John and Jane Doe formed a partnership and trades under the name J&J Doe Enterprises. The partnership agreement provides for the following:
- Salaries of N$200 000 each per annum;
- Interest on capital accounts at 12% per annum;
- Interest on drawings at 15% per annum
- Profit sharing in the same ratio as the capital contribution
- John and Jane contributed N$150 000 and N$180 000 respectively as capital
J&J Doe Enterprises is a business manufacturing expensive paper products for the domestic market as well as exporting certain of its products. The factory is situated in Windhoek and didn’t obtain manufacturing status. The accountant of J&J Doe Enterprises provides you with the following information in respect of the 2022 year of assessment (ended on 28 February 2022)
- A net profit of N$1 600 000 was recorded before the following transactions were taken into account
- Dividends of N$15 000 were received from Sanlam Namibia
- . General repairs and maintenance of plant, N$19 000
- Replacement of a section of the factory roof, N$60 700
- . Cost of a special concrete foundation built for a larger machine, N$36 000
- wo patents were registered during the year
New printing ink – the useful life of this patent was expected to be 2 years, N$3 900
New type of writing paper – with a useful life of 5 years, N$4 500
- N$900 000 was spend on the erection of two flats to be occupied by employees
- J&J Doe Enterprises sold the house formerly occupied by an employee for N$800 000
- The fixed asset register disclosed the following information
Factory building – erected in 2008 at a cost of N$2 200 000
Plant and machinery bought during December 2019 had a tax value of N$60000 on 1 March 2021.
A second-hand machine was imported from Germany during the year at a cash price the equivalent of N$527 000.
A new machine was purchased locally and brought into use on 1 January 2022 at a net cost of N$900 000.
- Jane withdrew N$14 000 from the business to pay for her son’s school camp.
- Salaries to permanent staff, N$160 000.
- Pension fund contributions towards the pension of employees, N$20 000
- Retirement Annuity fund contributions by the partners, N$42 000 each
- Other deductible expenses, N$70 000
- Bad debts of N$4 000 related to a debtor who could not repay his debt
- J&J Doe Enterprises decided to provide for future bad debts at 4% of the total outstanding debts
The outstanding debts for 2020 and 2021 respectively were N$400 000 and N$410 000
- Partner salaries and interest on capital and drawings accounts
Calculate the taxable income of the partners of J&J Doe Enterprises for the 2022 year of assessment. You should commence your answer with the net profit before tax of N$1 600 000. Show workings where applicable. If no amounts are recorded, the reason for such treatment will earn marks.
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