ACCT3161ass3_1011_1st_Answer - THE CHINESE UNIVERSITY OF...

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THE CHINESE UNIVERSITY OF HONG KONG School of Accountancy ACCT 3161 – Taxation (1 st Term, 2010-2011) Assignment 3 Solution Question 1 The six badges of trade are r (i) Nature of the asset realised Assets may be bought for personal use or as an investment or for trading purpose. However, the nature of the assets and/or the quantity of transaction may suggest the only possible reason for purchase is to trade with them. Rutledge v C.I.R. (ii) Length of the period of ownership A short period of holding may indicate that the asset is purchased for resale. Turner v Last (iii) The frequency of similar transactions The whole essence of trade is to have a continuous stream of similar transactions. Hence the more transactions are the more likely there is a trade. This does not mean that an isolated transaction cannot be a trade itself. Leach v Pogson (iv) Work done on the asset awaiting sales There may be modification or processing in the asset so as to make it more attractive and marketable. In addition, if the purchaser forms some sort of organisation to secure the sale, such as hiring of agents, employment of staff or making advertisement, it may give a strong indication of trading . C.I.R. v Livingston and others (v) Circumstances that lead to realisation In most cases the circumstances leading to the disposal may be self-explanatory. Sometimes these circumstances may go back to the time when the asset was acquired. Realisation of an asset acquired by inheritance is more difficult to be determined as trading. Hudsons Bay Companv v Stevens The method of financing may have small indication of trade. A purchase financed by a loan which requires quick repayment may suggest the transaction is of trading nature. (vi) Profit-seeking Motive If it can be proved that an asset has been purchased and sold with the aim of making profit then it is enough to establish a trade may exist. However it is hard to establish there is a profit-seeking motive in most cases. Often it can be judged from other factors the intention behind the transaction.
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This note was uploaded on 02/04/2012 for the course ACCT 3161 taught by Professor Kwong during the Spring '11 term at CUHK.

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ACCT3161ass3_1011_1st_Answer - THE CHINESE UNIVERSITY OF...

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