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41 When to allocate profit/loss Allocation of profit/loss is necessary in the following
situations: where there is an overall loss in the partnership
where a partner has a share of loss b/f
where a partner has elected personal assessment, and/or
where one of the partners is a corporation.
(Note: The corporation's share of profit in partnership is
taxed at corporate rate (see Example 4).
taxed There is no allocation for an illegal partnership.
42 Re-allocation of loss If after allocation, one/more partner(s) has/have
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
if there is an overall assessable profit.
In case loss has been allocated to a partner and the
partnership's overall result is an assessable profit,
the notional 'loss' of that partner will be rethe
allocated to other partners who have profits
according to the ratio of the profits allocated. 43 Example 2
Example Lam, Mok & Ng have been in partnership
for many years.
They share profits / losses equally.
All partners have elected for PA.
The profit-and-loss account for the year
ending 31 Mar 2008 contains the following
44 Example 2: P/L AC
Less: Partners' salaries
Interest on capital
Other expenses (all allowable)
Loss for the year
40,000 45 Solution to example 2
Lam, Mok and Ng
Basis period: year ended 31 March 2008
Loss per account
Add: Partners'salaries 330,000
Interest on capital 120,000 450,000
46 Solution to Example 2
con’t Allocation of Profit
40,000 40,000 40,000 120,000
190,000 220,000 40,000 450,000
Residue(1:1:1) (90,000) (90,000) (90,000) (270,000)
100,000 130,000 *(50,000) 180,000
Re-allocation (21,739) (28,261) 50,000
Profits to be Trans.
Personal Ass. 78,261 101,739
(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
(ii) Re-allocation is made in accordance with
the ratio of the profits allocated (ie 100:130),
not the usual profit sharing ratio (1:1).
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 Treatment of losses Treatment of losses
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.
- Spring '14