Understanding Trading Stock Regulations & Income Tax Assessment 1997

This assignment provides a detailed analysis of trading stock rules and the Income Tax Assessment Act 1997, focusing on assessable income, tax deductions, and partnership income distribution. It explains the implications of year-end stock adjustments, deductibility of business expenses, and the treatment of legal fees and employee wages. The assignment also includes a breakdown of partnership income distribution between partners, considering salaries, capital account interest, and profit-sharing ratios, along with the calculation of individual partners' taxable income based on their respective distributions and other income sources. Desklib offers a wealth of study resources, including solved assignments and past papers, to support students in mastering these complex topics.

Question: 1
Rules applicable to trading stock are as follows:
As per the general trading stock rules, the business must undertook end of year stock take and
also record the value of the stock held both at the beginning and ending of the year.
The value of the stock at the beginning and ending remains the same but there are some of the
reason due to which there may be a difference occur between the two which leads to the
treatment as follows:
 if the year-end stock is higher in value than the stock in the beginning then the difference
must form part of the assessable income.
 And if the value of closing stock is less than the value of opening stock then the
assessable income can be reduced to the extent of the difference amount.
 If the business started during the income year, then the stock in hand at the end must be
included in assessable income.
 The trading stock can be held both at cost or market value, but if it is held at market value
then the CGT event K4 will take place and the business make either capital gain or loss
out of it.
Income for the year ending June 30, 2019 are as follows:
Particulars Assessable income Deductions
Sales $2100000
Purchases $1300000
Trading Stock adjustment
Opening stock = $200000
Closing Stock = $500000
Closing Stock > Opening
Stock (500000 - 200000)
$300000
Total $2400000 $1300000
Taxable income $1100000
Question 2
The income tax assessment act 1997 is an act of the Australia explaining the obligations
regarding the tax. It becomes important to for the business organization to get proper knowledge
regarding their duties to meet legal obligations. There are several types of transaction business
conducts which require to be assessed that they are included or deducted. In the particular case
given the expenses related to repairs are not deductible according to the section 25 of ITAA
97.this particular section has been imposed to the business to follow comprehensive

compendium of various cases principles therefore determining accurate tax obligation can
become possible.
The particular expenses incurred at the time of running business for getting the efficiency to
continue operations to obtain sales are no longer tax deductible (Tucker, 2020). From the
analysis it can be interpreted that legal fees comes under the section 8 of ITAA 97. This section
articulates that firm can deduct from assessable income if legal expenses are incurred in gaining
or producing any kind of earning (Heath, 2021). The particular section as well provide the limit
to understand that at what extent expenditure can be referred as deductible. In addition to this, it
says that if organization is incurring legal cost in case of outgoing of capital. According to the
section it can be identified that business can claim for tax deduction for the legal fees as they are
incurred for getting suggestion to obtain smooth functioning. The fees 50000 was paid in the
month of 30th july 2019 therefore it is included in the particular year transaction according to the
mentioned section which is one of the most legitimated act.
Question 3
Business expenses are deductible when it is paid not just a later time when those are incurred. In
the specific case of Lenny, as being employer paid the wages to employees 410000 which can
be articulated that is tax deductible expense. For the evaluation it can be interpreted that firm is
seem to be sole trader therefore it has right to claim deductions of own super contribution in
personal Tax return (Fargher, 2021). For the purpose of getting clarity regarding the wages
expenses the suitable section given is 86.80. It is included in the operating type of expenses can
be refereed as revenue or working expenditure. Superannuation contribution made for enterprise
and certain contract as wages are associated with nominal payment that allows the firm to
obtain this as tax deductible.
Electricity supplies to shop of 20000 can be deductible as it the ATO states that there is
permission to the organization to have ability to deduct to certain extent. The suitable section for
this is 40.645 with help of this particular section the mentioned organization can become able to
identify its tax liabilities to avoid improper situation that can harm the business smooth
functioning. To get proper availability of effectual working the electricity supplies should be
treated in the mentioned manner of ITAA which will allow to get fluent processing in Australia.

Question: 4
Part: 1
Particulars Sections Amount
Assessable income
Sales ordinary income 6 – 5 $520000
Deductions 8 - 1
Salaries for staff $120000
Net income $400000
As per the section 90 of the ITAA, after deducting the expenses pertaining to salaries to staff of
the partnership business, the net income given in the case is considered to be derived as $400000.
Distribution of net income of the partnership business between partners are as follows:
Net income of the partnership = 400000
Distribution by way of partner’s salary
Ray = 10000
Louie =10000
Distribution by way of capital account interest to Louie = 8000 = 372000
Available for distribution in profit sharing ratios respectively
Ray‘s Distribution = salary + 60% of profit = 10000 + 60%372000 = 233200
Louie’s distribution = salary + interest on capital + 40% of profit = 10000+ 8000 + 40%372000
= 166800
b. Ray’s taxable income
Assessable income
Partnership distribution = 233200
Wages as a security guard = 25000
Taxable income = 233200 + 25000 = 258200
c. Louie’s distribution
Assessable income
Partnership distribution = 166800
Unfranked dividend = 65000
Total Taxable income = 166800 + 65000 = $231800.