ACC3005 Taxation Law Assignment (PDF)
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Australian Institute of Higher Education
ACC3005 - Taxation law (ACC3005)
Added on 2020-05-11
ACC3005 Taxation Law Assignment (PDF)
Australian Institute of Higher Education
ACC3005 - Taxation law (ACC3005)
Added on 2020-05-11
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Answer to question 1: The contemporary case study is related with the ascertainment of the alternativemethods of accounting for the gazebo chairs. The taxation rulings of TR 2006/8 is applicablein this context for valuing the trading stock for the taxpayers under the retail or the wholesalebusiness (Barkoczy 2016). The ruling is applicable in the case of Tony so that the taxpayercan select to price their trading stock in hand at the conclusion of the financial year undercost in respect of the “subsection 70-45 (1) of the ITAA 1997”. As defined under the “subsection 70-45 of the ITAA 1997” it permits the taxpayer toprice the item of the trading stock on hand at the conclusion of the year of revenue at cost. Ithas been stated under the corresponding provision of the “subsection 31 (1) of the ITAA1936” that allows the taxpayers to value their entire article under the cost price (Saad 2014).Similarly, the taxpayers transacting in retail and wholesale industries that worth their tradingstock in hand by using the absorption method of costing for the taxation purpose. As stated in the absorption method of estimating the cost must be engrossed for theincome tax purpose by including the price of purchase and any direct or indirect method ofexpenditure concerning the trading stock during the normal course of business in carryingtrading stock of tradable nature to the saleable conditions. As held in the case of “PhilipMorris Ltd v. FC of T79 ATC 4355; (1979) 10 ATR 44” the taxpayer used the methoddirect costing in to value the trading stock (Woellner et al. 2016). With the help of this approach the cost that is attributed to the trading stock comprisesof the cost of resources and the remunerations of those workers that executed the operationsduring the course of manufacturing. Similarly, the Tony should value the gazebo chairs byusing the method absorption costing for income tax purpose by together with the price of
purchase and the price of direct and indirect cost that is followed in course of the businessoperations. Subsection 31 (1) of the ITAA 1936 provides the methods of valuation that isavailable to the taxpayer at the time of valuing the trading stock in hand following theconclusion of the financial year (Robin 2017). “Subsection 31 (2)” provides the officer witha option of determining the reasonable fair value of valuing trading stock due to the reason ofobsolesce connecting to the trading stock and it is lesser than the value that could beconsidered to be appropriate under the “subsection 31 (1)”. As evident from the currentsituation of Tony it is found that reported certain units of the gazebo chairs which hadbecome obsolesce and had a nominal value of $1.In the present context of Tony subsection 31 (2) of the ITAA 1936 the obsolescerepresents becoming out of usage, becoming out of date, going outdated represents obsolescestock (Anderson, Dickfos and Brown 2016). The taxpayer in the present context reported ansum which consisted of the value of the stock that could not be sold. As the over-allregulation, any form of stock, which an individual taxpayer retains on the hand, shouldattribute certain worth. As held in the case of “Australasian Jam Co. Pty Ltd v FC of T(1953) 88 CLR 23”the court in its judgement has stated that the stock that is held by the taxpayer who generallydoes not transact in items that are obsolete does not possess any selling value under the“subsection 31 (1)” (Tran-Nam and Walpole 2016). Therefore, an individual taxpayer havingany obsolete stock that rests on hand must be valued at its scrap value. Stock can be onlyvalued in respect of the subsection 31 (2) following it has been clearly understood that thespecific stock has begun to become obsolete.
Because of this, the method of revaluing the stock is usually regarded as the methodof writing down the stock (Coleman and Sadiq 2013). At the time of witting down the stockfor a just and sensible value the taxpayer might mark a “once-off write down”. As evidentfrom the current study Tony had reported certain item that will not be sold. Under suchcontext the Tony in the present situation can undertake the method of once-off-writing downstock. Under this method tony can write down only that portion of stock that at theconclusion of the income year that has reasonably become obsolesce and the same will not besold in the market.
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