CONFIDENTIAL FPN/OCT 2000/TAX370

UNIVERSITI TEKNOLOGI MARA

FAKULTI PERAKAUNAN
FINAL EXAMINATION FOR SEMESTER JUNE - DECEMBER 2000

DIPLOMA IN ACCOUNTANCY
DOCUMENT ID: 100000 i- S""? C? j
COURSE : TAXATION 2

COURSE CODE TAX370

DATE 28 OCTOBER 2000

TIME 3 HOURS (9.00-12.00 A.M)

INSTRUCTIONS TO CANDIDATES:

1. Answer ALL questions.

2. Answer for each question should start on a new page.

3. Candidates are not allowed to bring any material into the examination room other
than those allowed by the invigilator.

EXAMINATIONS REQUIREMENTS:

1. Appendix (1 page) - included.

* DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO

This question paper consists of 7 printed pages

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Question 1

(a) "A company is resident in Malaysia for a basis year for a year of assessment if....the
management and control of its business....are exercised in Malaysia".
- Section 8(1 )(b) Income Tax Act 1967

Required:

Explain the meaning of "management and control" of a company's business

(4 marks)

(b) The following is the profit and loss account for Syarikat Pintar for the year ending 31
December 2000.
RM RM
Sales 1,700,020
Less Cost of goods sold:
Opening stock 49,040
Purchases (1) 1,208,700
Closing stock (67,600) 1.190.140
Gross profit 509,880
Less Expenses:
Water &electricity 28,000
Telephone & fax 31,120
Salary & wages (2) 57,000
Insurance 32,700
Motor vehicle expenses (3) 21,000
EPF 11,000
Depreciation (4) 27,000
Bad debts (5) 4,800
Legal & professional expenses (6) 18,800
Miscellaneous expenses (7) 23,000
Repairs (8) 10,000
Research (9) 21,000
Transportation 17,060
Advertisement 5,700
Printing 3,750
Rental 12,000 323,930
Net profit 185.950

Additional information:

1. Purchases included purchase of a used photocopy machine for office use valued
at RM7,050. The annual allowance rate is 10%.

2. Salary and wages include RM12.000 paid to two disabled employees.

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3. Motor vehicle expenses include RM2.800 loss from sale of a van that cost
RM40.000. The sales proceeds of the van is RM20.000. The van was purchased
in the year 1997 and was licensed for commercial transportation of goods. The
annual allowance rate is 20%.

4. Depreciation is in respect of the following assets:

Lorry Fixtures
Cost RM108,000 RM29,000
Residual expenditure RM 43,200 RM 4,350
Annual allowance rate 20% 10%

5. Bad debts
1/1/2000 31/12/2000
General provision RM17.500 RM21.000
Specific provision RM13.700 RM15.000

6. Legal and professional expenses are as follows:

Collection of trade debts RM5,100
Auditing company's accounts RM7,600
Renew rental agreement RM5,000
Income tax appeal RM1.100

7. Miscellaneous expenses included RM6.000 entertainment for clients and

RM2.500 donations to a political party and RM3.000 donation to Hospital
University.

8. Repairs expenses included renovation of the manager's office amounting to

RM7,800 and the balance was for repairing motor vehicles.

9. Syarikat Pintar was committed to undertake a research approved under Section

34A of the Income Tax Act 1967.

Required:

Compute the income tax payable by Syarikat Pintar for the year of assessment 2000.

(14 marks)

(a) Explain the meaning of "tax imputation system", in relation to company's

taxation.
(2 marks)

(b) Uniten Bhd, a Malaysian resident company, prepares its account on 31

December annually. The company was incorporated on 1 October 1994.
Below are the information for the basis year 2000:

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Ordinary share capital of RM1 each RM100,000,000

Chargeable income RM 8,000,000
Final ordinary dividend 6%
Interim ordinary dividend 4%
Bilateral relief section 132 RM 28,000
Unilateral relief section 133 RM 24,000
Section 6B rebate RM 10,000
Section 108(6) balance brought forward RM 120,000

Required:

Compute the compared aggregate, compared total and section 108 balance for the company
for the year of assessment 2000.
(6 marks)
(Total 25 marks)

Question 2

(a) Wahab, Alias and Intan have been partners since 1995 as computer distributors. The
partnership accounting year end on 31 December every year. The terms of their
agreement are as follows:

Before 1 July 2000

Wahab Alias Intan
Capital RM80,000 RM80.000 RM80,000
Salary per year RM36.000 RM20.000 RM16.000
Interest on capital per year 5% 5% 5%
Profit and loss sharing 1/3 1/3 1/3

On 30 June 2000, Wahab opted for retirement, after which the profit and loss is shared
equally between Alias and Intan and the rest of the terms remained the same.

Bonus paid to the partners for the year ended 31 December 2000 is as follows:
Alias RM2,000
Intan RM3.600

The provisional adjusted income of the partnership for the basis period ended 31
December 2000 was RM40.000 and the firm claimed capital allowance of RM3,600 on
its plant and machinery.

Required:

Determine the statutory income of each partner for the year of assessment 2000.

(10 marks)

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(b) Define the meaning of "partnership" as stated under Section 2 of the Income Tax Act
1967.
(4 marks)

(c) Who is a chargeable person in the partnership, and who is responsible for filing the
return (Form P) to the Inland Renenue Board?
(2 marks)
(Total 16 marks)

Question 3

(a) Puan Tina is the owner of a chain of hotel in Indonesia. For the basis year 2000, she
has proposed to open few hotels located in Malaysia; Melaka (30 rooms), Langkawi
(40 rooms), Kuala Terengganu (20 rooms). She seeks your clarification regarding the
Service Tax Act 1975.

Required:

Explain whether or not Puan Tina's proposed operations are liable to service tax.

(4 marks)

(b) On the 15th anniversary, a licensed hotel in Petaling Jaya provided free food and drinks
in its coffee house to a group of handicapped children from Klang, Selangor. The cost
of the foods and drinks was RM2,200, and the market value was RM3.000.

Required:

Determine whether service tax is payable, and if so, why and how much.
(3 marks)

(c) On 1 September 2000, Emko Sdn. Bhd. purchased taxable goods from an independent
overseas supplier at a price of RM850.000. The charges for insurance and freight
amounted to RM13.000 and RM10,700 respectively.

The goods are subjected to import duty at the rate of 20% and sales tax rate of 15%.

Required:

Calculate the sales tax payable by Emko Sdn. Bhd.

{3 marks)

(d) When is sales tax payable and to whom it is payable?

(3 marks)
(Total 13 marks)

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Question 4 (a)

JF Sdn. Bhd. (accounting year end 30 April) and CN Sdn Bhd (accounting year end 31
August) are under the common control of Encik Roslan. JF Sdn Bhd bought a computer on
13 June 2000 for RM5,000 and sold to CN Sdn Bhd for RM3.000 on 7 August 2000.
Assuming the annual allowance rate is 10%.

Required:

Determine the 'first day of disposer's final period.

Calculate the allowance available to both parties.

(8 marks)

Question 4 (b)

On 1 August 1999, your friend Mr. Lee has inherited a piece of agriculture land from his
grandfather in Ipoh. On 1 January 2000, Mr Lee planted mangosteen, rambutan, banana
and guava on the agriculture land. He seeks your advice on what deduction or allowance he
would be entitled to claim.

Agriculture project and capital expenditure incurred in the basis year 2000 is as follows:

Types of crop Area (hectares) Clearing of Seedling and Total (RM)

land (RM) fertilizer (RM)
Mangosteen 10 14,000 2,000 16,000
Rambutan 45 20,000 3,000 23,000
Banana 50 30,000 4,000 34,000
Guava 5 2,000 1,000 3,000

Mr. Lee is an engineer, his employment income for the year 2000 is RM84,000 and rental
income is RM 6,000.

Required:

Calculate the total income of Mr. Lee for year of assessment 2000.
(12 marks)

Question 5

Slick Sdn. Bhd. a manufacturing company was incorporated and commenced operation on 1
July 1995. Slick Sdn.Bhd's first set of accounts were prepared up to 30 June 1996.

In 1998, Slick Sdn.Bhd decided to change its accounting year end to 31 March. The
company was not required by law to change its accounting date. The accounting periods and
adjusted income/loss are as follows:-

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Accounting Period Adjusted Income/Loss

RM
10 months ended 30 June 1996 24,000
12 months ended 30 June 1997 (16,500)
9 months ended 31 March 1998 (20,000)
12 months ended 31 March 1999 30,000
12 months ended 31 March 2000 55,000

Required:
Determine the basis periods and the adjusted income /for each relevant year of assessment
up to year of assessment 2000 (current year basis).

(10 marks)

Question G

a) Syarikat Maju Bhd a trading company, makes its annual accounts to 30 November.
Due to economic problems, Syarikat Maju Bhd decided to cease its business
operation in August 2000. It terminated the services of its employees in the same
month. Compensation for loss of employment amounting to RM650,000 was paid to
the employees in lieu of adequate notice of termination of employment. The company
claimed this amount as an expense in its final set of accounts.

Required:

Discuss whether the compensation paid by Syarikat Maju Bhd could be allowed as
deduction or not. Support your decision with one relevant case.
(5 marks)

b) Compensation received due to cancellation of agreement may or may not be treated

as trading income.

Required:

Discuss the above statement with reference to the following cases:

i. Van Den Bergh Co. Ltd V Clark

ii. Kelsall Parsons & Co. Ltd V Cir

(10 marks)
(Total: 15 marks)

END OF QUESTION PAPER

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CONFIDENTIAL APPENDIX 1 FPN/OCT 2000/TAX370

APPROVED AGRICULTURAL PROJECTS

Project Period Minimum

(Years) Hectarage

1. Aquaculture (Prawns) 2 40

2. Crops: Papaya 1 40
Banana 1 40
Passion fruit 1 40
Star fruit 2 8
Guava (jambu) 2 8
Mangosteen 7 8

3. Floriculture
Plants, bulbs, tubers and roots with or without
flowers of flower buds, of the kind specified in
Chapter 6 of the Customs Duties Order 1988,
which are suitable for planting or ornamental
use, excluding:

a. mushroom spawn;
b. budded or seeding rubber stumps; and
c. rubber budwood

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