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.

SWFT Comprehensive Vol 2020
43rd Edition
ISBN:9780357391723
Author:Maloney
Publisher:Maloney
Chapter21: Partnerships
Section: Chapter Questions
Problem 2BCRQ
icon
Related questions
Question
100%

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.

Expert Solution
steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Partners and Partnerships
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
SWFT Comprehensive Vol 2020
SWFT Comprehensive Vol 2020
Accounting
ISBN:
9780357391723
Author:
Maloney
Publisher:
Cengage
SWFT Essntl Tax Individ/Bus Entities 2020
SWFT Essntl Tax Individ/Bus Entities 2020
Accounting
ISBN:
9780357391266
Author:
Nellen
Publisher:
Cengage
SWFT Individual Income Taxes
SWFT Individual Income Taxes
Accounting
ISBN:
9780357391365
Author:
YOUNG
Publisher:
Cengage
SWFT Comprehensive Volume 2019
SWFT Comprehensive Volume 2019
Accounting
ISBN:
9780357233306
Author:
Maloney
Publisher:
Cengage
CONCEPTS IN FED.TAX., 2020-W/ACCESS
CONCEPTS IN FED.TAX., 2020-W/ACCESS
Accounting
ISBN:
9780357110362
Author:
Murphy
Publisher:
CENGAGE L