Malaysian Institute of Accountants
© The The Ass Assoc oc iation iation of Chartered Chartered Certified Accountants
Module D – Certificate Stage
MIA examinations in collaboration with ACCA
Tax Framework (Malaysia) December 2000 Question Paper Time allowed
3 hours
This paper is divided into two sections Section A
ALL THREE questions are compulsory compulsor y and MUST be answered
Section B
THREE questions ONLY to be answered
Tax rates and tables are on page 2
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The following tax rates and allowances are to be used when answering the questions. Rate of Income Tax
(a) Company
28%
(b) Resident individual Chargeable income RM 0 – 2,500 2,501 – 5,000 5,001 – 10,000 10,001 – 20,000 20,001 – 35,000 35,001 – 50,000 50,001 – 70,000 70,001 – 100,000 100,001 – 150,000 Remainder
Rate
0% 1% 3% 5% 9% 15% 20% 25% 28% 29%
Cumulative Tax RM 0 25 175 675 2,025 4,275 8,275 15,775 29,775
Personal Allowances
Self Fees for education Medical costs for serious diseases (self, wife or child) Medical expenses for parents Basic support equipment Wife Children Life insurance premiums, contributions to Employees Provident Fund and other obligatory contributions to other approved schemes Approved EPF insurance policy Education/medical insurance premiums Tax rebate
RM 8,000 2,000 5,000 5,000 5,000 3,000 800
maximum maximum maximum maximum
5,000 1,000 3,000 110 + 60
maximum maximum maximum for wife
each
Real Property Gains Tax
Company Disposal within two years of acquisition date Disposal in the third year after acquisition date Disposal in the fourth year after acquisition date Disposal in the fifth year after acquisition date and thereafter
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Rate of Tax 30% 20% 15% 5%
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Section A – ALL THREE questions are compulsory and MUST be attempted 1
Easi Sdn Bhd is a manufacturer of electrical appliances. Its profit and loss account for the year ended 30 June 2000 is as follows: Sales Less: Cost of sales
Note 1 2
RM000
RM000 28,800 9,800 19,000
Less:
Staff remuneration Insurance Repairs & maintenance Lease rentals Marketing & advertising Staff welfare Professional & legal fees Bad & doubtful debts Foreign exchange Miscellaneous expenses
3 4 5 6 7 8 9 10 11 12
4,744 1,825 326 24 827 49 152 51 17 986 9,001 9,999
Other income: Interest
122
Profit before taxation Taxation
10,121 2,600
Profit after taxation
7,521
Notes: (1) The developer of the adjacent housing project admitted negligence in respect of damage suffered by Easi Sdn Bhd and the matter was settled out of court. Sales include compensation moneys received from the developer as follows: (i)
A sum of RM1·1million for the loss of a machine which was badly damaged by flood and had to be scrapped on 6 January 2000. The market value of the machine was RM1,070,000;
(ii) A sum of RM50,000 as general damages for disruption of the company’s production schedules. (2) Cost of sales includes: (i) Closing stock year end 30.6.1999 of RM708,000 Closing stock year end 30.6.2000 of RM800,000 Stock is valued at cost less a general provision of 8% (ii) A sum of RM22,000 for warranty claims. This comprises claims settled during the year of RM5,000, a closing provision of RM42,000 and an opening provision of RM25,000. (3) Staff remuneration comprises:
RM000 1,200 2,400 450 694
Wages – production workers Salaries – staff Bonus Employees Provident Fund contributions
4,744 (i)
Included in the above is a salary of RM48,000 and a bonus of RM4,000 paid to an accounts executive who is disabled.
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(ii) Production workers were paid two and a half months bonus whereas staff were paid one month bonus. (iii) EPF contributions for production workers is 12%; for staff 20%. (4) Insurance includes export credit insurance of RM192,000 insured with an approved company. (5) Repairs & maintenance includes: (i) A piece of equipment costing RM9,000 for the disabled employee to enable him to do his work. (ii) Replacement of an electrical alarm system with a computerised security system costing RM199,000. (6) Lease rentals comprise: One month hire rental of a van (the company van was under repair) Lease rentals in respect of a car which had been rented for twenty months at RM3,000 per month commencing 1 May 1998
RM000 6 18 24
(7) Marketing & advertising comprise: (i)
Payment to an approved research company which is not related to Easi Sdn Bhd for services rendered
(ii) Goodwill payments to settle complaints by customers in respect of malfunctioning appliances
808
19 827
(8) Staff welfare: (i)
Scholarships to children of employees
16
(ii) Leave passages for directors
33 49
(9) Professional & legal fees: Legal costs in filing suit against the developer Fees to designer of a new company logo
21 131 152
(10) Bad & doubtful debts: Bad debts written off during the year Specific provision for doubtful debts 30.6.2000 General provision for doubtful debts 30.6.2000 Bad debts recovered during the year Specific provision for doubtful debts 1.7.1999 General provision for doubtful debts 1.7.1999
49 32 19 (7) (32) (10) 51
Included in bad debts written off is a sum of RM4,000 in respect of a car loan granted to an ex-employee. (11) Foreign exchange: Unrealised gains from debts incurred for the purchase of raw materials Realised loss on repayment of a foreign loan for capital purposes of which RM1,000 is the exchange loss on the interest portion of the payment
(8)
25 17
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(12) Miscellaneous expenses comprise:
RM000 Subscriptions to Federation of Malaysian Manufacturers Depreciation
12 974 986
(13) Initial and annual allowances for the year of assessment 2000 (current year basis) are RM620,000. Unabsorbed capital allowances brought forward are RM829,000. (14) Information regarding the scrapping of machinery and plant (i)
Machine damaged by developer: Residual expenditure as at 1.7.1999 was RM440,000. Total actual allowances granted up to and including the year of assessment 2000 (preceding year basis) amount to RM560,000.
(ii) Old security system: The old system being many years old had to be scrapped and there was no residual value.
Required: (a) Compute the chargeable income of Easi Sdn Bhd for the year of assessment 2000. N.B. Every item mentioned in the notes to the accounts must appear separately in your computation, whether or not it is deductible, taxable or no adjustment is necessar y. (19 marks) (b) Explain your treatment of each of the items mentioned in every note EXCEPT notes 2, 4, 10, 12, 13 and 14. (9 marks) (28 marks)
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Mr Mui commenced employment with a Hong Kong company on 1 June 1997 and performed his duties in Malaysia. His remuneration of RM20,000 per month paid by the Hong Kong company was credited to his bank account in Kuala Lumpur. His employment was terminated on 29 February 2000 whereupon a sum of RM200,000 as compensation for loss of employment was paid to him. On 1 April 2000 Mr Mui was employed by Healthline Sdn Bhd as its chief executive officer. His remuneration package from Healthline Sdn Bhd for the period 1 April to 31 December 2000 is as follows:
RM 135,000 18,000 6,000 4,500
Salary Car allowance School fees paid by the company Leave passage to Hong Kong together with his family
Mr Mui employed a maid at a monthly salary of RM600 and this was reimbursed by the company. A house with a defined value of RM120,000 was provided by Healthline Sdn Bhd from the day he commenced employment. He and his family moved into the house on 1 May 2000. The house was fully furnished and the value of furnishings as per the Inland Revenue Board guidelines was RM3,360 per annum. A colour television costing RM7,000 (prescr ibed average life span as per IRB guidelines is seven years) was also provided. Other income Malaysian dividend net of tax Interest from Thailand remitted to Malaysia Mr Mui made the following claims: Employees Provident Fund contributions Donation for the provision of facilities for disabled persons in a shopping complex. Life insurance premiums on the life of his eldest child Cost of personal computer (for personal use) to replace the one bought in 1997 for which a tax rebate was given in YA1998
RM 2,880 1,000 42,350 1,500 900 6,888
Children maintained by him: First child – age twenty, unmarried, studying in Hong Kong University (cost of maintenance RM12,400). The child had a total income of RM700. Second child – age nineteen, unmarried, articled to a firm of architects in Kuala Lumpur (cost of maintenance RM4,000). Third child – age five, has a total income of RM900 from Singapore. Mr and Mrs Mui are Malaysian citizens and resident in Malaysia. Mrs Mui Mrs Mui ceased employment with Textbook Sdn Bhd on 30 June 2000 and received a gratuity of RM12,000. She had been with the company since 1 March 1990. Her remuneration for the period 1 January to 30 June 2000 is as follows:
RM 36,000 4,000
Salary Bonus She received an annuity of RM5,800 from an unapproved provident fund.
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Mrs Mui owns two shop houses situated in a commercial area. She prepares the annual accounts to 31 December and the account for the year ended 31 December 2000 is as follows: RM RM Gross rent * 46,500 Less: Assessment 5,200 Quit rent 900 Loan interest 47,300 Penalty for late payment of assessment 150 Fire insurance 1,100 Depreciation 1,000 Agent fees to replace tenant 6,000 Installation of air-conditioning unit 2,400 Renewal of rental agreement 300 Improvements to the premises 18,650 Repair 2,500 85,500 Net rental loss
(39,000)
* Included in gross rent is a refundable deposit of RM8,000. Mrs Mui claimed capital allowances in respect of the new air-conditioning unit costing RM2,400. The rate of annual allowance is 10%.
RM 4,400 700 3,150
She also claimed reliefs as follows: Employees Provident Fund contributions Premiums for approved EPF insurance policy Premiums for insurance for education purposes Required:
(a) Compute the tax payable by Mr Mui for the year of assessment 2000 (current year basis). Give reasons why any claims for tax reliefs will be denied. (15 marks) (b) Compute the tax payable by Mrs Mui and the capital allowances for the year of assessment 2000 (current year basis). She wants to be assessed separately. (11 marks) (26 marks)
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(a) Under self-assessment which begins from the year of assessment 2001 what is the prescribed period within which a company must furnish an estimate of income tax payable to the Inland Revenue Board and when can the company revise the estimate of tax payable? (2 marks) (b) The following will apply to Superlite Sdn Bhd in the year 2001. (i)
Superlite Sdn Bhd, accounting year ending 30 June 2001, furnished its first estimate of tax payable for the year of assessment 2001 to the Inland Revenue Board within the time prescribed by law. This was for RM240,000.
Required: State when and in what amounts Superlite will be required to pay the amount of tax estimated by the company for the year of assessment 2001. (2 marks) (ii) A revised estimate for the year of assessment 2001 was furnished to the Inland Revenue Board within the time prescribed by law in the amount of RM247,700. Required: When and in what amounts will Superlite be required to pay the balance of the revised estimated tax? (2 marks) (iii) Superlite Sdn Bhd will submit its tax return for the year of assessment 2001 to the Inland Revenue Board on 20 December 2001 and it will show tax payable of RM260,750. Required: When will the assessment for the year of assessment 2001 be deemed to have been made on Superlite? (1 mark) (iv) When will Superlite be deemed to have been served with the deemed notice of assessment for the year of assessment 2001? (1 mark) (v) When will the final tax of Superlite for the year of assessment 2001 be due and payable? (1 mark) (c) Lin and Zain both graduated as architects. Lin works as an employee for a company whereas Zain works as a freelance for a number of clients. Required: Would Lin and Zain be treated differently for tax purposes, and if so, state why and in what way? (4 marks) (13 marks)
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Section B – THREE questions ONLY to be attempted 4
Explain briefly the facilities available to licensed manufacturers to enable them to acquire raw materials free of sales tax for the manufacture of taxable goods. (11 marks)
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Blueski Sdn Bhd transferred a piece of land to Greenfield Sdn Bhd for RM1 million on 1 October 1999. The transfer was made in a scheme of reorganisation whereby Greenfield Sdn Bhd was restructured in order to comply with Government policy on equity par ticipation. Approval of the Director General of Inland Revenue was obtained on 13 September 1999. Both companies are resident in Malaysia. On 1 August 2000 Greenfield Sdn Bhd reclassified the land from fixed assets to stock-in-trade in its accounts at the market value of RM1·2 million. Blueski Sdn Bhd had acquired the land on 9 July 1997 and incurred expenses as follows:
RM 700,000 28,000 10,000
Consideration paid by Blueski Incidental costs of acquisition Legal expenses in defending land title
In 1998 a deposit of RM14,000 was forfeited to Blueski by an intended buyer. Required: Compute the real property gains tax payable on each event where applicable and give a brief explanation of the tax consequences. (11 marks)
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(a) Keen Berhad, a company listed on the Kuala Lumpur Stock Exchange issued bonus shares to its shareholders in July 2000. Required: Explain the tax implications of a bonus issue on the company and its shareholders. Relevant case law may be quoted to support your answer. (5 marks) (b) The shareholders of Evergreen Berhad were offered a rights issue by the company at RM1·20 per share at a time when the price quoted on the Kuala Lumpur Stock Exchange was RM1·80 per share. Required: Would shareholders be liable to tax if they took up the rights issue? Give reasons to support your answer. (2 marks) (c) Kengso Sdn Bhd which closed its annual accounts on 31 March 2000 shows a balance of RM44,000 to the credit of the company at the end of the year of assessment 2000 (preceding year basis) in its dividend franking account The tax chargeable for the year of assessment 2000 (current year basis) is RM56,000 and the estimated tax chargeable for the year of assessment 2001 is RM88,000. The company paid dividends as follows:
Date 15.1.2000 17.5.2000
RM000 100 paid out of tax exempt account 400 gross
Required: Determine the dividend franking account balance of Kengso Sdn Bhd to be carried forward to the year of assessment 2001. (4 marks) (11 marks)
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(a) Desa Hospital is a taxable person licensed under the Ser vice Tax Act, 1975. In October 2000 it rendered ser vices to its patient, Mrs Tin as follows:
RM 180 200 800 1,300 1,250
Medicine Food Room charges Consultancy services by a specialist clinic Dental surgery Required:
Compute the service tax chargeable to Mrs Tin and give reason(s) for the exclusion of any item(s) from your computation. (4 marks) (b) Akitek Din built a house for a client and rendered architectural services of RM17,000 and professional consultancy services of RM3,000. In this connection Akitek Din also sought the engineering services of Ratnam Consulting Engineers amounting to RM6,000.
Both firms are taxable persons licensed under the Ser vice Tax Act. Required: Prepare the information that would be contained in invoices for the services provided to and by Akitek Din in the above scenario. (3 marks) (c) A building owned by Zakari Sdn Bhd was leased to Joo Seng Sdn Bhd, a company engaged in hiring storage space to the public. Joo Seng used the building as a warehouse. Upon the expiry of the lease in 2000 Joo Seng purchased the building and continued to use it for the purposes of its trade. The building was constructed by Zakari in 1993 and leased to Joo Seng in the same year.
The financial year end of both companies is 31 December. Required: State the person(s) entitled to industrial building allowances and the appropriate rate of annual allowances applicable to each event in the above scenario. (4 marks) (11 marks) ) E M B ( 7 M – r e p D a 0 P
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Leong and Zizi are par tners. Their business accounts show a net loss of RM72,000 for the year ended 30 September 2000. Business expenses include: RM Depreciation 2,500 Entertainment of clients 1,800 Donations 1,000 of which RM800 was donated to approved charities The partnership agreement provides for an annual salary of RM18,000 to Leong and of RM24,000 to Zizi and interest on capital of RM900 to Leong. The profit sharing ratio is 70% to Leong and 30% to Zizi. Capital allowances for the year of assessment 2000 (current year basis) amount to RM2,200. Leong has rental income (adjusted) of RM15,600 for the year ending 31 December 2000. Zizi received dividends (gross) totalling RM1,800 in November 2000 of which RM400 was an exempt dividend. Required: (i)
Compute the adjusted income/loss and divisible income/loss of the partnership for the year ended 30 September 2000. (4 marks)
(ii) Compute the total income of Leong and Zizi for the year of assessment 2000 (current year basis) showing the allocation of capital allowances and donations from the partnership. (7 marks) (11 marks) End of Question Paper
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