Comprehensive Analysis of Partnership Taxation and Fringe Benefit Tax

This assignment provides a comprehensive analysis of partnership taxation and fringe benefit tax (FBT). It begins with a detailed income statement for a partnership firm, calculating net income by considering various revenue streams, deductions such as cost of goods sold, motor vehicle expenses, power, rates, insurance, telephone, union fees, account charges, repairs and maintenance, interest on loans, and depreciation. The assignment includes detailed working notes for each calculation, such as cash and credit sales, cost of goods sold, and depreciation calculations. The second part of the assignment focuses on FBT, specifically analyzing benefits provided to a senior executive, Mr. John, including school fees and rent. It calculates the total amount liable for FBT, providing a clear understanding of how fringe benefits are taxed. The assignment references relevant tax resources and provides a practical application of tax principles in a business context. This assignment is valuable for students studying finance and taxation, offering practical insights into financial statement analysis and fringe benefit tax calculations. The assignment showcases how to calculate net income, cost of goods sold, and depreciation and how to determine FBT liabilities. The assignment concludes with a detailed discussion of the various aspects of taxation and how they affect businesses and employees.

QUESTION 1)
PARTNERSHIP FIRM TAXATION
A 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 partners
 the partnership has its own TFN and must lodge an annual partnership return showing all income
and deductions of the business
 the partnership doesn't pay income tax on the profit it earns – each partner reports their share of
the partnership income in their own tax return
 each partner pays tax on their share of the partnership profit at the individual tax rate and may be
eligible for the small business tax offset
 the partnership must apply for an ABN and use it for all business dealings
 the 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 Smith
Statement of Partnership Net Income for the year ended
30th June 2017
$ $
Income
Sales-Cash (W . N. 1) 18692
5
Sales-Credit (W . N . 2) 31885
Goods taken from stock 3200 222010
Less: Deductions
Cost of Goods Sold (W . N . 3) 15971
3
Motor Vehicle Running Expenses (W . N . 4) 2364
Power (80% of 1470) 1176
Rates (60% of 517) 310
Insurance 1250
Telephone (90% of 704) 634
Union Fees 284
Account Charges 595
Repairs and Maintainance (W . N . 5) 290
Interest on Loan (W . N . 6) 5500
Depreciation(W . N .7) 6448.1
TOTAL EXPENSES 178564.
1
NET INCOME OF PARTNERSHIP FIRM 43445.9

WORKING NOTES:
W . N . 1) COMPUTATION OF CASH SALES:
$
Cash deposited into bank 150170
Add: Payment made directly from cash receipts 31155
Add: Withdrawals done for personal purposes 5600
TOTAL CASH SALES 186925
The 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 end 3010
Add: Payment received from the Trade Receivables 32800
Less: Opening Trade Receivables 3925
TOTAL CREDIT SALES 39735
Any 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 year 9120

Add: Purchases
Cash Purchases 31155
Credit purchases (NOTE) 129188
169463
Less: Inventory at the end of the year 9750
TOTAL COST OF GOODS SOLD 159713
Cost 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.
(NOTE) Credit Purchases
Trade Payables at the end of the year 7010
Payment to Trade Payables 128678
135688
Less: Trade Payables at the beginning of the year 6500
CREDIT PURCHASES 129188
Credit purchases are calculated by adding closing trade payables balances and payment made to trade
payables during the year and deducting beginning trade payables balance.
W . N . 4) MOTOR VEHICLE RUNNING
EXPENSES
$
Van (1260 * 90%) 1134
SUV (2050 * 60%) 1230
TOTAL MOTOR VEHICLE RUNNING
EXPENSES 2364

Only vehicle used for business purposes will be considered
in calculation of running expenses.
Power, insurance, Rates, telephone expenses which are used for personal purposes are not allowed as
deduction. That is why only business related percentages are considered.
W . N . 5) REPAIRS AND MAINTENANCE
EXPENSES
$
Painting of shop 150
Replacement of Motor of Refrigerator 140
TOTAL REPAIRS AND MAINTENANCE
EXPENSES 290
All the repairs and Maintenance expenses done during the year are allowed as deduction for computation
of Net Income.
W . N . 6) INTEREST ON LOAN
$
Repayment of loan during the year 8500
Less: Reduction in Principal Amount 3000
INTEREST PAID 5500
All the interest expenses and borrowings made by the firm are allowed as deduction.
W . N . 7) COMPUTATION OF
DEPRECIATION
$ $ $
ORIGINA
L COST
OPENING
ADJUSTE
D VALUE
Writte
n
Down

Value
Restaurant Refrigeration 14600 3580 11020
Shop Fitting Structure 7800 2965 4835
Kitchen Electrical Appliances 3900 754 3146
Car -Van 16500 1550 14950
Car –SUV 42200 10350 31850
Additions:
Restaurant Freezer (01.08.2016) 4000 4000
Air Conditioner (01.10.2016) 1200 1200
Disposal:
Restaurant Freezer 8000 1480 6520
YEAR END BALANCES 82200 17719 64481
As nothing is mentioned in the question depreciation rate is considered to be 10%
for all the fixed assets. Depreciation will be calculated on Written down value at the
year end.
DEPRECIATION = (64481 * 10%) 6448.1
Depreciation is an allowable expense for the income computation purposes and it is calculated on written
down value method. The effective life of the asset is considered as 10 years for all the assets.
Depreciating assets are those assets which has limited useful life and its value diminishes with normal
wear and tear.
DEPRECIATION RULES:
The cost of a depreciating asset includes includes the amount you paid for it as well as additional costs
that one incurs in transportation and installation of the asset, and repairing it immediately after you
acquire it.

Depreciation deductions are limited to the extent to which you use an asset to earn income. For example,
if you use an asset 60% for business purposes and 40% for private purposes you can only claim 60% of
its total depreciation for the year.
Depreciation deductions are generally available only to the legal owner of the asset.
Small businesses can choose to use the simplified depreciation rules – which include the instant asset
write-off. It is assumed that the above partnership firm is not using the above method.
To calculate your depreciation deduction for most assets you apply the general depreciation rules (unless
you're eligible to use simplified depreciation for small business). These rules set out the amounts (capital
allowances) that can be claimed based on the asset's effective life.
Under the general depreciation rules, an immediate write-off applies to:
 items costing up to $100 used to earn business income (but note the higher immediate write-off
limit for small businesses below)
 items costing up to $300 used to earn income other than from a business (such as employee-
provided tools and equipment).
The depreciation and capital allowance tool will help you calculate the deduction available from a
depreciating asset, or claims you are entitled to for capital allowance and capital works purposes.
CONCLUSION:
After computing all the expenses and revenues from the above working papers, the net income of the
partnership firm comes out to be $43445.9
QUESTION 2)

Fringe Benefit Tax is that tax which the employer pays on a certain benefits provided to the employees,
including their families and associates. This benefit is provided to them in addition to their normal salary
and wages.
In the present case, Mr. John is a senior executive with the printing company, means he is an employee of
the company that is why he is getting Fringe Benefits from the company.
SCHOOL FEES FRINGE BENEFITS:
Housing
A housing fringe benefit may arise if an employer provides an employee with accommodation rent-free,
or at a reduced rent, and the accommodation is the employee’s usual place of residence. For the purpose
of FBT, accommodation includes:
 a house, flat or home unit
 accommodation in a hotel, motel, guesthouse, bunkhouse or other living quarters
 a caravan or mobile home
 accommodation on a ship or other floating structure.
Accommodation provided to an employee in a remote area may be exempt from FBT.
HOW CAN ONE CLAIM TAX BENEFITS:
To get a successful claims of their expenditure one needs to provide a copy of valid tax invoice, proof of
payment (like credit card / debit card receipts)
Let us calculate the Fringe Benefits available to Mr. John during the year which he can claim
reimbursement from his employer.
Total Amount Liable to FBT:
School Fees 15000
Rent(800-100)*52 36400
51400
Fringe Benefit of $51400 is given reimbursement to Mr. John.