Question 1 - 30 marks 1.1 (10 marks) Partnerships Your client, Deepal, runs a family business structured as a partnership. Deepal and her husband...

Question 1 - 30 marks

1.1 (10 marks)

Partnerships

Your client, Deepal, runs a family business structured as a partnership. Deepal and her husband Kumar are the partners. For the year ended 30 June 2012 the financial situation of the partnership was as follows:

Receipts

Sales

Rental income from investment property Interest on deposits

Payments

Purchases of trading stock

Opening stock at cost

Closing stock at cost

Interest on money borrowed for investment property Rates on Investment property

Tax agent's fees

Travel to and from work

Plant for business with a life of 10 years Laser printer for the business

Rental of business premises

Casual staff costs

$

298,000 22,000 1,200

$

66,000 20,000 18,000 5,000 2,500 1,100 1,000 11,000 250 52,000

15,000 Carried forward loss of the partnership from previous year $10,000

Calculate the net income of the partnership for the year ended 30 June 2012. Deepal and Kumar's partnership agreement provides that they share the income equally between them. Calculate their taxable income for the year ended 30 June 2012 assuming they earn no other income.

1.2(10 marks) Tax Accounting

AI, Bea and Charles are solicitors who operate a specialist property conveyancing business called ABC Pty Ltd. They have over 20 employees, 5 employees work as secretaries and the remaining 15 do work as paralegals. The paralegals do most of the actual conveyancing work. AI, Bea and Charles only get involved in the actual work of the business on the rare occasions when matters are not legally straightforward. Most of the actual work of AI, Bea and Charles is reviewing and signing off on the work of their staff and getting new business. Should ABC Pty Ltd prepare its tax return on a cash or an accruals basis?

EXAM CS -Spring 2012 2

1.3 (10 marks with each sub part worth 5 marks)

XYZ Pty Ltd operates a large chain of jewellery stores in NSW. In the year ended 30 June 2012 XYZ Pty Ltd had incurred the following outgoings;

a) Jewellery to the value of $25,000 was stolen from one of the stores in a 'daylight' robbery.

b) Legal fees of $250,000 to defend the business before the Trade Practices Commissioner against a charge of false and misleading advertising. The decision in the case is still pending.

Advise XYZ Pty Ltd as to the deductibility of the above outgoings.

Question 2 - 30 marks

2.1 (10 marks)

ABC Pty Ltd was incorporated in NSW in 1990. The company has two shareholder, Frank and Lucy who hold equal shares in the company. The company operates a highly successful architecture practice. During the 2011­ 2012 income year, the following occurred:

Business income $2 million

Staff costs $400,000

Rental costs for premises $380,000

Legal expenses relating to the acquisition of a rival business competitor $60,000 Sale of shares in ANZ bank - purchased in December 2009 for $40,000 and sold in November 2011 for $240,000

ABC Pty Ltd on the 30th of June 2012 declared and paid a fully franked dividend of after tax profits to its 2 shareholders evenly.

Calculate the taxable income and tax payable for ABC Pty Ltd for the 2011-2012 tax year.

Calculate the dividend paid to Frank and Lucy. Assuming that Frank and Lucy had no other assessable income and no deductions, calculate the tax payable on their dividend income.

EXAM CS -Spring 2012 3