Retained profits
52,100 ______ 72,100
Shareholder’s funds
3.3
The tax provisions on the balance sheet are as follows:
3.3.1 the PAYE and NIC liabilities which relate to the December payroll and are payable to HMRC on 19 January;
3.3.2 the net VAT payable in respect of the final three months of the year. This is payable to HMRC on 31 January. This is based on the VAT charged to customers in that three month period, less the VAT charged to the company by its various suppliers in the same period; 3.3.3 the corporation tax liability on the profits for the year. This corporation tax has been based on the tax computations which are submitted to HMRC under the pay and file regulations in the early part of the following year. This corporation tax is payable on 1 October. Chapter 2 is a brief explanation of some of the workings of corporation tax. 3.3.4 the provision for deferred tax which has been created as the depreciation charged on the fixed assets was less than the capital allowances that were available. Chapter 3 explains the nature and purpose of deferred tax. 3.5 If an offer was made to Jane to buy her shares in Jane’s Windsurfing Limited, and these accounts were to be the determinants of the value for those shares, the price would be likely to be based on the net assets as shown in these accounts, the profits achieved by the business and its forecasts for the future. A price would be negotiated which would be based on the net assets of £72,100 with an upwards or downwards adjustment in respect of positive or negative goodwill. 3.6 As previously noted, part of the challenge in respect of tax covenants relates to distilling the meaning of unexpected tax liabilities. A central component of that meaning is those tax liabilities for which no provision has been made in the accounts. To the extent that provision has been made in the accounts there should be no claim under the tax covenant. 3.7 Both parties to the tax covenant would therefore expect that there would be no claim to the extent that a liability or provision has been included for the tax in the accounts: by virtue of including the liability the net assets have been reduced and this has impacted on the price to be paid for the shares. In this context “unforeseen tax 3.4 Each of the above liabilities is a specific liability included on the balance sheet of Jane’s Windsurfing Limited.
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