Question

Fred and Dorothy operate an accounting firm as partners. on 1 March 2020, they admitted a...

Fred and Dorothy operate an accounting firm as partners. on 1 March 2020, they admitted a new partner into their partnership. the terms of the agreement provided that the profits of the partnership be shared equally. The partnership's net income for the year ended 30 june 2020 was $200,000. assume that the net income of the partnership was spread equally over the 12 months.

Fred's wife, Jenny, is employed as a receptionist by the partnership from 1 july 2019 to 30 june 2020. Over the 12 months, she was paid $100,000. However, the Commissioner of Taxation disallowed $20,000. Calculate each partner's share of net income from the partnership and calculate the net income of the partnership for the year ended 30 june 2020.

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Answer #1

SOLUTION

NET INCOME OF PARTNERSHIP FOR THE YEAR ENDING 30 JUNE 2020  AFTER DISALLOWANCE BY COMMISSIONER OF TAXATION =$200,000+$20000=$2,20,000

NOTE EXPENSES DISALLOWED WILL BE ADDED TO NET INCOME

EACH PARTNER SHARE IN NET INCOME

PROFIT DISTRIBUTION TILL1 MARCH BEFORE ADMISSION OF NEW PARTNER

PROFIT FROM 1 ST JULY TO 1 ST OF MARCH 2020 = $220,000*8/12 =$146,667 DIVIDED EQUALLY AMONG FRED AND DOROTHY

FRED SHARE =146,667/2=$73,333

DOROTHY SHARE = 146,667/2=$73,334

DISTRIBUTION OF PROFIT FROM 1 MARCH TILL 30 JUNE 2020(220,000-146,667 =$73.333) IN EQUAL RATIO

FRED SHARE =73,333/3=$24,444

DOROTHY SHARE = 73,333/3=$24,444

NEW PARTNER SHARE =73333/3= $24,445

TOTAL SHARE IN PROFIT

FRED SHARE =73,333+24,444=$97,777

DOROTHY SHARE =73333+24,444=$97,777

NEW PARTNER SHARE =$24,445

NOTE -PLEASE UPVOTE IT SHALL BE A GREAT FAVOR THANKS

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