Question

Elizabeth is an interior designer who has worked with some of the greats and started her new business as a sole trader on 1 July of the current tax year. She operates from a store in beautiful downtown Toowoomba where she offers design advice and also sells various items to beautify the home. During the current year ended 30 June, Elizabeth advises that her accounts show the following: Sales proceeds received for the sale of items from the store $70 000. Fees received for advice on interior design work $140 000. Amounts owing to her as at 30 June for items of trading stock sold on credit $8000. Amounts not yet billed to customers for advice given prior to 30 June, $16 000. What amount should Elizabeth include in her assessable income for the year ended 30 June?

A.226000 B.210000 C.234000 D.24000 E.218000

Answer 1

Assessable income means the taxable income withoot the deductions.

Assuming that Elizabeth follows Accrual method of accounting which follows the principle to record the income which has been earned but not yet received. Below are the stiuations which can be accounted for income.

a)Sale proceeds received for the sale of items from the store will be taken into account.

b)Fees received for advice on interior design work will also be taken for calculating assessable Income.

c) Goods sold on credit is a recorded sale hence to be calculated as an assessable income.

d) Amounts not yet billed to customers for advice given prior to 30 June should be treated as an accrued revenue which is yet to be billed. Here Elizabeth is certain about the inflow of the revenue , its just that its not billed. Hence, it will be treated as an assessable income.

So the total assessable income for the year ended 30June= $(70,000+140,000+8000+16,000)=$234,000

Answer: Option C