HI6028 Taxation Theory, Practice & Law
T3 2018 Individual Assignment
Due date: Week 10
Maximum marks: 20 (20%) Maximum word limit – 1500 words.
This assignment is to be submitted by the due date in soft-copy only (Safe assign – Blackboard).
The assignment is to be submitted in accordance with assessment policy stated in the Subject Outline and Student Handbook.
It is the responsibility of the student submitting the work to ensure that the work is in fact his/her own work. Ensure that when incorporating the works of others into your submission that it is appropriately acknowledged.
Question 1 (15 marks)
Daniel and Olivia Smith operate a mixed business called Brekkie and Lunch and OZ Bottle Shop at 50 York Street Sydney. They visit you in order to prepare their 2017 partnership tax return. During your first meeting they provide you with their cash receipts and cash payments journals, their business bank statements and a file contain all their business invoices and receipts relating to the transactions in their book. Details of the transactions are as follows:
Business Sales (Cash) 150,170
Debtors cash payments 32,800
Car expenses 3,310
Electricity bill 1,470
Council rates 517
Business insurance 1,250
Mobile bills 704
Union fees 284 Account charges ( ANZ Bank) 595
Repair expenses 1,490
Loan repayment 8,500
Drawings 6,000 Purchase of fixed Asset 3500
Cash Purchases 31,155
Repayment to Credits 128,678
After careful consideration of the working papers from last year’s return, you establish:
Debtors at 1st July 2016 3,925
Debtors at 30th June 2017 3,010
Creditors at 1st July 2016 6,500
Creditors at 30th June 2017 7,010
Stock on hand 1st July 2016 9,120
Stock on hand 30th June 2017 9,750
ii. Some of the creditors were paid directly from the cash receipts account. Overall, $31,155 of stock was purchased in this method. Additionally, $5,600 in cash has been used for private purposes.
iii. The owners have taken $3,200 from Bottle Shop items for private use.
iv. There was a $3,000 reduction in the loan repayment, as this was the loan principal. The business loan repayment was $8,500.
v. The business has two cars: a van used 90% for business purposes and a SUV used 60% for business purposes. The cost of maintaining the van was $1,260 and the SUV $2,050.
vi. Repairs and maintenance expenses are as follows:
1st October 2016- air-condition installation 1,200
1st December 2016- shop painting 150
1st April 2017- refrigerator motor replacement 140
vii. Asset purchases are as follows:
1st August 2016- new restaurant freezer $3,500
A trade-in of $500 was permitted on the old unit
viii. The depreciation schedule as at 30th June 2017:
Cost $ Adjusted value $
Restaurant freezer 8,000 1,480
Restaurant refrigeration 14,600 3,580 Shop fittings structure 7,800 2,965 kitchen electrical appliances 3,900 754
Car – Van 16,500 1,550
Car - SUV 42,200 10,350
All of the above discussed business assets of Brekkie and Lunch and OZ Bottle Shop were purchased before 27 February 1992 and Daniel and Olivia Smith have chosen to use the depreciation rates published by the ATO. Any new assets will have a useful life of 10 years and the Daniel and Olivia’s partnership business will use diminishing value method to depreciate their business depreciable assets.
ix. Daniel and Olivia live on the business properties, but 90% of mobile bills, 80% of electricity expenses and 60% of council rates relate to the Brekkie and Lunch and OZ Bottle Shop. The insurance premium paid is completely related to their business. Daniel and Olivia have a separate insurance for their personal goods.
From the information supplied, prepare the working papers and determine the net income for the partnership for the year ended 30 June 2017.
Question 2 (5 marks)
John is a senior executive with a printing company. As part of his remuneration package his employer pays for his child’s school fees at a private school costing $15,000. His employer also provides him with accommodation in a Sydney apartment throughout the FBT year. John must pay $100 of rent per week for the apartment. The market value rent for the apartment is $800 per week.
Advise John’s employer of the FBT consequences of John’s remuneration package.