Sporting World Pty Ltd is a rapidly evolving online retailer

Sporting World Pty Ltd is a rapidly evolving online retailer that  aims to dominate the speciality sporting goods and apparel market in Australia.

The company sells a variety of sporting goods, such as footballs, cricket gear, tennis racquets, golf clubs, basketballs, hockey sticks, swimming accessories as well as a variety of sports apparel, including clothes, shoes, swimming costumes, sports jerseys and t-shirts and shorts.

The company was recently founded in August 2019 by Lou Reed and Marvin Gaye, two long-time friends and business associates. Sporting World Pty Ltd is registered for GST. The company’s expected annual turnover is expected be approximately $12.9 million.

The company recently engaged a website developer, John Waite, to assist in developing their website and writing software code. John owns his own part-time web design company, Ace Web Design Pty Ltd.

On 1 January 2020, the domain name, http://www.sportingworld.com.au was registered. John pays for the website himself and then on-charges the cost of the website to Lou and Marvin on his invoice (see following page). The domain name is valid for two (2) years.

John designs the entire website for Lou and Marvin. The website will enable customers to search on-line product catalogues and contain a back-end stock database and a back-end customer database.

The website will also contain a shopping cart whereby customers will be able to order and buy sporting goods and apparel on-line and pay for these items via their credit card or PayPal.

John completed the website on 31 January 2020 and the website went “live” for the first time on this date to the general public.

On 31 January 2020, John provided Lou and Marvin with his invoice for the work undertaken. John’s web design company is not registered for GST, as Ace Web Design Pty Ltd’s annual turnover is less than $75,000. Hence, no GST was charged by John’s company.

A copy of John’s invoice is reproduced on the following page, showing the breakdown of each cost incurred in developing the website.

INVOICE:

    ACE WEB DESIGN PTY LTD                                                                                                              INVOICE
   17 Pioneer Street                                                                                                                        ABN: 17 108 607 184
   Holland Park, QLD, 4121.              

   TO:                                                                                  INVOICE NUMBER:                                             12
                                                                                               INVOICE DATE:                                 31 January 2020
   Mr Lou Reed and Mr Marvin Gaye
   Sporting World Pty Ltd                                
   28 Westminster Road
   Carindale, QLD, 4152.

1.    Domain name registration fee (2 years from 1 January 2020)                                                                   140
2.    Purchase of Squarespace web design computer software                                                                      1,760
3.    One-off cost paid to X-Mart to add an on-line shopping facility                                                              3,200
4.    Labour costs to design, write code and develop website ($100/hour x 80 hours)                                8,000
5.    Arranging web server hosting (being $200 per month) – January 2020 only                                             200
   
   Total amount owing:                                                                                                                                      $    13,300
 

   No GST has been charged as the company is not registered for GST.
   
   NETT: Payment due within 14 days.

QUESTION:

Purchase of Computer Software – $1,760

For each of the costs listed in John’s invoice on the previous page, please explain:

(i)        the accounting treatment; and

(ii)       the income tax treatment