Part D E QUESTION 3.Sparkly Shoes Ltd are considering a new shop in Brighton from 1 July 2022. The landlord, Landowners Ltd would pay Sparkly Shoes £10,000 to help fund the shopfit.The shopfit is expected to cost £15,000 excluding Landowners Ltd’s contribution.Rent of £12,000 per year would be payable from 1 July for the duration of the 5 year lease.Additional overheads as a result of opening the shop are expected to be £500 per month.Sparkly Shoes Ltd has already undertaken some market research for which they paid £2,500.Sparkly Shoes Ltd expects the shop to generate contribution each month of £1,000 for the first year and £2,500 per month thereafter. Required (show your workings and the results):a. What are the total net costs to Sparkly Shoes Ltd if the shop opens? b. What are the total net costs to Sparkly Shoes Ltd is the shop does not open? c. Which of the costs are relevant for making this decision? d. How much profit or loss would Sparkly Shoes Ltd expect to make in the first year if the shop opens? e. What other considerations should Sparkly Shoes Ltd take into account when making their decision?

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Answered: Part D E QUESTION 3. Sparkly Shoes…

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter7: Deductions And Losses: Certain Business Expenses And Losses

Section: Chapter Questions

Problem 28CE

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Part D E

QUESTION 3.

Sparkly Shoes Ltd are considering a new shop in Brighton from 1 July 2022.

The landlord, Landowners Ltd would pay Sparkly Shoes £10,000 to help fund the shopfit.
The shopfit is expected to cost £15,000 excluding Landowners Ltd’s contribution.
Rent of £12,000 per year would be payable from 1 July for the duration of the 5 year lease.
Additional overheads as a result of opening the shop are expected to be £500 per month.
Sparkly Shoes Ltd has already undertaken some market research for which they paid £2,500.
Sparkly Shoes Ltd expects the shop to generate contribution each month of £1,000 for the first year and £2,500 per month thereafter.

Required (show your workings and the results):

a. What are the total net costs to Sparkly Shoes Ltd if the shop opens?

b. What are the total net costs to Sparkly Shoes Ltd is the shop does not open?

c. Which of the costs are relevant for making this decision?

d. How much profit or loss would Sparkly Shoes Ltd expect to make in the first year if the shop opens?

e. What other considerations should Sparkly Shoes Ltd take into account when making their decision?

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