Question:

Kuala Sdn Bhd (KSB), a resident company, manufactures and sells car speakers. KSB closes its accounts annually on 31 July. During its financial year ended 31 July 2020, the company acquired the following assets:

(i) On 22 January 2020, KSB incurred RM 120,000 to acquire a machine for its manufacturing operations. A further RM10,000 was incurred in respect of site preparation and cutting and levelling of land to install the machine. The machine was first put into use in the business on 11 February 2020.

Required: Briefly explain the tax treatment with respect to the site preparation cost of RM10,000 for capital allowance purposes, and compute the capital allowances for the above machine for the year of assessment 2020. Assume the annual allowance for the machine is 14%.

(ii) A machine was purchased by KSB for RM60,000 on 1 January 2019 (the previous financial year), for business use. The machine was disposed of on 15 April 2020 for RM50,000 because the machine was not able to accommodate the growing production.

Required: Compute the balancing charge for the above asset for the year of assessment 2020. Assume the annual allowance for the machine is 14%.