Question

Sue (60%) and Ben (40%) are in a partnership which carries on a business. Sue works full time in the partnership business and Ben only provided capital when they first started the business. The partnership agreement states that Sue will be paid a salary of $55,000 and Ben will receive a payment of $40,000 interest in respect of his capital contribution. During the 2019 income year, business records show the following:

Sales	$1,280,000
Interest income	$18,700
Capital Contribution (Interest payment) to Ben	$40,000
Interest paid to Ben (Arm’s length loan made to partnership)	$23,500
Salaries and superannuation paid to staff	$180,000
Salary payments to Sue	$55,000
Previous year’s losses	$45,000

Required:

(a)       Calculate the total allowable deductions. (Briefly analyse each payment with reference to relevant law)

(b)       Calculate the partnership net income. You must refer to relevant law.

Answer 1

Solutions :-

(A) Calculation of total allowable deduction

Particular. Amount (in $)

Interests on capital Ben's 23500

Salary and superannuation. 180000

Salary payment to Sue. 55000

Carried Forward Loss. 45000

Total. 303500

Note :- Interest on capital is allowed only to the extent of arm length price.

(B) Calculation of Partnership Net Income

Particulars. Amount

Revenue -(A)

Sales. 1280000

Other Income (Interest ). 18700

Total (A). 1298700

Expense (B)

Interests on Capital. 23500

Salaries and Superannuation. 180000

Salaries to Sue. 55000

Loss of previous year. 45000

Total (B). 303500

Net Income ( A-B). $ 995200