For the year ended 30 June, BBNT Pty Ltd, a lawn mower manufacturer, reported an operating (accounting) profit of $750,000. The company does not elect to be taxed as a SBE taxpayer. In coming to this profit figure, the financial accountant had taken into account the following items. Please explain the income tax implications for each of the items. You are NOT required to compute the amount of capital allowance.$30,000 has been claimed as a deduction being the amortisation of goodwill arising from the acquisition of a business two years earlier.A provision has been raised for future warranties equal to 2% of sales. During the year, the sales amounted to $5 million.Depreciation on the buildings was $50,000. However, for tax purposes, only $25,000 is tax deductible.The company spent $75,000 on legal expenses opposing an application by Heavy Mowers Pty Ltd to extend its patent on a brand of mower. If the patent was not extended, then BBNT could produce a similar mower.The company borrowed $200,000 on 1 January of the current year to cover the purchase of new plant. The loan is repayable in 10 years. The cost of borrowing was $2,500, and this amount was written as a deduction in the company financial accounts when it was paid.Because of a shortage of working capital, the company was forced to sell off some land for $300,000 in February of the current year. The land had been bought in October 1995 at a cost of $180,000. The company only brought to account in its financial statements the difference between the current market value of $220,000 and the proceeds, namely $300,000, as their accounting gain on sale.The directors also advised the financial accountant to make a provision for bad and doubtful debts of $30,000, and annual leave and long service leave of $60,000The company also purchased for the managing director a new car at a cost of $120,000. The car was purchased by the company on 1 July of the current year. The effective life of the car is 7.5 years. For accounting purposes, the financial accountant has claimed depreciation in the accounts of $12,000 being 10% of the cost.

While Computing the Taxable income, Following adjustments are to be done : a) $ 30000 are not to be…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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For the year ended 30 June, BBNT Pty Ltd, a lawn mower manufacturer, reported an operating (accounting) profit of $750,000. The company does not elect to be taxed as a SBE taxpayer. In coming to this profit figure, the financial accountant had taken into account the following items. Please explain the income tax implications for each of the items. You are NOT required to compute the amount of capital allowance.

$30,000 has been claimed as a deduction being the amortisation of goodwill arising from the acquisition of a business two years earlier.
A provision has been raised for future warranties equal to 2% of sales. During the year, the sales amounted to $5 million.
Depreciation on the buildings was $50,000. However, for tax purposes, only $25,000 is tax deductible.
The company spent $75,000 on legal expenses opposing an application by Heavy Mowers Pty Ltd to extend its patent on a brand of mower. If the patent was not extended, then BBNT could produce a similar mower.
The company borrowed $200,000 on 1 January of the current year to cover the purchase of new plant. The loan is repayable in 10 years. The cost of borrowing was $2,500, and this amount was written as a deduction in the company financial accounts when it was paid.
Because of a shortage of working capital, the company was forced to sell off some land for $300,000 in February of the current year. The land had been bought in October 1995 at a cost of $180,000. The company only brought to account in its financial statements the difference between the current market value of $220,000 and the proceeds, namely $300,000, as their accounting gain on sale.
The directors also advised the financial accountant to make a provision for bad and doubtful debts of $30,000, and annual leave and long service leave of $60,000
The company also purchased for the managing director a new car at a cost of $120,000. The car was purchased by the company on 1 July of the current year. The effective life of the car is 7.5 years. For accounting purposes, the financial accountant has claimed depreciation in the accounts of $12,000 being 10% of the cost.

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