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ACCA Applied Skills · Taxation (UK) · Income from self-employment

Imran, a sole trader, prepares accounts to 31 March 2026. His accounting profit is £60,000 after deducting: depreciation £4,000, entertaining customers £1,500, entertaining employees £900, a gift of food to a customer costing £40 (no advertisement attached), and a donation of £200 to a national charity. He has no other adjusting items and capital allowances are nil. What is his adjusted trading profit before capital allowances?

Adjusted profit is £65,740. Depreciation, customer entertaining, the food gift and the charitable donation are added back, while staff entertaining remains allowable.

  1. A£65,640Correct
  2. B£65,500
  3. C£66,640
  4. D£65,740

Explanation

Add back depreciation £4,000, customer entertaining £1,500, customer gift of food £40 (not an allowable gift as it is food) and the charitable donation £200 (not a trading expense unless small, but here treated as disallowed in the profit computation since it is relief via Gift Aid). Employee entertaining £900 is allowable. Total add-backs: 4,000+1,500+40+200 = £5,740; profit £65,740. Option 3 is therefore the arithmetic result.

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