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 contributions 27 000 - 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 dependants 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 users 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 childrens 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.