Quiz 3

Kang Manufacturing is a sole proprietor business s4(a) owned by Mr. Kang that produces
plastic components for bicycles. A percentage of its finished goods is exported to a bicycle
factory in Vietnam.

Kang Manufacturing’s statement of profit and loss for the financial year ended 31 st December
2019 is provided below.

Note RM RM
Sales 324,621
Less: Cost of sales [D; nil] (177,452)
Gross profit 147,169
Add: Other income (business or non-
business)
-business income : T (nil) 4 types
- non-business income: - first; then put
under the correct section see if its
exempted
- capital receipt : - (not taxable)
 Dividend: - first; then put under 1 15,000
the correct section 4(c)
“nil/exempted”
 Interests: - first, then put under 2 40,000
the correct section 4(c)
- RM20,000
- nil/exempted
 Insurance recovery: business 3 30,000 85,000
income (nil)
232,169
Less: Expenses
 Salaries and wages 4 90,100
 Loan interests 5 7,000
 Entertainment 6 12,000
 Depreciation [ND (+)] 6,000
 Repair and maintenance 7 5,000
 Bad and doubtful debts 8 2,300
 Motor vehicle expenses 9 6,700
 Lease payments 10 18,000
 Advertisement expense [D; NIL] 2,000
 Professional fees 11 7,200
 Insurance 12 4,500
 Donation 13 4,300
(165,100)
Profit before taxation – s4(a) 67,069

Notes to the accounts:

1. The business received a single-tier exempt dividend paid by a company listed in the
Bursa Malaysia in May 2019. - THEN ADD BACK LTR

2. Interest
Interest from fixed deposit account in a Malaysian bank (taxable) RM20,000
Interest from foreign currency fixed deposit account in Singapore (NT)RM20,000

3. The business received RM30,000 as insurance recovery for losses from damages suffered
in flood. Business income - nil

4. Salaries and wages

Salaries D (nil) RM60,000
Bonuses D (nil) RM12,080
Employee Provident Fund contributions (salaries and bonuses) RM18,020
Deduction: The lower of
 19% of remuneration = 19% x (RM60,000 + RM12,080) = RM13,695
Or
 Actual contribution = RM18.020

When the “19%” is the lower amount, we have over-deduction.

Over-deduction = RM18,020 – RM13,695 = RM4,325 (+)

5. Loan interests
Interest on loan used for long-term asset investment D (NIL) RM2,000
Interest on loan used for business’ daily operations D (NIL) RM5,000

6. The entertainment expense was spent on annual dinner. The event was attended by all
the employees and some important customers. 50% D. So, +RM6,000

7. A leaking underground drain was changed and extended for another ten metres for
RM3,300 (ND; +RM3,300). The balance was spent on general maintenance of the
factory premise. (D; NIL)

8. Bad and doubtful debts

General provision for trade debts [ND; +] RM1,900
Bad debts written off [D; NIL] RM 400

9. Motor vehicle expenses

Fuel [D; NIL] RM2,800
Parking and traffic summons [ND; +] RM 500
Road tax and insurance renewals [D; NIL] RM1,700
Repairs and maintenance [D; NIL] RM1,700

10. The business leased D=NIL a new lorry (COMMERCIAL VEHICLE) and a new plastic
moulding machine to replace the old assets.

Cost Lease rental paid

Lorry RM75,000 RM12,000 [D; NIL]
Moulding machine RM39,000 RM 6,000 [D; NIL]
11. Professional expenses
Cost of post-tax audit appeal [ND; +] RM1,010
Termination of contract with one of suppliers [D; NIL] RM3,900
Accounting and audit fees [D; NIL] RM2,290

12. Insurance
Export credit insurance premium paid to the Malaysian Export Credit
Insurance Bhd. [DD; -] RM2,890
Fire and flood insurance [D; NIL] RM1,610

13. Donation (+ first; then if approved cash donation, - @ aggregate income level; limit
7%)
Deduction: The lower of
o Actual donation amount i.e. RM100,000
Or
o 7% x Aggregate income = 7% x RM50,000 = RM3,500 (this is the amount
you deduct from aggregate income)

Cash gift to approved charitable bodies (+; - @ aggr. Income) RM1,879

Contributions to employees who are gravely sick (+; not allowed) RM1,421
Contribution of hampers for neighbourhood party (+; not allowed) RM1,000

Other information:
 The business is eligible to claim capital allowance of RM27,310 for the year of
assessment (YA) 2019.
 It has an unclaimed capital allowance balance of RM4,560 from YA2018.
 It has an unabsorbed business loss from YA2016 amounting to RM4,664.

Required:
Starting with the profit before taxation figure, calculate the chargeable income of Kang
Manufacturing for YA2019. Round-up your answers to the nearest Ringgit Malaysia (RM).

Note: Your computation should follow the descriptions used in the notes to the income
statement. Indicate ‘nil’ in the appropriate column for any item that does not require
adjustment. You do not need to explain the adjustments made.

(20 marks)

+ -
RM
RM RM
Section 4(a) Business income
Profit before taxation 67,069
Cost of sales Nil

Dividend 15,000
Interests (20,000+20,000) 40,000
Insurance recovery Nil
Salaries Nil
Bonuses Nil
EPF contribution 4,325
 The lower of:
 19% x RM72,080 =
RM13,695.20 ≈ RM13,695
 Actual contribution =
RM18,020
 Over-deduction = RM18,020 -
RM13,695 = RM4,325
Interest on loan used for long-term asset Nil
investment
Interest on loan used for business' daily Nil
operations

6,000
Entertainment expense (50% x RM12,000)
Depreciation 6,000
Extension of drain 3,300
General maintenance of factory premise Nil
General provision for trade debts 1,900
Bad debts written off Nil
Fuel Nil
Parking and traffic summons 500
Road tax and insurance renewals Nil
Repairs and maintenance Nil
Lease rental paid for new lorry Nil
Lease rental paid for new machine Nil
Advertisement expense Nil
Cost of post-tax audit appeal 1,010
Termination of supply contract with one of Nil
suppliers
Accounting and audit fees Nil
Export credit insurance premium paid to 2,890
the M'sian Export Credit Insurance Bhd.
Fire and flood insurance Nil
Cash gift to approved charitable bodies 1,879
Contributions to employees who are 1,421
gravely sick
Contribution of hampers for 1,000
neighbourhood party
94,404 94,404
 (57,890)
Adjusted income 36,514
Less: Capital allowance
Unutilised capital allowance b/f 4560
Current year capital allowance 27310
Total available capital allowance 31870
Less: Utilisation (31870)
Unutilised capital allowance c/f 0 (31870)
Statutory income 4644
Less: Unabsorbed business loss b/f (4664)
Nil
Section 4(c) Investment income
Single-tier exempt dividend Exempted
Interest from fixed deposit account in 20,000
Malaysia
Interest from foreign currency fixed Nil
deposit account in Singapore
20,000
Aggregate income 20,000
Less: Approved donations
 Cash gift to approved 1400
charitable bodies
 Contributions to employees
who are gravely sick
 Contribution of hampers for
neighbourhood party
(1400)
Chargeable income 18600