Question 3

Dr. Johnny and his wife, Dr. Lily, are partners in a private clinic. The partnership agreement provides for Dr. Johnny to be paid a salary RM240,000 per annum, and interest on capital of RM2,800 per annum; and for Dr. Lily to be paid a salary of RM168,000 per annum and interest on capital of RM1,200 per annum. For the period 1 January 2020 to 30 June 2020, their profit/loss sharing ratios were 60% to Dr. Johnny and 40% to Dr. Lily. For the period 1 July 2020 to 31 December 2020 the profit/loss sharing ratios were in equal share (50% to Dr. Johnny and 50% to Dr. Lily). The amount for salary and interest on capital remain the same throughout the period. The partnership closes its annual accounts on 31 December.

The profit and loss accounts of the partnership for the year ended 31 December 2020 are as follows:

	Notes	RM	RM	RM
Gross profit	1			1,540,000
Less:
Business expenses	2		440,000
Partners salaries: Dr. Johnny Dr. Lily		240,000 168,000	408,000
Interest on capital: Dr. Johnny Dr. Lily		2,800 1,200	4,000	(852,000)
Net profit for the accounts				688,000

Notes:

(1)

The gross profit includes the following dividend income:

Date Received	Amount RM
9 March 2020	3,400 (exempted dividend)
3 July 2020	3,800 (single tier)

(2)

The business expenses included:

	RM
Depreciation	54,600
Unapproved donation paid in May 2020	6,600
Unapproved donation paid in August 2020	3,600
Bad debts written off (non-trade debts)	20,000
Payment of private expenses for Dr. Johnny	60,000
Cost of renovations of Dr. Lilys house	94,000

(3)

Capital allowance for the YA 2020 amounted to RM50,060

Dr. Lily owns a house which is rented out in 2020. The adjusted rental income for the year ended 31 December 2020 amounted RM8,860.

Dr. Johnny claimed child relief in respect of his son, aged 17.

Required:

(a) Compute the partnerships provisional adjusted income and divisible for the year ended 31 December 2020.

(5 marks)

(b) Determine each partners statutory income from the partnership source for the YA 2020.

(12 marks)

[17 marks]