The paper “ Corporate Accounting in Australia” is an affecting variant of an assignment on finance & accounting. Payments that have been received for services that are to be rendered in the future do not have to be recognized until earned: Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314 (Julie, 2007). The taxpayer company provided dancing lessons for payment. Customers paid for dancing lessons in advance, and a discount was given for advance payment. Legally, these payments are non-refundable; though in practice sometimes refunds may be given. The taxpayer company deposited the money in an unearned deposits-Untaught Lessons account and did not bring them to account until the lessons paid for had been taught.
The tax commissioner assessment was based on the fact that advance payment was made, and brought to account. The following issues were raised in the case. The payments had not accrued even though they had been paid to the taxpayer. This was investigated by finding out whether the transaction was sufficient by itself to satisfy the general understanding among practical business people of what constitutes a derivation of income (97/23, 1953) In a case like the present the circumstances of the receipt do not prevent the amount received from becoming immediately the beneficial property of the company; for the fact that it has been paid in advance is not enough to affect it with any trust or charge, or to place any legal impediment in the way of the recipient’ s dealing with it as he will.
Nevertheless, the recipient should treat each amount of fees received but not yet earned as subject to a contingency that the whole or some part of it may have in effect to be paid back, even if only as damages, should the agreed quid pro quo not be rendered in due course (2004/193, 2004). However, the possibility of making that payment back depends on the characteristics of the receipt itself.
In conclusion, it would be unrealistic, while the possibility remains that the amount received has a quality of income derived by the company, as it agrees with the accountancy and commercial principles in the community. Part A (ii)(a). RIP Pty Ltd, derived income generally in Funeral Plan No 1 because the services were prepaid and the payment was both contractual and in practice non-refundable.
On the other hand, RIP Pty Ltd, derived income in Funeral Plan No 1, because the income is recognized on an accruals basis is ordinarily derived when the taxpayer has done everything necessary to become entitled to payment, regardless of when payment is due but provided it is non-contingent. (b). Yes. In Funeral Plan No 1, the contractual principles and non-refundable of the payment, is referred in Arthur Murray’ s case where the number of fees received but not yet earned is subject to a contingency that the whole or some part of it may have in effect to be paid back, even if only as damages, should the agreed quid pro quo (2004/193, 2004) not be rendered in due course. (c).
Yes. For this case, the payment had accrued and so the commissioner or the taxpayer have to choose the accruals basis of accounting as the appropriate method of accounting for the income in RIP Pty Ltd company business (Stephen, Cameron, John, & Neil, 2010).
Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314
Court of Appeal: Lord Green MR, Mackinnon, and Dn Parcq LJJ
FC of TV Suttons Motors (Chullora) Wholesale Pty Ltd 85 ATC 4398; (1985) 157 CLR 277 case Full High Court: Barwick CJ, Kitto & Taylor JJ: CLR 320
2004/193, A. I. (2004). Australian Government, Taxation Legal Database. Retrieved September 01, 2011, from ATO Interpretative Decision: http://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2004193/00001
97/23, T. R. (1953). Australian Government Taxation office. Retrieved September 01, 2011, from the Australian Legal Database: http://law.ato.gov.au/atolaw/view.htm?locid='FOI/1013884P'&PiT=99991231235958
Julie, C. (2007). Concise Income Tax; 4th Edition. Leichhardt, NSW: The Federation Press.
Ron, D., Graeme, W., & Cecilia, L. (2007). Corporate Accounting in Australia. Sydney: University of NSW Press Ltd.
Stephen, B., Cameron, R., John, B., & Neil, B. (2010). Australian Tax Casebook. Australia: McPherson’s Printing Group.
Investopedia News and Articles. (2011). Retrieved September 15, 2011, from Tax Liability: