Corner’s Pharmacy Taxable Income Calculation

This article explains how to calculate taxable income for Corner’s Pharmacy. It covers the concept of allowable deductions and how to match expenses with revenue. The article also provides a detailed breakdown of Corner’s Pharmacy Taxable Income Statement. The subject is taxation and the course code is not mentioned. The college/university is not mentioned.

TAXATION
CORNER’S PHARMACY TAXABLE INCOME CALCULATION
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TAXATION
Australian federal government on taxable income explains what qualifies for tax purpose as an
income and how that income is to be taxed (Woellner, Barkoczy, Murphy, Evans, and Pinto,
2010.Pg.17.) The tax body recognizes individual incomes as what is personally earned by an
individual either as salary as income from the sole proprietorship form of business. This income
on the individual is taxed at the progressive rate that is in a bracket form range. The other type of
taxable income is partnership and trust income that is levied precisely the same way individual
incomes are levied. Corporate business incomes, on the other hand, are deemed to be incomes
from registered private and public companies which are levied in two corporate rates that are
different, i.e., for resident companies and non-resident ones.
According to Australian Accounting Standard Board 1 (AASB 101) and International
Accounting Standard 1(IAS 1) on accrual basis concept, any expense transaction of accounting is
required and expected to be matched with the related revenue which is, of course, reported when
the expenditure takes place and not when cash is made. It is through this concept that Corners’
Pharmacist sales under the Pharmaceutical Benefits Scheme are being matched with the
respective cost of sales and stocks difference that led to the sale. Similarly, this applies to rent
and salary expense as well as the cost of sales of the product that were sold. Credit card sales are
likewise seen to use the concept since only those actual credit card sales reported will be
recognized and not the one with the $10000 extra reimbursed amount.
Corner’s pharmacy shop taxable income ideally is seen to result from the sales of
pharmacy products as cash sales, credit card sales and as pharmaceutical benefit scheme net off
the relevant costs that led to that income generation which in our case is the cost of sales, rent
expenses as well as salary expenses (Freedman and Crawford, 2010.Pg.21.)

TAXATION
Corner’s chemist sales revenue appears as credit card sales, cash sales and as
pharmaceutical benefit scheme sales. These three items form part of revenue for the pharmacy
that is indeed seen to appear as credit balance items in the taxable income statement account that
is matched against the cost of sales, salary and rent expenses which on the other hand are the
debit balance. Cost of sales involves the actual cost of the materials that were sold, and it entails
the difference between the summation of both first stock and purchased stocks that indeed give
the cost of the item that was consumed. Opening stocks includes the initial balance of the stock
that chemist had before the start of operation of that tax year. Purchases on the hand entail the
cost of procured items in that year of tax and finally closing stock is the close balance of the
chemist stocks that were counted at the end of that tax year.
It is good to note that Corner’s opening and closing stocks balance result from the stock
count that is mainly conducted at the end of the tax year. It is primarily valued at the historical
cost to give the actual face value of the stocks at the time of valuation. Expenses incurred during
the operations of Corners chemist are likewise items that have to be accounted for in the
determination of taxable income. According to the Australian Tax Office on expenses, it is
prudent to match all costs that relate to revenue to form part of allowable taxable deduction
mainly because they were incurred to generate revenue.
In this business, therefore, salary expense is deemed as the allowable deductible
expense because the revenue generated by Corner Pharmacy was as a result of sales service
offered by three assistant’s employees. Rent on the other hand is the fixed expense which must
be honored to have the shelter of where the chemist will conduct its business. The cost of sales,
rent, and salary expenses are indeed certain expenditure in the eyes of business operations that
can’t be foregone.

TAXATION
The above analysis is therefore used in the calculation of Corners Pharmacy Taxable
Income as illustrated;
Corner Chemist Shop
Taxable Income Statement
Sales in; $ $
Cash form 300,000
Credit Card form 150,000
Pharmaceutical Benefit Scheme form 200,000 650,000
Less Cost of Goods Sold;
Opening Stock 150,000
Add Purchases 500,000
Less Closing Stock (200,000) (450, 0000
Corners Gross Profit 200,000
Less Allowable Deductions
Rent 50,000
Salary 60,000 (110,000)
Total Taxable Income(Profit) 90,000
In that year of Tax Corners, chemist did a revenue worth $90,000 as the amount that is to be
subjected for tax either as part of individual income tax or as a corporate tax in case Corner
chemist is registered as a legal entity person for tax purposes.

TAXATION
References;
Freedman, J. and Crawford, C., 2010. Small business taxation.
Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2010. Australian taxation
law. CCH Australia.