Question

1. Given the information provided below, perform your own calculations to show the amount of corporate tax paid for each of the four (4) fiscal years covered in the table above.
2. Is there a pattern? Explain the pattern and what it may suggest about the future performance of the organization. How can this conclusion advise investors and organizational decision makers?
3. If there was a 20% reduction in the Gross Profit for fiscal year 6/12 - 5/13, how might this have changed the gross profit expectations for the 6/13 - 5/14 fiscal year? Provide rationale.
4. Calculate the total expected taxes that would have been paid for these two fiscal years, with the 20% reduction in 6/12 - 5/13 and the resultant expected change in the 6/13 - 5/14 gross profit.

Account	Balance ($)
0 to 50,000	15%
50,000 to 75,000	$7,500 + 25% of the amount over 50,000
75,000 to 100,000	$13,750 + 34% of the amount over 75,000
100,000 to 335,000	$22,250 + 39% of the amount over 100,000
335,000 to 10,000,000	$113,900 + 34% of the amount over 335,000
10,000,000 to 15,000,000	$3,400,000 + 35% of the amount over 10,000,000
15,000,000 to 18,333,333	$5,150,000 + 38% of the amount over 15,000,000
18,333,333 and up	35%

Fiscal Year	Gross Profit ($)
June, 2009 - May, 2010	261,100
June, 2011 - May, 2012	277,500
June, 2012 - May, 2013	292,000
June, 2013 - May, 2014	300,900

Answer 1

Ans:

1)

Computation of Income Tax
Particulars		5/2010	5/2012	5/2013	5/2014
Profits		261,100	277,500	292,000	300,900
Tax
0 to 50,000	15%	7500	7500	7500	7500
50,000 to 75,000	$7,500 + 25% of the amount over 50,000	6250	6250	6250	6250
75,000 to 100,000	$13,750 + 34% of the amount over 75,000	8500	8500	8500	8500
100,000 to 335,000	$22,250 + 39% of the amount over 100,000	62829	69225	74880	78351
Total tax		85079	91475	97130	100601
Increase in Profit			16,400	14,500	8,900

There is an increase in the profit with decreasing rate which indicates the company is in Maturity stage of life cycle after achieving the highest sale the company sales started to decline and the profit start to fall. So the Investor in the business and organisational decision maker to take decision as per the stages in Product life cycle.

2)

Computation of Income Tax
Particulars			5/2013
Profits			292,000
Gross Profit after decline			233600
Tax
0 to 50,000	15%		7500
50,000 to 75,000	$7,500 + 25% of the amount over 50,000		6250
75,000 to 100,000	$13,750 + 34% of the amount over 75,000		8500
100,000 to 335,000	$22,250 + 39% of the amount over 100,000		52104
Total tax			74354

This shows that the company reached the declining stage of the life cycle where the sales of the company started to decline the cost start to increase. So in the next fiscal year the gross profit is started to decline with increasing stage until the closure of the business.