Assignment - Semester 2, 2013

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

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

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

• Calculate taxable income and tax payable for a sole trader.

In order to complete this task, students will be allocated to groups from within their tutorial.

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







2. Loan repayment of $18,500 included a 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. The Holden sedan (2,200cc non-rotary engine) is used 90% for business purposes. Log books have been maintained to substantiate this usage and the 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 the 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 the 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 a car accident. She decided to replace the car’s wrecked petrol engine with a 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 will reduce the 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

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

B. Calculate any fringe benefits tax liability for ALLNews at 30.06.2013.

The Word limit is 1,250 words.

Marks will be allocated according to the marking criteria as set out below:
1. Correct calculations inclusive of clear and concise explanation of calculations.
2. Comprehensive and accurate discussion of taxation issues citing appropriate legislation, ATO Rulings and case law.
3. Evidence of usage of available legal material and wide reading/research.
4. Presentation – format, spelling, vocabulary, readability.
5. Appropriate referencing, including in-text referencing and a reference list where appropriate.
6. Engaging proactively with team members in decision making and facilitating the achievement of agreed group outcomes.