The tax affairs of James Smith are being investigated by the tax authority. The tax inspector believes
Question:
The tax affairs of James Smith are being investigated by the tax authority. The tax inspector believes that Mr Smith has understated his income in the tax year as being $40,700. Mr Smith has been asked to give full details of his assets and liabilities at the beginning and end of the tax year and a summary of personal expenditure during the year, which he believes to be about $36,500. Details of his assets and liabilities (at original cost) appear below:
Beginning of year End of year
House purchased 10 years ago $95,000 $95,000
Furniture and fittings 35,000 39,000
Government bonds 4,000 4,000
Shares 15,600 18,600
Bank account 1,400 2,600
Cars 6,700 16,800
Mortgage 21,000 20,000
Overdraft 300 400
Required:
a. Deduce Mr Smith’s income in the year, based on information given.
b. What action do you think the tax department should take?
Auditing Assurance Services and Ethics in Australia an Integrated Approach
ISBN: 978-1442539365
9th edition
Authors: Alvin A Arens, Peter J. Best, Greg Shailer, Brenton Fiedler