is £147,750.
What is the taxable trading profit of the partners for 2019/20?
A Anne £60,300, Jane £60,300
B Anne £73,425, Jane £74,325
C Anne £73,875, Jane £73,875
D Anne £87,000, Jane £87,900
6. Andrew is a sole trader who uses the cash basis for income tax purposes. His
accounts for the year to 31 December 2019 include a deduction of £10,000 for the
purchase of a car on 1 July 2019. The car has CO2emissions of 105 g/km and is
used only for business. The accounts also include a deduction of £6,000 for a new
machine on 15 October 2019.
What adjustment to Andrew's accounting profit for the year to 31 December 2019
is required to arrive at his taxable trading profit after capital allowances?
A Add back £16,000; deduct capital allowances of £1,800
B Add back £10,000; deduct capital allowances of £1,800
C Add back £16,000; deduct capital allowances of £7,800
D Add back £10,000; deduct capital allowances of £7,800
PART B: SCENARIO-BASED QUESTION
Question 1:
Major, who has been trading for many years, ceased trading on 31 December 2019.
Major prepared accounts to 30 June in each year.
The recent tax adjusted trading profits have been:
£
Period to 31 December 2019 6,000
Year ended 30 June 2019 12,000
Year ended 30 June 2018 15,000
Year ended 30 June 2017 20,000
Year ended 30 June 2016 18,000
The overlap profits on commencement were £7,500.
Requirement: Calculate the trading profits that will be assessed on Major for all
tax years affected by the above accounts.

Question 2:
Cordelia commenced trading on 1 July 2017. She prepared accounts to 30 April 2019
and annually thereafter. Her tax adjusted trading profits for the first two periods were
as follows:
Period ended 30 April 2019 £55,000
Year ended 30 April 2020 £32,000
Requirement: Calculate Cordelia’s trading profit assessments for her first four
tax years and her overlap profits.

Question 3:
Michael ceased trading on 31 March 2020. His tax adjusted trading profits for the final
three periods of trading are as follows:
Year ended 30 April 2018 £40,000
Year ended 30 April 2019 £42,000
Period ended 31 March 2020 £38,000
He has unrelieved overlap profits of £27,000.
Requirement: Calculate Michael’s final two trading profit assessments.

Question 4:
Maria commenced business on 1 January 2016 and prepared her first accounts for the
period to 30 June 2017, and thereafter to 30 June in each year.
Her tax adjusted trading profits have been:
Period to 30 June 2017 £27,000
Year ended 30 June 2018 £30,000
Year ended 30 June 2019 £40,000
Requirement: Calculate the trading profits assessed on Maria for all relevant tax
years and the overlap profits.
Question 5:
Scott started trading on 1 November 2018. He decided to make up his accounts to 31
July. His taxable trading profit for the 9-month period of account to 31 July 2019 is
£18,000 and for the year ended 31 July 2020 is £48,000.
Requirement: Compute the amounts of taxable trading profit taxed in the first
two tax years of trading.

Question 6:
Connie starts a trade on 1 January 2018 and has the following taxable trading profits:
6 months to 30 June 2018 £28,500
12 months to 30 June 2019 £48,000
Requirement: Compute the amounts of taxable trading profits taxed in the first
three tax years of trading and the amount of overlap profits.

Question 7:
Ian started trading on 1 August 2015. He chose to make up his accounts to 31 May
each year.
Ian had the following taxable trading profits:
10 months to 31 May 2016 £24,000
y/e31 May 2017 £31,000
y/e 31 May 2018 £44,000
Ian’s business ceased on 30 April 2019. His taxable trading profits for the last 11
months of the business were £38,000.
Requirement: Compute the amounts of taxable trading profits taxed in all tax
years.

Question 8:
Calder, Scott and Tim have been in partnership for several years. Partnership
accounts are made up to 31 May. The partnership had taxable trading profits of
£136,000 for the year ended 31 May 2019.
Until 30 September 2018, the partnership had shared profits equally. From 1 October
2018 it was agreed that the partners should be paid a salary and the profit-sharing
ratio (PSR) was amended as follows:
Calder Scott Tim
Salary per year £50,000 £40,000 £30,000
PSR 25% 35% 40%

Requirement : Compute the amount of taxable trading profit for each partner in
2019/20.
Question 9:
Henny commenced to trade on 1 July 2014 and prepared his first accounts to 31 August
2015 and thereafter to 31 August annually. Henny ceased to trade on 31 December
2019.
Given below are the tax adjusted trading profits for all the relevant periods:
£
Period ended 31 August 2015 10,500
Year ended 31 August 2016 18,000
Year ended 31 August 2017 22,500
Year ended 31 August 2018 31,500
Year ended 31 August 2019 27,000
Period ended 31 December 2019 8,400
–––––––
117,900
–––––––
Requirement: Compute the trading profits that will have been assessed on
Henny for each tax year.