Question $2$

Part A

Mrs$.$ Shine was registered in Jamaica as a sole trader in $2015.$ To grow her practice Mrs$.$ Shine

decided to enter into a partnership agreement with Mr$.$ Rain, thus the status of the business was

changed in $2021.$

In $2022,$ the partnership income statement for Shine & Rain was as follows:

Income Statement for the year ended $31$ December $2022$

$ $

Revenue $11,600,000$

Expenses

Salaries & Wages $7,600,000$

Employer NIS Contribution $1,400,000$

Rent and Rates $2\mathrm{.}400,000$

Interest $500,000$

Maintenance $120,000$

Depreciation $550,000$

Loss on Disposal of Vehicle $80,000$

Telephone $235,000$

Electricity $255,000$

General Expenses $700,000$

Donations $85,000$

Provision for Bad Debts $80,000$

Fines and Penalties $115,000$

Drawings $105,00014,225,000$

Net Loss

$2,625,000$

Notes to the Income Statement

$1.$ $$55,000$ of the drawings relate to Mrs$.$ Shine and $$50,000$ to Mr$.$ Rain

$2.$ Gross Salary for Mrs$.$ Shine was $$250,000$ per month, and $$200,000$ for Mr$.$ Rain. Both

partners worked in the business during the year.

$3.$ The annual allowance was $$450,000.$

$4.$ The partners agreed to dispose of an old pick$-$up truck with a net book value of $$350,000$

for $$400,000.$ The pick$-$up had a tax written down value of $$300,000.$

$5.$ Donations of $$60,000$ were made to a local political party to fund its campaign. The

remainder was donated to an approved local children$$s home.

$6.$ The partners could not determine if all their clients would be able to settle their bills on

time so a general provision of $$60,000$ was made to cushion the effect of the any debt

going bad. The balance related to a particular client that had gone bankrupt, which the

firm was unable to collect after several attempts.

$7.$ Fines and Penalties include traffic offences of $$5,000$ and penalties of $$10,000$ for nonfiling of VAT returns for the period January $$ March $2022.$

$8.$ Interest accrued was $$50,000$ for the year.

$9.$ The partnership agreement stated that the partners are to share profit and loss in the ratio

$60$:$40($ Shine $60\%$ and Rain $40\%)$

$10.$ Mrs$.$ Shine is a director for a local company and receives net emoluments of $$2,250,000$

per annum; PAYE of $$750,000$ was deducted.

$11.$ During the year Mrs$.$ Shine rented his private dwelling for $$150,000$ per month for $8$

months. He also received gross income from teaching law at a university of $$6,000,000$

per year.

$12.$ The partners each paid estimated obligations of $$20,000$ per quarter on March $15,$ June

$15,$ September $15,$ and December $15.$

$13.$ Mr$.$ Rain received interest income from his financial institution of $$150,000$ for the year.

Mrs$.$ Shine received an interest income of $$75,000.$

$14.$ PAYE deducted from Mrs$.$ Shine salary from the practice was $$352,476$ and

$$109,476$ for Mr$.$ Rain.

$15.$ The partners both invested $$5,000,000$ in the business. The interest rate agreed on capital

invested was $8\%.$

$16.$ NIS for Mr$.$ Rain was $$240,00$ and Mrs$.$ Shine was $$210,000.$

Required

i$.$ Compute that income tax payable$/$refundable for each partner for $2022.$ Other

Contributions payable is not required.

ii$.$ Explain to the partners their tax filing requirements for $2022$

iii. Mrs$.$ Shine met in a motor vehicle accident and died in January $2024.$ Mr$.$ Rain asked for

your professional consultation on the partnership as a going concern. Please advise

discussed.

ii$.$ What is the tax implication if the employment is one of contract of service rather than

contract for services?