Taxation Law: Tax Treatment for Accounting Items

Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Table of Contents
Introduction:...............................................................................................................................2
Tax Treatment for accounting items:.........................................................................................2
Calculation of taxable income and tax payable by Technology Pty Ltd:..................................8
Conclusion:................................................................................................................................8
References:...............................................................................................................................10

2TAXATION LAW
Introduction:
In the accrual accounting process an expenditure that originates from the
identification of the liabilities should be measured by referring to the anticipated cash flow on
the liability. Likewise, the income tax expenditure should reflect the amount of income taxes
to be paid in cash whether for the accounting period or for the future period. The current
report will be addressing the CFO of the Technological Computer Pty Ltd regarding the tax
treatment of the accounting items. An interpretative explanation would be provided for the
tax treatment of each accounting transactions by referring to the relevant statutory provisions
of the “ITAA 1997” and “ITAA 1936”.
Tax Treatment for accounting items:
Below listed are the tax treatments for the every items with relevant application of
statutory provisions, cases and rulings;
1). Trading stock on hand: According to the “section 28 of the ITAA 1936” it requires the
taxpayers to value the trading stock on hand at the start and at the end of the income year in
determining the taxable income of the taxpayer in carrying out the business (Woellner et al.
2016). The court of law in “All States Frozen Foods Pty Ltd v FC of T (1990)” upheld its
decision by stating that the goods that are en route from the overseas suppliers were in
definite situations regarded as the trading stock on hand for the taxpayer.
According to the “taxation ruling of IT 2670” goods are treated as the trading stock
on hand within the meaning of “section 28 of the ITAA 1936”, irrespective of the fact that
they are yet to be delivered physically to the business premises of the taxpayer or it is in the
position of disposing of the goods (Robin 2017). Here the trading stock is in transit from
Singapore and the same will be considered as trading stock on hand for Technology

3TAXATION LAW
Computer Pty Ltd. The amount results in increase in the stock value over the year therefore it
is included in the assessable income.
2). Service revenue $50,000: The “taxation ruling of TR 2014/1” is associated to the
derivation of income from the agreements relating to the right of using the proprietary
software and provisions relating to the services. According to the “taxation ruling of TR
2014/1” where the amount is adequately attributable based on the contract obligations under
the subject of “contingency of repayment” the sum will be considered derived under the
purpose of “section 6-5 of the ITAA 1997” when the obligations is entirely performed or the
contingency of repayment otherwise lapses.
As held in “Arthur Murray (NSW) Pty Ltd v FC of T (1965)” where the basic
obligations is completely performed or the contingency of repayment has lapsed the amount
that is appropriately billed to the obligations turns from “unearned income” to “earned
income” (Blakelock and King 2017). The sum of $50,000 will be included as service revenue
for assessment under the ordinary meaning of “section 6-5 of the ITAA 1997”.
3). Depreciation on Plant: The depreciation expenses is identified in compliance with the
AASB 116 property plant and equipment by allocating the assets depreciable sum in a
systematic manner over the useful life of the asset (Burton 2017). The treatment for tax is
based on the set rates given by the tax office. Similarly the deprecation expenses on plant
amounting to $300,000 will be included added back under the heads of “amounts not
deductible and other assessable amounts” instead of considering the sum of $375,000 in
determining the net accounting profit after tax. This is because the methods adopted for
accounts is different from the methods adopted for tax purpose.
4). Accounting profit on sale of machine: The sale of machine has resulted in gains for
accounting purpose represents the taxable profit of the machine based on the original cost