Taxation Law: Adjustments for Calculation of Taxable Profit of Technology Computer Pty Ltd

Running head: TAXATION LAW
Taxation Law
Name of the Student:
Name of the University:
Authors Note:

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TAXATION LAW
Contents
Introduction:....................................................................................................................................2
Part a:...............................................................................................................................................2
Conclusion:......................................................................................................................................9
References:....................................................................................................................................10

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Introduction:
Taking into consideration the rules and regulations governing the tax related matters of the
corporates in the country, a detailed explanation of the items of income and expenditures to be
included and excluded for calculation of taxable profit of Technology Computer Pty Ltd
(Technology) is provided below for the appraisal of the Chief Financial Officer of the company.
Part a:
The explanations as to treatments of the different items mentioned in the notes in relation to the
adjustments for calculation of taxable income of business of Technology are enumerated below:
1. Trading stock at the close of the year: As on 30th June, 2018, stock valuing $40,000 purchased
from a Singapore based company is yet to be received as the goods are still on a ship. However,
Technology Computer Pty Ltd (Technology) has included the value of these stock in calculating
the closing stock. Thus, the profit of the company is overvalued by the amount of stock.
Accordingly, to be deducted in computing the taxable profit of the company (Nisha, 2015).
2. Service revenue of $50,000 should not be recorded as revenue until unless the required terms and
conditions of such revenue is fulfilled. Since, the client in this case has the right to ask for refund
in case the service is not completed by technology by the end of the year. Hence, there is still
uncertainty attached with the item of revenue. Hence, it should not be considered while
calculating the taxable income of the company. Thus, excluded from accounting profit before tax
to calculate the taxable profit (Jiang et. al. 2016).
3. Amount of depreciation provided in the books of accounts, i.e. $300,000 is added back to the
accounting profit and the allowable depreciation of $375,000 is deducted for calculating taxable
income of Technology. In Tax Reconciliation Statement of the company, a net deduction of

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$75,000 ($375000 - $300,000) could have also been shown to calculate the taxable income of the
company. Thus, in both circumstances the net effect to the profit is reduction of $75,000 for
calculation of taxable profit (Smith et. al. 2016).
4. The sale proceeds received from disposal of a machine is a capital receipt and is not an assessable
amount thus, needs to be excluded from profit as it has been wrongly included in profit. The
company used prime cost method to charge depreciation. However, the gain or loss on sale of the
machine must be adjusted to the accounting profit to calculate taxable profit of the company. The
following calculation shall be helpful in determining the amount of profit or loss form sale of the
machine to adjust the accounting profit of the company (Sikka, 2017).
Particulars Amount
($)
Amount ($)
Depreciation on Machine
Under prime cost method:
Rate of depreciation is (100/4)% 0
.25
Annual depreciation (100000 x 25%) 25,000.
00
Depreciation on the machine till June 30, 2018 (25000 x2) 50,000.00
Value of the machine as on the date of sale (June 30, 2018)
Cost of the machine 100,000.