Calculate the division's contribution to Power Ltd.'s taxable income. (Ignore GST)?

Power Ltd.'s retail division finished last year (tax year 1) with trading stock at cost of $1 million. During this year (tax year 2) sales totaled $5 million. In the same period purchases totaled $2.5 million. Closing stock at cost at the end of the period was $1.5 million. 

 What are the options?

 Closing stock at the end of tax year 2 had a replacement value of $1.75 million and a market selling price of $2.5 million. Power Ltd.'s other divisions generated a net tax loss in this year (because of abnormal) but reasonable profits are anticipated next year (tax year 3). The CEO wants to take greatest tax advantage of this year's loss (without actually incurring a tax liability) and to minimize next year's tax exposure as far as possible (Again ignore GST)

Answer rating: 100% (QA)

To calculate the divisions contribution to Power Ltds taxable income we need to consider the cost of ... View the full answer