Question
John and Alice are in a partnership as retailers of electrical goods. The partnership records, exclusive of GST, for this income year disclose: Receipts ($):
John and Alice are in a partnership as retailers of electrical goods. The partnership records, exclusive of GST, for this income year disclose:
Receipts ($): | |
300,000 | Gross receipts from trading |
Payments ($): | |
100,000 | Purchases of trading stocks |
30,000 | Partners' salaries (each) |
2,000 | Interest on cash advance made to the partnership by John |
60,000 | Salaries for employees and rent paid |
2,000 | Legal expenses in recovering bad debts |
Other details:
-
John and Alice share partnership profits equally
-
Trading stock on hand 1 July: $10,000
-
Trading stock on hand 30 June: $20,000
-
John's personal records disclose:
-
Gambling winnings: $2,000
-
Net salary as a part-time instructor (excluding PAYG tax instalments of $2,000): $5,000
-
Subscription to professional journals: $500
-
John is a member of a private health fund.
Calculate John's taxable income for the income year explaining your treatment of each item in this question.
Solution:
(1) Net income of the partnership:
| $ |
Assessable income: | |
sales: s 6-5 ITAA97 |
|
excess of closing trading stock over opening stock: s 70-35 ITAA97 |
|
Deductions: | |
- purchases of trading stock: s 8-1 ITAA97 |
|
- partners salaries: not deductible: Scott |
|
- interest on cash advance: s 8-1 ITAA97 |
|
- employee salaries & rent: s 8-1 ITAA97 |
|
- bad debt recovery expense: s 8-1 ITAA97 |
|
Net income of partnership | = |
The amount available for distribution is $................. (being, the net income of the partnership of $................ less salary paid to John and Alice of $................).
(2) Johns taxable income:
| $ |
Assessable income: | |
share of partnerships net income ($86,000 x 50%): s 92 ITAA36 |
|
partners salary |
|
interest on cash advance: s 6-5 ITAA97 |
|
gambling win: not ordinary income |
|
salary as part-time instructor: s 6-5 ITAA97 |
|
Deductions: | |
- professional journals: s 8-1 ITAA97 |
|
Taxable income | = |
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