(a) Felicity and John operate a travel agency in partnership. The partnership agreement provides that John is to be paid a salary of $20,000. Interest is payable on capital accounts and any residual profit or loss is to be shared in the proportions of 60% to John and 40% to Felicity. Losses of the partnership are shared equally. Felicity and John inform you of the following in relation to the partnership during the 2014/15-income year. The travel agency earned $110,000 and expense attributable to the business totaled $80,000. The following amounts have been included in the $80,000 expenses they considered attributable to the business: The partnership paid Felicity $3,000 and John $5,000 as interest on their capital accounts in accordance with the partnership agreement. A salary of $20,000 was paid to John in accordance with the partnership agreement. Required: i. Calculate net partnership income for the year ended 30 June 2015. Explain how you arrived at your answer. ii. Prepare a distribution to partners for the year ended 30 June 2015.

(b) Yin and Yang are considering the purchase of three apartments on the Sunshine coast as joint tenants (ownership shared equally). They have come to you for advice. They would like to know if they could have a partnership agreement written up so that all losses of the partnership were borne by Yin as he earns a significant amount of income from his salaried employment. The profits they propose to share equally. Advise them if such an agreement would be tax effective.