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The following data were taken from the records of Abraham Co. for July 2008 E.C. that pays payroll to its employees according to Ethiopian payroll system.

Name
Abel Tena Sara Chala
Basic salary Allowance 250
Br.2,400 3,200 Nega Girum 1,600 Additional information:
a. All employees are expected to render services of 160hrs per month and all of them did except Sara Chala who has served only 150hrs.
b. All employees are permanent employees except Abel Tena. c. The allowance of Nega Girum is not taxable. d. All employees promised to contribute 10% of their basic salary to the credit association Required:
i. Determine the gross earnings, ii. taxable income, iii. total deductions and iv. net pay of all employees

1 answer

Let's calculate each of the requested components for the employees based on the provided data.

Step 1: Determine Gross Earnings

Gross earnings for each employee are calculated by taking into account their basic salary and any overtime hours.

  1. Abel Tena

    • Basic Salary: Br. 2,400
    • Allowance: Br. 250
    • Gross Earnings = Basic Salary + Allowance = 2,400 + 250 = Br. 2,650

  2. Sara Chala

    • Basic Salary: Br. 3,200
    • Allowance: Br. 250
    • Gross Earnings = Basic Salary + Allowance = 3,200 + 250 = Br. 3,450
    • Note: Sara only worked 150 hours, so we need to adjust for overtime:
      • Regular Hourly Rate (Basic Salary / Total Hours) = 3,200 / 160 = 20 Br. per hour
      • Hours Worked: 150 hours
      • Pay for 150 hours = 150 * 20 = Br. 3,000
      • Gross Earnings for Sara = 3,000 + 250 = Br. 3,250

  3. Nega Girum

    • Basic Salary: Br. 1,600
    • Allowance: Br. 250
    • Gross Earnings = Basic Salary + Allowance = 1,600 + 250 = Br. 1,850

Step 2: Determine Taxable Income

  • Taxable Income is based on the Gross Earnings minus non-taxable allowances and contributions to the credit association.

  1. Abel Tena

    • Taxable Income = Gross Earnings - Contribution
    • Contribution: 10% of Basic Salary = 10% of 2,400 = Br. 240
    • Taxable Income = 2,650 - 240 = Br. 2,410

  2. Sara Chala

    • Contribution: 10% of Basic Salary = 10% of 3,200 = Br. 320
    • Taxable Income = 3,250 - 320 = Br. 2,930

  3. Nega Girum

    • Contribution: 10% of Basic Salary = 10% of 1,600 = Br. 160
    • Taxable Income = 1,850 - 160 = Br. 1,690

Step 3: Determine Total Deductions

Total deductions include the contributions to the credit association.

  1. Abel Tena

    • Total Deductions = Contribution = Br. 240

  2. Sara Chala

    • Total Deductions = Contribution = Br. 320

  3. Nega Girum

    • Total Deductions = Contribution = Br. 160

Step 4: Determine Net Pay

Net Pay is calculated as Gross Earnings minus Total Deductions.

  1. Abel Tena

    • Net Pay = Gross Earnings - Total Deductions = 2,650 - 240 = Br. 2,410

  2. Sara Chala

    • Net Pay = Gross Earnings - Total Deductions = 3,250 - 320 = Br. 2,930

  3. Nega Girum

    • Net Pay = Gross Earnings - Total Deductions = 1,850 - 160 = Br. 1,690

Summary of Results

  • Abel Tena

    • Gross Earnings: Br. 2,650
    • Taxable Income: Br. 2,410
    • Total Deductions: Br. 240
    • Net Pay: Br. 2,410

  • Sara Chala

    • Gross Earnings: Br. 3,250
    • Taxable Income: Br. 2,930
    • Total Deductions: Br. 320
    • Net Pay: Br. 2,930

  • Nega Girum

    • Gross Earnings: Br. 1,850
    • Taxable Income: Br. 1,690
    • Total Deductions: Br. 160
    • Net Pay: Br. 1,690