Question

Richard is a retired solicitor. His wife Tracy is a retired school teacher. Both wish to remain active and they invest in a gift shop that is to be managed by their daughter Alice, who is aged 35. They form a partnership of three called “Alice's Gift Shop”. Richard and Tracy contributed $40,000 each to fund the purchase of the shop. The partnership agreement provides: • Both Richard and Tracy are to receive interest at the rate of 10% p.a. on their capital contribution of $40,000. • Alice will receive a salary of $25,000 for the management of the shop, as well as superannuation contributions of $6,000. • A car will be leased by the business and provided to Alice. • All profits and losses are to be shared equally between the three partners. The accounts for this income year show the following: Income ($) Sales (excluding GST) 240,000 Expenses ($) Cost of goods sold 130,000 Interest on capital paid to Richard and Tracy 8,000 Salary to Alice 25,000 Superannuation to Alice 6,000 Lease payments on car (excluding GST) 7,000 Other deductible operating expenses (excluding GST) 14,000 The leased car was used 80% of the time for business and 20% of the time for private purposes. Required: With reference to the facts above: A.Calculate the net income of the partnership. B.Show the allocation of net income to each of the three partners. C.You must refer to relevant legislation and/or case law in your answer

Answer 1

A) Calculation of net income of partnership

Statement of incme

  

Sales		240000
Cost of goods sold		- 130000
Gross profit		110000
Operating expenses
lease payment(7000*80/100)	5600
operating expenses	14000	-19600
profit for the year		90400
Less : Partners salary
alice	25000	-25000
Super annuation contribution	6000	-6000
Interest charged on capital
Richard	4000
tracy	4000	-8000
Net profit		51400

B) Allocation of net income to partners

Richard 51400*1/3=17,133

Tracy 51400*1/3=17,133

Alice 51400*1/3=17,133

c)The Uniform Partnership Act, which includes revisions that are sometimes called the Revised Uniform Partnership Act, is a uniform act, proposed by the National Conference of Commissioners on Uniform State Laws for the governance of business partnerships by U.S. States.The NCCUSL's first revision of UPA was promulgated in 1992 and amended in 1993 and 1994. The 1994 revision was often referred to as the Revised Uniform Partnership Act (RUPA). Confusion arose when the 1996 and 1997 versions were also called RUPA. Because of this confusion, the NCCUSL now officially refers to each UPA version as "Uniform Partnership Act (year)," where "year" is replaced by the actual year that NCCUSL approved it.

The UPA and RUPA provide rules as to many aspects of a partnership relationship including formation, the ownership of partnership assets, the assessment of fiduciary duties, the settlement of partnership disputes, and termination. Each allows modification of these rules in the individual agreement among the partners. RUPA is significantly more detailed than is the UPA as to the degree to which the partnership agreement may modify the default rules set forth in the statute. RUPA also clarifies the nature of a partnership itself by clearly defining it as an entity rather than an aggregation of individuals.

When two or more individuals engage in enterprise as co-owners, the organization is known as a partnership. This form of organization is popular among personal service enterprises, as well as in the legal and public accounting professions.