Dan wishes to purchase an apartment from which he can collect rent before making profit on the sale of the property in three years’ time. He intends to buy the property in July 2022 and sell it in July 2025. He has determined that he can afford to purchase a three-bedroom apartment costing $480,000 and has identified two suitable alternatives as follows; Address of property 1 Single St, Brisbane 32 Pam Ave, Brisbane Purchase price (including stamp duty & legal costs) $580,000 $580,000 Construction date built in 1971 built in 2001 Construction cost $47,000 $230,000 Depreciable assets (fillings) $7,000 $29,000 Remaining effective life (use Prime cost) 4 years 10 years Annual maintenance fees $4,500 $4,500 Annual council & water rates $3,000 $3,000 Annual interest on $400,000 mortgage $24,000 $24,000 Annual rental income $31,000 $31,000 Expected selling price in July 2025 $700,000 $700,000 In each case, the values of the fillings and construction costs have been verified by certified valuer. Required For each property advise Dan on following: a) Provide an estimate of annual net rental income or loss b) Provide an estimate of the net capital gain on sale in July 2025 c) Which property will minimise Dan’s total taxable income from the investment?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Dan wishes to purchase an apartment from which he can collect rent before making profit on the sale of the property in three years’ time. He intends to buy the property in July 2022 and sell it in July 2025. He has determined that he can afford to purchase a three-bedroom apartment costing $480,000 and has identified two suitable alternatives as follows; Address of property 1 Single St, Brisbane 32 Pam Ave, Brisbane Purchase price (including stamp duty & legal costs) $580,000 $580,000 Construction date built in 1971 built in 2001 Construction cost $47,000 $230,000 Depreciable assets (fillings) $7,000 $29,000 Remaining effective life (use Prime cost) 4 years 10 years Annual maintenance fees $4,500 $4,500 Annual council & water rates $3,000 $3,000 Annual interest on $400,000 mortgage $24,000 $24,000 Annual rental income $31,000 $31,000 Expected selling price in July 2025 $700,000 $700,000 In each case, the values of the fillings and construction costs have been verified by certified valuer. Required For each property advise Dan on following: a) Provide an estimate of annual net rental income or loss b) Provide an estimate of the net capital gain on sale in July 2025 c) Which property will minimise Dan’s total taxable income from the investment?

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