Pavilion Bhd a company engaged in the manufacturing of kitchen appliances, prepares its

accounts to 30 September annually. The company is resident in Malaysia for tax purposes

and its trading, profit and loss account for the year ended 30 September 2019 is as follows:

Pavilion Bhd

Trading, Profit and Loss Account for the year ended 30 September 2019

	Note	RM'000	RM'000
Sales			55,500
Less: Cost of sales	1		-45,000
Gross profit			10,500
Add: Dividend	2	146
Interest	3	76
Profit on sale on fixed assets		200	422
			10,922
Less: Expenses
Depreciation		200
Entertainment	4	520
Foreign exchange loss	5	500
Freight and insurance	6	2,250
Legal and professional charges	7	450
Provision for doubtful debts (trade)	8	94
Subscriptions and donations	9	563
Tax penalty		56
Wages and salaries	10	3500	-8,133
Net profit before taxation			2,789

Notes:

1. Cost of sales includes: RM

i) Provision for stock obsolescence 555,000

ii) Compensation paid to a customer for failure to perform a trading contract 250,500

2. Dividends were received from: RM

i) Pioneer status company in Malaysia 5,000

ii) Thailand (remitted) 67,000

iii) Local company in Malaysia (single tier) 74,000

3. Interest:

This represents charges on overdue trade accounts imposed by the company for delayed

payments by customers.

4. Entertainment:

The amount was incurred in entertaining the company's client for sales purposes except for

RM 100,000 which was incurred for the staff annual dinner.

5. Foreign exchange loss comprises: RM

i) Loss incurred on the repayment of a foreign loan (unrealised) 150,000

ii) Loss incurred on the conversion of balances owing to

foreign creditors (realised) 350,000

500,000

6. Freight and insurance include: RM

i) Premium paid to a Singaporean insurance company on 800,000

imported good

ii) Premium paid for export of cargo insured by Malaysian 350,000

insurance company

7. Legal and professional charges include: RM

i) Audit fees 22,500

ii) Income tax appeal 12,000

iii) Registration of a new trademark 45,500

iv) Renewal of two existing trademarks 20,200

v) Compensation to Sonata Bhd (competitor) due to restrict competition 95,000

8. Provision for doubtful debts (trade) comprises: RM

i) Specific provision for doubtful debts 35,000

ii) General provision for doubtful debts 32,000

iii) Trade bad debts written off 27,000

94,000

9. Subscriptions and donations include: RM

i) Entrance fee to a golf club 35,000

ii) Entrance fee to a trade association 25,500

iii) Annual subscription to a trade association 12,000

iv) Cash donation to political party 150,000

v) Cash donation to a Rumah Seri Kenanga (approved institution) 200,000

10. Wages and salaries include: RM

i) Salaries paid to twenty (20) disabled staff 150,000

ii) Approved training programme for staff 60,000

iii) Scholarships paid to eight (8) excellent staff 1,000,000

Additional information:

Capital allowances on qualifying capital expenditure for the year assessment 2019 was RM444,200 and business loss brought forward from previous year was RM560,000.

Required:

(i) Calculate the income tax payable by Pavilion Bhd for the year of assessment 2019. Every item in the notes to the statement must be shown in your computation. Write "NIL" where no adjustment is necessary. (25 marks)

(ii) Explain with reasons your treatment of the following items as in part (a):

a. Note 4 : Entertainment

b. Note 6(ii) : Premium paid for export of cargo insured by Malaysian insurance company

c. Note 7(iv) : Renewal of two existing trademarks

d. Note 7(v) : Compensation to Sonata Bhd (competitor) due to restrict competition

e. Note 9(iv) : Cash donation to political party