Discuss about the Net Income for Intermediate Accounting.
Net income is the measure or the calculation of the amount of total revenue/income that exceed total expenses.Net income also known as net profit.Net profit is calculated by subtracting expenses from the total revenue (Simanovsky 2010 p.23).
= Total revenue –Total expenses
Total Revenue is the adding of all the income coming to the business after sale of goods.
Revenue of trust includes:
Consulting income $467,000
Rental income from the investment apartment $17,000-
(Depreciation from the previous financial year of $15,600) 17,000-15,600 = $1,400
Interest on Bank deposits $1,000
Fully franked dividend from BHP $32,000
Capital gain on a commonwealth bank shares $58,000
Total Revenue = = $559,400
Expenses
Body corporate fees on income producing property $ 5,000
Interests on money borrowed to purchase investment apartment $15,000
Legal expenses related from a new loan to acquire the investment apartment $ 5,500
Fees paid to a registered tax agency in May 2016 $ 1,100
New computer $7,700
New photocopier $3,300
Travel to and from work $1,000
Operating expenses including David’s salary $45,000
New motor vehicle $65,000
Trust tax loss from an earlier income year $10,000
Apartment’s chattels depreciations $15,600
Total expenses = $189,200
Net income = 559,400-189,200=$370,200
Net profit is =$370,200
Each beneficiary is allowed to get equal shares of the property of the trust. The net income is shared between David and his wife. The expense cost is divided equally among the two since they help determine the net income of the trust (Troy 2008, p.120).
Consulting income, which is $476,000 maybe, split into two each member getting $233,500.The rental income which is 17,000 will be split among the two each member getting $8,500 but the apartment had depreciated in the last financial year with a depreciation of 15,600 hence all the member will get $700 which in total is 1400 .The interest on the bank deposits split into two, will give each member $500 each. Franked dividend from the BHP divided equally in the two will give each member $16,000 and $29,000 from the capital gain in the commonwealth bank share. David and his wife income without including the expenses will get $287,500 but this amount does not include tax and the business expenses (Gibson 2009, p.89).
The expenses, which include the Body corporate fees on income producing property at $ 5,000, interests on money borrowed to purchase investment apartment at $15,000, Legal expenses related from a new loan to acquire the investment apartment at $ 5, 500, Fees paid to a registered tax agency at $ 1,100, will be split between the two owners. Not only are the profits shared equally but also the expenses. New computer at $7,700, new photocopier at $3,300, Travel expenses at $1,000, operating expenses including salary at $45,000, new motor vehicle at $65, 00, Trust tax loss from an earlier income year at $10,000 and Apartment’s chattels depreciations at $15,600 expenses will be divided equally between David and wife. Each member from the cost sharing will get $94,600.David and his wife net income is equal to $287,500-94,600=192,900.Each member will get a net income of $192,900 (Leach 2010, p.89).
Interest income from term deposits $25,800
Dividends
Plastic Australia Pty Ltd $175,000
Franked 100% company profits 100%, tax paid is 30% dividend paid is 70 = 175,000 *30/70=$75,000
Commonwealth Bank of Australia ltd (CBA) $85,000
Franked at 65%= hence 65%=85000 35%=85000*30/35= $72,857.14
Dell computers Inc. $47,600
Rental from commercial shops $125,080
Total income= $521,337
Expenses
Legal expenses on loan $5,800
Lease preparation costs paid to a solicitor $7,700
Interest paid on the loan $125,000
Salary paid to Mr. Chan $75,000
Total expenses= $213,500
Total income=521,337-213,500= $307,837
$ 307,837
GST is abroad-based tax of 10% on goods and services offered by a company with a turnover of $50,000 per annum and on good sold and consumed in Australia (Troy 2008, p.90).
GST rent from commercial shops =125,080
10*125080/100=$12,508
Reference
Epstein, B. J, Bragg, N. M., & Nach, R. (2009). Wiley Gaap 2010: interpretation and application of generally accepted accounting principles p.90.
Kieso, D. E, Weygandt, J. J, & Warfield, T. D. (2011). Intermediate accounting. Vol. 1 Vol. 1. Hoboken, NJ, John Wiley & Sons.
Cch incorporated. (2008). Top accounting issues for 2009: CPE course. Chicago, CCH p.45.
Mackenzie, B., Coetsee , D., Njikizana, T., Selbst, E., Chamboko, R., Colyvas, B., & Hanekom, B. (2013). Wiley IFRS 2013: interpretation and application of international financial reporting standards p.134.
Pkf international, ltd. (2016). Wiley ifrs 2016: interpretation and application of international financial reporting standards. [Place of publication not identified], John Wiley.
Epstein, B. J., Bragg, S. M., & Nach, R. (2009). Wiley Gaap 2010: interpretation and application of generally accepted accounting principles. [includes new codification]. Hoboken, NJ, Wiley pg.197.
Dong, B. (2008). The discretionary reporting of noncontrolling interests and its association with the market assessment of credit risk p.87.
Mard, M. J., Hitchner, J. R., & Hyden, S. D. (2011). Valuation for financial reporting: fair value, business combinations, intangible assets, goodwill, and impairment analysis. Hoboken, NJ, Wiley pg. 67.
Troy, L. (2008). Almanac of business and industrial financial ratios. Chicago, IL: CCH p.68.
Leach, R. (2010). Ratios made simple: A beginner’s guide to the key financial ratios. Petersfield, Hampshire: Harriman House p.134.
Gibson, C. H. (2009). Financial reporting & analysis: Using financial accounting information. Mason, OH: South-Western Cengage Learning p.g 46.
Bull, R. (2008). Financial ratios: How to use financial ratios to maximize value and success for your business. Amsterdam: Elsevier/CIMA Pub pg.234.
Albrecht, W. S. (2007). Accounting, concepts & applications. Mason, Ohio: Thomson/South-Western p.132.
Duchac, J. E., Warren, C. S., & Reeve, J. M. (2011). Accounting using Excel for success. Mason, Ohio: South-Western p.69.
A dictionary of accounting. (2010). Oxford: Oxford University Press.
Simanovsky, S. (2010). Accounting for beginners. Grandville, MI: Global Finance School p.156.
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