Question

QUESTION 3

Gecko Pty Ltd (Gecko) is a private company. The following transactions took place for the year ended 30 June 2020:

• Gecko paid income tax of $60,000 for the year ended 30 June 2019.
• Gecko had a dispute with the Commissioner and the Commissioner refunded income tax of $20,000 on 20 May 2020.
• Gecko paid it’s GST of $5,000 for the March quarter on 10 April 2020.
• Gecko paid a partially franked dividend at 70% with a distribution of $8,000.

You can assume that Gecko is not a base rate entity.

REQUIRED

Explain the impact of each of the above transactions on Gecko’s franking account.

Make sure you explain your answer.

Answer 1

Effect of the transactions are:

1. Income tax of $60,000 represents an expense for the company. Hence, it would be deducted from the revenues in the income statement of the company.

2. The refund of income tax of $20,000 represents a reduction in the expense f the company. Therefore, it would be added to the net income of the company.

3. The payment of GST of $5,000 would be a deduction from the revenues of the company. As it is an expense for the company, it would reduce the amount of net income.

4. Payment of dividend is not an expense of the company therefore, it would not affect the income statement of the company. But it affects the balancesheet of the comppany.