Richard is a retired solicitor. His wife Tracy is a retired school teacher. Both wish to remain
Question:
Richard is a retired solicitor. His wife Tracy is a retired school teacher. Both wish to remain active and they invest in a gift shop that is to be managed by their daughter Alice, who is aged 35. They form a partnership of three called “Alice's Gift Shop”. Richard and Tracy contributed $40,000 each to fund the purchase of the shop. The partnership agreement provides: • Both Richard and Tracy are to receive interest at the rate of 10% p.a. on their capital contribution of $40,000. • Alice will receive a salary of $25,000 for the management of the shop, as well as superannuation contributions of $6,000. • A car will be leased by the business and provided to Alice. • All profits and losses are to be shared equally between the three partners.
The accounts for this income year show the following:
Income ($) | |
Sales (excluding GST) | 240,000 |
Expenses ($) | |
Cost of goods sold | 130,000 |
Interest on capital paid to Richard and Tracy | 8,000 |
Salary to Alice | 25,000 |
Superannuation to Alice | 6,000 |
Lease payments on car (excluding GST) | 7,000 |
Other deductible operating expenses (excluding GST) | 14,000 |
The leased car was used 80% of the time for business and 20% of the time for private purposes.
Required:
With reference to the facts above:
A). Calculate the net income of the partnership.
B). Show the allocation of net income to each of the three partners.
C). You must refer to relevant legislation and/or case law in your answer.
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts