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(ii) Explain, with reasons, the relief available in respect of the fall in value of the shares in All Over plc,identify the years in which it can be claimed and state the time limit for submitting the claim.(3 marks)
题目
(ii) Explain, with reasons, the relief available in respect of the fall in value of the shares in All Over plc,
identify the years in which it can be claimed and state the time limit for submitting the claim.
(3 marks)
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更多“(ii) Explain, with reasons, the relief available in respect of the fall in value of the shares in All Over plc,identify the years in which it can be claimed and state the time limit for submitting the claim.(3 marks)”相关问题
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第1题：
(c) Assuming that Stuart:
(i) purchased 201,000 shares in Omega plc on 3 December 2005; and
(ii) dies on 20 December 2007,
calculate the potential inheritance tax (IHT) liability which would arise if Rebecca were to die on 1 March
2008, and no further tax planning measures were taken.
Assume that all asset values remain unchanged and that the current rates of inheritance tax continue to
apply. (6 marks)
正确答案：
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第2题：
(ii) State, giving reasons, the tax reliefs in relation to inheritance tax (IHT) and capital gains tax (CGT) which
would be available to Alasdair if he acquires the warehouse and leases it to Gallus & Co, rather than to
an unconnected tenant. (4 marks)
正确答案：
(ii) Apart from the fact that Alasdair can keep an eye on his tenant, the main advantages are twofold:
IHT: If the firm are the tenants, the property will be land and buildings used in a business carried on by a partnership
in which the donor is a partner. Thus, Alasdair will be able to claim business property relief (BPR) at a rate of 50%
so long as he remains a partner in the firm. However, this relief would not be available until Alasdair has owned
the property for at least two years from his firm taking up the tenancy.
CGT: As Alasdair is a partner in the firm using the building, it will also be a qualifying asset for the purposes of rollover
relief on any gains arising from the disposal of the property. Assuming that Alasdair acquires a replacement asset
which will be used in the trade, the gain on sale can be deferred against the tax base cost of the replacement asset.
In the event that rollover relief cannot be used, any gains on disposal will be subject to business asset taper relief. -
第3题：
(ii) Explain the income tax (IT), national insurance (NIC) and capital gains tax (CGT) implications arising on
the grant to and exercise by an employee of an option to buy shares in an unapproved share option
scheme and on the subsequent sale of these shares. State clearly how these would apply in Henry’s
case. (8 marks)
正确答案：
(ii) Exercising of share options
The share option is not part of an approved scheme, and will not therefore enjoy the benefits of such a scheme. There
are three events with tax consequences – grant, exercise and sale.
Grant. If shares or options over shares are sold or granted at less than market value, an income tax charge can arise on
the difference between the price paid and the market value. [Weight v Salmon]. In addition, if options can be exercised
more than 10 years after the date of the grant, an employment income charge can arise. This is based on the market
value at the date of grant less the grant and exercise priced.
In Henry’s case, the options were issued with an exercise price equal to the then market value, and cannot be exercised
more than 10 years from the grant. No income tax charge therefore arises on grant.
Exercise. On exercise, the individual pays the agreed amount in return for a number of shares in the company. The price
paid is compared with the open market value at that time, and if less, the difference is charged to income tax. National
insurance also applies, and the company has to pay Class 1 NIC. If the company and shareholder agree, the national
insurance can be passed onto the individual, and the liability becomes a deductible expense in calculating the income
tax charge.
In Henry’s case on exercise, the difference between market value (￡14) and the price paid (￡1) per share will be taxed
as income. Therefore, ￡130,000 (10,000 x (￡14 – ￡1)) will be taxed as income. In addition, national insurance will
be chargeable on the company at 12·8% (￡16,640) and on Henry at the rate of 1% (￡1,300).
Sale. The base cost of the shares is taken to be the market value at the time of exercise. On the sale of the shares, any
gain or loss arising falls under the capital gains tax rules, and CGT will be payable on any gain. Business asset taper
relief will be available as the company is an unquoted trading company, but the relief will only run from the time that
the share options are exercised – i.e. from the time when the shares were acquired.
In Henry’s case, the sale of the shares will immediately follow the exercise of the option (6 days later). The sale proceeds
and the market value at the time of exercise are likely to be similar; thus little to no gain is likely to arise. -
第4题：
(ii) Compute the annual income tax saving from your recommendation in (i) above as compared with the
situation where Cindy retains both the property and the shares. Identify any other tax implications
arising from your recommendation. Your answer should consider all relevant taxes. (3 marks)
正确答案：
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第5题：
(ii) Assuming the relief in (i) is available, advise Sharon on the maximum amount of cash she could receive
on incorporation, without triggering a capital gains tax (CGT) liability. (3 marks)
正确答案：
(ii) As Sharon is entitled to the full rate of business asset taper relief, any gain will be reduced by 75%. The position is
maximised where the chargeable gain equals Sharon’s unused capital gains tax annual exemption of ￡8,500. Thus,
before taper relief, the gain she requires is ￡34,000 (1/0·25 x ￡8,500).
The amount to be held over is therefore ￡46,000 (80,000 – 34,000). Where part of the consideration is in the form
of cash, the gain eligible for incorporation relief is calculated using the formula:
Gain deferred = Gain x value of shares issued/total consideration
The formula is manipulated on the following basis:
￡46,000 = ￡80,000 x (shares/120,000)
Shares/120,000 = ￡46,000/80,000
Shares = ￡46,000 x 120,000/80,000
i.e. ￡69,000.
As the total consideration is ￡120,000, this means that Sharon can take ￡51,000 (￡120,000 – ￡69,000) in cash
without any CGT consequences. -
第6题：
(ii) The sales director has suggested to Damian, that to encourage the salesmen to accept the new arrangement,
the company should increase the value of the accessories of their own choice that can be fitted to the low
emission cars.
State, giving reasons, whether or not Damian should implement the sales director’s suggestion.
(2 marks)
正确答案：
(ii) Damian should not agree to the sales director’s suggestion. The salesmen will each make a significant annual income
tax saving under the proposal, whereas the company will also be offset (at least partly) by the reduction in the dealer’s
bulk discount. Further, 100% first year allowance tax incentive for low emission cars is not guaranteed beyond 31 March
2008, and it is unlikely that any change in policy with regards to the provision of additional accessories will, once
implemented, be easily reversible. -
第7题：
(iii) State the value added tax (VAT) and stamp duty (SD) issues arising as a result of inserting Bold plc as
a holding company and identify any planning actions that can be taken to defer or minimise these tax
costs. (4 marks)
You should assume that the corporation tax rates for the financial year 2005 and the income tax rates
and allowances for the tax year 2005/06 apply throughout this question.
正确答案：
(iii) Bold plc will be making a taxable supply of services, likely to exceed the VAT threshold. It should therefore consider
registering for VAT – either immediately on a voluntary basis, or when its cumulative taxable supplies in the previous
twelve months exceed ￡60,000.
As an alternative, the new group can apply for a group VAT registration. This will simplify its VAT administration as intragroup
transactions are broadly disregarded for VAT purposes, and only one VAT return is required for the group as a
whole.
Stamp duty normally applies at 0·5% on the consideration payable in respect of transactions in shares. However, an
exemption is available in the case of a takeover, reconstruction or amalgamation where there is no real change in
ownership, i.e. the new shareholdings mirror the old shareholdings, and the transaction is for commercial purposes. The
insertion of a new holding company over an existing company, as proposed here, would qualify for this exemption.
There is no VAT on transactions in shares. -
第8题：
(ii) Explain why Galileo is able to pay the inheritance tax due in instalments, state when the instalments are
due and identify any further issues relevant to Galileo relating to the payments. (3 marks)
正确答案：
(ii) Payment by instalments
The inheritance tax can be paid by instalments because Messier Ltd is an unquoted company controlled by Kepler at
the time of the gift and is still unquoted at the time of his death.
The tax is due in ten equal annual instalments starting on 30 November 2008.
Interest will be charged on any instalments paid late; otherwise the instalments will be interest free because Messier is
a trading company that does not deal in property or financial assets.
All of the outstanding inheritance tax will become payable if Galileo sells the shares in Messier Ltd.
Tutorial note
Candidates were also given credit for stating that payment by instalments is available because the shares represent at
least 10% of the company’s share capital and are valued at ￡20,000 or more. -
第9题：
(b) State, with reasons, the principal additional information that should be made available for your review of
Robson Construction Co. (8 marks)
正确答案：
(b) Principal additional information
■ Any service contracts with the directors or other members of the management team (e.g. the quantity surveyor). These
may contain ‘exit’ or other settlement terms in the event that their services are no longer required after a takeover/buyout.
■ Prior period financial statements (to 30 June 2005) disclosing significant accounting policies and the key assumptions
concerning the future (and other key sources of estimation uncertainty) that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities in the year to 30 June 2006.
For example, concerning:
– the outcome on the Sarwar dispute;
– estimates for guarantees/claims for rectification;
– assumptions made in estimating costs to completion (e.g. for increases in costs of materials or labour).
Tutorial note: Under IAS 1 ‘Presentation of Financial Statements’ the judgements made by management that have the
most significant effect on amounts recognised in financial statements (other than those involving estimations) should
also be disclosed.
■ The most recent management accounts and cash flow forecasts to assess the quality of management information being
used for decision-making and control. In particular, in providing Robson with the means of keeping its cash flows within
its overdraft limit.
Tutorial note: Note that Prescott has substantial cash resources. Therefore Robson’s lack of finance might be a reason
why its management are interested in selling the business.
■ A copy of the signed bank agreement for the overdraft facility (and any other agreements with finance providers). Any
breaches in debt covenants might result in penalties of contingent liabilities that Prescott would have to bear if it acquired
Robson.
■ The standard terms of contracts with customers for construction works. In particular, for:
– guarantees given (e.g. for rectification under warranty);
– penalty clauses (e.g. in the event of overruns or non-completion);
– disclaimers (including conditions for invoking force majeure).
Prescott will want to make some allowance for settlement of liabilities arising on contracts already completed/in-progress
when offering a price for Robson.
Tutorial note: A takeover might excuse Robson from fulfilling a contract.
■ Legal/correspondence files dealing with matters such as the claims of the residents of the housing development and
Robson’s claim against Sarwar Services Co. Also, fee notes rendered by Robson’s legal advisers showing the costs
incurred on matters referred to them.
■ Robson’s insurer’s ‘cover note’ to determine Robson’s exposure to claims for rectification work, damages, injuries to
employees, etc.
■ The quantity surveyor’s working papers for the last quarterly count (presumably at 31 March 2006) and the latest
available rolling budgets. Particular attention should be given to loss-making contracts and contracts that have not been
started. (Prescott might seek to settle rather than fulfil them.) The pattern of taking profits on contracts will be of
interest, for example, to determine the accuracy of the quantity surveyor’s estimates.
Tutorial note: A regular pattern of taking too much profit too soon might be due to underestimating costs to completion
or be evidence of cost overruns due to rectification.
■ Type and frequency of constructions undertaken. Prescott is interested in the building and refurbishment of hotels and
leisure facilities. Robson’s experience in this area may not be extensive.
■ Non-current asset register showing location of plant and equipment so that some test checking on physical existence
might be undertaken (if an agreed-upon-procedure). -
第10题：
(ii) If a partner, who is an actuary, provides valuation services to an audit client, can we continue with the audit?
(3 marks)
Required:
For each of the three questions, explain the threats to objectivity that may arise and the safeguards that
should be available to manage them to an acceptable level.
NOTE: The mark allocation is shown against each of the three questions above.
正确答案：
(ii) Actuarial services to an audit client
IFAC’s ‘Code of Ethics for Professional Accountants’ does not deal specifically with actuarial valuation services but with
valuation services in general.
A valuation comprises:
■ making assumptions about the future;
■ applying certain methodologies and techniques;
■ computing a value (or range of values) for an asset, a liability or for a business as a whole.
A self-review threat may be created when a firm or network firm2 performs a valuation for a financial statement audit
client that is to be incorporated into the client’s financial statements.
As an actuarial valuation service is likely to involve the valuation of matters material to the financial statements (e.g. the
present value of obligations) and the valuation involves a significant degree of subjectivity (e.g. length of service), the
self-review threat created cannot be reduced to an acceptable level of the application of any safeguard. Accordingly:
■ such valuation services should not be provided; or
■ the firm should withdraw from the financial statement audit engagement.
If the net liability was not material to the financial statements the self-review threat may be reduced to an acceptable
level by the application of safeguards such as:
■ involving an additional professional accountant who was not a member of the audit team to review the work done
by the actuary;
■ confirming with the audit client their understanding of the underlying assumptions of the valuation and the
methodology to be used and obtaining approval for their use;
■ obtaining the audit client‘s acknowledgement of responsibility for the results of the work performed by the firm; and
■ making arrangements so that the partner providing the actuarial services does not participate in the audit
engagement. -
第11题：
(ii) Identify and explain the potential financial statement risks caused by the breach of planning regulations
discussed in the press cutting. (6 marks)
正确答案：
(ii) Several significant financial statement risks are indicated by the press cutting.
Overstatement of property, plant and equipment
Medix Co has constructed a research laboratory which is likely to be impaired at the year end. The local authority has
the power to shut down the facility, and it is clear from the press cutting that this is likely to happen before the year end.
Following IAS 36 Impairment of Assets, the premises should be written down to recoverable amount, and the
impairment loss recognised as an expense. The directors should carry out an impairment review before the year end. If
the premises cannot be used as intended then the recoverable amount (measured using the higher of value in use and
fair value less selling cost) is likely to be less than current carrying value. In this case, assuming the local authority is
successful in shutting down the research laboratory, the recoverable amount is likely to be nil, as the premises have no
value in use, as it will never be used commercially, and has no market value as it is likely to be demolished.
In addition, any tangible assets such as laboratory equipment located at the premises should be tested for impairment
as if the company cannot use the premises then the assets contained within it are likely to have a lower recoverable
amount than carrying value.
Contingency – fines or penalties imposed by local authority
The press cutting indicates that Medix Co has been sued before, and that the local authority may again take legal action
against the company. IAS 37 Provisions, Contingent Liabilities and Contingent Assets states that a provision should be
recognised if the company has a probable obligation at the year end which can be measured reliably. If payment is
deemed only possible at the year end, then disclosure of the contingent liability should be made in a note to the financial
statements.
If the local authority commences legal proceedings against Medix Co before the year end of 30 June 2008, then
management should assess the probability of payment. The financial statement risk is not recognising a provision (and
associated expense within the income statement), or not disclosing a contingency.
Demolition costs
The local authority may require Medix Co to demolish the premises. If this demand is made before the year end, Medix
Co should recognise a provision for demolition costs as an unavoidable legal obligation would have been created. The
financial statement risk is that in this situation, Medix Co fails to recognise a provision and associated expense within
the income statement.
Going concern
The above issues could indicate that the company may not continue in operational existence. The potential lack of
disclosure of these issues represents a financial statement risk. -
第12题：
问答题Practice 3 Equity securities are known as shares (or stock) in a corporation. Stockholders are considered owners of the corporation. The Articles of Incorporation must state the number of shares and the characteristics of the stock. To issue stock is actually to offer shares of stock for sale. The corporation’s Board of Directors controls when and to whom the corporation’s shares are offered and sold. Outstanding shares—Outstanding shares are shares already issued and purchased by the shareholder or stockholder. Par value—Par value is an arbitrary value assigned to each share in the Articles of Incorporation but does not necessarily reflect the true market value of the stock. Shares may not be issued and sold by the corporation for less than their par value therefore it is sometimes advisable not to state any par value at all or state a par value lower than the estimated market price. No par value allows the Board of Directors to decide each time shares are issued what the price per share will be. In a very large corporation where the stock is publicly traded at a public exchange, such as the New York Stock Exchange, the public demand for the stock of the corporation rather than the Board of Directors determines the selling price of the stock. Capital account—The capital account of a corporation is an entry in the books of the corporation and is determined by multiplying the par or stated value of the corporation’s stock by the number of shares outstanding. For example, if the corporation had sold 1,000 shares of stock which had $10 par value, the capital account would be $10,000.正确答案：
【参考译文】
股票是指公司发行的股份。股东是公司的所有者。公司条例必须说明公司股份的数量及其特征。发行股票实际上是出售公司的股份。公司董事会决定何时以及向何种人发售股票。
流动股——指已发行的,股东已购买的股票。
票面价值——指根据公司条例而赋予每股股票的价值。但它并不一定反映股票真正的市场价值。股票不能以低于票面价值发行和出售,因此有时不规定票面价值或所规定的票面价值低于估计的市场价值是非常明智的。在没有规定票面价值时,公司董事会得以在每次发行股票时决定每股的价格。某大公司的股票在大型公共交易所(如纽约证券交易所)进行公开交易时,公众对公司股票的需求而不是公司董事会决定该公司股票的交易价格。
资本性账户——指公司登记在册的资本,它等于流动股的数量与票面价值或是规定价值的乘积。比如说,某公司发行了1000股,每股票面价值为10美元,它的资本账户则是1万美元。解析： 暂无解析 -
第13题：
(b) Explain the capital gains tax (CGT) and inheritance tax (IHT) implications of Graeme gifting his remaining ‘T’
ordinary shares at their current value either:
(i) to his wife, Catherine; or
(ii) to his son, Barry.
Your answer should be supported by relevant calculations and clearly identify the availability and effect of
any reliefs (other than the CGT annual exemption) that might be used to reduce or defer any tax liabilities
arising. (9 marks)
正确答案：
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第14题：
(c) State any reliefs Bob could claim regarding the fall in value of his shares in Willis Ltd, and describe how the
operation of any such reliefs could reduce Bob’s taxable income. (4 marks)
Relevant retail price index figures are:
September 1990 129·3
April 1998 162·6
December 2004 189·9
正确答案：
(c) Claims for capital losses
Where the value of shares (a chargeable asset) has become negligible (defined as <5% of the original cost), a claim can be
made to treat the asset as though it was sold and then immediately reacquired for its current market value. This is known as
a negligible value claim.
The sale and reacquisition is treated as taking place at the time that the claim is made or at a specified time (up to 2 years
before the start of the tax year in which the claim was made) if the asset was of negligible value at that time.
As the loss is on unquoted shares, a further relief (s.574 ICTA 1988) allows the loss to be relieved against the total income
of the taxpayer for the year in which the loss arose, and/or against the total income of the previous year.
Losses are first relieved against current year income, with any excess being available for offset against the prior year’s income.
Bob can therefore make a negligible value claim as at 1 December 2004. This will give rise to a loss of ￡14,500
(￡500 – ￡15,000) which will be deemed to arise in the year 2004/05. By doing so, his taxable income for that year will be
reduced from ￡36,875 to ￡22,375. -
第15题：
(ii) Advise Benny of the amount of tax he could save by delaying the sale of the shares by 30 days. For the
purposes of this part, you may assume that the benefit in respect of the furnished flat is ￡11,800 per
year. (3 marks)
正确答案：
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第16题：
(d) Explain how Gloria would be taxed in the UK on the dividends paid by Bubble Inc and the capital gains tax
and inheritance tax implications of a future disposal of the shares. Clearly state, giving reasons, whether or
not the payment made to Eric is allowable for capital gains tax purposes. (9 marks)
You should assume that the rates and allowances for the tax year 2005/06 apply throughout this question.
正确答案：
(d) UK tax implications of shares in Bubble Inc
Income tax
Gloria is UK resident and is therefore subject to income tax on her worldwide income. However, because she is non-UK
domiciled, she will only be taxed on the foreign dividends she brings into the UK.
Dividends brought into the UK will be grossed up for any tax paid in Oceania. The gross amount is taxed at 10% if it falls
into the starting or basic rate band and at 321/2% if it falls into the higher rate band. The tax suffered in Oceania is available
for offset against the UK tax liability. The offset is restricted to a maximum of the UK tax on the dividend income.
Capital gains tax
Individuals are subject to capital gains tax on worldwide assets if they are resident or ordinarily resident in the UK. However,
because Gloria is non-UK domiciled and the shares are situated abroad, the gain is only taxable to the extent that the sales
proceeds are brought into the UK. Any tax suffered in Oceania in respect of the gain is available for offset against the UK
capital gains tax liability arising on the shares.
Any loss arising on the disposal of the shares would not be available for relief in the UK.
In computing a capital gain or allowable loss, a deduction is available for the incidental costs of acquisition. However, to be
allowable, such costs must be incurred wholly and exclusively for the purposes of acquiring the asset. The fee paid to Eric
related to general investment advice and not to the acquisition of the shares and therefore, would not be deductible in
computing the gain.
Taper relief will be at non-business asset rates as Bubble Inc is an investment company.
Inheritance tax
Assets situated abroad owned by non-UK domiciled individuals are excluded property for the purposes of inheritance tax.
However, Gloria will be deemed to be UK domiciled (for the purposes of inheritance tax only) if she has been resident in the
UK for 17 out of the 20 tax years ending with the year in which the disposal occurs.
Gloria has been running a business in the UK since June 1992 and would therefore, appear to have been resident for at least
15 tax years (1992/93 to 2006/07 inclusive).
If Gloria is deemed to be UK domiciled such that the shares in Bubble Inc are not excluded property, business property relief
will not be available because Bubble Inc is an investment company. -
第17题：
(iii) State any disadvantages to the relief in (i) that Sharon should be aware of, and identify and describe
another relief that she might use. (4 marks)
正确答案：
(iii) There are several disadvantages to incorporation relief as follows:
1. The requirement to transfer all business assets to the company means that it will not be possible to leave behind
certain assets, such as the property. This might lead to a double tax charge (sale of the property, then extraction
of sale proceeds) at a future date.
2. Taper relief is lost on the transfer of the business. This means that any disposal of chargeable business assets (the
shares) within two years of the incorporation will lead to a higher chargeable gain, as the full rate of business asset
taper relief will not be available.
3. The relief does not eliminate the tax charge, it merely defers the payment of tax until some future event. The
deferred gain will become taxable when Sharon sells her shares in the company.
Gift relief could be used instead of incorporation relief. The assets would be gifted to the company for no consideration,
with the base cost of the assets to the company being reduced by the deferred gain arising. Unlike incorporation relief,
gift relief applies to individual assets used in a trade and not to an entire business. This is particularly useful if the
transferor wishes to retain some assets, such as property outside the company, as not all assets have to be transferred.
Note: If the business was non-trading, incorporation relief would still be available, but gift relief would not. However,
this restriction should not apply to Sharon and gift relief remains an option in this case. -
第18题：
(c) For commercial reasons, Damian believes that it would be sensible to place a new holding company, Bold plc,
over the existing company, Linden Limited. Bold plc would also be unquoted and would acquire the existing
Linden Limited shares in exchange for the issue of its own shares.
If the new structure is implemented, Bold plc will provide management services to Linden Limited, but the
amount that will be charged for these services is yet to be determined.
Required:
(i) State the capital gains tax (CGT) issues that Damian should be aware of before disposing of his shares
in Linden Limited to Bold plc. Your answer should include details of any conditions that will need to be
satisfied if an immediate charge to tax is to be avoided. (4 marks)
正确答案：
(c) (i) The proposed transaction broadly falls under the ‘paper for paper’ rules. Where this is the case, chargeable gains do not
arise. Instead, the new holding stands in the shoes (and inherits the base cost) of the original holding.
The company issuing the new shares must:
(i) end up with more than 25% of the ordinary share capital or a majority of the voting power of the old company,
OR
(ii) make a general offer to shareholders in the old company with a condition which would give the acquiring company
control of the company if accepted.
The exchange must be for bona fide commercial reasons and not have as its main purpose (or one of its main purposes)
the avoidance of capital gains tax or corporation tax.
The issue of shares by Bold plc satisfies these conditions, thus Damian, as a shareholder of Linden Limited, will not be
taxed on the exchange of shares. -
第19题：
(b) The tax relief available in respect of the anticipated trading losses, together with supporting calculations and
a recommended structure for the business. (16 marks)
正确答案：
Aral Ltd owned by Banda
The losses would have to be carried forward and deducted from the trading profits of the year ending 30 June 2010.
Aral Ltd cannot offset the loss in the current period or carry it back as it has no other income or gains.
Aral Ltd owned by Flores Ltd
The two companies will form. a group relief group if Flores Ltd owns at least 75% of the ordinary share capital of Aral
Ltd. The trading losses could be surrendered to Flores Ltd in the year ending 30 June 2008 and the year ending
30 June 2009. The total tax saved would be ￡11,079 ((￡38,696 + ￡19,616) x 19%)
Recommended structure
The Aral business should be established in a company owned by Flores Ltd.
This will maximise the relief available in respect of the trading losses and enable relief to be obtained in the period in
which the losses are incurred.
Tutorial note
The whole of the loss for the period ending 30 June 2008 can be surrendered to Flores Ltd as it is less than that
company’s profit for the corresponding period, i.e. ￡60,000 (￡120,000 x 6/12). -
第20题：
(ii) State, with reasons, whether Messier Ltd can provide Galileo with accommodation in the UK without
giving rise to a UK income tax liability. (2 marks)
正确答案：
(ii) Tax-free accommodation
It is not possible for Messier Ltd to provide Galileo with tax-free accommodation. The provision of accommodation by an
employer to an employee will give rise to a taxable benefit unless it is:
– necessary for the proper performance of the employee’s duties, e.g. a caretaker; or
– for the better performance of the employee’s duties and customary, e.g. a hotel manager; or
– part of arrangements arising out of threats to the employee’s security, e.g. a government minister.
As a manager of Messier Ltd Galileo is unable to satisfy any of the above conditions. -
第21题：
(ii) Can we entertain our clients as a gesture of goodwill or is corporate hospitality ruled out? (3 marks)
Required:
For EACH of the three FAQs, explain the threats to objectivity that may arise and the safeguards that should
be available to manage them to an acceptable level.
NOTE: The mark allocation is shown against each of the three questions.
正确答案：
(ii) Corporate hospitality
A partner in an audit firm is obviously in a position to influence the conduct and outcome of an audit. Therefore a
partner being on ‘too friendly’ terms with an audit client creates a familiarity threat. Other members of the audit team
may not exert as much influence on the audit.
A self-interest threat may also be perceived (e.g. if corporate hospitality is provided to keep a prestigious client).
There is no absolute prohibition against corporate hospitality provided:
■ the value attached to such hospitality is ‘insignificant’; and
■ the ‘frequency, nature and cost’ of the hospitality is reasonable.
Thus, flying the directors of an audit client for weekends away could be seen as significant. Similarly, entertaining an
audit client on a regular basis could be seen as unacceptable.
Partners and staff of Boleyn will need to be objective in their assessments of the significance or reasonableness of the
hospitality offered. (Would ‘a reasonable and informed third party’ conclude that the hospitality will or is likely to be
seen to impair your objectivity?)
If they have any doubts they should discuss the matter in the first instance with the audit engagement partner, who
should refer the matter to the ethics partner if in doubt. -
第22题：
(ii) Identify and explain the principal audit procedures to be performed on the valuation of the investment
properties. (6 marks)
正确答案：
(ii) Additional audit procedures
Audit procedures should focus on the appraisal of the work of the expert valuer. Procedures could include the following:
– Inspection of the written instructions provided by Poppy Co to the valuer, which should include matters such as
the objective and scope of the valuer’s work, the extent of the valuer’s access to relevant records and files, and
clarification of the intended use by the auditor of their work.
– Evaluation, using the valuation report, that any assumptions used by the valuer are in line with the auditor’s
knowledge and understanding of Poppy Co. Any documentation supporting assumptions used by the valuer should
be reviewed for consistency with the auditor’s business understanding, and also for consistency with any other
audit evidence.
– Assessment of the methodology used to arrive at the fair value and confirmation that the method is consistent with
that required by IAS 40.
– The auditor should confirm, using the valuation report, that a consistent method has been used to value each
property.
– It should also be confirmed that the date of the valuation report is reasonably close to the year end of Poppy Co.
– Physical inspection of the investment properties to determine the physical condition of the properties supports the
valuation.
– Inspect the purchase documentation of each investment property to ascertain the cost of each building. As the
properties were acquired during this accounting period, it would be reasonable to expect that the fair value at the
year end is not substantially different to the purchase price. Any significant increase or decrease in value should
alert the auditor to possible misstatement, and lead to further audit procedures.
– Review of forecasts of rental income from the properties – supporting evidence of the valuation.
– Subsequent events should be monitored for any additional evidence provided on the valuation of the properties.
For example, the sale of an investment property shortly after the year end may provide additional evidence relating
to the fair value measurement.
– Obtain a management representation regarding the reasonableness of any significant assumptions, where relevant,
to fair value measurements or disclosures. -
第23题：
(b) (i) Explain the matters you should consider, and the evidence you would expect to find in respect of the
carrying value of the cost of investment of Dylan Co in the financial statements of Rosie Co; and
(7 marks)
正确答案：
(b) (i) Cost of investment on acquisition of Dylan Co
Matters to consider
According to the schedule provided by the client, the cost of investment comprises three elements. One matter to
consider is whether the cost of investment is complete.
It appears that no legal or professional fees have been included in the cost of investment (unless included within the
heading ‘cash consideration’). Directly attributable costs should be included per IFRS 3 Business Combinations, and
there is a risk that these costs may be expensed in error, leading to understatement of the investment.
The cash consideration of $2·5 million is the least problematical component. The only matter to consider is whether the
cash has actually been paid. Given that Dylan Co was acquired in the last month of the financial year it is possible that
the amount had not been paid before the year end, in which case the amount should be recognised as a current liability
on the statement of financial position (balance sheet). However, this seems unlikely given that normally control of an
acquired company only passes to the acquirer on cash payment.
IFRS 3 states that the cost of investment should be recognised at fair value, which means that deferred consideration
should be discounted to present value at the date of acquisition. If the consideration payable on 31 January 2009 has
not been discounted, the cost of investment, and the corresponding liability, will be overstated. It is possible that the
impact of discounting the $1·5 million payable one year after acquisition would be immaterial to the financial
statements, in which case it would be acceptable to leave the consideration at face value within the cost of investment.
Contingent consideration should be accrued if it is probable to be paid. Here the amount is payable if revenue growth
targets are achieved over the next four years. The auditor must therefore assess the probability of the targets being
achieved, using forecasts and projections of Maxwell Co’s revenue. Such information is inherently subjective, and could
have been manipulated, if prepared by the vendor of Maxwell Co, in order to secure the deal and maximise
consideration. Here it will be crucial to be sceptical when reviewing the forecasts, and the assumptions underlying the
data. The management of Rosie Co should have reached their own opinion on the probability of paying the contingent
consideration, but they may have relied heavily on information provided at the time of the acquisition.
Audit evidence
– Agreement of the monetary value and payment dates of the consideration per the client schedule to legal
documentation signed by vendor and acquirer.
– Agreement of $2·5 million paid to Rosie Co’s bank statement and cash book prior to year end. If payment occurs
after year end confirm that a current liability is recognised on the individual company and consolidated statement
of financial position (balance sheet).
– Board minutes approving the payment.
– Recomputation of discounting calculations applied to deferred and contingent consideration.
– Agreement that the discount rate used is pre-tax, and reflects current market assessment of the time value of money
(e.g. by comparison to Rosie Co’s weighted average cost of capital).
– Revenue and profit projections for the period until January 2012, checked for arithmetic accuracy.
– A review of assumptions used in the projections, and agreement that the assumptions are comparable with the
auditor’s understanding of Dylan Co’s business.
Tutorial note: As the scenario states that Chien & Co has audited Dylan Co for several years, it is reasonable to rely on
their cumulative knowledge and understanding of the business in auditing the revenue projections.