(iii) delegation. (3 marks)

正确答案：
(iii) Flexibility may relate to the company being able to cope with flexibility of volume, delivery speed or job specification. In
this particular context, flexibility appears to have been problematic for HLP as evidenced by the fact that 320
consultations relating to commercial were subcontracted during the year. This could be due to the lack of the ability of
HLP advisors to be able to provide consultations to a potentially wide-range of commercial clients, i.e. the variability in
the ‘job specification’ requires greater flexibility than HLP can deliver. Furthermore, a total of 600 consultations relating
to litigation work were also subcontracted throughout the year. These subcontract consultations might be due to the
inability of HLP to deal with fluctuations in demand.

正确答案：
(iii) Trading losses may not be carried forward where, within a period of three years there is both a change in the ownership
of a company and a major change in the nature or conduct of its trade. The transfer of work from Tay Limited to Trent
Limited is likely to constitute a major change in the nature or conduct of the latter’s trade. As a consequence, any tax
losses at the date of acquisition will be forfeited. Assuming losses were incurred uniformly in 2005, the tax losses at the
date of acquisition were ￡380,000 (300,000 + 2/3 x 120,000)). This is worth ￡114,000 assuming a corporation tax
rate of 30%.
Thus, Tay Limited should not consider transferring any trade to Trent Limited until after the third anniversary of the date
of the change of ownership i.e. not before 1 September 2008. As the trades are similar, there should be little problem
in transferring work from that date onwards.

正确答案：
(iii) Warranty provision
■ Agree the principal assumptions in management’s estimate of liabilities under warranties to the terms of warranty
as set out in contracts for sale of vehicle. For example:
– the period for which warranties are given;
– whether for parts replacement only or parts and labour;
– exclusion clauses, perhaps for vehicles sold into a particular market, or used in a specified industry (e.g. filmmaking).
■ Agree the reasonableness of management’s assumptions in the calculation of the provision. For example, the
proportion of vehicles for which claims are made within three months, three to six months, six to nine months, etc.
■ Substantiate the economic reality of the basis of management’s calculations. For example:
– agree the number of vehicles sold each month to a summary sales report;
– agree the calculation of average cost of a repair under warranty to job records;
– test costs of repair on a sample basis (e.g. parts replaced to price lists and labour charges to hours worked
(per job records) and charge-out rates).
■ Consider the reasonableness of management’s estimate by comparing:
– the actual cost of after-date repairs (say for three months) against the appropriate proportion of the provision
made;
– current year provision per vehicle sold against prior provision per vehicle sold.
■ Assess management’s ability to make reliable estimates in this area by comparing last year’s provision with the
actual repairs under warranty costs incurred during the year in respect of sales made in previous years.
Tutorial note: The basis of management’s estimate may tend to overstate or understate the provision required
and should be revised accordingly.
■ Agree the extent to which the provision takes account of (has been reduced by) any recourse to suppliers (e.g. in
respect of faulty parts). For example:
– by reviewing terms of purchases from major suppliers;
– by examining records of replacement parts received free of charge.

正确答案：

 

正确答案：
(iii) Tethys Ltd – Sale of the manufacturing premises
Value added tax (VAT)
– The building is not a new building (i.e. it is more than three years old). Accordingly, the sale of the building is an
exempt supply and VAT should not be charged unless Tethys Ltd has opted to tax the building in the past.
Taxable profits on sale
– There will be no balancing adjustment in respect of industrial building allowances as the building is to be sold on
or after 21 March 2007.
– The capital gain arising on the sale of the building will be ￡97,760 (￡240,000 – (￡112,000 x 1·27)).
Rollover relief
– Tethys Ltd is not in a capital gains group with Saturn Ltd. Accordingly, rollover relief will only be available if Tethys
Ltd, rather than any of the other Saturn Ltd group companies, acquires sufficient qualifying business assets.
– The amount of sales proceeds not spent in the qualifying period is chargeable, i.e. ￡40,000 (￡240,000 –
￡200,000). The balance of the gain, ￡57,760 (￡97,760 – ￡40,000), can be rolled over.
– Qualifying business assets include land and buildings and fixed plant and machinery. The assets must be brought
into immediate use in the company’s trade.
– The assets must be acquired in the four-year period beginning one year prior to the sale of the manufacturing
premises.
Further information required:
– Whether or not Tethys Ltd has opted to tax the building in the past for the purposes of VAT.