FAR 360 : TAXATION | solution

TUTORIAL

Question 1 Balancing charge arise when a qualifying asset is disposed for a consideration where sale proceeds exceeds the residual expenditure. The excess is balancing charge and it is to be added on to the adjusted income of business. The amount of balancing charge imposed is restricted to the amount of capital allowance claimed. Balancing allowance arise when a qualifying asset is disposed for a consideration. When sale proceeds lower than the residual expenditure, the difference is balancing allowance and it is to be deducted to the adjusted income of business. (6 marks) Question 2 Computation of tax payable AZNAD Sdn. Bhd. Computation of Tax Payable FTYA 2009 + RM RM Net profit before tax 1 061 700 Gain on disposal of asset Administration expenses: Payroll nil Handicapped employee Double EPF contribution (RM241.6'x19%)-RM58400 12 496 Depreciation 24 000 Entrance fee 4 000 Allowance for practical training Double deduct Compensation for law suit 31 500 Donation to IJN approved donation 15 000 Selling and distribution: Traveling expenses: holiday passage 15 000 business traveling nil Entertainment expenses: Dinner for client (50% x RM36') 18 000 Family day nil 1 181 696 ADJUSTED INCOME 1 161 096 (+) Balancing Charge (-) Capital allowance STATUTORY BUSINESS INCOME AGGREGATE INCOME
Hak Cipta Universiti Teknologi MARA

15 000

3 600

2 000

20 600

w1

12 000 20 500 1 152 596

FAR 360 : TAXATION | solution

TUTORIAL

(-) approved donation-IJN CHARGEABLE INCOME Tax payable @25%

15 000 1 137 596 284 399

OR Working 1 QE YA 2007 (IA & AA @20%+20%) YA 2008 (AA @20%) Residual expenditure Disposal Balancing charge

RM 50 000 20 000 10 000 20 000 32 000 12 000

(20 X 1 = 20 marks) Question 3 The company should consider two types of donation for the tax computation, i.e. approved donation and unapproved donation. Unapproved donation is the donation considered nonallowable expenses. The approved donation is the donation allowable expenses for tax purposes. The donation has to be in cash and not in kind but excluding the gift of artifacts, manuscripts or painting to the Government or State Government (The amount deducted based on valuation of by the Department of Museums and Antiquities or National Archives). The gift of money to the government, state government, local authority or an approved institution shall be given a deduction in arriving at total income and limited to 7% of the companys aggregate income. Donation to approved libraries also allowable expenses but the amount must not exceeding RM20,000 (cash contribution) to libraries accessible to the public and libraries of schools and IPTA & IPTS. Approved sport activity or project of national interest; Cash contribution or in kind to any sport activity approved by Minister, the Commissioner of Sport and project of national interest approved by the Minister is allowed a deduction but shall not exceed 7% of the aggregate income of the company. (6 marks)

Question 4
Hak Cipta Universiti Teknologi MARA

FAR 360 : TAXATION | solution

TUTORIAL

To arrive at the accounting profit (net profit before tax) from an adjusted income, we need to work backwards. We have to add back all double deduction expenses and non-business incomes and deduct all non-allowable expenses. Double deduction expenses are the revenue expenses incurred that are deducted twice in calculating adjusted income. Non business incomes are the income generated from sources other than business activities such as rental income and interest income. Non allowable expenses are the expenses which are not allowed for tax purposes such as 50% of entertainment of clients, non-approved donation etc. (4 marks) Answer 5 1. Expenses that are not incurred, such as general provision. 2. Capital expenditure, such as secretarial fee for the increase of share capital. 3. Expenses related to investment income, such as interest expenses incurred on investment in fixed deposit. 4. Prohibited expenses under Section 39, such as purchase of personal belonging. (4 marks) Answer 6 Before you can answer the questions, you need to construct new income statement to incorporate the additional information. Costs of goods manufactured and sold RM Direct material: Add: Beginning raw materials Purchases Less: Closing inventory (3,000,000 x 10%) Raw materials used Direct labour Manufacturing overhead: Production line supervision Factory Rent (800,000 x 80%) City Hall rates (50,000 x 80%) Equipment depreciation (250,000 x 90%) Managers salary (800,000 x 50%) Electricity Total manufacturing overhead Total manufacturing cost Less: Ending work in process (6,975,000 x 20%) Cost of goods manufactured Less: Finished goods end Cost of goods sold Hak Cipta Universiti Teknologi MARA 350,000 640,000 40,000 225,000 400,000 120,000 1,775,000 6,975,000 (1,395,000) 5,580,000 (0) 5,580,000 0 3,000,000 (300,000) 2,700,000 2,500,000 RM

FAR 360 : TAXATION | solution

TUTORIAL

Revised profit report RM Sales revenue Less: Cost of goods sold Gross profit Add: Other incomes Less: Selling expenses: Rent (800,000 x 15%) Rates (50,000 x 15%) Sales staff Advertising Equipment depreciation (250,000 x 5%) Managers salary (800,000 x 30%) Truck lease Entertaining customers Insurance paid to local company for distributing products Less: Administration costs: Rent (800,000 x 5%) Rates (50,000 x 5%) Equipment depreciation (250,000 x 5%) Managers salary (800,000 x 20%) Old office computer written off Approved training for employees Net accounting profit 120,000 7,500 1,100,000 180,000 12,500 240,000 100,000 5,000 10,000 (1,775,000) 40,000 2,500 12,500 160,000 500 20,000 (235,500) 2,261,500 RM 9,800,000 (5,580,000) 4,220,000 52,000

(a) Year of Assessment 2009 RM Net accounting profit Add: Non allowable expenses Equipment depreciation Entertainment to customers Old office computer written off Less: Non business incomes Interest income Dividend income Less: Non taxable incomes Profit on disposal of unused machinery Insurance compensation received on faulty machine Less: Double deduction expenses Approved training expenses for employees
Hak Cipta Universiti Teknologi MARA

RM 2,261,500

250,000 5,000 ___500 255,500 10,000 15,000 (25,000) 20,000 7,000 (27,000) 20,000

FAR 360 : TAXATION | solution

TUTORIAL

Insurance paid to local insurance co. for selling products Adjusted Income (b) Year of Assessment 2009

10,000 (30,000) 2,435,000 (8 marks)

RM Adjusted Income [as per (b)] Less: Capital Allowances Equipment Annual Allowance (14% x 2,500,000) Statutory Income

RM 2,435,000 (350,000) 2,085,000 (3 marks)

Hak Cipta Universiti Teknologi MARA