Sample Paper 3 - Some good exercice to practise your final exam PDF

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Some good exercice to practise your final exam...

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REVISION QUESTIONS Question 1 Adam Baum is a partnership. The partners are Adam (25%) and Baum (75%). The partnership provides dog washing and boarding facilities for golden retriever dogs. Selected items from the accounts of the partnership for the current year are as follows: Income Income from boarding Frankable distributions from public company Franking credits of $4,500 were attached to this distribution Income from dog washing: Some owners have opted for a yearly maintenance plan. This plan requires the dog owners to prepay a year’s washing and grooming at a cost of $1,000 p.a. $35,000 had been prepaid with services worth $12,800 yet to be provided. No refunds are provided if the services are not used.

$ 250,000 10,500

110,000

Expenses Mortgage discharge expenses: The partnership had borrowed $100,000 to start the business. This loan had been for 20 years and had been repaid early in the current financial year after 10 years. $10,000 of the loan monies had been used to re-decorate Baum’s home. Painting of new boarding kennels

350 3,900

On 10 November PY the partnership had borrowed $150,000 to build new kennels. The loan was to be repaid in 12 years. It cost the partnership $1,000 in loan application fees, $400 for valuation fees and $548 in stamp duty. In addition the partnership prepaid 3 years of interest on the day the loan was taken out. This totaled $31,500. The kennels were used for income earning purposes from 1 January PY. Salaries for staff

58,000

Salary for Adam

80,000

Superannuation for Adam The net accounting profit of the partnership was $55,000.

2,800

Required Calculate the net income of the partnership using the reconciliation process; the taxable income of each partner, and the net tax payable. Adam also had a loss of $10,000 from renting out a townhouse and a $5,000 capital loss when he sold the townhouse. Do not calculate the SBE Tax Offset for the partners.

Question 2 The Smith Family Trust ran a retail furniture and electrical appliance business trading as 'Harry Smith'. The income and expenditure items in the accounts of the business for the year ended 30 June CY were as follows: Income Cash sales Lease premium Lease rental Franked dividends Commission on finance

$ 8,250,000 100,000 200,000 100,000 150,000

Expenditure $ Bank interest on overdraft 125,000 Debt collector 3,258 Insurance premiums 68,000 Interest on loan 270,000 Legal expenses regarding income tax appeal 3,000 Legal expenses to defend an action by a customer for an injury sustained in the store 34,000 Loan expenses 24,500 Provision for doubtful debts 20,000 Provision for long service leave 160,000 Provision for sick leave 75,000 Purchases of appliances 2,680,000 Purchases of furniture 3,740,000 Superannuation for 2 managing director’s 50,000 Superannuation for staff 50,750 Tax agent's fees 5,000 Wages 825,000 Workers' compensation insurance 40,000

Notes to accounts Of the cash sales received during the year $1,100,000 represented the payment for sales made in the previous year. At 30 June CY invoices had been issued for sales of $930,000 for which no payment had been received. Franking credits attached to the dividend are $42,857. Stock on hand at 1 July CY was $1,450,000 and at 30 June was valued at: Market value Cost price Replacement price

$3,270,000 $1,630,000 $1,890,000

During the year the Trustee leased part of the business premises and was paid a lease premium of $100,000. $2,500 was paid to a licensed valuer to provide a sworn valuation on the calculation of the premium. The Trustee obtained a ten-year loan of $1,200,000 from a finance company to purchase stock and provide working capital for the business. The loan was approved on 1 September of the current income year and interest was payable immediately, in equal monthly instalments, at 10% pa on 1st of each month. On 1 June the Trustee prepaid interest in advance of $180,000.

The Trustee paid the following expenses on the loan: Procuration fee Stamp duty Valuation fee

$12,000 $10,000 $2,500

Cheques from customers for sales of $44,000 (included in cash sales) were dishonoured during the year. $33,000 was subsequently received but the balance was never recovered because the customers' whereabouts could not be traced. Revenue losses carried forward from the previous income year amounted to $642,220. Distribution: All dividend income and capital gains are to be distributed to Nancy Smith who was 55 years old. Nancy also had the following income.  dividend of $50,000 with attached franking credits of $10,714.  dividend of $75,000 with attached franking credits of $19,286.  capital losses from the previous year of $110,000. $30,000 to Norman Smith aged 15 years, son of Harry Smith. Norman also received income of $22,400 from his uncle's deceased estate, wages of $10,000 from working parttime in the business and interest from the investment of his wages of $500. $30,000 to Noami Smith aged 17 years, daughter of Harry Smith. Noami was working full-time in the business for the whole year and was paid a salary of $20,000. $25,000 to Norma Jones aged 25 years, niece of Harry Smith. Norma also derived interest of $8,000. $10,000 to be accumulated for Nathan Jones aged 16 years, orphaned nephew of Harry Smith, until he reached 18 years of age. In the event of his death the accumulated funds revert to Norma Jones. The trustee also spent $7,000 on his education during the year. Any remaining income was to be retained in the trust for further use in the business.

Required a) Calculate the net income of the trust assuming the Trustee wished to minimise the net income of the trust. b) Calculate the taxable income and net tax payable by all the beneficiaries and/or the Trustee.

Question 3 Goodone P/L is a resident Australian company which was incorporated on 1 July Year 1 and manufactured steel girders for the mining industry during years 1 - 3. On 1 July of the current year (Year 4), shareholder E acquired shares in the company and it immediately expanded its operations to include the manufacture of elevators for office buildings and shopping centres. The shareholders and the number of shares they own in the company for the four years were:

A B C D E

Yr 1

Yr 2

Yr 3

10 10

10 10

10

Current Year

10 10

10 10 30

The income and deductions for the Years 1 - 3 years were: Yr 1

Yr 2

Yr 3

Assessable Income

722,000

720,000

702,000

Allowable Deductions

773,000

711,000

736,000

24,000

24,000

24,000

Exempt Income

The accounting profit for the current-year of income was $22,500. Certain income and expenses used in calculating this profit are as follows: Including: Exempt income Lease premium received on lease of premises Distribution from Company AB on 15 March Franking credits attached were $1,286 Unfranked distribution from 100% subsidiary Riteone 22 June

Deducting: Provision for long service leave Holiday pay paid to workers which accrued in the previous year Valuation fees on leased premises Stamp duty on purchase of land for new premises Legal fees on loan to construct premises Retiring allowance to A aged 60 years (the Commissioner considers that it is excessive to the extent of $50,000)

$ 24,000 10,000 3,000 14,000

12,500 15,000 2,500 1,500 5,000 100,000

Salary to wife of E (the Commissioner considers that it is excessive to the extent of $9,000) Interest in advance Entertaining of clients by directors on meals (50%/50% employees/clients) Entertainment allowance paid to E Penalty for breach of Corporations Law Raw materials ordered but not received at 30 June of the current year Accounting depreciation on plant Motor vehicle allowances paid to D ($5,000) and E ($7,500)

12,000 198,000 6,000 15,000 4,000 22,000 45,000 12,500

Directors fees paid to C ($10,000), D ($25,000) and E ($50,000) 85,000 The company borrowed $1,200,000 on 1 August of the current year over ten years to build a new factory to manufacture its products and acquire new plant. The building cost $900,000 and was finished on 1 February of the current year. Manufacturing commenced on that day. The loan was an interest only loan payable at $11,000 a month and on 1 June of the current year the company paid interest in advance for 18 months. The company had existing plant with an OAV of $130,000. The tax depreciation rate was 20% DV. There was also an OAV of $12,800 of the low-value pool. Interim distributions totalling $3,200 (franked to 75%) and $4,200 (franked to 100%) were paid on 1 April and 18 June respectively, in proportion to shares held. The company does not wish to use the SBE elections but would like to minimise tax payable. a) Calculate the taxable income/loss of the company for the years 1- 4 and tax payable by the company for those years using the current year’s tax rate. The reconciliation method should be used for the Year 4 calculation. Treat them as a non BRE b) Prepare a Franking Account for the company for the current year of income and calculate any tax and penalty payable. Assume the opening balance of the Franking Account is nil. c) Calculate the tax payable by shareholders C, D, and E for the current income-year....