AUDITING & TAXATION
Instructions to candidates:
a)
Time allowed: Three hours
(plus an extra ten minutes’ reading time at the start
–
do not write anything
during this time)
b)
Answer ALL of Part A, any THREE questions from Part B and a
ny TWO questions from Part C
c)
Part A carries 10% of the marks, Part B carries 60% of the marks and Part C carries 30% of the marks. Marks
for each question are shown in [ ]
d)
Non
–
programmable calculators are permitted in this examination
PART A
1.
Exp
lain the primary objectives of an audit.
[10]
PART B
2.
a)
Explain the contents of
t
he
a
uditor
’
s
r
eport.
[10]
b)
Explain the
a
uditor
’
s
r
ights.
[10]
3.
Explain briefly how you would
verify
the following items:
a)
Receivables (debtors)
b)
Bank balances
c)
Long
–
term liabilities
d)
Trade payables (creditors)
[5 each]
4.
a)
Explain briefly the principal contents of a
l
etter of
r
epresentation (engagement).
[10]
b)
Discuss the effect of post balance sheet events on the financial statements and on the aud
itor’s
report.
[10]
5.
a)
Outline the use of
i
nternal
c
ontrol
e
valuation questionnaires (ICEQs).
[6]
b)
Explain the planning process as regards an audit.
[8]
c)
Discuss t
he use of
c
ompliance
t
ests.
[6]
PART C
6.
Write short notes on the UK tax treat
ment on EACH of the following:
a)
PAYE
b)
Allowable expenses
c)
Capital gains tax (CGT)
[5 each]
continued overleaf
7.
The following information applies to any personal tax calculations:
TAX RATES
20% on the first £30,000 of taxabl
e income
40% on the next £70,000 of taxable income
50% on any further taxable income
PERSONAL ALLOWANCES
Single person £9,000
Additional allowance of £5,000 can be claimed by one of the partners in a marriage.
PENSION CONTRIBUTIONS
Up to the age of
49 a maximum of 15% of gross pay can be paid tax free into a qualifying pension fund.
From age 50 a maximum of 20% can be paid in.
Axel, aged 48, is a single person who earns £82,000 per year. Axel has paid 10% of his gross pay into a
qualifying pension
fund. Axel has also paid £460 in respect of professional subscriptions. Axel has also paid
£2,100 in respect of expenses which are allowable against tax.
Brigita, aged 53, is married (and claims the additional allowance) and earns £53,000. Brigita has paid
8% of
her gross pay into a qualifying pension.
TASKS
Calculate the taxable pay and the total tax payable for EACH of the following:
a)
Axel
[9]
b)
Brigita
[6]
8.
The following is the summarised internal profit and loss account of XBP Ltd after its
first year of trading:
£
Sales
1,800,000
Cost of sales
(850,000)
Distribution costs
(250,000)
Administration expenses
(190,000)
Depreciation of equipment
(22,000)
*
Depreciation of IT equipment
(38,000)
*
*Already included in either distr
ibutio
n costs or administration
expenses above.
Other information:
Original cost of equipment
140,000
Original cost of IT equipment
160,000
Corporation tax (i.e. company taxation) is charged at 20% of the taxable profit.
Initial writing down allowances are:
25% as regards equipment
50% as regards IT equipment
Included in the distribution costs is £28,000 which is deemed non
–
allowable.
TASK
Calculate XBP Ltd’s total taxable profit AND the total
tax charge for the year.
[15]
