business-reporting-july-2010-exam-paper

Ttrs engagement letter with pepperart was revised to

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TTR’s engagement letter with PepperArt was revised to reflect the client’s responsibilities to file all returns on behalf of the group and to communicate directly with HMRC. Under this revised engagement letter, TTR has agreed to review, and adjust if necessary, Pepper Art’s corporation tax return and those of Spaceway and DeliverUK, but it has no authority to communicate with HMRC on behalf of the clients. You receive the following instructions from the TTR tax partner: “I have forwarded you an email (including an attachment) from Jim Jones which requires your attention today ( Exhibit ). Please prepare a draft reply to this email. “Also I want you to write a briefing note to me setting out the ethical implications of Jim Jones’s email for our firm.” Requirement Prepare the draft reply to Jim Jones’s email and the briefing note requested by the tax partner. (25 marks)
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© The Institute of Chartered Accountants in England and Wales 2010 6 of 16 Exhibit: Email and attachment from Jim Jones Email From: Jim Jones To: TTR Tax partner Date: 26 July 2010 Subject: Tax computation and taxation implications I have attached the adjustment to profit computation for Pepper Art ( Attachment ) for the year ended 30 June 2010 which has been prepared by the internal tax department. In your engagement letter you have agreed to review and adjust our corporation tax returns. Please review the adjustment to profit computation by providing me with the following: a revised calculation of the corporation tax liability, correcting any errors you identify; brief notes to explain the errors made by the internal tax department and your adjustments; and a note of any additional information you require to complete your review. I also need your advice on the VAT implications of the following matter: Purchase of Star House by Spaceway Our subsidiary, Spaceway, is considering making an offer to buy a three-storey commercial property called Star House. The property, newly constructed and completed in 2006, was purchased on 1 June 2006 by CartoonGo plc, a film animation company, for £1.2 million plus VAT at 17.5%. CartoonGo makes standard rated supplies. The building was used exclusively by CartoonGo as its head office and production facility until 1 June 2008. As a result of difficult trading conditions, CartoonGo rented out the top two floors of the building to an insurance company from 1 June 2008 and continued to operate from the ground floor. CartoonGo did not opt to tax the property as it was advised that the tenant would not be able to recover VAT. It is proposed that, if the purchase of Star House by Spaceway takes place, CartoonGo will continue to occupy the ground floor, paying a commercial rent. The directors think the purchase of this property by Spaceway is an excellent opportunity and are
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TTRs engagement letter with PepperArt was revised to...

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