Test 2 – SP51,2015 SINGAPORE

Instructions: (read carefully)

1.    This test is worth 20%. Marks are shown at the end of each question.

2.    Typed answers of no more than 800 words in total must be electronically lodged by 9 am Thursday 7 May. No references or bibliography are required although you should cite relevant legislation and case law in the body of the paper. A hard copy with an assignment cover sheet must also be submitted to the lecturer by the due date/time.

3.    Ensure that your name, student number and the number of words is on the typed paper. Do not include the questions with your typed answer.

4.    The test is under open book conditions. It must be your own work. Do not work in groups. Plagiarism must not occur. Do not copy from another student. Refer to the JCU Policy Library Academic Misconduct and Plagiarism, which can be accessed at: By submitting your answers you are acknowledging that the answers are entirely your own work.

5.    The cover sheet is required only with the hard copy to be submitted to the lecturer. Do not include the cover sheet with the electronic submission.

6.    Do not send your answers as e-mail attachment to the lecturer.

7.    Note the link on the web site to the University’s policy on submitting electronically:

8.    Penalty for late submission (including a failure to submit a hard copy): the penalty for late submission without an extension having been granted is the loss of 50% of the total marks available (for the piece of assessment) per day vanishing down to a mark of ZERO after TWO (2) days or part thereof.

9.    Penalty for over-length: only the first 800 words will be assessed. State the number of words.

Question One:

Sam purchased plant for $10,000 on 1 July 2012.  It has been depreciated under the diminishing value method. The plant has an effective life of 10 years and has been used 50% for business purposes.

a)    Calculate the deduction available for the plant for the 2013/14 income year.    (2 marks)

b)    What are the tax implications if it is sold on 30 June 2014 for $12,000 (also calculate any capital gain or loss)?                                     (3 marks)

Show workings and assume that the business is not a SBE.

Question Two:

Fred owns a rental property in Sydney.  During April 2014 there is a massive hail storm and 80% of the tiles on the roof of the house are destroyed.  Fred is told he will have to wait 6 months for new tiles and that other hail storms are forecast. He therefore decides to replace the entire tiled roof with corrugated iron, even though he is aware that in Sydney’s humid environment it will rust relatively quickly.  At least the building will be safe from future hail storms.  It would have cost $10,000 to replace the damaged tiles whereas the new corrugated iron roof will cost $15,000.

a)    Can he claim a tax deduction for all or any part of the cost of the roof?          (4 marks)
b)    What if he had just purchased the house with the roof in an already damaged state?
(1 mark)

Question Three:

Redneck is a solicitor in a sole practice in Cairns.  He employs a secretary but has no other staff.  He returns his income on a cash basis.  While studying for a Masters Degree in Taxation he decides that he wants to move to an accruals method of accounting for his assessable income.  Why do you think he wants to do this?  Can he?                         (3 marks)

Question Four:

Giant Co finished the 2012/13 income tax year with trading stock at cost of $1 million.  During the 2013/14 income year sales totaled $10 million and purchases $5 million.  On 30 June 2014 the closing stock value was $2 million by cost.  This stock had a replacement value of $3 million and a market selling value of $2.5 million.  Giant Co’s other divisions generated a net tax loss for the 2013/14 income year, which closing stock valuation ought Giant Co adopt? Calculate taxable income in each case (ignoring GST).                                 (3 marks)

Question Five:

Clyde is in a professional partnership. He has heard that he may be able to obtain real tax advantages (as well as considerable personal peace of mind) if he assigns (by gift) part of his interest in the partnership to his wife.   What would the tax consequences be for Clyde following the proposed assignment?                                     (4 marks)