QUESTION 3 - SBE, PARTNERSHIP NET INCOME/PARTNERSHIP LOSS, PARTNER

DISTRIBUTIONS

The Jaya Indonesian Restaurant is a partnership business (SBE) operated by Mr Jamal

Jaya and Mrs Juwita Jaya in Jacob Creek, Vic. The business is a fully licensed

restaurant including take-away food which opened on 1 July 2019.

The partnership agreement stipulates that profits are to be distributed 50/50.

The account balances of the partnership show the following income and expenses:

INCOME

Gross Sales $495,000

Other Receipt $20,000

EXPENSES

Purchases $190,100

Advertising $4,700

Electricity $3,800

Rent $14,200

Telephone $2,100

Depreciation. $6,500

Light lunches $1,500

Gift $900

Salary and wages $225,000

Doubtful debts $13,100

The following additional information is provided:

1.

Gross Sales - Jamal has calculated gross sales based on the cash and credit sales

having been received. However, debtors outstanding a mount to $20,000. It is

clear the appropriate system should be accruals for this small, trading business.

2.

Other Receipt The Victorian State Government provided a subsidy to assist

small businesses start-up of $20,000.

3.

Trading Stock, not mentioned above, was in the form of consumables. There

was no opening stock given a new business, and there was no trading stock at

year end as well, because Mr and Mrs Jaya had a special end of year 50% sale

to celebrate the business working for one year and their customer orders

cleared out all their consumable stock. 5

4.

Purchases, Advertising, Electricity, Rent, and Telephone were all regular

outlays to meet the continuous demand of operating the business.

5.

Depreciation related to plant and equipment that are depreciating assets used

solely for the partnership business, and the amount was calculated using

methods and rates equivalent to tax diminishing value and acceptable for tax

purposes for all tax entities.

6.

Light lunches were provided to limited number of staff at various times

throughout the year.

7.

Gift was a donation by the business to the local Mah Jong Society

8.

Salary and Wages included $125,000 paid to staff, $70,000 paid to Jamal who

worked full time in the business and 30,000 paid to Juwita who worked part

time in the business.

9.

Doubtful debts Jamal calculated that a deduction be allowed of 3% for the

provision for doubtful debts - to encourage sales, he had authorised several

them on credit, but found the customers were not paying in a timely manner.

REQUIRED

Question 3 Part 1

From the above, you are required to calculate the net income or partnership loss for

the income year ended 30 June 2020, giving the law and brief reasons to support your

calculation.

(11 marks)

Hint : use the following 3 column table in your answer

ITEM	LAW & REASONS	Assessable Income/ (Deductions)
1. Sales
2.
3.

Question 3 Part 2

From the above, you are required to advise and calculate how the net income or

partnership loss will be distributed to the partners.

(4 marks)

(11 + 4 = 15 Marks)

In your responses, ensure you state the appropriate taxation legislation, to support

your answer and calculations.