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This assessment task requires the student to review and analyze the draft Profit and Loss Statement and associated account ledgers for Grow Management Consultants for the 2018 – 2019 year, identify and fix any errors they find, keeping an audit trail of their changes and then compare financial results with the budgeted amounts. They must then prepare a report to summaries their analysis and make recommendations and comments on the effectiveness of financial management systems.
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Task 1
1.Briefly explain the five main taxation and superannuation obligations of an Australian company, including taxes that are paid through the Australian Tax Office and those paid to the state or territory. The five main taxation and superannuation obligations of an Australian company are:
- Paying taxes for the employees: withhold tax from the wages of the employees and then pay that withheld amount to government and this is PAYG withholding. Moreover, company have to super taxes for eligible employees quarterly.
- GST reporting requirement: company must register GST where goods and services will be charged 10% tax.
- Payroll tax: it is the tax on the wages and other benefits paid by the employers.
- Corporate tax: it is the tax paid by the company on the profit to the state
- PAYG income tax installments: company make regular payments throughout the year on their business income.
2. Answer the following questions relating to GST in Australia:
- When does a business/enterprise and non-profit organizations have to register for GST?
When business income is $75000 or more for an annual year. In the case of non-profit organization, it is $150,000 or more.
If any business is providing taxi travel so it means they are charging passengers for transport service.
When organization want to claim fuel tax credits. - When do you need a tax invoice to claim a GST credit?
When you make a taxable payment of more than $82.50 (including GST), you require a tax invoice from your GST approved consumers to receive a GST credit in the sales price. - What eight details must be identifiable on a tax invoice for sales over $1,000?
The document should be entitled as tax invoice
Identity of seller
Australian business number (ABN) of seller
Date of issue
Brief description of goods and services sold
GST amount payable (if any)
The items that are subject to GST or not
Identity and ABN of purchaser - What accounting method would a small business with an aggregated turnover of less than $2 million use to account their GST? Small businesses can either use cash or accrual accounting method to account their GST.3. Not everyone is entitled to an ABN. Provide a list of the conditions that must be met to be entitled to an
ABN.
When someone is establishing or carrying on the business in Australia
When enterprise is making supplies connected with the indirect tax zone of Australia.
When an enterprise is a corporation act company
4. To work as a business and be entitled to an ABN, what activities should you be undertaking according to the Australian Taxation Office? The activities the enterprise should be undertaking according to the Australian Taxation office:
Enterprise should act as a trustee of a super fraud
Must be operating the charity
Renting or leasing the property.
5. According to the ATO website, what obligations are you likely to have if you have an ABN? The obligations which company would likely to have if they have an ABN:
They are required to lodge an annual income tax return and it is required when the business is carrying on or irrespective to the business making profit or loss.
Business or company registration
It is obligation for an enterprise to update or maintain details regarding ABN within 28 days.
6.Outline the key requirements around tax for companies in Australia including:
- how annual tax is reported. The annual tax is reported in a way when assessable income is deducted by the deductions and it will provide annual tax. The assessable income includes all gross income and other income. The deductions include the amount company claim for expenses.
- the methods by which it can be paid. The Australian Tax Office (ATO) administers and collect the taxes in Australia, and in some cases state revenue departments. Companies can pay taxes monthly, quarterly or yearly.
- the name and value of the two tax rates for Australian companies and when each applies. The two tax rates for Australian companies are Base rate entity tax which is 27.5% and other is 30% that is otherwise. Base rate entity tax is applied when company is earning less than aggregated threshold income or when 80% or less of their income is passive income.
- The small business tax rates for FY (Financial Year) 2019, FY 2020, FY 2021 and FY 2022
FY 2019: 27.5%
FY 2020: 26%
FY 2021: 25%
FY 2022: 25%
7. Answer the following questions relating to Pay-as-you-go (PAYG) tax in Australia:
- Explain the difference between PAYG withholding and PAYG Income Tax Instalments. In PAYG income tax instalments business makes regular payments throughout the year so that it won’t pay larger tax bills and it is based on investment income. PAYG instalments are different to PAYG withholding. With the withholding of PAYG, employers collect tax from their payments to employees and contractors and send it to the ATO. This lets those people fulfill their own income tax responsibilities.
- If you make payments subject to withholding, what are the five things the Australian Tax Office requires a business owner to do?
Business must register for PAYG withholding before requiring payment that is subject to retention to be
made first.
If Company fails to be an employer so it should cancel PAYG withholding registration.
Company must check whether employee is legally allowed to work in Australia
Company must make sure that it is different from payroll tax
Company must keep all the records
8. Explain the principle of cash accounting. Include two advantages and two disadvantages of cash accounting in your response. Cash accounting is an accounting system that reports expenditure payments during the time of which they are obtained and documents expenses in the time of which they are directly paid. In other words, when cash is received and paid, the revenues and expenses are recorded, respectively.
Pros
Preparation of accounting reports is easier as company will have to make year-end adjustments
Losses under cash accounting can be carried forward and it can be set off against future profits.
Cons
Cash accounting does a good job of tracking cashflow, but it does a poor job of matching income
earned with money spent.
Not all businesses can use cash accounting principle because some sells on credit.
9. QUESTION 9
Explain the principle of accrual accounting. Include two advantages and two disadvantages of accrual accounting in your response. Accrual accounting is one of two methods of accounting; cash accounting is another. Accrual accounting measures the efficiency and status of a corporation by identifying economic activities, regardless of whether cash transfers occur, while cash accounting documents only transfers as payment is made.
Pros
Accrual accounting can help with a snapshot of a company's financial condition at any given point of time. Comparing months, quarters, and years should offer a clear view, because you are not going to be dealing with missing payments or paying expenses.
As costs are paid for until they are accruals, they allow businesses the right to subtract certain tax return costs before they fully pay for them. A significant tax advantage from accrual is being able to accept depletion on such properties as a loss that saves revenue on taxes in return.
Cons
There can be cash flow uncertainties like company might be owing too much amount its debtors.
It is very difficult to do calculations in accrual accounting because year end adjustments are complex and difficult.
10)Describe the following terms:
c) Financial accounting
Financial accounting is a specialist accounting division that maintains track of financial activities within a business. The transactions are reported, outlined and published in a financial report or financial statement, such as a statement of income or a balance sheet, using uniform guidance.
d) Management accounting
Management accounting helps managers make decisions within a company. Management accounting is also known as cost accounting, the process of identifying, analyzing, interpreting and communicating information to managers to help achieve business objectives.
e) Accounting standards
The accounting standard is a common collection of principles, guidelines and procedures that form the basis of the policies and processes for financial accounting. Accounting practices boost Financial Accounting clarity in both countries.
f) Financial accounting system
Accounting is the method of bookkeeping involved in drawing up a financial record of business transactions and preparing statements about a business' assets, liabilities and operating results. The programs that holds such financial records is called the accounting system.
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