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The assessment task needs you to correctly compute taxable income, income tax payable and complete income tax return for mixed business/sub-newsagency called ALLNews. It gives you the opportunity to:

• show an understanding of legal principles and their application, especially in relation to taxation and case law.

• Interpret appropriate legislation and common law principles and make informed judgements on issues relating to application of these as they pertain to sole traders.

• Compute taxable income and tax payable for the sole trader.

Julie Smith commenced mixed business/sub-newsagency called ALLNews at 45 Orr Street Numurkah on 1st July 2012. She makes the appointment with you to prepare her 2013 income tax return. At a  interview she supplies you with following financial information:

Receipts

NAB – Business Loan                                                              100,000
Cash Sales Banked                                                                 950,200
Receipts from debtors                                                            320,800
Payments Motor Vehicle Expenses (see note 4)                        10,310
Replacement of petrol engine (see note 9)                                  5,000
Power                                                                                      11,470
Rates                                                                                         1,500
Insurance                                                                                 11,250
Telephone Expenses (see note 5)                                                1,700
Bank charges                                                                              1,590
Repairs and maintenance (see note 3)                                         2,290
Drawings                                                                                   16,000
Wages and Salaries - May                                                          15,000
Entertainment Allowance (see note 8)                                          1,000
Superannuation Expense                                                              1,388
Subscription to Vogue Magazine (see note 8)                                  700
Loan repayment (see note 2)                                                     18,500
Fixed asset acquisition (note 6 below)                                        93,100
Cash purchase – trading stock                                                   311,150
Payment to creditors                                                                 228,670
NOTES

1. Year-end reporting details

Debtors at 30 June 2013                                                             13,010
Creditors at 30 June 2013                                                           17,010
Stock on Hand 30 June 2013                                                       19,750

2. Loan repayment of $18,500 included reduction in loan principal of $13,000. The loan was for business purposes only.

3. Repairs and maintenance comprised:

1 November 2012 – Acquisition and installation of air conditioner     2,000
31 January 2013 – Gravel for car-park                                              150
1 May 2013 – New thermostat for refrigerator unit                            140
                                                                                                   $2,290

4. Motor Vehicle Expenses comprise operating cost of:

Holden – sedan                                                                              7,860
Toyota - corolla                                                                             2,450
                                                                                                 $10,310

5. Telephone Expenses:

Telephone Costs – ALLNews                                                          1,400
Telephone Costs – May Wilson                                                         300
                                                                                                  $1,700
6. Asset acquisition comprised:

1 July 2012 - Freezer                                                                 10,000
1 July 2012 - Refrigeration units                                                  12,500
1 July 2012 - Small appliances                                                      1,700
1 July 2012 - Furniture and Fittings                                               6,300

1 July 2012 - Holden – sedan                                                      32,400
1 April 2013 – Mobile Phone                                                             700
1 April 2013 – Toyota Corolla including on road costs of $3,000    25,000
1 May 2013 – new freezer
A trade-in of $5,000 was allowed for the old unit                             4,500
                                                                                                  $93,100

7. Holden sedan (2,200cc non-rotary engine) is used 90% for business purposes. Log books have been maintained to substantiate this usage and total running costs of maintaining this vehicle is $7,860.

8. Julie employed May Wilson on 1 April 2013 as a sales assistant/courier. May was provided with following benefits as part of her salary package:

a. Toyota Corolla 2,200 cc non-rotary engine. The cost of the car was $25,000 and this included on road costs of $3,000. The total running costs for the period ending 30 June 2013 were $2,450. In first three months the car travelled 7,000 kilometres.

b. Entertainment Allowance of $1,000

c. Telephone expenses of $300 of which $200 are business related calls

d. Mobile phone cost of $700

e. Annual subscription to Vogue Magazine $700

9. On 1 June 2013 Julie was involved in the car accident. She decided to replace the car’s wrecked petrol engine with the more efficient diesel engine with a much greater economy of operation at a cost of $5,000. She liked the idea as the new and better engine would reduce likelihood of future repair bills.

10. On 15 June 2013 Julie was informed that one of her clients who had owed her $2,000 since the beginning of the year was declared bankrupt and will receive no payment.

REQUIRED:

problem1) Complete an Income Tax Return for ALLNews for the year ending 30.06.2013 with appropriate schedules.

problem2) Compute any fringe benefits tax liability for ALLNews at 30.06.2013.

The word limit is 1,250 words.

Taxation, Accounting

  • Category:- Taxation
  • Reference No.:- M92675

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