Kamiliah Sulimat PA602 Chapter 1.pptx

7/27/2019 Kamiliah Sulimat PA602 Chapter 1.pptx

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PA602 MALAYSIAN TAXATION 2

CHAPTER 1: PARTNERSHIP ACCOUNT


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TOPIC 1 : (CLO1 & CLO2)

PARTNERSHIP TAXATION1.1 Define Partnership Under ITA 1967

1.1.1 List Down Types Of PartnersA. Full PartnersB. Salaried Partners

C. Sleeping PartnersD. Limited PartnersE. Corporate Partners.

1.1.2 Discuss The Creation And Existence Of A Partnership.

1.2 Understand The Calculation Of Provisional Adjusted Income1.2.1 Calculate The Provisional Adjusted Income

1.3 Understand The Assessment Of Partners1.3.1 Calculate The Divisible Income, Adjusted Income And Statutory Income Of Partners1.3.2 Compute Aggregate Income And Total Income1.3.3 Prepare Form P.

1.4 Understand The Changes In Partnership1.4.1 Explain The Allocation Of Capital Allowance Among The Partners1.4.2 Apply The Returns And Account To Partners.


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PARTNERSHIP TAXATION

Define Partnership Under ITA 1967

DEFINITION

An association of any kind between parties whohave agreed to combine any of their rights,power, property, labour or skill for the purposeof carrying on a business and sharing the profits

there form.


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PARTNERSHIP TAXATION

List down types of partners

Full partners

Salaried partners

Sleeping partners

Limited partners

Corporate partners


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PARTNERSHIP TAXATIONDefine Partnership Under ITA 1967Creation And Existence Of A PartnershipPartnership Deed is a persuasive for the existence of

partnership but this never conclusive.

The following guidelines can be used in determining whethera partnership exist without a Deed:

Profit / Loss sharing ratio. Manner of operating the bank account and limitations to

signing of cheque. Name use in carrying on the business as shown in trade

directories and business correspondence. Partners remuneration, drawings, capital contributed and

interest allowed for capital.


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TAX TREATMENT OF PARTNERSHIP

S. 55(1)

The computation of partnership income =business income except no deduction allowed forany expenses charged to the partnershipaccounts.


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Provisional Adjusted Income

RM RM

Net Profit XX

Add: Non-Allowable expenses X

*Expenses that was deducted in P&L but non-allowable by ITA.

Less: Non-business income X

Allowable expenses XDouble deduction expenses X XX

Provisional Adjusted Income XX


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Divisible Income

RM RM

Provisional Adjusted Income XXLess: Partners entitlement X

partners interest X

partners private &

domestic expenses X XX

Divisible Income XX


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Computation of Total IncomePartner 1 Partner 2

RM RMShare of Divisible Income XX XX

Salary X XInterest on Capital X XEtc X XADJUSTED INCOME XX XX

Less: Capital Allowance (X) (X)STATUTORY INCOME X X

Add: Other Income X XAGGREGATE INCOME X X

Less: Approved Donation X XTOTAL INCOME X X


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Example 1Brothers Ahmad, Asri and Azmil are in partnership, carrying on business as the AAA Restaurant, andsharing profits equally. For the year ended 31 December 2012, the restaurants statement of profit andloss is as follows:

RM RM RMSales turnover 754,590

ExpenditureIngredients and foodstuff 205,000Staff payroll 115,038Salary to Azmil 66,000Interest on capital to:

Ahmad 9,000Asri 5,000 14,000

Rental of premises 18,000Utilities, telecommunication and office costs 32,352Provision for staff outing 6,000Depreciation 3,645

(460,035)Net profit before tax 294,555

Capital allowances for the partnership for the year of assessment 2007 amounted to RM4,500.


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Example 1

Required:

(a) Compute the provisional adjustedincome and divisible income of thepartnership for the year of assessment

2012.

(b) Compute the statutory income from theAAA Restaurant for Ahmad, Asri andAzmil for the year of assessment 2012.


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CHANGE IN PROFIT SHARING DURINGTHE YEAR

The allocation of the divisible income will beapportioned on the time basis to the periodbefore and after the change in the profit sharingratio.


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Example 2:

AA and Co, a partnership consists of 2 partners Ali and Abu who contributed capital

of RM20,000 each. Interest payable at 6% per annum on capital contributed. Eachpartner is entitled to draw salary in proportion to capital contribution.

For the year ended 31 December 2012, the partnership has a net loss of RM80,000after charging the following.

RM RM

Partners Salaries 30, 000Interest on Capital 3,000

Private Expenses:

Ali 4,000

Abu 6,000 10,000

Depreciation 20,000


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Example 2: (cont)

On July 1 2012, Abu increases his contributionto the partnership by RM20,000.

Required:

a. Calculate the provisional adjusted income/

loss and divisible income/loss.b. Calculate the adjusted income/loss for Ali

and Abu.


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CHANGES IN PARTNERSHIP

SITUATION:

Partner withdrew from partnership = oldpartnership

New person is admitted as partner into existingpartnership = New partnership


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Example 3Lily and Lila were in partnership since 2010sharing profit equally. Lisa was admitted as a

partner effective from 1 June 2012. Thepartnerships accounting year ends 31 Decembereach year. The three partners decided to shareprofits equally. The partnerships divisible

income for the year ended 31 December 2012 isRM36,000. Assuming that the partnership didnot claim for capital allowances, compute theshare of divisible income for each partner.


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CAPITAL ALLOWANCES Claim attributable to the individual, NOT partnership.

Allocated with reference to the profit sharing ratio of thepartner at the end of each basis period.

Admission or retirement of partners will NOT affect theclaim of capital allowances as the partnership is treatedas a continuing business.

Computed at the year end >New partner = Full year capital allowance.Old/ retired partner = NO capital allowance in the yearof withdrawal.


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Example 4The partnership of Nana and Nani commenced on 1 January 2000 and accounts areprepared on 31 December annually. The partnership agreement provided for thefollowing:

RM

Interest on Capital: 10% per annum for each partnerCapital Contribution

NanaNani

70,000105,000

Salary (per month)NanaNani

2,0002,500

Share of divisible income/ (loss)NanaNani

2/53/5


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Example 4 (Cont)On 30 June 2012, Nana left the partnership and withdrew her accumulated capital andprofits up to that date. On 1 July 2012, Jenny joined the partnership and the newpartnership agreement provided for the following:

RM

Interest on Capital: 10% per annum for each partnerCapital Contribution

JennyNani

100,000100,000

Salary (per month)JennyNani

2,5002,500

Share of divisible income/ (loss)JennyNani

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Example 4 (Cont)The partnerships trading, profit and loss account for the year ended 31 December 2012was as follows:

RM

Income from construction contract 8,418,600

Less: Cost of construction (7,961,400)

Profit from construction 457,200

Other Income 190,700

647,900

Less: General overhead (420,300)

Net profit for the year 227,600


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Example 4 (Cont)Included in the general overhead are:

Partners Salary RM57,000

Partners Interest on Capital RM18,750Depreciation on fixed asset RM30,700

Capital allowance for the year 2012 was RM30,500.

Calculate the statutory income of each partner from the partnership for the Year

Assessment 2012.


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Example 5: Calculate AggregateIncome and Total Income Gemilang A


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Kamiliah Sulimat PA602 Chapter 1.pptx

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