Applied Income Tax: Calculation of Taxable Partnership Income and Individual Taxability of Partners
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This article covers the calculation of taxable partnership income and individual taxability of partners in Applied Income Tax. It includes details of assessable income, deductions, capital gain, treatment of partnership income, and tax liability of Monique and Aden.
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ASSESSMENT 2 PART A APPLIED INCOME TAX
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Table of Contents INTRODUCTION...........................................................................................................................3 MAIN BODY..................................................................................................................................3 CONCLUSION................................................................................................................................3 REFERENCES................................................................................................................................1
Calculation of Taxable partnership income ParticularsDetailsAmount Assessable Income: Sales ordinary income section 6-5 615000 Add:Closingbalanceof accounts receivable 40000 Less:Openingbalanceof accounts receivable 30000 Total assessable income625000 Deductions: Salaryexpensespaidto employee section 8-1 186000 Rent on premises92000 Bad debts2500 Supplies and overheads27300 Depreciation25000 Total allowable deduction332800 NetPartnershipIncome section 90 292200 Notes: Superannuation contribution made on behalf of Monique and Aden are not allowable as deductions as the firm is liable for its employee’s superannuation contribution and not of partners. Sales for the current year has been determined as follows: Cash sales – opening account receivables + Closing account receivables (stated in balance sheet at closing date) = 615000 – 30000 + 40000 = $625000. Calculation of capital gain Capital proceeds = $835000 Cost of acquisition = $495000
Total capital gain = 835000 – 495000 = $340000 Less: 50% capital gain discount = (170000) Net capital gain = 170000 All the assets of the partnership firm belong to its partners only and whatever gain arises by selling it, must be declared within individual tax return of the partners. Accordingly, above capital gain would be distributed among Monique and Aden (equal partners) and taxed accordingly which is as follows: Monique = 170000 * 50% = 85000 Aden = 170000 * 50% = 85000 Treatment of partnership income Partnership income = 292200 Less: interest on Monique’s loan = 63000 Interest on capital Monique = 350000 * 6% = 21000 Aden = 250000 * 6% = 15000 Add: Interest on Drawings Monique = 100000 * 9% = 9000 Aden = 140000 * 9% = 12600 Net distributable income of partnership firm = 292200 – 63000 – (21000 + 15000) – 9000 – 12600 = $171600 Monique’s Share = 85800 Aden’s share = 85800Individual taxability of partners Monique Assessable income Partnership distribution = 85800 + 63000 + 21000 – 9000 = 160800 Add: Capital gain = 85000 Less superannuation contribution = 15000 Less: Donation made to Red Cross = (3000) Taxable income of Monique = 160800 + 85000 – 15000 – 3000 = 227800 Tax liability
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