Partnership Taxation – NBC Institute

TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

Question

You attended an interview for employment as Assistant Manager (Tax) in a professional firm. The following were presented to you to proffer solutions:

Mariam, Ola, Jude and Co., a firm of quantity surveyors, makes up its accounts to December 31 of each year. The following details were extracted from the firm’s accounting books in respect of the year ended December 31, 2019:

Item	Amount (N)
Net profit for the year	1,540,000
Legal expenses for successfully defending one of the partners for alleged professional misconduct	100,000
Depreciation	360,000
Profit on sale of property, plant and equipment	4,220
Balancing charge	10,400
Balancing allowance	6,900
Capital allowances for the year	300,000

Additional information:

Profit sharing ratio agreed by the partners: Mariam 2, Ola 3, Jude 5
Mariam, Ola, and Jude received N7,400 each per annum as interest on loan to the firm
Salaries paid to each of the partners are:
- Mariam: N240,000
- Ola: N200,000
- Jude: N220,000

Required:
Compute the personal income tax assessable for each partner for the relevant year of assessment.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital allowances, Partnership Taxation, Personal income tax, Profit Sharing
Level: Level 2

Topic: Personal Income Tax
Series: MAY 2022

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

Question

Johnson, Seyi, and Bernard, based in Kaduna State, have run the firm Johnson, Seyi & Bernard (Estate Managers) for several years. The partnership agreement provides the following:

(i) Salary paid to partners:

Johnson: N288,000
Seyi: N576,000
Bernard: N1,152,000

(ii) Profit-sharing ratio:

Johnson: 2
Seyi: 3
Bernard: 5

In April 2015, there was a decision to review the partnership agreement. Messrs Johnson, Seyi, and Bernard were unable to find worthy successors to take over as partners. Rather than review the partnership agreement, they agreed to convert the partnership into a limited liability company.

A firm of legal practitioners was contacted to incorporate a new company, JSB Consultants Limited. The Authorised Share Capital was agreed at N50,000,000, made up of 50,000,000 Ordinary Shares of N1.00 each. The shareholding structure is as follows:

Johnson: 20%
Seyi: 30%
Bernard: 50%

The Certificate of Incorporation was dated July 15, 2015, and the company commenced business on September 1, 2015. The cost of incorporation includes:

Payment for Stamp Duty: N400,000
Professional fee for incorporation: N250,000
Corporate Affairs Commission (CAC) registration fee: N500,000
Miscellaneous costs: N200,000
Total: N1,350,000

The financial results for the year ended December 31, 2015, are as follows:

Revenue: N20,000,000
Expenses:
- Cost of incorporation: N1,350,000
- Transport and travelling: N675,000
- Medical: N600,000
- Hotel and accommodation: N625,000
- Audit and accountancy: N550,000
- Postages and telephone: N750,000
- Salaries:
  - Johnson: N1,440,000
  - Seyi: N2,880,000
  - Bernard: N5,760,000
    Total expenses: N14,630,000
Net Profit: N5,370,000

Required:
As the Tax Consultant, you are required to write a report to Messrs Johnson, Seyi, and Bernard highlighting:
a. Tax implications of the decision to convert to a limited liability company, limiting yourself to the details provided. (11 Marks)
b. Your comment on the breakdown of the cost of incorporation of N1,350,000 and the tax implication of each item. (9 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: CIT, Incorporation, Partnership Conversion, Partnership Taxation, Tax implications
Level: Level 2

Topic: Companies Income Tax (CIT), Taxation of Partnerships and Sole Proprietorships
Series: NOV 2016

PT – May 2021 – L2 – Q3 – Income Tax Liabilities

Discuss partnership taxation principles, compute the partnership taxable income, and explain the taxation rules for casual and temporary workers.

Question

Amna and Bean are brothers and equal partners in their partnership business, A&B General Wholesale Merchants Limited. The partnership is in its second year of trading and operates from an office premises owned by Amna. The cost of the premises as at 1 January, 2019 was GH¢200,000. Bean provided all the office furniture and equipment used by the partnership, valued at GH¢80,000 as at 1 January, 2019.

Amna and Bean use their own personally acquired motor vehicles for the partnership business and charge the partnership for the business mileage incurred for fuel and maintenance. The cost of the two motor vehicles as at 1 January, 2019 was GH¢120,000. The partnership has employed three staff in addition to the partners.

The partnership’s income statement for the year ended 31 December 2020 is detailed below:

3. Other expenses comprise penalties for late filing of tax returns and payment of taxes.

Amna and Bean are both married. Amna has two children, both in accredited senior high schools in Ghana. Bean has one child who is currently attending university in the United Kingdom. Amna takes full care of her aged mother. Bean, who is currently undertaking a training course in Wholesaling Risks, is certified as handicapped in one of his legs through an accident. Bean paid GH¢3,300 for the training course.

Required:

Explain the principles governing partnership taxation.
Calculate the joint partnership taxable income for the year ended 31 December, 2020. You are required to include capital allowance where necessary.
Calculate the taxable income of Amna and Bean for the year ended 31 December, 2020.
What are the taxation rules on payment to casual and temporary staff?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Allowance, Casual Workers, Partnership Taxation, Taxable Income, Temporary Workers
Level: Level 2

Topic: Income Tax Liabilities
Series: MAY 2021

TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

Question

You attended an interview for employment as Assistant Manager (Tax) in a professional firm. The following were presented to you to proffer solutions:

Item	Amount (N)
Net profit for the year	1,540,000
Legal expenses for successfully defending one of the partners for alleged professional misconduct	100,000
Depreciation	360,000
Profit on sale of property, plant and equipment	4,220
Balancing charge	10,400
Balancing allowance	6,900
Capital allowances for the year	300,000

Additional information:

Profit sharing ratio agreed by the partners: Mariam 2, Ola 3, Jude 5
Mariam, Ola, and Jude received N7,400 each per annum as interest on loan to the firm
Salaries paid to each of the partners are:
- Mariam: N240,000
- Ola: N200,000
- Jude: N220,000

Required:
Compute the personal income tax assessable for each partner for the relevant year of assessment.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital allowances, Partnership Taxation, Personal income tax, Profit Sharing
Level: Level 2

Topic: Personal Income Tax
Series: MAY 2022

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

Question

Johnson, Seyi, and Bernard, based in Kaduna State, have run the firm Johnson, Seyi & Bernard (Estate Managers) for several years. The partnership agreement provides the following:

(i) Salary paid to partners:

Johnson: N288,000
Seyi: N576,000
Bernard: N1,152,000

(ii) Profit-sharing ratio:

Johnson: 2
Seyi: 3
Bernard: 5

Johnson: 20%
Seyi: 30%
Bernard: 50%

The Certificate of Incorporation was dated July 15, 2015, and the company commenced business on September 1, 2015. The cost of incorporation includes:

Payment for Stamp Duty: N400,000
Professional fee for incorporation: N250,000
Corporate Affairs Commission (CAC) registration fee: N500,000
Miscellaneous costs: N200,000
Total: N1,350,000

The financial results for the year ended December 31, 2015, are as follows:

Revenue: N20,000,000
Expenses:
- Cost of incorporation: N1,350,000
- Transport and travelling: N675,000
- Medical: N600,000
- Hotel and accommodation: N625,000
- Audit and accountancy: N550,000
- Postages and telephone: N750,000
- Salaries:
  - Johnson: N1,440,000
  - Seyi: N2,880,000
  - Bernard: N5,760,000
    Total expenses: N14,630,000
Net Profit: N5,370,000

Answer

Find Related Questions by Tags, levels, etc.

Tags: CIT, Incorporation, Partnership Conversion, Partnership Taxation, Tax implications
Level: Level 2

Topic: Companies Income Tax (CIT), Taxation of Partnerships and Sole Proprietorships
Series: NOV 2016

PT – May 2021 – L2 – Q3 – Income Tax Liabilities

Discuss partnership taxation principles, compute the partnership taxable income, and explain the taxation rules for casual and temporary workers.

Question

The partnership’s income statement for the year ended 31 December 2020 is detailed below:

3. Other expenses comprise penalties for late filing of tax returns and payment of taxes.

Required:

Explain the principles governing partnership taxation.
Calculate the joint partnership taxable income for the year ended 31 December, 2020. You are required to include capital allowance where necessary.
Calculate the taxable income of Amna and Bean for the year ended 31 December, 2020.
What are the taxation rules on payment to casual and temporary staff?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Allowance, Casual Workers, Partnership Taxation, Taxable Income, Temporary Workers
Level: Level 2

Topic: Income Tax Liabilities
Series: MAY 2021

Question Tag: Partnership Taxation

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TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

PT – May 2021 – L2 – Q3 – Income Tax Liabilities

Discuss partnership taxation principles, compute the partnership taxable income, and explain the taxation rules for casual and temporary workers.

TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

PT – May 2021 – L2 – Q3 – Income Tax Liabilities

Discuss partnership taxation principles, compute the partnership taxable income, and explain the taxation rules for casual and temporary workers.

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TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

You're reporting an error for "TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)"

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

You're reporting an error for "AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships"

PT – May 2021 – L2 – Q3 – Income Tax Liabilities

Discuss partnership taxation principles, compute the partnership taxable income, and explain the taxation rules for casual and temporary workers.

You're reporting an error for "PT – May 2021 – L2 – Q3 – Income Tax Liabilities"

TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

You're reporting an error for "TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)"

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

You're reporting an error for "AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships"

PT – May 2021 – L2 – Q3 – Income Tax Liabilities

Discuss partnership taxation principles, compute the partnership taxable income, and explain the taxation rules for casual and temporary workers.

You're reporting an error for "PT – May 2021 – L2 – Q3 – Income Tax Liabilities"

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