Acid
20-11-07, 03:26 PM
Hi guys ,
Finally I have done the surgery of TERMINAL LOSS RELIEF and the paitent is successful! ;)
Have a look at how Terminal loss relief works .
The important thing to understand about terminal losses is that they are made up of the results from the last 12 months of trade.
So, if a person stops trading on 31 December 2006, the terminal loss is based on the period: 1 January to 31 December 2006.
We then have to take that period and split it around the tax year (ie 5 April)
So, to continue my example, we would split the period 1.1.06 to 31.12.06 into:
(a) 1.1.06 - 5.4.06
(b) 6.4.06 - 31.12.06
(You already have one mark in the exam if you have managed to do this correctly - as everyone find it tricky!)
We then look at the results for these two periods (a) and (b).
Let's say the business prepares accounts to 30 June each year and has the following results:
Year ended 30.6.06 profit of 4,000
6 months to end of business (ie to 31.12.06) loss of 12,000
We then calculate the net profit or loss for each of (a) and (b) above using these figures, so:
(a) 1.1.06 -35.4.06 (which is the same as 31 March for the exam) = 3/12 x 4,000= 1,000 profit - WE CAN IGNORE THIS AS WE ARE ONLY INTERESTED IN A LOSS AT EACH STAGE
(b) 6.4.06 - 30.6.06 (ie to the end of the period) = 3/12 x 4,000 = 1,000 profit
1.7.06 to 31.12.06 = (12,000) loss
Total loss (1,000-12,000) = 11,000
Note. We did not count the 'profit' in part (b) as zero as it was only part of the result for that period - it ended up being used to reduce the overall terminal loss
So the terminal loss is 11,000 - this can be carried back for 3 years on a LIFO basis and set against trading profits of those years.
I hope this helps you understand what terminal loss is about.
Dont panic , Do your best and God will do the rest!
Acid
Finally I have done the surgery of TERMINAL LOSS RELIEF and the paitent is successful! ;)
Have a look at how Terminal loss relief works .
The important thing to understand about terminal losses is that they are made up of the results from the last 12 months of trade.
So, if a person stops trading on 31 December 2006, the terminal loss is based on the period: 1 January to 31 December 2006.
We then have to take that period and split it around the tax year (ie 5 April)
So, to continue my example, we would split the period 1.1.06 to 31.12.06 into:
(a) 1.1.06 - 5.4.06
(b) 6.4.06 - 31.12.06
(You already have one mark in the exam if you have managed to do this correctly - as everyone find it tricky!)
We then look at the results for these two periods (a) and (b).
Let's say the business prepares accounts to 30 June each year and has the following results:
Year ended 30.6.06 profit of 4,000
6 months to end of business (ie to 31.12.06) loss of 12,000
We then calculate the net profit or loss for each of (a) and (b) above using these figures, so:
(a) 1.1.06 -35.4.06 (which is the same as 31 March for the exam) = 3/12 x 4,000= 1,000 profit - WE CAN IGNORE THIS AS WE ARE ONLY INTERESTED IN A LOSS AT EACH STAGE
(b) 6.4.06 - 30.6.06 (ie to the end of the period) = 3/12 x 4,000 = 1,000 profit
1.7.06 to 31.12.06 = (12,000) loss
Total loss (1,000-12,000) = 11,000
Note. We did not count the 'profit' in part (b) as zero as it was only part of the result for that period - it ended up being used to reduce the overall terminal loss
So the terminal loss is 11,000 - this can be carried back for 3 years on a LIFO basis and set against trading profits of those years.
I hope this helps you understand what terminal loss is about.
Dont panic , Do your best and God will do the rest!
Acid