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Cadnam Co is a large company in the support services sector. Cadnam Co's most recent annual report, for the year ended 31 December 20X5, acknowledged challenges for the company, including financing the major investment programme required to meet its clients' increasing expectations. Cadnam Co also faced upward pressure on employment costs, fuelled by a 'fair wage' campaign which adversely compared wage rises in the support services sector with increases in dividends and directors' remuneration, and a consequent government enquiry into low pay in the sector. Cadnam Co's board, however, was confident that the company would be able to renew a number of large contracts which were coming up for review. The report stressed the strength of Cadnam Co's senior management team as a vital success factor. Directors' remuneration packages thus reflected the need to retain its directors in a competitive labour market at senior level. In the stakeholder engagement section of its annual report, Cadnam Co highlighted that it had fulfilled its aim of guaranteeing investors a consistent rise in dividends and its board was confident that Cadnam Co would be able to maintain the recent rate of dividend increase. The report also stated that Cadnam Co was looking to publish a full integrated report over the next couple of years. Dividend policy At Cadnam Co's last annual general meeting, there were no questions about the level of profits, dividends or directors' remuneration. However, a recent investment analysts' report on the support services sector highlighted Cadnam Co as a company which might have problems in the next few years. The report suggested that Cadnam Co's investment and dividend policies could not both be maintained. It highlighted one of Cadnam Co's principal competitors, Holmsley Co, as a company whose policies it believed would sustain long-term growth. It highlighted directors' remuneration as an area where Holmsley Co's policies were more likely to encourage long-term value creation and share price increases than Cadnam Co's policies. Cadnam Co's board is currently considering the comments made by the investment analysts, and also assessing what the dividend for 20X6 should be. Cadnam Co icon-img

Average gearing in the support services sector since 20X1 has been stable at around 34%. There have been no changes in the issued share capital of Cadnam Co and Holmsley Co since 20X1. Directors' remuneration Cadnam Co 20X6 forecast Forecasts prepared by Cadnam Co's finance director for 20X6 predict that: – Cadnam Co's pre-tax operating profit for 20X6 will be $2,678m, an increase of 3% compared with 20X5. The operating profit margin will be 2%, the same as for 20X5. – The tax rate will be 30%. – Average debt in 20X6 will be $10,250m and predicted year-end gearing will be 41·3%. The average pre-tax interest rate on the debt will be 8%. – The investment required to keep the non-current asset base at its present productive capacity in 20X6 will be $2,430m, which has been included in the calculation of operating profit as depreciation. – Investment required in additional assets in 20X6 will be $0·25 for every $1 increase in revenue. Required: (a) Calculate the forecast dividend capacity of Cadnam Co for 20X6. (b) Discuss the viability and financial impacts of Cadnam Co seeking to maintain its current dividend policy, supporting your answers with relevant calculations. Note: 6 marks are available for calculations in part (b). (c) Discuss the governance and ethical issues associated with Cadnam Co's dividend and directors' remuneration policies.

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【简答题】

Section A – BOTH questions are compulsory and MUST be attempted 1、The Bassett Group (the Group) is a publisher of newspapers and magazines, academic journals, and books. The Group, a listed entity, has a financial year ending 30 April 2018, and your firm, Whippet & Co, was appointed as Group auditor in September 2017. Whippet & Co will audit all Group companies with the exception of Borzoi Co, a foreign subsidiary, which is audited by a local firm of auditors, Saluki Associates. The Group aims to comply fully with relevant corporate governance requirements. You are the manager responsible for the Group audit, and the audit engagement partner has just sent the following email to you: icon-img

Background information and results of analytical procedures The Group operates globally, with sales being made in over 100 countries. The Group has 20 subsidiaries which have been acquired over the last 30 years. All Group companies are located in the same country, with the exception of Borzoi Co, a foreign subsidiary whose operations focus on the translation of published content into a variety of different languages. The Group’s publishing activities can be categorised into three operating segments, each of which are cash generating units for the purpose of impairment reviews: newspapers and magazines, academic journals, and books. The revenue and total assets for 2018 (projected) and 2017 (actual) for the Group in total and for each segment is as follows: icon-img

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【简答题】

Posie is a large business which manufactures furniture. It is made up of two autonomous divisions in Deeland. The manufacturing division purchases raw materials from external suppliers, and performs all manufacturing and packaging operations. All sales are made through the retail division which has 95 retail stores in Deeland, as well as through Posie’s own well-developed website. Posie has retail operations in eight other countries as well as in Deeland. These overseas businesses operate as independent subsidiaries within the Retail Division, each with their own IT and accounting functions. The furniture is sold in boxes for customers to assemble themselves. About 10% of the products sold by Posie are purchased already packaged from other manufacturers. All deliveries are outsourced through a third party distribution company. Posie’s corporate objective is to maximise shareholder wealth by producing ‘attractive, functional furniture at low prices’. This is how customers generally perceive the Posie brand. The CEO of Posie is concerned about increasing levels of returns made by customers and increasing numbers of consumers complaining on online forums about products purchased from Posie. Concerned about the impact on the Posie brand and the cost-leadership strategy, the CEO has asked you as a performance management expert to help Posie implement the six sigma technique to reduce the number of products returned and in particular to define customers’ requirements and measure Posie’s existing performance. The production director has been appointed to sponsor the project and you will be supported by a small team of managers who have recently received training in six sigma. The board member responsible for manufacturing quality recently resigned because she thought it was unfair that the manufacturing division was being held responsible for the increased level of customer returns. You have been given access to some information concerning the reasons why customers return goods to help you measure existing performance in this area (Appendix 1). This is an extract from the management reporting pack presented to the board at their monthly meetings. The returns data, however, are only compiled every six months due to the lengthy analysis required of data from Posie’s overseas retail operations. It is included twice a year in the board report along with the KPIs for customer satisfaction. The last time this information was produced 93% of customers indicated they were satisfied with the quality of the manufacture of Posie’s products. The CEO has heard that six sigma requires ‘large amounts of facts and data’. He suggested that the returns data contain insufficient detail and that as part of your project you may need to do more analysis, for example, on why customers are not satisfied with the manufacturing quality. He also added, ‘I’m not sure that our current IT systems are capable of generating the data we need to identify which responsibility centres within the manufacturing division are the root causes of the problem of customer returns. We are planning to change the designation of the overseas retail businesses from profit centres to revenue centres, but again we need to know first how this will affect the information requirements of the business and any potential problems with doing so.’ Appendix 1 Reasons given by customers for returning goods icon-img

Required: (a) Advise the board how the six sigma project at Posie to reduce returns from customers could be implemented using DMAIC methodology. (b) Evaluate the impact on Posie’s information requirements arising from: (i) The need to identify and improve on the level of customer returns. (ii) The proposed re-designation of the overseas subsidiaries from profit centres to revenue centres.

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【简答题】

Fitzgerald and Morrison, two clients of your firm, require advice on the capital gains tax and inheritance tax implications of gifts they propose to make in the next few months. Fitzgerald Gift of shares in Jay Ltd on 1 October 2012: - To be made to Fitzgerald's nephew, Pat. - Comprises the whole of Fitzgerald's 9% shareholding. - Fitzgerald inherited the shares from his mother on 1 February 2012 when their market value was ￡32,000. - The shares are expected to be worth ￡127,500 on 1 October 2012. - Both Fitzgerald and Pat are higher rate taxpayers. Jay Ltd - An unquoted manufacturing company. - Values of the company's assets as at 1 October 2012 ￡ Premises 740,000 Plant and machinery (each item is worth more than ￡6,000) 160,000 Quoted company shares 250,000 Motor cars 30,000 Net current assets 80,000 Pat's plans: - Pat is an employee of Jay Ltd and will continue to work for the company until he sells the shares. - Pat intends to sell the shares in January 2014 and expects to receive ￡170,000. - He will use the funds to finance a business venture. Morrison Gift of a painting on I September 2012: - To be made to Morrison's daughter, Sula, on her wedding day. - This will be Morrison's first gift since 1 May 2005. - The painting is one of a set of three. - Each of the individual paintings is expected to be worth ￡25,000 on 1 September 2012; a pair of paintings is expected to be worth ￡70,000 on that date. The set of paintings: - Morrison purchased the set of three paintings in April 2004. - Each of the paintings has a base cost for capital gains tax purposes of ￡8,300. - He gave one of the paintings to his wife on 1 May 2005. - The complete set of three paintings is expected to be worth ￡120,000 on 1 September 2012. Required (a) In respect of the gift of the shares by Fitzgerald and their subsequent sale by Pat: (i) Explain whether or not capital gains tax gift relief will be available on the gift, noting any additional information required. State the latest date for submission of a claim and identify who must sign it; (ii) Calculate the effect of submitting a valid claim for gift relief on the total capital gains tax liability of Fitzgerald and Pat on the assumption that the gift by Fitzgerald and the sale by Pat take place as (iii) Explain whether or not business property relief will be available if Fitzgerald dies within seven years of making the gift. (b) In respect of the gift of the painting by Morrison: (i) Calculate the value of the potentially exempt transfer, after deduction of all exemptions, for the purposes of inheritance tax; (ii) Calculate the capital gain arising on the gift and comment on the availability of gift relief. Assume that the tax rules and rates for 2011/12 continue to apply in subsequent years.

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【简答题】

Section B – TWO questions ONLY to be attempted 3、The audit of Davis Co’s financial statements for the year ended 30 November 2017 is nearing completion and the auditor’s report is due to be signed next week. Davis Co manufactures parts and components for the aviation industry. You are conducting an engagement quality control review on the audit of Davis Co which is a listed entity and a significant new client of your firm. The draft financial statements recognise revenue of $8·7 million, assets of $15·2 million and profit before tax of $1·8 million. You have identified the following issues as a result of your review: (i) The planned audit approach to trade payables was to place reliance on purchasing controls and keep substantive tests to a minimum. During controls testing on trade payables, from a random statistical sample, the audit team identified three purchase orders which had not been authorised by the procurement manager. On review of the supporting documentation, the audit team concluded that the items were legitimate business purchases and therefore concluded that no additional procedures were required. (4 marks) (ii) Following a review of petty cash transactions, the audit assistant identified that the petty cashier paid for taxi fares for personal, non-business journeys with a total value of $175. Following discussions with the audit assistant, you have ascertained that he did not report the matter further as the amount is immaterial. The audit assistant also commented that the petty cashier is his brother and that he did not want to get him into trouble. (6 marks) (iii) Cut-off testing on revenue has identified two goods despatch notes, dated 2 December 2017, for items sent to Chinn Co, with a combined sales value of $17,880 which had been included in revenue for the year ended 30 November 2017. The client’s financial controller, David Mount, has explained that Chinn Co does not order on a regular basis from Davis Co. In the absence of a regular payment history with Chinn Co therefore, and in order to minimise the receivables collection period from this particular customer, the sales invoice is raised and sent to the customer on the same day that the sales order is received. The average time period between the receipt of an order and despatching the goods to the customer is approximately one to two weeks. The audit working papers have concluded that no further investigation is necessary. (6 marks) (iv) The finance director, Leslie Gray, has not completed the tax computation for the year ended 30 November 2017. He has recently asked the audit assistant to calculate the company’s tax payable for the year on the basis that as a recently qualified chartered certified accountant, the audit assistant was more up to date with recent changes in tax legislation. (4 marks) Required: Evaluate the quality control issues and the implications for the completion of the audit including any further actions which should be taken by your audit firm. Your answer should include the matters to be communicated to management and to those charged with governance in relation to the audit of Davis Co. Note: The split of the mark allocation is shown against each issue described above.

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【简答题】

You have received the following email from your manager, Kara Weddell. From: Kara Weddell Date: 3 December 2012 To: Tax senior Subject: Banda Ross I've put a copy of a letter from a potential new client, Banda Ross, on your desk. I've arranged a meeting with Banda for Friday this week to discuss the most appropriate structure for her new business, 'Aral'. I spoke to Banda yesterday and obtained the following additional information. · Banda has owned the whole of the ordinary share capital of Flores Ltd since 1 January 2009. · Flores Ltd pays Banda a salary of ￡12,700 per annum and pays dividends to her of ￡20,250 on 31 July each year. · Banda does not intend to take any income from Aral until the tax year 2015/16 at the earliest. · Flores Ltd is Banda's only source of income. Banda also mentioned that Flores Ltd made some sort of 'informal loan' to her in 2009 of ￡21,000 to pay for improvements to her house. I decided not to press her about this over the phone but I need to discuss with her what she meant by 'informal' and whether or not the loan has been disclosed to HM Revenue and Customs. Please prepare the following schedules for me to use as a basis for our discussions. I will give Banda copies of schedules (a) and (b) but not schedule (c), as some of its contents may be sensitive. (a) Calculations of the anticipated tax adjusted trading profit/loss of Aral for its first three trading periods. (b) Explanations, together with relevant supporting calculations, of the tax relief available in respect of the anticipated trading losses depending on whether the business is run as a sole trader or a limited company. When considering the use of a limited company, don't forget that it could be owned by Banda or by Flores Ltd. Please include a recommendation based on your figures but do not address any other issues regarding the differences between trading as a sole trader and as a company; I just want to focus on the losses for the moment. (c) Explanatory notes of the tax implications of there being a loan from Flores Ltd to Banda and whether or not such a loan might affect our willingness to provide her with tax advice. Take some time to think about your approach to this before you start; I want you to avoid preparing any unnecessary calculations and to keep the schedules brief. Thank you Kara The letter referred to in Kara's email is set out below. Dear Kara Aral business I am the managing director of Flores Ltd, a company that manufactures waterskiing equipment. I am looking for a tax adviser to help me with my next business venture. When I began the Flores business in 2007 it was expected to make losses for the first year or so. I was advised not to form a company but to trade as a sole trader and to offset the losses against my income of earlier years. I followed that advice and transferred the business to Flores Ltd on 1 January 2009, once it had become profitable. Flores Ltd has made taxable trading profits of approximately ￡120,000 each year since it was formed. It prepares accounts to 30 June each year. For the past few months I have been researching the windsurfing market. I must have spent at least ￡6,000 travelling around the UK visiting retailers and windsurfing clubs (half of which was spent on buying people lunch!). However, it was all worth while as on 1 January 2013 I intend to start a new business, 'Arar, manufacturing windsurfing equipment. The budgeted results for the first three trading periods of the Aral business are set out below: ￡ 6 months ending 30 June 2013 Trading loss (12,500) Year ending 30 June 2014 Trading loss (13,0001) Year ending 30 June 2015 Trading profit 77,000 The next decision I need to make is whether the new business should trade as a company or as an unincorporated entity. It would make more sense commercially to form a company immediately but I would be willing to use the same approach as I used when establishing the Flores business if this maximises the relief obtained in respect of the trading losses. I want to obtain relief for the losses now; I do not want the losses carried forward for relief in the future unless there are no other options available. Yours sincerely Banda Required Prepare the schedules requested by Kara. Marks are available for the three schedules as follows: (a) Tax adjusted trading profit/loss of the new business (Aral) for its first three trading periods. (b) The tax relief available in respect of the anticipated trading losses, together with supporting calculations and a recommended structure for the business. (c) Explanatory notes, together with relevant supporting calculations, in connection with the loan. Additional marks will be awarded for the appropriateness of the format and presentation of the schedules, the effectiveness with which the information is communicated and the extent to which the schedules are structured in a logical manner. Notes: 1 You should assume that the rules, rates and allowances for the tax year 2011/12 and for the Financial Year to 31 March 2012 apply throughout the question. 2 You should ignore value added tax (VAT).

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【组合题】

3.Nocturne Ltd, a partially exempt company for the purposes of value added tax (VAT), requires advice on the corporation tax implications of providing an asset to one of its shareholders; the income tax implications for another shareholder of making a loan to the company; and simplifying the way in which it accounts for VAT. Nocturne Ltd: – Is a UK resident trading company. – Prepares accounts to 31 March annually and expects to pay corporation tax at the rate of 20%. – Has four shareholders, each of whom owns 25% of the company’s ordinary share capital. – Owns a laptop computer, which it purchased in October 2012 for ￡1,200, and which has a current market value of ￡150. – Has purchased no other plant and machinery for several years and the tax written down value of its main pool at 31 March 2015 was ￡nil. Provision of a laptop computer to one of Nocturne Ltd’s shareholders: – Nocturne Ltd is considering two alternative ways of providing a laptop computer in the year ending 31 March 2016 for the personal use of one of its shareholders, Jed. – Jed is neither a director nor an employee of Nocturne Ltd. – Option1: Nocturne Ltd will buy a new laptop computer for ￡1,800 and give it immediately to Jed. – Option 2: Nocturne Ltd will gift its existing laptop to Jed and will purchase a replacement for use in the company for ￡1,800. Loan from Siglio: – Siglio will loan ￡60,000 to Nocturne Ltd on 1 October 2015 to facilitate the purchase of new equipment. – Siglio is both a shareholder of Nocturne Ltd and the company’s managing director. – Nocturne Ltd will pay interest at a commercial rate on the loan from Siglio. – Siglio will borrow the full amount of the loan from his bank on normal commercial terms. VAT – partial exemption: – Nocturne Ltd is partially exempt for the purposes of VAT. – Nocturne Ltd’s turnover for the year ended 31 March 2015 was ￡240,000 (VAT exclusive). – Nocturne Ltd’s turnover for the year as a whole for VAT purposes comprised 86% taxable supplies and 14% exempt supplies. – The input VAT suffered by Nocturne Ltd on expenditure during the year ended 31 March 2015 was: icon-img

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【组合题】

4.King, a wealthy client of your firm with a significant property portfolio, requires advice on the sale of some unquoted shares and on the capital gains tax and inheritance tax implications of transferring assets to a trust and to his two children. King: – Is resident and domiciled in the UK. – Is an additional rate taxpayer. – Has used his capital gains tax annual exempt amount for the tax year 2015/16. – Has made one previous lifetime gift of ￡25,000 to his daughter, Florentyna, on 1 June 2014. – It should be assumed that King will die on 1 May 2017. King’s family: – King’s daughter, Florentyna, is 34 years old and has two young children. – Florentyna will have income from part-time employment of ￡10,000 in the tax year 2015/16. This is her only source of taxable income. – King’s son, Axel, is 40 years old and has an 18-year-old daughter, who is a university student. King’s plans: – On 1 September 2015, King will sell some of his shares in Wye Ltd. – On 1 October 2015, King will put a cottage he owns in Newtown and the after-tax cash proceeds from the sale of the shares in Wye Ltd into an interest in possession trust for Florentyna and her children. – On 1 March 2016, King will gift his share of a flat in Unicity to Axel. Sale of shares in Wye Ltd: – Wye Ltd is an unquoted investment company. – King acquired 5,000 shares in Wye Ltd on 1 June 2002 at a cost of ￡5 each. – These shares will be worth ￡45 each on 1 September 2015. – King will sell sufficient shares to generate after-tax proceeds of ￡30,000. Cottage in Newtown: – This property is wholly owned by King. – It is expected to have a value of ￡315,000 on 1 October 2015. Creation of the interest in possession trust: – King will pay any inheritance tax arising as a result of the gifts made to the trust. – Florentyna will be the life tenant and her two young children will be the remaindermen of the trust. – Florentyna will live in the cottage in Newtown and the trustees will invest the cash in quoted shares which will generate annual dividends of ￡3,000. Flat in Unicity: – The flat in Unicity is jointly owned by King and his wife, Joy, in the proportions: King 75% and Joy 25%. – King and Joy have recently signed a contract with Axel’s daughter to rent the flat to her for three years starting on 1 September 2015. – The rental agreement is on a commercial basis. – King has obtained the following expected valuations for the flat as at 1 March 2016 icon-img

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【简答题】

Ernest intends to sell a capital asset on 1 February 2013 and wishes to maximise his after tax sales proceeds He is also seeking advice on his inheritance tax position and on his will. The following information has been obtained from a telephone conversation with Ernest and from client files. Ernest: - Is 54 years old and unmarried. - Lives with Georgina, who is 48 years old, and her adult daughter, Eileen. - Earns a salary of ￡130,000 per year. - Has as yet made no disposals of capital assets in the tax year 2012/13. - Intends to sell either an oil painting or 7,700 shares in Neutron Ltd on 1 February 2013 Oil painting: - Ernest inherited the painting on the death of his uncle on 1 May 2007 when it was worth ￡23,300. - Ernest's uncle purchased the painting on 1 July 1993 for ￡19,500. - The painting is expected to be worth ￡47,000 on 1 February 2013. Shares in Neutron Ltd: - Qualified for income tax relief under the enterprise investment scheme (EIS) although Ernest did not claim any relief. - 1 April 2004 Ernest subscribed for 18,600 shares at ￡8.90 per share. - 1 March 2006 Ernest received a 1 for 4 bonus issue. - 1 July 2009 Ernest purchased his full entitlement under a 1 for 10 rights issue at ￡4.20 per share. - The shares are expected to be worth ￡5 each on 1 February 2013. Neutron Lid: - Has an issued share capital of two million ￡1 ordinary shares. - Is not quoted on any stock exchange. - Manufactures and distributes radiation measuring equipment. Inheritance tax planning and wills: - Neither Ernest nor Georgina have made any lifetime gifts. - In his will, Ernest has left the whole of his estate to Georgina. - In her will, Georgina has left the whole of her estate to Eileen. - Ernest and Georgina wish to minimise their total inheritance tax liability. - They are willing to make lifetime gifts to each other but not to Eileen or any other person or organisation. Current market values of assets owned: Ernest Georgina ￡￡ Family home 620,000 - Antiques and works of art 400,000 60,000 Investment property 380,000 - Shares in Neutron Ltd 127,875 - Required (a) Prepare calculations of the after tax sales proceeds that would be realised on the proposed sale of the painting and on the proposed sale of the shares on 1 February 2013. Note: you should assume that Ernest will make any necessary beneficial claims or elections. (b) Prepare brief notes explaining the inheritance tax liabilities that will arise on the deaths of Ernest and Georgina if no action is taken to reduce such liabilities; identify any actions that could be taken in order to reduce these liabilities and explain the inheritance tax and capital gains tax implications of these actions. Note: you are not required to prepare calculations for part (b) of this question. Assume that the tax rules and rates for 2011/12 continue to apply in subsequent years.

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10.

【组合题】

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