Question: smith ltd is incorporated in australia it is a retailer...
Smith Ltd is incorporated in Australia. It is a retailer which sells clothes to the public. The following transactions occurred in the year ended 30 June 2019.
1. The company paid $10,000 bonus to its Chief Executive Officer.
2. The company sold goods to customers on credit. During the year, a number of customers owing a total of $150,000 defaulted on their accounts.
3. The accounting net profit also included a deduction for a Provision for Long Service Leave of $35,000, but the actual payment was $20,000.
4. The company purchased $180,000 stock during the income year. The opening balance of its stock was $120,000 and the closing balance was $160,000.
5. The company incurred $20,000 expense replacing the heating system in the office. The expected life of the new system is 5 years.
6. A competitor has recently applied to the council for permission to operate as a clothes retailer in the commercial building next to Smith Ltd. Smith Ltd incurred $30,000 in legal fees opposing the application. The action was successful.
7. During this year, Smith Ltd received a $35,000 fully franked dividend; and paid $15,000 income tax. It also declared and paid $280,000 fully franked dividend to its shareholder (you can assume the opening balance of franking credit account is zero).
8. The company had paid Fringe Benefits Tax in this financial year of $6,000. This was included as an expense in the calculation of the net accounting profit.
Semester 1 Main, 2020 LEGL300 - 2C / 4C / 5C
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The company wishes to maximise its tax deductions.
Explain to the company director how each of the above items are treated. In your answer please carry out calculations where necessary and also refer to relevant case law and legislation.
You are not required to calculate the company’s taxable income