VVS Laxman Enterprises is a resident company carrying on business, based in Adelaide as an 'on-line' mail-order
Question:
VVS Laxman Enterprises is a resident company carrying on business, based in Adelaide as an 'on-line' mail-order business. The company has two employees, Ravi and Virat, who are also the shareholders and directors.
The business is conducted from their private residence, a seven-room house. One of three bedrooms is set aside as an office. Inventory is stored in an adjoining shed (SEE POINT 9 BELOW)
The following data relate to the year ended 30 June:
1. Gross sales receipts $10,000,
2 Advertising $8,000,
3. Purchases of trading stock $90,000 Stock on hand at the beginning of the year was $11,000; at the end of year $7,000.)
4. Administrative expenses $15,000,
5. Franchise fee $20,000 (The company paid $100,000 to Harbhajan Ltd for exclusive distribution rights to their products. The directors decided to amortize the payment over 5 years)
6.Lease payments on two cars $10,400 ,( $5,200 each for two cars. Ravi uses his car 100% for business; Virat uses his 50% for business)
7.Salaries $100,000 ,
8. Fringe benefits tax $10,500,
9. Depreciation $1,200 ( A storage facility was constructed adjacent to the residence. It is used exclusively to store trading stock. Its cost was $12,000 and is depreciated in the company's accounts at 10%pa. )
10. Council rates $2,500 Electricity $3,000 Telephone $1,500
The questions:
- What advice do I give to the directors on the tax treatment of matters covered in point numbers 3,5,6 & 9
- What are directors' tax obligations on all the outgoings?
- What items are tax-deductible?
- The directors were approached by another company with an offer to buy the business. What are the Captial Gains Tax (CGT) implications/ consequences of CGT if they accept the offer?
Sources of law and any case law would be handy for consideration.
Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III