ACCA Taxation (F6) Practice Exam

What is the basis period for the second year if no accounting period ends in the tax year?

1. Tax based on estimated total profits

2. Actual basis – tax 12 months of the tax year

3. Only the profits from the last month

4. Fixed annual amount regardless of profit

The correct answer is: Actual basis – tax 12 months of the tax year

The basis period for the second year, particularly in a scenario where no accounting period ends in the tax year, typically operates on the principle of the actual basis, which taxes the profits of a full 12 months within the tax year. This means that for the second year, the tax liability is based on the actual profits earned during that entire 12-month period ending in the tax year, providing a more accurate representation of the business's financial performance. Using the actual basis for taxation aligns with the aim of accurately reflecting the income generated from operations in that specific period, which is vital for ensuring that tax obligations are fair and proportional to the actual profits realized. It is a standard practice that enables businesses to report their full year's performance rather than estimates or partial figures. In contrast, options that propose different approaches, such as estimating total profits, only accounting for profits from the last month, or setting a fixed annual amount regardless of actual profit, do not adhere to the principle of accurately recognizing profit over a complete accounting period, which undermines the integrity of tax assessments and financial reporting.