McLEAN AND CO.

 
 
EMAIL NEWSLETTER JUNE 2003
 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  Any feedback would be welcomed.

McLean and Co. has installed Norton Antivirus software to minimise risk of virus transmission in the provision of this service.

McLean and Co. is a home based chartered accountancy practice based in Clive, Hawkes Bay.    Readers are invited to peruse the practice website www.mcleanandco.co.nz,  which lists services provided, gives contact details and indicates how to become a client, contains an extensive base of articles on business and taxation matters,  and has links to other websites that may assist your business.    Being a small firm itself,   McLean and Co. strives to provide a personal and professional service largely to a self employed person and small business client base.  Enquiries are welcomed.

INDEX

  1. Relevant Business and Taxation Articles

  2. Student Loans- Paying them off faster

  3. Salary and Wages Earners- Who have to contact IRD for their 2003 Income Tax Returns?

  4. Child Support Changes

  5. Depreciation of Fixed Assets   

  6. Pricing your Product or Service.

 

RELEVANT BUSINESS AND TAXATION ARTICLES

The McLean and Co. website contains an extensive number of articles prepared by McLean and Co. relating to taxation and business matters.    Here are a selection that will be of interest:

 
NEW CLIENTS

We are happy to accept new clients.  Please contact ourselves at the contact points highlighted above if we can assist you in your accounting and taxation requirements. Our website lists information required for this in the following link:

 

STUDENT LOANS- PAYING THEM OFF FASTER

The following site has a Student Loan Calculator to indicate how quicker Student Loans can be paid off with extra payments.

 http://www.owezero.org.nz/

 

SALARY AND WAGE EARNERS- WHO HAVE TO CONTACT IRD FOR THEIR 2003 INCOME TAX RETURNS?

Most salary and wage earners don't need a Personal Tax Summary. So if you are not included in either of the following lists, and we haven't contacted you, relax - there's no need to get in touch with us.

Who must contact IRD

Who should contact IRD
You will need to contact IRD if:
  • You received income between $38,000 and $60,000 with more than $200 of interest taxed at less than 33%.
  • Your total income was over $60,000 with more than $200 of interest or dividends taxed at less than 39%.
  • You paid child support through Inland Revenue and received more than $200 in interest or dividends.
  • You have a Student Loan, earned over $15,496 and received more than $200 in interest or dividends.
If any of these apply to you, in the tax year ended 31 March 2003 request a Personal Tax Summary online from the 1 July 2003.		 There are some people who should contact IRD, because they may get a refund. You should contact us if:
  • You are able to get a low income rebate for example - the child rebate and/or received less than $9,880 in salary and wages.
  • You received less than $38,000 and were paid dividends.
  • You had more than one job during the year.
  • You didn't work a full income year.
  • You are able to deduct expenses from your income.
If any of these apply to you, in the tax year ended 31 March 2003 use the Personal Tax Summary calculator to check if you are due a refund.

 

CHILD SUPPORT CHANGES

Two child support changes took effect from the start of the child support year, 1 April 2003.

The first change increased the minimum amount non-custodial parents are required to pay to financially support their children from $663 a year, to $677.   Even if the paying parent does not receive any income, they are still required to pay a minimum amount to financially assist the rasing of their children.

The highest taxable income IRD use is based on 2.5 times the average New Zealans income. This has been increased from $86,684 to $90,823.

The first payment based on the new assesments is due on 20 May 2003.  All customers were advised in February and March this year about their new assessments. 

 

DEPRECIATION OF FIXED ASSETS

Depreciation is the term applied to the permanent reduction in value of a fixed asset and it arises in connection with all fixed assets (except for land) for the following reasons:

  •  
 Normal usage or wear and tear
  •  
 Obsolescence, caused by a more modern and more efficient machine becoming available
  •  
 Passage of time.
Depreciation is a means of allocating the cost of a fixed asset over its estimated useful life.   The cost must be spread over the years of the assets useful life and this cost is charged against the income earned in all accounting periods between the purchase and the sale of the asset. 

Depreciation is essentially an estimate.   Its assessment is based on several factors which cannot be measured with any degree of certainty.   To decide on a depreciation policy an Accountant must estimate the approximate life on the asset and also make allowance for the residual value (i.e. the amount that will be received when the asset is eventually disposed of. 

It should be decided as to whether the loss should be shared evenly in each year, or whether in some years the asset is used more than others.   As such there are two main depreciation methods:

  •  
 Fixed Instalment Method.   Depreciation is calculated at a fixed rate on the cost price of the asset.
  •  
 Diminishing Value Method.   Depreciation is based on the book or written down value (which is the original cost less all accumulated depreciation to date).   One of the advantages of this method is that it automatically makes allowance for residual vale, as the amount of depreciation becomes smaller each year and the asset is never completely written off.
Assets are recorded in the Balance Sheet at their written down value.   It is wrong to regard balance sheet figures for fixed assets as representing their realisable value, as this may not be the case.

 

PRICING YOUR PRODUCT OR SERVICE

The primary goal of business is to make a profit.  But many  businesses fail to do so because they don't know how to effectively price their products or services. Pricing is a pivotal element in achieving a profit and is one factor that businesses can control.

Before setting prices, you must understand your service or product's market, distribution costs, and competition. Remember that the marketplace responds rapidly to technological advances and international competition so you'll constantly be keeping abreast of the factors that affect pricing, being ready to quickly adjust.


Retail Costs And Pricing:

 A common pricing practice among businesses is to follow the manufacturer's suggested retail prices. Though suggested retail pricing is easy to use, it may be problematic. Merely pricing the product or service in this way may either create an undesirable price image, or not be mindful of the competition.


Competitive Position:

Another pricing strategy takes a little more research and business management ability. Consider who your competition really is (another business) and set your pricing accordingly. Don't try to compete with a larger company's pricing, Why? Large firms buy and contract in large volumes and with a broader customer base so their cost per unit or an increment of time will be less. Instead, highlight other factors, like customer service. Customers will often pay more for a good or service if they get courteous, prompt and personal service. Make it a goal to be a friend to all your customers so that they feel like a name, not a number.


Pricing Below Competition:

Let's say you want to hit the pricing issue head on regardless of the giants in the marketplace. Many shrewd vendors have been quite successful using this pricing strategy. Since this angle reduces the profit margin per sale, your  business should reduce its costs only if you can fulfill other factors. These include obtaining the best prices possible for the merchandise, locating the business in an inexpensive location or facility, closely controlling stock; limiting your lines to fast moving items. If you're going to "price at the lower end of the market," it also makes sense to design advertising to concentrate on "price specials" and to keep special service to a minimum. Remember that time is money.


Pricing Above the Competition:

This strategy is always any business owner’s dream and occurs when price is not the customers' greatest concern. You can concentrate on developing a loyal network of buyers. What considerations are important enough for customers to justify paying higher prices? These include service pluses such as delivery, speed of service, satisfaction in handling customer complaints, knowledge of product or service, and, above all, helpful and friendly employees. Also consider the most convenient location. Also keep in mind the pull of exclusive merchandise that you have advertised.

 
Service, Material and Labour Cost Components:

Materials, labour, and overhead make up the total cost of any product or service whatever your business. This is the cost of materials found in the final product. For example, the wood and other materials used in the manufacturing of a chair are direct materials. Needless to say, labour is the cost of the work that goes into the manufacturing of a product. The direct labour costs are derived from multiplying the cost of labour per hour by the number of hours needed to complete the job. Remember to use not only the hourly wage, but also include other employee costs you have to incur such as ACC Levies, holiday pay and any other employee benefits.


Overhead Costs:

Any costs not readily identifiable with a particular product or service should be considered overhead. These include repairs and maintenance, heat and light, depreciation, insurance, administration wages, accounting and legal services,  rent, advertising, bank charges, interest and transportation are also overhead costs.   

 
Your pricing structure and policy are major components of your public image and are crucial to securing and keeping your clientele. Cost, plus operating expenses, plus desired profit, equals the price of the good or service you sell. The key to success in a business is to have a well-planned strategy. Establish your policies and constantly monitor prices and operating costs to insure profit. Accuracy increases profits!

If we can assist further, please email McLean and Co as follows:

 CONTACT McLEAN AND CO. BY EMAIL BY CLICKING ON THIS LINK

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