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Partnership Firm Taxation: Assignment

   

Added on  2019-09-30

8 Pages1766 Words213 Views
QUESTION 1)PARTNERSHIP FIRM TAXATIONA partnership is a form of business where partners come together to carry out a business, In this case Daniel and Olivia Smith are partners of a partnership firm. A partnership is relatively inexpensive to set up and operate. The partners share income, losses and control of the business.Key features of partnership firm structure:Income, losses and control of the business are shared among the partnersthe partnership has its own TFN and must lodge an annual partnership return showing all income and deductions of the businessthe partnership doesn't pay income tax on the profit it earns – each partner reports their share of the partnership income in their own tax returneach partner pays tax on their share of the partnership profit at the individual tax rate and may be eligible for the small business tax offsetthe partnership must apply for an ABN and use it for all business dealingsthe partnership must be registered for GST if its annual GST turnover is $75,000 or more.As a partner you can't claim deductions for money drawn from the business. Amounts you take from a partnership are not wages for tax purposes.The Net income of a partnership income is to be calculated by preparing income Statement and then calculating tax on it. All the Revenues are added and expenses / deductions are deducted from the revenues to arrive at the net income.In computing net income for tax purposes, accrual system of accounting is used and only the revenues and expenses which are related with business purposes are considered. Personal expenses are not allowed as deduction. Let us calculate the Net Income of Daniel and Olivia Smith through Income Statement Method.

Daniel and Olivia SmithStatement of Partnership Net Income for the year ended30th June 2017$$IncomeSales-Cash (W . N. 1)186925Sales-Credit (W . N . 2)31885Goods taken from stock3200222010Less: DeductionsCost of Goods Sold (W . N . 3)159713Motor Vehicle Running Expenses (W . N . 4)2364Power (80% of 1470)1176Rates (60% of 517)310Insurance1250Telephone (90% of 704)634Union Fees284Account Charges595Repairs and Maintainance (W . N . 5)290Interest on Loan (W . N . 6)5500Depreciation(W . N .7)6448.1TOTAL EXPENSES178564.1NET INCOME OF PARTNERSHIP FIRM 43445.9WORKING NOTES:

W . N . 1) COMPUTATION OF CASH SALES:$Cash deposited into bank 150170Add: Payment made directly from cash receipts31155Add: Withdrawals done for personal purposes5600TOTAL CASH SALES186925The Cash sales are those sales which the company has done in cash. In computing that cash receipts from customers and cash deposited into bank are added and Any cash withdrawals which are for personal purposes are deducted from it.W . N . 2) SALES DONE ON CREDIT:$Balance of Trade Receivables at the year end3010Add: Payment received from the Trade Receivables32800Less: Opening Trade Receivables3925TOTAL CREDIT SALES39735Any sales done on credit basis are computed by adding balance of trade receivables at the year end and deducting opening balances of trade receivables to arrive at the credit sales figure.W . N . 3) COST OF GOODS SOLD$Inventory at the beginning of the year9120Add: PurchasesCash Purchases31155Credit purchases (NOTE)129188169463Less: Inventory at the end of the year9750TOTAL COST OF GOODS SOLD159713Cost of Goods sold is computed for computing Gross profit in Income Statement, this is to be deducted from the Revenues. Inventory at the beginning and total purchases (both cash and credit) are added and inventory at the yeat end is deducted from it to arrive at the cost of goods sold figure.

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