SQE1 sample questions

Question 13

A company has an accounting reference date of 31 December. It commenced trading in April, so that its first accounting period ended on 31 December of the year in which it commenced trading. During this first accounting period, the company made neither a trading profit nor a trading loss. However, the company did make a chargeable gain of £75,000 in the November, from the sale of a freehold property. The company made no capital losses during this first accounting period

In its second accounting period, which ended on 31 December the following year, the company made a trading loss of £45,000. The company made no capital gain and no capital loss during the second accounting period.

Can the trading loss of £45,000 made in the second accounting period be set off against the chargeable gain of £75,000 from the first accounting period?

A. Yes, because no trading or capital losses were incurred in the first accounting period.

B. No, because a trading loss can only be set off against trading profits from an earlier accounting period.

C. Yes, because the chargeable gain occurred within the 12 month period ending immediately before the accounting period in which the trading loss was incurred.

D. No, because the company was not carrying on business for a full 12 month period before the accounting period in which the trading loss was incurred.

E. No, because a trading loss can only be carried forward and set off against trading profits from a subsequent accounting period.