Taxation Assignment - Accounting for Inventory & Trade Stock
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Added on 2020-03-16
Taxation Assignment - Accounting for Inventory & Trade Stock
Added on 2020-03-16
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TAXATIONAccounting for Inventory & Trade Stock for Tax PurposesStudents' NameCourse Title Instructor’s NameInstitutional AffiliationCity and State Date of Submission
TAXATIONQuestion 1;Income Tax Assessment Act requires that all entities in operation making profits or loss to declare their respective tax return obligation at the end of each financial yearas referred cited by Kirchler(2010.Pg 340).The act further emphasizes the need to include all gross earning and sale proceeds revenue generated for tax purpose in the books as assessable income. Accounting for inventory is so vital that no firm can’t ignore its’ accountability simply because is an item that rotates across cash i.e. from purchases to sales thus a great contributor to value addition tax. Tony is seen from the information available to be conducting the business of selling both new and repaired gazebos chairs. From this, of course, the conclusion can be, made that Tony gets revenue from sales of six chairs each at $500 thus generating $3000 as well as from sales of four repaired gazebos that earned him $78 revenue. However, the revenues are subjected to deductible allowable cost and expenses as illustrated below; Cost of manufacturing the chairs sold =$250*6=$1500 Repaired Chairs cost =$20 Replacing Cost i.e. the 8 Chairs=$15*8 =$120All these costs relate to the above revenue of $3078 thus can use them to arrive at the net profit before tax of=$3078-$1500-$20-$120=$1438, this profit is what that worth to be subjected to tax. If we were to subject the revenue to tax without netting off the cost, of course, the tax obligation would be high however the ATO proclaims irrational sense in accounting for revenue without expenses or costs. Tony’s costs of gazebos relating to inventory balances worth to be classified as deductible allowable for tax purposes. Inventory balances should be considered for tax purposes as per the set regulation in Sec 28 of Income Tax Assessment Act. This is to be conducted through physical stocktaking
TAXATIONwhich defines the balances as at the start and end of the financial year. Any change in stocks whether under, over or at constant state has different implication on the taxable income. We most all agree that in a manufacturing or business set up that involves usage of raw material at respective stages, of course, we can’t miss the aspect of the cost of sales. In Tony’s Sale of gazebos business there exist cost of sales items whose accountability has beenachieved through; Opening Stock + Purchases - Closing Stock=ConsumptionOpening and Closing stocks are attained through stock taking and each one of them has an impact on the taxable income individually for example; 2015/2016 Tony did not have opening balances in real sense the stocks worth $25 is what he acquired and what was seen tobe the closing balance thus dictating that Tony did not have any cost of sales items in that endof 2016 since the effect on cost of sales=$0+$25-$25=0, this is therefore seen to contribute to increasing the taxable income since there are no deductions resulting from it Cernius(2016.Pg17). Trade inventory balances are seen to determine Tony’s sales position. This is so through changes happening in the balances i.e. a firm commencing its operation as at the end of the year the only exception for stock differences to be summed in the assessable income. The decrease in stocks especially closing balances greatly contribute to allowable deductible balances whereas an increase shoots up the tax assessable income as referred by Cernuous (2016.Pg 67).According to Australian Taxation Law Office trading stocks is defined to be whateverfirms produces, makes, manufactures or acquires for the sole consumption purposes in manufacturing, selling and in exchange processes. It is prudent to know that for an inventory to qualify to be a trading stock the test of finding out whether the latter item facilitates operational processes in yielding economic reward benefit Knur(2014.Pg38).
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