ACCA Advanced Taxation (ATX) Practice Exam

Is it true that property income for companies is always calculated using the accruals basis?

1. True, it is mandated by tax regulations.

2. False, companies can choose cash basis assessments.

3. True, but only if gross income exceeds £150,000.

4. False, it is based on the directors’ preference.

The correct answer is: True, it is mandated by tax regulations.

The correct answer reflects the requirement that property income for companies is mandated to be calculated using the accruals basis, as stipulated by tax regulations. This means that companies must recognize income in the period it is earned rather than when payments are received, ensuring a more accurate representation of the company's financial position and performance. In this context, the accruals basis captures all earned revenue and related expenses, ignoring the timing of cash flow. This is particularly important for tax purposes, as it allows for better matching of income and expenses, leading to a more realistic understanding of a company's profitability within a given accounting period. The alternative options suggest flexibility that does not exist within the existing regulations. Companies cannot elect to use a cash basis for property income specifically when it is governed by statutory requirements aimed at providing consistency and reliability in financial reporting for tax obligations. Additionally, thresholds and the directors' preferences do not alter this mandatory application of the accruals basis. Thus, the choice emphasizing tax regulations accurately captures the essence of how property income is to be treated by companies.