Reference no: EM133335499

Assignment:

For the year ending December 31, 2018, the Income Statement of Dorknell Ltd. is as follows (all amounts are without the inclusion of applicable GST and PST):

Revenues:

       Sales of Fully Taxable Goods            $216,000

       Provision of Exempt Services             78,000           $294,000 

Less Expenses:

       Cost Of Goods Sold                        ($123,000)

       Amortization Expense                      (56,000)

       Salaries And Wages                        (12,000)

       Rent                                            (42,000)

       Interest Expense                             (9,000)

       Other Operating Expenses                 (27,000)       (269,000)

Income Before Taxes                                                  $ 25,000 

Less:  Federal And Provincial Income Taxes                     (8,000)

Net Income                                                               $17,000 

Other Information:

1. Dorknell Ltd. is a retail business located in Saskatchewan where all of the Company's revenues and expenses are incurred. In addition to the 5 percent federal GST, Saskatchewan has a provincial sales tax, assessed at a rate of 6 percent. The quick method rates applicable to the province are 1.8 percent for businesses that purchase goods for resale, and 3.6 percent for service providers.

2. For the previous year ending December 31, 2017, Dorknell's cost of goods purchased for resale totalled $110,000 and the revenue from sales of taxable supplies totalled $302,000. Both amounts are before GST and PST.

3. Inventories of taxable goods decreased by $8,000 during the year.

4. All of the Other Operating Expenses involved the acquisition of fully taxable supplies and were acquired to assist in the provision of fully taxable supplies.

5. Of the Salaries And Wages, 46 percent were paid to employees involved in providing exempt services.

6. A capital expenditure was made during the year at a GST and PST inclusive cost of $62,160. The expenditure was for equipment that will be used 60 percent for the provision of fully taxable goods. GST and PST was paid on the acquisition of all assets on which amortization is being taken during this period.

This is the first year that Dorknell Ltd. has exceed $30,000 in sales over the past four quarters.

Required: For the year ending December 31, 2018:

Memo Preparation and presentation to the president of Dorknell Ltd., Mr Dorknell. In your memo explain:

• Why GST must now be collected,
• What revenues and expenses are exempt, zero-rated or fully taxable.
• Recommend a GST reporting period, the reporting and payment requires of the recommended reporting period, outline penalties for failure to file and pay.
• As an exhibit, prepare the GST returns in both the regular and quick method. Recommend one method to Dorknell Ltd. and why you chose that method. Ensure Dorknell is eligible for the GST quick method.
• Comment on the positive and negative impact collecting the GST will have on the business.