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1.Journal entries :

A). Sand paid beach company for exclusive right to market a product.

Debit Franchise Fee (Intangible Assets) A/c $450,000

Credit Cash/Bank A/c $450,000

Note : The above expense cannot be amortized as Product with indefinite period cannot be amortized as per IAS 38. As the usage is subject to longevity of Sand, it cannot be ascertained. Hence no need for amortization. Hence no entry required.

B and C.

New manufacturing process and application for patent.

Debit Patent A/c $100,000

Credit Cash/Bank A/c $100,000

Legal expenses incurred needs to be capitalised. Therefore the entry will be

Debit Patent a/c $25,000

Credit Cash/Bank A/c $25,000

As mentioned in the problem the useful life of patent is 18yrs. Hence the above can be amortized for a period of 18yrs in straight line basis.

Total Patent Value = $125,000

Amortization : $6944.4

Entry :

Debit Amortization (Expenses) A/c $6444.4

Credit Patent A/c $6444.4

D) successful defending of patent Expenses.

Debit Patent a/c $80,000

Credit Cash a/c $80,000

Amortization : useful life is 4 years. Hence amortized equally for 4 years.

Debit Amortization (Expenses) A/c 20,000

Credit Patent A/c $20,000

E) Unsuccessful patent defence Expenses will be directly Expensed off.

Debit Legal fees A/c $200,000

Credit Cash A/c $200,000.

2.A partnership is one of the primary business entities in Malaysia. In a partnership, there are at least two partners or owners and a maximum of 20 owners. It can be established on a small scale, making it a viable option for start-ups. Those who know that their business is to be owned and operated by more than one individual should consider selecting the partnership as their business structure of choice. There are two varieties of partnership in Malaysia. These are the partnership and limited liability partnership respectively. In a partnership, the partners jointly manage the company. They also will have joint responsibility for the partnership’s debts and other liabilities. The owners of the company have unlimited liability. In Malaysia, partnerships have certain similarities with sole proprietorships. However, there are two key differences between partnerships and sole proprietorships. The first and most important is, of course, the minimum number of owners. A partnership requires at least two; a sole proprietorship, just one. Partnerships are also governed by Malaysia’s Partnership Act of 1961. As is implied by its name, this act only pertains to partnerships; therefore, sole proprietorships are unaffected by this important piece of legislation.

A limited liability partnership is a partnership which includes elements that exist in both a partnership and a company. In a sense, a limited liability partnership is a hybrid of the two. In a limited liability partnership, the partners who own the company have limited liability related to the financial losses of the company. Most people who select this type of business entity own a small-scale business. Much like sole proprietorships, limited liability partnerships are therefore commonly owned by those who own small and medium enterprises (SMEs).

In Malaysia, the business profits of partnerships are taxed at the individual personal tax rate of each partner involved. Therefore, a partnership does not pay taxes on its business income but instead moves the tax burden to the individual partners. For this reason, tax planning opportunities for those who own a partnership are somewhat limited.

Due to the fact that tax planning for a partnership may sometimes be difficult, you may need the services of experts. This is where we at Paul Hype Page & Co can come in. Our knowledgeable and experienced tax team will provide the best tax advice possible for your partnership. We will see to it that you receive tax planning suggestions which will help your partnership thrive.

Advantages of Starting a Partnership in Malaysia

Establishing a partnership in Malaysia allows its owners to benefit from several advantages. One of these advantages is the fact that owners are able to collaborate to generate more effective business ideas. Highly skilled employees can also be made partners, thus leading to better ideas and more revenue being generated.

From a financial perspective, a partnership is relatively easy to establish and start-up costs are low. Input from multiple owners also assures that more capital is available for business operations. Therefore, the owners will have greater borrowing capacity when compared to the owner of a sole proprietorship. Partnership owners might also benefit from income splitting, which is an advantage that may even bring about significant tax savings.

Partnerships also have several legal advantages. In a partnership, all of the partners’ business affairs reman private and external regulation is reduced. Furthermore, it is also relatively easy to change the business structure if circumstances demand that such be the case.

Having read about the potential advantages brought about by a partnership, you might have become interested in starting a partnership of your own in Malaysia. If such is the case, or if you would like to start any other business entity in Malaysia, we at Paul Hype Page & Co will contribute our best input. We will take you through the entire process of incorporation. We will see to it that your company in Malaysia is set up in as simple and smooth a manner as possible.

Disadvantages of Starting a Partnership in Malaysia

Of course, there are also certain disadvantages connected to establishing a partnership in Malaysia. Perhaps the most important of these disadvantages lies in the fact that if the partnership is not a limited liability partnership, the liability of the partners for the debts of the business is unlimited. Furthermore, each partner is fully liable for the debts of the partnership. This means that each partner is liable for their share of the partnership debts as well as all the debts which have been amassed by the company.

From an interpersonal perspective, partnerships are often tenuous. This is because the nature of partnerships means that there will always be a risk of disagreement and friction between partners and management. If the partners are unable to get along with one another, it could lead to problems for the partnership. Another related disadvantage relates to the fact that each partner is an agent of the partnership. This means that each partner is liable for actions taken by other partners. Thus, even if one partner has not made any mistakes, this partner may be made to suffer through the errant actions of other partners.

How Partnerships in Malaysia Can Be Ended

Partnership laws are not the same around the world; each country has its own laws regarding partnerships, including Malaysia. However, in many countries, should there not be a presence of an agreement to the contrary, a partnership can be dissolved for any of the following reasons:

• death, resignation, withdrawal, expulsion, or retirement of a partner; in some countries, a partnership does not automatically end with the death or withdrawal of a partner, as an opportunity to buy out that partner’s portion of the partnership will be granted to other partners
• physical or mental incapacitation of a partner
• filing for bankruptcy by the partnership business
• mutually-agreed dissolution of the partnership
• partnership business is found to be illegal
• court order is issued stating that the partnership must be terminated; such may be the case when the partnership can no longer achieve one or more of its economic objectives
• one or more partners have made it impossible or extremely difficult to maintain the business operations of the partnership business
  one partner buys out all of the other partners; should such be the case, the partnership will have come to an end, but the business itself will continue to exist in the form of a sole proprietorship

In Malaysia, dissolution of partnerships is governed by Section 37 of the Partnership Act. This section allows a partner to ask the court for an order to dissolve the partnership if the partner considers another partner’s actions to have been willfully and deliberately harming the best interests of the partnership.
A good practice is for the partners to decide in advance what course of action will be taken in the event that one or more partners dies or withdraws. One way in which this can be done is by entering into one of various agreement related to buyouts. Such agreements are sometimes included as part of the partnership agreement, but they may also be found in the form of a separate agreement.

2.

Expenses incurred on certain activities can be set off twice against taxable profits. Among those activities are included:

Promotion of Exports - Expenses which are aimed at promoting exports and the supply of goods overseas can be deducted twice from taxable profits. The list of allowable expenses are set out in the income tax legislation and include overseas advertising, export market research, preparation of tenders for the supply of goods overseas, overseas travel and accommodation, cost of maintaining overseas offices & approved industrial exhibitions. This incentive is available to manufacturing & agricultural companies producing "promoted products" or engaged in "promoted activities". The allowance is also available to the tourist industry in respect of costs incurred in the overseas promotion of Malaysia as a tourist destination.

Employee Training Programs - Expenditure incurred by manufacturing companies on government approved training programs designed to develop and upgrade skills to modernize manufacturing processes can be deducted twice from taxable profits. This incentive is available to manufacturing companies & companies engaged in the hotel and tourist industry.

Disabled Persons - All remuneration payable to physically or mentally disabled employees can be deducted twice from taxable profits. This incentive is available to manufacturing companies.

Research & Development - All expenditure incurred on government approved research, payments made for the use of services of approved research institutes and voluntary cash contributions made to approved research institutes can be deducted twice from taxable profits.

Freight Charges - Certain manufacturing industries located in certain regions of the country (e.g. timber companies in Sabah) can deduct double the amount of freight charges incurred.

Brand Promotion Advertising - Expenditure incurred promoting an export quality standard Malaysian owned product is subject to double tax deduction. Promotion of a brand name means making a name internationally known and therefore would include such expenditure as bill-boards in international airports or highways. The company must be 70% Malaysian owned and the product must achieve export quality standards. This incentive is available to manufacturing companies.

3.

Malaysia Public Ruling on Industrial Building Capital Allowances

On 23 November, the Inland Revenue Board of Malaysia issued Public Ruling (PR) No. 8/2016 to explain the types of buildings that qualify as industrial buildings under Schedule 3 of the Income Tax Act 1967 (ITA) for capital allowance purposes. PR 8/2016 covers several buildings types and provides examples of their qualification as an industrial building, including:

• Buildings used as a factory:
  • Buildings equipped with plant and machinery to carry out the manufacturing or processing of materials to produce a product; and
  • Buildings that houses machinery or plant for the manufacturing or processing of materials or products, or the generation of power used for the purposes of that manufacturing or processing;
• Buildings used as a dock, wharf, depot or jetty, or other similar building;
• Buildings used as a warehouse where the business consists or mainly consists of the hire of storage space to the public;
• Buildings where the business is that of supplying water or electricity for consumption by the public or providing telecommunication services to the public;
• Buildings used in connection with the working of a farm and the business consists or mainly consists of the working of the farm with or without other farms provided no claims are made for qualifying agriculture expenditure;
• Buildings used in connection with the working of a mine where the business consists or mainly consists of the working of a mine with or without other mines provided no claims are made for qualifying mining expenditure;
• Buildings provided for the facility of employees; and
• Certain other buildings treated as industrial buildings, including:
  • Private hospitals;
  • Buildings used for research;
  • Buildings used for approved service projects;
  • Hotels;
  • Airports;
  • Educational institutions; and
  • Others.

PR 8/2016 also provides a summary of industrial building types and the rates of allowances.

(a) Warehouse can be claimed as a Industrial Building.

(b) Renovation Amount can be considered as an industrial Allowance.

(c) All those Expenses incurred will be allowed to qualify for Building Allowance for Factory

3.

Income statement.....

Balance sheet....

Cash flow....