I really enjoy my ActEd notes, but now and then I'm left scratching my head... The summary for chapter 3, under Corporation tax lists the adjustments of the accounts to reach taxable profit. It says to deduct gross franked investment income (gfi). That's fine, but then.... It defines gfi as dividend received plus attaching tax credit! So the tax credit would be deducted from income to get taxable income? I would have thought it would be deducted from the tax charge! At the end of chapter 4, examples of cases where warrants are given include: as compensation for creditors in case of bankruptcy. I assume that creditors don't want options for shares in a bankrupt company, so what does it mean? I would appreciate your answers... and your not so FAQs.
It's funny you should mention that cos when I was doing CT2 that wrecked my head. I emailed the ActEd tutor, and they said: That's probably as much help to you now as it was to me then!
Not so FAQS - still confused Thank you Dha, and thank you Margaret Wood (CT2 FAQ) for your answer on warrants on bankrupt companies - now it makes sense! I'm still about confused about the tax credit, though. Here's the FAQ answer: My problem is this: "the company will show its taxable profit as 110.... the company pays corporation tax on the 100" It seems to me that only the 100 is taxable! Also, where did 110 come from? Supposedly the company received only 109. So what does that 110 mean, I mean, in reality? And if you tell me that that extra pound is money saved from the tax bill, there is no saving here! "In the tax section, the records will show that the company has paid 31 tax" But we know that the tax bill is only 30! So how can the company claim to have paid 31? (And how am I going to know how much cash the company has!) What's for sure, the company only had to pay 30, since only 100 was taxable, so there is absolutely no benefit gained from the tax credit, except that the company can brag that it gave 31 to inland revenue instead of the actual 30?!?! Looking forward to enlightenment!
