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EDITH COWAN UNIVERSITY PRINCIPLES OF TAXATION LAW - LAW6300 (Off-Campus) TUTORIAL PAPER NO. 9 Answers due on or before 3 pm Tuesday 17 October 2017 2/2017 QUESTION 1 John and Lenny (who are both 55 years old) are partners in a business selling electrical and electronic goods. The partnership records for the year ended 30 June 2017 provided to you disclose the following: (1) Sales of electrical and electronic goods - $400,000. On 1 January 2017, the partners discovered that an employee had stolen $3,000 cash in respect of money received from sales to customers. (2) Interest received on bank deposits - $10,000. (3) Dividend (partly franked at 60%) received from ANZ Ltd. - $21,000 (4) Received exempt income - $50,000 (5) Paid salary to John - $10,000 (6) Paid salary to Lenny - $15,000 (7) Paid interest on capital provided by John - $2,000 (8) Paid John's travelling expenses from home to work and return - $3,000 John often takes work home as he finds it convenient to plan the next day's work in his home study. (9) (10) Paid legal fees for the renewal of lease of the office building in which they operate from - $2,000 Paid legal expenses for preparation of their Partnership Agreement - $1,200 1 (11) Paid legal expenses for preparation of new lease of business premises - $700 (12) Paid debt collection expenses to a solicitor - $500 (13) Paid Council rates on the business premises - $500 (14) Paid salaries to staff - $25,000 Staff salaries include $10,000 paid to John's son James for washing the partners' cars. The Commissioner considers $5,000 to be a reasonable commercial rate for washing the cars. (15) Purchase of electrical and electronic goods - $30,000 (16) Paid rent on a retail shop - $20,000 (17) Made provision for doubtful debts - $30,000 John and Lenny are owed $30,000 by a debtor who is bankrupt. They believe it is very unlikely that they will recover any money from the debtor and do not take any action to recover the money. (18) Paid for business lunches - $10,000 John and Lenny spent $10,000 on business lunches with overseas buyers at expensive restaurants. (19) Stock at the beginning of the year Stock at the end of the year - (i) (ii) (iii) $20,000 Cost - $16,000 Market selling value - $18,000 Replacement - $17,000 They also provided you with the following information: (1) Under the Partnership Agreement, partnership profits and losses are shared on an equal basis between them. (2) In the last income year, they made a net partnership loss of $40,000. Based on the above information, you have been instructed by the partners to: (1) Calculate the net income (or net loss) of the partnership for the year ended 30 June 2017; and (2) Prepare a distribution statement of the partnership net income (or net loss) to each partner. 2 IMPORTANT NOTE: Please refer to pages 7 and 8 of the Unit Plan for information on submission of your answers to the Tutorial Paper to your on-line tutor (especially the due date and format). Suggested Answers to the Tutorial Paper will be posted on Blackboard the week after the due date for submitting your answers. As no further feedback to your submitted answers will be provided, please compare your answers closely with the Suggested Answers provided. You may send an email to the on-line tutor if you have any questions regarding your answers or the Suggested Answers or the topics dealt in the Tutorial Paper. 3