Question

1. Robert started an accounting firm in 2020 and organized as a partnership. Performance of services began on July 1, 2020. The following expenditures were associated with the partnership’s activities in 2020:
   
   

Expense	Date	Amount
April 1-June 30 rent	March 1	$15,000
June 1-June 30 wages	June 30	$25,000
April 1-June 30 utilities	June 30	$800
Legal fees for partnership agreements	June 25	$12,500
July 1-Sept. 30 rent	July 1	$15,000
July 1-July 31 wages	July 31	$50,000
July 1-Sept. 30 utilities	Sept. 30	$1,600

1. What is the total amount of the start-up costs expenditures? What is the total amount of organizational expenditures?
2. Ignore your answer in a. Assume that the total amount of start-up costs expenditure is $48,200 and the total amount of the organizational expenditure is $17,900. What amount of the start-up costs may the partnership immediately expense in 2020? What amount of the organizational expenditures may the partnership immediately expense in 2020?
3. Ignore your answer in a. Assume that the total amount of start-up costs expenditure is $48,200 and the total amount of the organizational expenditure is $17,900. Also, assume that the company immediately expensed $5,000 of start-up costs and $5,000 organizational cost. What amount can the partnership deduct as amortization expense for the organizational expenditures for 2020 (not including the amount it immediately expensed)? What amount can the partnership deduct as amortization expense for the start-up costs for 2020 (not including the amount it immediately expensed)?

Answer 1

A. computation of total amount of startup cost.

Particular	amounts in $
Rent (1-march )	15000
Wages (30-june)	25000
Utilities (30- june)	800
Total	40800

Organisational expenditure whould be legal fees for partnership agreement that is $12500

B. since both the expenditure that is organisational cost and startup cost is below than $50000 than the firm can immediately expense $5000 for organisational expense and $5000 for the starts up cost.

C. Computation of amortisation expenses of startup cost

Particulars	amount in $
Maximum expenses	5000
startup expenses	48200
thresh hold limit	50000
Immediate expenses phase out	0 (48200-50000)
Immediate expense allowed	5000 (5000-0)
remaining expenditure	43200 (48200-5000)
Recovery period	180 month (in 15 years)

Monthly amortization	$240 (43200/180)
business month during year	3 july to september
Straight line amortization for start up cost	$720 ($240 x 3)

computaion of amortisation expenses organisational expenses

Particulars	amount in $
Maximum expenses	5000
startup expenses	17900
thresh hold limit	50000
Immediate expenses phase out	0 (17900-50000)
Immediate expense allowed	5000 (5000-0)
remaining expenditure	12900 (17900-5000)
Recovery period	180 month (in 15 years)

Monthly amortization	$71.6 (12900/180)
business month during year	3 july to september
Straight line amortization for start up cost	$214 ($71.6 x 3)