Brick & Stone
Income Statement for the year ended 31 December 2010
	Notes	$	$
Sales			2,500,000
Cost of Sales	1		1,100,000
Gross Profit			1,400,000
Expenses
Salaries & Wages	2	760,000
Employer Social Security Contribution		2,400
Rent and Rates	3	240,000
Insurance		50,000
Maintenance		120,000
Depreciation	4	55,000
Los on Disposal of Vehicle	5	10,000
Telephone	6	35,000
Electricity	7	54,000
Utilities		70,000
Entertainment	8	100,000
Donations	9	85,000
Provision for Bad Debts	10	80,000
Fines and Penalties	11	15,000
Drawings		105,000	1,781,400
Net Profit/ (Loss)			(381,400)

Brick & Stone Notes to the Income Statement

1. The Cost of Sales includes goods valuing $250,000 that were purchased for Mr. Stone’s personal use.

2. Salaries and Wages include $25,000 per month, and $20,000 per month, paid to Mr. Stone and Mr. Brick respectively.

3. $65,000 of the rent relates to the private dwelling of Mr. Brick’s wife.

4. The rates of depreciation on the fixed assets of the business are below those given in the Wear and Tear Schedule of the Income Tax Act. The Wear and Tear allowance total 35 % of qualifying assets valuing $300,000.

5. The partners agreed to dispose of an old pick-up truck with a net book value of $35,000 for $25,000. The pick-up had a tax written down value of $30,000

6. The telephone expense includes 20% for private calls made from Mr. Stone’s cellular phone.

7. The electricity relates to the private dwelling of Mr. Brick.

8. Entertainment expenses relate solely for the promotion of the business to new and prospective customers.

9. Donations of $60,000 were made to a local political party to fund its campaign. The remainder was donated to an approved local children’s home.

10. The partners could not determine if all of the customers would be able to settle their bills on time so a general provision of $80,000 was made to cushion the effect of the any debt going bad.

11. Fines and Penalties include traffic offences of $5,000 and penalties $10,000 for non filing of VAT returns for the period January – March 2014.

Note that the business was owned sole by Mr. Brick and registered in Trinidad and Tobago as a Sole Trading business in 2009. However, through continuous growth, Mr. Brick decided to enter into a partnership agreement with Mr. Stone, thus the status of the business was changed in 2014. The partnership agreement stated that the partners are to share profit and loss in the ratio 45:55

Requirement:

Given the information provided, compute the adjustable profit of the partnership and the share of profit for the year ending 31 December 2016.

Answer rating: 100% (QA)

We have to remove all those items from the PL which pertain to personal items to determine the adjus... View the full answer