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CONFIDENTIAL

MIA QE SEPT 2012

QUALIFYING EXAMINATION

Date

: 20 September 2012

Time

: 2.15 pm 5.30 pm

Reading and Planning

: 15 minutes

Writing

: 3 hours

Paper: Taxation

Taxation

INSTRUCTIONS TO CANDIDATES:
This question paper contains 6 questions on 17 printed pages.
____________________________________________________
Answer ALL questions.
____________________________________________________
Answer Questions 1,2 and 3 in separate booklet(s) from
Questions 4, 5 and 6.
____________________________________________________

Do not open this paper until instructed by the invigilator.


During reading and planning time only the question paper may be annotated.
You must NOT write in your answer booklet until instructed by the invigilator.

UNIVERSITI TEKNOLOGI MARA


Examination Body

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The following tax rates are to be used in answering the questions.

(a)

Companies

(b)

Small companies
Chargeable income:

(c)

Income tax rates


25%

First RM500,000
Excess RM500,000

(d)

20%
25%

Resident individuals
Chargeable Income
RM
0 2,500
2,501 5,000
5,001 20,000
20,001 35,000
35,001 50,000
50,001 70,000
70,001 100,000
Above
100,000

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Non-resident individuals

Rate
0%
1%
3%
7%
12%
19%
24%
26%

Cumulative Tax
RM
0
25
475
1,525
3,325
7,125
14,325

26%

Benefits-in-kind (BIK) scale rates as per Inland Revenue Board (IRB)


guidelines

Cost of car when new


RM
Up to 50,000
50,001 75,000
75,001 - 100,000
100,001 - 150,000
150,001 - 200,000
200,001 - 250,000
250,001 - 350,000
350,001 - 500,000
500,001 and above

Annual value of BIK


RM
1,200
2,400
3,600
5,000
7,000
9,000
15,000
21,250
25,000

The value of the car benefit equivalent to half of the above rates is taken if the car
provided is more than five years old.

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Household furnishing, apparatus and appliances

Types of BIK

Annual value of BIK


RM

Semi-furnished with furniture in the lounge,


dining room or bedrooms

840

Plus one or more of the following:


air-conditioners, curtains, carpets

1,680

Plus one or more of the following:


kitchen equipment, crockery, utensils, appliances
i.e. fully furnished

3,360

Other benefits

RM per month

Domestic help
Gardener
Driver

Rates of Capital Allowances

Initial allowance
Annual allowance

400
300
600

Motor Vehicles/
Heavy
Machinery

Plant &
Machinery

Computers

Others

Industrial
Building

20%
20%

20%
14%

20%
80%

20%
10%

10%
3%

Real property gains tax


Disposal by companies and other than companies
Rate %
Date of disposal
Disposal within two years after date of acquisition
30
Disposal in the third year after date of acquisition
20
Disposal in the fourth year after date of acquisition
15
Disposal in the fifth year after date of acquisition or thereafter
5
Note: an exemption is granted which reduces the effective rate to 5% in every
case where the disposal takes place within five years of the date of acquisition
and to nil thereafter.

Sales and service tax


Sales tax
Service tax

Rate %
10
6

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MIA QE SEPT 2012

QUESTION 1
(a)

FB Cleaners Sdn Bhd (the company) is a Malaysian resident company. The


company provides cleaning services to owners of large buildings, including
factories and warehouses. It has a paid up capital of RM2 million as at 1 July
2010, and closes the accounts to 30 June each year. The trading results for the
year ended 30 June 2011 was as follows:
FB Cleaners Sdn Bhd
Income Statement for the year ended 30 June 2011
Note
RM000
Sales
Less: Cost of sales
Gross profit
Add: Other income
Dividend
1
5
Interest
2
40
Rental
3
110
Insurance recovery
4
44
Less: Expenses
Salaries and wages
Interest
Entertainment
Depreciation
Repair and maintenance
Bad and doubtful debts
Motor vehicle expenses
Advertisement
Professional fees
Compensation
Insurance
Foreign exchange loss
Donation
Profit before taxation

5
6
7
8
9
10
11
12
13
14
15
16

789
654
610
609
349
1,229
140
771
62
34
95
30
190

RM000
311,486
(170,840)
140,646

199
140,845

(5,562)
135,283

Notes:
1.

Dividend
The dividend was received on 5 January 2011 from an investment in a local
company. Tax at 25% has been deducted from the dividend.

2.

Interest
RM33,000 credited to the account consists of late payment charges received from
customers. The company places funds with a bank in Korea as security for supply

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MIA QE SEPT 2012

of goods. Interest of RM7,000 was paid on this deposit, and was remitted to
Malaysia in May 2011.
3.

4.

5.

Rental
i)

The company received rental income from an old office building bought in
1995. The gross rental received for the year ended 30 June 2011 was
RM175,000 and a refundable security deposit of RM30,000.

ii)

In December 2010, the company extended the parking lot to enable more
cars to be parked. The extension, including additional covered lots, cost
RM70,000. Building insurance of RM5,000 covers both fire and flood risks.
The quit rent and assessment on the property was RM9,000 and RM7,000
respectively. A legal fee of RM4,000 was incurred to evict two tenants who
defaulted on rental payments, and for signing four new tenancy
agreements during the current financial year.

Insurance recovery consists of:


i)

An insurance recovery of RM14,000 was received from an insurance


company for goods lost in transit.

ii)

RM30,000 was in respect of a keyman endowment policy on the life of


one of the directors of the company. The director, who held a controlling
interest in the company, and was instrumental in developing the
companys large market, died on June15, 2011 from cancer.

Salaries and wages include:


i)

Salary and wages include RM200,000 paid to a director who died recently
(see note 4).

ii)

Employees provident fund contribution of RM33,000 was paid for the said
director.

iii)

A medical insurance costing RM12,000 for the director.

iv)

Three (3) free overseas trips that cost RM27,000 during the year. One of
the trips was to Korea to undergo a medical diagnosis.

v)

A Korean national from the supplier company in Korea was seconded to


the company for 45 days to assist with the companys new cleaning
products (purchased from the Korean company) and to train the local staff
that handle the products. He left after the end of the 45 days to Vietnam,
and from there to Korea. His remuneration of RM16,000 and hotel charges
of RM9,000 during his period of stay in Malaysia was paid for by the
company.

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6.

7.

8.

MIA QE SEPT 2012

Interest includes:
i)

A sum of RM3,000 paid on a loan taken from a bank to purchase an


investment in a local company (from which the dividends were received
during the year).

ii)

In addition a sum of RM596,000 was paid to a bank in respect of interest


on working capital, while RM55,000 was late payments charges for
delayed settlement on goods shipped to the company by the suppliers.

Entertainment consists of:


i)

A sum of RM43,000 on the companys annual dinner for staff and their
family.

ii)

As part of its spend and claim policy, the company disbursed RM154,000
to the marketing team charged with market expansion.

iii)

Family day expenses of RM66,000 was expended on fare (RM12,000),


food and drinks (RM18,000) and accommodation (RM36,000) for the staff
and their immediate family members.

iv)

Entertainment expenditure of RM46,000 was incurred on local suppliers


(agents of cleaning equipment, spares, and accessories, cleaning fluids
and chemicals) while another sum of RM301,000 related wholly to sales.

Repair and maintenance


The company bought a second hand cleaning machine for RM8,000 and
immediately incurred additional expenditure of RM70,000 to repair and refit the
machine for economical use. The balance of RM271,000 relates to the general
maintenance of the companys building, machine, vehicle and other assets used
in the business.

9.

Bad and doubtful debts consist of:


i)

A sum of RM152,000 was written off as bad debts as the debtors had died,
or have been declared bankrupt or under liquidation.

ii)

A general provision of RM697,000 and a specific provision of RM230,000


for the financial year was agreed to by the Board of Directors, who felt the
sum is reasonable in the light of the financial health of the debtors
involved.

iii)

The company had a special arrangement with one of its senior manager under which advances are made to him during the course of the year. This
special arrangement was provided for (in writing) in the contract of
employment with the said manager.

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Money advanced under the arrangement is usually repaid in due course,


or alternatively, recouped from the commissions and bonus payable to him
at the end of the year. The senior manager, however, died during the year
in a road accident, and the sum of RM150,000 advanced to him earlier,
was then written off.
10.

Motor vehicle expenses consist of:


i)

A sum of RM56,000 incurred on repairs, spares, insurance, and road tax


for the companys fleet of motor vehicles.

ii)

RM25,000 relates to traffic compounds and fines.

iii)

The company has a lease arrangement with a local leasing firm for two
vehicles as follows:
Vehicle type

Original cost
of new vehicle

Payments up to
year ended
30 June 2010

Payments for
the
year ended
30 June 2011

RM000
520
931

RM000
24
35
59

RM000
24
35
59

Trailer
Car
Total
11.

12.

Advertisement consists of:


i)

RM110,000 refers to advertising the companys product and services in


local dailies, magazines, and radio.

ii)

RM440,000 was spent on promoting the companys services by engaging


local singers, actors, and celebrities at exhibition galleries where the
companys products and services were displayed.

iii)

RM221,000 on the cost of paintings presented to customers amounted


because it is the companys policy to present such customers with large
wall paintings as gifts and as a token of appreciation of past business
relationship. The paintings are usually imported from China.

Professional fees include:


i)

A sum of RM6,000 was paid to terminate the service provision contract


with two testing customers.

ii)

RM52,000 was incurred to collect their long outstanding debts,

iii)

RM4,000 was incurred on legal fees (including stamp duty) on the motor
vehicle leasing arrangement with the lessor.

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MIA QE SEPT 2012

Compensation
The company terminated the employment contract of one its former employees
who worked as a cleaning specialist with the company. The company paid a
compensation of RM34,000 under an arrangement preventing him from working in
a similar trade for the next five years.

14.

15.

Insurance consists of:


i)

A premium of RM4,000 on a key-man endowment policy taken on the life


of the marketing manager (he holds 10% of the companys shares). The
company would receive RM150,000 at the end of 10 years or upon the
death of the marketing manager, whichever is earlier.

ii)

A sum of RM7,000 was paid to a Korean insurance company for the


shipment of goods to the companys warehouse in Malaysia.

iii)

A sum of RM84,000 refers to fire and flood policies on the companys


stock, building, plant, and machinery.

Foreign exchange loss consists of:


i)

An unrealized loss of RM6,000 on trading stock imports.

ii) A realized loss of RM8,000 on import of machinery.


iii) A realized loss of RM16,000 on stock imports from India.
16.

Donation consists of:


i)

Donation of equipment worth RM120,000 to an orphanage, an approved


charitable institution, in Penang.

ii) An ang pow (cash gift) of RM10,000 to be given to the orphans in the
orphanage during the Chinese New Year. Each orphan would receive RM10.
iii) A sponsorship to five orphans from the orphanage to pursue a degree at the
University Sains Malaysia, a local university in Penang, at a total cost of
RM60,000 for the year ended 30 June 2011.
Other information:
For the year of assessment 2011, the company has claimed capital allowance of
RM629,000 on its assets used in the business.
Required:
Based on the information given, compute the chargeable income of FB Cleaners
Sdn Bhd for the year of assessment 2011.

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Note: Your computation should start with the profit before taxation figure and
follow the description used in the Income Statement and where applicable the
description used in the notes to the accounts. In making your tax adjustments to
the entries, you should indicate Nil where no adjustments are made or are not
required. You do not need to explain the adjustments that you are making.
(15 marks)
(b)

With reference to the information given in the notes to the Income Statement,
explain the tax treatment you would make (or not make) to the following items,
supporting your answer with the relevant provision of the Income Tax Act 1967 (as
amended), rulings and case laws where appropriate:
1.
2.
3.
4.

Purchase and repair of second hand cleaning equipment (Note 8)


Bad debts written off being advance to a senior manager (Note 9(iii))
Compounds and fines under motor vehicle expenses (Note 10(i))
Donation (Note 16)
(8 marks)
(Total: 23 marks)

QUESTION 2
(a)

The MBS Casting Sdn Bhd is a locally incorporated company (the company)
engaged in the manufacture of cast iron products. It closes its accounts to 30
June each year. During the year 2011, it embarked on the construction of its own
industrial building in Seremban, and incurred the following expenditure:
Particulars of expenditure
Cost of land
Legal fee for transfer of land
Clearing of land
Cutting and leveling land
Excavation and preparation of site for construction
Piling and foundation works
Construction of building
Construction of perimeter wall
Architect fee - building design
Legal services for obtaining various building approval
Subcontract charges for installation of wiring and plumbing
Landscaping charges
Total

RM
216,424
21,642
81,159
48,696
43,826
78,454
194,782
18,937
75,749
35,169
40,038
43,285
898,161

The building was completed in early May 2010 and was brought into use on 1 September
2010.
Required:
(i)

Determine the qualifying building expenditure for MBS Casting Sdn Bhd for the
year of assessment 2011.
(6 marks)
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MIA QE SEPT 2012

(ii)

Compute the industrial building allowance due to the company for the year of
assessment 2011 and the residual expenditure to be carried forward to the year of
assessment 2012.
(2 marks)

(b)

Mr Ganesh is looking for a piece of land to build a house. He met En. Abdul Halim
who agreed to sell his plot to him for RM289,835. They signed the sales and
purchase agreement on 26 June 2009. Mr Ganesh paid the full price on 25 July
2010 and transferred the land to his name on 15 November 2010. Mr Ganesh
incurred additional expenses on the acquisition which included stamp duty of
RM2,898 and interest of RM51,432 on the loan taken to acquire the land. The
land was flooded owing to nearby development works and Mr Ganesh had to
spend RM41,405 to drain the land. He obtained RM25,340 from the developer on
1 February 2011 as compensation for damages as well as RM9,275 from the
insurance company on 15 February 2011.
The owner of the adjoining plot had disputed the boundary to the land. Mr Ganesh
had to engage a lawyer to defend the title to the land and paid legal fee amounting
RM3,395. He later found the land not suitable to build a bungalow and put it up for
sale. A prospective buyer paid a deposit of RM8,000 and applied for a loan but
was not successful and he forfeited the deposit.
Required:
Determine the acquisition price of the land for Mr Ganesh.
(7 marks)
(Total: 15 marks)

QUESTION 3
(a)

State the conditions under which a co-operative society would be exempted from
income tax under the Income Tax Act 1967 (as amended).
(2 marks)

(b)

The Alor Gajah Co-operative Society (the society) was registered on 1 January
2009. As at 1 January 2011, the society has a members fund of RM800,000. The
society caters for the farmers in Alor Gajah district who are mainly tapioca
farmers. The detail of the societys income and other information for the year
ended 30 June 2011 was as follows:
No.
1.
2.
3.
4

Particulars
Audited net profit
Statutory business income
Statutory dividend income
Contribution to statutory reserve funds

RM
80,000
35,000
20,000
6,000

The dividend income was from a public listed company and has suffered tax at
25%.

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Required:
Determine the income liability of the Alor Gajah Co-operative Society for the year
of assessment 2011.
(5 marks)
(c)

The MKG Farmers Co-operative Society (the society) was officially registered in
the year 2000 to cater for the needs of the farmers in the Mukim of Kampung
Gajah, Negeri Sembilan. The farmers rear mainly goats and cattle for the local
market. The society closes its accounts to 30 June each year. For the year ended
30 June 2011, the society has produced the following account:
MKG Farmers Co-operative Society
Accounts for the year ended 30 June 2011
RM
Sales
Less: Cost of goods sold
Gross profit
Less: Expenses
Secretarial fees
Accounting fees
Depreciation
Donation
Zakat perniagaan
Veterinary services
Transport
Repairs and maintenance
Office rent
Utilities charges
Audited net profit
Less:
Interest on members savings
Dividends paid to members
Contribution to co-operative trust fund
Sum transferred to statutory reserve
fund
Balance of profits

11,199
14,375
1,800
26,730
8,910
132,195
17,218
50,106
5,346
45,999

RM
579,150
(121,176)
457,974

(313,878)
144,096

2,430
8,100
9,720
22,680

(42,930)
101,166

The society is entitled to a capital allowance of RM6,000 for the year of


assessment 2011 on assets used in the societys business activities.

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MIA QE SEPT 2012

The members fund as at 1 July 2010 was RM973,800, as per the account below:
Members fund at 1 July 2010
Paid up share capital
Subscribed capital
Share premium account
Statutory reserve fund
Balance of profit and loss appropriation account b/f
Members fund at 1 July 2010

RM
810,000
36,000
2,700
49,500
75,600
973,800

Required:
Compute the chargeable income of the MKG Farmers Co-operative Society for
the year of assessment 2011.
(5 marks)
(Total: 12 marks)

QUESTION 4
(a)

Linda is a Malaysian citizen and was resident prior to the year 2007. On 3 August
2007, she left Malaysia to join a U.S. company which is based in Dubai. The
following information relates to her periods of stay in Malaysia as well as in Dubai:

On 1 December 2008, she arrived in Malaysia to visit her family. She was
in Malaysia until 7 December 2008.

On 15 May 2009, she came back to Malaysia for a three month holiday.
She returned to Dubai on 15 August 2009.

In December 2010, due to the economic slowdown, her contract was


terminated by the U.S. company in Dubai. On 15 December 2010, she
decided to come bank to Malaysia. She was then in Malaysia until today.

Required:
Determine the residence status of Linda for the year of assessment 2007 until
2011. State the related sections and reasons for your answer.
(5 marks)
(b)

Pesona Sdn Bhd commenced business in June 2007 and closes its accounts on
31 August each year. The first financial statement of the company was prepared
for year ended on 31 August 2008.
In October 2009, the company changed its accounting year end to 31 October
each year thereafter.

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The companys adjusted income/loss for the relevant periods were as follows:
Accounting period
1 Jun 2007 - 31 Aug 2008
1 Sep 2008 - 31 Aug 2009
1 Sep 2009 - 31 Oct 2009
1 Nov 2009 - 31 Oct 2010
1 Nov 2010 - 31 Oct 2011

Adjusted income/(loss)
RM
120,000
150,000
(60,000)
100,000
140,000

Required:
Compute the adjusted income/(loss) for the relevant years of assessment up to
year assessment 2011.
(7 marks)
(c)

Identify the tax non-compliance under each of the following sections:


Section 112
Section 113
Section 114
(3 marks)
(Total: 15 marks)

QUESTION 5
(a)

Dayang (aged 50, single) works as an accountant in a multinational company in


Sabah since 1 January 1998. On 31 August 2011, she retired from the company.
Upon retirement, she received a gratuity of RM340,000.
Payments and benefits received by Dayang from her employer in 2011 were as
follows:
1.

Monthly net salary of 13,350 after deducting EPF of 11%.

2.

Bonus of RM15,000 for 2010 received in January 2011.

3.

Entertainment allowance of RM1,500 per month.

4.

A fully furnished house was provided until 31 July 2011. The monthly rental
paid by the company was RM4,000 (inclusive of furnishing valued at
RM1,000 per month).

5.

For the whole month of August 2011, Dayang was provided with an
accommodation at the Le Meridien Hotel at a rate of RM315 per day. The
company paid the hotel expenses including RM2,000 food expenses
incurred during her stay in the hotel.

6.

A company car was provided until 31 August 2011. The cost of the car was
RM210,000. The car was bought on 1 May 2004.

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MIA QE SEPT 2012

7.

In April 2011, Dayang went for a one week holiday in Australia. The air fare
and the hotel bills amounted to RM6,588 and RM4,450 respectively were
paid by the company.

8.

Life insurance premium of RM2,300 was paid by the company, her


adopted child is the beneficiary.

9.

An individual and a corporate membership in two recreation clubs with


monthly subscriptions of RM250 and RM350 respectively were also paid
by the company.

10.

Dayang paid RM550 in May 2011 to Malaysian Institute of Certified Public


Accountants for her membership.

Required:
Compute the statutory employment income of Dayang for year of assessment
2011.
(8 marks)
(b)

Peter (married) and Kamal (single) are partners in show business since 2010.
Each of them contributed equal capital of RM250,000 and has agreed on an equal
profit sharing ratio. For the year of assessment 2011, Kamal was not resident in
Malaysia as he is running another business in Singapore in which Peter is also the
partner. Peter is entrusted to run the partnership business in Malaysia. The
accounting year end of the business is 31 December each year.
The terms of their agreement are as follows:
Profit sharing ratios
Annual interest rate on capital contribution
Annual salary
Annual entertainment allowance

Peter
50%
5%
RM120,000
RM23,000

Kamal
50%
5%
RM60,000
-

Additional information:
1.

The provisional adjusted income for the year ended 31 December 2011
was RM438,000.

2.

The capital allowance on the business assets for the year of assessment
2011 was RM37,000.

3.

An approved donation of RM22,000 was made by the business in June


2011.

Peter provides the following information for the basis year 2011:
1.

Peters wife is not working. They have 3 children as follows:




Anne, 23 years old, a widow and studying at Curtin University in


Australia.
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MIA QE SEPT 2012

Angelina, 19 years old, single and studying at Universiti Putra


Malaysia. She received JPA scholarship of RM10,000 per annum.

Andy, 16 years old, single and disabled, studying in special school in


Cheras.

2.

Peter has a house which was rented out. The monthly rental income
received by him was RM2,000.

3.

A medical insurance of RM3,200 was paid by Peter for his family.

4.

In 2011, Peter deposited RM1,800 in Skim Simpanan Pendidikan Nasional


(SPPN) for her daughter.

Kamal provides the following information:


1)

Kamal received dividend of RM6,000 (single-tier) from a company in


Malaysia.

2)

In 2011, Kamal paid zakat amounting to RM4,500 to Pejabat Zakat Wilayah


Persekutuan on his partnership business.

Required:
Compute the tax payable by Peter and Kamal for the year of assessment 2011.
(12 marks)
(Total: 20 marks)

QUESTION 6
(a)

Sinar Sdn Bhd (year ended 30 September annually) is a manufacturing company


located in Penang. 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 2010.
The following expenditures were incurred by the company:
Date incurred
7 September 2010
5 September 2011
4 June 2012

Expenditure
Plant and Equipment
Building (Note 1)
Heavy Machinery

RM
80,000
330,000
110,000

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

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The following financial projection has been provided in respect of its


manufacturing business:
Year ending 30 September
Adjusted income/(loss)
Capital allowances

2011
RM000
(35)
25

2012
RM000
190
48

2013
RM000
272
65

Additional information:
1.

There was unutilized capital allowances of RM20,000 brought forward


from the year of assessment 2010.

2.

The company received interest of RM15,000 annually from resident


companies in Malaysia.

3.

On 10 October 2011 the company donated RM6,500 to an approved


institution.

Required:
For the years of assessment 2011, 2012 and 2013, compute the chargeable
income and amount to be credited to the exempt income account of Sinar Sdn
Bhd (show all relevant workings).
(9 marks)
(b)

Muhibah Bhd, a company resident in Malaysia, purchased a machinery costing


RM1 million from Hougang Ltd, a Singapore company. Under the agreement,
Hougang Ltd will provide technical assistance and training to the staff of Muhibah
Bhd in Malaysia to operate the machine. The fees for the technical assistance and
training provided by Muhibah Bhd is agreed at RM190,000.
Required:
Explain the withholding tax requirements on the payments of the machinery,
technical assistance and training fees by Muhibah Bhd to Hougang Ltd.
(2 marks)

(c)

Warna Sdn Bhd and Allied Sdn Bhd are both 100% wholly owned subsidiaries of
Restu Bhd. On 1 July 2011, Warna Sdn Bhd imported taxable goods from an
independent supplier at a purchase price of RM391,600. Other related expenses
incurred on the goods were as follows:
RM
Insurance
3,000
Freight
7,800
Import duty
74,000
The goods were sold to Allied Sdn Bhd on 5 September 2011 at cost inclusive of
the above charges plus 10% mark up. The price charged is in line with the groups
pricing policy. The mark-up price on sale to customers outside the group is 20%.

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Warna Sdn Bhd is a licensed manufacturer for sales tax, whereas Allied Sdn Bhd
is not.
Required:
(i)

Compute the sales tax payable by Warna Sdn Bhd on the goods sold to
Allied Sdn Bhd. State when the sales tax is due for payment. (Assume an
odd taxable period)
(3 marks)

(ii)

Assuming that sales tax payable on good sold to Allied Sdn Bhd was paid
to the Malaysian Customs Department on 3 December 2011. Compute the
amount of penalty that would be imposed on Warna Sdn Bhd for the late
submission of sales tax.
(1 mark)
(Total: 15 marks)

END OF QUESTION PAPER

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