Tax305 Taxation- Computation Of Partnership Assessment Answers
Mary Burns and Sally Brown are adult Australian residents. On 1 July 2003 they formed a partnership called ‘The Two B’s’ to run a sports supply business. The partnership supplies clothing and equipment to mining companies in Australia. The business is registered for GST.
The partnership accounts for the business for the year ending 30 June 2017 disclose the following financial details:
The following receipts and expenses are exclusive of GST unless otherwise stated.
Receipts
Gross trading receipts 1,900,000
Capital gain from sale of shares held in an Australian internet company 20,000
Cash dividend from BHP 10,500
See note (iii) below
Interest income from Bank of China 11,250
See note (iv) below
Expenses
Salary to Mary 40,000
Interest on loan of funds by Mary 10,000
Salaries paid to employees 250,000
Rent and power 60,000
Purchase of trading stock (see note (v) below) 320,000
Superannuation to staff 85,500
Superannuation paid on behalf of Mary 25,000
Superannuation paid on behalf of Sally 25,000
Purchase of BMW motor vehicle for Mary (see note (vi) below) 120,000
Purchase of treadmill and exercise bikes (see note (vii) below) 180,000
Interest on bank overdraft 18,623
Provision for long service leave (see note (viii) below) 25,984
Provision for bad debts (see note (ix) below) 67,000
Notes - additional information in respect of the partnership.
Market value $560,000
Cost $490,000
Replacement value $546,000
Required:
Answers
1. Computation of Partnership Income
| Statement showing Calcuation of Income from Partnership | |||
| For the year ended 30 June 2017 | |||
| Particulars | Sections | Amount ($) | Amount ($) |
| Gross Trading Receipts | Section 6-5 of ITAA 1997 | 1900000 | |
|
Capital Gains from sale of shares
| 20000 | ||
|
Unfranked Portion of Dividend
| 7350 | ||
|
Interest Income from bank of china
| 11250 | ||
|
Gross Total Income
| 1938600 | ||
|
Expenses eligible as deduction:
| |||
| Salary to Mary | 40000 | ||
| Interest on loan of funds by Mary | Section 8-1 of ITAA 1997 | 10000 | |
|
Salaries to Employees
| 250000 | ||
| Rent and Power | Section 8-1 of ITAA 1997 | 60000 | |
| Superannuation to staff | Section 8-1 of ITAA 1997 | 85500 | |
| Superannuation paid on behalf of mary | Section 8-1 of ITAA 1997 | 25000 | |
| Superannuation paid on behalf of sally | Section 8-1 of ITAA 1997 | 25000 | |
| Purchase of Motor Vehicle | Section 8-1 of ITAA 1997 | 120000 | |
| Purchase of treadmill and exercise bikes | Section 8-1 of ITAA 1997 | 180000 | |
| Interest on bank overdraft | Section 8-1 of ITAA 1997 | 18623 | |
| Long service leave (Paid out) | Section 8-1 of ITAA 1997 | 13507 | |
| Bad Debts Written off | Section 8-1 of ITAA 1997 | 36849 | |
|
Cost of goods sold (Opening stock + purchases) – (Closing stock)
| 200000 | ||
|
GrossTotal Expenditure from partnership business
| 1064479 | ||
|
Less: Interest withheld
| 1250 | ||
|
Less: Franking Credits
| 3150 | ||
|
Net income of the partnership in the income year
| 869721 | ||
| Computations of Taxable income of Mary | |||
| For the year ended 30 June 2017 | |||
| Particulars | Sections | Amount ($) | Amount ($) |
|
Assessable Income
| |||
| Gross Salary | Section 6-5 of the ITAA 1997 | 30000 | |
| Less: PayG | 9000 | 21000 | |
|
Australian sourced Interest Income
| 5000 | ||
|
Australian Sourced Rental Income
| 10000 | ||
|
Australian Sourced Dividend Income
| |||
|
Fully Franked (Net)
| 4900 | ||
|
Gross up Franking Credits
| 2100 | 7000 | |
| Other Income | |||
|
Refund of medical expenses
| 2000 | ||
|
Total Assessable Income
| 45000 | ||
|
Allowable Deductions
| |||
| Rates on Family Home |
Section 8-1 of the ITAA 1997
| 1200 | |
| Electricity for family home |
Section 8-1 of the ITAA 1997
| 900 | |
| Tax agent fees |
Section 8-1 of the ITAA 1997
| 300 | |
| Rates from Investment Property |
Section 8-1 of the ITAA 1997
| 2000 | |
|
Cost of repairing roof tiles
| 1000 | ||
|
Medical Expense for Mary
| 5000 | ||
|
Less: Refund by Government
| 2000 | 3000 | |
|
Total Allowable deductions
| 8400 | ||
|
Total taxable Income
| 36600 | ||
|
Tax on taxable income
| 3496 | ||
|
Add: Medicare Levy
| 732 | ||
|
Less: Franking Credit
| 2100 | ||
|
Total Tax Payable
| 2128 | ||
Bibliography:
Brokelind, C. (2014). Principles of law. Amsterdam: IBFD.
Grange, J., Jover-Ledesma, G. and Maydew, G. (n.d.). 2014 principles of business taxation.
Jover-Ledesma, G. (2014). Principles of business taxation 2015. [Place of publication not identified]: Cch Incorporated.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W. and Ting, A. (n.d.). Principles of taxation law 2014.
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