This is the second component of the problem solving assessment task. Your response to Part B should also consider relevant data provided in Part A and feedback provided in respect of Part A.
Part B Question
Bill decided not to sell the property opting instead use the apartment as a bed and breakfast following an increased interest in regional holidays. It was available for bookings from the beginning of February. He did however sell two paintings that had been hanging in the studio apartment. He had purchased them in 2009 for $700 each, he sold one for $450 and the other for $900.
At the end of the current financial year the following activities had occurred.
Bicycle business
|
|
Sales
|
$ 1,382,500
|
Purchases
|
$ 1,078,000
|
Opening stock (1 July)
|
$ 210,000
|
Closing stock (30 June)
|
$ 240,000
|
Occupancy expenses (rates, electricity etc)
|
$ 58,000
|
Wages
|
$ 85,176
|
Travel (actual cost of work van)
|
$ 23,500
|
Installation of fittings for new storage area.
|
$ 38,000
|
Painting of internal and external walls, excluding new storage space.
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$ 25,000
|
Phone & Internet store
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$ 6,000
|
Loan payment on 1 hectare property (includes interest on loan for year $ 4,752)
|
$ 8,000
|
Wages expense includes:
- superannuation for two employees;
- payment to a part time retail assistant who works 20 hours per week at $25.50;
- payment to his spouse who does cleaning, and occasionally works in the store for approximately 4 hours per week at $32.00 per hour; and
- wage to Bill of $52,000.
The wage to Bill and payment to his spouse are deposited into a joint account.
From this joint account the following transactions occurred:
Interest earned |
$27.00
|
Bed and Breakfast activities (30 days of bookings from February)
|
|
Income
|
$ 3,000
|
|
Provisions expense
|
$ 900
|
|
Occupancy expenses
|
$ 1,000
|
|
Expense relating to advertising online
|
$ 300
|
Rental property in spouses name only (expenses paid from joint account)
|
|
Income (net of agents fees)
|
$ 19,874
|
|
Repairs to bathroom expenditure
|
$ 570
|
|
Lawn upkeep expense
|
$ 2,600
|
|
Loan Payments (includes interest on loan for year $11,550)
|
$ 14400
|
|
Depreciation expense
|
$ 1,000
|
|
Rates, Insurance and water fees
|
$ 3,450
|
Bills spouse also worked as a part time nurse earning $47,000 with tax withheld of $6,604 and incurred $2,300 in employment related expenses such as uniform, professional subs and training costs.
Bill has paid $35,700 PAYG installments.
Required
- Prepare a report explain what amounts would or would not be included in the calculation of the tax payable for Bill to be retained in a work file. (15 marks)
- Prepare a draft letter to Bill advising the tax position. (5 marks)
Both parts can be submitted in a single file. Ensure all calculations are clearly detailed (Total of 20 marks for Part B).