Taxation Assignment Essay

1742 Words Sep 19th, 2013 7 Pages
PART A

Identify the essential issues in the Question

Bill and Ben Reticulations Pty Ltd had entered into a contract with the Port Cricket Club worth $15,000. The contract was to replace the drainage system for the play ground of the Port Cricket Club. However, shortly after entering the contract, the Port Cricket Club had decided to sell its current play ground in order buy a new and better play ground with better facilities. Furthermore, the decision taken by the cricket club was before the company, Bill and Ben Reticulations Pty Ltd, had done any work under the contract. After negotiation both parties decided that the contract can be released only if Port Cricket Club pays $6,000 to Ben & Bill Reticulation Pty Ltd. The main issue
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The contract is only worth $15,000 and for a company like Bill and Ben Reticulation Pty Ltd only their assets would be worth more than $15,000. The company can afford even if there are no compensation payments for cancellation. Furthermore, Bill and Ben Reticulation had not done anything under the contract when the contract was cancelled by the Club. So, when Bill and Ben have no spent anything under the contract, how can this affect the structure of the company? Even if, Ben and Bill had bought the equipments for the new contract with the Cricket Club to fix their drainage system, those equipments and tools are its capital assets, after all it’s a reticulation company. It also does not cost to find a new customer. For instance, the cricket club sold its current play ground to buy a better play ground and whoever bought that play ground would still get the drainage system fixed. Ben and Bill can still use the tools and equipments they bought for the contract under the Port Cricket Club. The company was not run out of business by the cancellation of the contract with the club.

As already mentioned, Bill and Ben Reticulation Pty Ltd can still deal with other companies. And even if the contract was not cancelled between Bill & Ben and the Cricket Club, the company should not only rely on one contract. It is evident that the source of income from the contract with the Cricket Club was not only source for Bill & Ben Reticulation Pty

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