Josh have been presented with the 2017-2018 financial statements of M Pty Ltd. R

Question

Josh have been presented with the 2017-2018 financial statements of M Pty Ltd. Required: To calculate his taxable income for the 2017-2018 income year, starting with profit before tax of $12,000,000, providing explanations for your calculation. These are the relevant notes for the 2017-2018 income year: -Accounting depreciation totalled $500,000. -The company qualifies for capital allowances (tax depreciation) on a basis which is different to accounting depreciation. The accountant determined the capital allowances to total $350,000. -The provision for leave pay was increased by $25,000 to take into account new staff appointments. -The company is planning to expand its retail arm. To partly fund the expansion, set to take place in the 2018-2019 income year, a provision for future expansion was created totalling $1,000,000. -On 1 June 2018, the company prepaid its public liability insurance for the period 1 July 2018 to 30 June 2019. The payment totalled $12,000. Using generally accepted accounting principles, no part of the amount was expensed in the 2017-2018 income year.
The Income Tax Equation Taxable Income Assessable Income Deductions Section 6-5(2) If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the income year Section 8-1 | You can deduct from your assessable income any loss or outgoing to the extent that: It is incurred in gaining or producing your assessable income; or It is necessarily incurred in carrying on a business for the purpose of producing your assessable income. a. b.

Explanation / Answer

Computation of taxable Income

Particulars Amount Profit before tax $12000000 + Book Depreciation $500000 - Capital allowances ($350000) + Provision for future expansion $1000000 - Insurance expenses (No part of income is adjusted) ($12000) + Provision for leave pay ($25000) Taxable Income $13163000

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