1Circle is a suburban convenience store business which mostly sells groceries but wants to add on a
takeaway coffee bar.
1Circle enters into an eight-year agreement with Coffee Addicts Ltd to stock only coffee products made by
Coffee Addicts Ltd. As an inducement, Coffee Addicts agrees to pay $80,000 to 1Circle immediately to
build and set up the coffee bar and a further $25,000 each year for the term of the agreement to
supplement the wages to be paid to the barista 1Circle will employ to run the coffee bar.
In Year 1, how much additional income will 1 Circle include in their assessable income as a result of
entering into this agreement?
- $10,500
- $33,000
- $8,000
Sample Solution