Question $3$

ABC Pty Ltd$.$ Is a small Australian insurance company operating in Adelaide. It is an Australian resident private company for tax purposes. The accounting profit and loss statement for the year ended $30$ June $2017$ is as follows:

Income $

Fees $1,000,000$

Less

Operating Expenses $

Accounting fees $15,000$

Advertising $12,000$

Accounting Depreciation $($note $1)15,000$

Fringe benefits tax paid $15,000$

Gifts $($note $2)10,000$

Light, power and heating $30,000$

Provision for Long Service Leave $($note $3)20,000$

Provision for Doubtful Debts $($note $4)10,000$

Provision for Unreported Claims $($note $5)8,000$

Rent $50,000$

Repairs $($note $6)20,000$

Stationary $5,000$

Wages $400,000$

$610,000$

Net Profit $390,000$

Additional information

$1.$ The Tax Depreciation schedule based on Division $40$ ITAA $1997$ shows depreciation for the year as $$20,000.$

$2.$ The Gifts were as follows:

$$ Royal Melbourne Hospital $$5,000$

$$ Melbourne Football Club $$5,000$

$3.$ The long service leave paid in cash during the year was $$10,000$

$4.$ The bad debts written off during the year were $$15,000.$

$5.$ The provision for unreported claims was based on an estimate of accidents that had occurred before the end of the financial year, but had not yet been reported to the company. The company anticipated making the payments of $$8,000$ during the months of July and August $2017$ in respect of these claims.

$6.$ The repairs of $$20,000$ consisted of painting the company premises for $$5,000$ and replacing the old rotting wooden office window frames with new steel window frames for $$15,000.$ The cost of replacing the old wooden office window frames with new wooden window frames would have been $$16,000.$ The new steel window frames had the advantage of not being subject to rotting.

$7.$ On the $30$ June $2017,$ the ABC Pty Ltd also received a dividend of $$100,000($franked to $80\%)$ from Halo Pty Ltd a resident public company. This dividend is not recorded in the Profit and Loss Statement. Halo Pty Ltd is not a small business entity for tax purposes.

$8.$ The accounting net profit of $$390,000$ included $$60,000$ of net exempt income.

$9.$ The company has an unabsorbed income loss of $$80,000$ from the $2016$ income year. The Company satisfies the continuity of ownership and continuity of business tests.

REQUIRED:

Calculate the Company's Tax Liability for the year ended $30$ June $2017.$

Figures can be rounded to the nearest dollar.

You should briefly explain your treatment of every item in this question

If you fail to explain your inclusion or exclusion of any item, you will lose marks.

Use the following format in answering this question:

Item: Bad debts

Explanation: Normal risk in carrying on a business $$ deduction $($s$\mathrm{.}2535$ and s$.8-1,$ ITAA$97)$

Amount: $ xxxx