Background Information
AASB 101(2009) guides us on how to prepare and present partnership income statements and requires us to similarly approach partnership preparation of statements just alike to what constitutes other statements whereby the vertical format of presentation is deemed applicable whereas rules guiding when and how revenue ought to be earned and reported prevails as well when expense relating to the revenue should be accounted for and reported referenced in Gran(2008.Pg 7).
The Australian partnership tax return instruction 2013 further emphasize on what entails partnership profit income or loss and how it is calculated and reported it further outlines on how the profit income or loss should be distributed. Partners get into business upon agreeing in a partnership agreement on how operations and management of the business should be conducted. They further agree on how profit and losses as well as liabilities and assets ought to be shared in case of dissolution or cessation if any Hodge (2005.Pg 13).
I further wish to state that although a partnership business is deemed independent most decision and actions lies with the partners in any case there is no single regulation that requires a partnership business to pay income tax instead the burden is shifted to individual partners themselves who after accounting for revenue and expenses thus expected to share the loss or profit as per agreed sharing ratios and later on report the profit or loss in their individual income statement for tax purpose Udovitch (2011.Pg 25)(. It can therefore be stated that partnership income profit or loss stands as individual income statement item during reporting Saez (2012.Pg 35).
‘The Two B’s’
Net Partnership Profit or Loss Income Statement
For The Year Ended 30th June 2017
Revenue; $
Gross Sales Revenue (Trading receipts) 1900000
Less Cost of Goods Sold (see note 1) (200000)
Net Sales Revenue 1700000
Add other income
Capital Gain 20000
Cash Dividend from BHP 10500
Interest Income From Bank of China (see note 2) 11250
Total Gross Income 1741750
Less Expense (see note 3)
Salary to Mary 40000
Interest on loan of funds by Mary 10000
Salaries paid to employees 250000
Rent and power 60000
Superannuation paid on behalf of Mary 25000
Superannuation paid on behalf of Sally 25000
Superannuation to staff 85500
Interest on bank overdraft 18623
Long service leave allowance paid to staff 13507
Bad Debts Written Off 36849
Equipment depreciation/amortization (see note 4) 30625
Less total Goods Sales Tax paid (see note 5) 125315.1
Total Gross Expenses (720419.1)
Net Partnership Income Profit or Loss $1021330.9
It should be noted that we can only calculate Mary’s taxable pay if we know her income hence need to calculate her income as follows Pickering(2012.Pg 80).
Mary’ Taxable Income
For Year Ended 30th June 2017
Revenue $
Share of partnership profit see note6) 510665.45
Dividends received from Australian resident company 7000
Gross salary received from part time lecturing 30000
Salary to Mary from partnership 40000
Interest on Bank Deposits 5000
Rental Income from property investment 10000
Refund from Governments Medicare System for medical expenses 2000
Total Gross Income 604665.45
Fewer Expenses
Train fares for travel to and from work 1200
Tax Agent Fees 3000
Gross Medical Expense for Mary 5000
Rates payment on investment property 2000
Interest on Loan Paid 15000
Painting Cost of investment property 5000
Investment bathroom extension cost 15000
Total Expenses (46200)
Total Taxable Income for Mary 558465.45
Mary’s Tax Payable
For Year End June 2017
Total Tax Payable =$264324.809
Less PAYE see note 9 = ($9000+$5347)
Net Tax Payable =$249977.809
Notes and Workings;
- Cost of Goods Sold=Opening Stock + Purchases Less Closing Stock, this explains on what was spent on stocks to make the trade sales.
Opening Stock =$370000
+
Purchases =$320000
–
Closing Stock =$490000
COGS $200000
- The income from Bank Of China is reported net withholding figure since we cannot set off at individual income in any case we are only allowed to account for revenue earned in the partnership account with their respective expenses we cannot extend to partners. The partnership business is therefore tasked to file return on goods sold tax and pay it as well as pay any withholding tax expenses done on behalf of ATO as well as that of PAYG for employees employed and entitled to salary.
- The expenses to be included in this income statement ha to relate with the above revenues.
- Since we have been giving the economic life of the equipment we can calculate amortization value or depreciation value of the items as shown below;
1st July 2016=$65000/4=$16250
1st Jan 2017=$115000/4=28750*(6/12) =$14375
Total Depreciation Value=$30625
On this issue of depreciation I wish to say if we had been informed of the economic life of the motor vehicle BMW would have net off from the revenue but since we are not given it not possible to calculate.
- I further state that the partnership business is obliged to pay GST and file return on the same as follows Evans(2011.Pg 150).
GST on gross trading sales =1900000*10%=190000
Less GST for expenditure Peacock (2011.Pg 30)
Purchase of trade items =370000*10%=37000
Rent and Power =60000*10%=6000
GST on bad debts written off = 36849*10%=3684.9
GST on equipment bought =180000*10%=18000
(64684.9)
Total GST claim and payable 125315.1
- Partners share of profit as per the agreement of 50%/50% is to be calculated as follows Fergusson (2010.Pg 7);
Partners profit=1021330.9
Mary’s Share=1021330.9*50%=510665.45
Sally’s Share=1021330.9*50% = 510665.45
- Mary expenses capture only anything relating to revenue thus expenses like the one on house electricity and rate plus that of father bill is not captured anywhere.
- Mary’s Tax Payable;
The taxable income for Mary is $558465.45
Mary’s income lies between brackets;
$180,001 and over – $54,232 plus 45c for each $1 over $180,000
It is over 180000 by=558465.45-180000=378465.45
45c for each $1
45/100=0.45 Over=0.45*378465.45=$179999.55
Tax payable on this, $54,232 + $179999.55=234231.55
Medical Levy=2%* 604665.45=$12093.309
Total Tax Payable=$12093.309+$234231.55=$246324.809
- There is PAYG of $9000 on what Mary earns as salary for part time classes. Assuming by use of the current 2017 PAYG tax calculator therefore the PAYG for partnership of 40000 salary=$5347, Olovsson(2014.Pg 140)
References
Australian Accounting Standards Board, 2009. AASB 101: Presentation of Financial Statements.
Evans, M., Peacock, and C., 2011. The GST Treatment of Financial Services in Australia. GST in Australia: Looking Forward from the First Decade, pp.133-160.
Fergusson, I.F., 2010. Trans-Pacific Partnership Agreement. DIANE Publishing.
Grant, F.H.O., 498 (2008) 23 AUSTRALIAN TAX FORUM. transactions, 3, p.6.
Hodge, G.A. and Greve, C. eds., 2005. The challenge of public-private partnerships: Learning from international experience. Edward Elgar Publishing.
Olovsson, C., 2014. How does a pay-as-you-go system affect asset returns and the equity premium? Review of Economic Dynamics, 17(1), pp.131-149.
Palil, M.R. and Ibrahim, M.A., 2011. The impacts of goods and services tax (GST) on middle income earners in Malaysia. World Review of Business Research, 1(3), pp.192-206.
Peacock, C. ed., 2011. GST in Australia: Looking forward from the First Decade. Thomson Reuters (Professional) Australia.
Pickering, M.E., 2012. Partnership versus public ownership of accounting firms: Exploring relative performance, performance measurement and measurement issues. Australasian Accounting, Business and Finance Journal, 6(3), pp.65-84.
Saez, E., Slemrod, J.B. and Giertz, S.H., 2009. The elasticity of taxable income with respect to marginal tax rates: a critical review (No. w15012). National Bureau of Economic Research.
Saez, E., Slemrod, J. and Giertz, S.H., 2012. The elasticity of taxable income with respect to marginal tax rates: A critical review. Journal of economic literature, 50(1), pp.3-50.
Udovitch, A.L., 2011. Partnership and profit in medieval Islam. Princeton University Press.
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