Adjustment of profit

There has been a change of approach in relation to the adjustment of profits questions for both income and corporation tax for Papers FTX (IRL) and F6 (IRL) effective from the June 2015 exam sitting onwards.

Previously, candidates were required to start with the net profit per the accounts of a sole trader or a limited company before adding back disallowable expenditure and deducting any non-taxable income or income not assessable under Schedule D Case I. Therefore, candidates were only required to note in their answers those items for which an adjustment was required. Any items not requiring adjustment (either because they were allowable expenses or income taxable under Case I) were disregarded.

From the June 2015 sitting, where a question requires an adjustment of profits, candidates will be told in the requirements the figure with which to start their computation (usually the net profit figure for a sole trader or the profit before taxation figure for a limited company) and instructed to list all of the items referred to in the notes to the question, indicating by the use of zero (0) any items which do not require adjustment. The new approach requires candidates to include in their answer all items listed in the notes to the question, indicating by the use of zero (0) those items that do not require adjustment. Marks will be allocated to candidates both for adjusting items that require adjustment and also for indicating by zero that no adjustment is required for those items where an adjustment is unnecessary. 

Paper F6 (IRL)

An example of an adjustment of profits question under the new approach for F6 (IRL) can be seen within the Section B specimen question for June 2015 which can be accessed on the ACCA website (see 'Related links').

Paper FTX (IRL)

For Paper FTX (IRL), a worked example based on a past paper can be used to illustrate the change.

Example – Sample Ltd (excerpt)
Sample Ltd, an Irish resident company, manufactures electrical equipment. Its statement of profit or loss for the year ended 31 December 2014 is as follows:

Sales  1,800,000 
Cost of sales   (750,000) 
Gross profit  1,050,000 
Other income1 4,000 
Less Expenses    
Depreciation 19,000  
Salaries and wages2246,000  
Professional fees3136,800  
Interest payments47,500  
Marketing and


Motor expenses637,700  
Repairs and renewals820,000(493,000) 
Net profit  561,000 

In the question, candidates were provided with various notes, including note 3 below:

3. Professional fees comprise:



Audit fees




Legal fees on the purchase of a new factory








To illustrate the new approach using the expenses included in the note above, under the new marking scheme, a mark would be given for adding back the legal fees on the purchase of a new factory as they are not allowable (capital expenditure). Additionally a half mark would be given for indicating by a zero against the audit fees that there is no add-back (as they are allowable).

A typical requirement for such a question would be shown as follows:

Calculate the corporation tax liability of Sample Ltd for the year ended 31 December 2014.

Note: Your computation should commence with the net profit of €561,000 and should list all of the expense items referred to in notes (2) to (9) indicating by the use of zero (0) any items that do not require adjustment.

A suggested answer for the question would be laid out as follows:

Sample Ltd

Corporation tax computation for year ended 31 December 2014






Net profit per accounts










Add back










Salaries and wages





Audit fees





Legal fees





Interest on late PAYE





Client entertainment





Parking fines





Staff entertainment





Donations to
registered charity





Donations to
political party





Repairs and renewals















Other income





Capital allowances





Case I income





Note:  To complete the requirement, candidates would then be required to bring in any other income (eg Case IV or Case V) and calculate the corporation tax payable. As this is an illustrative excerpt only, the full solution has not been shown.

Recommended approach – Papers FTX (IRL)
and F6 (IRL)

If candidates wish to achieve maximum marks, it is important that all non-adjusting and adjusting items are included as in the suggested layout above. Some marks will be given if candidates provide explanatory notes for non-adjusting items. However, this is not the recommended approach as it is likely to prove more time consuming.

From the June 2015 sittings of both Papers FTX (IRL) and F6 (IRL), where candidates make no mention of the items not requiring adjustment then the marks allocated to non-adjustment of these items will not be awarded. This is because it will not be clear to markers if such items have been considered or simply forgotten. Therefore, it is important that candidates note the new approach in order to gain as many marks as possible.