Tutorial

Carriage Sdn Bhd was incorporated on 1 October 2017. The company commenced
business on 1 February 2018 and made up its first set of accounts to 31 December 2018.
Its principal activities are manufacturing of motor vehicle spare parts and investment
holding.

The company’s profit and loss account for the year ended 31 December 2018 is as
follows:

Note RM’000 RM’000 Sales

3,600 Less: Cost of sales 1 (1,540)
2,060
Less Payroll costs 2 960 Directors remuneration 3 317 Freight and insurance 4 160 Legal
and professional fees 5 120 Pre-operating and incorporation expenses 6 65 Repairs and
maintenance 7 40 Entertainment 8 85 Provision of doubtful debts 9 125 Foreign exchange
differences 10 510 Interest costs 11 70 Miscellaneous expenses 12 148
2,600 (540) Add: Other income 13 60 Net loss before taxation (480)

Notes 1. Included in the cost of

sales are:
a. Depreciation of fixed assets amounting to RM120,000 b. Allowances for
stock obsolescence amounting to RM26,000 c. Royalty payment of 1% of
sales to a Taiwanese company for the right to use its
trademark. The accountant advised that the relevant withholding tax has not
been paid to the IRB.

2. Payroll costs comprises

of
a. Salaries RM720,000 b. Bonus (paid on 24
December 2018) RM80,000 c. EPF
RM160,000
3. Directors remuneration
includes
a. Non-executive directors’ fees RM12,000 b. Executive
directors’ remuneration: i. Salary RM180,000 ii. Contractual
 bonus (paid on 24 December 2018) RM45,000 iii. Leave
passage RM15,000 iv. Children’s education fees RM25,000
v. EPF
RM40,000

4. Freight insurance included in the above expenditure I an amount of RM4,000 to

Reliable Insurance Bhd, a company incorporated in Malaysia, for insuring goods
imported by the company.

5. Legal and professional fees comprise

of:
a. Audit fees RM12,000 b. Legal services on
personnel matters RM8,000 c. RM60,000 d.
Valuation of land RM13,000 e. Trademark
registration RM16,000 f. Legal services on
trade debt recovery RM11,000

6. Pre-operating and incorporation expenses

comprises of
a. Pre-operating expenses
RM53,000 b. Incorporation
expenses
i. Cost of preparing and printing Memorandum and Articles of
Association
RM1,000 ii. Secretarial fees RM5,000 iii.
Stamp duty RM6,000

7. Repairs and maintenance includes furniture and fittings costing RM10,000. It is the
company’s
policy to charge to the profit and loss accounting expenditure incurred on fixed assets
costing less than RM1,000 each.

8. Entertainment comprises of staff refreshments RM8,000, opening ceremony expenses

(incurred
in January 2018) RM50,000 and distributors’ annual gathering
RM27,000.

9. Provision of doubtful debts comprises of general provision of RM40,000 and specific

provision of
RM85,00
0.
10. Foreign exchange differences
comprises of:
a. Exchange loss from translation of foreign loan at year end RM450,000 b.
Exchange loss from payment to foreign supplier of plant and machinery
RM60,000
11. Interest cost included n interest cost is an amount of RM2,000 charged by a supplier
for late
payment of cost of raw
materials.

12. Miscellaneous expenses

include:
a. Donations to State Government of RM10,000 out of which RM3,000 was in cash
and the
balance of RM7,000 in kind. b.
Scholarship of RM1,000 to a student

13. Other income comprises of profit from disposal of quoted shares RM43,000, tax
exempt
dividend RM7,000 and dividend income received from ABC Sdn Bhd
RM10,000.

14. The qualifying expenditure and the rates of annual allowances for assets qualifying
for capital
allowances for year of assessment 2018 are as
follows:
Qualifying expenditure Rate
RM’000 % Factory building
1,200 3 Plant and machinery 2,000 20 Office equipment 80 10 Furniture and
fittings 40 10

Required: a. Explain the tax treatment for note 1 to 13, with

relevant support.

b. Starting from net loss before taxation, compute the chargeable income of Carriage
Sdn Bhd
for year of assessment 2018 showing all the relevant tax adjustments. Explain your
answer