TUTORIAL 2

Industrial Building and Agriculture Allowances

QUESTION 1

Teraju Maju Bhd is involved in manufacturing telephone accessories. The company purchased a piece of land
and constructed a new building which was completed on 30 November 2015. It was agreed with the Inland
Revenue Board that the building was used from 1 February 2016 as a factory, showroom and store for raw
materials at the ratio 10:1:1 respectively.

Expenditure incurred and paid by Teraju Maju Bhd for the construction of the building are as follows:

Date Expenditures Amount (RM)

24 October 2014 Cost of land 245,000

(10% related legal fees)
2 January 2015 Cost of demolishing old shop houses 38,000
14 February 2015 Cost of levelling land and building internal 30,000
roads
30 March 2015 Construction cost 395,900
31 March 2015 Architect's fees 10,410
4 July 2015 Wiring and plumbing 42,000
10 September 2015 Cost of preparing the site for installing 34,400
plant & machinery
23 November 2015 Cost of plant and machinery 78,500

On 1 October 2016, Teraju Maju Bhd constructed an additional building adjacent to the first building at a cost of
RM129,000. 9/12 of the building was used as an additional store and the balance as an office.

Due to internal problems, both the buildings were sold to Sinar Maju Bhd on 16 February 2019 at a total price of
RM1,110,000 (RM300,000 related to land and RM10,000 related to the legal fees).

Sinar Maju Bhd used the first building as a factory except 19% of the building was used as living
accommodation for factory workers. At the same time, the additional building was used as an electricity power
supply station for the factory.

The accounting dates for Teraju Maju Bhd and Sinar Maju Bhd are 31 March and 30 September respectively.

Required:
Compute the Industrial Building Allowance, Balancing Allowance and Balancing Charge (if any) for both
companies for all the relevant years of assessment up to the year of assessment 2020.

QUESTION 2

Kenang Budi Sdn Bhd has been carrying on business of selling computer hardware and diskettes for several
years. As the demand for computer is increasing, the company decided to construct its own manufacturing plant
in Kulim Kedah. The company incurred the following expenditure:

Amount
(RM) Date expenditure incurred
i. Purchase of land 150,000 12.02.2013
ii. Legal fees and stamp duty of
which RM2,000 relates to the 7,000 14.02.2013
purchase of the land.
iii. Architect's fees 25,000 10.03.2013
iv. Construction cost (not including
below) 1,200,000 20.01.2014

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 v. Construction cost of recreational
room and canteen for factory
workers 60,000 15.05.2014
vi. Cost preparing, cutting and
tunneling land to install machinery 1,000,000 18.07.2014
vii. Cost of machinery 200,000 17.09.2014

The company makes up its accounts to 31 December every year. The building was completed and brought into
use in October 2014. As agreed with the Director General of the Inland Revenue Board the built-up area was
used for the following purposes:
Factory - 80%, canteen for factory workers - 2%, rest room and washroom for factory workers - 3%,
administration office - 10% and showroom - 5%.

On July 2018, the whole building was sold to Suluh Budi Consolidated Bhd for RM3 million of which
RM300,000 relates to the cost of land. The company used 8% of the built up area as administration office. The
balance of the area is used as factory. An extension to the building costing RM50,000 was constructed by Suluh
Budi Consolidated Bhd and brought into use as warehouse for the storage of raw materials and finished goods on
1 September 2018. Suluh Budi Consolidated Bhd prepares its accounts to 30 October each year.

Required:
Compute the industrial building allowances and charges (if any) due to both companies for all years up to the
year of assessment 2020.

QUESTION 3

Tahir constructed a building in 2013 at a cost of RM350,000 and used entirely as an office. In November 2015
KDMC Bhd, a private hospital (qualify under paragraph 37A, Schedule 3, Income Tax Act 1967), acquired the
building at a cost of RM650,000 (RM25,000 relates to cost of site) and used it as a hospital. In 2016, an
extension was built by KDMC Bhd and the cost incurred were as follows:

Date Nature of expenditure Amount (RM)

7 April 2016 Architects fees 15,000
15 June 2016 Construction cost 190,000
25 July 2016 Plumbing and wiring 50,000
28July 2016 Hospital equipment 266,000
28 July 2016 Cost of installing hospital equipment 154,000

Right after its completion on 1 November 2016, ¾ of the extension was used as Maternity home and ¼ as an
office.
On 25 June 20167 KDMC Bbd sold its extension to RSDD Maternity Home, a subsidiary of KDMC Bhd, for
RM70,000. RSDD Maternity Home used 85% of the area as maternity home and the balance as an office. All the
companies’ accounting year ended on 31 December .

Required:
For all relevant years of assessment until year of assessment 2020, calculate the industrial building allowances
due to all companies.

QUESTION 4
ANTT Sdn Bhd a company resident in Malaysia, manufactures tools for export. In 2014 the company
constructed a factory building. The factory was completed and brought into use in October 2016. In setting up
the factory, the following expenditures have been incurred.

Cost of demolishing old factory RM 150,000

Architect’s fees 11,200
Stamp duty - construction agreement 2,250
Construction costs 700,000

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 Factory equipment 150,000
Installation of factory equipment 17,500

In 2017 an extension was built by ANTT Sdn Bhd at a cost of RM100,000. Right after its completion ¾ of the
extension was used as a store and ¼ as a hostel for factory workers on 1 January 2018.

Due to financial problem, on 1 January 2019 the whole building was sold to PSCC Sdn Bhd for RM1.2 million
of which RM200,000 relates to the cost of land. PSCC Sdn Bhd used 8% of the extension area as administration
office. The balance of the area is used as factory.

Required:
For all relevant years of assessment until year of assessment 2020, calculate the industrial building allowances
and charges (if any) due to both companies.

QUESTION 5
Yalaa Sdn. Bhd. (YSB) whose financial year ends on 31 May, is a well-known distributor of frozen food in
Kuala Terengganu. After 10 years becoming a successful distributor and manage to generate approximately
RM500,000 yearly profit, YSB and his team decided to come out with their own frozen food brand “YSB Food”
to be produced in their own factory. For this purpose, YSB purchased a piece of land on 1 July 2011 amounting
to RM100,000 with legal fees incurred to complete the whole process is RM20,000. The construction of the
company’s building began on 1 August 2011 and continued to progress steadily until its completion on 1 August
2012. The detailed expenditures incurred are as follows:

Date Expenditures RM
1 July 2011 Cost of levelling land and building internal roads 30,000
15 July 2011 Legal fees related to the process of construction approval 10,000
15 July 2011 Architect's fees 30,000
31 December 2011 Materials to build the factory 190,000
31 May 2012 Construction cost 250,000
30 June 2012 Wiring and plumbing 42,000
1 July 2012 Cost of preparing the site for installing high technology cooking 60,000
equipment
1 July 2012 Cost of high technology cooking equipment 78,500
31 July 2012 Finishing work of the construction process 15,000
1 August 2012 Ceremony cost of launching the factory 10,000

Right after completing the construction, 6/8 of the building was used as factory, 1/8 as living accommodation for
the employees and the remaining as administration office. The company’s board of directors agreed to hire new
workers and decided to build an extension to the existing building to be used as living accommodation to
accommodate the increased number of workers. Production continued while renovation work has begun on 4
January 2014 and completed by the end of April 2015. Renovation cost amounted to RM100,000.

During the latest Annual General Meeting (AGM) 2016, YSD’s board of directors believed that it is more
profitable for them to move the production process to Indonesia due to low materials cost and cheap labor. In
fact YSD’s main distributor in Indonesia also agrees to invest and become a partner in the business. After a long
discussion, YSD decided to sell the factory in Kuala Terengganu and move the whole operation to Indonesia.
The building was sold to Rohani Sdn. Bhd. (RSB) on 1 December 2020 for RM600,000 which used the building
as a factory. RSB prepares its accounts to 31 December each year.

Required:
Compute the relevant industrial building allowances, balancing charges or balancing allowances (if any) for Yadi
Sdn. Bhd. (YSD) and Rohani Sdn. Bhd. (RSB) for all relevant years of assessment up to year of assessment
2021.
(Note: State the word ‘NIL’ in the appropriate column for every item where no adjustment is requir

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 QUESTION 6

Splash Sdn. Bhd., which has its financial year end on 30 April, is a manufacturer of household goods, incurred
capital expenditure of RM2.5 million (including cost of land RM300,000) on the construction of a building
which comprised of 17,600 sq. metres of factory space, 2,000 sq. metres of office space and 400 sq. metres of
showroom space. Construction was completed on 8 March 2017 and the building was officially used on 1 April
2017.

Production continued to progress steadily and by the end of year 2018, the factory was operating at its maximum
capacity. The company’s board of directors decided to extend the factory space by converting the office and
showroom into manufacturing areas to accommodate for the increase in production. Production continued while
renovation work has begun on 4 January 2019 and completed by the end of April 2021. Renovation cost
amounted to RM500,000 and the whole building was used as a factory effective from 1 May 2013.

On 1 February 2020, the company bought a new building half a kilometer away from the factory at a cost of
RM800,000. The construction cost of the new building was RM700,000. The building was used immediately as
an office (1/12), and the remaining space as a recreation centre for the factory workers.

Required:
Compute the industrial building allowances up to year of assessment 2020.

QUESTION 7

Khoo Wood Sdn Bhd (KWSB) a Malaysian resident company, purchased a piece of land with the value RM3
million in 2016. However, due to some technical problems, KWSB only managed to be incorporated and
commenced its business in September 2016. It prepares its accounts annually to 31 December. The company is
involved in cultivating cocoa, oil palm and potatoes. Over the years the company had incurred expenditures as
follows:

Date Expenditure RM’000

15.03.2016 Cost of land 300
02.04.2017 Clearing of land 90
10.05.2017 Construction of roads 80
14.06.2017 Construction of plantation office 40
10.07.2017 Planting of cocoa 70
13.03.2018 Planting of oil palm 42
12.04.2018 Planting of potatoes 30
10.06.2018 Construction of farm building Replanting of 40
11.05.2019 potatoes 60
15.06.2019 Construction of Surau 30

Required:
Calculate the agriculture allowances/charges due to KWSB for the relevant years of assessment up to year of
assessment 2020.

QUESTION 9

Growth Sdn Bhd, a vegetable cultivator, prepares its accounts to 31 December. The company incurred the
following expenditure:

Date Expenditure RM ‘ 000

30.1.18 Cost of land 300
2.2.18 Clearing of land 90
10.2.18 Construction of roads 80
14.2.18 Construction of workers’ quarters 40
13.3.18 Initial planting of vegetables 70
13.3.18 Lorry 42
14.4.18 Construction of a temple 30
11.4.2020 Replanting of vegetables 60

The company commenced to plant sugarcane on 17 October 2019 on an adjacent plot of land (an old rubber
estate) purchased for RM100,000. The rubber estate was cleared by the seller. Expenditure on planting of
sugarcane was RM40,000.
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 In May 2019, the company received a subsidy of RM15,000 from the State Government for clearing of land (for
the planting of vegetables).

Adjusted income for the year ended 31 December 2020 was RM500,000 before taking into account the above
items.
Required:
a) Calculate the agriculture allowances/charges due to Growth Sdn Bhd for the relevant years of assessment
up to the year of assessment 2019.

b) Calculate the statutory income of Growth Sdn Bhd for the year of assessment 2019, assuming the rate of
annual allowances in respect of the lorry at 20%.

QUESTION 10

FelcRA Sdn Bhd has a star fruit plantation. The company incurred the following expenditures for the financial
year ended 31 December 2018.

RM
Clearing and preparation of land 120,000
Seedlings and fertilizing 220,000
Construction:
Road and bridges 300,000
Labour quarters 80,000
Store 30,000

On 1 July 2020, the company sold the plantation to Resda Plantation Sdn Bhd (year-end 30 September) for
RM800,000. FelcRA Sdn Bhd ceased its activity on 30 June 2020. Risda Plantation Sdn Bhd used the assets
acquired for the purpose of the star fruit plantation.

Required:
Calculate the agriculture allowances for FelcRa Sdn Bhd and Resda Plantation Sdn Bhd for the relevant years of
assessment until year of assessment 2020.

QUESTION 11

Lembah Fruitty Sdn Bhd, a plantation company acquired a 60-hectare piece of land on 1st March 2005 to
cultivate bananas (50 hectares) and pineapples (10 hectares). The following expenditures were incurred:

Date Type of Expenditure Amount (RM)

1/03/2019 Cost of acquiring land 300,000
15/03/2019 Clearing of land 60,000
1/04/2019 Planting of bananas 25,000
Planting of pineapples 15,000
15/08/2019 Construction of quarters 100,000
20/08/2019 Replanting of bananas 15,000
15/04/2020 Construction of bridge 50,000

The company makes up its account to 31 December annually and elects to claim agriculture allowance under
Schedule 3 of the Income Tax Act 1967.

Required:
Calculate the agriculture allowance for years of assessment 2019 and 2020

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 QUESTION 12

HHR Sdn Bhd (accounting year ending 31 Dec) is a well-diversified plantation group operating in East of
Malaysia. In 2015 the company acquired a plantation, cultivating both rubber and oil palm in Sarawak for RM1
million. Due to the depressed commodity prices of both rubber and oil palm in the world market, the company
decided to diversify the cultivation of its agricultural crops in both the plantations. Details of the expenditure
incurred by HHR Sdn Bhd are given below:

Date Nature of expenditure Cost (RM)

1 September 2016 New planting 320,000
1 October 2016 Replanting 200,000
1 March 2017 Office 36,000
1 June 2017 Store 23,000
1 March 2018 Manager’s bungalow 135,000
1 August 2018 Canteen for workers 105,000
1 January 2019 Repairs to office building 55,000
1 January 2019 Labour quarters 90,000
Further information provided by the company’s accountant are:

a. New planting is in fact felling of old rubber trees and replanting them with black pepper.

b. On 3 September 2017 the company received a grant of RM70,000 from the State Government for planting
black pepper.

c. Replanting involves felling old oil palm trees and planting oil palm seedlings in the same piece of land.

d. The store that was built by THR Sdn Bhd is a wooden structure meant for temporary use.

e. On 30 November 2019 the store was demolished by THR Sdn Bhd.

The cultivation of crops continued until 1 June 2020 on which the date the whole estate was sold to Kinrara
Plantation Sdn Bhd (accounting year end 31 March) for RM2 million.

Required:
Calculate the agriculture allowance and charges due to HHR Sdn Bhd up to year of assessment 2020. Also
indicate what the position would be if the company had made an election under para 27 of Schedule 3.

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