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Health and Wealth Pte Ltd ( HW ) has been operating since the 1 5 January 2 0 2 3 . The company had a

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 companys 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?

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