Question 1
DB Pty Ltd is a business with an annual turnover of $11m pa and it has sought advice about the deductibility of the following expenses (assume all amounts are net of any GST):
The business prepaid insurance expenses for the period 1 May 2018 to 30 April 2019 for $12,000.
The business prepaid $120,000 representing a retiring employee’s salary for the period 1 June 2018 to 31 May 2020.
The business paid $900 on 1 June 2018 for an advertising campaign that will run for the next 10 months.
The business also prepaid rental expenses of $44,000 on 30 June 2018 for the period 1 July 2018 to 30 June 2020.
Required:Advise DB Pty Ltd how much, if any, each of the payments listed above would be deductibility for income tax purposes for the year ended 30 June 2018.
Question 7
Ben purchased a bookshop from Andrew on 24 June 2018 for $100,000.
The $100,000 was made up of (a) books for sale of $60,000; (b) furniture and plant and equipment of $30,000 and (c) goodwill of $10,000.
Ben gives you a Settlement Statement for the sale (this statement sets out the details of the sale price) that shows:
Sale price of the business $100,000, comprising:
Required:Assuming Ben is eligible to use the Small Business Entity tax system, what tax issues will arise in respect of this purchase to Ben? In your advice to Ben, please advise whether he can claim any depreciation deductions on this purchase in the year of the purchase and if so, what amount that might be?
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