All amounts are in New Zealand dollars and GSTexclusive unless otherwise stated. Please answer following question following NZ tax law.

Noodle Nation Limited NNL is a New Zealand tax resident company that operates a chain of noodle restaurants throughout the South Island. NNL has a standard March balance date and is registered for GST

The company recorded an accounting profit before tax of $ in its management accounts for the income year ended March You work for Spotlight Accounting Limited, and your task is to prepare the tax reconciliation to determine NNLs taxable income so that you can later prepare its income tax return.

The company\'s internal accountant has provided the following additional information relating to NNLs operations for the income year ended March :

Included in NNLs balance sheet is an amount of accrued interest income as at March of $ The balance of the accrued interest income as at March was $ Ignore the impact of the financial arrangements rules if any

The annual rental cost for a new restaurant in Wanaka is $ On October NNL prepaid the full year of rent to September in advance. This payment was expensed in the management accounts.

On March NNLs Christchurch restaurant acquired a new deep fryer for $ This was entered in the accounting system as a fixed asset so it was not included in the accounting profit or loss. No depreciation was claimed for accounting purposes.

Entertainment expenses included in accounting profit totalled $ Of this, $ related to food and drink at staff functions that were not on the business premises. The remaining $ related to food and drink consumed by one of NNLs directors while travelling out of town to meet with suppliers. The director did not eat or drink with the suppliers.

NNLs Queenstown restaurant sometimes prepares catering orders for local businesses and events on credit arrangements for up to days. One of its customers ordered $ worth of catering in June but by December it had gone into liquidation with the debt unpaid. NNLs internal accountant wrote off the debt as bad in January and this was included in the management accounts.

Required

 

 Calculate NNLs taxable income for the year ended  March  by preparing a reconciliation from accounting profit to taxable income, identifying the required tax adjustments. Assume that NNL wishes to minimize its taxable income. 

 

Briefly explain the income tax treatment of items and even if the adjustment is nil

For items and cite a relevant legislative reference.

marks

Check if following NZ tax law rules are applied correctly, if not please correct them with detailed calculations.

Accrued Interest Income:

Taxable adjustment: Accrued interest income is governed by subpart EW of the Income Tax Act

Prepaid Rent:

Taxable adjustment: Determination E under section EA of the Income Tax Act provides guidelines for prepaid rental costs. As the prepaid rental cost exceeds the threshold for the unexpired portion, only the portion exceeding the threshold should be added back.

Calculation: $ $ $No adjustment as it falls within the threshold

Capital Expenditure Deep Fryer:

Taxable adjustment: Subpart EE of the Income Tax Act governs the depreciation of fixed assets. Since no depreciation was claimed, there\'s no adjustment for this item.

Entertainment Expenses:

Taxable adjustment: Subsections DD DD and DD of the Income Tax Act provide rules for the tax treatment of entertainment expenses. Only of the $ spent on staff functions off business premises is deductible, resulting in a $ deduction. However, food and drink expenses while traveling for business purposes are fully deductible, so the $ expense related to the director\'s travel is fully deductible.

Bad Debt Writeoff:

Taxable adjustment: Section DB of the Income Tax Act allows for the deduction of bad debts written off.

Total Adjustments:

Accrued Interest Income: $No adjustment needed

Prepaid Rent: $No adjustment needed

Entertainment Expenses Adjusted: $$ $

Bad Debt Writeoff: $

Total Adjustments: $

Taxable Income:

Accounting Profit before Tax: $

Tax Adjustments: $

Taxable Income: $ $ $