Illustration - tax adjusted profit calculation
You'll learn how to calculate tax adjusted trade profit by starting with net profit and making the necessary adjustments for non-trading items. This technique is essential for the Taxation (TX) paper, where you'll encounter self-employed individuals and sole traders whose accounts need converting to a tax basis.
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In this lesson
- 0:00 Tax adjusted profit calculation
- 0:26 Starting with net profit figure
- 0:50 Excluding non-trading income items
- 1:06 Removing capital gains from profit
About this lesson
In this worked example, you'll see how to handle common adjustments like interest income and capital gains, which don't form part of trading profit and must be removed or reclassified. The process is straightforward: begin with the net profit figure from the accounts, then work through each item systematically. Interest on a business bank account is savings income, not trading income, so it's excluded. Profits or losses on the sale of assets like cars fall outside trading profit entirely and must be removed. All other tax-deductible expenses remain. By the end of this illustration, you'll understand exactly which items adjust the profit figure and why, giving you confidence to tackle similar questions in your TX assessments.
Duration: 1m
Transcript
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