Malaysian Taxation II

DATE OF SUBMISSION:
2 JANUARY 2013






































Sophie Farris Boutique Sdn Bhd. (registration no: 041208-U) is a manufacturing and
trading educational products for local and export markets. The company has two directors, in
which one of them is the Chief Executive Officer (CEO) of the company. The company
makes up its accounts to 31 December each year.

Details of the directors are as follows:
NAME Farris Hafiz Sophie Ibrahim
IDENTITY CARD 790309-06-0123 800818-06-0468
INCOME TAX FILE OG33533633468 OG33533633469
CONTACT NUMBER 019-9557777 013-9567777
SHAREHOLDINGS 40% 60%
DESIGNATION CEO/ Managing Director Sales Director

Other information pertaining the company is as follows:
NAME OF THE
COMPANY
Sophie Farris Boutique Sdn Bhd. (041208-U)
ADDRESS 1805-1807, Medan Warisan
25150 Kuantan, Pahang
CONTACT NO Telephone: 09-5145053/Fax: 09-5145054
COMPANYS WEBSITE www.sophiefarris.com.my
BANK ACCOUNTS CIMB: 22-606-452459-6
AUDITOR Ernst & Young
11th Floor, Kompleks Teruntum, Jalan Mahkota
25000 Kuantan Malaysia
Phone: +609 515 7500/Fax: +609 515 7600

SOPHIE FARRIS BOUTIQUE SDN BHD
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011
RM RM RM
Non Current Asset
Office equipment (NBV) 240,500
Motor Vehicle (NBV) 123,000
Long term investment 680,000
Total Non Current Asset 1,043,500
Current Asset
Trade debtors (net) 170,000
Stock 645,000
Cash at bank 564,500
Total Current Asset 1,379,500
Current Liabilities
Trade creditors 260,000
Accrual expenses 18,000 278,000 1,101,500
2,145,000

Financed by
Long term liability 429,000

Owners equity
Capital 1,500,000
Net profit 216,000 1,716,000

2,145,000

SOPHIE FARRIS BOUTIQUE SDN BHD
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2011
NOTE RM RM
Sales Revenue 1,200,000
Less: Cost of sales 1 (400,000)
Gross profit 800,000

Other incomes 2 66,000

Operating expenses 3 12 (650,000)

Profit before tax 216,000

Notes:
1. Cost of sales includes the following:
(a) Insurance premium paid to a company incorporated in Malaysia
for insuring raw material supplied from China.
RM24,000
(b) Provision for stock obsolescence RM10,000

2. Other incomes includes the following:
(a) Discount received from supplier for early settlement of trade
payable.
RM23,000
(b) Interest charged on credit customer for default of credit terms RM10,000
(c) Dividend received under single-tier tax system RM33,000

3. Staff welfare costs includes leave passage of RM25, 000 for the directors.

4. The companys office building was renovated at a cost RM40, 000 for the installation
of safety features to create a safe environment for disabled workers.

5. The company registered its patent on the new product that it had developed and its
MalaysiaEdu trademarks in Australia amounting RM25, 000.



6. Entertainment RM18,000 comprise:
(a) Redemptive voucher given to customers. 3,000
(b) Trip for the dealer who achieved the highest sales target. 8,000
(c) IPhone 5 for a key customer on the birth of his son. 2,000
(d) Refreshment served when launching a new-developed reading
aid.
5,000

7. The company incurred the following charges:
(a) Legal fees on securing a new term loan RM12,000
(b) Interest on overdue trade account payables RM5,000
(c) Interest on overdue corporate credit card account RM2,500

8. The company contributes 16% of their remuneration to the EPF for its entire
employee, except for its two marketing managers for whom it contributes 20%. The
two marketing managers are each paid a salary of RM5,500 per month.

9. Bad and doubtful debts (all trade in nature) are as follows:
(a) General provision at the year-end 31 December 2011 RM25,000
(b) General provision at the year-end 31 December 2010 (RM22,000)
(c) Specific provision at the year-end 31 December 2011 RM22,000
(d) Specific provision at the year-end 31 December 2010 (RM17,500)
(e) Bad debts written off during the year RM20,000
(f) Bad debt recovered during the year (RM19,000)

10. The following donations were made:
a) To an approved institution RM230,000
b) To a project of national interest approved by the Minister RM32,000
c) In cash (duit raya) handed to inmates of Rumah Kasih approved
by the Minister
RM15,000

11. Leased rental amounted RM33, 840 referred to a new car costing RM158,000 for the
senior marketing manager for a period of 25 months commencing 1 February 2009.
The monthly payment is RM2, 820.

12. The company incurred the following expenses at trade exhibitions held in Paris in
which it participated in order to promote its exports:
(a) Magnifier (electronic zoom) with the companys name were
given as gifts to visitor at its booths
RM6,000
(b) Jute bags bearing the companys logo RM12,000
(c) Travel tickets for key politicians to visit the companys booth at
the trade exhibitions
RM22,000

13. As the companys shareholders are Muslim, the company contributed zakat
perniagaan of RM105, 000 during the year.




14. Other information:
(i) The unabsorbed capital allowance brought forward from the year assessment
2010 is RM22, 000.
(ii) The current capital allowance is RM36, 000.
(iii) The unabsorbed loss brought forward from the year assessment 2010 is
(iv) RM20, 000.
(v) The company has a balancing allowance of RM14, 000 in respect of the
disposal of a motor vehicle.



















Required:

a) Compute the chargeable income of the company and prepare the relevant tax
forms (Form C) to be submitted to the IRB.
(Please visit I RB website to download the Form C: YA 2011, English version)
[22 marks]

RM RM
Profit before tax 216,000
1. Cost of sale:
- Insurance premium to incorporated
company
- Stock obsolescence



10,000
24,000
2. Other income:
- Discount received from supplier
- Interest charged on credit customer
- Dividend received(single-tier tax system)




Nil
Nil
33,000
3. Leave passage for director 25,000
4. Renovation office building for disable
employee Nil

5. Registration for new trademark 25,000
6. Entertainment:
- Redemptive voucher
- Trip for dealer
- IPhone 5 for key customer on birth son
- Refreshment launching new product
Nil
Nil
2,000
Nil





7. Company charge:
- Legal fees on securing a new term loan
- Interest on overdue trade account payables
- Interest on overdue corporate credit card
12,000
Nil
Nil

8. EPF contribution :
- (5,500 x 2) x 2= 132,000
- (20%-19%) x132000= 1320 1,320

9. Bad and doubtful debt
- Increasing in general provision
- Increasing in specific provision
- Bad debt written off
- Bad debt recovered

3000
Nil
Nil
Nil

10. Donation :
- To approved institution
- To project of national interest approved by
the Minister
- In cash (duit raya) handed to inmates of
Rumah Kasih approved by the Minister

230,000
32,000

15,000

11. Lease rental (2820x 23month) = 64,860
Payment of current year (2 month) not
deductible.

5,640
12. Expenses:
- Magnifier (electronic zoom) were given as
gifts to visitor
- Jute bags bearing the companys logo
- Travel tickets for key politicians

Nil

Nil
22,000

13. Zakat Perniagaan 105,000

Total
678,960 82,000
Adjusted Income (678,960 - 82000) 596,960
Less: Capital Allowance
- Brought forward
- Current year
Balancing Allowance

(22,000)
(36,000)
(14,000)

Statutory Income
524,960
Less: losses brought forward (20,000)
Aggregate Income 504,960
Less: donation
- To approved institution
- Project national interest
- Zakat Perniagaan (2.5% x 504,960)
(230,000)
(32,000)
(12,624)

Chargeable Income 230,336
Tax payable (25% x 230,336) 57,584

b) Discuss the following note:

i. Note 2(a): Discount received from supplier for early settlement of trade payable.
- Discount received from suppliers for early settlement of trade payable relate to purchases

ii. Note 4: The companys office building was renovated at a cost RM40,000 for the
installation of safety features to create a safe environment for disabled workers.
- Renovation of office building is specifically allowed under the Income Tax Act as the
renovation was carried out to provide a safe place for disable worker.

iii. Note 6(b): Trip for the dealer who achieved the highest sales target
- Trip for dealer who achieve the highest sales target related to generating sales.

iv. Note 7 (b): Interest on overdue trade account payables
- Interest on overdue trade accounting payable considered as allowable for deduction because
it relate to business expenses.

v. Note 9 (c): Specific provision at the year-end 31 December 2011
- Specific provision considered allowable for deduction because under section 34(2) provides
that a tax deduction would only be given if at the end of relevant period, the debts were
reasonably estimated in all circumstance of the case to be wholly/partly irrecoverable.

vi. Note 10 (c): In cash (duit raya) handed to inmates of Rumah Kasih approved by
the Minister
- In cash hand (duit raya) to inmates of Rumah Kasih considered allowable for
deduction because it was approved by the minister.

vii. Note 11: Leased rental amounted RM33, 840 referred to a new car costing
RM158, 000 for the senior marketing manager for a period of 25 months
commencing 1 February 2009. The monthly payment is RM2, 820.
- The amount for deductible for leased rental payment to RM50, 000 as the cost of the
new car is more than RM150, 000. Payment for the current year is not deductible.

viii. Note 12(c): Travel tickets for key politicians to visit the companys booth at the
trade exhibitions.
- Travel tickets for key politicians to visit the companys booth at trade exhibition is
non-allowable to deduct because if the travel ticket given on discriminating basis to
people with no business relation with company are not deductible promotional
expenses.