Question 4 (25 Marks)

Keenah Sak and Jay Shetty, who are both married taxpayers, carry on business as accountants and

auditors. They practice under the name "Black & White Chartered Accountants." The partners share

profits and losses equally.

Their bookkeeper has prepared the following income statement in respect of the year ended 29

February 2020.

Income statement for the year ended 29 February 2020.

Income

Gross profit 610 000

Bad debts recovered (note 1) 3 500

Dividends accrued (note 2) 4 500

Interest accrued

-on fixed deposit account 3 225

-on Post Office savings bank certificates 2 400

Commissions 2 250

625 875

Less: Expenditure (459 550)

Annuities paid (note 3) 38 000

Bad debts (note1) 4 500

Computer purchased (note 4) 36 000

Computer user course costs (note 5) 2 500

Computer programs purchases 10 000

Donations made (note 9) 15 000

Depreciation office fittings at 10% 4 500

Depreciation typewriter at 10% 2 250

Goodwill paid (note 10) 50 000

Insurance paid (note 11) 16 500

Legal expenses (note 8) 1 500

Licenses motor vehicles and trade 900

Motor vehicle running expenses 7 550

Parking bay costs (note 7) 2 250

Premium paid (note 6) 7 500

Rental paid (note 6) 15 000

Retirement annuity find contributions27 000

- Keenah 15 000

- Jay 12 000

Staff salaries and wages 72 000

Shares purchased (note 2) 60 000

Stationery and printing 2 450

Sundry deductible expenses 16 650

Taxation paid (provisional payment)

- Keenah 40 000

- Jay 27 500

Net profit 166 325

Net profit Keenah 83 163

Net profit Jay 83 162

166 325

Notes:

1. The bad debts recovered of N$3 500 were recovered from a former debtor of Andrew Jones when he

had been trading on his own, two years previously. Of the bad debts of N$4 500, an amount of N$2 000

relates to debts that the partners took over when they purchased the business from

Mr. Streep. The balance of the bad debts is in respect of present clients who have failed to pay their

accounts.

2. During the 2020 year of assessment the partners decided to invest their surplus cash funds and they

purchased 6 000 shares in Glittering Gold Limited, a

Namibian registered company, at N$10 a share. The company paid a dividend of 75 cents a share on 31

December 2019.

3. The following annuities were paid during the year to dependents of deceased former employees:

The widow of Mr. File and her two children 14 500

The widow of Mr.Cast and her minor daughter 20 500

The widow of Mr.Bhala, a former messenger 3 000

38 000

It is not the policy of the partners to make payments of this nature. Yet these payments were made in

order to assist the recipients who are all in poor financial circumstances.

4. The depreciation claimed in the income statement has been calculated on the reducing balance

method in respect of both the office fittings and the typewriters. They were both purchased on 1 March

2018. No depreciation has been provided in the income statement in respect of the computer, which was purchased and brought into use on 1 May 2019.

5. In order to keep up to date with new developments, Keenah attended a computer user's course given

by the South African Institute of Chartered Accountants (SAICA) in Johannesburg. The expenses incurred

by Keenah, were paid by the partnership. They were as follows:

Course costs 1 000

Travelling expenses incurred 450

Hotel and accommodation 1 050

2 500

6. On 1 March 2019, the partners had entered into an agreement with a taxpayer to lease office

premises together with the vacant land situated adjacent to the office premises. The lease agreement

which was for ten years provided for a premium of N$7 500 to be paid by the lessee at the

commencement of the lease, a monthly rental of N$1 250 to be paid by the lessee for the office, and

contained an improvement clause whereby the partners (the lessees) must effect improvements on the

property to the value of N$88 500. The leased office premises were used as from 1 March 2019 while

the improved section came into use on 1 May 2019 once the improvements were completed at the said

cost on 30 April 2019.

7. After the improvements had been completed, the remainder of the land was cleared and turned into

a parking area at a cost to the partners of N$2 250.

8. An examination of the legal charges revealed that N$500 was for drawing up the lease agreement in

respect of the office premises and the land leased by the partnership, and N$1 000 was for the

collection of outstanding fees.

9, During the 2020 year of assessment the partners made two donations. An amount of N$5 000 was

donated to Windhoek Child Welfare for the children's Christmas party and an amount of N$10 000 was

donated to the University of Namibia to establish a bursary to be granted to a promising accountancy

student who is in need of financial assistance..

10. Goodwill paid of N$50 000 is in respect of the final instalment due to Mr. Streep in respect of the

purchase consideration paid to take over the business.

11. Insurance premiums paid during the year were in respect of the following policies:

Professional indemnity policy 6 000

Loss of profits policy 2 250

Fire policy 3 250

Partners survivorship policy 5 000

16 500

12. Other relative partnership information: Keenah Jay

Salaries payable 87 500 87 500

Interest on capital 12 000 9 000

Drawings 75 000 54 000

REQUIRED

Calculate the taxable income of each partner for the 2020 year of assessment.