Anita and Andrian are partners in a business selling omamentaf Jewelry. The Income statement of the partnership
Question:
Anita and Andrian are partners in a business selling omamentaf Jewelry. The Income statement of the partnership for the year ended 31.12. 2019 is as follow:
Nola | RM | RM | RM | |
Notes | ||||
Sales | 1 | 617,000 | ||
Cost of Sales | (105,000) | |||
Gross profit | 512,000 | |||
Add: Rental Income | 2 | 10,000 | ||
522,000 | ||||
Less: (total up the below) | ||||
Repairs and maintenance | 3 | (3,000) | ||
Bad debt provisions | 4 | (22,000) | ||
Salaries and wages | 5 | (49,000) | ||
Advertisement | 6 | (61,000) | ||
Depreciation | (22,000) | |||
Approved cash donation | (22,000) | |||
Partners' salaries: | ||||
Anita | 78,000 | |||
Andrian | 66,000 | (144,000) | ||
Interest on capital: | ||||
Anita | 10,000 | |||
Andrian | 15,000 | 25,000 | (348,000) | |
Net profit for the accounts | 174,000 |
Extra Notes:
1) Sales includes a sum of RM155,000 received from a supplier of beads as a compensation for the poor quality of the beads.
2) Gross rents received in respect of residential properly owned by Anita for the year ended 31 December 2019.
3) Repairs and maintenance include the fire insurance expenses amounted to RM3,000 incurred on the residential properly as in Note 2 above rented out during the financial year.
4) Bad debt provision comprises:
RM | |
Specific provision of doubtful debts | 31,000 |
Bad debt recovered | (9,000) |
22,000 |
5) Salaries and wages include:
RM | |
Leave passages to Thailand provided to management staff and their families | 25,000 |
Purchase of equipments for disabled employees | 24,000 |
49,000 |
6) Advertisements includes a sum of RM61,000 incurred wholly to promote the business on promotional gifts at trade fairs held in Malaysia and provision of entertainment for cultural events open to public. The sum comprises of RM23,000 incurred on trade fairs and RM38,000 incurred on cultural performances.
7) Other information:
i) For the year of assessment 2019, capital allowances for plant and machinery amount to RM99,000, excluding any allowances or adjustments attributable to the assets referred to in (ii}, (iii) and (iv).
ii) A new Honda CRV were acquired on 15 May 2019 at the price of RM108,000 for business purpose by the partnership.
iii) Capital expenditure was incurred on a new heavy machinery during the year. Alteration to the factory was carried out tor the installation of the machinery. The expenditure incurred was as follows:
RM | |
Cost of machinery | 280,000 |
Cost of alteration to the factory | 33,000 |
Incidental costs | 7,000 |
320,000 |
iv. An old van, bought in August 2016 at a cost of RM75,000 was sold for RM20,000 in April 2019
The partnership agreement provides for Anita to be paid a salary of RM62,400 per annum, and interest on capital of RM10,000 per annum; while for Andrian to be paid salary of RM41,600 per annum and interest on capital of RM15,000 per annum.
Their profit and loss sharing ratios were equal for both partners for the period of 1 January 2019 to 30 June 2019. However, the pro(;t and loss sharing ratios were changed to 60% to Anita and 40% to Andrian for the period of 1 July 2019 to 31 December 2019. The amount for salary and interest on capital remained the same throughout.
Based on the information provided, you are required to:
a) Compute the provisional adjusted income of the partnership for the year of assessment 2019. Your computation should start with the net profit for the accounts figure and follow the descriptions used in the notes to the income statement, indicating 'nil' in the appropriate column for every item that does not require adjustment.
b) Compute the divisible income of the partnership for the year of assessment 2019.
c) Compute the capital allowances, balancing a/lowance(s) and/or balancing charge(s) of the partnership for the year of assessment 2019 (Show your details workings and provide relevant explanations).
d) Compute the statutori income of each partner for the year of assessment 2019.
e) 'Badges of trade' is used to detennine whether a particular single isolated transaction is a one-off capital transaction or an adventure in the nature of trade. State and explain any two badges of trade giving a brief overview of the particular 'badge' with an appropriate example for the relevant 'badge'.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill