Claiming loss through AIA (LTD)

AIA and claiming loss (LTD)

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Hello everyone,

It is probably very simple; nevertheless I seem to have got stuck with accounts preparation and claiming the AIA.

Could you please advise how to account for a loss resulting from AIA claim?

What I would like to find out is how to show this loss on P&L and SOFP.

Scenario.

Assume that a company had a £100 profit for the year and about £120 worth of AIA to claim leaving the company with a £20 loss. I have absolutely no idea how to treat this loss as the accounts will just not balance due to AIA being claimed on Capital Expenditure, thus I cannot put it on P&L.

What do I do in this situation please? How do I show AIA on the face of the balance sheet? Or do I even show it at all or will it just be a £20 loss input somewhere in ct600?

If someone could advise what to do with these entries that would be great? Double entry items would also be appreciated please. I have never been in this situation where AIA was greater than profit for a period and I have absolutely no idea how to resolve it.

Thank you very much for any help.

Replies (40)

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By Tim Vane
19th Jul 2016 09:47

AIA will not appear anywhere in the accounts at all, since it has nothing to do with the accounts, unless you are making a deferred tax provision. Your accountant will do this for you if needed.

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Replying to Tim Vane:
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By yackoob2000
19th Jul 2016 09:58

Thank you for that.
That's the confirmation I need. There's no differed tax to consider here.
I am assuming that all AIA not used in this period will become WDA for future periods to be written down accordingly to the rate applicable?
I am actually the one to prepare the accounts.
Still wet behind my ears and sometimes need guidance when encounter new scenarios.

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Replying to yackoob2000:
By johngroganjga
19th Jul 2016 10:06

If you have claimed AIA you must have some deferred tax to account for.

You plainly do not understand what deferred tax is.

AIA not CLAIMED does indeed become WDA in future years. AIA not USED does nothing of the kind. If it exceeds the available taxable profit it will become an tax loss to be carried forward to offset any future profits after capital allowances.

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Replying to johngroganjga:
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By yackoob2000
19th Jul 2016 11:04

Dear John,
Thank you for your answer. As you can see from my earlier reply, I have recently graduated and have not been long in practice. I can asure you i know what the deffered tax is i just cannot see it going into the accounts anywhere
Could anyone please just give me a clear and simple response?

How would I fit the deferred tax in the below?
I just need to know the mechanics behind it.
Every instruction I can find only relates to the calculations of the figure itself but none give the full picture.
The figures are made up to make it very simple.

P&L
revenue £100
costs £0
Profit before tax £100
Tax £0 -> due to AIA (£120)
After Tax £100

Balance Sheet
Assets £120
Bank & Cash £0

Capital & Res. £ 120

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Replying to yackoob2000:
By Tim Vane
19th Jul 2016 11:19

Sorry, but you should not be doing accounts for paying customers. You do not have the requisite knowledge or experience.

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Replying to yackoob2000:
By johngroganjga
19th Jul 2016 11:33

Your deferred tax would go into the tax charge in your P&L and into provisions in your balance sheet.

From you figures the increase in the company's deferred tax liability during the year is likely to have been £20 but proper calculations will be needed to be sure. As you know so much about deferred tax you have presumably done those already.

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Replying to johngroganjga:
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By yackoob2000
19th Jul 2016 11:38

THANK YOU VERY MUCH johngroganjga

that was precisely the answer i needed. Nothing more nothing less.
Have a great day Sir.

To the other who were so keen to have a go at someone- you could learn a lot of manners from Mr Johngroganjga

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Replying to yackoob2000:
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By User deleted
19th Jul 2016 21:06

I'm happy to answer this question. However, I do agree with others that you (either as an employee or being in practice as a trainee or otherwise) should't be responsible for preparing the accounts of a company. In fact, having to ask such a basic question on a forum also means you weren't bothered to do a basic Google search even;

Again as others have said deferred tax is an accounting entry and it has nothing to do with tax computation. Now going by your example:

Your bought an asset for £120 and are claiming AIA for tax purposes. Because the income is just £100, there is a loss £20 to carry forward for tax purposes. So for tax purposes:

Adjusted profit before CA - £100
Less: CA - £120
Loss - carried forward - £20

Capital allowance:
Additions to asets (whatever)- £120
AIA claimed - £120
___
WDV NIL
So the tax base of the asset is - £0

However for accounting purposes the asset base is the same i.e. £120 because you've not charged depreciation which is fundamentally wrong. Anyway the deferred tax is £24 (i.e. £120 accounting base less tax base which is £0 x CT rate which is 20% = £120 - £0 = £120 x 20% = £24).

Therefore, the P&L account will appear as follows:

Income £100
Deferred tax (£24)
Profit £76
(Basically, deferred tax will have the effect of restricting the distributable surplus)

On the balance sheet it will appear as a separate liability item under 'Provision for liabilities' - £24.

Note: there is a fundamental error in your example because depreciation must be charged every year in order for deferred asset charge to reverse in the following years.

Thanks (0)
Replying to yackoob2000:
RLI
By lionofludesch
19th Jul 2016 12:12

Quote:

I am assuming that all AIA not used in this period will become WDA for future periods to be written down accordingly to the rate applicable?
I am actually the one to prepare the accounts.

Thought so. You need to think about that until you've educated yourself. On the other hand, if your losses are only £20, I don't suppose the consequences of getting it wrong will be too bad.

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Portia profile image
By Portia Nina Levin
19th Jul 2016 10:52

Dr Nonsense on the Balance Sheet
Cr Nonsense in the P & L

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Replying to Portia Nina Levin:
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By yackoob2000
19th Jul 2016 11:06

dear Portia Nina Levin
are you here to help?
if not refrain from posting.
Thank you.
I am glad you know it all but if you do share your knowledge if your here to discourage me just disappear please

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Replying to yackoob2000:
By Tim Vane
19th Jul 2016 11:20

Yes, she is here to discourage you. You need to stop now.

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Replying to Tim Vane:
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By yackoob2000
19th Jul 2016 11:36

Dear Mr Vane
Have you been having a bad day and you need to take it out on strangers?
I merely asked for an advice and not to be abused.
You clearly are yet another person who does not really want to help.
I asked a very simple question (very simnple to someone who knows the answer).
My example of P&L and BS is accurate and if someone cannot understand it it is her problem not mine.

I only asked about ONE THING- what to do if aia for year is greater than profits and you all seem to say you do know yet noone provides a clear answer, which makes me think you do not know it well yourself...

all i need to know is how to put these elements together and yet you all seem to go about putting someone down much better than actually explaining something.

That is a very good and square way of behaving towards people. The way you would expect from a teenagers forum.

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Replying to yackoob2000:
By Tim Vane
19th Jul 2016 11:54

Your initial question showed a lack of understanding. You were treated gently. Your subsequent posts smack of rank incompetence and reckless arrogance. You want to put AIA into some poor client's accounts, then go right ahead. I just feel sorry for the poor sucker you have fooled into paying money for a chump with a stetson.

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Replying to Tim Vane:
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By yackoob2000
19th Jul 2016 12:03

how can you possibly know anything about me?
Lack of knowledge in an area you never dwelt into does into equal lack of knowledge in other areas.
If you have ever passed any exams you ought to know what they look like and that scoring high does not equal you know the topic well.
As far as I am aware my knowledge+ experience is more than adequate to what I do.
I have never been ion the similar situation therefore i sought advice.
You clearly have too much time on your hands and like to be unpleasant to people who cannot see you. I believe you are only like this when you do not have to actually face the person you insult.
Been bullied as a kid?

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Replying to yackoob2000:
By Tim Vane
19th Jul 2016 12:24

yackoob2000 wrote:

how can you possibly know anything about me?

By reading your posts. What else do we have to go on?

yackoob2000 wrote:

If you have ever passed any exams you ought to know what they look like and that scoring high does not equal you know the topic well.

You have adequately demonstrated that, thank you.

yackoob2000 wrote:

As far as I am aware my knowledge+ experience is more than adequate to what I do.

It isn't.

Thanks (1)
Replying to Tim Vane:
By mrme89
19th Jul 2016 12:30

Quote:

yackoob2000 wrote:

how can you possibly know anything about me?

By reading your posts. What else do we have to go on?

yackoob2000 wrote:
If you have ever passed any exams you ought to know what they look like and that scoring high does not equal you know the topic well.

You have adequately demonstrated that, thank you.

yackoob2000 wrote:
As far as I am aware my knowledge+ experience is more than adequate to what I do.

It isn't.

Have a day off, Tim.

When there were lots of posts daily, some of the comments were entertaining. Now there are just a handful of threads, all with snarky comments, it makes the site even more unpleasant.

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Replying to mrme89:
By Tim Vane
19th Jul 2016 12:44

Thanks but I'm fine.

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Replying to Tim Vane:
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By yackoob2000
19th Jul 2016 12:39

honestly how old are you? five?
If you do not wish to help just leave.
You know nothing about me. All you know is that i do not know too much about aia.
I bet you must had been one of those bullied kids, who know has grown up and tries to take it out on anyone seeking help from whom you feel better.

Take your obese [***] from your reinforced chair, go for a walk and chill. this might help. it is not too late,. even for you...

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Replying to yackoob2000:
By Tim Vane
19th Jul 2016 12:43

Sticks and stones etc. It's not me you are hurting, just your clients. Please for their sake, stop dabbling before it costs them money.

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By Ruddles
19th Jul 2016 11:27

Ask yourself the question - what would happen if the assets were sold for their book value of £120?

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Replying to Ruddles:
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By yackoob2000
19th Jul 2016 11:41

thank you

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Replying to Ruddles:
Portia profile image
By Portia Nina Levin
19th Jul 2016 11:58

Actually, the questions to be asked are:
what would the tax be if the accounting profit were the taxable profit?
why is the actual tax figure not that amount?
will the responsible differences reverse at some time in the future, and at what rate of tax?

Thanks (4)
Replying to Portia Nina Levin:
RLI
By lionofludesch
19th Jul 2016 12:23

Indeed. Or put another way, how much tax am I paying later instead of now?

Thanks (1)
Replying to lionofludesch:
By Tim Vane
19th Jul 2016 12:27

Or, to put it another way: don't put soap powder in the tumble dryer.

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Replying to fawltybasil2575:
Portia profile image
By Portia Nina Levin
19th Jul 2016 12:45

Assumptions 2(2) and 3 are mutually exclusive Basil.

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Replying to fawltybasil2575:
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By yackoob2000
19th Jul 2016 12:48

Thank you Basil,
The figures in my example bear no relation the the figures in the accounts at all.
I made them up only to have a very clear view on the answers.
Thank you very much for your assistance.
That is a very comprehensive and good answer shedding light on the aspects I required.
Thank you and have a good day.

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By JCresswellTax
19th Jul 2016 12:55

Can I ask you an honest question please?

Are you working as a recently graduated trainee in a firm, or are you working for yourself?

Thanks (1)
Replying to JCresswellTax:
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By yackoob2000
19th Jul 2016 13:22

I cannot see any relation of your question to the question asked.
Are you yet another person to tell me that if i cannot understand AIA fully i should not touch the accounts?

I really wonder how your learning process went.

There is a few things I admit I do not know fully and THAT IS WHY I asked the simple question. No need for two more years of experience. Simple answer will do.

What I have noticed however a lot of you instead of trying to help, just try to preach.
I did not ask for any offensive or abusive comments from anyone.
I simply asked for guidance, which only select few seem to want to provide here.

NOTE TO ALL:
If it is not your intention to help just stop "littering" this thread.

Thanks (1)
Replying to yackoob2000:
Portia profile image
By Portia Nina Levin
19th Jul 2016 14:03

The question put to you is relevant because if you are relieving members of the public of their money in exchange for you providing services directly to them, then what you are doing borders on theft, given your blatant lack of competence.

Thanks (4)
Replying to yackoob2000:
By JCresswellTax
19th Jul 2016 15:38

Quote:

I cannot see any relation of your question to the question asked.
Are you yet another person to tell me that if i cannot understand AIA fully i should not touch the accounts?

I really wonder how your learning process went.

There is a few things I admit I do not know fully and THAT IS WHY I asked the simple question. No need for two more years of experience. Simple answer will do.

What I have noticed however a lot of you instead of trying to help, just try to preach.
I did not ask for any offensive or abusive comments from anyone.
I simply asked for guidance, which only select few seem to want to provide here.

NOTE TO ALL:
If it is not your intention to help just stop "littering" this thread.

As Portia has correctly observed, I am trying to determine if you are a trainee employee or not. If you are then the question is perfectly acceptable. Although I do wonder why you wouldn't just go ask a colleague.

However, If as I suspect, you have an accountancy degree and decided to go it alone, then the question is simply unacceptable as it is so basic that anyone in business for themselves would not have to ask it.

You might think we are preaching, but we are trying to help you out. You cannot service clients on your own with a lack of basic knowledge that you so clearly have.

You should be doing your learning as an employee with someone to check your work. You are going to cause someone a substantial financial loss and they will sue you.

So now get off your high horse and listen to the advice you are been given.

Will you now answer my question? Are you employed or working for yourself?

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Replying to JCresswellTax:
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By yackoob2000
19th Jul 2016 16:00

Yes I can answer your question- I am in employment; I cannot ask the question to a colleague however.
That is all you need to know.

Having seen how this forum works i do not think I will ever use it again as most of you lot are so arrogant and have your noses so deep your own butts you cannot even see the daylight.
I asked a simple question that relates to THE ONLY topic i do not feel confident in.
If you are sooooo knowledgeable it would have been enough if it had been said:
calculate aia and use the formula for deferred tax to determine the value to put put on BS.
BUT NO you are all going on about god knows what.
most of you completely useless and self centered.

I wonder how many of you do everything without a reference and how many of you knows everything off hand if you do something for the FIRST TIME.

So stop preaching and if you wanna help just help if you are not willing to help start a new thread where you can be undermining and putting down everyone you want.
You should be ashamed of yourselves.

Funny enough as i read mine and other posts on this forum you even undermine yourselves. Tragedy.

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Replying to yackoob2000:
By JCresswellTax
20th Jul 2016 09:13

You need to take your head out of your [***] and get a grip.

With an attitude like yours, I am sure as hell glad you are not an employee of mine.

What sort of a company do you work for if you can't ask a senior for assistance?

Or maybe you have already given them the attitude and they have told you to [***] off now, which I can fully understand.

With an attitude like yours, you won't get very far in this game as no one will want to teach you.

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By In a Daze
19th Jul 2016 13:14

I saw this post earlier and just chuckled to myself the OP is very lucky Portia is very calm today.

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By In a Daze
19th Jul 2016 13:14

I saw this post earlier and just chuckled to myself the OP is very lucky Portia is very calm today.

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By In a Daze
19th Jul 2016 13:14

I saw this post earlier and just chuckled to myself the OP is very lucky Portia is very calm today.

Thanks (1)
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By In a Daze
19th Jul 2016 13:14

I saw this post earlier and just chuckled to myself the OP is very lucky Portia is very calm today.

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Portia profile image
By Portia Nina Levin
19th Jul 2016 16:10

So what was the answer in the end? I am not really clear.

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Replying to Portia Nina Levin:
By mrme89
19th Jul 2016 16:13

Quote:

So what was the answer in the end? I am not really clear.

£8060

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Replying to mrme89:
Portia profile image
By Portia Nina Levin
19th Jul 2016 16:21

Thought so. There are solutions you cannot go wrong with.

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