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CONFIDENTIAL AC/OCT 2003ATAX370

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE TAXATION 2
COURSE CODE TAX370
DATE 9 OCTOBER 2003

TIME 3 HOURS (2.15 p.m - 5.15 p.m)

FACULTY Accountancy
SEMESTER June 2003 - November 2003
PROGRAMME/CODE Diploma in Accountancy / AC110

INSTRUCTIONS TO CANDIDATES

1. Answer ALL questions.

2. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 9 printed pages
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Question 1

a) How do you determine the residence status of a company carrying on a business in

Malaysia for a particular year of assessment?
(2 marks)

b) Under the self assessment system which was introduced in the year of assessment
2001, a company is required to furnish an estimate of the tax payable to the Inland
Revenue Board.

When should a company submit the estimated tax payable to the Inland Revenue
Board under the following situations:

i) A new company which commenced business on 1 April 2003 and closed

the account on 31 December 2003.
ii) A company having 12 months basis period ended on 31 July 2003.

With regard to the above scenarios:-

iii) determine how many installments are allowed to the companies, and
iv) when will the first installment begin.
(6 marks)

c) ABC Sdn Bhd (resident) a trading company, prepares its account to 30 June
annually. For the year ended 30 June 2003, the company's profit and loss account
shows the following:
Note RM'OOO RM'OOO
Sales 40,640
Less: Cost of sales 1 (14.220)
Gross Profit 26,420
Less:
Insurance 2 2,980
Royalty 3 812
Forex Loss 4 108
Leasing 5 90
Provision for bad debt 6 40
Salaries and EPF 7 4,650
Staff Welfare 8 60
Depreciation 800
Repairs 9 132
Office administration 404
Overseas trade exposition 30
Professional Fees 10 105
Approved Training 11 100
Miscellaneous 12 124 (10.435)
15,985
Add: Other Income
Interest 13 28
Dividends 14 252 280
Net profit before tax 16,265

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Notes:

1. The closing stocks of the company comprises the following:

30/06/2003
Glassware 500,000
Pharmaceutical product 320,000
Others 1,990,000

All stocks are valued at cost except for the stocks of glassware and pharmaceutical
product which are valued at cost less a provision of 10%.

2. ABC paid Risk Sdn Bhd, a local incorporated insurance company, a premium of
RM20.000 for insurance on goods imported for use as raw material and RM15,000
against damage of goods in transit between the port and its factory.

3. Royalty at 2% of sales was paid to Patented Inc., a US company. The accountant of

ABC, being new, had paid the gross royalty to Patented Inc., in March 2003.

4. Forex Loss:

Loss on repayment of loan 68

Loss on devaluation of Rupiah 40
(1081

5. ABC leased three new cars for its executives as follows:

Car Date Cost Lease Rental

Perdana 1/2/00 100,000 2,000
Camry 1/3/01 140,000 2,500
Volvo 1/4/02 200,000 4,000

6. Provision for bad debt include the following:

RM'OOO
General provision 20
Specific Provision 10
Bad debt written off 10
4Q

7. During the year the company:

(i) employed a physically disabled person at a monthly salary of RM1,000;

(ii) contributed RM10,000 to an overseas provident fund (unapproved) for the
expatriate employee;
(iii) paid one month's salary of RM7.000 to a new employee's former employer in
lieu of insufficient notice of resignation.

8. Included in staff welfare is an amount of RM20.000 as entrance fee to a new golf club
for the managing director and RM5,000 as club subscriptions.

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9. Repairs included the following:

RM '000
Building extension 53
Repainting of office and showroom 7

10. Included in the professional fees were:

RM'OOO
Legal fees for issue of debenture 25
Tax appeal expenses 20
Renewal of trademark 4
Fine for evading customs duty 12

11. The company incurred an amount of RM200.000 in carrying out approved training for
its employees. The management decided that the expenditure was to be written off
over two years.

12. Included in the miscellaneous was a wall partition for new executives' offices
amounted to RM30,000.

13. Interest is interest charged on overdue trade debtors.

14. Dividends received were as follows:

15/06/03 From Omega Bhd RM 72,000 (net)

10/12/02 From DEF Sdn Bhd (pioneer status company) RM 180,000

Other Information

1. Capital Allowance for the period amounted to RM30G,000

2. The company has an unabsorbed tax losses and an unabsorbed capital allowance of
RM30.000 and RM70.000 respectively brought forward from the year of assessment
2002.

Required:

Compute the income tax payable by ABC Sdn Bhd for the year of assessment 2003. Every
item in the note to the statement must be shown in your computation. Write 'Nil' where no
adjustment is necessary.

(22 marks)
(Total: 30 marks)

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Question 2
a) Who is responsible for filing the partnership tax return.
(1 mark)

b) DRM Computer Store is a partnership business owned by DO, and RE. The
partnership accounting year ends on 31 December. On 1 October 2003, ME was
admitted as a new partner.

Profit and loss sharing ratios are as follows:

DO RE ME
Before 1 October 2003 3/5 2/5 nil
Effective from 1 October 2003 1/5 1/5 3/5

For the accounting year ending 31 December 2003, based on computation for
income tax purposes, the partnership incurred a Divisible Loss of RM30,000.
Additional information are as follows:

1. Salaries Drawing Interest on capital

DO 18,000 4,000 6,000
RE 12,000 5,000 2,000
ME 12,000 3,000 2,000

2. Capital allowance and balancing charge were RM18,000 and RM6.000 respectively.

3. During the year DO and RE personally donated RM3.000 and RM5.000 respectively
to approved institutions.

4. For the year ending 31/12/2003 the partnership also derived rental income of
RM24.000.

5. Other business income/loss for DO and RE:

DO : Statutory income RM20.000
RE : Adjusted Loss (10,000)

6. DO and RE have an unabsorbed loss from the partnership business of RM3,000 and
RM4.000 respectively brought forward from the basis year 2002.

Required:

For the basis year and year of assessment 2003 compute the total income for each partners.

(15 marks)
(Total: 16 marks)

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Question 3

a) SingleStep Sdn. Bhd. commenced business on 1 February 1998. Its first set of
account ended on 30th June 1998 and subsequently all its accounts were for twelve
months ending on 30th June each year. In year 2001 SingleStep Sdn. Bhd. decided
to change its accounting date to 30th September and accounts were prepared on 30th
September 2001. In December 2002 SingleStep Sdn. Bhd. became a subsidiary to
MultiFocus Sdn. Bhd. and was required to change its accounting year end to March
31 according to the holding Company's year-end.

The accounting periods and adjusted income/loss of SingleStep Sdn.Bhd. were as

follows:

Accounting period Adjusted Income/Loss

(RM)
01.02.1998-30.06.1998 (70,000)
01.07.1998-30.06.1999 (48,000)
01.07.1999 - 30.06.2000 (7,000)
01.07.2000-30.09.2001 18,000
01.10.2001 - 30.09. 2002 30,000
01.10.2002-31.03.2003 35,000

Required:

i) Explain the meaning of 'Failure Year'. Determine the failure year for
SingleStep Sdn. Bhd.
(2 marks)

ii) State the basis period and calculate the adjusted income/loss for each of the
year of assessments (show your working).
(8 marks)

b) Mr. Gigabyte works as a computer technician in a company that produces

computers. In April 2003, he purchased 40 unit of used computers from ABC Sdn
Bhd for RM20,000. To finance the purchased, he borrowed RM15,000 from his
brother and paid the balance with his own money. Since most of the computers were
not fast enough, with the help of Mr. Megabyte, who is also a computer technician,
they managed to upgrade all the 40 units of computer. Mr Gigabyte secured the
service of Mr Byte, a student of UiTM to assist in the sale. All of the computers were
sold in three weeks. After repaying RM15,000 to his brother, and paying Mr.
Megabyte and Mr Byte for their help, Mr Gigabyte made a net gain of RM20,000.

Required:

With reference to the badges of trade, discuss whether the gain of RM20,000 is
taxable or not taxable
(4 marks)

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b) Encik Zainal purchased a second-hand bus on April 2003 to be used as touring bus
in his Tour and Travel Agency business. The bus was not in a good condition at the
time of purchase.

Even though the bus needed to be repaired but it could still be used for traveling
purposes. En. Zainal used the bus for one trip and then sent it to a workshop on May
2003. Cost of replacing the bus engine was RM15,000.

After a few more trips, on September 2003 the bus was again sent for repainting and
the cost was RM22,000.

Required:

Discuss briefly whether the cost of repairs can be deductible or not for tax purposes.
Support your answer with the relevant case law.

(4 marks)
(Total: 18 marks)

Question 4

a) The sales value of the taxable goods would affect the amount of sales tax payable to
the Customs Department. Determine the sales value of manufactured goods and
imported goods according to Section 7 of Sales Tax Act 1972.

(4 marks)

b) Zainura imports taxable goods to be sold in Malaysia for RM180,000. (Sales tax
10%) The imported goods are subject to import duty of 20%. Zainura obtains an
exemption of import duty from Custom Department. Calculate the sales tax for those
goods.
(3 marks)

c) During the year, PPM assisted a foreign company to set up a Malaysian subsidiary to
manufacture some industrial product. In addition, PPM rendered consultancy service
to the head office of the foreign company on investment opportunities in Vietnam.
Also, PPM rendered some consultancy services to its own branch office in Penang.

For the foregoing services, PPM intends to issue invoices for the following:

i) RM50,000 to the foreign company relating to setting up of the Malaysian

subsidiary,
ii) RM60,000 to the foreign company for advice on investment opportunities in
Vietnam,
iii) RM12.000 to its Penang branch for the consultancy services provided to the
branch.

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Required:

Determine the service tax payable, if any, for each of the above invoices, giving
reasons for your answer.
(6 marks)
(Total: 13 marks)

Question 5

a) Bukit Tinggi Bhd. was awarded a timber concession in Pahang in 1999. Details of
the expenditure incurred by Bukit Tinggi Bhd. were as follows :

Date RM

01.01.1999 Purchase plant and machinery 150,000

01.02.1999 Clearing side 40,000
01.03.1999 Construction of road 50,000
20.04.1999 Construction of labour quarters 25,000
19.05.2000 Construction of office 20,000
Construction of canteen for workers 10:000
21.10.2000 Extension of labour quarters 10,000
02.10.2001 Repair of labour quarters 5,000
10.03.2002 Construction of a manager house 100,000
(located at Kuantan)

Bukit Tinggi Bhd. ceased timber operations permanently on 30 June 2003 and
disposed the forest on the next day (1/7/03). The company's financial year-end is 30
June each year.

Required:

i) Compute the Forest Allowance and charges due to Bukit Tinggi Bhd. for all
the relevant years of assessment.
(10 marks)

ii) Assuming that an election was made under paragraph 32(1), Schedule 3 of
the Income Tax Act 1967, what would be its tax position upon disposal of the
forest?
(3 marks)

b) New Manufacturing Sdn. Bhd. is in the manufacturing business of canned food for
local export market. The company prepares its accounts to 31 December annually. In
year 2002 New Manufacturing Sdn Bhd. carried out a major development on its
business physical structure due to an increase in demand of canned food in local as
well as for export market.

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On 1stJanuary 2002 the company incurred RM95.000 on preparing a site to install

two units of food processing machines. The cost of the machine was RM15,000
each.

During the year 2002, the company incurred RM2 million (including RM500,000 for
cost of land and stamp duty) to construct a manufacturing complex divided into two
main sections, factory (88%) and office and showroom (12%). The company also
constructed another building within the same curtilage to store raw materials and
completed manufactured goods at a cost of RM100,000. To improve the quality of its
product the company leased a building near its manufacturing complex to conduct an
approved food technology research at the annual rental of RM36,000.

All construction was completed on 26 December 2002.

Required:

Compute the Industrial Building Allowance with respect to the capital expenditure
incurred for the year of assessment 2003.
(10 marks)
(Total: 23 marks)

END OF QUESTION PAPER

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