QUESTION 1 Baggu Sdn Bhd, a Malaysian resident company, was incorporated in April 2011 and commenced its operation on 1 July 2011 with a share capital of RM3 million. Baggu Sdn Bhd engages in the manufacturing of various kinds of bags for the export and local markets. The company makes up its accounts annually to 30 June. The statement of comprehensive income for the year ended 30 June 2021 is as follows: Note RM RM Sales 102,000,000 Less: Cost of sales 2 (64,000,000) Gross profit 38,000,000 Add: Other income 3 Dividend 84,000 Interest 81,000 Rental 135,000 300,000 38,300,000 Less: Operating expenses Annual general meeting 4 225,000 Contributions 5 720,000 Depreciation 353,000 Foreign exchange loss 292,000 Insurance pre ums 8 105,000 Maintenance and utilities a 88,000 Marketing 10 TU 529,000 Pre-operating expenses 11 75,000 Provision for bad debts 820.000 Rental of premises 352.000 Repairs 14 252,000 Research and development 15 945,000 Travelling 16 144,000 Wages and salaries 17 1,800,000 (6,700,000) Net profit 31,600,000 12 14 13 13 Notes to the accounts: 1. The sales figure includes RM2,300,000 receivable by Baggu Sdn Bhd under an agreement signed with a Japanese company involved in manufacturing bags. The receivable was to dispose of the right to use Baggu Sbd Bhd's trademark, which is payable in four annual instalments. 2. Cost of sales includes equipment amounting to RM39,000 purchased to enable disabled employees to work more efficiently. 3. Other income comprises: . An interest of RM6,000 arising on a savings account with BHR Bank (Malaysia) credited from April to June 2021. An accrued interest of RM14,000 on a fixed deposit of RM375,000 with CBCO Bank (Malaysia) for six months matured on 20 July 2021. . Rental income (gross) received from a property in Japan, remitted to Malaysia on 1 January 2021. 2 Dividend of RM30,000 received on 15 March 2021 from pioneer company. Dividend of RM54,000 (net after-tax) received on 30 December 2020, from Fuku Bhd. 4. Expenses incurred regarding the annual general meeting of shareholders comprise the cost of refreshments and food provided at the meeting. 5. Contributions comprise: RM Contribution to a local public library 315,000 Donation to an approved institution 210,000 Donation to a political party 195,000 720,000 6. Depreciation comprises: Gain on sale of lorry (note 18) Fine for parking offences by the lorry driver Loss on sale of computer (note 18) Depreciation on company's fixed assets RM (9,000) 2,000 4,000 356,000 353,000 7. Foreign exchange loss comprises: RM Loss on purchase of equipment A (realised) 330,000 Gain on purchase of raw material (unrealised) (53,000) Gain on purchase of equipment B (unrealised) (113,000) Loss on purchase of raw material (realised) 128,000 292,000 8. Insurance premiums include a sum of RM60,000 paid to Oteire Insurance Bhd, a company incorporated in Malaysia, regarding importing raw materials from Japan. 9. Maintenance and utilities include a provision for maintenance of plant and machinery used in manufacturing tolling up to RM20,500. 10. Marketing expenses include: A sum of RM39,000 in respect of product testing in Japan to promote the company's product. A sum of RM138,000 embezzled by a finance director. A sum of RM23,000 stolen by a cashier. 11. Pre-operating expenses An amount of RM450,000 was incurred in setting up the manufacturing operations and was amortised over six years. 12. Provision for bad debts comprises: RM Bad debts recovered (84,000) Bad debts written-off 105,000 Net increase in the specific provision 165,000 Net increase in the general provision 634,000 3 820,000 RM23,000 of the bad debts recovered related to non-trade debts. RM35,000 of the bad debts written off is in respect of a car loan to an ex-employee. RM68,000 of the specific provision relates to non-trade debts. 13. Rental of premises includes rent paid in advance from 1 May 2021 to 31 August 2021, amounting to RM36,000. 14. Repairs include a sum of RM72,000 incurred regarding tools with a life span of fewer than two years. This sum comprises RM45,000 for devices replaced and RM27,000 for additional tools. 15. Research and development expenses comprise: Market research on customers' preference in Malaysia Cash contribution to approved research institute Quality control testing Payment for the use of services of an approved research institute situated in Selangor RM 180,000 135,000 210,000 420,000 945,000 16. Travelling expenses include hotel accommodation and sustenance allowance provided to a marketing director and a marketing manager amounting to RM5,000 and 3,000 respectively during their five-day business trip to Japan to negotiate sales contracts. The sum comprises: Marketing Director Marketing Manager RM RM Hotel accommodation 3,000 1,800 Sustenance 2,000 1,200 5,000 3,000 17. Wages and salaries include a sum of RM240,000 incurred on leave passages provided to senior management staff. The sum comprises: RM Local airfares : Tioman Island, Pahang 20,000 Langkawi, Kedah 45,000 Pulau Sipadan, Sabah 15,000 Overseas airfares: Kyoto, Japan 76,000 Osaka, Japan 84.000 240,000 Each senior management staff was granted only two local leave passages in the year, utilised in December 2020. 18. Additional information: 1. A factory that has not previously used an industrial purchased by Baggu Sdn Bhd on 25 September 2020 for RM670,000 (including RM90,000 for land cost). The factory commenced being used by the company in December 2020. II. A lorry was purchased on 1 October 2018 for RM180,000 and sold on 15 June 2021 for RM105,000. 4 A computer was bought on 31 August 2019 for RM60,000 and sold on 31 May 2021 for RM20,000. IV. Capital allowance for the year of assessment 2021 amounts to RM120,000, excluding the assets sold and acquired during the financial year. V. An adjusted loss of RM849,600 is brought forward from the year of assessment 2020. Required: a. Compute the tax payable by Baggu Sdn Bhd for the year of assessment 2021. Every item mentioned in the notes to the accounts must be listed in your computation. Note: 1. Where no adjustment is needed, indicate "NIL" in the appropriate column. 2. Include all workings. 3. Include reference to answer. E.g., textbook, chapter, heading, page number, public ruling etc. (25 marks) b. Explain tax implications under the Income Tax Act 1967 (as amended) when a person plans to commence a business for the following: (5 marks) (Total marks: 30 marks) QUESTION 1 Baggu Sdn Bhd, a Malaysian resident company, was incorporated in April 2011 and commenced its operation on 1 July 2011 with a share capital of RM3 million. Baggu Sdn Bhd engages in the manufacturing of various kinds of bags for the export and local markets. The company makes up its accounts annually to 30 June. The statement of comprehensive income for the year ended 30 June 2021 is as follows: Note RM RM Sales 102,000,000 Less: Cost of sales 2 (64,000,000) Gross profit 38,000,000 Add: Other income 3 Dividend 84,000 Interest 81,000 Rental 135,000 300,000 38,300,000 Less: Operating expenses Annual general meeting 4 225,000 Contributions 5 720,000 Depreciation 353,000 Foreign exchange loss 292,000 Insurance pre ums 8 105,000 Maintenance and utilities a 88,000 Marketing 10 TU 529,000 Pre-operating expenses 11 75,000 Provision for bad debts 820.000 Rental of premises 352.000 Repairs 14 252,000 Research and development 15 945,000 Travelling 16 144,000 Wages and salaries 17 1,800,000 (6,700,000) Net profit 31,600,000 12 14 13 13 Notes to the accounts: 1. The sales figure includes RM2,300,000 receivable by Baggu Sdn Bhd under an agreement signed with a Japanese company involved in manufacturing bags. The receivable was to dispose of the right to use Baggu Sbd Bhd's trademark, which is payable in four annual instalments. 2. Cost of sales includes equipment amounting to RM39,000 purchased to enable disabled employees to work more efficiently. 3. Other income comprises: . An interest of RM6,000 arising on a savings account with BHR Bank (Malaysia) credited from April to June 2021. An accrued interest of RM14,000 on a fixed deposit of RM375,000 with CBCO Bank (Malaysia) for six months matured on 20 July 2021. . Rental income (gross) received from a property in Japan, remitted to Malaysia on 1 January 2021. 2 Dividend of RM30,000 received on 15 March 2021 from pioneer company. Dividend of RM54,000 (net after-tax) received on 30 December 2020, from Fuku Bhd. 4. Expenses incurred regarding the annual general meeting of shareholders comprise the cost of refreshments and food provided at the meeting. 5. Contributions comprise: RM Contribution to a local public library 315,000 Donation to an approved institution 210,000 Donation to a political party 195,000 720,000 6. Depreciation comprises: Gain on sale of lorry (note 18) Fine for parking offences by the lorry driver Loss on sale of computer (note 18) Depreciation on company's fixed assets RM (9,000) 2,000 4,000 356,000 353,000 7. Foreign exchange loss comprises: RM Loss on purchase of equipment A (realised) 330,000 Gain on purchase of raw material (unrealised) (53,000) Gain on purchase of equipment B (unrealised) (113,000) Loss on purchase of raw material (realised) 128,000 292,000 8. Insurance premiums include a sum of RM60,000 paid to Oteire Insurance Bhd, a company incorporated in Malaysia, regarding importing raw materials from Japan. 9. Maintenance and utilities include a provision for maintenance of plant and machinery used in manufacturing tolling up to RM20,500. 10. Marketing expenses include: A sum of RM39,000 in respect of product testing in Japan to promote the company's product. A sum of RM138,000 embezzled by a finance director. A sum of RM23,000 stolen by a cashier. 11. Pre-operating expenses An amount of RM450,000 was incurred in setting up the manufacturing operations and was amortised over six years. 12. Provision for bad debts comprises: RM Bad debts recovered (84,000) Bad debts written-off 105,000 Net increase in the specific provision 165,000 Net increase in the general provision 634,000 3 820,000 RM23,000 of the bad debts recovered related to non-trade debts. RM35,000 of the bad debts written off is in respect of a car loan to an ex-employee. RM68,000 of the specific provision relates to non-trade debts. 13. Rental of premises includes rent paid in advance from 1 May 2021 to 31 August 2021, amounting to RM36,000. 14. Repairs include a sum of RM72,000 incurred regarding tools with a life span of fewer than two years. This sum comprises RM45,000 for devices replaced and RM27,000 for additional tools. 15. Research and development expenses comprise: Market research on customers' preference in Malaysia Cash contribution to approved research institute Quality control testing Payment for the use of services of an approved research institute situated in Selangor RM 180,000 135,000 210,000 420,000 945,000 16. Travelling expenses include hotel accommodation and sustenance allowance provided to a marketing director and a marketing manager amounting to RM5,000 and 3,000 respectively during their five-day business trip to Japan to negotiate sales contracts. The sum comprises: Marketing Director Marketing Manager RM RM Hotel accommodation 3,000 1,800 Sustenance 2,000 1,200 5,000 3,000 17. Wages and salaries include a sum of RM240,000 incurred on leave passages provided to senior management staff. The sum comprises: RM Local airfares : Tioman Island, Pahang 20,000 Langkawi, Kedah 45,000 Pulau Sipadan, Sabah 15,000 Overseas airfares: Kyoto, Japan 76,000 Osaka, Japan 84.000 240,000 Each senior management staff was granted only two local leave passages in the year, utilised in December 2020. 18. Additional information: 1. A factory that has not previously used an industrial purchased by Baggu Sdn Bhd on 25 September 2020 for RM670,000 (including RM90,000 for land cost). The factory commenced being used by the company in December 2020. II. A lorry was purchased on 1 October 2018 for RM180,000 and sold on 15 June 2021 for RM105,000. 4 A computer was bought on 31 August 2019 for RM60,000 and sold on 31 May 2021 for RM20,000. IV. Capital allowance for the year of assessment 2021 amounts to RM120,000, excluding the assets sold and acquired during the financial year. V. An adjusted loss of RM849,600 is brought forward from the year of assessment 2020. Required: a. Compute the tax payable by Baggu Sdn Bhd for the year of assessment 2021. Every item mentioned in the notes to the accounts must be listed in your computation. Note: 1. Where no adjustment is needed, indicate "NIL" in the appropriate column. 2. Include all workings. 3. Include reference to answer. E.g., textbook, chapter, heading, page number, public ruling etc. (25 marks) b. Explain tax implications under the Income Tax Act 1967 (as amended) when a person plans to commence a business for the following: (5 marks) (Total marks: 30 marks)