Investigate your state’s income tax withholding law (or that of some other state assigned by your instructor), and find the answers to the following questions:
a. Who must withhold the tax?
b. How are covered employers and covered employees defined?
c. Are there any reciprocal agreements into which the state has entered? If so, describe them.
d. How is the withholding rate determined?
e. What payments are subject to withholding?
f. What payments are not subject to withholding?
g. Are there any employee withholding exemptions?
h. What methods of withholding are permitted?
i. Describe each of the returns required by the state.
j. What kinds of information must be retained by employers in their withholding tax records?
k. What penalties are imposed for failure to com- ply with the withholding law?
l. Are any employers required to deposit their withheld income taxes through electronic funds transfer (EFT)? If so, what requirements does the state impose?
Genesis Ltd was incorporated three years ago and has grown rapidly since then. The rapid rate of growth has created problems for the business, which the directors have found difficult to deal with. Recently, a firm of management consultants has been asked to help the directors to overcome these problems.
In a preliminary report to the board of directors, the management consultants state: ‘Most of the difficulties faced by the business are symptoms of an underlying problem of overtrading.’
The most recent of the business are set out below.
All purchases and sales were on credit.
A was paid during the year on ordinary shares of £4,000.
(a) Calculate and discuss five that might be used to establish whether the business is overtrading. Do these five ratios suggest that the business is overtrading?
(b) S tate the ways in which a business may overcome the problem of overtrading.
The for Harridges Ltd are given below for the two years ended 30 June 2014 and 2015. Harridges Limited operates a department store in the centre of a small town.
Dividends were paid on ordinary shares of £65,000 and £75,000 in respect of 2014 and 2015 respectively.
(a) Choose and calculate eight ratios that would be helpful in assessing the performance of Harridges Ltd. Use end-of-year values and calculate ratios for both 2014 and 2015.
(b) U sing the ratios calculated in (a) and any others you consider helpful, comment on the business’s performance from the viewpoint of a prospective purchaser of a majority of shares.
The following for Blackstone plc are a slightly simplified set of published accounts. Blackstone plc is an engineering business that developed a new range of products in 2011. These products now account for 60 per cent of its sales revenue.
Income statement for the years ended 31 March
Statements of financial position as at 31 March
1. The expense and the cash outflow for interest payable are equal for each year.
2. The movements in property, plant and equipment during the year are:
3. Intangible assets represent the amounts paid for the of another engineering business acquired during the year.
4. P roceeds from the sale of non-current assets in the year ended 31 March 2015 amounted to £54 million.
5. £300 million was paid in dividends on ordinary shares in 2014, and £400 million in 2015.
Prepare a statement of cash flows for Blackstone plc for the year ended 31 March 2015.
Torrent plc’s income statement for the year ended 31 December 2014 and the statements of financial position as at 31 December 2013 and 2014 are as follows: Income statement for the year ended 31 December 2014
Statements of financial position as at 31 December 2013 and 2014
During 2014, the business spent £67 million on additional plant and machinery. There were no other non-current asset acquisitions or disposals. There was no share issue for cash during the year. The interest payable expense was equal in amount to the cash outflow. A of £60 million was paid.
Prepare the statement of cash flows for Torrent plc for the year ended 31 December 2014.
Manet plc had the following share capital and reserves as at 1 June 2014:
Share capital (£0.25 ordinary shares) …………………250
Share premium account ………………………………………50
Revaluation reserve …………………………………………..120
Currency translation reserve ……………………………….15
Retained earnings ……………………………………………..380
Total equity ……………………………………………………….815
During the year to 31 May 2015, the company revalued property, plant and equipment upwards by £30 million and made a loss on foreign exchange translation of foreign operations of £5 million. The company made a profit from normal operations of £160 million during the year and the was £80 million.
Prepare a statement of changes in equity for the year ended 31 May 2015 in accordance with the requirements of IAS 1 Presentation of Financial Statements.
The following is a draft set of simplified for Pear Limited for the year ended 30 September 2015.
Income statement for the year ended 30 September 2015
Statement of financial position as at 30 September 2015
The following information is available:
1 D epreciation has not been charged on office equipment with a carrying amount of £100,000. This class of assets is depreciated at 12 per cent a year using the reducing-balance method.
2 A new machine was purchased, on credit, for £30,000 and delivered on 29 September 2015 but has not been included in the (Ignore depreciation.)
3 A sales invoice to the value of £18,000 for September 2015 has been omitted from the (The cost of sales figure is stated correctly.)
4 A of £25,000 had been approved by the shareholders before 30 September 2015, but was unpaid at that date. This is not reflected in the The interest payable on the loan notes for the second half-year was not paid until 1 October 2015 and has not been included in the A n allowance for trade receivables is to be made at the level of 2 per cent of trade receivables.
7 A n invoice for electricity to the value of £2,000 for the quarter ended 30 September 2015 arrived on 4 October and has not been included in the The charge for taxation will have to be revised to take account of any amendments to the taxable profit arising from items 1 to 7. Make the simplifying assumption that tax is payable shortly after the end of the year, at the rate of 30 per cent of the profit before tax.
Prepare a revised set of for the year ended 30 September 2015 incorporating the additional information in 1 to 8 above. (Work to the nearest £1,000.)
A local education authority is faced with a predicted decline in the demand for school places in its area. It is believed that some schools will have to close in order to remove up to 800 places from current capacity levels. The schools that may face closure are referenced as A, B, C and D. Their details are as follows:
● School A (capacity 200) was built 15 years ago at a cost of £1.2 million. It is situated in a ‘socially disadvantaged’ community area. The authority has been offered £14 million for the site by a property developer.
● School B (capacity 500) was built 20 years ago and cost £1 million. It was renovated only two years ago at a cost of £3 million to improve its facilities. An offer of £8 million has been made for the site by a business planning a shopping complex in this affluent part of the area.
● School C (capacity 600) cost £5 million to build five years ago. The land for this school is rented from a local business for an annual cost of £300,000. The land rented for School C is based on a 100-year lease. If the school closes, the property reverts immediately to the owner. If School C is not closed, it will require a £3 million investment to improve safety at the school.
● School D (800 capacity) cost £7 million to build eight years ago; last year £1.5 million was spent on an extension. It has a considerable amount of grounds, which is currently used for sporting events. This factor makes it attractive to developers, who have recently offered £9 million for the site. If School D is closed, it will be necessary to pay £1.8 million to adapt facilities at other schools to accommodate the change.
In its accounting system, the local authority depreciates non-current assets based on 2 per cent a year on the original cost. It also differentiates between one-off, large items of capital expenditure or revenue, on the one hand, and annually recurring items, on the other.
The local authority has a central staff, which includes administrators for each school costing £200,000 a year for each school, and a chief education officer costing £80,000 a year in total.
(a) Prepare a summary of the relevant cash flows (costs and revenues, relative to not making any closures) under the following options:
1 closure of D only
2 closure of A and B
3 closure of A and C.
Show separately the one-off effects and annually recurring items, rank the options open to the local authority and, briefly, interpret your answer. Note: Various approaches are acceptable provided that they are logical.
(b) Identify and comment on any two different types of irrelevant cost contained in the information given in the question.
(c) Discuss other factors that might have a bearing on the decision.
Rob Otics Ltd, a small business that specialises in manufacturing electronic-control equipment, has just received an inquiry from a potential customer for eight identical robotic units. These would be made using Rob Otics’s own labour force and factory capacity. The product specification prepared by the estimating department shows the following:
Material and labour requirements for each robotic unit:
Component X ……………….2 per unit
Component Y ……………….1 per unit
Component Z ……………….4 per unit
Assembly labour 25 hours per unit (but see below) Inspection labour 6 hours per unit
As part of the costing exercise, the business has collected the following information:
● Component X. This item is normally held by the business as it is in constant demand. There are 10 units currently held which were bought for £150 a unit. The sole supplier of Component X has announced a price rise of 20 per cent, effective immediately, for any further supplies. Rob Otics has not yet paid for the items currently held.
● Component Y. 25 units are currently held. This component is not normally used by Rob Otics but the units currently held are because of a cancelled order following the bankruptcy of a customer. The units originally cost the business £4,000 in total, although Rob Otics has recouped £1,500 from the liquidator of the bankrupt business. As Rob Otics can see no use for these units (apart from the possible use of some of them in the order now being considered), the finance director proposes to scrap all 25 units (zero proceeds).
● Component Z. This is in regular use by Rob Otics. There is none in inventories but an order is about to be sent to a supplier for 75 units, irrespective of this new proposal. The supplier charges £25 a unit on small orders but will reduce the price to £20 a unit for all units on any order over 100 units.
● Other items. These are expected to cost £250 in total.
Assembly labour is currently in short supply in the area and is paid at £10 an hour. If the order is accepted, all necessary labour will have to be transferred from existing work. As a result, other orders will be lost. It is estimated that for each hour transferred to this contract £38 will be lost (calculated as lost sales revenue £60, less materials £12 and labour £10). The production director suggests that, owing to a learning process, the time taken to make each unit will reduce, from 25 hours to make the first one, by one hour a unit made. (That is 25 hours to make the first one, 24 hours to make the second, 23 hours to make the third one and so on.) Inspection labour can be provided by paying existing employees overtime which is at a premium of 50 per cent over the standard rate of £12 an hour. When the business is working out its contract prices, it normally adds an amount equal to £20 for each assembly labour hour to cover its general costs (such as rent and electricity). To the resulting total, 40 per cent is normally added as a profit mark-up.
(a) Prepare an estimate of the minimum price that you would recommend Rob Otics Ltd to charge for the proposed contract such that it would be neither better nor worse off as a result. Provide explanations for any items included.
(b) Identify any other factors that you would consider before fixing the final price.
Andrews and Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres of an electrical cable in which the business specialises. The estimating department of the business has produced the following information relating to the contract:
● Materials: The cable will require a steel core, which the business buys in. The steel core is to be coated with a special plastic, also bought in, using a special process. Plastic for the covering will be required at the rate of 0.10 kg/metre of completed cable.
● Direct labour:
The business already holds sufficient of each of the materials required to complete the contract. Information on the cost of the inventories is as follows:
The steel core is in constant use by the business for a variety of work that it regularly undertakes.
The plastic is a surplus from a previous contract where a mistake was made and an excess quantity ordered. If the current contract does not go ahead, this plastic will be scrapped.
Unskilled labour, which is paid at the rate of £7.50 an hour, will need to be taken on specifically to undertake the contract. The business is fairly quiet at the moment which means that a pool of skilled labour exists that will still be employed at full pay of £12 an hour to do nothing if the contract does not proceed. The pool of skilled labour is sufficient to complete the contract.
Indicate the minimum price at which the contract could be undertaken, such that the business would be neither better nor worse off as a result of doing it.