Economy Department and Business Management Department

Subject: ACCOUNTING AND TAXATION

ACCOUNTING AND TAXATION

CASE REVIEW Nº1

Bodegas Españolas S.L. (hereinafter the COMPANY) is dedicated to the production of wine. Since its
creation 5 years ago, its net turnover has been around 5 € million. It is known that the company uses
all the tax incentives available to it in order to declare as less as possible of Corporate Income Tax.

The following information is also known with regard to its CIT preparation.

1) The COMPANY acquired a machinery on 01/06/2019 for an amount of €45,000. It was estimated
to have a residual value of €2,760 discounted and according its useful life was 8 years for accounting
purposes. The Spanish Authorities tax grid states that:

Maximum percentage Maximum period

Machinery 12,5% 16

On 01/05/2023 they decide to sell it for €26,000, with the following payment conditions:

• 6.000€ in cash
• The remaining €20,000 will be deferred for 13 months, for which interest of €780 will be
charged.

Do not take VAT into account to facilitate the calculation of the operations.

You are asked to:

(a) Record the accounting transactions for the years 2023 and 2024.

b) Determine the tax treatment of all these operations and their repercussion on the
Corporate Income Tax settlement corresponding to the years 2023 and 2024.

2) The following purchases of shares are made by the COMPANY in order to hold them in portfolio to
collect the corresponding annual dividends:

Purchase Date Company Number of Price per share Purchase fee

Shares
10/02/2020 A (española) 10.000 6 0,20%
05/04/2019 B (belga) 8.000 165 0,60%

On 01/04/2023, dividends are paid on the shares of company A, the gross amount of which is
€0.31/share (no withholding tax). The company has held 6% of the capital of A for three years.

1
 Economy Department and Business Management Department
Subject: ACCOUNTING AND TAXATION

On 18 May, dividends are paid on company B's shares, amounting to €0.22/share with a withholding
tax of 19%. The company has held a 6% stake in the capital of the Belgian company for four years. It
is known that the rate of Corporate Income Tax in Belgium is 25%. Spain has had a double taxation
agreement with Belgium since 1995.

a) Make the entries relating to the share portfolio on the date of purchase and during the
year 2023.

(b) Determine the tax treatment of all these transactions and their impact on the income tax
settlement for the year 2023.

3) On 01/10/2023, the COMPANY formalises a leasing contract for a bottling machine, the conditions
of the contract being as follows:

• Fair value: 30.000€.

• Duration of the contract: 4 years
• Pre-payable monthly instalments with the first instalment payable on 01/10/2023
• The last instalment will be the purchase option to be exercised.
• The assigned useful life according to the tax tables is 8 years and has no residual value. The
straight line depreciation method is applied.
• The VAT of the instalments is 21%.

2
 Economy Department and Business Management Department
Subject: ACCOUNTING AND TAXATION

You are requested to:

(a) Record the accounting transactions during the year 2023.

(b) Determine the tax treatment of all these transactions and their impact on the income tax
settlement for the years 2023 to 2031.

4) On 01/05/2023, the COMPANY receives a notification from the Tax Agency claiming €10,000 for
undeclared business tax (IAE) plus a penalty of 20%. On the same date, they consulted a tax advisor
who confirmed that they would most likely have to face both payments within approximately 14
months, as they would present allegations. The amount paid for the consultation is €500 plus 21%
VAT.

Finally, on 15 July 2024 they pay €8,000 plus the corresponding penalty of 20%.

The risk-free discount rate is 4% per year.

You are asked to:

(a) Record the accounting transactions for the years 2023 and 2024.

b) Determine the tax implications of this transaction for your corporate income tax returns
for 2023 and 2024.

5) The COMPANY has the following asset situation on 31/12/2022:

Equity Amount (€)

(100) Share capital 200.000
(112) Legal reserves 25.000
(113) Voluntary reserves 60.000
(129) P&L of the year 90.000
Total Equity 375.000

The COMPANY proposes at the AGM held on 16 May 2023 to distribute the profit earned during the
financial year 2022 as follows:

- To legal reserve, as stipulated by law.

- To dividends, 75% of the amount of the result.

- The remainder to voluntary reserves.

Finally, the proposal is accepted at the AGM and the dividend is paid on 20 June with a 19%
withholding for capital gains tax.

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 Economy Department and Business Management Department
Subject: ACCOUNTING AND TAXATION

You are asked to:

(a) Record the accounting transactions during the year 2023.

(b) Determine all the tax implications for the COMPANY of the above transactions for the
2022 and 2023 corporate income tax settlement if it is known that the COMPANY is willing to
take advantage of all the incentives available to it to pay less tax.