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Operations of a UK resident trading company North Stars Ltd

Description:

Report writing activity involves applying the knowledge learnt from the course in a more practical and broader scenario than given in the textbook. In addition to it, you may also be required to evaluate the facts and recommend the viable solutions where required. The information about operations of a UK resident trading company North Stars Ltd is given on the following pages and you are required to complete all the tasks given at the end of the case. Individual oral defense (10%) will be conducted in the week following submission of your reports.

Instructions:

1.   You will work in the teams of minimum 2 and maximum 4 students.

2.   Submit your answers in the form of report on or before 26 April 2020

3.   Instructor will conduct individual oral defense online through BBL or zoom

4.   Show all computations clearly and give explanations wherever required/possible. Try to demonstrate as much as possible, your knowledge and skills when computing figures or giving explanations of your answers/choices.

North Stars Ltd is a UK resident company. The company trades in sports goods and physical exercise equipment. All goods are taxable unless stated otherwise. North Stars Ltd buys goods from local manufacturers and markets in England and some other European Countries. Company prepares its accounts to 31 March each year. The detailed statement of profit or loss for the year ended 31 March 2019 is given below:

 ££
Net sales (N.2) 14,691,874
Cost of sales (N.3) (11,480,000)
Gross profit 3,211,874
Operating expenses:  
Depreciation250,000 
Employee costs (N.4)1,100,000 
Rent expenses (N.5)250,000 
Selling and marketing (N. 6)95,000 
General & administrative (N.7)624,000 
Repairs and renewals (N.8)34,500 
Vehicles maintenance (N.9)198,000 
Loss on sale of delivery van (N.10)5,500 
Leasing cost (N.11)8,000 
Legal, professional and trade fees (N.12)65,000 
Impaired debts (N.13)9,500 
  (2,639,500)
Operating profit 572,374
Other income:  
Property income (N.14)35,000 
Bank interest (N.15)8,500 
Dividends (N.16)13,00056,500
Finance costs 
Interest expenses (N. 17)(41,000)
Profit before taxation587,874

Notes:

1. Company

North Stars Ltd acquires products, stores in its own warehouses if needed and transport to retailers as per the orders received. North Stars Ltd employes a team of sales staff, van drivers and staff for managing operations in the main office in Central London.

2. Sales

Quarter Sales in England Sales to European     Traders Total     Sales     April 18-June 18   3,050,000   410,000   3,460,000   July 18-Sep 18   4,400,000   569,000   4,969,000   Oct 18-Dec 18   2,807,000   470,000   3,277,000   Jan 19-Mar 19   2,577,000   416,000   2,993,000   Total   12,834,000   1,865,000   14,699,000    

Quarterly sales for the year ending on 31 March 2019 are given below. All sales made within England are standard-rated but that made to VAT registered traders in other European countries are zero-rated. Sales made to the retailers within England are made on 60-day credit and 5% dicount is offered for the prompt payment. Sales made to traders in EU member states are made on credit of 30 days without any prompt payment discount. Goods sold are nonrefundable but exchangeable within 15 days. Sales figures in below given table arr before any prompt payment discount.

QuarterSales discount availed     (only on sales in England)
  April 18-June 18  60,500
  July 18-Sep 18  47,200
  Oct 18-Dec 18  -
  Jan 19-Mar 19  34,810
  Total  142,510

Sales figure reported in the statement of profit or loss is the net of discounts and has been

computed as follows:

£

Total sales14,699,000
Less: sales discount (142,510 x 0.05)(7,126)
Net sales after discounts14,691,874

3. Cost of sales

Cost of sales includes the purchases of sports goods from the manufacturers and other costs associated with acquiring inventories. North Starts Ltd purchases goods on credit of 30 days and is not offered any dicount for prompt payments. Goods are returnable within 15 days and purchases are adjusted if goods are returned. All purchases and costs of acquiring goods are

standard rated. Quarterly purchases given below are already adjusted for the purchases returns of the relevant quarter.

QuarterPurchasesOther costs of     acquiring inventories
  April 18-June 18  £2,560,000  £320,000
  July 18-Sep 18  3,340,000  410,000
  Oct 18-Dec 18  2,200,000  305,000
  Jan 19-Mar 19  1,980,000  289,000
  Total  10,080,000  1,324,000

£

Beginning inventories April 1, 2018830,000
Cost of goods purchased11,404,000
 12,234,000
Ending inventories March 31, 2019(754,000)
Cost of sales11,480,000

Beginning and ending inventories include total cost of goods available in company stores for sales and/or goods in transit from the manufactrers to company warehouses on first and the last day of the accounting period respectively.

4. Employee costs

Employee costs include salaries and wages paid to permanent staff and part-time workers hired for transportation, marketing and sales activities. Ignore all NICs payable on salaries and wages earned for the purpose of this assignment. Employee costs include staff party cost £15,900 and gifts to the employees costing £7,000.

5. Rent

Rent include rent paid on warehouses let in for the business purposes.

6. Selling and marketing

Selling and marketing expenses include:

Gifts to the customers (wall clocks bearing company name costing 
£40 per customer)£12,000
Advertising and promotions£51,200
Entertaining UK customers6,000
Entertaining overseas customers7,500
Entertaining suppliers4,300
Gifts to suppliers14,000
 95,000
7. General and administartive 
General and administartive expenses include: 
Donations to approved charities (qualifying)£8,000
Donations in funds raising campaign for the favorite candidate 
during local body election£3,500
Fine on violation of health and safety laws2,500
Other general and administrative (all allowable)610,000
 624,000
8. Repairs and renewals: 
Repairs and renewals include 
Construction of rooms for security staff in company’s main office£17,450
Repainting the exterior of the company’s office building8,250
Repainting the office space let out in April 2018 (See note. 14)2,000
Built a new reception area in the main office6,800
 34,500

9. Vehciles maintenance

Include fuel cost and the cost of maintaining company’s delivery vans and motor cars under the use of company’e employees and managing director. All motor cars are used for

30% private mileage by the employees and managing director.

10. Loss on sale of delivery van

Capital loss of £5,500 is in respect of delivery van sold in June 2018 (See note 18).

11. Leasing cost

The leasing cost of £8,000 is in respect of a motor car which has CO2 emissions of 95 grams per kilometer.

12. Legal, professional and trade fees

Fee paid for accounting and audit services                                                       £11,040

Legal fee in connection with the trade financing (Note 17)                               6,200

Charges paid to debt collectors                                                                             15,000

Legal fee in connection with acquiring and registering new vans                  16,760

HMRC penalties on late payments and filing                                                        4,300

Legal fees in connection with renewing a 25-year lease                                    5,100

Legal fees in connection with a new 25-year lease                                             6,600

65,000

13. Impaired debts

On 31 March 2019, North Stars Ltd wrote off an impairment loss of £9,500 relating to the

Invoice due on 15 September 2018.

14. Property income

On 1 April 2018, North Stars Ltd lets out an office space that is surplus to requirements at annual rent of £35,000 payable in advance.

15. Bank interest

The bank interest was received on 31 March 2019. The bank deposits are held for non- trading purposes.

16. Dividends

Dividends of £13,000 were received from another UK resident company.

17. The interest payable is in respect of the company’s 3% loan stock. The loan stock was used to finance the company’s trade activities. The interest amount given in the statement of profit and loss has been paid and is the amount relevant to the accounting period ended 31 March

2019.

18. The tax written down value of North Star Ltd’s main pool assets on 1 April 2018 was

£950,000. Following main pool assets were acquired and disposed during the year to 31 March

2019:

10 June 2018                Sold delivery van (original cost £25,000)                                   £15,000

10 August                     Bought new delivery vans                                                             175,500

5 November                 Purchased motor car CO2 emissions 100g/km                            10,000

10 March                      Purchased a used motor car CO2 emissions 45g/km                  4,000

Assume, North Stars Ltd has no special rate pool item. All transactions of sales and purchases are subject to standard rate of VAT.

19. Company’s VAT periods end on 30 June, 30 September, 31 December and 31 March in an year. For the purpose of computing VAT liability, quarterly data of taxable expenses and supplies included in the statement of profit or loss is as follows.

QuarterStandard rated     expenses & suppliesZero rated     expenses & supplies
  April 18-June 18  320,500  8,000
  July 18-Sep 18  310,000  6,500
  Oct 18-Dec 18  280,900  11,000
  Jan 19-Mar 19  103,200  2,000
  Total  1,014,600  27,500

Tasks:

a.

Compute tax adusted trading profit using the information given in statement of profit or loss and notes for North Stars Ltd for the accounting period ending 31 March 2019. Start with the profit before taxation of £587,874 and list all of the items in the statement of profit and loss and in notes indicating by the use of a zero (0) any items that do not require adjustment.

Assume that the company claims maximum available capital allowances.                       (13 marks)

b.

Compute taxable total profits for the period ended 31 March 31, 2019.                   (1.5 marks)

c.

Compute North Stars Ltd’s corporation tax liability for the period ended 31 March 2019.

(0.5 marks)

d.

Compute North Stars Ltd’s VAT liability for each quarter. Take into account all the taxable sales, purchases, and expenses as well as adjustments when computing output and input VAT for

each quarter. Show all computations and/or give explanation where possible.        (11 marks)

e.

By when and how, should North Stars Ltd file the corporate tax return and pay the tax payable for the period ended 31 March 2019 to avoid penalties and interests? Until when the

accounting records relevant to the tax year 2018/19 must be kept by North Stars Ltd? Explain in detail with reference to the tax rules and HMRC’s directives.                                           (1.5 marks) f.

By when and how, should North Stars Ltd file VAT returns for each quarter and pay taxes to avoid penalties and interests? Until when the records relevant to each VAT period must be kept by North Stars Ltd? Explain in detail with reference to the tax rules and HMRC’s directives.

Operations of a UK resident trading company North Stars Ltd

  • Order

  • Payment

  • Processing

  • Delivery

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