Health and Wealth Pte Ltd $($HW$)$ has been operating since the $15$ January $2023.$ The company had a choice of electing a basis period and chose to use the period ended $31$ December.

The financial $($accounting statements of the company are set out below:

Balance Sheet of Health and Wealth Pte Ltd

As at $31$ December $2023$

Current Assets:

Cash at Bank $206,000$

Accounts Receivable $469,826$

Inventory $396,725$

Total current assets $1,072,551$ 

Fixed Assets:

Office Furniture at cost $19,440$

Less accumulated depreciation $(3,888)$

Office equipment at cost $35,950$

Less accumulated depreciation $(8,988)$

Factory equipment at cost $146,000$

Less accumulated depreciation $(43,800)$

Motor vehicles at cost $170,000$

Less accumulated depreciation $(150,000)$

Total Non current assets $164,714$

Total Assets $1,237,265$

LESS:

Current liabilities:

Trade creditors $175,692$

Non$-$Current Liabilities

Loan to Bank for Office equipment $35,950$

Lease liability $148,000$

Less amortised $(18,500)$

Total Liabilities: $341,142$

Net Assets: $896,123$

Represented by:

Shareholder Funds

Ordinary Shares $64,000$

Preference Shares $80,000$

Accumulated earnings$/$losses for year $752,123$

Total $896,123$

Total:

Profit and Loss Statement of Health and Wealth Pte Ltd

Revenue: $

Sales: $2,192,061$

Interest $3,220$

Proceeds on sale of Intellectual property $85,000$

Insurance proceeds on disposal of truck $88,000$

Total revenue: $2,368,281$

Cost of sales:

Opening stock $0$

Purchases $869,289$

Closing stock at cost $396,725$

Cost of sales $572,564$

Gross profit $1,795,717$ 

Expenditure:

Accounting fee for ongoing business

advice $6,500$

Bank fees $2,680$

Depreciation $235,000$

Costs of approval from SFA $12,000$

Establishment of company $2,500$

Accounting fees for business plan $8,000$ 

Legal fees re employee share plan $15,000$

Lease payments on factory equipment $18,500$

Interest on loan for office equipment $1,258$

Reimbursement of petrol costs for

Josephine and Ali $6,200$

Running costs of motor car for Filepe $12,000$

Accommodation cost for Filepe $35,000$

Provision of bad and doubtful debts $12,000$

Donation to IPC $4,500$

Contributions to CPF for staff $12,000$

Wages for staff $186,000$

Wages to Josephine $180,000$

Wages to Ali $160,000$

Wages to Filepe $110,000$

Sundry operating expenses $15,650$

Petty cash $1,850$

Entertainment of suppliers $6,956$

Total expenses $1,043,594$

Net accounting profit $752,123$

Note:

The company also gave $$12,000$ of supplements to another IPC and the cost of the supplements used by Sarah was $$950.$ 

The company directors believe that the result is fantastic for the first year of operations and that the shareholders should get a dividend.

However the forward projections for $2024$ are not as rosy and from the information prepared by KT it is likely that the company will make a loss from trading of approximately $$186,850.$

ISSUES THAT CLIENTS REQUIRE ADVICE ON:

$1.$ Based on the financial information provided by the company directors can you please prepare a statement of the company$’$s assessable income the amount of income tax payable.

$2.$ In preparing the statement of assessable income please explain to Josephine, Ali and Filepe why you have made certain adjustments to the accounting profit.

$3.$ Josephine, Ali and CSL ltd would like to receive a dividend and the directors have agreed to a payment of a dividend to the shareholders. It is agreed that Josephine will receive $$10,000$ each and CSL Ltd will receive $$25,000.$

$4.$ Is this the minimum the company can pay, can it pay out all of the profit as a dividend and as the adviser would you recommend this?

$5.$ How is the dividend treated by the Josephine and Ali and CSL Ltd$?$

$6.$ Would it make any difference if the all the shareholders elected to reinvest their dividends for extra shares in the company?

$7.$ If the company does make a loss in the basis period $2024$ of $$186,850$ how will it be treated by the company for taxation purposes? If cash flow is an issue do you think that the activity undertaken by the company would qualify for any Government incentives?