Zeta Pty Ltd accounts for its income and expenditure on an accruals basis. A review of the financial records for the financial year ending 30 June 2020 reveals the following details. Statement of financial performance Income Sales revenue 8,500,000 Interest Note 2 93,000 Rent Note 3 84,000 Royalties Note 4 85,000 Insurance claim Note 5 30,000 Cash dividend Note 6 45,000 Total income 8,837,000 Note 7 Note 8 Expenditure Operating costs Bad debt expense Repairs Insurance Rent Capital works Depreciation Total expenditure Note 9 1,600,000 20,000 161,000 50,000 30,000 128,000 37,908 2,026,908 Note 11 Note 12 Net profit 6,810,092 1. Aggregated annual turnover Zeta's aggregated annual turnover for 2017/2018 was $14 million and for 2018/2019 was $9 million. The company is not sure whether it qualifies as a small business entity, but if it does, it wants to use all of the concessions available. 2. Interest Zeta placed $1,000,000 on a twelve-month term deposit with the FED Bank on 1 November 2018. On maturity, the bank was instructed to transfer the interest amount of $60,000 to Zeta's trading account and reinvest the principal of $1,000,000 for a further twelve-month term deposit. The interest that accrued between 1 November 2019 and 30 June 2020 was $33,000. This was the only interest earned by the company for the 2019-20 income year. 1 BFA714 Australian Tax Law Semester 2, 2020 3. Rent Zeta Pty Ltd owns a small office building in West Hobart, which is let to a waste management operator. The rent for this building is $6,000 per month, payable one month in advance. On 30 June 2020, the tenant paid Zeta an extra 2 months' rent in advance. This amount of $12,000 may have to be refunded in the event that the tenant is precluded from using the premises for its intended purpose. 4. Royalties Zeta Pty Ltd received a gross royalty of $100,000 from its New Zealand subsidiary on 2 June 2020. New Zealand Non-Resident Withholding Tax (NRWT) of 15% was deducted from this payment, leaving a net receipt of $85,000. 5. Insurance On 1 March 2020, trading stock in transit was stolen. A claim for insurance was finalised on 30 June 2020 and Zeta Pty Ltd expects to receive $30,000 in respect of its insurance claim within two weeks. This amount has been taken up as a sundry debtor in the Statement of Financial Position. 6. Dividends Zeta Pty Ltd owns shares in BHP, a publicly listed company. On 15 June 2020, BHP declared a fully franked dividend, of which Zeta's share amounted to $40,000. This dividend was paid on 26 June 2020. 7. Trade debtors Trade debtors of $260,000 includes a provision for doubtful debts of $25,000. In the previous year this provision was $12,000. 8. Repairs Repairs and maintenance expenses include the items below. Item 1. Mezzanine floor replacement 2. Demolish and replace retaining wall 3. Replacing existing floor Cost $24,000 62,000 75,000 Notes: 1. Zeta Pty Ltd occupied a building that had been constructed in the early 1980s. Zeta acquired the building in 1997, and since then no significant repairs had been previously undertaken. The mezzanine floor was damaged, and it was recommended that it be demolished and replaced. 2. Upon inspection of the office premises, which Zeta owns, it was discovered that an external protective wall was partially collapsing. This required 85% of the wall to be demolished and rebuilt on its original foundations. The works included the building of two additional internal buttress walls to offer ongoing structural integrity, and the use of larger blocks of better quality sandstone. The original wall was not extended in height or length. 3. The concrete floor in one of Zeta's warehouses was cracking due to the use of inferior steel reinforcing when the floor was first constructed. The entire floor was demolished and replaced with the same thickness of concrete, but with better 2 BFA714 Australian Tax Law Semester 2, 2020 . quality reinforcing. Zeta estimates that had it used the same reinforcing that was used originally, the repair would have cost only $50,000. 9. Prepayments Zeta prepaid the following amounts on 20 June 2020: Insurance $50,000 - this amount was insurance for its office building in West Hobart and was for 12 months cover Rent $30,000 - this amount was for the building it rents for its manufacturing operation and is paid 12 months in advance under its rental agreement. 10. Trading stock Opening stock for 2019/2020 was $135,000; closing stock was $138,000. 11. Capital works The building referred to in Note 8 (above) had been acquired by Zeta for $3,200,000. A quantity Surveyor's report estimated that the original construction cost had been $1,200,000. The construction had commenced on 30 August 1982. 12. Depreciation Accounting depreciation is as follows: Item Method Effecti ve life (years) Original Purchases Opening Dep'n Cost ($) (Disposals) WDV ($) ($) ($) Closing WDV ($) Trademark 40 PC 20,000 18,000 500 17,500 CD DV 30,000 (12,000) 18,000 2,707 0 Motor vehicle (sold 1/3/20) (note 1) CD DV 60,000 3,729 56,271 Motor vehicle (purchased 1/3/20) (note 2) Office furniture 5 DV 135,000 123,500 24,700 98,800 DV 60,000 20,000 6,000 14,000 Plant & equipment Total 245,000 179,500 37,908 186,571 Note: CD-use Commissioner's determination of effective life. 1. On 1 March 2020, one of the company's motor vehicles was sold for $12,000. This decline in value for this vehicle had been recorded using the Commissioner's determination of effective life. A loss of $3,293 on sale has been included in the Statement of Financial Performance. 3 BFA714 Australian Tax Law Semester 2, 2020 2. On 1 March 2020, a new car was purchased for the managing director at a cost of $60,000. The company estimates that the new car has an effective life of 5 years. Note: With the exception of the motor vehicle, no new depreciating assets were purchased during the 2019-20 income year. 13. Low value pool Zeta's low value pool opening balance for 2019/2020 was $46,000. Required Showing all your calculations and explaining each step in the process, calculate the taxable income for Zeta Pty Ltd for the year ending 30 June 2020. 4 Zeta Pty Ltd accounts for its income and expenditure on an accruals basis. A review of the financial records for the financial year ending 30 June 2020 reveals the following details. Statement of financial performance Income Sales revenue 8,500,000 Interest Note 2 93,000 Rent Note 3 84,000 Royalties Note 4 85,000 Insurance claim Note 5 30,000 Cash dividend Note 6 45,000 Total income 8,837,000 Note 7 Note 8 Expenditure Operating costs Bad debt expense Repairs Insurance Rent Capital works Depreciation Total expenditure Note 9 1,600,000 20,000 161,000 50,000 30,000 128,000 37,908 2,026,908 Note 11 Note 12 Net profit 6,810,092 1. Aggregated annual turnover Zeta's aggregated annual turnover for 2017/2018 was $14 million and for 2018/2019 was $9 million. The company is not sure whether it qualifies as a small business entity, but if it does, it wants to use all of the concessions available. 2. Interest Zeta placed $1,000,000 on a twelve-month term deposit with the FED Bank on 1 November 2018. On maturity, the bank was instructed to transfer the interest amount of $60,000 to Zeta's trading account and reinvest the principal of $1,000,000 for a further twelve-month term deposit. The interest that accrued between 1 November 2019 and 30 June 2020 was $33,000. This was the only interest earned by the company for the 2019-20 income year. 1 BFA714 Australian Tax Law Semester 2, 2020 3. Rent Zeta Pty Ltd owns a small office building in West Hobart, which is let to a waste management operator. The rent for this building is $6,000 per month, payable one month in advance. On 30 June 2020, the tenant paid Zeta an extra 2 months' rent in advance. This amount of $12,000 may have to be refunded in the event that the tenant is precluded from using the premises for its intended purpose. 4. Royalties Zeta Pty Ltd received a gross royalty of $100,000 from its New Zealand subsidiary on 2 June 2020. New Zealand Non-Resident Withholding Tax (NRWT) of 15% was deducted from this payment, leaving a net receipt of $85,000. 5. Insurance On 1 March 2020, trading stock in transit was stolen. A claim for insurance was finalised on 30 June 2020 and Zeta Pty Ltd expects to receive $30,000 in respect of its insurance claim within two weeks. This amount has been taken up as a sundry debtor in the Statement of Financial Position. 6. Dividends Zeta Pty Ltd owns shares in BHP, a publicly listed company. On 15 June 2020, BHP declared a fully franked dividend, of which Zeta's share amounted to $40,000. This dividend was paid on 26 June 2020. 7. Trade debtors Trade debtors of $260,000 includes a provision for doubtful debts of $25,000. In the previous year this provision was $12,000. 8. Repairs Repairs and maintenance expenses include the items below. Item 1. Mezzanine floor replacement 2. Demolish and replace retaining wall 3. Replacing existing floor Cost $24,000 62,000 75,000 Notes: 1. Zeta Pty Ltd occupied a building that had been constructed in the early 1980s. Zeta acquired the building in 1997, and since then no significant repairs had been previously undertaken. The mezzanine floor was damaged, and it was recommended that it be demolished and replaced. 2. Upon inspection of the office premises, which Zeta owns, it was discovered that an external protective wall was partially collapsing. This required 85% of the wall to be demolished and rebuilt on its original foundations. The works included the building of two additional internal buttress walls to offer ongoing structural integrity, and the use of larger blocks of better quality sandstone. The original wall was not extended in height or length. 3. The concrete floor in one of Zeta's warehouses was cracking due to the use of inferior steel reinforcing when the floor was first constructed. The entire floor was demolished and replaced with the same thickness of concrete, but with better 2 BFA714 Australian Tax Law Semester 2, 2020 . quality reinforcing. Zeta estimates that had it used the same reinforcing that was used originally, the repair would have cost only $50,000. 9. Prepayments Zeta prepaid the following amounts on 20 June 2020: Insurance $50,000 - this amount was insurance for its office building in West Hobart and was for 12 months cover Rent $30,000 - this amount was for the building it rents for its manufacturing operation and is paid 12 months in advance under its rental agreement. 10. Trading stock Opening stock for 2019/2020 was $135,000; closing stock was $138,000. 11. Capital works The building referred to in Note 8 (above) had been acquired by Zeta for $3,200,000. A quantity Surveyor's report estimated that the original construction cost had been $1,200,000. The construction had commenced on 30 August 1982. 12. Depreciation Accounting depreciation is as follows: Item Method Effecti ve life (years) Original Purchases Opening Dep'n Cost ($) (Disposals) WDV ($) ($) ($) Closing WDV ($) Trademark 40 PC 20,000 18,000 500 17,500 CD DV 30,000 (12,000) 18,000 2,707 0 Motor vehicle (sold 1/3/20) (note 1) CD DV 60,000 3,729 56,271 Motor vehicle (purchased 1/3/20) (note 2) Office furniture 5 DV 135,000 123,500 24,700 98,800 DV 60,000 20,000 6,000 14,000 Plant & equipment Total 245,000 179,500 37,908 186,571 Note: CD-use Commissioner's determination of effective life. 1. On 1 March 2020, one of the company's motor vehicles was sold for $12,000. This decline in value for this vehicle had been recorded using the Commissioner's determination of effective life. A loss of $3,293 on sale has been included in the Statement of Financial Performance. 3 BFA714 Australian Tax Law Semester 2, 2020 2. On 1 March 2020, a new car was purchased for the managing director at a cost of $60,000. The company estimates that the new car has an effective life of 5 years. Note: With the exception of the motor vehicle, no new depreciating assets were purchased during the 2019-20 income year. 13. Low value pool Zeta's low value pool opening balance for 2019/2020 was $46,000. Required Showing all your calculations and explaining each step in the process, calculate the taxable income for Zeta Pty Ltd for the year ending 30 June 2020. 4