1. Distinguish between the enduring benefit asset test and the fixed and circulating capital test when testing for items which are capital in nature.

MS Sdn. Bhd assembles bicycles. MS closes its accounts annually on 30 September and, in its year ended 30 September 2020, it carried out the following transactions relating to non-current assets:

MS acquired a new machine for RM100,000 on 22 July 2020. A further RM360,000 was incurred in respect of site preparation and cutting and leveling the land to install the machine. The machine was first used in the business on 1 September 2020.

An air-conditioner which had been acquired on 23 April 2018 for RM1,200, was sold for scrap on 2 August 2020 for RM100. MS had claimed this air-conditioner as a small value asset when it was acquired.

In May 2020, MS constructed a workshop for RM60,000. The workshop was immediately put into use for the repair of motor cycles, an activity which is incidental to MSs business of selling motor cycles.

MS owns a factory building, which was acquired in 2016 for RM1,000,000, and currently has residual expenditure of RM810,000. During the year, MS embarked on an expansion project, which included extending the rear of this factory building to provide storage space to meet increased production. The construction of the extension was completed in December 2020 and cost RM800,000.

Required: a) Compute the capital allowance/industrial building allowance claimable by MS Sdn Bhd for the above assets, including the balancing charge/allowance on the disposal of the air-conditioner for the year of assessment 2020. [12 marks]

b) Provide the decisions in Sabine v.Lookers Ltd (38 T.C. 120) and Van den Bergh Ltd v. Clark (19 T.C. 390) pertaining to capital expenditure. [13 marks]

c) PS Sdn Bhd is a plantation company which owns 100 acres of agricultural land in Pahang, Malaysia. PS has been operating on this land for more than ten years. During the year 2017, PS disposed of two acres of the land to a nearby plantation company in order to settle a dispute over the boundaries of the land. Prior to this, PS had never disposed of any of its land.

Required: Applying the badges of trade, explain whether the receipt from the disposal of the two acres of land by Fresh Produce Sdn Bhd is capital or revenue in nature. [15 marks]