Taxation Law: Accounting Transactions and Tax Treatment

Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Table of Contents
Introduction:...............................................................................................................................2
Tax treatment for Accounting Transactions...............................................................................2
Conclusion:................................................................................................................................7
References:.................................................................................................................................8

2TAXATION LAW
Introduction:
Under the accrual process of accounting expenses arising from the liabilities must be
measured by considering the expected cash flow. Similarly, the tax expenses must replicate
sum of taxes to be paid in the current or future accounting period. The report would be
addressing the CFO of Technical Computer Pty Ltd for appropriate accounting treatment of
transactions to reflect the correct tax amount. The report would consider appropriate
provision of “ITAA 1997” and “ITAA 1936” in providing an explanation of treatment of
each items.
Tax treatment for Accounting Transactions
The tax treatment for each items is given below;
1). Valuation of Trading Stock in Hand: As per “taxation ruling of IT 2670” goods are
considered as trading stock in hand inside the “section 28 of the ITAA 1936” regardless
whether the goods are to be delivered physically or to the premises of taxpayer. The law court
in “All States Frozen Foods Pty Ltd v FC of T (1990)” stated that goods that are in the
transportation stage will be treated as trading stock in hand (Barkoczy 2014). For Technology
Pty Ltd the trading stock which is in transit from Singapore should be treated as stock in
hand. The amount will be included under the heads of assessable income.
2). Service revenue $50,000: As per the “taxation ruling of TR 2014/1” any amount
attributable in respect of contractual obligations under “contingency of repayment” the sum
will be treated as derived for assessment purpose under “section 6-5 of the ITAA 1997”
when the requirements are performed exclusively (James 2016). Similarly in “Arthur
Murray (NSW) Pty Ltd v FC of T (1965)” when it is noticed that the requirements of the
goods is performed and repayment contingency has lapsed the sum turns from “unearned

3TAXATION LAW
income” to “earned income” (Brokelind 2015). The amount of $50,000 shall be included for
taxable purpose under “section 6-5 of the ITAA 1997” based on ordinary concepts.
3). Depreciation charged on Plant: The deprecation expenses that is charged on the plant
stands $300,000. The sum will be treated for assessment as “amounts not deductible” in
ascertaining the net sum of accounting profit (Grange, Jover-Ledesma and Maydew 2014).
The reason for this is that depreciation method undertaken for accounting purpose reflects
differences from the process of depreciation undertaken for taxation purpose.
4). Accounting profit made from the sale of machine: For Technology Pty Ltd the disposal
of machinery has given rise to gains for accounting purpose. The gains shall be treated as the
taxable profit obtained from machine on the basis of original cost (Jover-Ledesma 2015). The
accounting profit that is obtained from the disposal of machine is included for taxation
purpose based on actual machinery cost. The sum of $100,000 has been included for
assessment purpose under the heads of “assessable amount”.
5). Repairs and Maintenance Expenditure: Below stated are the tax treatment for the
repairs and maintenance for Technology Pty Ltd.
a) Cost of replacing the entire roof: An explanation relating to repairs has been provided
under “taxation ruling of TR 93/23” where repairs carried on the premises of capital nature
are not treated as allowable deductions under the “section 25-10 of the ITAA 1997” (Kenny,
Blissenden and Villios 2018). The court in “Sun Newspaper Ltd v FC of T (1938)” gave its
judgement by stating that cost of replacing the business structure is treated as capital
expenditure. In the current situation it is noticed that cost has been incurred by the company
in replacing the entire roof of the factory that is damaged in hailstorm. The cost incurred
represents in entirety of the premises which is deductible under “section 25-10 of the ITAA
1997”.