Page 20 - CIMA OCS August 2018 Day 2 Tasks
P. 20

CIMA   AUGUST 2018 – OPERATIONAL CASE STUDY


               EXERCISE THREE (TAXATION)


               TRIGGER.
               You have received the following email from Fred Thomas:

               From:   Fred Thomas (Managing Director)
               To:      Finance Officer
               Subject:  Strictly confidential

               Later today I am having a meeting with the Finance Director, Christie Smith to discuss some of the
               ideas that I have had to take the business forward which will involve some capital expenditure.

               She also would like to discuss the tax calculations that our external auditor completed for us last
               year as she feels that this is something that should be done in house in the future.

               I have never been involved in the tax issues of the business so over the weekend I have been doing
               a bit of research and am a little confused. I appreciate that capital expenditure is subject to
               something called a tax depreciation allowance but I do not understand how this works. Also I don’t
               understand why when we made a profit of D$21,720,00 last year we did not pay 30% of this as tax
               which I calculate to be D$6,516,000, instead we paid D$6,900,000.

               I’m sure that the auditor knew what he was doing but it looks to me that we have not paid the
               correct tax, and in-fact overpaid in this year? Considering recent scandals in the press. I do not
               want the reputation of Thomas Fine Teas to be damaged by any adverse publicity.
               I appreciate  that  this is short notice  but  I would be  most grateful  if  you could give  me  any
               information that might help me discuss this issue with Christie and therefore might be able to
               make some informed decisions.
               Kind regards

                Fred Thomas
               Managing Director



               TASK
               Using the information provided in the pre-seen material, reply to Fred’s email explaining what tax
               depreciation allowance is and how this, in combination with other tax adjustments, has resulted
               in a different taxable profit than was reported in the financial statements. Within your reply you
               should suggest reasons as to why certain expenses are disallowable under Deeland’s tax rules

                                                                              (Time Allowed: 30 minutes)




















               42                                                                  KAPLAN PUBLISHING
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