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Q
Discuss the tax implications of these alternatives for the firm of accountants. Question 3 Benjamin Crook is the proprietor of Collins Home Entertainment Centre. Its operations include the sale of discount electrical goods, short-term rental of professional video cameras and recorders as well as a wide range of video movies. The shop also stocks spare parts which are primarily used to service the rental equipment.
In March 2016, a truck crashed into Benjamin's business premises and he lodged an insurance claim for compensation.
A breakdown of the amounts comprised in the claim is as follows:
Damaged Premises Electrical goods $700,000 75,000 16 Hire equipment 130,000 Rental movies 25,000 Spare parts 8,000 Loss of profits from temporary closure of the business 80 000
$ XXXXXXXXXX
After protracted negotiations he receives, and accepts, an offer from the insurance company of "$850,000 in full settlement of the claim". No explanation is given of how the settlement amount has been calculated.
(a) Benjamin Crook seeks your advice as to the assessability of the amount received. (HINT: Read Woellner, Chapters 6-800 to 6-910).
(b) What difference (if any) would it have made to your answer if he received the full amount of the initial claim?