Optimizer Sdn Bhd has been established for over 10 years. The company is resident in Malaysia since its incorporation. Its principle activity is manufacturing audio equipment in Malaysia. The accounts are made up to 31 December every year. For the year ended 31 December 2019, the company's statement of comprehensive income is as follows:

Optimizer Sdn Bhd

Statement of Comprehensive Income for the year ended 31 December 2019

Note RM'000 RM'000

Sales 601,712

Less: Cost of sales 1 (12,066)

Gross profit 589,646

Add: Other incomes

Gain on disposal of shophouse 2 8,000

Rental of storage space 3 4,000

Interest from overdue trade debtors 300 12,300

Less: Expenses

Marketing and distribution 4 9,712

Administration and finance 5 569,458

Miscellaneous 6 1,000 (580,170)

Net profit before taxation 21,776

Notes:

1. Cost of sales RM'000

i.Amortization of property, plant and equipment used in the manufacturing activities. 1,366

ii.Acquisition of a proprietary rights owned by a Singaporean company in respect of a patented goods delivery system. This system enables the company to take and deliver orders in an efficient manner to customers. 600

iii.Royalty paid to Australian company on 12 October 2019. However, no penalty paid to IRB for late remittance of withholding tax on 7 December 2019. 100

2.Gain on disposal of shophouse

The company acquired this property in 2014 for RM26,420,000. It was originally used as a showroom for the company's manufactured products.

3.Rental of storage space

The company owns an old warehouse where both raw materials and finished goods are stored. Excess space in the warehouse is rented out to third parties. No support services are provided in respect of the space rented out. Annual fire insurance premium for the storage space paid is RM100,000.

4.Marketing and distribution include: RM'000

i.Sponsorship of foreign arts and cultural activities 800

ii.Sponsorship of local arts and heritage activities. 1,200

iii.Contribution to a non-governmental organization, which was established exclusively for the conservation and protection of the environment, for its tree planting project in a public park adjoining a coastline. The approved project is headed by the wife of the Executive Chairman of the company.

120

iv. Registration of a patent overseas to facilitate the export of its audio equipment to China and Japan which are two of its major markets in Asia.

160

v. Entertainment for potential customers during launching new model of speaker 600

vi. Wedding gift to a regular customer on his marriage to a Korean actress during the year. 20

vii.Free gifts and lucky draw prizes for customers during Hari Raya sales promotion. 800

viii.Realized loss on foreign exchange arising from foreign trade debtor settlement. 100

ix.Realized loss on account of an import of a machine used for quality testing of its audio equipment. 40

x.Negotiation of an agreement to export company's audio equipment by three marketing managers. This include hotel accommodation and sustenance for four nights. The visit in June 2019 was a follow up to a trade and investment mission to China and Japan organized in January 2019 by a local industrial association of which the company is a member.

5.Administration and finance include: RM'000

i.Statutory audit fees 100

ii.Legal fees for GST refund appeal against the Customs was takenup by its lawyers. 120

iii. Income tax filing fees 24

iv.Secretarial fees 14

v. Interest on loan taken to expand its production facility for goods exported to China and Japan. 1,400

vi.Guarantee fees paid to AceBeeSee Bank on the outstanding loan liability 800

vii.Commitment fee on the loan taken by one of the directors' wife 1,000

viii.Directors' fees, employee salary and wages 300,000

ix.Employee provident fund contribution 66,000

x.Approved pension scheme contribution for senior staff 6

6.Miscellaneous

Donation of speakers and audio equipment to selected colleges (approved institutions) in Penang worth RM400,000 in conjunction with its anniversary celebrations. The balance of the expenditure is sundry expenses fully qualifying for deduction.

Additional information:

Capital allowance claimed for the current year of assessment is 10,000,000.

REQUIRED:

Compute the chargeable income for Optimizer Sdn Bhd for the year of assessment 2019 by showing all relevant tax adjustments.

(Note: Your answer must list every item stated in the income statement and notes. Indicate 'NIL' where no adjustment is necessary).

(18 Marks)