924 case study
MARKER’S COMMENTS
GRADE
Case Study ACCG924 session 2 2014
a.)When Cut and Chop entered into a contract to sell the business premises on 1 May
2014, CGT event A1 occurred.(s104-10)
According to sec100-50, the net capital gain or net capital loss for the income year is calculated as follow:
Current year capital gain=capital proceeds-cost base or indexed cost base
In this case, the capital proceeds is 2.65 million (s116-20). Since the business premise is acquired on 1 June 2009 (after 21 September 1999) indexation method cannot be applied for calculating the cost base (Div 114). The cost base of the premise (s110-25) including purchase price (2.38million), incidental costs (s110-35) (legal fees $13500 and agents fees$45000).
So Current year Capital gain is 2.65million-(2.38million+13,500+45,000)=$211,500.
This amount Less unapplied net capital losses for a previous year ($70,000) (s102-5):
211,500-70,000=$141,500
Lastly, the Cut and Chop is a company, it cannot use discount method (Div 115).
So, net capital gain to be included in assessable income for the year ended 30 June
2014 as a result of the sale of the business premise is $141,500.
b.) If Cut and Chop want to minimize taxable income as at 30 June 2014, the most appropriate valuation method for it to adopt to value the trading stock is replacement method. Under sec 70-35: where the value of trading stock on hand at the end of the year is more than trading stock on hand at the beginning of the year, the difference is included in assessable income, and where the value of trading stock on hand at the end of the year is less than trading stock on hand at the beginning of the year, the difference is deductible.
Taxpayer can choose to value each item of stock on hand at the end of the year based on: (1) its cost, (2) its market selling value or (3) its replacement value (s 70-45).
Taxpayer can also use a reasonable lower value for obsolete trading stock (s 70-50).
In this case,
GRADE
Case Study ACCG924 session 2 2014
a.)When Cut and Chop entered into a contract to sell the business premises on 1 May
2014, CGT event A1 occurred.(s104-10)
According to sec100-50, the net capital gain or net capital loss for the income year is calculated as follow:
Current year capital gain=capital proceeds-cost base or indexed cost base
In this case, the capital proceeds is 2.65 million (s116-20). Since the business premise is acquired on 1 June 2009 (after 21 September 1999) indexation method cannot be applied for calculating the cost base (Div 114). The cost base of the premise (s110-25) including purchase price (2.38million), incidental costs (s110-35) (legal fees $13500 and agents fees$45000).
So Current year Capital gain is 2.65million-(2.38million+13,500+45,000)=$211,500.
This amount Less unapplied net capital losses for a previous year ($70,000) (s102-5):
211,500-70,000=$141,500
Lastly, the Cut and Chop is a company, it cannot use discount method (Div 115).
So, net capital gain to be included in assessable income for the year ended 30 June
2014 as a result of the sale of the business premise is $141,500.
b.) If Cut and Chop want to minimize taxable income as at 30 June 2014, the most appropriate valuation method for it to adopt to value the trading stock is replacement method. Under sec 70-35: where the value of trading stock on hand at the end of the year is more than trading stock on hand at the beginning of the year, the difference is included in assessable income, and where the value of trading stock on hand at the end of the year is less than trading stock on hand at the beginning of the year, the difference is deductible.
Taxpayer can choose to value each item of stock on hand at the end of the year based on: (1) its cost, (2) its market selling value or (3) its replacement value (s 70-45).
Taxpayer can also use a reasonable lower value for obsolete trading stock (s 70-50).
In this case,