Question

Rachel and Bill carry on a partnership together with gross receipts for the current income year of $ 80,000.
During the year the following payments were made:-
$ Purchase of trading stock 18,000
Wages to employees 10,000
Advances to Rachel 35,000
Lease payments on two cars 4,000

Rachel and Bill share the profits in the ration of 3:1.
Stock on hand at the beginning of the year was $ 3,000 and at the end of the year was $ 3,400. Both cars were used for business purposes, but Bill uses his 40% for private purpose as well. Bill also works part-time as a trainer and generated a gross income of 12,000. He subscribes magazines that update his knowledge on the industry and trainings to be provided to his own clients and it costs him $ 800 in annual subscription fees. He also received fully franked dividends from ABC Company of $1,125 in the current income year.

Requirements: a) Calculate the net income of the partnership and the assessable income of the partners. b) Calculate the final tax liability of Bill.  

Answer 1

a	Net income of Partnership Firm
	Gross Receipts	$80,000
	Cost of goods sold	$17,600
	Gross Profit	$62,400
	Operating Expenses:
	Wage expenses	$10,000
	Lease expenses	$3,200
	Net Income	$49,200
	Assessable income of partners
	Rachel's share of partnership profit	$36,900
	Bill's share of partnership profit	$12,300
b	Calculate the final tax liability of bill
	Gross income as a part-time trainer	$12,000
	Income from partnership firm	$12,300
	Dividend income from ABC	$1,125
	Adjusted gross income	$25,425
	Less: standard deduction	$12,000
	Taxable income	$13,425
	Tax liability	$1,420.50
	Less: Imputation credit on franked dividend	$299
	Net tax liability	$1,121.50
	Magazine subscription fees can be itemized and deducted from gross income, but
	here we are taking standard deduction
	Imputation credit = (Dividend Income/(1-company tax rate))-Dividend amount
	= (1125/(1-0.21))-1125
	= 1424-1125
	= 299
	Cost of goods sold
	Beginning inventory	$3,000
	Add: Purchases	$18,000
	Less: Ending Inventory	$3,400
	Cost of goods sold	$17,600
	Lease expenses
	Lease expenses for one car (4000/2)	$2,000
	Less: 40% personal use	$800
	Lease expense for business purpose	$1,200