BULAW5916 Final assessment

BULAW59162020 Semester 1 Final assessment

Please read ALL of these instructions carefully before you commence:

Time to complete: 3 hours 40 minutes (220 minutes)

During the assessment:

  • To add your answers to the assessment word document you will find a box under each question where it asks you to Click or tap here to enter text. Click on this box and begin typing your answers.
  • You can leave Moodle at any time once you have downloaded your assessment, HOWEVER the clock will continue to count down (closing down your internet browser will save you bandwidth issues if your internet is not always reliable).
  • If you leave Moodle at any time, you MUST return to the assessment area on Moodle and click on Continue the last attempt before the time runs out to upload your completed assessment document.

To complete & upload your assessment:

  • Save the document to your desktop using Your Name_StudentID_CourseCode
  • Return to the Moodle assessment area and click on Continue the last attempt button to return to the assessment.
  • Scroll down to Question 1, and click on the paper icon to upload your completed assessment.
  • Click Finish attempt and follow the final prompts to submit your assessment.

If you experience technical issues during your assessment, please don’t panic. Email your lecturer explaining the issue. It would be good to provide a screenshot with your email. The lecturer will get in contact with you as soon as possible to discuss how to proceed.

If you are unable to upload your completed assessment document before your time runs out, please email your lecturer with your assessment document attached and a clear explanation as to why you were late. Your lecturer will contact you to discuss.

Please answer 5 out of the 6 questions below. If you answer all 6 questions, only the first 5 will be marked.

Question 1

ABC Pty Ltd sells upmarket washing machines. It had $200,000 stock on hand at the beginning of the 2017/2018 financial year. It purchased $50,000 of additional trading stock during the income year. The closing stock on hand was $130,000.

At the beginning of the 2018/2019 financial year ABC Pty Ltd had $130,000 stock on hand. It did not purchase any stock during the year as it was having financial difficulties. In fact, in September 2018 ABC gave two washing machines to a creditor as payment in full of the debt it owed to that creditor (ABC owed the creditor $2,000). Each washing machine had cost ABC $1,000 and ABC would usually sell each washing machine for $1,750.

ABC did not sell any stock during the 2018/2019 financial year. Towards the end of that year, a flood swept through the warehouse and all stock was destroyed. ABC did not purchase any replacement stock.

Required: Advise ABC of the tax implications for each of the 2017/2018 and 2018/2019 financial years based on the information above. Where appropriate, support your answer with legislative authority. 20 marks

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Question 2

If you answer question 2, please answer question 2(a) and (b)

  1. Fred has been unemployed for six months. He has been using the Jobs R Us Pty. Ltd. employment agency for the past four months to try to find employment. In March of this year, a new case manager, Bert, was given the task of finding a job for Fred. Within a week, Bert, had found Fred a full time job. Fred bought a $500 gold watch and gave it to Bert to say thank you.

Advise Bert as to whether the watch is assessable income. Refer to case law and legislation in your answer. 10 marks

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  1. In addition to Bert’s fortnightly salary, his employer pays his telephone and internet package of $120 per month, and as a reward for being Employee of the Month for June, Bert received a $500 bonus.

Advise Bert of the tax consequences of the above employment package. Refer to case law and legislation in your answer 10 marks

20 marks in total

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Question 3

On 6 November 1985, Patricia bought a property in South Yarra. This property included two old tennis courts next to the house, which were in poor condition. She purchased the property for two reasons:

  • So that she and her family could live in the house; and
  • So that she could build two apartments on the land where the tennis courts were, and sell them at a profit.

After Patricia purchased the property, the tennis club next door to her property in South Yarra offered to buy the old tennis courts from her, but only if Patricia restored them to good condition. Patricia accepted the club’s offer rather than going ahead with her plan to build and sell the apartments.

Patricia spent $80,000 on preparing the tennis courts for sale. This involved a great deal of work. She had to resurface the tennis courts, and build a new fence between her house and the tennis courts. She then sold the tennis courts to the tennis club in the current tax year for $200,000.

Required: Please discuss whether Patricia would be assessable on the $200,000. Where appropriate, refer to case law and legislation in your answer 20 marks

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Question 4

Bert spends $10.60 a day travelling to work, and a further $65 a day sending his daughter Belle to a childcare centre. Bert has just received the monthly account for the childcare centre totalling $1,625, which he needs to pay immediately.

Bert owns a newspaper publishing company. He has paid a membership fee with respect to his personal membership of the World Association of Newspapers, amounting to $3,300, and he has bought a new computer for $2,200 that he keeps in his study at home.

Bert has recently purchased a beach house near Geelong. The property has been rented out to Bert’s sister since he purchased it. He took out a 25-year loan to finance the purchase. His interest payments are $7,200 a year. Bert also claims lawn-mowing expenses of $100 per month with respect to his beach house.

Required: Advise Bert about the deductibility of the above expenses. Where appropriate, refer to case law and legislation in your answer

20 marks

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Question 5

If you answer question 5, please answer all 10 parts. Each part is worth 2 marks. Please click on only one check box option in answer to each of these parts. For example, if you think the answer is A, please click on the checkbox next to A

  1. TaP Plumbing Pty. Ltd. had $200,000 stock on hand at the beginning of the 2018/2019 financial year. It purchased $50,000 of additional trading stock during the income year. The closing stock on hand was $130,000. What are the tax implications for the 2018/2019 financial year?
  1. ☐ Net deduction $50,000
  2. ☐ Net deduction $130,000
  3. ☐ Net deduction $70,000
  4. ☐ Net deduction $120,000
  1. Which of the following statements about the taxation of trading stock is correct?
  1. ☐ Purchases of trading stock are treated as capital for tax purposes
  2. ☐ When trading stock is purchased and a deduction is claimed under s70-5(2)(a), the amount of the deduction depends on whether the trading stock is valued at cost, market selling value or replacement value
  3. ☐ For the purposes of s70-35, trading stock should always be valued at cost to obtain the lowest tax bill
  4. ☐ For the purposes of s70-35, the taxpayer can give trading stock a closing value of either cost, market selling value or replacement value
  1. Which of the following items would not be trading stock under s70-10?
  1. Land held by a property trust
  2. Confidential documents held by a research company
  3. Seeds purchased for sale by a plant nursery
  1. ☐ (i) and (ii)
  2. ☐ (i) and (iii)
  3. ☐ (ii) and (iii)
  4. ☐ (ii) only
  1. Which of the following are not trading stock?
  1. ☐ Bees kept for use in a honey production business
  2. ☐ Horses used in a city horse carriage tour business
  3. ☐ Undeveloped land owned by a land developer
  4. ☐ Partly finished computers of a computer manufacturer
  1. For the purposes of the Goods and Services Tax (GST), when a registered business makes an input taxed supply it means that:
  1. ☐ It is liable for GST on the supply, but it is not entitled to an input tax credit on GST paid on its business inputs affecting that supply
  2. ☐ It is liable for GST on the supply, and is entitled to an input tax credit on GST paid on its business inputs affecting that supply
  3. ☐ It is not liable for GST on the supply, and is entitled to an input tax credit on GST paid on its business inputs affecting that supply
  4. ☐ It is not liable for GST on the supply, and is not entitled to an input tax credit on GST paid on its business inputs affecting that supply
  1. For the purposes of the Goods and Services Tax (GST), when a registered business makes a GST-free supply it means that:
  1. ☐ It is liable for GST on the supply, but is not entitled to an input tax credit on GST paid on its business inputs affecting that supply
  2. ☐ It is liable for GST on the supply, and is entitled to an input tax credit on GST paid on its business inputs affecting that supply
  3. ☐ It is not liable for GST on the supply, and is entitled to an input tax credit on GST paid on its business inputs affecting that supply
  4. ☐ It is not liable for GST on the supply, and is not entitled to an input tax credit on GST paid on its business inputs affecting that supply
  1. Cheng runs an accountancy practice, and has purchased a photocopier for $5,000 to use in his practice. The amount of GST included in the purchase price is:
  1. ☐ $500.00
  2. ☐ $454.55
  3. ☐ $475.55
  4. ☐ $50.00
  1. Which of the following statements is correct?
  1. ☐ If an employer provides a benefit to anyone other than an employee, the benefit cannot be a fringe benefit
  2. ☐ If anyone other than an employer provides a benefit to an employee, a fringe benefit does not arise
  3. ☐ All of the above statements are true
  4. ☐ All of the above statements are false
  1. The decision in Myer leads to the principle that ordinary income:
  1. ☐ Includes receipts from a business transaction that is undertaken with an intention to profit
  2. ☐ Includes receipts from all transactions undertaken by a business whether they are capital or revenue
  3. ☐ Includes profits from the realisation of a capital item
  4. ☐ Includes all interest earned from a loan to another subsidiary of a parent company
  1. Jake bought a house in July 2018. It was in fairly good condition, but needed painting. Jake rented out the house for 10 months, and then painted all the walls.

The painting is:

  1. ☐ Deductible under s25-5
  2. ☐ Not deductible due to being an “initial repair”
  3. ☐ Not deductible, as painting something is not really repairing it
  4. ☐ Not deductible as the walls are an entirety

Question 6

If you answer question 6, please answer all 10 parts. Each part is worth 2 marks. Please click on only one check box option in answer to each of these parts. For example, if you think the answer is A, please click on the checkbox next to A

1. Regarding capital gains tax, which of the following statements is correct?

  1. ☐ The sale of a motor vehicle may result in a capital gain or a capital loss
  2. ☐ When the disposal of property is by gift, the capital proceeds are taken to be nil
  3. ☐ Net capital losses are not deductible against any assessable income other than a capital gain
  4. ☐ When an asset is sold with capital proceeds received in instalments, the capital gain will be apportioned among the years when the capital proceeds will be received
  1. Which of the following is not a personal-use asset?
  1. ☐ A holiday home on one hectare of land
  2. ☐ A set of golf clubs
  3. ☐ An option to acquire a personal use asset
  4. ☐ A debt relating to a personal use asset
  1. Jack Jones was a farmer. His father was also a farmer. Jack Jones received a gift of 50 cattle from his father. The cattle had cost his father $10,000 and at the date of the gift the cattle had a market value of $17,500.

Which amount is assessable to the father for the gift?

  1. ☐ Nil
  2. ☐ $7,500
  3. ☐ $10,000
  4. ☐ $17,500
  1. Consider the following items:
  1. An engagement ring, which cost $5,000;
  2. A second-hand car purchased for $2,000;
  3. Shares in BHP;
  4. A painting hung in the foyer of your accounting firm;
  5. A holiday house at Byron Bay

Which of the following statements is correct?

  1. ☐ (iii), (iv) and (v) are CGT assets
  2. ☐ None are CGT assets
  3. ☐ Only (iii) and (iv) are CGT assets
  4. ☐ (ii) and (iv) are CGT assets
  1. Jay sells his business and assets to Kay. At a cost of $1,000, Kay has drawn up an agreement that she will not operate a similar business within a 100 km radius for a period of five years. On the date of sale the agreement is signed. What CGT event will occur with a cost base of $1,000?
  1. ☐ A1- Disposal of a CGT asset
  2. ☐ C2- Cancellation or surrender of a CGT asset
  3. ☐ D1- Creation of contractual rights in another entity
  4. ☐ There are no CGT consequences
  1. ABC Ltd. is a company that owns a pine tree plantation. During the current year, ABC Ltd. expended $50,000 on fertilisers, sprays, etc. to maintain trees that would not yield income for another 10 years. The $50,000 is:
  1. ☐ To be apportioned over the life of the trees as it is not all related to the current year under s8-1
  2. ☐ An allowable deduction under s8-1 because it is incidental and relevant to the earning of future income
  3. ☐ A capital improvement that can be depreciated under Div 43
  4. ☐ Not an allowable deduction under s8-1 because there is no assessable income at the current time from these trees
  1. A depreciating asset used 80% for income-producing purposes has an adjustable value of $12,000. It has a termination value of $9,600. What is the balancing adjustment?
  1. ☐ Nil
  2. ☐ $4,800 deductible
  3. ☐ $1,920 deductible
  4. ☐ $2,400 deductible
  1. Jo is a dentist and a lecturer. She works at the community dental service in the mornings, attending to patients. At midday, she catches a bus to the local university where she lectures in dental hygiene. At the end of the day, she takes the train home. Which of the following statements is most correct?
  1. ☐ The bus fare is deductible
  2. ☐ The train fare is deductible
  3. ☐ Both fares are deductible
  4. ☐ Neither fare is deductible
  1. Which of the following expenses is deductible under s8-1 of ITAA97?
  1. ☐ Child minding expenses incurred to enable a mother to go to work
  2. ☐ Travel expenses from home to work to enable the taxpayer to get to work. The taxpayer’s home is not regarded as a place of work
  3. ☐ Travel expenses incurred by a full-time university student to enable him to get to his job at the end of the lecture. The job is unrelated to his studies
  4. ☐ The cost of attending a two-day seminar incurred by a professional accountant to enable her to keep up with changes in accounting standards
  1. Sarah runs her own public relations business. Which of the following expenses incurred by Sarah in the current financial year is deductible?
  1. ☐ Salary costs of $300,000
  2. ☐ $7,500 in meal expenses relating to entertaining clients
  3. ☐ Salary costs of $5,000 in relation to employing her daughter who worked with Sarah for one week as part of her university training
  4. ☐ All of the above

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