2.2 We are looking at the example of Hauleigh Horsegear Limited, a company which sells a range of equipment to the equine market. The profits before taxation shown by its accounts were £1,500,000. The company is part of a group comprising two active companies. There are the following adjustments needed to this profit in order to convert it into a taxable profit for the period:
2.2.1 there were legal costs of £42,000 associated with negotiating new leases of its new depots in Eye and Kenton;
2.2.2 the depreciation charge on its racking, computer equipment, forklifts and office furniture was £392,000;
2.2.3 the capital allowances that were available to the company were £362,000;
2.2.4 the company provided 50% against all debts which were more than 90 days old, but continued to supply most of these customers despite the outstanding accounts. This provision amounted to £270,000 and it was £350,000 at the prior year end; 2.2.5 the company has 49 debtors whose balances are more than 120 days old. It has provided a total of £143,290 against 31 of these debtors, as these accounts are now being chased by solicitors and there is little prospect of recovery. At the previous year end the equivalent provision was £133,290; 2.2.6 there is a non-contributory pension scheme for employees. At the year end the final month’s contribution of £110,000 had not been paid to the pension fund. The amount outstanding at the previous year end was £80,000;
2.2.7 at the annual equine show the company incurred disallowed entertaining expenditure of £58,000.
2.3
We show how the above facts are included in the tax computations below:
Profit per accounts
1,500,000
Add: Absolute adjustments: Disallowed legal costs Disallowed entertaining expenditure
42,000
58,000 ________ 1,600,000
Profit plus absolute adjustments
Timing adjustments: Add: Depreciation on plant, furniture and equipment
392,000 270,000 110,000
Closing general bad debt provision Closing unpaid pension contribution
Less: Capital allowances
(362,000)
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