ACC 4041

TUTORIAL – INVESTMENT INCENTIVES

Question 1

Daling Sdn Bhd is a company that carries on two businesses. The first business manufactures
computer parts for which the company has obtained pioneer status. The second business trades
old computer hardware parts for recycling process. The information relating to the businesses
for the year of assessment 2018 are as follows:

Pioneer business (Business 1):

The business has an adjusted income of RM1,824,000 and is entitled to a capital allowance of
RM234,000.

Non-pioneer business (Business 2)

The business made a loss of RM1,144,000 during the year. It has a capital allowance of
RM156,000 and a balancing charge of RM39,000 arising from disposal of a plant during the
year.

In addition to the two business operations, Daling Sdn Bhd has an adjusted rental income from
a shop house amounted to RM338,000.

Required:

Compute the chargeable income of Daling Sdn Bhd for the year of assessment 2018, indicating
the amount available to be credited to the exempt income account.
Question 2

Harapan Sdn Bhd (year ended 30 September annually) is a manufacturing company located in
Selangor. The company produces a product which has been listed as a promoted product. The
company had applied and was granted the investment tax allowance incentive for five years
effective from 1 October 2016.

The following expenditures were incurred by the company:

Date incurred Expenditure RM
7 September 2016 Plant and Equipment 80,000
5 September 2017 Building (Note 1) 330,000
4 June 2018 Heavy Machinery 110,000

Note 1: It has been agreed that RM150,000 of the cost of the building is related to the
administrative office.

The following financial projection has been provided in respect of its manufacturing business:
2016 2017 2018
Year ending 30 September RM’000 RM’000 RM’000
Adjusted income/(loss) (35) 190 272
Capital allowances 25 48 65

Additional information:
i) There was unutilized capital allowances of RM20,000 brought forward from the year of
assessment 2015.
ii) The company received interest of RM15,000 annually from resident companies in
Malaysia.
iii) On 10 October 2016 the company donated RM6,500 to an approved institution.

Required:

For the years of assessment 2016, 2017 and 2018, compute the chargeable income and amount
to be credited to the exempt income account of Harapan Sdn Bhd (show all relevant workings).
Question 3

Dowell Sdn Bhd was incorporated in 2013 and set up a factory in Pulau Pinang to manufacture
disc drives. The company applied for pioneer status on 15 November 2013 and this was
approved by the authorities. The production day was 1 January 2014.

The company made its first set of accounts to 31 December 2014 and thereafter to 31 December
annually. The relevant details of this project are as follows:

Year 2014 2015 2016 2017 2018

Expenditure incurred on:
Land 4,000 - - - -
Factory building 2,000 1,000 - - -
Plant and machinery 5,000 2,000 1,000 - -
Other information:
Project adjusted income/(loss) (300) (500) 6,000 7,000 8,000

Annual allowance rate for plant and machinery is 14% and 3% for factory building.

Required:

a) Under pioneer status, compute the following for the years of assessment 2014 to 2018:
i) Capital allowance (up to YA 2018)
ii) Statutory income (up to YA 2018)
iii) Tax exempt account (up to YA 2018)
iv) Total income (up to YA 2018)

b) Determine whether investment tax allowance would be a better tax incentive for the
company. Support your answer with calculations.
Question 4

Yezza Sdn. Bhd. (“YSB”) is a company incorporated and tax resident in Malaysia. In 2018, its
board of directors has approved an expansion plan to set up a production plant to manufacture
industrial chemicals, a promoted product in Banting, Selangor. YSB qualified for either Pioneer
Status or Investment Tax Allowance (“ITA”) for 5 years. However, the board of directors is
undecided whether to apply for pioneer status or ITA.

As the accountant of the company, you have been asked to present to the board of directors an
analysis of the tax implications of both incentives. Production day is expected to be set on
March 1, 2019. The company closes its accounts to 31 December each year.

You are provided with the following forecast details for the periods from January 1, 2019 until
December 31, 2022. Assume business income accrues evenly throughout the year.

2019 2020 2021 2022

RM’000 RM’000 RM’000 RM’000
Adjusted income/(loss) (1,200) 10,000 7,300 8,100
Capital allowance 8,100 3,100 3,100 3,100
Interest income 50 50 50 50
Approved cash donations S.44(6) 2 3 4 6
Qualifying expenditure 30,000 - - -

Required:

a) Determine the tax relief period.

b) Prepare an analysis of tax implications of Pioneer Status and ITA to be presented to the
board of directors for the years of assessment 2019 until 2022, with special mention of:
i. The chargeable income
ii. The amount credited to the exempt account
iii. Any item and amount carried forward to YA 2023
(Hint: Your analysis must cover for periods starting 1/1/2019 until 31/12/2022)

c) Based on your computation in (b) above, which incentive will you recommend to the board
of directors and why?