The tax affairs of James Smith are being investigated by the tax authority. The tax inspector believes that Mr Smith has understated his income in the tax year as being $40,700.
Mr Smith has been asked to give full details of his assets and liabilities at the beginning and end of the tax year and a summary of personal expenditure during the year, which he believes to be about $36,500.
Details of his assets and liabilities (at original cost) appear below:
	Beginning of year	End of year
House purchased 10 years ago	$95,000	$95,000
Furniture and fittings	35,000	39,000
Government bonds	4,000	4,000
Shares	15,600	18,600
Bank account	1,400	2,600
Cars	6,700	16,800
Mortgage	21,000	20,000
Overdraft	300	400
Required: a. Deduce Mr Smiths income in the year, based on information given. b. What action do you think the tax department should take?