On 1 July 2016 Frank Lloyd commenced business as an architect. He operated as a sole proprietor from a converted garage at the rear of his residence. Much of his work consisted of preparing building designs and specifications for local council building permits but he quickly gained a reputation for quality drawings prepared within tight timeframes. By the end of 2016/17 he had a small client base of local builders and private referrals and billings (fees) of $75,000.
During the year (2016/17) Frank submitted a design as part of a national competition for
‘The Citadel’, the centrepiece of an ambitious urban redevelopment. His visionary design and revolutionary use of local materials left the judging panel speechless with admiration and, to national acclaim, he was awarded the prize and commissioned to build the structure. Immediately he borrowed $1 million, rented premises in Main Terrace, acquired state of the art equipment and employed six draughtsmen and two administrative staff. During 2017/18 his billings were $2.5 million.
Should Frank return on a cash or accrual basis in 2016/17 and 2017/18?
• What factors affect the choice of a cash or accrual basis?
• Does Frank have a choice of the basis he adopts?
• Does the Commissioner of Taxation have a right to insist on a particular basis?
• Should Frank’s basis be the same in both years?
• Given the present availability of accounting software packages, in your view, is the traditional criteria for the cash/accrual distinction still relevant?
Ruby Engineering Pty Ltd [Ruby] was incorporated in 1990 and produced engine components used in the Australian car industry. In 2016 the business and company assets were sold to Diamond Ltd. Under the terms of the agreement, Ruby remained liable for any claims arising before 2016. The company used the funds to invest in real estate and shares.
During the year ended 30 June 2018 Ruby incurred the following expenses:
Advise the directors of Ruby Pty Ltd of the tax deductibility of the above amounts. You must make reference to appropriate authorities and legislation.
(a) Ruby has owned and rented a residential property since 2008. Rental income for the current year is $35,000. During the year the company replaced the old kitchen fittings, including cupboards that had deteriorated through water damage and wear and tear. The new cupboards were of the same type as the old ones and the kitchen layout was not altered substantially. The cost was $8,500.
(b) In another of the rental properties a visitor to the tenants slipped on the steps and sustained injuries requiring medical attention. She claims one of the steps was loose and commenced legal proceedings against the partnership alleging her injuries were caused by the poor condition of the building. Ruby incurred legal expenses to date of $7,000 and the action has not been settled at 30 June.
(c) In March 2015 the company owned sold a batch of parts that were subsequently found to be defective. The purchaser, an Australian car manufacturer lodged a claim for damages in the Federal Court. The claim was settled in November 2017 and the company paid an amount of $750,000 to the car manufacturer.
(d) The directors of Ruby were concerned about the claim in (c) and the effect it had on the year’s reported profit. They resolved to set aside a small amount of funds annually to meet any future claims. Accordingly, an amount of $100,000 was set aside in a provision in the accounts for the year ended 30 June.
(e) In August 2017 the directors of Ruby decided to investigate the possibility of re-entering the car parts manufacturing industry using a new type of alloy. An amount of $220,000 was paid to consultants investigating the proposal but, due to uncertainty in the motor vehicle industry, the directors decided not to proceed at the time.
Required 2. [Approximately 50% of marks]
Advise the partners and directors of Ruby Pty Ltd of the tax deductibility of the above amounts. You must make reference to appropriate authorities and legislation.
In 1492, Columbus cruised the sea blue. Seen on the second Monday of October consistently, the governmentally perceived occasion praises the accomplishments of the Italian wayfarer Christopher Columbus. But since his entry brought murder and servitude to indigenous people groups in the Americas, activists have endeavored to rename this occasion to “Indigenous Peoples’ Day.” Despite the fact that Indigenous Peoples’ Day plans to reframe the legacy account in the United States, numerous indigenous individuals around the globe are overlooked, including the general population of K’iche’ in Guatemala who are very nearly being pushed out of their country. With roots as far back as 2000 BC, the K’iche’ were among the few Maya bunches who made due after the decrease of the considerable Mayan Empire. After the victory by the Spaniards and Kaqchikel neighbors, who associated very quickly with the Spaniards, in 800 AD, the fortunes of the K’iche’ changed for all intents and purposes medium-term. Their properties were seized and they were consigned to the status of workers for their new, provincial landowners. Little has changed since that time. In a nation where, Mayan plunges constitute around 51% of the national populace, ethnic assorted variety makes Guatemala a country of monstrous human lavishness having its own particular social character. In any case, oppression indigenous populace is evident in Guatemala. Starting today, 10% of aggregate land is in Indigenous hands, which isn’t astounding where 85% of the country’s property is claimed by under 2% of the populace. Accordingly, the Guatemalan government provided around 5.2 million sections of land of concession regions for indigenous networks like the K’iche’ to deal with. In any case, territories controlled by the legislature experience the most deforestation. Almost 40% of Guatemala is secured by backwoods, making illicit logging an across the board issue that undermines the employment of individuals who depend on woodlands for survival. Commentators accuse uneducated campesinos clearing land for horticulture as one of the prime guilty parties. Despite the fact that this represents a danger, there are greater dangers, including lumber organizations, and sorted out wrongdoing. In any case, the administration does not appear to have the political will to annihilate the difficulty. Some K’iche’ individuals, living in the good country Ixil Maya district of Nebaj, are currently dissenting logging organizations abusing lumber on private grounds. While the Indigenous Authorities of Nebaj issued an announcement requesting that the administration make a move, they declined to act and essentially issued an announcement that they are planting new trees for each one that is chopped down. Eliseo Gálvez, the representative official secretary of the administration’s National Council of Protected Areas, affirmed that for a considerable length of time, judges and the ranger service police, have neglected to arrange this intricacy. Or on the other hand maybe, this very reason could in all likelihood be that the Guatemalan Ministry of the Economy effectively advances the venture of organizations inspired by abusing the nation’s almost 2 million sections of land of backwoods. Timber organizations aren’t the main ones adding to the deforestation endeavors. Medication traffickers have cleared substantial swaths of woodlands to set down furtive plane runways and streets to pull through medications. Galvez included, “Now it is much more perplexing due to the impact of unlawful performing artists” who are utilizing the recreation center to move transients and medications north. In a few sections of Guatemala, the narco-drove deforestation yearly rate was accounted for to be around 10 percent. “In light of the crackdown in Mexico, tranquilize traffickers started moving south into Central America around 2007 to discover new courses through remote zones to move their medications from South America and get them to the United States,” said Kendra McSweeney, a partner teacher of topography at the Ohio State University. However, while influences keep government authorities looking the other way with regards to deforestation exercises, nearby activists and indigenous individuals pay the result when they talk up. As one of the most elevated murder rates in Central America, kidnappings and coercion are normal to indigenous individuals who might not have the financial capacity to pay up, leaving guardians to rather pay human runners to get their kids to the United States, far from the wrongdoing. That partially clarifies why extensive quantities of unaccompanied youngsters started landing in the United States beginning in late 2013.>