Tax Return

Joe and Mary Wilson own an office furniture retail business in partnership called “Bush
Furniture,” which operates in Malvern, Victoria. The business has operated from these
premises for 20 years. The Wilson’s decided to expand their business and have recently
opened a new store on the 1 March 2019, in Glen Waverley.
Each year the Wilson’s go overseas to an “Office Fair,” to become aware of new developments
in the office furniture business. This financial year the fair was in London where they were
fortunate to sign a franchise agreement to distribute “Nortle” a new range of office equipment.
The cost of the franchise included a “sign on” payment of $25,000 plus a payment of 7 ½ %
of sales revenue on this merchandise.
While Joe and Mary own the shop in Malvern they decided to lease the premises in Glen
Waverley. One of the reasons for doing this was because of the offer of a lease incentive by
way of a six month rent free period and a free fit out, valued at $25,000.
In December 2018, the Wilson’s became aware that a developer had sought approval to
redevelop the Glen Waverley site. As a result they spent $5,000 in legal costs in successfully
opposing the development.
Results of the Business Operations for the year ended 30/6/19 were:
Cash receipts $
Sales to Customers 1,056,625
Sales Bonus 25, 000
Cash expenditure $
Purchase of Stock 506,315
Salaries 235,000
Set up costs 13,500
Rental payments 120, 000
Telephone 2 585
Electricity 2,560
Overseas travel expenses 14,750
Franchise: Cost
Car expenses(Running costs) 22,500
Legal costs 5,875
Advertising 12, 500
GST 30, 000
Furniture 24, 600
Entertainment 8,350
Gas 2,100
Miscellaneous 1,750
(i) Outstanding creditors 30/06/19 12,300
Outstanding debtors 30/06/19 76,000
At the year ending 30/6/19 a provision for doubtful debts has been raised equal to 1.5% of
sales. During the year $12,750 of outstanding debts were written off as bad.
(ii) Opening stock:
Cost 451,750
+Purchases 506,315
-closing stock at cost 523,650
Closing stock values: 30/6/19
Cost 523,650
Replacement Cost 602,312
Market Selling Value 830,000
At the end of the year a stocktake reveals that some of the stock is obsolete.
Consequently, a write down of stock (at cost of $12,000) has been made to $8,000.
(iii) Office Furniture:
Opening adjusted value
Acquisition of furniture during 2018/19:
200 000
Cost Acquis date
Desks and Chairs 1,750 01/07/18
Computers 15,600 08/07/18
Partitions 7,250 10/07/18
(iv) Car Expenses related to the following vehicles: Cost Acquis date
Toyota Hi Ace 21,500 21/08/11
Toyota Delivery van 30,000 11/10/12
Holden Statesman* 45,000 07/11/13
Volvo * 65,000 04/03/14

  • The two cars are used by Mary and Joe Wilson and it is estimated that they are used 45%
    for Business.
    During the year on 1/4/19, the engine in the Delivery van broke down. As a result a new
    engine was put in the van at a cost of $4,500. The engine was a more powerful engine
    modified to run on gas.
    (v) Set- Up Costs – New Premises:
    Stock removal and relocation 3,750
    Staff Training 5,180
    Special cabinets and office set up 4,570
    (vi) Salaries:
    General Staff 135,000
    Wages – Joe 50,000
    – Mary 50,000
    (vii) Overseas Travel
    Airfare 8,000
    Accommodation 4,000
    Fare Registration 500
    Meals and incidentals 2,250
    (viii) Entertainment
    Christmas Parties-staff 850
    Clients 7,500
    (ix) Sales Bonus
    The sales Bonus of $25,000 was received from Centurion Office Manufactures for
    “Bush Furniture” achieving the highest sales for their products in the June Quarter.
    (x) Legal Costs
    Redevelopment Action 5,000
    General 375
    Lease Agreement 500
    You have been approached by Joe and Mary Wilson in your capacity as their tax agent. They
    have asked you to prepare the necessary documentation to meet the tax compliance
    obligations for “Bush Furniture,” for the income year ending 30 June 2019.
    Prepare a letter of advice which identifies all relevant tax issues, critically analyses and
    applies the taxation treatment to the issues, i.e., you will need to argue and support your view
    and consider differing views (if applicable), and finally, indicate your recommended action
    based on your better view, i.e., your conclusion (IRAC principle).
    You must ensure that your analysis used to determine your recommended action is fully
    supported with relevant authority, for example, tax legislation and case law.
    In addition, you must prepare a Partnership Tax Return (2018 OK) for “Bushfurniture” for the
    year ending 30/06/19 based on the information you have, including notes and supporting
    schedules where appropriate.

Sample Solution