Tax 370

CONFIDENTIAL AC/OCT 2009/TAX370

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE

COURSE CODE

EXAMINATION

TIME

TAXATION 2

TAX370

OCTOBER 2009

3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of FIVE (5) questions.

Answer ALL questions in the Answer Booklet. Start each answer on a new page. 2.

3. Do not bring any material into the examination room unless permission is given by the invigilator.

Please check to make sure that this examination pack consists of:

i) the Question Paper ii) an Answer Booklet - provided by the Faculty iii) a two-page Appendix 1

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 9 printed pages © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 2 AC/OCT 2009/TAX370

QUESTION 1

Multispeed Bhd is a manufacturer of health and recreational equipment. The Trading, Profit and Loss Account for the year ended 31 March 2009 is as follows:

Sales Less: Cost of sales

Add: Other income

Less: Depreciation Remuneration Legal and professional fees Research and development Marketing and entertainment Leasing Finance charges General expenses Donations General provision for doubtful debt Interest on loan Net profit before taxation

Notes

1

2

3 4 5 6 7 8 9 10

RM

13,600 417,600 48,700

119,000 68,800 18,000 60,000

339,000 152,700

5,000 21,600

RM 3,206,700

(1,540,500) 1,666,200

216.400 1,882,600

(1,264,000) 618,600

Notes:

Cost of sales includes:

(0

(ii)

(iii) (iv)

Royalty of RM200.000 was paid to a non resident company on 15 March 2009. Withholding tax on the royalty was paid to the Inland Revenue Board on 30 April 2009. Closing stock amounted to RM20.000 is after deduction of goods damaged in fire. Purchase of a motorcycle to be used in the business for RM5,000. Insurance premium paid to a Japanese insurance company for RM14.000 on the importation of raw materials.

Other income comprises

(i) (ii) (iii)

(iv)

Rental of a warehouse in Klang Interest on overdue trade debtors Interest on fixed deposit from Brunei (remitted on 3 November 2008) Dividend from Tenaga National Bhd (single tier)

RM 48,000 6,400

112,000 50.000

216.400

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL


3. Remuneration comprises:

(i) Employees salaries (include RM12,000 paid to a disabled employee)

(ii) Overtime (iii) Contribution to Employees Provident Fund

4. Legal and professional fees comprise:

(i) Renewal of rental agreement (ii) Recovery of a loan from an ex-employee (iii) Recovery of trade debt (iv) Stamp duty on increase in authorized share capital (v) Auditing and accounting fees (vi) Staff recruitment charges paid to an employment

agency (vii) Designing fees for business brochures

Research and development comprise:

(i) Research expenses incurred on an approved project to produce an improved product

(ii) Approved training expenses on the approved project (iii) Routine product testing

Marketing and entertainment comprise:

RM

7. Leasing

300,000 36,600 81,000

417.600

RM 6,000 1,500 7,200

14,000 8,000

10,000 2.000

48.700

RM 38,000

55,000 26,000

119.000

RM (i) Reimbursement of entertainment expenses incurred by

company's marketing employees in entertaining clients (wholly related to sales) 25,000

(ii) Cost of entertaining suppliers 1,800 (iii) Lucky draw prizes to customers 22,000 (iv) Promotional gifts at a trade fair held in Jakarta 20.000

68.800

A car which was not licensed for commercial transportation was leased at a monthly rate of RM1,500 since 1 June 2007. The cost of the car was RM180,000

8. Finance charges comprise: RM

(i) Foreign exchange loss on repayment of foreign loan 109,000 (ii) Foreign exchange gain arising from settlement by

overseas trade debtors (49,000) 60.000



9. General expenses comprise: RM

(i) Scholarship to staff children 15,000 (ii) Cost of constructing a building for child care centre for

the employees benefits 300,000 (iii) Revenue expenses incurred on the maintenance of the

child care centre 24,000 339,000

10. Donations and contributions comprise: RM

(i) Cash donation to Putrajaya Public Library [the company elected S34(6)(g)] 110,000

(ii) Cash donation to MAKNA [an approved institution 3,000 under S44(6)]

(iii) Television set to MAKNA 6,000 (iv) Zakat 8,700 (v) Construction of a toilet for public use {S 34(6)(ha)} 25,000

152.700

11. Additional information:

The initial and annual allowances on assets as at 31 March 2009 were:

Initial allowance Annual allowance (RM) (RM)

Industrial building - 6,000 Plant and machinery 14,000 14,000

Capital allowances brought forward from previous years were RM5,700.

Required:

(i) Compute the income tax payable for Multispeed Bhd for the year of assessment 2009. Every item in the notes to the statement must be shown in your computation. Write 'NIL' where no adjustment is necessary.

(26 marks)

(ii) A penalty will be imposed on Multispeed Bhd if the difference between the tax estimate and the actual income tax payable exceed the 30% margin of error. Explain how Multispeed Bhd may avoid such penalty.

(2 marks)

(iii) When should the tax estimate for the year of assessment 2010 be submitted to the Inland Revenue Board? If Multispeed Bhd has estimated its tax payable for RM190,000, state the minimum amount to be estimated for tax payable for the year of assessment 2010?

(2 marks) (Total: 30 marks)



QUESTION 2

(A) MajuTerus Sdn Bhd commenced its manufacturing business in a rented factory on 1 March 2004 and prepares its first set of accounts to 28 February 2005 and to 28 February subsequently. In 2006, the company constructed its own factory building. Expenditures incurred on the construction were as follows: -

Cost of land Legal fees and stamp duty

(RM30.000 relates to the purchase of land) Architect fees Construction cost Drainage and irrigation Electrical wiring and fittings Cost of machinery Cost of preparing site to install machinery

RM

900,000 100,000

100,000 1,200,000

200,000 300,000 200,000 350,000

The building was completed in December 2006 and was immediately used as a factory on 1 January 2007.

Based on the suggestion made by the company's employees, MajuTerus Sdn Bhd constructed two more buildings that were immediately used for the specific purpose once it is completed. The buildings were as follows: -

• Living accommodation for employees - Construction cost - RM500,000 (including cost of land RM80.000) - Date of completion - 20 May 2007

• Child care centre - Construction cost - RM280.000 - Date of completion - 30 September 2008

Required:

Compute the industrial building allowances for all relevant years of assessment up to year of assessment 2009.

(13 marks)



(B) Matahari Sdn Bhd acquired a cocoa farm plantation from Solar Berhad on 31 March 2003. The company commenced business on 1 May 2003 and makes up its accounts to 30 April every year. Details of the capital expenditure incurred were as follows: -

Date RM

15 April 2003 Clearing the old cocoa trees 90,000 10 October 2003 Planting of cocoa seedlings 160,000 25 February 2004 Construction of labour quarters 96,000 5 August 2006 Construction of club house for 45,000

farm staffs

On 1 December 2007, the whole farm was sold to Suria Sdn. Bhd. for RM650,000. The financial year end of Suria Sdn Bhd is 31 July every year.

Required:

Compute the agriculture allowances and charges due to both companies for the relevant years of assessment up to year of assessment 2009 if Matahari Sdn. Bhd. made an election under Paragraph 27 of Schedule 3, Income Tax Act 1967.


QUESTION 3

(A) Marquisa Sdn Bhd, a licensed manufacturer under the Sales Tax Act 1972, manufactures two types of product; Charming and Beautiful. Both products are not exempted from sales tax. The cost per unit and selling price per unit for both products are as follows: -

Charming Beautiful RM RM

Cost per unit 800 500 Selling price per unit 1,200 1,000

The following were the transactions carried out by the company in the month of July and August 2009: -

05/07/09 - Sold 10 units of Charming and 20 units of Beautiful to a company located in Pulau Pangkor and Pulau Tioman respectively.

18/07/09 - Donated 12 units of Charming to Rumah Kanak-kanak Cacat, Johor Bharu.

31/07/09 - Export 1,000 units of Charming to Singapore.

08/08/09 - Sold 100 units of Beautiful to a company in Negeri Sembilan. © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL


30/08/09 - The owner took two units of Charming and one unit of Beautiful for his own use.

Required:

(i) Calculate the sales value and the amount of sales tax payable by Marquisa Sdn Bhd, if any, in respect of each of the above transactions assuming the rate of sales tax is 10%.

(5 marks)

(ii) State when is the sales tax due for payment by Marquisa Sdn Bhd. (1 mark)

(iii) Calculate the amount of penalty that would be imposed if Marquisa Sdn Bhd paid the sales tax on 7 November 2009.

(2 marks)

(B) (a) Who is chargeable to service tax and what is the rate of tax? (3 marks)

(b) AMS Associates is an accounting firm in Sungai Petani. Its annual turnover was RM350,000 for the financial year which ended 31 December 2008. On 30 April 2008, AMS Associates had completed an accounting job for KAPKAP Trading. AMS Associates sent a bill to KAPKAP Trading charging accounting fees of RM4,000 and sundry expenses of RM75.

The owner of KAPKAP Trading sent a cheque on 15 May 2008 to settle the bill in full.

Required:

(i) Prepare the invoice to be issued to KAPKAP Trading. Show your workings. (2 marks)

(ii) When must AMS Associates remit the service tax collected to the relevant authority in respect of the above transaction in order to avoid late payment penalty?

(1 mark) (Total: 14 marks)



QUESTION 4

Shachita Sdn Bhd is a manufacturer of isotonic drinks. It decided to expand its business by producing a new herbal drinks and the capital expenditures incurred in 2009 are as follows:

Land Machinery Motor vehicle Factory building

RM 500,000

20,000 75,000

100,000

Other information in 2009 is as follows:

1. Adjusted business income 2. Current year capital allowance 3. Unabsorbed capital allowance brought forward

from previous year 4. Unrealized reinvestment allowance from previous

year

RM 170,000 45,000

6,000

5,300

Required

(i) Compute the chargeable income for Shachita Sdn Bhd for the year of assessment 2009. Show your workings.

(7 marks)

(ii) State any three (3) conditions that must be fulfilled for claim of reinvestment allowance in relation to rearing of chicken and ducks.


QUESTION 5

(A) Intekma Sdn Bhd commenced business on 1 June 2004 as a travel agent and made up its accounts to 31 December annually. In January 2005, Puncak Sdn Bhd acquired ordinary shares of Intekma Sdn Bhd. As a result, Intekma Sdn Bhd was required to change its accounting date to 30 September to conform to its parents company.

The accounts prepared by Intekma Sdn Bhd over the years were as follows:-

Accounting Period

1 June 2004 - 31 December 2004 1 January 2005 - 30 September 2005 1 October 2005 - 30 September 2006 1 October 2006 - 30 September 2007 1 October 2007 - 30 September 2008

© Hak Cipta Universiti Teknologi MARA

Adjusted Income / (Loss) RM

12,000 45,000 (13,000) 25,000 46,000

CONFIDENTIAL


Required:

State the basis period for each year of assessment up to year of assessment 2009 and calculate the adjusted income / (loss) for each of the relevant year of assessment. State the overlapping period (if any).

(8 marks)

(B) (i) List all the six (6) types of income which will attract withholding tax if they are paid to a non-resident recipient.

(3 marks)

(ii) Ayer Moiek Sdn Bhd is currently developing a sport complex for futsal in Sungai Layar. During the year ended 30 September 2009 the company made the following payments:

1. RM3,500,500 to Sport Unity Ltd. (resident in Australia) for work carried out for the sport complex.

The breakdown of the RM3,500,500 is as follows:

Nature of payment RM Cost of plant and machinery 1,200,000 Technical advice on the installation of plant and 700,000 machinery rendered in Malaysia Contract work on infrastructure and building carried out 1,600,500 in Malaysia

2. RM998.000 being royalties paid to Sport Planet Ampang (resident company based in Ampang, Selangor) for use of patents relating to foundation work.

Required:

State with reasons whether the above payments made by Ayer Moiek Sdn Bhd are subject to withholding tax. State the rate(s) imposed, sections (if any) and the amount of withholding tax (if applicable), and the due date of payment.


END OF QUESTION PAPER


CONFIDENTIAL APPENDIX 1(1) AC/OCT2009/TAX370

The following tax rates and allowances are to be used in answering the questions:

(a) Companies Income Tax Rates

25%

(b) Small Companies 20%

(c) Resident individuals

Chargeable RM

0 -2,501 -5,001 -

20,001 -35,001 -50,001 -70,001 -Above

Income

2,500 5,000

20,000 35,000 50,000 70,000

100,000 100,000

Rate

0% 1% 3% 7%

12% 19% 24% 27%

Cumulative Tax RM

0 25

475 1,525 3,325 7,125

14,325

(d) Non-resident individuals 27%

Benefits-in kind (BIK) scale rates as per Inland Revenue Board (IRB) guidelines.

Cost of car RM

50,001 -75,001 -

100,001 -150,001 -200,001 -250,001 -350,001 -500,001 -

when new

Up to 50,000 75,000

100,000 150,000 200,000 250,000 350,000 500,000

and above

Annual value of BIK RM 1,200 2,400 3,600 5,000 7,000 9,000

15,000 21,250 25,000


CONFIDENTIAL APPENDIX 1 (2) AC/OCT2009/TAX 370

Household furnishing, apparatus and appliances

Types of BIK

Semi-furnished with furniture in lounge, dining room or bedroom

Plus one or more of the following: Air-conditioners, curtains, carpets

Plus one or more of the following: Kitchen equipment, crockery, utensils, appliances i.e fully furnished

Annual value of BIK RM

840

1,680

3,360

Initial allowance Annual allowance

Motor Vehicles

20% 20%

Rate of Capital Allowances

Plant & Machinery

20% 14%

Computers

20% 40%

Others

20% 10%

Industrial Building

10% 3%

Real property gains tax

Disposal within the following period after acquisition:

In the first two years In the third year In the fourth year In the fifth year In the sixth year of thereafter

Tax rate % A

Companies

30 20 15 5 5

B Other exept C

30 20 15 5 0

C Non-citizens

30 30 30 30 5


Documents

Tax 370