I'm currently a 2nd year student who studies accounting in a UK university. We started studying 'UK taxation' this term and I'm really struggling with it. There's a coursework due this Thursday for us and I'm stuck with one of the questions. I would really reallyy appreciate if some of you professionals can help me out or give me some advices here. The questions is as follow:
XXX Ltd is a trading company set up a number of years ago with 5,000 £1ordinary shares issued at par. In order to expand the production facilities it needs to raise a further £150,000.
There are two possibilities:
(1) The company will issue further £150,000 5% preference shares, which have a nominal value of £1and a market value of £1 each.
(2) £150,000 loan notes will be issued at par. This will carry interest of 5% payable annually.
Requirements:
I.Calculate the retained profit for the year ended 31 December 2011 on the assumption that:
-The shares or loan notes will be issued on 1 January 2011
-A full year's preference dividend will be paid in the year
-No dividend is paid on the ordinary shares in the year
-The profit before interest, tax and dividends is £210,000.
II.Calculate the net return for the investor on the assumption that :
-The investor is a company that pays tax at 26%
-The investor is an individual who is a higher rate taxpayer.
Would really appreciate if someone here can give me some instructions on how to tackle the question. Thx~
