Income Taxation Assessment
Chloe Model Trains
Case study: Chloe’s Model Trains
Income Statement & Additional Information
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Chloe’s Model Trains Ltd
Income Statement
(Profit & Loss)
$ $ $
Income
Sales Revenue 110,000
Less Cost of Goods Sold
Opening Inventory 6,000
Purchases 25,400
Closing Inventory (7,500)
Cost of Goods Sold 23,900
Gross Profit 86,100
Other Income
Dividend Income 4,000.00
Grant 10,000.00
14,000.00
Total Income 100,100
Less Expenses
Advertising Fees 560
Accountancy Fees 1800
Bad Debts 1200
Consultancy Fees 900
Depreciation 8000
Donations 500
Interest Expense 80
Repairs & Maintenance 1100
Shareholder’s Salary 56500
Subscriptions 300
Travel Expense 900
Vehicle Expense 4800
Total Expenses 76,640
Net Profit 23,460
Additional Information
1. $4,000 Dividend Received from Carnel Ltd on 31/3/20X3 was assessable and included tax credits of 25% imputation Credits, and the rest for RWT.
2. There was a $10,000 grant which is not assessable for income tax.
3. The Bad Debts of $1,200 included $900 of which you confirmed that Chloe did not exercise all efforts to chase customers for the debt.
4. The Depreciation of $8,000 was using Industry Depreciation Rates. The Depreciation for taxation purposes totalled $9,300 using depreciation rates given by the Inland Revenue. Since there was more depreciation to claim, expect a negative adjustment.
5. For the powertools, only 70% is allowed for business use. The private use is non-allowable deduction. Please use this for the next two adjustments below.
5a. $1,300 of depreciation allowed was for powertools. A private use adjustment is required for this amount.
5b. Repairs & Maintenance included a $700 repair to the motor for a powertool. A private use adjustment is required for this amount. The other $400 of R&M is allowable.
6. $150 of the accounting fees included the filing of Chloe’s sisters return. You have indicated that this is an expense for Chloe’s sister, not Chloe’s Model Trains Ltd. The remaining $1,650 was accounting fees to Chloe’s Model Trains Ltd.
7. Chloe’s Model Trains Ltd had Losses of $520 brought forward from the previous year.
8. Provisional Tax paid for 20X3 was $4,500, there is still $1,500 due for unpaid provisional tax.
9. All Donations were made by Chloe’s Model Trains Ltd to donee organisations. The company has kept donation receipts, which is an allowable expense.
10. IRD Numbers – Chloe’s Model Trains Ltd: 131 120 555, Chloe: 095 456 986
11. The Current Account for Chloe had a $12,000 Credit Balance and an additional Shareholder Loan of $40,000. No other shareholder information was given for other information like aim credits.
12. No PAYE was deducted for Chloe’s Shareholder’s Salary.
13. For 20X4, Chloe’s Model Trains Ltd has estimated the provisional tax to be $6,000.
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