- 16 Marks
TAX – Nov 2018 – L2 – SB – Q4a – Taxation of Partnerships and Sole Proprietorships
Calculate each partner’s income from the partnership for 2016 and indicate the tax basis for assessment.
Question
Solomon, Musa, and Chinnedu were classmates in their secondary school days. They are friends with a passion for running a joint business because of their trust in one another. They formed a partnership some years later, providing specialized agricultural engineering services to the agricultural sector. Accounts are made up to December 31 each year. The following are the adjusted profits for tax purposes:
| Year Ended | Adjusted Profits (N) |
|---|---|
| December 31, 2014 | 3,240,000 |
| December 31, 2015 | 3,712,500 |
| December 31, 2016 | 5,400,000 |
| December 31, 2017 | 4,950,000 |
Additional information:
(i) Solomon, Musa, and Chinnedu are to share profits in the ratio of 3:6:3, respectively.
(ii) Salaries drawn:
- Solomon: N810,000
- Musa: N540,000
- Chinnedu: N405,000
(iii) Interest on capital is 7½%.
(iv) Capital account of each partner:
- Solomon: N337,500
- Musa: N675,000
- Chinnedu: N473,500
(v) On May 31, 2016, Solomon retired, and Bakare, another old school mate, was admitted on June 1, 2016, on an annual salary of N405,000. He introduced a capital of N472,500 and was to have the same profit-sharing ratio as Solomon.
Required:
Calculate each partner’s income from the partnership business for the 2016 year of assessment and indicate the basis for which each partner will be assessed to tax.
Find Related Questions by Tags, levels, etc.
- Tags: Basis Period, Partners' Income, Partnership, Partnership Taxation Rules, Taxation
- Level: Level 2
- Topic: Taxation of Partnerships and Sole Proprietorships
- Series: NOV 2018