The time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FIVE questions are compulsory and MUST be attempted. Tax rates and allowances are on pages 2–3. Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall. The Association of Chartered Certified Accountants Paper F6 (MYS) Fundamentals Level.
Calculations and workings should be made to the nearest RM. All apportionments should be made to the nearest whole month. All workings should be shown.
Household furnishings, apparatus, and appliances RM per month Semi-furnished with furniture in the lounge, dining room, or bedroom 70 Semi-furnished with the furniture as above plus air-conditioners, and/or curtains and carpets 140 Fully furnished premises 280 Domestic help 400 Gardener 300 Driver 600 Telephone (fixed or mobile): RM per annum 300 300 Hardware Bills Capital allowances Industrial buildings Plant and machinery – general Motor vehicles, heavy machinery Computers, information technology equipment, and computer software Office equipment, furniture, and fittings Initial Rate % 10 20 20 20 20 Annual Rate % 14 20 40 10 Sales tax and service tax rates Rate % 10 5 Sales tax Service tax 3. P. T. O. 8D–MYSPA Paper F6MYS 8D–MYSAA Paper F6MYS ALL FIVE questions are compulsory and MUST be attempted 1 James and Carol are husband and wife. James is disabled. The income and expenses of James and Carol for the year ended 31 December 2008 are expected to be as follows: RM James Employment – Salary 35,000 Carol Partnership business – Statutory income Employment – Salary Travelling allowance 4,350 16,600 3,000 James incurred expenses as follows: Donation to an approved institution Contributions to Employees Provident Fund.
Medical examination for self Medical expenses for his father Fees for his part-time course in Islamic financing at a university in Kuala Lumpur, recognized by the Government Carol incurred expenses as follows: Contributions to Employees Provident Fund Medical expense on cancer treatment for herself Medical expenses for her mother Basic supporting equipment for her disabled father Travelling expenses incurred in the course of her work 2,600 3,850 400 1,300 1,100 2,156 2,700 900 3,600 4,000
Required: Compute the couple’s tax payable for the year of assessment 2008 under joint assessment: (i) assuming that James made the election; and (ii) assuming that Carol made the election. (12 marks) (12 marks) Notes: (1) You should use two columns, one each for (i) and (ii) above. (2) You should indicate, by using the word ‘nil’, any expense item that does not qualify for personal relief. (3) Marks will be awarded for the use of accurate technical terms to describe the figures comprising the stages in the computation of chargeable income. (b) (i) Based on your tax computations in part (a), a state in which spouse should make the election for joint assessment and why. (1 mark) ii) Analyze, quantify, and summarise the tax saving resulting from making the election you have specified in (i) above over the alternative election. (5 marks) (30 marks) 4 This is a blank page.
Beauty Sdn Bhd, a resident company with a paid-up ordinary share capital of RM2 million, is engaged in the manufacture of cosmetic products. The company’s profit and loss account for the year ended 31 October 2008 is as follows:
Sales Cost of sales Gross profit
Less: Remuneration Contributions to approved schemes Entertainment Royalty Penalty for late payment of withholding tax on royalty Gain on disposal of a van Repairs and maintenance Depreciation Bad debt recovery Lease rentals Advertising 7 8 RM000’s 27,800 (11,200), 16,600 (7,200),9,400.
Profit before taxation Notes:
Remuneration includes: RM 114,000 400,000 Salaries of disabled employees Entertainment allowance to senior management
Contributions to approved schemes comprise: RM 276,000 112,000, 388,000. The company contributes 12% to the Employees Provident Fund for all employees and an additional 8% to the Beauty Sdn Bhd scheme in respect of the remuneration of RM1,000,000 and the entertainment allowance of RM400,000 paid to senior management executives.
Entertainment includes the cost of launching new products amounting to RM38,000.
A royalty amounting to RM630,000 net of the 10% withholding tax was paid to a non-resident on 15 September 2008, in respect of the new products. The amount of the withholding tax and the related penalty remains unpaid.
Gain on disposal of a van
A van was disposed of in August 2008 for RM36,000. The van had been purchased in December 2005 for RM65,000.
Repairs and maintenance include costs of renovation to the company’s office building amounting to RM58,000. The reason for this expenditure was to provide a safe workplace for disabled workers.
The bad debt recovery is in respect of a trade debt taken over from another company carrying on the same business, three years ago.
Lease rentals are in respect of a motor vehicle costing in excess of RM150,000. The lease rentals commenced on 1 December 2007 at RM6,000 per month for a period of 30 months. 8D–MYSAB Paper F6MYS
Other information (i) A sum of RM60,000 was incurred on alterations to the company’s factory building, in order to install general machinery costing RM340,000. (ii) A sum of RM810,000 was incurred on cutting the land in order to prepare a site to install heavy machinery costing RM190,000. (iii) For the year of assessment 2008, capital allowances for plant and machinery will amount to RM849,000 and industrial building allowances to RM295,000, excluding any allowances or adjustments attributable to the capital expenditure, referred to in (i) and (ii) above.
Required: (a) Compute the tax payable by Beauty Sdn Bhd for the year of assessment 2008. Note: your computation should start with the profit before taxation figure and follow the descriptions used in the notes to the profit and loss account, indicating ‘nil’ in the appropriate column for any item that does not require adjustment. (18 marks) (b) Explain your treatment of the items stated below: (i) (ii) (iii) (iv) (v) approved schemes (note 2); disposal of a van (note 5); renovations to the office building (note 6); lease rentals (note 8); and the expenditure incurred in respect of the heavy machinery and its installation (note 9 (ii)). (7 marks) (25 marks) 7 [P. T. O. 8D–MYSAC Paper F6MYS 3 Freshgreen Sdn Bhd is in the business of cultivating vegetables. The adjusted income of the company for the year ended 30 June 2008, before taking into account the following, amounted to RM563,000.
The farm is situated in a remote area, thus the buildings on the farm have no value other than for the working of the farm.
The lorry was bought under a hire purchase agreement. The company made an initial payment of RM18,000 in July 2006. The balance was paid over a period of 23 months at RM2,200 per month, inclusive of interest of RM200 per month. The installment payments commenced on 1 August 2006.
In July 2007 the company carried out planting of crops and incurred RM19,000 on clearing land and RM161,000 on fertilizer and seedlings. In January 2008 the company carried out replanting of crops and incurred the following expenses: RM 22,000 115,000 7,000 Clearing land Fertiliser and seedlings Labour In March 2008 Freshgreen Sdn Bhd disposed of the following assets on which agriculture allowance had been claimed in the previous years: Assets Store Living quarters for employees Date of construction 1 January 2005 6 August 2005 Cost RM 25,000 60,000. The store and the living quarters were disposed of for RM10,000 and RM35,000 respectively.
(a) Compute the agriculture allowance and capital allowance under Schedule 3, Income Tax Act, that can be claimed by Freshgreen Sdn Bhd for the year of assessment 2008. (10 marks)
(b) Compute the statutory income of Freshgreen Sdn Bhd for the year of assessment 2008. (7 marks)
(c) Compute the agriculture charge on the basis that Freshgreen Sdn Bhd made an election to spread the charge, under para 27, Schedule 3, Income Tax Act, clearly indicating the years of assessment affected. 3 marks)
Note: the rates of agriculture allowance are as follows: Rate 50% 50% 50% 20% 10% Clearing and preparing land Planting of crops Construction of roads and bridges on a farm Construction of living quarters for workers. Construction of buildings (20 marks) 8 8D–MYSAD Paper F6MYS 4 (a) (i) For the year of assessment 2008 Cik Lee has income from three sources: employment, business, and the rental of property. Required: State, with explanations, the provisions of the law applicable to Cik Lee in respect of the payment of tax for the year of assessment 2008. (3 marks) ii) Encik Koon is expected to have the following income for the year of assessment 2008: RM 180,000 130,000 310,000 10,000 300,000 57,500 Statutory income from employment Statutory income from a partnership business Aggregate income Approved donations Total income Tax payable For the year of assessment 2008, in addition to the tax deducted from his remuneration under the Schedular Tax Deduction (STD) system, Encik Koon paid tax installments amounting to RM12,000, as per his application to the Director-General of Inland Revenue, to vary the amount of his payment.
Required: Compute the penalty, if any, resulting from the application by Encik Koon to vary the installment amounts. (6 marks) (b) Encik Smith is employed as a service director of a company and his salary is RM180,000 per annum. Encik Smith is provided with unfurnished living accommodation for which the company pays rent amounting to RM60,000 per annum. Encik Smith is not provided with a company car but he has been given the option of (i) a driver provided by the company, or (ii) the reimbursement of the driver’s salary amounting to RM15,600 per annum.
Required: State, with explanations and supporting calculations, which of the above options Encik Smith should choose from a tax perspective. (6 marks) (15 marks). Chongdart Sdn Bhd is a licensed manufacturer in the business of making computer tables. The company’s records for the period from 1 July to 31 August 2008 show the following: Sale of 1,200 tables at RM40 each excluding sales tax, of which 900 were sold to customers in Malaysia and 300 were exported to China. Purchase of the following raw materials and component parts: Castors for table legs including sales tax. Locks for drawers, imported from Thailand Rollers for pull-out shelf and drawers, purchased from Heng Sdn Bhd, a licensed manufacturer Paint for painted finish undertaken by a subcontractor RM 3,000 2,300 6,400 5,100 None of the above items are exempt from sales tax. Chongdart Sdn Bhd obtained the approval of the Director-General of Customs and Excise for the import of the locks from Thailand and the purchase of the rollers from Heng Sdn Bhd. The subcontractor was exempt from licensing in view of the fact that its annual sales turnover does not exceed RM20,000. The appropriate rate of refund under the credit system is 8%.
Required: State the particulars which Chongdart Sdn Bhd must disclose in the sales tax return, Form JCP No. 1, for the taxable period 1 July to 31 August 2008, together with the due date of payment of the tax to the Director-General of Customs and Excise. (5 marks). AB Sdn Bhd, a firm of licensed surveyors, issued an invoice to Buildup Sdn Bhd, on 4 March 2007, for surveying work amounting to RM15,000, disbursements amounting to RM950 and the service tax payable. In April 2007 Buildup Sdn Bhd paid a sum of RM10,400 for the full amount of the disbursements and 60% of the fees, including the service tax thereon. The balance outstanding was written off as a bad debt by AB Sdn Bhd in November 2008, when Buildup Sdn Bhd went into compulsory liquidation.
Required: State the amount of the service tax payable by AB Sdn Bhd in respect of the above invoice, together with the due date(s) for payment of the tax to the Director-General of Customs and Excise. (3 marks). Compute the amount of the service tax that AB Sdn Bhd can recover from the Director-General of Customs and Excise in due course, in respect of the bad debt written off. (2 marks) (10 marks) End of Question Paper 10
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