Question

Jane owns a hairdresser franchise business. As at 1 July 2018, stock on hand of hair related products was valued at $300,000 (at cost). During the year, she purchased an additional $250,000 worth of stock and sales totalled $600,000. As at 30 June 2019, stock on hand of hair related products was valued at $400,000 (at cost), $450,000 (at replacement value) and $500,000 (at market selling value). a) Calculate Jane’s business’s taxable income from her trading activities for 2018/19. (Ignore the SBE rules and GST.) b) During Jane’s spare time, about 10 hours per week, she likes to place bets online. Jane won $50,000 over the year from this online gambling activity. Advise Jane whether she would be required to include the $50,000 gain as ordinary income. c) In June 2020, Jane decided to liquidate some assets to fund the purchase of another salon. One was a parcel of shares in ATC Ltd which she had bought in 2019 for $40,000 hoping to make a profit in the short term. She sold them for $100,000. The other was a block of land which she had bought in 2016, intending to build a new salon on it – an idea that she has now rejected because another salon had just opened in the area. What effect, if any, will these transactions have on her taxable income? Why?

Answer 1

ANSWER=
I)-			Jane-Hairdresser Francise
		Calculation of costs of Goods sold
		For the year ended
	Beginning Inventory			$3,00,000
	Plus:- Purchases			$2,50,000
	Cost of goods available for sale		$5,50,000
	Less:- Ending Inventory		$4,00,000
	Cost of Goods sold			$1,50,000
	*Closing inventory valued at cost.
II)-	Now Prepare Jane Income statement for the Year is as:-
			Jane-Hairdresser Francise
		Income Statement
		For the year ended
	Sales Revenue			$6,00,000
	Less:- Cost of goods sold		$1,50,000
	Gross profit			$4,50,000
	Less:- Opreating Expenses		$0
	Opreating Income			$4,50,000
1	Taxable Income from her Trading Business is $450000.
2	Income from Gambling Activity is not ordinary income, such gambling income taxable separately.
3	Short term capital gain on sale of shares should also be taxable separately in Capital Gain Head.