Chapter 21:

Partnership
Learning objectives:
By the end of this topic, student should be able:

• Define partnerships and existence of a partnership;

• Identify the different types of partnerships;
• Compute a provisional adjusted income and divisible
income
• Understand types of entertainment allowances
• Identify non-biz income from partnership
Introduction
Definition:
As an association of any kind between parties who have
agreed to combine
a) any of their rights;
b) Powers;
c) Property;
d) labour or skill;
for the purpose of carrying on a biz and sharing the
profit.

• A partnership does not include a Hindu joint family.

• It includes joint ventures, syndicate and cases where a
party to the association is itself a partnership.
Chargeable person
• Partnership is NOT a chargeable person for income tax.
• Income tax is levied on the “individual partners”, on their
share of business income.
• Partners here refer to individuals or companies.

Source of income
• As partnership is the relationship which comprise of two or
more persons (restricted to a maximum of 20 persons)
carrying on biz in common with a view of profit, the source is
a biz income.
• Business income includes trade, manufacture, profesion,
vocation and adventures or concern in the nature of trade.
Existence of a partnership
After considering S2 of the Act and the case laws precedence
before a partnership is said to exist:

a) carrying on business
b) sharing of right and responsibilities
c) a view to profit (PROFIT SHARING NOT REVENUE SHARING)
d) Element of risk and reward for each partner

Not partnership
• Person may called ~ salaries partner
• He would assessed on employment income if there exist a
master and servant relationship.
Eg 21.1

Answer:

The partnership exists for the following reasons:

1) There is an association / joint venture
2) Both parties have rights, power, property, labour and skill
for the purpose of carrying on a biz.
3) There is a sharing of profits and losses at the net income
level.
Eg 21.2
Siti Kalsom and Che Murad agreed to the following arrangements:
1) Siti Kalsom would provide all the capital needed for the setting up of a
food catering biz.
2) Che Murad would do the cook and oversees the operation of the biz.
3) Che Murad would receive a fixed salary and a percentage of the sales
proceeds.
4) Siti Kalsom would receive the balance after taking into account all
other operating expenses.

Answer:
a) There is master servant relationship between Siti Kalsom and Che
Murad
b) Siti Kalsom is actually the sole-proprietor of the biz whereas Che
Murad is merely an employee (S4b)
c) There is no sharing of profits/losses among them but only an incentive
scheme i.e a percentage of the sale proceeds to be given to Che
Murad.
Eg 21.3

Answer:
A partnership is deemed to exist between the foreign co. and local co.
because:
a) There is profit sharing ratio of 49:51 between the two parties.
b) All contract income and expenses are reflected in a consortium’s
account, similar to a partnership accounting.
There is no need for any partnership agreement to exist in order to
determine the existence of a partnership.
Eg 21.4

Answer:
No partnership is said to exist because:
a) There are no sharing of profits from the project and the landowner is
not liable for any losses suffered on the project.
b) All development costs are borne by developer.
c) The landowner is merely exchanging the land for 25% completed units
of house.
d) Allocation of income occurs at gross income (as apposed to net profit
level for partnership accounting) and separate accounting is
maintained by the developer co.
Eg 21.5

Answer:
Partnership does not exist between Li and Peter as:

a) It is a revenue sharing arrangement and not a profit sharing

arrangement.
b) The costs of the contract are not shared equally. Each of them is
responsible for their own costs.
Eg 21.6

Answer:
A partnership exist in this case on the ground that:

a) There is an agreed profit sharing arrangement between them.

b) There was a contribution of capital by both of them to start off the biz.
c) A joint bank account is maintain with both of them as cheque
signatories.
Assessment of partnership biz income
Provisional adjusted income (PAI)

• A partnership is presumed to be a sole proprietorship for the

purposes of computing partnership adjusted income.

• partnership adjusted income = provisional adjusted income

• It is also known as provisional adjusted income (PAI)

• The normal principles of income tax are used to ascertain the gross
income and deductions. (bagi menentukan pendapatan kasar dan
deduction)
Computation provisional adjusted income (PAI)
RM
Net income xx
Less:
Dividend income xx
Rental income xx (xx)
Net income from partnership biz XX
Add: Non – allowable expenses
- Depreciation xx
- Entertainment to client
(allowable since YA 2004) -
- Bad debt xx
- Donations xx xx
(separate approved + unapproved) XX

Add: Partner private expenses

a) Salary only xx
b) Interest on capital xx
c) etc xx xx
Provisional Adjusted income XXX
Eg 21.7

2015 was as follows:

NAE
-
NAE
Eg 21.7 - Answer
2014 would be as follows:

U can itemise details or

generalise
Eg 21.8 – page 365

31.12.2015 are as follows:

31.12.2015

1.1.2015

31.12.2015

/ Partners salaries – RM90,000

/ Partners Ali quit rents – RM9,000
NAE – Depreciation RM17,000
/ Partners insurance– RM15,000
Eg 21.8 – pages 365 - Answer
Divisible income
• The basis to apportion the partnership income to
individual partners is based on profit sharing ratio as
stipulated in the partnership agreement.
(asas agihan pendapatan perkongsian bagi setiap rakan
kongsi bergantung pada kadar nisbah keuntungan seperti
yang terdapat dalam perjanjian perkongsian)

• The profit apportionment among partners is based on

divisible income.
(agihan keuntungan antara rakan kongsi adalah
bergantung pada pendapatan agihan)
Eg 21.9

U can itemise details or generalise

Eg 21.10
Change of profit sharing ratio
• The divisible income is presumed to accrue evenly over
the basis period in a YA.
(Pendapatan agihan dianggap sama bagi setiap bulan)
• If there is a change of profit sharing ratio among partners
during the basis period, an apportionment of divisible
income on time basis will be carried out.
• The sharing of divisible income is referred to the
agreement subsist at the material time.
 Eg 21.11
1.1.2015 31.12.2015

2015 2015 2014

2015 2015

2015 2015

2015 2015

RM12,000/12 months = RM1,000

Adjustment income of partner
• The divisible income will be divided among partners based on
their respective profit sharing ratio.
(DI dibahagikan antara rakan kongsi bergantung pada nisbah
keuntungan perkongsian)
• The partners’ expenses however would be allocated to the
respective partners in accordance with their actual
consumption.
(PERBELANJAAN rakan kongsi diperuntukan kepada rakan
kongsi bergantung pada jumlah sebenar yang digunakan)
• The aggregate of divisible income and partner’s private
expenses would be the adjusted income of the partner
(ADJUSTED INCOME OF THE PARTNER = Divisible income +
partner’s private expenses)
(Pendapatan terselaras rakan kongsi adalah = Pendapatan
agihan + perbelanjaan peribadi rakan kongsi)
Eg 21.09

U can itemise details or generalise

Eg 21.10
Eg 21.12
Provisional adjusted loss
• The provisional adjusted loss is computed along the same
lines a provisional adjusted income.
(pengiraan PAI dan PAL adalah sama)

• Where a divisible loss arises, the loss is allocated to

individual partners according to relevant profit sharing
ratio at the material time.
(Bila berlaku DIVISIBLE LOSS, kerugian perlu diagihkan
pada setiap rakan kongsi, bergantung pada nisbah
keuntungan)
Changes in the partnership (perubahan rakan kongsi)
• When the partnership withdrew from the partnership or a
new partnership is admitted as partner into the existing
partnership, this would tantamount (equal) to a cessation
of old partnership and commencement of new
partnership.
(Bila rakan kongsi menarik diri dari perniagaan
perkongsian atau rakan kongsi baru masuk sebagai rakan
kongsi, perkongsian lama akan termansuh dan
perkongsian baru akan bermula)
New partnership
A new biz (partnership) is said to exist if:

a) The old partnership ceased biz on the last day of a 12

month period; [perkongsian lama termansuh pada bulan
12, (1 December 2013)]
b) New partnership took over the biz of the old partnership,
also prepared its accounts for a 12 month period.
(perkongsian baru mengambil alih perniagaan perkongsian
lama perlu menyediakan akaun untuk tempoh 12 bulan)
Continuing partnership (meneruskan perkongsian)
• If the partners change, but any old partner still there it
means partnership biz is treated as continuing (unbroken)
event though the changing took place in the middle of year.
(jika rakan kongsi berubah, tapi rakan kongsi lama masih
ada maka perkongsian akan berterusan walaupun
perubahan berlaku pertengahan tahun).
• There is no revision of basis periods for these partners and
that partner’s share of adjusted income is calculated in the
normal ways. (tiada perubahan pada basis period bagi
rakan kongsi dan adjusted income rakan kongsi di kira
menggunakan cara biasa).
Continuing partnership (meneruskan perkongsian)
• The continuing partner is deemed to have one continuing biz
income. (rakan kongsi yang baru akan dapat pendapatan
perniagaan perkongsian)
• This is applicable only where the accounting date for new
partnership and the old partnership are the same.
(Ini hanya boleh dilaksanakan bila tarikh perakaunan bagi
perkongsian baru dan lama adalah sama)
• With effect YA 2004, the basis period for YA will be restricted
to calendar year 31 Dec. Thus the issue of changing in
accounting period does not arise.
(Bermula pada YA 2004, basis period bagi perkongsian
adalah mengikut calendar year)
 Eg 21.14

Note
1
a) Chong entitled to the whole interest of capital.
b) He was entitled to ½ of the balance of the profit to year ending 31 Dec 2008 and
thereafter 1/3 (2009 & 2010).
c) He left the partnership biz on 31 Dec 2010.
Note
2
a) Ronnie was entitled to 1/3 of the profit throughout.
b) He was also entitled to the full amount of travelling allowance.
c) He received a salary to RM200 per month which was reduced to RM100 per
month on 1 Jan 2009 and to nil on 1 Jan 2011.

3
a) Irene managed one of firm’s lorries and was entitled to take certain goods from
stock as a perquisite.
b) She received a salary or RM200 per month and 1/6 of the balance of profit up to
31 Dec 2010.
c) From 1 Jan 2011, she was entitled to 1/3 of the profits.

4
a) Ivan was admitted to the firm on 1 Jan 2009.
b) He was entitled to 1/6 share of the balance of profit up to 31 Dec 2010 and from 1
Jan 2011 to 1/3 share.
c) He was also entitled to salaries of RM200 per month throughout.
Admission of new partner
(kemasukan rakan kongsi baru)
• Where new partner is admitted into an existing partnership and the
partnership continues to prepare its account to its normal year end
(bila rakan kongsi baru masuk ke dalam perkongsian yang sedia ada
dan perkongsian akan terus menyediakan akaunnyar seperti tahun-
tahun biasa)

• The Director General will direct the basis period for the new partner
for the first YA from the date of entering into partnership to the next
annual accounting date. (DG akan mengarahkan basis period bagi
rakan kongsi baru bagi tahun pertama YA adalah tarikh memasuki
perniagaan perkongsian sehingga tarikh perakaunan tahunan
seterusnya)
Jika rakan kongsi masuk 1.7.2013 jadi basis period 1.7.2013 –
31.12.2013
 Eg 21.15

2014

2014 1.12.2014 – 31.12.2014 [even one month]

2015 1.1.2015 – 31.12.2015

Sole proprietor admitting a partner
(bila milikan tunggal menjadi perkongsian)

• Where a sole proprietor admitted a partner into the biz

and forms partnership, the existing sole proprietor biz and
the partnership biz will be treated as one continuing biz if
the partnership prepares accounts to the same year end
as the sole proprietor.
(bila milikan tunggal menjadi perkongsian, milikan tunggal
dan perniagaan perkongsian akan dikira sebagai
perniagaan berterusan jika perkongsian menyediakan
akaun pada hujung tahun semasa milikan tunggal)
Example 21.16
9.0: Capital allowances
• Distributed among partners.
• It is allocated with the reference TO THE PROFIT SHARING
AT THE END OF BASIS PERIOD.
• Since capital allowance is computed at year end, NEW
PARTNER ADMITTED WOULD ENJOY A FULL CAPITAL
ALLOWANCE WHILE A RETIRED PARTNER WOULD NOT GET
ANY CAPITAL ALLOWANCE IN THE YEAR OF WITHDRAWAL.
9.1: asset purchased by a partner and solely used
By him
"NOTE: BALANCING CHARGE & CAPITAL ALLOWANCE USING RATIO
AS AT 31 DECEMBER "
11.0 NON – BUSINESS INCOME FROM PARTNERSHIP
• When the partnership received / receivable non-business income such
as dividends, rental etc, such income would also be included in
partnership computations in arriving at the partners’ divisible income;
irrespective whether there is a distribution to partners or not (S58).
(bila perkongsian menerima pendapatan bukan dari perniagaan
perkongsian seperti dividend, sewa pendapatan sebegini termasuk
dalam pengiraan divisible income rakan kongsi ; tanpa mengira ia
diagihkan pada partner atau tidak)

REFER TO QUESTION PARTNERSHIP FIRM OF JENAB, JONET, JOJO

• In practice, the computation of non-business income is not included as

part of partnership provisional adjusted income from the business but is
computed separately. The adjusted income from other sources is to be
apportioned among partners in accordance to the profit ratio.
(dalam practice yang diguna pakai, pengiraan bukan perniagaan
perkongsiaan TIDAK termasuk dalam pengiraan PAI dari perniagaan
tetapi ia dikira secara berasingan. Sementara adjusted income dari
sumber-sumber lain akan diagihkan kepada rakan kongsi bergantung
pada nisbah keuntungan)
“Note: Restricted 7% from aggregate income”
[7% x aggregate income]
Sumbangan yang dibenarkan
Sumbangan yang dibenarkan yang dibuat rakan kongsi akan diagihkan antara
rakan kongsi bergantung pada nisbah keuntungan. Setiap rakan kongsi akan
menolak sumbangan yang dibenarkan dari pendapatan berkanun.

Aggregate income
Less: ONLY APPROVED DONATION
Bila perkongsian rugi, POL akan menghasilkan DIVISIBLE LOSS, di mana
akan diagihkan pada setiap rakan kongsi. Divisible loss akan tolak
perbelanjaan rakan kongsi
Divisible Loss = (xxxxxxx)

Bila berlaku divisible loss, jumlah cukai yang dibayar oleh rakan kongsi
berkurangan. Jika berlaku kerugian yang tidak boleh diserap pada
tahun semasa ia akan dibawa pada tahun hadapan dan ditolak dengan
pendapatan berkanun perkongsian
Perniagaan perkongsian dibawah perundangan bukan pembayar cukai,
tetapi perniagaan perkongsian perlu menghantar borang P.
Tanggungjawab menghantar borang oleh managing partner.
Managing partner adalah rakan kongsi utama yang dilantik oleh
semua rakan kongsi untuk menguruskan dan membuat keputusan
polisi bagi sesuatu tahun.

Setiap rakan kongsi perlu menghantar FORM B yang menyatakan

pendapatan berkanun perkongsian dan cukai akan dikenakan pada
keuntungan setiap rakan kongsi.
EXAMPLE 21.19 AND 21.20
PLEASE CHANGE MANUALLY
ALL 2011 TO 2018
Eg 21.19