Business Law - Unit 2 - Trading profits

Question 1

How long is an accounting period?

Answer 1

Usually 12 months

Question 2

How do you calculate trading profit/loss?

Answer 2

Chargeable receipts (income) - deductible expenses (“wholly and exclusively” made for trade and not barred by statute) - capital allowances (relief which is spread out over years for plant and machinery) = trading profit/loss

Question 3

What is the WDA?

Answer 3

The WDA is 18% of the value of the business’ plant and machinery, valued at the start of the year. Each year it will be reduced by a further 18%.

E.g. bought machinery which is £100,000.

In Year 1- 18% of £100K = £18,000 so the written down value of the asset is now £82K.

In Year 2 - 18% of 82K = £14, 760 which leaves the asset with a written down value of £67,240.

In year 3 - 18% of £67,240 is £12,104 which means the written down value is £55,136.