SUBJECT: BUSINESS TAXATION

Section A [Total: 40 marks] This section consists of ONE (1) COMPULSORY question. Q1. (a) Aewolry Method Sdn Bhd, a Malaysian resident company involved in the business of information technology. The company prepares its account annually to 31 July. On 1 August 2017, Aewolry Method Sdn Bhd's paid up capital was RM2.3 million. The company then increased its paid up capital to RM3 million during the financial year. The details of the company's Statement of Comprehensive Income for the year ended July 2018 is as follows: Note RM '000 Sales Less: Cost of Sales RM '000 4,900 (1,260) 3,640 Add: Revenues Foreign exchange gain Other income 122 2 3 413 535 4,175 Less: Expenses Payroll costs Director remuneration Freight and insurance Donations Lease rental Bad and doubtful debts Entertainment Legal and professional fees Loss from disposal of fixed asset Miscellaneous expenses Net Profit before taxation 4 5 6 7 8 9 10 11 550 45 47 422 30 7 43 27 7 20 12 (1,198) 2,977 Notes: (1) Cost of sales included depreciation of RM69,000 and provision of guarantee RM95,000. (2) Foreign exchange gain comprises: In respect of translation of trade debts In respect of settlement by trade debtors RM '000 52 70 122 This question paper consists of 4 questions on 11 printed pages. UBAT3013 BUSINESS TAXATION (3) Other incomes comprises: Fixed deposit interest with Maybank Discount allowed for debtors due to early payment Compensation received for termination of agreement RM '000 240 (7) 180 413 (4) Payroll costs included: (1) RM102,000 wages and bonus paid to registered disabled staff and RM23,400 for renovation of premises to assist the disabled staff. (ii) Wages of RM15,000 for non-resident individual employed by the company to work in Malaysia from 1 January to 15 April 2018. (iii) RM31,000 contributions to retirement scheme for the employees and yet the application for the approval of the said scheme was rejected by Inland Revenue Board. (5) Director remuneration included: (1) A sum of RM25,000 leave passage expenses for the company's directors. (ii) RM2,200 subscription fees for Malaysian Board of Technologists. (iii) Golf club (entrance fees) with an amount of RM2,000 for the company's directors. (6) Freight and insurance included RM43,000 of insurance premium paid to an insurance company incorporated in Japan for importing goods. (7) Donations comprise: Cash donation to approved charitable institution Food donation to approved charitable institution Sponsoring Korean art at approved Malaysia's International Cultural Festival RM '000 100 12 310 422 (8) The company leased a van costing RM60,000 for a period of 24 months commencing 1 May 2017. The monthly lease rental payment is RM2,500. This question paper consists of 4 questions on 11 printed pages. 6 UBAT3013 BUSINESS TAXATION (9) The details of bad and doubtful debts in respect of the trade debts for year assessment 2018 are as follows: Bad debts written off Bad debts recovery Decrease in general provision RM '000 21 (6) (8) 7 (10) Entertainment cost comprises: Entertainment fees of potential customer Appreciation lunch given to suppliers RM '000 21 22 43 (11) Legal and professional fees consist of: Registration fees for new trade mark Renewal of software license RM '000 15 12 27 (12) Miscellaneous expenses included sum of RM15,000 printing cost for company's annual report. (13) For the year of assessment 2018, the company's current year capital allowance has been computed at RM240,000 and there is an unabsorbed capital allowance brought forward of RM25,000. Required: Compute the income tax payable by Aewolry Method Sdn Bhd for the year of assessment 2018 (assuming the companies have less than 5% increment in chargeable income from business source compared to immediate preceding YA). Note: Every item mentioned in the notes to the accounts must be listed in your computation irrespective of whether an adjustment is necessary. Where no adjustment is required, indicate Nil' in the appropriate column. (33 marks) (b) Explain your treatment of each items mentioned in notes (4) and (5). (7 marks) [Total: 40 marks] This question paper consists of 4 questions on 11 printed pages. Section A [Total: 40 marks] This section consists of ONE (1) COMPULSORY question. Q1. (a) Aewolry Method Sdn Bhd, a Malaysian resident company involved in the business of information technology. The company prepares its account annually to 31 July. On 1 August 2017, Aewolry Method Sdn Bhd's paid up capital was RM2.3 million. The company then increased its paid up capital to RM3 million during the financial year. The details of the company's Statement of Comprehensive Income for the year ended July 2018 is as follows: Note RM '000 Sales Less: Cost of Sales RM '000 4,900 (1,260) 3,640 Add: Revenues Foreign exchange gain Other income 122 2 3 413 535 4,175 Less: Expenses Payroll costs Director remuneration Freight and insurance Donations Lease rental Bad and doubtful debts Entertainment Legal and professional fees Loss from disposal of fixed asset Miscellaneous expenses Net Profit before taxation 4 5 6 7 8 9 10 11 550 45 47 422 30 7 43 27 7 20 12 (1,198) 2,977 Notes: (1) Cost of sales included depreciation of RM69,000 and provision of guarantee RM95,000. (2) Foreign exchange gain comprises: In respect of translation of trade debts In respect of settlement by trade debtors RM '000 52 70 122 This question paper consists of 4 questions on 11 printed pages. UBAT3013 BUSINESS TAXATION (3) Other incomes comprises: Fixed deposit interest with Maybank Discount allowed for debtors due to early payment Compensation received for termination of agreement RM '000 240 (7) 180 413 (4) Payroll costs included: (1) RM102,000 wages and bonus paid to registered disabled staff and RM23,400 for renovation of premises to assist the disabled staff. (ii) Wages of RM15,000 for non-resident individual employed by the company to work in Malaysia from 1 January to 15 April 2018. (iii) RM31,000 contributions to retirement scheme for the employees and yet the application for the approval of the said scheme was rejected by Inland Revenue Board. (5) Director remuneration included: (1) A sum of RM25,000 leave passage expenses for the company's directors. (ii) RM2,200 subscription fees for Malaysian Board of Technologists. (iii) Golf club (entrance fees) with an amount of RM2,000 for the company's directors. (6) Freight and insurance included RM43,000 of insurance premium paid to an insurance company incorporated in Japan for importing goods. (7) Donations comprise: Cash donation to approved charitable institution Food donation to approved charitable institution Sponsoring Korean art at approved Malaysia's International Cultural Festival RM '000 100 12 310 422 (8) The company leased a van costing RM60,000 for a period of 24 months commencing 1 May 2017. The monthly lease rental payment is RM2,500. This question paper consists of 4 questions on 11 printed pages. 6 UBAT3013 BUSINESS TAXATION (9) The details of bad and doubtful debts in respect of the trade debts for year assessment 2018 are as follows: Bad debts written off Bad debts recovery Decrease in general provision RM '000 21 (6) (8) 7 (10) Entertainment cost comprises: Entertainment fees of potential customer Appreciation lunch given to suppliers RM '000 21 22 43 (11) Legal and professional fees consist of: Registration fees for new trade mark Renewal of software license RM '000 15 12 27 (12) Miscellaneous expenses included sum of RM15,000 printing cost for company's annual report. (13) For the year of assessment 2018, the company's current year capital allowance has been computed at RM240,000 and there is an unabsorbed capital allowance brought forward of RM25,000. Required: Compute the income tax payable by Aewolry Method Sdn Bhd for the year of assessment 2018 (assuming the companies have less than 5% increment in chargeable income from business source compared to immediate preceding YA). Note: Every item mentioned in the notes to the accounts must be listed in your computation irrespective of whether an adjustment is necessary. Where no adjustment is required, indicate Nil' in the appropriate column. (33 marks) (b) Explain your treatment of each items mentioned in notes (4) and (5). (7 marks) [Total: 40 marks] This question paper consists of 4 questions on 11 printed pages