You are a tax agent and have been engaged by Royal Watch Ltd to prepare their 2020/21 Income Tax Return.

1. Royal Watch Ltd is a manufacturer and exporter of fashion watches and designer decorative clocks. Its activities have not changed during the tax year 2020/21.
2. For accounting purposes, the company uses the straight-line method to depreciate assets. For taxation purpose, it chooses to use the diminishing value method to depreciate its assets. All assets are purchased post 10 May 2006 and the leasehold improvement is in relation to the leased office. The opening adjustable values as at 1 July 2020 are:

AssetEffective LiveOpening Adjustable ValuePlant and Machinery10 years$3,125,052Leasehold improvement15 years$1,635,988Office Equipment4 years$250,635

1. The company purchased office equipment of $50,890 on 1 November 2020.
2. The company depreciates the building over 40 years for both accounting and taxation purposes. The construction cost of the factory premises is $2,014,600.
3. Repairs and maintenance expense included the cost for the replacement of carpet in the factory meeting rooms with premier stone floor. This cost of $123,540 was paid on 1 April 2021.
4. Among the entertainment expenses, $38,450 was for food and drinks provided during five whole day in-house seminars attended by clients and employees. The balance was for lunches and dinners with customers.
5. The payment of annual leave was $35,750 during the year 2020/21.
6. A provision of 5% is made on debts which are overdue for more than 30 days except for one debt which has been overdue for more than 12 months. A full provision has been made for this debt of $230,798. However, the receivables clerk failed to mail a legal claim to the clients correct address.
7. The company has a franking account surplus of $8,000 on 1 July 2020. In addition, the company made the following transactions:
   1. On 21 July 2020 the company made a PAYG instalment payment of $40,500.
   2. On 21 October 2020 the company made a PAYG instalment payment of $45,500.
   3. On 1 November 2020, the company received a tax refund of $35,680 for the tax year 2019/20.
   4. On 31 December 2020, the company paid a fully franked interim dividend of $350,000.
   5. On 21 January 2021 the company made a PAYG instalment payment of $55,500.
   6. On 21 April 2021 the company made a PAYG instalment payment of $50,500.
   7. On 1 June 2021 the company received a dividend of $220,000. This had a franking percentage of 75%.
   8. On 30 June 2021 the company paid a fully franked final dividend of $450,000.

Below are the financial statements for the Royal Watch Ltd.

Royal Watch Ltd Income Statement 1 July 2020 30 June 2021Revenue$Gross Sales16,412,356(Less Sales Returns and Allowances)15,860Net Revenue$16,396,496Cost of Goods SoldBeginning Inventory1,862,792Goods Purchased or Manufactured9,580,365Total Goods Available11,443,157(Less Ending Inventory)(1,762,835)Cost of Goods Sold9,680,322Gross Profit (Loss)6,716,174Operating ExpensesWages1,150,123Superannuation Costs109,262Depreciation on Plant and Machinery498,365Depreciation on Factory Premises50,365Depreciation on Leasehold Improvements143,854Electricity325,640Insurance on Factory Premises54,352Advertising and Promotion Expenses158,063Freight and Delivery Expenses258,647Total Operating Expenses2,748,671 Gross Profit (Loss) After Operating Expenses3,967,503Other IncomeInterest Income8,672Bad Debt Recovery58,600Net Gain from Disposal of Plant and Equipment36,872Total Other Income104,144Administration ExpensesAccounting and Audit Fees38,450Bank Charges3,670Commissions328,608Depreciation on Office Equipment16,616Employee Benefits256,344Entertainment Expenses60,851Insurance79,562Interest Expenses369,207Legal and Professional Fees179,520Maintenance and Repairs279,420Office Supplies136,825Payroll Taxes85,252Office Rental138,950Provision for Annual Leave136,822Provision for Doubtful Debts380,450Salaries381,633Superannuation Costs36,256Travel46,830Utilities68,961Total Administration Expenses3,024,227 Net Income before Taxes1,047,420Less Income Tax Expenses272,329Net Income after Income Taxes775,091

Please complete the calculation of profit and loss and reconciliation to taxable income/loss sections of the Company Tax Return for the year ended 30 June 2021.

All blank boxes must be completed.

*Show your workings for the Non-deductible expenses (label W).

Note: The table is based on the Australian Taxation Offices Company Tax Return for 2021. The full return can be found at: https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Company-tax-return-2021.pdf

Company Tax ReturnDate from Date to Name of Company Calculation of Total Profit or LossIncomeOther sales of goods and servicesC Gross interestF Other gross incomeR Total IncomeS ExpensesCost of salesA Contractor, sub-contractor and commission expensesC Superannuation expensesD Rent expensesH Interest expenses within AustraliaV Depreciation expensesX Repairs and maintenanceZ All other expensesS Total ExpensesQ Total Profit or LossT

Reconciliation to Taxable Income or LossTotal profit or loss amount shown at T as above Add:Franking creditsJ Other assessable incomeB Non-deductible expenses (*list below all expenses included)W Sub Total Less:Deduction for decline in value of depreciating assetsF Capital works deductionsI Other income not included in assessable incomeQ Other deductible expensesX Subtraction items subtotal Taxable/net income or loss

Calculation statementTaxable or net incomeA Tax on taxable or net incomeT1 R&D recoupment taxM Gross tax (T1 + M)B Nonrefundable noncarry forward tax offsetsC Subtotal 1 (B C) (Cannot be less than zero)T2 Nonrefundable carry forward tax offsetsD Subtotal 2 (T2 D) (Cannot be less than zero)T3 Refundable tax offsetsE Subtotal 3 (T3 E) (Cannot be less than zero)T4 Franking deficit tax offsetF Tax Payable (T4 F) (Cannot be less than zero)T5 Section 102AAM Interest ChargeG Credit for interest on early payments amount of interestH1 Credit for tax withheld foreign resident withholding (excluding capital gains)H2 Credit for tax withheld where ABN is not quotedH3 Tax withheld from interest or investmentsH4 Credit for TFN amounts withheld from payments from closely held trustsH5 Other creditsH7 Credit for foreign resident capital gains withholding amountsH8 Eligible creditsH Tax offset refunds (Unused amounts from Label E).I PAYG instalments raisedK AMOUNT DUE OR REFUNDABLE (T5 + G H I K)S