Question

Annie and Brad are partners in the A&B Accounting Practice, located in Hawthorn. The partnership’s accounting profit for the year ending 30 June 2020 was $150,000 after the following items were expensed:

• Interest paid on an advance from Brad                    $5,000
• Salary paid to Annie                                                   $21,000

The partnership agreement provides that the partners are share profits and losses equally after allowing for salaries and interest on partners’ capital accounts.

Required:

a) Calculate the net income of the partnership for the year ending 30 June 2020 as defined section 90 of the Income Tax Assessment Act 1936.        

               

   b) Prepare a statement showing the distribution of the net income of the partnership to each partner for the year ending 30 June 2020.

Answer 1

a) Net income is the profit that is after all expenses including salary to partners and any interest paid to them

So Net income of partnership firm for the year ending 30 june 2020 is $150,000 i.e) acccounting profit which is after all expenses

b) Since as per partnership agreement the profits and losses are shared equally after allowig for salaries and interest on partners’ capital accounts, the partnership profut for the year ended is $150,000 after all expenses ( as explained above)

Share of profit for Annie = $150,000/2= 75000

share of profit for Brad = $150,000/2= 75000