Additional Question

Sunset Forklift Sdn Bhd (SFSD) is in the business of selling imported forklifts. In March 2010, SFSD entered into a contract to supply 60 forklifts over a period of nine years to Forklift Action Berhad (FAB), a leading heavy machine trader. The agreement provided for a fixed price on each forklift sold within the nine-year period, and also for a free warranty period of three years.

Due to currency fluctuation in 2014, the cost to import forklifts has increased by an average of 30 per cent. As a result, SFSD prematurely terminated the fixed price supply agreement with FAB on 17 March 2015. The termination of the agreement has rendered FAB to purchase forklifts from another vendor at a higher price.

Due to this, FAB commenced legal proceedings against SFSD to recover RM950,000, being compensation for the increased cost of having to buy forklifts elsewhere and also to seek payments under warranty for existing forklifts that are less than three years. However, the legal proceedings by FAB was discontinued when SFSD agreed to make a compensation payment to FAB of RM500,000 in late April 2015 to settle all claims against them.

Required

Advise Forklift Action Berhad as to whether the amount of RM500,000 received as compensation constitutes assessable income in 2015.

(6 marks)