As for lessor companies the income amount is matched by an
expense amount and this expense amount must be calculated and
allocated appropriately.
When a partner reduces its interest in a business another
partner will increase its interest in the business. This may happen
because a partner leaves and the other partners take on the share
of the leaving partner or when a partner sells its share in a
partnership to a new partner.
When this happens, the other partner whose share increases as
a consequence will be allocated an amount to be treated as an
expense of its notional business.
This amount is limited to the ‘appropriate percentage
of the amount of the income’.
The appropriate percentage is the increase in the
partner’s interest in the business. This includes an increase
from ‘nil’ in the case of a company becoming a partner.
The amount of the income is the basic amount as calculated in
paragraph 29.
The total income and expense amounts match.
Example: expense amount – change in interest in
business
In this example the interest of A Ltd in the partnership
business falls by 80%. The income amount is therefore 80% of the
‘basic amount’.
The interest of B Ltd in the partnership business increases
by 80% and this increase is caused by the decrease in the interest
of A Ltd in the partnership business. The expense amount is
therefore 80% of the basic amount.
The income and expense amounts match.
