On 1 July 2021, BB purchased a new coffee machine for the BBoffice kitchen for $1,980 and a bag of coffee beans for $20. Foraccounting purposes, the coffee machine was capitalised andhas an effective life of five years. No depreciation has beencalculated on the coffee machine for the income year ended 30June 2022. The cost of the coffee beans has been included in‘Other expenses’ in the statement of profit or loss. 4. In May 2022, BB discovered that an employee had stolenbiscuits that were manufactured in April 2022. The employeewas dismissed; however, BB was unable to recover the costof the stolen goods. The manufacturing cost of the stolenbiscuits was $2,500, but they could have been sold for$6,000. The cost of this stolen trading stock was not recordedin the statement of financial position. 5. On 1 January 2022, BB paid $11,000 in legal fees to itssolicitor to conduct legal due diligence on BB’s takeoverattempt of a supplier, which was unsuccessful. 6. During the income year ended 30 June 2022, BB made thefollowing payments: (a) On 30 September 2021, BB paid $22,000 to Green Pty Ltd(Green) under a contract for Green to provide monthlygardening maintenance services for 12 months. The fullamount was included in ‘Repairs and maintenance’ in thestatement of profit or loss. (b) On 1 July 2021, BB paid $14,000 under a contract forinsurance that would specifically cover damage or loss ofgoods during transit for the 24-month period to 30 June2023. The full amount was included in ‘Insurance’ in thestatement of profit or loss. 7. To expand its customer base, BB hosted a high tea with foodand drink in February 2022 in Melbourne, Victoria, for a selectgroup of potential clients. The cost of the food (which did notinclude any BB products) and drink (which includedchampagne) was $5,800 and recorded as ‘Entertainment’expenses. BB did not pay FBT in respect of the high tea. TheBB employees who were required to attend the function didnot participate in the high tea. 8. BB has been fined $1,400 by the South Australian government.$700 of the fine relates to illegal dumping of waste and theother $700 relates to work, health and safety breaches. Theentire expense was included in ‘Fines and penalties’ in thestatement of profit or loss. 9. The ‘Repairs and maintenance’ expense in the statement of profitor loss includes $15,000 paid on 1 July 2021 for thereplacement of some roof tiles on the factory building BB hasowned since 2017. The building qualifies as an industrialbuilding which was constructed in 2001. The roof tiles requiredreplacement after being cracked or displaced in a bad storm.The broken tiles were replaced with an equivalent tile made ofsimilar material. The building is held on the tax fixed asset register. 10. The provision for annual leave represents the amount ofaccrued expenditure for employees’ annual leaveentitlements that has not yet been taken by employees. 11. The provision for superannuation represents the unpaidsuperannuation contribution in respect of June 2022 wages,which will be paid in July 2022. BB only makescontributions to complying superannuation funds. 12. In relation to doubtful debts and bad debts: (a) Trade debtors are recorded net of a provision for doubtfuldebts of $12,000, which has not been written off as at 30June 2022 (in 2021 this amount was $6,300). The movementin the provision was included in ‘Other expenses’ in thestatement of profit or loss. (b) One of BB’s customers, Custard Slice Pty Ltd (CustardSlice), went into liquidation on 1 July 2022. Custard Sliceoriginally owed $5,000 to BB, which has previously beenincluded in BB’s assessable income. As at 30 June 2022,Custard Slice still owed BB $4,000 for slices supplied. Task Calculate BB’s taxable income for the income year ended 30June 2022 by preparing a reconciliation from accounting profitto taxable income and calculating the correct tax adjustment(even if the adjustment is nil) in respect of items 1–12. For each adjustment (including nil adjustments) in items 1–12,provide the most relevant legislative reference. A Tax (AU) Assessment, Part A Case study and task Best Baker Pty Limited All amounts are in Australian dollars and GST-exclusive, unlessotherwise stated.
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