Question

ABC Pty Ltd sells upmarket washing machines. It had $200,000 stock on hand at the beginning of the 2017/2018 financial year. It purchased $50,000 of additional trading stock during the income year. The closing stock on hand was $130,000.

At the beginning of the 2018/2019 financial year ABC Pty Ltd had $130,000 stock on hand. It did not purchase any stock during the year as it was having financial difficulties. In fact, in September 2018 ABC gave two washing machines to a creditor as payment in full of the debt it owed to that creditor (ABC owed the creditor $2,000). Each washing machine had cost ABC $1,000 and ABC would usually sell each washing machine for $1,750.

ABC did not sell any stock during the 2018/2019 financial year. Towards the end of that year, a flood swept through the warehouse and all stock was destroyed. ABC did not purchase any replacement stock.

Required: Advise ABC of the tax implications for each of the 2017/2018 and 2018/2019 financial years based on the information above. Where appropriate, support your answer with legislative authority.           

Answer 1

ABC Pty Ltd: 200000 $ Beginng Inventory

Purchased : 50000 $

Closinh Inventroy : 130000 $

200000 + 50000 - 130000 = 120000 Charged to P and L A/c As Production Cost

In FY 2018 / 2019:

Clsoing Stock = Opeing Stock = 130000 $

Closing Inventory : 130000- 2 unit = 129998 $

No purchases during the Year

Settlement with Creditor against 2000 $ Debt

By transfering in KInd of Washing Machine of Quantity = 1750 $ X 2 = 3500 $

Actually owed: 2000

Difference of 1500 $ has no treatment in books of Account. As same has been sold at Cost price.( Not Sold at Arm Length Price)  

So, Here Will charge the same as reduced from the Closing inventroy and Added the Sale of 2000 $ , Tax will be calculated over 2000, even though same has been sold with no mark up.

Above Set off comes under where Settting off of trade libaility comes. Hence No treatment uder the same will be counted.

Secondly, AS the goods lost by nature, Comapny will book the loss and accordingly charge under Business and Profession. Loss will be charge d