Reference no: EM132752520

TPB601TA Taxation of legal entities

Task 1: Income Tax Return and working schedules
Step 1: Review the letter Royal Watch Ltd, attached Appendix A.
Step 2: Review the RWL Income Tax Return Appendix B-D attached.
Step 3: In the Depreciation Schedule worksheet (Tab 3) calculate and enter the depreciation and balancing adjustments for the tax year 20XX/XY.
Step 4: In the Franking Account schedule worksheet (Tab 4) complete the franking account for the tax year 20XX/XY.
Step 5: In the Tax Computation schedule worksheet (Tab 5) prepare the tax computations for the tax year 20XX/XY.
Step 6: In the ITR Profit and Loss worksheet (Tab 6) complete the financial data for the tax year 20XX/XY, by using the information from the Income Statement.
Step 7: In the ITR Reconciliation worksheet (Tab 7) prepare the reconciliation to taxable income or loss for the tax year 20XX/XY, by using the information from the Tax Computation worksheet.
Step 8: In the ITR Financial Information worksheet (Tab 8) enter the financial data for the tax year 20XX/XY, by using the information from other schedules.
Step 9: In the ITR Calculation Statement worksheet (Tab 9) calculate the tax amount due or refundable for the tax year 20XX/XY, by using the information from other schedules.

Task 2 -Income Tax Return Cover Letter
You have completed the preparation of the 20XY Income Tax Return for your client, Royal Watch Ltd. You are now required to prepare a Client Income Tax Return Cover Letter.
Step 1: Review the template letter Tax-return-cover-letter, provided below (Appendix E).
Step 2: Edit the letter to include Client details including requiring the public officer to review and approve the Income Tax Return.
Step 3: Provide explanations for the add-back and disallowed items in the Tax Reconciliation
Step 4: Enter the estimate of Tax payable or Refundable

1. Royal Watch Ltd is a manufacturer and exporter of fashion watches and designer decorative clocks. Its activities have not changed during the tax year 20XX/XY.
2. For accounting purpose, the company uses the straight-line method to depreciate assets. For taxation purpose, it chooses to use the diminishing value method to depreciate its assets and chooses the option of self-assessment of the asset's effective life to calculate the lives of depreciating assets (Section 40-95 ITAA97). All assets are purchased post 10 May 20XO and the leasehold improvement is in relation to the leased office. The opening adjustable values are:

3. The opening adjustable value of the plant and machinery disposed of during the year was $368,000 and the proceeds of $280,356 from the sale of these assets was received on 1 September 20XX.
4. The company purchased office equipment of $50,890 on 1 November 20XX.
5. The company depreciates the factory premises over 40 years for both accounting and taxation purposes. The construction cost of the factory premises is $2,014,600 and the opening adjustable value is $ 1,611,680
6. Among the entertainment expenses, $38,450 was for food and drinks provided during five whole day in-house seminars attended by clients and employees. The balance was for lunches and dinners with customers.
7. Among the legal fees, the company incurred $68,300 legal fees in defending a lawsuit against its director, John who fought with the plaintiff during a Friday day drink with colleagues in a pub. FBT has not been paid on this legal fee.
8. The payment of annual leave was $35,750 during the year 20XX/20XY.
9. A provision of 5% is made on debts which are overdue for more than 30 days except for one debt which has been overdue for more than 12 months. A full provision has been made for this debt of $230,798. However, the receivables clerk failed to mail a legal claim to the client's correct address.
10. The company agreed to prepay promotion fees to the BBC Event Co for the service period 1 May 20XY to 30 April 20XA. The payment of $220,000, net of 20% discount, was made on 15 April 20XY. This amount has not been recorded in the income statement and balance sheet.
11. Repairs and maintenance expense included the cost for the replacement of carpet in the factory meeting rooms with premier stone floor. This cost of $123,540 was paid on 1 April 20XY.
12. The company has a franking account surplus of $8,000 on 1 July 20XX. In addition, the company made the following transactions:
a. The company made a PAYG instalment payment of $40,500 on 21 July 20XX.
b. The company paid a PAYG instalment payment of $45,500 on 21 October 20XX.
c. On 1 November 20XW, the company received a tax refund of $35,680 for the tax year 20XW/XX.
d. On 31 December 20XX, the company paid a fully franked interim dividend of $350,000.
e. The company made a PAYG instalment payment of $55,500 on 21 January 20XY.
f. The company paid a PAYG instalment payment of $50,500 on 21 April 20XY.
g. On 1 June 20XY, the company received a dividend of $220,000. This had a franking percentage of 75%.
h. On 30 June 20XY, the company paid a fully franked final dividend of $450,000.

Attachment:- Taxation of legal entities.rar