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

Owen, a sole trader, has an accounting profit of £70,000 for the year ended 31 March 2026 after deducting: wages of £25,000 paid to Owen's wife for genuine work (market rate), a £1,800 general provision for doubtful debts, £3,000 of salary drawn by Owen himself, and £700 of interest on a bank overdraft used in the business. The profit also includes a £4,000 profit on sale of a business van. What is his adjusted trading profit before capital allowances?

Add back the general bad debt provision and the owner's own salary, deduct the capital profit on the van, and leave the genuine wages and trading overdraft interest. The adjusted profit is £70,800.

  1. A£70,100
  2. B£70,800Correct
  3. C£70,000
  4. D£66,800

Explanation

Add back the general provision £1,800 and Owen's own drawings salary £3,000 (not allowable). Deduct the profit on sale of the van £4,000. Wife's wages and overdraft interest are allowable. £70,000 + £1,800 + £3,000 - £4,000 = £70,800.

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