SUBJECT: TAXATION

TOPIC: BUSINESS INCOME

Colourful Son Bhd was incorporated in March 2003 and commenced the business of manufacturing various cleaning fluids. It closes its accounts to 31 December each year. The trading results for the year ended 31 December 2019 is appended below: Colourful Sdn Bhd Statement of Profit or Loss for the year ended 31 December 2019 Note RM'000 RM'000 Sales 263,079 Less : Cost of Sales (143,737) Gross profit 119,342 Add : Other Income Dividend 14 N H Interest 36 50 119,392 Less : Expenses Salaries and wages 901 Loan interest 62 Entertainment 104 Depreciation 54 Repair and maintenance 146 Bad and doubtful debts 412 Motor vehicle expenses 53 Advertisement 440 Professional fees 10 53 Insurance 11 35 Donation 12 401 (2,661) Profit before taxation 116,731Notes to the accounts: 1. Dividend A single tier dividend was received during the year from an investment in a local company. 2. Interest During the year, the company charged a total of RM25,000 interest to customers who settled their overdue account. RM11,000 was interest on fixed deposit account received from a local bank. 3. Salaries and Wages The remuneration package in respect of the managing director of the company was as follows: Particulars RM'000 i. Salary 225 ii. EPF Contribution 45 ii. Private retirement scheme contribution 20 iv . One free overseas trip 11 TOTAL 301 The private retirement fund has been approved by the Securities Commission in accordance with the Capital Market and Service Act 2007. 4. Interest The company took a bank loan to make an investment (from which the dividend was received). The interest charged was RM14,000. The company took another loan for working capital. The interest paid was RM48,000. 5. Entertainment i. Annual dinner for staff and their family RM 14,000 ii. Entertainment expenses on clients 90,000 6. Repair and maintenance The company had incurred the following expenses during the year to the factory premises: Particulars of expenditure RM'000 Construction of a covered car park 17 ii. Replacing the wire fence with a brick wall 50 ii. Digging of new drains to alleviate floods 43 iv. Other sundry maintenance expenditure 36 TOTAL 1467. Bad and doubtful debts I. Trade debts written off RM83,000 ii. General provision RM190,000 . Specific provision trading debts RM95,000 . RM15,000 advanced to a marketing staff against his commission earnings was written after he died in an accident V. Advance outstanding amounting to RM29,000 owing by an old-time supplier was written off during the year 8. Motor vehicle expenses RM4,000 relates to traffic offences, motor vehicle maintenance charges of RM49,000 is made up of repairs, spares, insurance, and road tax for the company vehicles. 9. Advertisement and publicity RM100,000 was spent on advertising the company's product in local dailies, magazines, and radio stations. RM340,000 was spent to promote the company's branded products on the local television networks. 10. Professional fees During the year, the company had incurred the following professional charges: Particulars of expenditure RM'000 i. Termination of supply contract for raw materials 6 ii. Guarantee fee for securing a bank loan 12 iii. Lease arrangement for the motor vehicle iv. Income tax appeal following a tax audit TOTAL 31 During an income tax audit in 2016, it was found that the company's record keeping system was not satisfactory and therefore, the company on the advice of its accountants, set up a new integrated accounting and audit system that will comply with the Inland Revenue Board's requirements, at a cost of RM22,000. 11. Insurance The company paid a total of RM12,000 to a local insurance company, being premium for insurance on cargo imported as well as exported overseas during the year. Another RM23,000 was incurred on premium for insurance on the company's assets, plant and machinery.12. Donation On social responsibility program for the year, the company spent the following sums: i. Distribution of cash gift of RM12,000 to an approved charitable institution ii. Provision of school library facilities costing RM120,000 to a public school iii. RM34,000 in scholarship to three students to pursue a degree program at a recognized foreign university, and iv. Sponsoring foreign art and cultural activities as part of a "Satu Malaysia' program during the year costing RM235,000 Additional information: For the year of assessment 2019, the company is claiming capital allowance of RM926,000 on its assets used in the business. REQUIRED: Based on the information given, compute the Chargeable Income of Colourful Son Bhd for the year of assessment 2019. (TOTAL: 30 Marks)