ACCA F6 Chapter 7

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LFTC2011

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Quizzes Created: 7 | Total Attempts: 2,133

Questions: 16 | Attempts: 108 | Updated: Mar 21, 2023

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Test of ACCA F6 Taxation Chapter 7: Taxation (Computing Trading Income)

Questions and Answers

1.

Profit from sale of 34,000,000 yards of aircraft linen will be considered as capital gains rather than Trade.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Explanation: subject matter of the trade indicates whether the transaction is a trade or not. 1,000,000 toilet rolls do not seem to be investment and so 34,000,000 yards of aircraft linen. Hence it is considered a trade.

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2.

Alpha purchased a rice mill. This is the fourth time that he has acquired the mill and sold the previous three. This is a trade
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Explanation: Acquisition of rice mill is obviously a capital investment. However, frequency of the acquisition and disposal indicates that that it is trade.

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3.

A builder builds and sells houses. Few of those are retained for longer period. This is capital gain rather than trading as he holds few houses.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Explanation: Existence of similar transactions in the past indicates that the trade exists.

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4.

Alpha purchases expensive jewelry from his pension receipt but sold shortly afterwards. This is a trade.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Explanation: Length of ownership indicate trade or not. If the length of ownership is short, it is a trade.

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5.

An individual once bought a crate of whisky and then sold it through an agent, as other do, is not a trade.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Explanation: Organisation of activity as a trade indicates a trade.

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6.

A group of accountants bought, blended and recasked a quantity of brandy. Later they sold it. It was not a trade.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Explanation: Supplementary work and marketing indicates a trade.

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7.

Alpha inherited a home from his father and sold the same immediately. This is a trade.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Explanation: Unintentional acquisition of the asset is an indication that it is not a trade.

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8.

Alpha paid a parking fine of £23 when on a business trip. The fine is deductible expenditure for Alpha Traders.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Explanation: Traders parking fines are never allowed.

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9.

Alpha paid parking fine for his employee BETA when he was on business visit. The fine deductible.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Explanation: Parking fines are allowable for the employees of the business and not for traders

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10.

Cost of initial repair to improve an asset recently acquired to make it fit to earn profits is deductible expenditure.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Explanation: Such expenditure is specifically not deductible.

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11.

Customer was injured by a falling chimney and paid damages. The cost is not deductible.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Explanation: Expenditure is not incidental to the trade.

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12.

A carpenter claimed 30p lunch cost as expense as he had to pay 40p rather than 10p for lunch when he was out of city. The excess is deductible expenditure.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Explanation: It was disallowed as it had dual purpose.

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13.

A company pays £2,000 as annual lease charge for a car with CO2 emission of 155g/km. The cost is fully deductible.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Explanation: With CO2 emission of up to 160g/km, all expenditure is deductible. If CO2 emission exceeds 160g/km, 15% of the lease charges are not deductible.

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14.

A company pays £2,000 as annual lease charge for a car with CO2 emission of 155g/km. The cost is fully deductible.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Explanation: With CO2 emission of up to 160g/km, all expenditure is deductible. If CO2 emission exceeds 160g/km, 15% of the lease charges are not deductible.

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15.

A banker working in the branch pays £225 as his annual subscription to ACCA. The amount reimbursed by the bank. It is not a deductible expenditure for the bank.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Explanation: The membership is not necessary for the purpose of trade. Hence is not deductible.

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16.

Alpha commences trade on 1.1.2102. He incurred £12,000 expense to buy printing machinery that he now uses for trade on 1.1.2004. The expenditure will not be treated as being made on the first day of the commencement of trade.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Explanation: Only that expenditure will be considered as incurred on the first date of the trade which is incurred within 7 years of the commencement of the trade and meet certain other conditions. In this case, the expenditure is incurred more than 7 years before the commencement of the trade.

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ACCA F6 Chapter 7

Profit from sale of 34,000,000 yards of aircraft linen will be considered as capital gains rather than Trade.

Alpha purchased a rice mill. This is the fourth time that he has acquired the mill and sold the previous three. This is a trade

A builder builds and sells houses. Few of those are retained for longer period. This is capital gain rather than trading as he holds few houses.

Alpha purchases expensive jewelry from his pension receipt but sold shortly afterwards. This is a trade.

An individual once bought a crate of whisky and then sold it through an agent, as other do, is not a trade.

A group of accountants bought, blended and recasked a quantity of brandy. Later they sold it. It was not a trade.

Alpha inherited a home from his father and sold the same immediately. This is a trade.

Alpha paid a parking fine of £23 when on a business trip. The fine is deductible expenditure for Alpha Traders.

Alpha paid parking fine for his employee BETA when he was on business visit. The fine deductible.

Cost of initial repair to improve an asset recently acquired to make it fit to earn profits is deductible expenditure.

Customer was injured by a falling chimney and paid damages. The cost is not deductible.

A carpenter claimed 30p lunch cost as expense as he had to pay 40p rather than 10p for lunch when he was out of city. The excess is deductible expenditure.

A company pays £2,000 as annual lease charge for a car with CO2 emission of 155g/km. The cost is fully deductible.

A company pays £2,000 as annual lease charge for a car with CO2 emission of 155g/km. The cost is fully deductible.

A banker working in the branch pays £225 as his annual subscription to ACCA. The amount reimbursed by the bank. It is not a deductible expenditure for the bank.

Alpha commences trade on 1.1.2102. He incurred £12,000 expense to buy printing machinery that he now uses for trade on 1.1.2004. The expenditure will not be treated as being made on the first day of the commencement of trade.