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 | $ |
| Sales | 960,000 |
| Proceeds from disposal of land | 300,000 |
|
|
| Cash expenditure | $ |
| Trading stock | 315,000 |
| Wages(staff) | 86,000 |
| Electricity | 9,500 |
| Car expenses | 6,500 |
| Loan establishment cost | 3,000 |
| Interest expense | 23,000 |
| Advertising | 4,200 |
| Purchase of Hyundai station wagon | 28,000 |
| New equipment (computers, shelving and security system) | 37,500 |
| Miscellaneous expenditure | 4,400 |
| Travel (Jewellery fair) | 4,500 |
| Entertainment – client | 2,450 |
| Market research expenses | 21,250 |
Notes:
- Accounts receivable as at 30/6/2020 $55,000
- 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.
- 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,
- Advise Ben and Maggie on what amounts must be included in the company’s taxable income for the 2019/20 tax year. (22 Marks)
- Calculate the taxable income and tax payable for the tax year ended 2019/20. (3 Marks)
