Microsoft Word - Case study 2020 S1 Q.docx
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:
Ø You must cite relevant cases, ATO rulings, and
legislative references to support your answers.
Ø 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:
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
een 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 – 1/7/2019 Nil
Trading stock on hand – 30/6/2020
Cost $46,000
Replacement cost $58,000
Market selling value $65,000
4) Wages
$1,800 of the wages are owing to staff
5) 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
usiness purposes.
6) 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.
7) 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
8) Loan establishment costs and interest expenses
On 1 August 2019, the company obtained a 10-year loan of $500,000 to
fund business operations.
9) Goodwill of $100,000 was written off.
10) Market research expenses of $21,250 were incu
ed 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)