Question

QUESTION 1: DIFFERENCE BETWEEN CAPITAL AND REVENUE EXPENDITURE Weighting Identification of material facts (issues) regarding John’s prepaid rent. 2% Identification and analysis of legal issues / legal question and relevant taxation law in regards to casino’s rental (e.g. ITAA 1936 and ITAA 1997). 2% Thorough yet succinct application of tax law (e.g. ITAA 1936 and ITAA 1997) to material facts in John’s case. 2% Detailed and accurate identification of the lump sum rental payment are reached. 3% Correct information and taxation law have been used and properly cited. A detailed analysis has been performed. 3% Ability to show excellent understanding of the cases and/or section of legislation, its context and application of taxation law. 3% HI6028 Taxation Theory, Practice and Law Individual Assignment T1.2020 2 QUESTION 1 TOTAL MARKS: 15 % QUESTION 2: TRAVELLING BETWEEN TWO PLACES OF WORK Weighting Identification of material facts regarding the deductibility of Alex’s travelling expenses discussed in the assignment question. 1% Identification and analysis of legal issues / legal question and relevant taxation law. 2% Thorough yet succinct application of ITAA 1997 to material facts. 2% Detailed and accurate conclusions are reached from the scenario discussion. 1% Correct information and taxation law have been used and properly cited. A detailed analysis has been performed. 2% Students are able to demonstrate understanding of the cases and/or section of legislation, its context and application of taxation law. 2% QUESTION 2 TOTAL MARKS: 10 % Assignments’ Instructions and Requirements QUESTION 1- John has applied and been approved a licence to operate a casino in Melbourne, which later on he named it The Casino East. John has received 10-year licence from Victorian Government to operate the casino. He also received approval for Casino’s building for a long period of time (90 years). John was instructed by the relevant Government agency to pay $180 million for the approved casino’s licence and $80 million as prepaid rent covering the first 10 years of casino’s rental. John has negotiated to pay $400,000 rental per year for the remaining 80 years of the lease. With reference to relevant legislation and case law discuss whether casinos prepaid rent is considered a revenue expense or a capital expense.

Answer 1

Capital expense are those expense which are made either to buy and add new asset or reduce the long term liabilities,where as revenue expense are those who do not effect assset and liability status.

as prepaid rent donot increase or decrease any asset or liability but part of revenue expense incurred in advance

therefore, prepaid rent is revenue expense.

but here as it is more than one year or say over long period ,i.e. for 10 years therefore prepaid rent is treated as capital expense or capatilized.

so prepaid rent here is capital expenditure.