HA3042 TAXATION LAW TRIMESTER 1, 2017 INDIVIDUAL ASSIGNMENT 2 Assessmen

HA3042 TAXATION LAW 
TRIMESTER 1, 2017 
INDIVIDUAL ASSIGNMENT 2 
Assessment Value: 20% 
Instructions: 
• This assignment is to be submitted in accordance with assessment policy stated in the Subject Outline and Student Handbook. 
• It is the responsibility of the student who is submitting the work, to ensure that the work is in fact her/his own work. Incorporating another’s work or ideas into one’s own work without appropriate acknowledgement is an academic offence. Students should submit all assignments for plagiarism checking on Blackboard before final submission in the subject. For further details, please refer to the Subject Outline and Student Handbook. 
• Answer all questions. 
• Maximum marks available: 20 marks. 
• Due date of submission: Week 10. 
Question 1 (10 Marks) 
Alan is an employee at ABC Pty Ltd (ABC). He has negotiated the following remuneration package with ABC: 
• salary of $300,000; 
• Payment of Alan's mobile phone bill ($220 per month, including GST). Alan is under a two-year contract whereby he is required to pay a fixed sum each month for unlimited usage of his phone. Alan uses the phone for work-related purposes only; 
• Payment of Alan's children's school fees ($20,000 per year). The school fees are GST free. 
ABC also provided Alan with the latest mobile phone handset, which cost $2,000 (including GST). 
At the end of the year ABC hosted a dinner at a local Thai restaurant for all 20 employees and their partners. The total cost of the dinner was $6,600 including GST. 
(a) Advise ABC of its FBT consequences arising out of the above information, including calculation of any FBT liability, for the year ending 31 March 2017. Assume that ABC would be entitled to input tax credits in relation to any GST-inclusive acquisitions. 
(b) How would your answer to (a) differ if ABC only had 5 employees? 
(c) How would your answer to (a) differ if clients of ABC also attended the end-of-year dinner? 
Question 2 (10 marks) 
Two years ago Peta purchased a house in Kew. This house had two old tennis courts down the back which were in poor condition. She purchased the property for two reasons: 
• so that she and her family could live in the house; and 
• so that she could build three units on the tennis courts and sell them at a profit. 
In the current tax year the tennis club next door offered to buy the old tennis courts, but only if Peta first restored them to good condition. Peta decided to accept the club’s offer instead of going ahead with her plan to build and sell units. 
Peta spent $100,000 on preparing the tennis courts for sale. This involved a great deal of work. Peta had to resurface the tennis courts and build new fences around them. She then sold the tennis courts in the current tax year to the tennis club for $600,000. 
Ignoring capital gains tax, discuss whether the receipt of $600,000 is ordinary income under s 6-5.

HA3032 AUDITING AND ASSURANCE SERVICES 
TRIMESTER 1, 2017 
INDIVIDUAL ASSIGNMENT 2 
Assessment Value: 20% Instructions: 
1. This assignment is to be submitted in accordance with assessment policy stated in the Subject Outline and Student Handbook. 
2. It is the responsibility of the student who is submitting the work, to ensure that the work is in fact her/his own work. Incorporating another’s work or ideas into one’s own work without appropriate acknowledgement is an academic offence. Students can submit all assignments for plagiarism checking (self-check) on Blackboard before final submission in the subject. For further details, please refer to the Subject Outline and Student Handbook 
3. Maximum marks available: 20 marks. 
4. Due date of submission: Week 10 Friday. 
One.Tel Case 
Strategic Business Risk Assessment, Inherent Risk Assessment and Preliminary Going Concern 
Assessment 
This Case is based on Week 5 to 8 
Nature of the Entity’s Business 
One.Tel was launched in Sydney, Australia in May 1995. They were described as a global telecommunications company offering a fully integrated product list including low-cost international and national calls, Internet services, prepaid and post paid calling cards plus GSM mobile phone services. Their strategies as customer-focused and dedicated to providing innovative, quality telecommunication services at reduced prices. Details of total revenue by geographic segment for the year ended 30 June 2000 are as follows: 
Country $M % 
Australia 429.4 64 
UK 144.7 21 
France 15.1 2 
Netherlands 36.6 5 
Hong Kong 39.2 6 
Other 13.2 2 
Total 678.2 
The Industry 
Australia’s telecommunications infrastructure with a fully digitised network is as sophisticated and as modern as any in the world. Land based phone lines penetrate about 96 per cent of all households, with 2 million Internet subscribers and over 7 million Internet users. Mobile phone services are well established in Australia with more than 8 million users or 42 per cent of the population, one of the highest user rates in the world. Telstra, Optus and Vodafone each operate separate GSM mobile networks. Telstra’s market share is around 57 per cent, Optus 31 per cent and Vodafone 11 per cent. (Source: US Department of State FY2001 Country Commercial Guide) 
Prior to the deregulation of Australia’s telecommunications industry on 1 July 1997, there were two carriers. There are now 35 carriers who are often former service providers and are generally reliant upon leasing network capacity from Telstra, although some are developing their own switching and network capability. 
The influx of smaller carriers into the telephony market has acted as one of the major developments in producing important competitive results in the deregulated market. These carriers typically provide international and long-distance calls and, more recently, complete telephony services. The growth in revenue does not correspond directly with growth in the number of telecommunication service providers due to greater market competition, reduced prices, and lower revenue per company. 
Telstra, the former monopoly carrier, is the dominant provider of Australia’s land-based telephony service. This network has nearly 10 million connections and an annual growth rate of five per cent. Telstra still dominates the telecommunications environment although its market share has dropped significantly in recent years. 
Mobile phone services are well established in Australia with more than 8 million users or 42 per cent of the population, one of the highest user rates in the world. Telstra, Optus and Vodafone each operate separate GSM mobile networks. Telstra’s market share is around 57 per cent, Optus 31 per cent, and Vodafone 11 per cent. 
Management 
The Board of One.Tel comprised nine members, including five non-executive directors and four executive directors. Due to the rapid growth of the industry described in the previous section significant managerial experience in the industry was limited. The functions of the board included: 
i. approval of corporate strategy, and financial plans; ii. identifying and addressing areas of significant risk facing the company; iii. reviewing and monitoring management processes and reporting mechanisms; iv. monitoring financial performance; 
v. appointment of the senior management team. 
Financial Statements 
BALANCE SHEETS AT 30 JUNE 2000 
Consolidated Parent Entity 
Note 2000 1999 2000 1999 
$M $M $M $M 
CURRENT ASSETS 
Cash 25 335.7 172.6 164.2 170.8 
Receivables 9 218.4 72.0 104.0 58.9 
Inventories 10 5.1 2.5 4.5 1.8 
Other 11 68.9 49.1 50.8 35.3 
TOTAL CURRENT ASSETS 628.1 296.2 323.5 266.8 
NON CURRENT ASSETS 
Investments 12 – – 26.0 17.1 
Receivables 9 – 2.9 356.7 62.0 
Plant and equipment 14 155.7 41.0 85.9 28.1 
Intangibles 15 559.8 28.0 522.3 – 
Other 11 91.9 157.9 71.1 132.3 
TOTAL NON CURRENT ASSETS 807.4 229.8 1062.0 239.5 
TOTAL ASSETS 1,435.5 526.0 1,385.5 506.3 
CURRENT LIABILITIES 
Accounts payable 16 277.2 73.0 115.5 50.4 
Borrowings 17 92.2 7.2 20.2 7.2 
Provisions 18 5.8 4.7 5.2 4.4 
TOTAL CURRENT LIABILITIES 375.2 84.9 140.9 62.0 
NON CURRENT LIABILITIES 
Accounts payable 16 – – 2.3 1.2 
Borrowings 17 107.3 62.9 80.5 62.9 
Provisions 18 8.2 15.2 8.1 14.6 
TOTAL NON CURRENT LIABILITIES 115.5 78.1 90.9 78.7 
TOTAL LIABILITIES 490.7 163.0 231.8 140.7 
NET ASSETS 944.8 363.0 1,153.7 365.6 
SHAREHOLDERS' EQUITY 
Share capital 19 1,225.6 355.6 1,225.6 355.6 
Convertible notes 17 0.1 3.7 0.1 3.7 
Retained profits/(accumulated losses) (282.1) 9.1 (68.7) 9.6 
Reserves 20 1.2 (5.4) (3.3) (3.3) 
TOTAL SHAREHOLDERS' EQUITY 944.8 363.0 1,153.7 365.6 
FINANCIAL STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2000 
Consolidated Parent Entity 
Note 2000 1999 2000 1999 
CASH FLOW FROM OPERATING 
ACTIVITIES $M $M $M $M 
Receipts from customers 510.9 300.1 283.3 250.2 
Payments to suppliers and employees (684.8) (328.1) (327.4) (250.2) 
Interest received 16.9 1.9 11.1 1.9 
Interest and other borrowing costs paid (11.9) (3.5) (7.5) (3.5) 
Income tax refunded 
– 0.7 – 0.7 
Net cash used by operating activities 
CASH FLOW FROM INVESTING 
ACTIVITIES 25 (168.9) (28.9) (40.5) (0.9) 
Proceeds from sale of investments – 1.6 – 1.6 
Proceeds from sale of plant and equipment – 19.2 – 19.2 
Payment for plant and equipment (87.5) (34.0) (32.3) (20.0) 
Purchase of licences (525.6) (9.5) (523.1) - 
Purchase of Controlled Entities – (6.9) – (6.9) 
Payment of deferred consideration (1.8) – (1.8) - 
Loans provided to wholly owned entities – – (264.4) (53.8) 
Loans provided to other parties – (2.6) – (2.6) 
Net cash used by investing activities 
CASH FLOW FROM FINANCING 
ACTIVITIES 
(614.9) (32.2) (821.6) (62.5) 
Proceeds from issue of shares 818.5 280.3 818.5 280.3 
Proceeds from borrowings 139.8 59.0 50.0 59.0 
Finance lease principal repayments (11.2) (4.2) (11.2) (4.2) 
Dividends paid (1.8) (2.5) (1.8) (2.5) 
Share buy-back – (106.4) – (106.4) 
Net cash provided by financing activities 945.3 226.2 855.5 226.2 
Net increase in cash held 161.5 165.1 (6.6) 162.8 
Cash and cash equivalents at beginning of year 172.6 8.4 170.8 8.0 
Exchange rate adjustment 1.6 (0.9) – – 
Cash and cash equivalents at end of year 25 335.7 172.6 164.2 170.8 
PROFIT AND LOSS STATEMENTS FOR THE YEAR ENDED 30 JUNE 2000 
Consolidated Parent Entity 
Note 2000 1999 2000 1999 
Eamings/(loss) before depreciation,amortisation, $M $M $M $M 
interest, abnormal items and income tax 
(230.4) 25.2 (57.3) 24.7 
Depreciation and amortisation 
Net interest (expense)/revenue and other 2 (35.3) (12.3) (26.6) (9.8) 
borrowing costs 
Operating profit/(loss) before abnormal items 2 3.3 (1.6) 4.3 (1.6) 
and income tax 
(262.4) 11.3 (79.6) 13.3 
Abnormal items 
4 (33.5) (1.4) (5.4) (1.4) 
Operating profit/(loss) before income tax 
Income tax (expense)/benefit attributable to 2 (295.9) 9.9 (85.0) 11.9 
operating profit/loss 
3 4.8 (2.9) 6.8 (4.0) 
Operating profit/(loss) after income tax 
Retained profits at the beginning of the (291.1) 7.0 (78.2), 7.9 
financial year 
9.1 5.1 9.6 4.7 
Total available for appropriation 
(282.0) 12.1 (68.6) 12.6 
Dividends provided for or paid 
7 0.1 3.0 0.1 3.0 
Retained profits/(accumulated losses) at the end 
of the financial year 
(282.1) 9.1 (68.7) 9.6 
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Discussion Questions 
1. List and discuss several factors that would have contributed to an increased inherent risk assessment at the financial report level. Also identify which of these factors may be identified during the strategic business risk assessment. 
2. List and discuss several inherent risk factors that would have contributed to an increased inherent risk assessment at the account balance level. 
3. Do you believe that the area of going concern should be assessed as high, medium or low? Identify the factors that are the basis for your decision. 
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