ACCA F6 Chapter 7

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1. 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

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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ACCA F6 Chapter 7 - Quiz


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

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

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

Explanation

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

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

Explanation

Explanation: Supplementary work and marketing indicates a trade.

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5. 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.

Explanation

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

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

Explanation

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

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

Explanation

Explanation: Traders parking fines are never allowed.

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

Explanation

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

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

Explanation

Explanation: Expenditure is not incidental to the trade.

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

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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11. 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.

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

Explanation

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

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13. 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.

Explanation

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

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

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.

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

Explanation

Explanation: Such expenditure is specifically not deductible.

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16. 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.

Explanation

Explanation: It was disallowed as it had dual purpose.

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Alpha purchased a rice mill. This is the fourth time that he has...
A company pays £2,000 as annual lease charge for a car with CO2...
An individual once bought a crate of whisky and then sold it through...
A group of accountants bought, blended and recasked a quantity of...
A builder builds and sells houses. Few of those are retained for...
Alpha paid parking fine for his employee BETA when he was on business...
Alpha paid a parking fine of £23 when on a business trip. The...
Alpha inherited a home from his father and sold the same immediately....
Customer was injured by a falling chimney and paid damages. The cost...
Profit from sale of 34,000,000 yards of aircraft linen will be...
Alpha commences trade on 1.1.2102. He incurred £12,000 expense...
Alpha purchases expensive jewelry from his pension receipt but sold...
A banker working in the branch pays £225 as his annual...
A company pays £2,000 as annual lease charge for a car with CO2...
Cost of initial repair to improve an asset recently acquired to make...
A carpenter claimed 30p lunch cost as expense as he had to pay 40p...
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