Question

Partnerships Amanda and Steven operate a travel agency in partnership. The partnership agreement provides that Steven is to be paid a salary of $20,000. Interest is payable on capital accounts and any residual profit or loss is to be shared in the proportion of 60% to Steven and 40% to Amanda. Amanda and Steven inform you of the following in relation to the partnership during the 2017/18 income year. The travel agency earned $110,000 and expenses attributable to the business totaled $80,000. The following amounts have been included in the $80,000 expenses: • The partnership paid Amanda $3,000 and Steven $5,000 as interest on their capital accounts in accordance with the partnership agreement. • A salary of $20,000 was paid to Steven in accordance with the partnership agreement. REQUIRED: (a) Calculate net partnership income for the year ended 30 June 2018. Explain how you arrived at the net partnership income and any adjustments that were necessary. (b) Prepare a distribution to partners for the year ended 30 June 2018.

Answer 1

ANSWER :-

(A)

Revenue		110,000
Expenses	80,000
Less: Adjustments
Interest allowance ($3000 + $5000)	8,000
Salary allowance	20,000
Total expenses		52,000
Net income $		58,000

The prior to the salary and interest allowances and hence the same is deducted from the expenses for arriving at the net partnership income which is $58000.

(B)

Distribution of Net Income
	Amanda	Steven	Total
Net income			58,000
Interest allowance	3,000	5,000	8,000
Salary allowance	20,000	0	20,000
Remaining income			30,000
Division of remaining income (40%, 60%)	12,000	18,000	30,000
Share in net income $	35,000	23,000	58,000

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