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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 been 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 business 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 incurred 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)