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Tutorial 8

Miss Enterprise operates a cleaning business. For the 2007 tax year, the business had $320,000 in turnover and $239,000 in total expenditures, resulting in $81,000 in pre-tax profits. The expenditures included salary and allowances to staff, salary to the proprietor, interest on overdraft, provision for doubtful debts, loss on sale of fixed asset, detergents and supplies, and depreciation. The document then provides several additional scenarios and asks whether related expenditures would be considered tax deductible.

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Lee Hans
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79 views

Tutorial 8

Miss Enterprise operates a cleaning business. For the 2007 tax year, the business had $320,000 in turnover and $239,000 in total expenditures, resulting in $81,000 in pre-tax profits. The expenditures included salary and allowances to staff, salary to the proprietor, interest on overdraft, provision for doubtful debts, loss on sale of fixed asset, detergents and supplies, and depreciation. The document then provides several additional scenarios and asks whether related expenditures would be considered tax deductible.

Uploaded by

Lee Hans
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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TUTORIAL 8

Question 1

Miss Enterprise operates a business providing cleaning services. For the year ended 31
December 2007, the business’ statement of profit and loss is expected to be as follows:
$ $
Turnover 320,000
Expenditure
Salary and allowances to staff 100,000
Salary to the proprietor 60,000
Interest on overdraft 5,300
Provision for specific doubtful trade debt 1,200
Loss on the sale of a fixed asset (Capital Expenditure) 900
Detergents and supplies (inventory) 70,000
Depreciation 1,600
————
Total expenditure (239,000)
————
Net profit before tax 81,000
————
Required:
For each item of expenditure, state the tax deductibility, giving reasons for your answers.

Question 2

Sri Ram Car Rental Services Sdn. Bhd runs a car rental business in Penang. The company
bought a badly damaged two-year old car for RM10,000 from Encik Abu Bakar whose son
met with a bad accident while driving the motor vehicle. The market value of the car would
have been RM60,000 if it had not been for the accident. A sum of RM15,000 was then spent
on repairs and reconditioning to make it road-worthy and to comply with Road Transport
Department requirements before using it in the business

Required:
How would the sum spent on repairing the car be treated in the accounts of Sri Ram Car
Rental services?
Question 3

Mr. Ang is a sole trader of Ang & Co. In May 2017, the roof of his office building leaked
very badly. The cost of repairs was estimated to be RM8,000. After several consultations
with the contractor, he decided not to repair the existing roof but to replace it with roof of
better quality. The contractor completed the task in November 2017 and the cost was
RM7,000.

Required:
Determine whether the cost incurred by Ang & Co is deductible for tax purposes.
Capital expenditure – it is not deductible.

Question 4

.Jarus Pte Ltd sells office furniture and fittings. Its business premises are located near the
town centre in Kangar, Perlis. Due to the recent flood in the area, the manager’s office
situated on the ground floor was slightly damaged and required minor repairs. However,
Jarus Pte Ltd relocated the office to the first floor and replaced all the office furniture in the
manager’s office.

Required:
State your arguments for and against deductibility of the expenditure incurred by Jarus Pte
Ltd.

Question 5

State with reasons, whether each of the following items of expenditure is deductible for
income tax purposes:
a) Incorporation expenses

b) Cost of furniture amounting to RM600 (capital expenditure) – Not deductible

c) Repair of factory including extension to factory premises – enhance value (non


deductible)

d) Practical training to non-employees (deductible under S34(6)(n) )

e) Cash contribution to a public school library

f) Cost of tax compliance fees (Deductible expenses , shall not exceed RM10,000)

g) Insurance premium for importation of goods (Inventories) – Deductible expenditure ,


S33(1)
h) Provision for retirement benefit charged to the income statement by a manufacturing
company. Is not deductible as it is not incurred during the period. As it is as estimated
amount.

i) Provision for warranty claims charged to income statement by a manufacturer. Is not


deductible as it is not incurred during the period. As it is as estimated amount.

j) General provision for doubtful debt based on 5% of outstanding debt.

k) Premium in respect of an insurance policy against fire and loss of profit by a trading
company.

l) Purchase of equipment for a disabled employee of a company. Deductible under S34(6)


(e)

m) Refreshment expenses incurred by a company for holding a “Family Day” for members
of the staff and their families. – 100% deductible as it is revenue expenditure and is not
prohibited under S39.

n) Expenses incurred by a trading company in constructing a new and improved roof for its
office building. The expenses of repairing the old roof would have been higher. – capital
in nature and it is not deductible.

o) Consultancy fee of RM500,000 paid by a glove manufacturer to a non-resident consultant


for the supply of technical services pertaining to the manufacturing operations. The
payment was made without deduction of withholding tax. – it is not deductible as it is
prohibited under S39 (j). They company can claim the deduction once the withholding tax
is made.

p) Fines amounting to RM7,000 paid by a transport company for repeated offences of


speeding and overloading. Such a practice is necessary due to the need to meet deadlines
set by clients. Against the regulation it is not deductible.

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