Question

Michael and Jenny are in a partnership. The partnership records, exclusive of GST, for the year ended 30 June 2020 are as follows: ($) Receipts 440,000 Gross receipts from Trading Stock ($) Payments 120,000 Purchases of Trading Stock 50,000 Partners' salaries (each) 3,000 Interest on a cash advance made to the partnership by Michael 100,000 Salaries for employees and rent paid 1,000 Legal expenses in recovering bad debts Other important details are stated below: • Michael and Jenny share partnership profits equally • Trading Stock on hand as at 1 July 2019 was $50,000 • Trading stock on hand as at 30 June 2020 was $80,000 • Michael 's personal records include: o Gambling winnings of $500 o Net salary as a part-time Instructor (excluding PAYG Tax Instalments of $1,400) is $8,000 o Subscription to professional journals of $200 o Michael is a member of a private health fund Required: Calculate Michael 's Taxable Income for the Income year explaining your treatment of each item noted in this question.

Answer 1

1) Net income of the partnership:								$
Assessable income:
sales												440000
excess of closing trading stock over opening stock:						30000
												470000
Deductions:
purchases of trading stock:									100000
partners’ salaries: not deductible								0
interest on cash advance:									3000
employee salaries & rent:									100000
Bad debt recovery expense:									1000
Net income of partnership									266000
The amount available for distribution (the net income of the partnership of
$266,000 less salary paid to partners $100,000)						166000
(2) Peter’s taxable income:									$
Assessable income:
share of partnership’s net income ($166,000 x 50%)						83000
Partner’s salary 50,000									50000
Interest on cash advance:									3000
Gambling - extraordinary income								0
salary as part-time instructor (8000+1400)							9400
Deductions:
professional journals										200
Taxable income										145200