08 Profit computation Basis period losses & Partnership 2014

Account 63000 63000 add partners salaries 150000 add

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Unformatted text preview: fits 300,000 Assessable 300,000 41 When to allocate profit/loss Allocation of profit/loss is necessary in the following Allocation situations: where there is an overall loss in the partnership where where a partner has a share of loss b/f where a partner has elected personal assessment, and/or where where one of the partners is a corporation. (Note: The corporation's share of profit in partnership is (Note: taxed at corporate rate (see Example 4). taxed There is no allocation for an illegal partnership. There 42 Re-allocation of loss If after allocation, one/more partner(s) has/have If losses, while one/more other partner(s) has/have profits, re-allocation has to be made. No loss can be allocated to any individual partner No if there is an overall assessable profit. In case loss has been allocated to a partner and the In partnership's overall result is an assessable profit, the notional 'loss' of that partner will be rethe allocated to other partners who have profits allocated according to the ratio of the profits allocated. 43 Example 2 Example Lam, Mok & Ng have been in partnership Lam, for many years. They share profits / losses equally. They All partners have elected for PA. The profit-and-loss account for the year The ending 31 Mar 2008 contains the following information: 44 Example 2: P/L AC $ Gross profit Less: Partners' salaries -Mr Lam -Mr Mok Interest on capital Interest -Mr Lam -Mr -Mr Mok -Mr Ng (450,000) Other expenses (all allowable) (100,000) (100,000) Loss for the year (270,000) $ 280,000 150,000 180,000 40,000 40,000 40,000 45 Solution to example 2 Solution Lam, Mok and Ng YA 2007/08 Basis period: year ended 31 March 2008 $ $ Loss per account (270,000) Loss Add: Partners'salaries 330,000 Interest on capital 120,000 450,000 120,000 Assessable profits 180,000 Assessable 46 Solution to Example 2 Solution con’t con’t Allocation of Profit Lam Mok Ng Total Lam Ng Total $ $ $ $ Salary 150,000 180,000 330,000 Interest 40,000 40,000 40,000 120,000 40,000 190,000 220,000 40,000 450,000 Residue(1:1:1) (90,000) (90,000) (90,000) (270,000) (90,000) 100,000 130,000 *(50,000) 180,000 *(50,000) Re-allocation (21,739) (28,261) 50,000 (21,739) (28,261) (100:130) Profits to be Trans. Personal Ass. 78,261 101,739 180,000 78,261 180,000 47 *Note: *Note: (i) It is not possible for a partner to have a share of a loss from a partnership which earned a profit for the YA. Re-allocation is necessary. necessary. (ii) Re-allocation is made in accordance with (ii) e-allocation the ratio of the profits allocated (ie 100:130), not the usual profit sharing ratio (1:1). not 48 Conclusion Profits tax computation Profits tax computation When does profit accrue When does profit accrue Valuation of stock Valuation of stock Sharkey v Wernher principle Sharkey v Wernher principle Calculation of provisional profit tax Calculation of provisional profit tax Holding over of provisional profit tax Holding over of provisional profit tax Determination of BP Determination of BP Determination Determination Treatment of losses Treatment of losses Treatment Treatment Allocate the partnership profit or loss Allocate the partnership profit or loss The changes in a partnership The changes in a partnership 49...
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This document was uploaded on 03/16/2014.

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