Brick & Stone

Notes to the Income Statement

1. The Cost of Sales includes goods valuing $250,000 that were purchased for Mr. Stones personal use.
2. Salaries and Wages include $25,000 per month, and $20,000 per month, paid to Mr. Stone and Mr. Brick respectively.
3. $65,000 of the rent relates to the private dwelling of Mr. Bricks wife.
4. The rates of depreciation on the fixed assets of the business are below those given in the Wear and Tear Schedule of the Income Tax Act. The Wear and Tear allowance total 35 % of qualifying assets valuing $300,000.
5. The partners agreed to dispose of an old pick-up truck with a net book value of $35,000 for $25,000. The pick-up had a tax written down value of $30,000
6. The telephone expense includes 20% for private calls made from Mr. Stones cellular phone.
7. The electricity relates to the private dwelling of Mr. Brick.
8. Entertainment expenses relate solely for the promotion of the business to new and prospective customers.
9. Donations of $60,000 were made to a local political party to fund its campaign. The remainder was donated to an approved local childrens home.
10. The partners could not determine if all of the customers would be able to settle their bills on time so a general provision of $80,000 was made to cushion the effect of the any debt going bad.
11. Fines and Penalties include traffic offences of $5,000 and penalties $10,000 for non filing of VAT returns for the period January March 2014.

Note that the business was owned sole by Mr. Brick and registered in Trinidad and Tobago as a Sole Trading business in 2009. However, through continuous growth, Mr. Brick decided to enter into a partnership agreement with Mr. Stone, thus the status of the business was changed in 2014.

The partnership agreement stated that the partners are to share profit and loss in the ratio 45:55

Brick and Stone

Additional Information

• Mr. Stone is a director for a local company and receives gross emoluments of $250,000 per annum; payroll taxes amounted to $15,000 and are deemed to be correct.
• Personal allowance is $60,000 per individual
• Income Tax rate is 25%.
• Mr. Brick rents his private dwelling for $15,000 per month for 8 months with effect from May 1, 2015.
• The partners each paid estimated obligations of $10,000 per quarter on March 31, June 30, September 30, and December 31.

1. Compute that tax liability of both partners (4 marks)

2. Brick met in a motor vehicle accident and died January 1, 2017. Stone asked for your professional consultation on the business as a going concern. What would your consultation to Mr. Stone be? (3 marks)

Income Statement for the year ended 31 December 2016 Notes Sales Cost of Sales Gross Profit 2,500,000 1,100,000 1,400,000 Expenses Salaries & Wages Employer NIS Contribution Rent and Rates Insurance Maintenance Depreciation Loss on Disposal of Vehicle Telephone Electricity Utilities Entertainment Donations Provision for Bad Debts Fines and Penalties Drawings 760,000 2,400 240,000 50,000 120,000 55,000 10,000 35,000 54,000 70,000 100,000 85,000 80,000 15,000 105.000 1,781,400 Net Profit/ (Loss) (381,400)