Assignment: The assignment consists of four parts. The main Part ("Part A") requires the preparation and lodgement of an individual ("I") income tax return for Peter Piper ("Peter") using GovReports.
The completion of Part A will require the input of data either contained in the following attachments to this document, or which you determine as a consequence of completing the other three parts of the assignment. :
1. background information and Peter's personal financial transactions for tax purposes;
2. the financial records of his business Peter Piper's Pool ;
3. Peter's share of the net income of the partnership Pool Resources; and
4. the amount distributed to Peter from The Piper Family Trust.
The other three parts of the assignment are:
- Part B - the calculation of the net income for tax purpose of Peter Piper's Pool;
- Part C - the calculation of and the distribution of the net income of Pool Resources; and
- Part D - basically the calculation of the tax payable by the trustee of The Piper Family Trust.
Part A
Background information and Peter Piper's personal financial transactions for tax purposes
Peter Piper is a resident and is employed as a part-time pocket billiards (i.e. pool) instructor. He also owns a business, Peter Piper's Pool, which sells pool tables and equipment, and is a partner with Frank in a lucrative business, Pooled Resources, that buys old pool tables and refurbishes them for resale.
As an instructor Peter was paid a gross salary of $63,000 during the 2014/15 income year. He also made a net capital gain of $30,000 from the sale of an old pool table that he had purchased for himself 2 years ago. He is a shareholder in a company and received a partly franked dividend of $7,000 which had $1,000 of franking credits allocated to it. He is also a beneficiary of The Piper Family Trust. Personally. Peter is entitled to the following deductions: $800 (for the cost of a seminar he attended on Honing Your Pool Skills ), $700 (for the decline in value of a computer he uses for work-related matters), $560 (for repairs to the pool cues he lends to students attending his classes), $540 (for fees charged by his accountant for the preparation of his tax return for the previous income year), and $300 (donation to a charity that is a registered as a deductible gift recipient in payment of which Peter receives 6 tickets in a car raffle). Peter has paid for private health insurance for him and for his wife for the whole income year which cost him $4,000. PAYG withheld on Peter's behalf amounted to $15,500.
Part B
Peter Piper's Pool
In his business Peter uses the accruals basis of accounting. He provides you with the following information for the year ended 30/6/2015. All amounts exclude GST.
|
Receipts
|
$
|
|
Cash sales
|
515,000
|
|
Debtors (for credit sales, including the $10,000 owing at 30/6/2014)
|
100,000
|
|
Insurance proceeds: damaged stock
|
7,000
|
|
Insurance proceeds: storm damage to broken windows and carpets
|
13,000
|
|
Bank loan to make alterations to the store (Funds were borrowed on 1/10/2014. The loan is due for repayment on 30/9/2019.)
|
33,000
|
|
Bad debt recovered (debt written off in 2013/14)
|
1,000
|
|
Payments
|
|
|
Cash purchases
|
80,000
|
|
Creditors (for credit purchases, including the $23,000 owing at 30/6/2014)
|
215,000
|
|
PAYG instalments
|
41,500
|
|
Council rates - business
|
6,000
|
|
Legal expenses in relation to the bank loan
|
2,000
|
|
Entertainment of suppliers and large customers
|
1,660
|
|
Repairs after storm damage to windows and carpets
|
12,000
|
|
Staff wages
|
80,000
|
|
Superannuation for staff
|
7,600
|
|
Alterations to the store (Note 1)
|
45,000
|
|
Cash drawings
|
90,000
|
|
Advertising (Note 3)
|
7,000
|
|
Other deductible expenditure
|
10,000
|
Stock on hand at 1/7/2014: $16,000; 30/6/2015: $19,000 Debtors at 1/7/2014: $10,000; 30/6/2015: $6,000 Creditors at 1/7/2014: $23,000; 30/6/2015: $25,000
Note 1: The alterations commenced on 1/9/2014 and were completed on 30/11/2014.
Note 2: Motor vehicle expenses, including decline in value, were $12,800. A log book kept for 12 weeks in 2014 showed business usage of 45%. Peter uses the log book method.
Note 3: Peter's records showed that he had taken cues from stock which had cost $4,170.
Note 4: Peter advertises his store at the local movie-theatre. He entered into an eighteen-month contract on 1/5/2015 that cost $7,000.
The amount pre-paid at 30/6/2014 on a previous contract was $4,000. This contract expired on 31/10/14.
Required:
Showing all workings, calculate the net income of the business
Part C
Pooled Resources
Peter and Frank's business opened on 1 July 2014. The accounting profits and losses are to be shared equally after adjusting for special partnership items. The following transactions were recorded in the partnership's cashbook in the year ended 30 June 2015.
|
Receipts
|
$
|
|
Cash sales
|
220,000
|
|
Bank loan
|
55,000
|
|
Loan from Frank
|
45,000
|
|
Interest on drawings - Peter
|
500
|
|
Interest on drawings - Frank
|
750
|
|
|
|
|
Payments
|
|
|
Rent of shop and sundry expenses (all deductible)
|
35,000
|
|
Salary of part-time assistant
|
25,000
|
|
Salary of Peter
|
35,000
|
|
Salary of Frank
|
60,000
|
|
Superannuation contributions for assistant
|
250
|
|
Bank loan repayments - principal
|
2,800
|
|
Bank loan repayments - interest
|
1,500
|
|
Interest on capital - Peter
|
1,000
|
|
Interest on capital - Frank
|
1,000
|
|
Interest on loan from Frank
|
2,500
|
|
Drawings - Peter
|
6,000
|
|
Drawings - Frank
|
12,000
|
|
Purchase of trading stock
|
60,000
|
The closing stock as at 30 June 2015 amounted to $28,000.
Required:
Showing all workings:
1. Calculate the net income of the partnership for the year ended 30 June 2015; and
2. Distribute the net income of the partnership for the year ended 30 June 2015.
Part D
The Piper Family Trust
The Piper Family Trust (a family trust election having been made by the trustee) was created by Peter some years ago for investment purposes. The Trust Deed provides that all the trust's income may be either retained by the trustee or distributed to the beneficiaries.
In the year 2014/15 the trust derived trust net income of $35,000.
The trustee used his discretion to distribute the following cash amounts to the stated beneficiaries:
|
Peter Piper
|
|
$10,000
|
|
James Piper
|
Peter's brother
|
10,000
|
|
Scott Piper
|
James' 17 year old son
|
2,000
|
|
Jennifer Piper
|
James' 12 year old daughter
|
2,000
|
|
Oliver Piper
|
James' 1 year old son
|
1,000
|
The trustee also applied some of the remaining net income as follows:
- $3,000 was set aside to pay for any future veterinary care of the two horses "Hammer" and "Tongs" which had belonged to Peter's father, now deceased.
- $2,000 was paid for Scott's university fees, books and a new lap-top computer.
- $1,500 was set aside to help pay for Oliver's day care when he reaches 3 years of age.
- $500 was used to pay James' speeding fines.
Required:
Showing all workings:
1. List any amounts for which there is no present entitlement as at 30 June 2015;
2. Determine the balance retained by the trustee as at 30 June 2015; and
3. Calculate the tax payable by the trustee for the year ended 30 June 2015.