SUGGESTED SOLUTION

TEST TAX 517 - OCTOBER 2018

QUESTION 1
A.
ZASS Sdn Bhd
Computation of the chargeable income for the year of assessment 2017
a. Add Deduct
RM RM
Net profit before tax 3,079,300
Profit on sale of non-current asset 34,000√

1. Cost of sales
Provision for obsolete stock 55,000√
Insurance premium paid to insurance company
incorporated in Malaysia for the import of goods nil√

2. Interest
Foreign interest from fixed deposit (remitted
to Malaysia) 442,000√
Malaysian interest from fixed deposit 16,000√

3. Dividend
Dividend paid by a pioneer status company
in Malaysia 106,000√
Dividend received from ABA (M) Bhd - single
tier 442,000√

4. Payroll costs
Salaries nil√
Bonus nil√
EPF (300,000-(19%X1220000)) 68,200√
Compensation paid upon termination of a
non-performing employee nil√
Internship program 8,400√

5. Repairs and maintenance

Installation cost on purchase of machineries 35,000√
Company’s motor vehicle expenses nil√
Maintenance of child care centre for the
employees 40,000√

6. Professional charges and subscriptions

Legal fees for handling income tax appeal 1,200√
Subscriptions to trade association:
Entrance fees 10,000√
Annual fees nil√
Secretarial fees 200√
Accounting and audit service fees nil√
Add (RM) Deduct (RM)
7. Training and research

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 Training expense for employees to upgrade
the quality of its product (approved by the
relevant authority). 25,000√
Routine product testing and quality control
expenses nil√
Cash contribution to approved research
institute 36,000√

8. Foreign exchange loss

Foreign exchange loss on repayment of
foreign loan (realized) 5,600√
Foreign exchange gain from purchase of raw
materials (realized) nil√

9. General and administration

Advertisement of brand name in Thailand 50,000√
Lease rental of a used motor vehicle not
licenced for commercial vehicle RM2,000
per month (68,000-50,000) 18,000√√
Bad debts on loan provided to ex-employees 8,000√
Entertainment expenses provided to clients
for sales purpose nil√
Cash donation
(60% to approved institution and the 12,000√
balance to unapproved institution)
Cash embezzlement by a cashier nil√
3,297,500 1,218,300
Adjusted income 2,079,200
Add: Balancing charge 30,000√
Less: Capital allowance (96,000)√
Statutory income 2,013,200
Less: Business loss b/f (36,000)√
Net Statutory income 1,977,200
Add: Other sources of income
Foreign interest (remitted) Nil√
Malaysian interest from fixed deposit 16,000√
Dividend (pioneer status)-exempted nil√
Dividend (single tier dividend)-exempted Nil√
Aggregate income 1,993,200
Less: Approved donation (60% =7,200)
(limit 10% on aggregate income=10%XAI) (7,200)√
Chargeable income 1,986,000

(40√ X ½ = 20 marks)

1B. SBJ Sdn Bhd

i. within 3 months from the date of commencement  - not later than 30 June 2018

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 ii. The number of instalment is 9, equal to the length of its basis period. 

(3 x 1 = 3 marks)

1C. Radin Sdn Bhd

YA Basis period Adjusted income/(loss)

RM
2017 1/7/2016 – 31/1/2017√ 48,000√
2018 1/2/2017 – 31/1/2018√ (36,000) √

(4 x ½ = 2 marks)

Total: 25 marks

QUESTION 2

(i) Pioneer Status

Manufacturing business 2018 2019 2020

(Pioneer)
RM’000 RM’000 RM’000
Adjusted income Nil 2,500 3,700
Less: capital allowances [b/f (c/f 150) 400 300
+current]
Statutory income Nil 2,100 3,400
Less: 70% of SI Nil 1,470 2,380
Deemed total income Nil 630 1,020

EXEMPT INCOME ACCOUNT

2018 2019 2020

RM’000 RM’000 RM’000
70% of SI Nil 1,470 2,380
Less:
Non-pioneer loss (current) Nil Nil Nil
Pioneer loss brought forward Nil 1,000 Nil
Credited to exempt income Nil 470 2,380
account

(10x 1 mark = 10 marks)

(ii) Investment tax allowance

2018 2019 2020

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 RM’000 RM’000 RM’000
Adjusted income nil 2,500 3,700
Less: capital (c/f 150) 400 300
allowances 
Statutory income Nil 2,100 3,400
70% of S.I Nil 1,470 2,380
Less: ITA utilised Nil 1,470 150
Balance Nil Nil 2,230
30% of S.I 630 1,020
Total S.I after ITA 630 3,250
Less:Business loss b/f Nil (630) (370)
370 c/f
SI/Aggregate Income Nil Nil 2,880
Less: current year loss Nil Nil Nil
Chargeable income Nil Nil 2,880

ITA Brought forward Nil 1,500 150

Current year ITA 1,500 120 nil
Total ITA available 1,500 1,620 150
ITA utilized nil 1,470 150
ITA unutilized c/f 1,500 150 nil
Amount credited to EIA nil 1,470 150

(10x 1 mark = 10 marks)

Workings for ITA at 60%

2018 2019 2020

RM’000 RM’000 RM’000
Land Nil
Factory 2,000
Plant and Machinery 500 200
Total 2,500 200 nil
QE 1,500 120 nil

b)

Chargeable income Amount transferred to tax

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 exempt income account

Pioneer status RM 1,650,000 RM 2,850,000

Investment Tax Allowance RM 2,880,000 RM 1,620,000

The company should apply for Pioneer Status  because the total chargeable income is lower
and amount transferred to tax exempt income account is higher as compared to ITA. 
(4x ½ mark = 2 marks)

c) Three (3) situations where a company can enjoy 100% exemption on the statutory income
from business:
 The project carried out is of national and strategic importance to Malaysia
 The company registered as a contract Research and Development (R&D) company
 The company registered as a high technology company

(3√ X 1 mark = 3 marks)

Total: 25 marks

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