Question 1 (20 marks) Part A (15 marks) All amounts are in Australian dollars. Ignore GST. Adam's Bookkeeping Pty Ltd (AB) is a bookkeeping company which is an Australian resident. It started operations on 1 July 2018 and pays tax on an earnings basis. AB is not a small business entity for tax purposes. AB has provided you with the following extract from its trial balance for the income year ended 30 June 2019: Income 1. Dividend franked to 40%, received from a company with a corporate tax rate for 140.000) imputation purposes of 275% Expenses 2 Legal fees to establish the company 5.000 DE 3. Borrowing costs for a three-year loan taken out on 1 July 2018 to purchase an 9,000 DE income producing asset * Fine for late lodgement of fringe benefits tax (FBT) return 3,000 DE 5. Christmas party for 10 staff at $100 per head (AB uses the 50/50 split method for 1,000 DE calculating FBT) Assets 6 Unbilled invoices on 30 June 2019 (work in progresa) (Dr WIP CrIncome) 22.000 DE 7. Prepaid workers compensation cover for the period 1 July 2019 to 31 December 8,000 DE 2019, paid on 30 June 2019 (Dr Prepayment Cr Bank) & Trade debtors for invoices rendered 13,000 DE 9. Provision for doubtful debts. No bad debts had been written off for the income year 0,0001 ended 30 June 2019 Liabilities 10. Accrued discretionary bonus for an employee who was notified of their bonus in July 15,000) 2019 11. Accrued superannuation (4,000) 12. Unearned refundable income received in advance for bookkeeping work to be done (15,000) for clients in July 2019 (Dr Bank Cuneared Income) Assume that AB's accounting profit for the income year ended 30 June 2019 is $1,000,000 and that the above items are the only tax issues to consider Required By reconciling from AB's accounting profit of $1,000,000, calculate AB's taxable income for the income year ended 30 June 2019 having regard to each of the twelve (12) items noted above. Provide a relevant section reference(s) for each item. Show all tax adjustments (including nil amounts) and all workings. 15 marks Question 1 (cont.) Part B (5 marks) All amounts are in Australian dollars. Ignore GST. Drinkwater Investments Pty Ltd (DI) is an Australian resident company and carries on a property management business. DI has provided you with the following information in relation to its income for the income year ended 30 June 2019, as well as the income of Yankee Pty Ltd (Yankee), an Australian company in which DI owns 42%: Details 1. Income derived in the income year ended 30 June 2019 in the ordinary 4,800,000 course of carrying on Dr's business 2 Income derived in the income year ended 30 June 2019 in the ordinary 1,100,000 course of carrying on Yankee's business DI's income of $4,800,000 is made up of the following: 1. Interest from a term deposit 2. Rent 3. Management fees 4. Unfranked dividends from 1% interests in listed companies 5. Unfranked dividend from Yankee (42% owned) 2,000,000 500,000 700,000 1,400,000 200,000 4,800,000 Required Calculate Dl's tax rate for the income year ended 30 June 2019. Explain briefly your answer and show all workings. Note: You are NOT required to calculate Dl's tax payable. 5 marks
