ANSWER SCHEME

FINAL SEMESTER EXAM

FEBRUARY 2022

CODE : ATX10203

COURSE : TAXATION II

PROGRAM : DIA

LECTURER : SURYANTI BINTI MAMAT

DEPT : ACCOUNTING, FBMP

TEL : HP – 019-3146106

EXT – 6935

PAGE : 11/11

(INCLUDING FRONT COVER)

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Part one

(a) Explain 4 (FOUR) conditions that need to be fulfilled by a person who want
to claim capital allowance.
 The person incurring the capital expenditure must be carrying
on a business.
 The capital expenditure must have been incurred in providing
the machinery or plant.
 The machinery or plant must be used for the purposes of the
claimant’s business
 The person must be the owner of the assets at the end of the
basis period.
(2 marks for each explanation x 4 point = 8 marks)

(b) (i) the new assets acquired in 2021

RM RM CA
Claimed
New kitchen equipment. (General plant and
machinery)
Qualifying plant expenditure 350,000
Initial allowance (20%) 70,000 //
Annual allowance (14%) 49,000 // 119,000 119,000

Restaurant furniture and fittings

Qualifying plant expenditure 80,000
Initial allowance (20%) 16,000 //
Annual allowance (10%) 8,000 // 24,000 24,000

Personal computer system 7,000

Initial allowance (20%) 1,400 //
Annual allowance (20%) 1,400 // 2,800 2,800

(ii) Motor vehicle under hire purchase

RM
Deposit 45,000
Principal paid in three instalments (3,000 x 3) 9,000 /
54,000

Qualifying plant expenditure (restricted to) 50,000 //

Initial allowance (20%) 10,000 /

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Annual allowance (20%) 10,000 /

(iii) Assets acquired in 2020.

Asset Qualifying plant Residual Annual

expenditure expenditure allowance

RM RM Rate RM
Van 78,000 31,200 20% 15,600 //
Restaurant furniture 30,000 6,000 10% 3,000 //
and fittings

(// = 21/21 X 13marks= 13 marks)

(b) Balancing charge/allowance

Disposal of the old kitchen equipment

RM
Residual expenditure Nil //
Disposal price (15,000) /
Balancing charge / (15,000) //4
(/ = 4/4 x 4marks = 4 marks)

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PART TWO

Question 1

(a) The provisional adjusted income and divisible income of partnership

business (1 January 2021 to 31 December 2021)

RM RM
Net loss for the year (42,650) /
Add:
Partner’s salaries 54,000 /
Partner’s interest on capital 12,750 /
Depreciation 6,500 /
Donations (Approved) 3,000 / 76,250
Provisional adjusted income 33,600

Less:
Partner’s salaries 54,000 /
Partner’s interest on capital 12,750 / (66,750)
Divisible loss (33,150)

(/ = 7/7 x 5marks = 5 marks)

(b) The adjusted income and statutory income of each of the partners are
computed as follows:

For the period 1 January to 30 September 2021:

Kim Ram Tan
RM RM RM
Partner’s salaries 18,000 / 18,000 / -
Partner’s interest on capital 4,500 / 4,500 / -
Share of losses: -
Kim - 33150 x9/12x1/2 (12,431) //
Ram - 33150 x9/12x1/2 (12,431) //

For the period 1 October to 31 December 2021:

Partner’s salaries 6,000 / 6,000 / 6,000 /
Partner’s interest on capital 1,500 / 1,500 / 750 /
Share of losses
Kim – 33,150 x 3/12 x (4,144) //
50/100

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 Ram - 33,150 x 3/12 x (2,072) //
25/100
Tan - 33,150 x 3/12 x 25/100 (2,072) //

Adjusted income 13,425 15,497 4,678

Capital allowance
Kim – 10,000 x 50/100 (5,000) //
Ram – 10,000 x 25/100 (2,500) //
Tan – 10,000 x 25/100 (2,500) //
Statutory income 8,425 12,997 2,178

(// = 26/26 X 17 =17 marks)

(c) Treatment for donation

The donation of RM3,000 paid to the approved organization will be
deducted from aggregate income of the three individual partners in their tax
returns based on their respective profit sharing ratios of the last day of the
basis period (0.5:0.25:0.25) that is RM1,500:RM750:RM750.

With effect from year of assessment 2008, approved donations are limited to
10% of the aggregate income of individuals, corporate sole and body of
persons.
(3 marks)

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Question 2
(a) FIVE (5) differences between business income and capital gain.

Business income Capital gain

 Intention of Profit-seeking investment
taxpayer
 Subject matter Subject of trading Income producing or
for personal
enjoyment/use
 Length of Short period Long period
ownership
 Frequency of Repetitive One-off
transactions
 Financing Short term loan Long term loan
arrangement
 Accounting Current assets – stock Non-current assets
treatment in trade
(Any 5 differences with explanation x 2 marks = 10 marks)

(b) Computation of adjusted income for Ahmad

RM RM RM
Manufacturing business
Adjusted income Nil /
Add: balancing charge 5,000 /
5,000
Less) Capital allowance
Unabsorbed capital allowance b/f 1,200 /
Current year capital allowance 1,700 /
Balancing allowance 300 / 3,200
Statutory income 1,800

Trading business
Net income/profit 4,600 /
Add) Non-deductible expenses 1,900
Adjusted income 6,500 /
Less) Capital allowance – current year 7,000 /
Utilized (6,500) / 6,500 /

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 Capital allowance c/f 500 //
Statutory income Nil
Aggregate business income 1,800 //
Less) business loss b/f 1,000 /
800
(//=15/15 x 11 = 11 marks)

(c) (i) Motive/intention of taxpayer

- Where the subject matter was held for resale at profit (profit-
making motive), either since acquisition or subsequent change to
that, the profits earned should be treated as business income.
(2 marks)

(ii) Methods employed in disposing a property

- Special exertion is made to find purchasers such as the opening
up of a sales office, advertising extensively and employment of
sales staff, will indicate the existence of a profit-making
understanding.
(2 marks)

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Question 3
Smart Apparel (M) Sdn. Bhd.
Income tax computation for year of assessment 2021
RM
Profit before tax 216,040 /
Dividend income
- Malaysian resident company (14,400) /
- co-operative society (300) /
Interest income
- Fixed deposit interest from Maybank Berhad (300) /
- Interest charged on trade debtors for the late payment Nil /
Audit fees Nil /
Contract payment 10,000 /
Depreciation 17,770 /
Incorporation expenses 3,580 /
Marketing and promotions
- Cost of promotional samples of products Nil /
- Lucky draw prizes for customer Nil /
Rental of premises Nil /
Staff annual dinner Nil /
Staff costs
- disable employee (DD) (9,600) //
- EPF (note1) 2,400 //
- Staff entertainment allowance Nil /
Sundry expenses
- Entrance fee to trade association of 350 /
- Cash donation to an approved institution 2,300 /
- Cash donation to state government 500 /
- Cash donation to unapproved institution 1,000 /
Travelling expenses
- leave passage for directors 6,000 /
ADJUSTED BUSINESS INCOME 235,340
Less) Capital Allowance 32,600 /
STATUTORY BUSINESS INCOME 202,740
Add: Other income
Dividend income
- Malaysian resident company (Exempt) Nil /
- co-operative society (Exempt) Nil /
Interest Income 300 /
AGGREGATE INCOME 203,040
Less: Approved donations
- cash contribution to the state government 500 /
- cash donation to an approve organization RM2,300 vs 2,300 //

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 RM203,040x10%, the lower of
CHARGEABLE INCOME 200,240

Tax liability
Income tax charged 200,240@17% 34,040.80 //
(//=32/32x25 marks= 25 marks)
Note : EPF contribution for GM 21%. Deduction for EPF contribution is allowable up to 19% only. Therefore
Question 4 of 19% will be added back (RM210,000 x 2%) RM2,400
2% in excess
(a)
(i) Specific provision charged to Profit and Loss account RM4,000 is
deductible since this is a specific deduction. (/)

(ii) General provision charged to Profit and Loss Account RM800.

This amount is not allowable since it is pre-emptive in nature (/). The full
amount is to be added back for the purpose of arriving at the taxable
income (/).

(iii) Bad debt written off against specific provision:

Since the specific provision was previously allowed as a deduction, no
further deduction is granted at the time which it is actually written off. (/)

(iv) Bad debt written off against general provision:

As the general provision was disallowed when it was first created, the
following write off of a bad debt against this provision is tax deductible.
(/)
(5 marks)
(b)
(i) Expenses that qualify for double deductions are:
- Research and development activities approved by the Ministry of
Finance.
- Expenditure incurred on the maintenance of a child care center.
- Training course fees for staff technical skills development
(I marks for each point x m marks = 3 marks)

(ii) Total additional allowable deduction for Lip Lap Manufacturing Sdn.
Bhd. training expenses:
RM
Research and development activities approved by the 10,000/
Ministry of Finance.
Expenditure incurred on the maintenance of a child care 24,000/
center.
Training course fees for staff technical skills development 14,000/
TOTAL ADDITIONAL DEDUCTION 48,000

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 (//=3/3 x 3 marks = 3 marks)

(c) State with reasons, whether each of the following expenditure is deductible
in arriving at the adjusted business income of a company.
(i) Lease rental on plant and machinery
- Allowable expenses
- It is used in the business but the accumulated sum of each lease
rental shall not in aggregate exceeds RM50,000.

(ii) Expenditure incurred in providing and maintenance of a child care

center for the benefit of employees
- Allowable under specific expenses (section 34)
- Deduction will be given to the revenue expenses incurred by the
employer on the provision and maintenance of a child care center
for the benefit of employees. However capital expenditure are not
deductible.

(iii) Depreciation and loss on disposal capital assets.

- Disallowed business expenses as these expenses is not
incurred.
- Not deductible

(iv) Costs of protecting, preserving or defending the title of capital assets

- Disallowed business expense as these expenses is capital
expenditure.
- Not deductible

(v) Interest, royalty, contract payment, technical fee, rental of movable

property, payment to a non-resident public entertainer or other
payments made to non-residents which are subject to Malaysian
withholding tax but where the withholding tax was not paid.
- Disallowed business expense as these expenses is prohibited
expenses
- Not deductible

(vi) Repainting of premises

- Allowable expenses therefore it is deductible- to restore assets
to its original conditions.

(vii) Entertainment to existing customers.

- It is categorized under prohibited expenses.
- However, 50% of the expenses are allowable for deduction.
(2 marks for each explanation i – iv = 14 marks)

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Question 5
(a) (i) YA2019 is the failure year because ABD Berhad failed to closed
account based on the initial financial year.
(2 marks)
(ii) IRB did not approve the period of missing YA2019. Therefore 27
months period from 1/6/2018 – 31/8/2019 is being apportioned into
two years of assessment to create YA2019 and YA2020.
(3 marks)
(iii)
YOA BP Adjusted income/Loss
2018/ 1 June 2017 – 31 May 2018/ 24,000/
2019/ 1 June 2018 – 31 July 2019 (27,000 14,000//
x 14/27)/
2020/ 1 August 2019 – 31 August 2020 13,000//
(27,000 x 13/27)/
2021/ 1 September 2020 – 31 August 22,000/
2021 /
(//=14/14 x 10 marks)

(b) Deductible expenses are expenses wholly and exclusively incurred in the
production of income or alternatively allowed under section 34 of the Act.
Explain the FIVE (5) items should be determine in order to identify the
expenditure is capital or revenue in nature.

- A lump sum payment compared to periodic payments

- The character of a receipt.
- The reasonableness or magnitude of the expenditure.
- The payment out of capital funds does not indicative of the nature
of that expenditure
- The accounting treatment.
(5 point x 2 marks = 10 marks)

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