Posted: May 31st, 2016

Question 2 (10 marks) Rubber Co manufactures tennis balls. On 1 January 2010, Rubber Co purchased a new machine for $1.1m (inclusive of GST) which it used to produce the tin cans in which its tennis balls were placed for sale to retailers. At the time of acquiring the machine , Rubber Co estimated that the machine would have an effective life of 10 years before it needed to be replaced. Subsequently, on 1 January 2014, as a result of new technology, a better quality machine became available and Rubber Co decided to sell the original machine for $330,000 (inclusive of GST) and purchase a new machine for $2.2m (inclusive of GST). Requirement: What are the tax consequences of these arrangements under Div 40ITAA97?

Question 2 (10 marks)
Rubber Co manufactures tennis balls. On 1 January 2010, Rubber Co purchased a
new machine for $1.1m (inclusive of GST) which it used to produce the tin cans in
which its tennis balls were placed for sale to retailers. At the time of acquiring the
machine , Rubber Co estimated that the machine would have an effective life of 10
years before it needed to be replaced. Subsequently, on 1 January 2014, as a result
of new technology, a better quality machine became available and Rubber Co
decided to sell the original machine for $330,000 (inclusive of GST) and purchase a
new machine for $2.2m (inclusive of GST).
Requirement:
What are the tax consequences of these arrangements under Div 40ITAA97?