Lupe Pty Ltd (Lupe) is an Australian resident company and is a medium-sized business taxpayer. Lupe provides in-home aged care services. The following transactions relate to a passenger car that Lupe used in its business:

1. Lupe acquired the car brand new from a dealer for $110,000 on 1 July 2022 (ie income year ended 30 June 2023).

2. Lupe disposed of the car to a second-hand dealer for $80,000 on 1 July 2023 (ie income year ended 30 June 2024).

Lupe did not elect to opt out of the temporary full expensing provisions. The car has an effective life of eight years. Frieda is Lupe’s in-house tax manager and a Chartered Accountant. It has come to Frieda’s attention whilst preparing Lupe's tax return that Lupe may not have acquired the car for $110,000. This amount may simply represent an estimate of the cost of the car.

Required

(a) Assume Lupe acquired the car for $110,000. Calculate the amount assessable or deductible to Lupe for each transaction for the relevant income years. Show all workings.

(b) With reference to APES 110, identify and explain one (1) key fundamental principle that Frieda is likely to breach if she relies on the cost price of $110,000. Advise one (1) course of action she should take to avoid a possible breach.

Answer rating: 100% (QA)

a To calculate the assessable or deductible amount for each transaction we need to consider depreciation and the temporary full expensing provisions f... View the full answer