FACULTY OF MANAGEMENT AND MUAMALAH

FINAL EXAMINATION
SESSION II, ACADEMIC YEAR 2016/2017

MBAC 4163
TAXATION II

INSTRUCTIONS TO CANDIDATES:
1. The time allotted for this paper is 3 HOURS.
2. This question paper consists of FIVE questions.
3. Answer ALL questions.
4. This question paper requires:
i) Answer Booklet.
5. Total marks for this paper is 100 MARKS.
6. This question paper is ALLOWED to be taken out from the hall after the
examination.

THIS QUESTION PAPER CONSISTS OF 8 PRINTED PAGES.

DO NOT OPEN UNTIL YOU ARE TOLD TO DO SO.

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Answer ALL questions in the answer booklet provided.

Question 1

Mr Zaki is the owner of a construction supplies business, Bangi Sdn Bhd. The
financial year ends on 31 December. The following are the assets used in the
business:

i. A facsimile machine was purchased on 25 May 2014 for RM 5,800. It was sold
on 1 February 2016 for RM3,200.

ii. A motor vehicle was bought in February 2013 for RM 118,000. The vehicle
was not licensed for commercial transportation and the Inland Revenue Board,
Malaysia has determined that only one-third of its usage was for business
purpose. On 24 October 2016, the motor vehicle was sold for RM 80,000.

iii. A lorry was acquired on 25 August 2015 under a hire-purchase terms for
which a deposit of RM 36,000 was paid. The cash price was RM 120,000. The
hire purchase consists of 48 installments of RM 2,030 per month. The first
installment commenced on 16 September 2014.

You are required to:

a. compute the capital allowances, balancing charges or allowances (if any) that
can be claimed by Mr Zaki for all the relevant years of assessment up to year of
assessment 2016. (16 marks)

b. explain what are the capital expenditures which can be regarded as qualifying
expenditure for the purpose of claiming capital allowance under Schedule 3 of
Income Tax Act 1967. (4 marks)

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Question 2

Berjaya Sdn Bhd (BSB), which has an accounting year ending on 31 December,
carries on manufacturing activities in its own factory complex, which comprises the
following:
Name Usage Year constructed Cost of
construction
(RM)

Block A Factory 2012 600,000

Block B Factory 2013 300,000

Block C Warehouse for the storage of raw 2014 250,000

materials and finished goods

In 2015, a new factory named Block D was constructed by BSB on land adjoining the
complex and BSB commenced to use this new factory in its manufacturing business
on 1 November 2015. Details of the cost of Block D is as follows:
Details RM

Cost of adjoining land 560,000

Legal fees and stamp duty for land 18,000

Design and professional fees 87,000

Cost of construction:

Civil and structural 705,000

Mechanical, electrical and plumbing 150,000

Painting, tiling and furnishing 98,000

Total expenditure 1,618,000

The administrative office and showroom take up 20% of the factory space of Block D.
On 1 December 2015, Block B was demolished as it was found to be structurally
defective.

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You are required to:

a. calculate the industrial building allowance that Berjaya Sdn Bhd is entitled to
claim for the year of assessment 2015 and the resulting residual expenditure
carried forward to the year assessment of 2016 in respect of:
i. Block A (4 marks)
ii. Block C ( 3 marks)

b. determine the qualifying building expenditure in respect of Block D.

(8 marks)

c. explain why the demolition of Block B constitutes a disposal of a qualifying

asset. (1 mark)

d. compute the balancing allowance or balancing charge in respect of the

demolition of Block B. (4 marks)

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Question 3

Miss Jun bought a house at a price of RM 400,000 which has paid in full on
20 August 2006. The house was transferred to her on 1 January 2007. There was no
written agreement for the purchase of the house. Expenditure incurred on the house
were as follows:

Details RM

Cost of extension of bungalow 50,000

Stamp duty on transfer 4,000

Interest on mortgage loan 25,000

Legal expenses in defending the title of the house 5,000

In June 2008, Miss Jun received RM10,000 from the insurance company for damage
to the roof of the house. In addition, he received RM5,000 as deposit from a potential
buyer who called off the deal eventually. The deposit was forfeited. The house was
subsequently sold under sale and purchase agreement dated 15 January 2010 for
RM800,000. Miss Jun incurred the following expenditure in connection with the sale:

Details RM

Valuation fee 8,000

Cost of advertisement 5,000

Brokerage fees 25,000

You are required to:

a. compute the real property gain tax payable by Miss Jun assuming she does
not want to claim exemption from private residence. (14 marks)

b. explain the changes if there was a written agreement date on 15 July 2016 for
the acquisition of the house by Miss Jun. (2 marks)

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c. state two conditions that must be satisfied for Miss Jun to qualify for the real
property gains tax exemption in respect of a private residence. (4 marks)

Question 4

Salsabila Holdings Bhd. has been involved in the business of manufacturing two
products since 2014. The company prepares its accounts up to 31 September each
year. On 1 January 2015, one of its product qualify as a promoted product and was
granted pioneer status effective from 1 January 2015. Information relating to taxation
for the year of assessment 2008 and 2009 is summarized below:

Details 2015 2016

RM RM

Pioneer business:

Adjusted income/(loss) (50,000) 300,000

Capital allowance 20,000 20,000

Non-pioneer:
business/(loss) 100,000 (60,000)
Capital allowance 20,000 20,000

Other income:

Dividend income - 30,000

Rental income 18,000 18,000

Approved donations 10,000 20,000

You are required to compute the tax payable and exempt income (if any) for
Salsabila Holdings Bhd for the years of assessment 2015 and 2016. (20 marks)

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Question 5

a. Elaborate FIVE categories of audit. (10 marks)

b. Explain the following:

i. Tax evasion. (2 marks)

ii. Tax planning. (2 marks)
iii. Tax avoidance. (2 marks)

c. States FOUR power of Director General of Inland Revenue to combat tax

evasion (4 marks)

END OF QUESTION PAPER

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APPENDIX 1

Capital Allowances – Plant and machinery

Initial allowance 20%

Assets Annual allowance rates
Computers, information technology equipment
and computer software 40%
Motor vehicles, heavy machinery 20%
Plant and machinery – general 14%
Office equipment, furniture and fittings 10%

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