Taxation Final Examination Paper

UoG
BA(Hons) Accounting and Financial Management Studies
Year 2

Attempt all the questions.

QUESTION 1 :
Air Con Sdn Bhd, a company tax resident in Malaysia, is a manufacturer of air-conditioners
under the brand name Solace which is registered as a trade mark in Malaysia. The company is
the owner of the brand. The income statement for the year ended 31 May 2013 is as follows:
Note
Turnover
Add: Interest income

Less: Cost of sales

Less:
Salaries and wages
Entertainment
Donation
Professional fees
Rental of premises
Travelling
Foreign exchange loss
Repairs and maintenance
Bad and doubtful debts
Freight and insurance
Depreciation
Motor vehicles expenses

RM000

3
4
5
6
7
8
9
10
11

RM000
32,306
124
32,430
22,030
10,400

3,020
268
10
488
959
350
250
116
919
1,522
940
291
9,133
1,267

Net profit before taxation

Notes:
(1) Interest Income

RM
Interest income is from a fixed deposit placed with a Tokai Bank
in Japan (the interest was remitted to Malaysia on 2 May 2013)
Fixed deposit interest received on 28 February 2013 from
CIMB Bhd
Interest from customers due to late settlement of trade debt

100,000
20,000
4,000
124,000

(2) Cost of sales includes obsolete stock written-off amounting to RM48,000.

(3) Salaries and wages includes a sum of RM200,000 paid to a manager to secure his early
retirement on account of misconduct.

(4) Entertainment expenses include the following:

Leave passages for the managing director and two other senior executives
Leave passage for employees to Port Dickson for their family day
Gift vouchers provided for customers who purchased air conditioners

RM
44,000
101,000
200,000

(5) Donation
Donation was in respect of contributions made to a fund-raising campaign organised by a
distributor of the Solace brand of goods.
(6) Professional fees include:
RM
15,000
8,000
20,000

Legal fees on trading goods lost in transit

Legal expenses to obtain a trading licence
Legal fees on the purchase of land

(7) Rental of premises

Included in the rental is a sum of RM25,000 paid in respect of relocation cost. The
company had to relocate to larger premises due to expansion of the business.
(8) Travelling
Include:
(a) Vacation airfare and hotel accommodation costing RM18,000 for customers.
(b) Reimbursement to the directors of the company of salaries of RM100,000 and
Employees Provident Fund contributions of RM12,000 in respect of drivers employed
by them.
(9) Foreign exchange loss (net):
Realised loss (trade)
Realised gain (purchase of equipment)
Unrealised loss (trade)

RM000
105
(43)
188
250

(10) Repairs and maintenance of plant and machinery include:

RM
The installation cost of a machine
17,000
Extension of companys existing factory
32,000
Maintenance of plant
8,000
(11) Bad and doubtful debts comprise:
RM
(119,000)
(951,000)
(1,205,000)
120,000
1,375,000

Bad debts recovered

Specific provision brought forward
General provision brought forward
Bad debts written off
Specific provision carried forward
3

General provision carried forward

1,699,000

The specific provision carried forward includes a sum of RM13,000, being the balance
of a personal loan granted to a director who had resigned from the Board.
(12) Capital allowances have been computed at RM972,000 for the year of assessment 2012.
All qualifying capital expenditures incurred have been taken into account for the computation
of capital allowance.

REQUIRED
Compute the tax payable by AirCon Sdn Bhd for the year of assessment 2013.
Your computation should start with the net profit before taxation figure and follow the
descriptions used in the notes to the profit and loss account indicating "nil" in the appropriate
column for every item that does not require adjustment.
(Total: 30 marks)

QUESTION 2 :
Based on the notes 1 to 9 in the above mentioned Question 1 (Section A), explain with
reasons your tax treatment of each of the items mentioned in notes 1 to 9 inclusive.
(Total: 15 marks)

QUESTION 3 :
Julliard, a foreign national who is tax resident in Malaysia, is a dancer. He performs for the
Malaysian Solful Dance Company, both in Malaysia and around the world. Details of his
income and other particulars for the year ended 31 December 2013 are given in the following
notes:
1. He is paid a salary of RM15,000 a month for his services as a dancer. Under the terms of
his contract he must work exclusively for the Malaysian Solful Dance Company for the
duration of his contract.
2. His contract also provides that, when on overseas engagements, Julliard is required to
provide consultancy services on dance technique and creative dance forms which are his
speciality. The company pays him RM30,000 for each assignment. The payment for this
service is made to his bank account in England and is not remitted to Malaysia. In 2013, he
received RM60,000 for such assignments.
3. Julliard is married to June, a disabled dancer, who has a five-year-old child, Candy, from
her previous marriage to Simon. June teaches dancing to the deaf on a voluntary basis and
earned no income in 2013. Candy lives with her mother and receives child support from
Junes ex-husband, Simon.
4. Julliard has a son, Brighton, aged 16, from his previous marriage to May. Brighton, who is
pursuing a degree at the University of Neuro Physics in Malaysia, is blind. Julliard maintains
Brighton exclusively.
5. Julliard contributed RM3,000 to the Employers Provident Fund (EPF) and RM1,000 to an
approved widows and orphans fund in the year 2013.
6. Julliard made the following payments in the year 2013:
Life insurance premiums on a policy for May
Life insurance premiums on a policy for June
Deferred annuity premium on a policy he took out in September 2013

RM
1,000
1,000
2,500

4,500

REQUIRED:
(a) Briefly explain the tax treatment of each of the items referred to in notes 3 to 6.
(11 marks)

(b) Compute Julliards tax liability for the year of assessment 2013.
(5 marks)
(c) List four advantages of an individual being treated as a tax resident.
(4 marks)

(Total: 20 marks)

QUESTION 4 :
(a) Kim Huat Sdn Bhd (KHSB) and its subsidiaries are principally engaged in property
development and investment. KHSB has been directly involved in lease and rental of food
courts and properties for the past 15 years.
KHSB owns three vacant parcels of agricultural land acquired at a low cost more than 10
years ago in the district of Nibong Tebal, Penang. Two parcels of the land were reflected
in the annual balance sheets as land held for development and the balance of the one
parcel reflected as fixed assets for investment purposes to build a food court for rental
purposes.
The two parcels of land have been left vacant until about a year ago when they were
subdivided and approved by the relevant authorities for development purposes.
As part of a restructuring exercise, KHSB decided to transfer the three parcels of land
held for development at market value to its wholly-owned subsidiary whose principal
activity is property development. The purpose of this exercise is to enable KHSB to be
solely engaged in holding shares and properties for rental and investment purposes.

REQUIRED:
(a) State your arguments, for and against the taxability (under the Income Tax Act) of the
gain on the transfer of the three parcels of land.
(8 marks)

(b) RL Sdn Bhd commenced business of manufacturing furniture on 1 March, 2012 and
closed its accounts on 30 November, 2012 and subsequently closes its accounts to 30 th of
November annually. RL Sdn Bhd has a paid up share capital of RM3 million.
The first estimate of tax payable submitted amounted to RM540,000. This is the first
estimate of tax payable RL is required to submit in accordance to the Income Tax Act
1967. At the end of the sixth month of the basis period of that year of assessment the
company, RL revised the estimate to RM228,000. The actual tax payable for that year of
assessment is RM400,000.

REQUIRED:
(i) What is the basis period of RL for the years of assessment 2012 and 2013.
(2 marks)
(ii) When is the due date for the company to submit the first estimate of tax payable
(CP204) to the Inland Revenue Board (IRB) for the year of assessment.
(2 marks)
(iii) If the company fails to submit the first CP204 for the relevant year of assessment
and there was no direction issued by IRB to pay the estimate of tax payable (CP205),
compute the relevant penalty.
(2 marks)
(iv) Set out the instalment payment scheme for RL stating the respective due dates
and amounts required to pay for each instalment in respect of the first year of
assessment taking into account the revised estimate of tax payable.
(4 marks)
(v) Based on the facts above, compute the penalty to be paid by RL for underestimation of the estimate of tax payable.
(2 marks)

(Total: 20
marks)

QUESTION 5 :
(a)

Lee & Associates, an accounting firm commenced business on 1 January, 2012. For
year ended 31st December, 2012 Lee & Associates achieved gross fees of RM95,000.
The Royal Customs Department conducted an audit recently and discovered that the
firm did not levy the service tax.

REQUIRED:
(i) Advise Lee & Associates its obligations under the Service Tax Act 1975 and
Service Tax Regulations 1975.
(3 marks)
(ii) State the consequence for Lee & Associates for not having complied with the
obligations under the Service Tax Act 1975 and Service Tax Regulations 1975.
(2 marks)
(b)

Bina Jaya Sdn Bhd, a manufacturing and trading company resident in Malaysia,
commenced its operations in January 2013. Business was slow and the company only
managed to obtain sales in July 2013, which was also when it issued its first invoice.
The customers began paying in September 2013 but due to cash flow constraints, no
sales tax was paid until 30 November 2013. The companys sales records for the year
to date are as follows:
Month end (Year 2013)
July
August
September
October

Sales
RM
50,000
20,000
80,000
NIL

Receipts
RM
NIL
NIL
50,000
15,000

REQUIRED :
(i) State the due date for payment of sales tax and explain how the penalty for late
payment is calculated, including any maximum that applies.

(4 marks)
(ii) Compute the sales tax and penalties (if any) due by Bina Jaya Sdn Bhd for each of the
tax periods covered by the above sales returns.
Note: the applicable penalty rate is 10%.
(6 marks)

(Total: 15 marks)

END OF QUESTION PAPER