Hello
I have a new client who has asked me to complete their Corporation Tax Return. Following a request to previous account they have sent over to me the tangible assets data from previous years but as far as I can see they have never deprecated this tangible asset (company van and trailer).
The van and trailer were bought for £31k four years ago and were recorded in last year’s balance sheet as £31k, they were deposited of in this financial year for £16k. I plan to compete the following entries but have you any other suggestions of how I can account for this as a £15k expense in the P&L will mean that this company will not make a profit in this financial year.
Dr Bank £16k
Cr FA Vehicle disposals £16k
Dr Expenses deprecation £15k
Cr FA deprecation disposals £15k
Thank you for your help in advance.
Replies (4)
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Eh?
My journals would be:
Dr B/S Bank £16K
Cr B/S FA Vehicle cost £31K
Dr P&L Loss on disposal of FA £15K
However, what have the accounting entries got to do with the Corporation Tax Return? The only entry you need for CT is to deduct £16K from the balance brought forward on the main pool of capital allowances. If that results in a negative balance on the pool, you have a (taxable) balancing charge of that balance. Otherwise, you claim WDA on the reduced positive balance of the pool.
Only had a quick read but starting point must be that depreciation is not an allowable expense for CT. The depreciation is bookkeeping although users of the accounts will have given a misleadingly high profit.
Loss this year but inflated profit previous years
I would post as Euan's journal.
There may well be a trading loss this year but this adjusts for the over-inflated trading profits in the previous years.
And for tax purposes the situation is as per Euan indicates. Hopefully capital allowances have been claimed on these items.