Compute the divisible profits and adjusted profits of the partnership

James, Linda and Wally formed Simply Delicious Wraps, a partnership carrying on a food
and beverage business. Under the partnership agreement, they share the profits and losses
of the partnership in the ratio of their capital contributions. The capital contributed by James,
Linda and Wally are $100,000, $60,000 and $40,000 respectively.

The accounting profit for the financial year ended 31 December 2016 was $160,300 after
charging the following items:

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 James’ salary $20,000
 Linda’s alary $24,000
 Transport allowance paid to James amounting $3,600
 5% interest paid to partners based on contributed capital
 Staff training of $1,900
 Reimbursement of private car expenses of $2,100

 

Required:

a) Compute the divisible profits and adjusted profits of the partnership for the year of
assessment 2017.
(9 marks)

 

b) Show the allocation to the respective partners.
(5 marks)

c) State the major differences in a partner’s ability to utilise the losses arising from a
partnership and from a limited liability partnership (LLP).