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ACCG8124 Department of Accounting and Corporate Governance:Taxation Law Session 1 Assessment Answer

DEPARTMENT OF ACCOUNTING AND CORPORATE GOVERNANCE

ACCG8124 Taxation Law Session 1 2020


Case Study

Information and Instructions

  • Weighting of this assessment task: 25%
  • Format of submission: Microsoft Word document, 12- point type, double spaced.
  • Method of submission: on-line, uploaded to iLearn
  • Due date and time: Monday, 4 May 2020, at 11pm.
  • Your written response to this assignment must be presented in a report format. Bullet points are not acceptable.
  • Responses to this assessment task must not exceed 2,000 words.
  • No extensions will be granted. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24 hour period or part thereof that the submission is late (for example, 25 hours late in submission – 20% penalty). This penalty does not apply for cases in which an application for special consideration is made and approved. No submission will be accepted after solutions have been posted.

IMPORTANT:

  • You must cite relevant cases, ATO rulings, and legislative references to support your answers.
  • Your response must also provide reasons that explain and support your answers.

On 1 July 2019, Ben and Maggie took over directly the whole shareholding in BM Fine Jewellery Pty Ltd. The company operates a jewellery shop in Southland shopping centre. They acquired this business by paying the previous owner cash of $400,000. This constitutes $300,000 for the shop while the balance of the consideration is for the Goodwill on acquisition.

Details for the year ending 30 June 2020 are:

Cash received$
Sales960,000
Proceeds from disposal of land300,000


Cash expenditure$
Trading stock315,000
Wages(staff)86,000
Electricity9,500
Car expenses6,500
Loan establishment cost3,000
Interest expense23,000
Advertising4,200
Purchase of Hyundai station wagon28,000
New equipment (computers, shelving and security system)37,500
Miscellaneous expenditure4,400
Travel (Jewellery fair)4,500
Entertainment – client2,450
Market research expenses21,250


Notes:

  1. Accounts receivable as at 30/6/2020 $55,000
  2. The company sold its land for $300,000 in May 2020. The land had been originally acquired on 1 January 2000 at a cost of $280,000. The land is held for long-term investment.
  3. Trading stock on hand  1/7/2019Nil Trading stock on hand – 30/6/2020

Cost$46,000

Replacement cost$58,000

Market selling value$65,000

Wages

$1,800 of the wages are owing to staff

Car expenses: Hyundai station wagon, acquired on 1 May 2020:

Cost$28,000

Running costs(excluding depreciation)$6,500

The effective life of the car is five years and that it is only used for the business purposes.

Jewellery fair

On 1 March 2020, Maggie attended a jewellery fair in Hong Kong in order to update her knowledge on the latest jewellery designs and customer trends. The travel costs were $4,500. This amount covered the expenditure for airfare, accommodation and registration.

Acquired the following new equipment:

1 September 2019: Computer$10,500

15 October 2019: Shelving$24,500

1 January 2020: Security system$2,500

8 June 2020 Air conditioning (unpaid as at 30 June 2020)$25,000

Loan establishment costs and interest expenses

On 1 August 2019, the company obtained a 10-year loan of $500,000 to fund business operations.

Goodwill of $100,000 was written off.

Market research expenses of $21,250 were incurred in examining the feasibility of opening a new store in Sydney CBD.

REQUIRED

Assuming Ben and Maggie want to maximise taxable income,

  1. Advise Ben and Maggie on what amounts must be included in the company’s taxable income for the 2019/20 tax year. (22 Marks)
  2. Calculate the taxable income and tax payable for the tax year ended 2019/20. (3 Marks)

Answer

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