CIA2012

Exercise Questions (Part 2)

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Topic: Business Income / Expenses/ Computation

Question 1
Labu purchased a piece of rubber land for RM250,000 from Labi in March 2010. The land
is situated 10 kilometres away from Sungai Petani, which was surrounded by a newly
developed housing area. In the following year, Labu made two applications, one to the State
Government for the conversion of rubber land into residential land and another one to the
Sungai Petani Town Council for approval to build residential houses on the land. Both
applications were approved in 2022. In 2023, Labu sold the vacant land to Lobo Sdn Bhd for
RM1.5 million payable by way of shares in the company. The shares were later transferred to
his children.

Required:
State, with reason, whether the profit on the sale of the land is subject to income tax.

Question 2
Rani runs a ballet and ballroom dancing class. Fees are charged based on the total number of
lessons per course and the full fees are payable in advance. If for any reason a pupil were unable
to attend a lesson, Rani would refund the fee for that lesson. For the accounting year ended
31.12.2023, Rani received fees totalling RM200,000. Of this amount, RM160,000 relates to
lessons completed up to 31.12.2023 while the balance of RM40,000 relates to lessons yet to be
given or fees refundable to pupils.

Required
Explain with reason, whether the RM40,000 received by Rani is assessable to tax for YA 2023.

Question 3
Langkawi Co-operative Housing Society (LCHS) purchased a piece of land, which was later
subdivided with the intention of building houses on the land and selling the houses to its
members. A developer agreed to buy a portion of the divided lots and promised to sell the lots
to the taxpayer’s members at the same price. Demand for the houses was poor and LCHS was
forced to sell the remainder of the lots to the developer. The developer was also released from
its obligations to sell the lots to the taxpayer’s members.

Required:
State, with reason, whether the profit arising from the sale of land is subject to income tax.

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Question 4
State, with reasons, whether the expenditure incurred in the following circumstances is
deductible for tax purposes:

a) Zack Sdn Bhd bought a second-hand factory for RM300,000 which was vacant for
many years and needed repairs. Soon after it was acquired, the company incurred
RM100,000 on extensive repairs which included RM10,000 on repainting of the factory
walls and RM20,000 on replacement of the roof tiles with new tiles of similar quality.
The balance of the repair costs was mainly incurred on the rewiring of the electrical
system, improving the drainage system surrounding the factory, renovations and
alterations to the factory.

b) Express Bus Service Sdn Bhd is in the business of transporting passengers by modern
coaches from Kuala Lumpur to another town in Malaysia. The drivers are paid a basic
salary and a commission based on the number of trips made. In some of the long-
distance trips, the drivers were issued summonses by traffic police for overloading and
for exceeding the speed limit along the highways. Any fines for such offences would
be borne by the company.

c) Sandeep Singh, a lawyer has just started his law practice as an advocate and solicitor.
To equip the reference library for his practice, Sandeep incurred the following
expenses:
i. Purchased Malayan Law Journal and other law textbooks for RM15,000;
ii. Subscribed to periodicals such as Current Law Journal and Weekly Law Reports
costing RM600 per annum;
iii. Paid RM100 for the cost of binding the periodicals.

d) Tintin Sdn Bhd, a mining company, was forced to close its mine and ceased tin mining
operations due to the depressed tin prices. The company laid off its employees and paid
retrenchment benefits totalling RM500,000 as required by labour law.

Question 5
Mr Kana has been operating the only cinema theatre in a small town for the last five years and
has been very profitable. On three occasions during the five years, other persons had attempted
to open cinema theatres in the same location. On each occasion, Mr Kana managed to persuade
them not to do so by making lump sum payments to them. Mr Kana claimed these lump sum
payments as tax deductible expenses against his business income.

State, with reasons, whether the lump sum payments are deductible expenses in arriving at the
adjusted business income.

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Business Income Computation

Question 6
Wonda Onn is the sole proprietor of a fast-food catering business located in Nilai. Below is the
profit and loss account of her business for the year ended 31 December 2024.

Notes RM RM
Gross sales 305,000
Less: Cost of sales 1 95,000
Donation and zakat 2 6,000
Leave passage 3 8,500
Van running expenses 4 11,900
Salaries and wages 5 110,000
Cost of computer 6 6,000
Entertainment 7 15,000 252,400
Net profit 52,600

Notes:
1. Cost of sales includes the cost of meals consumed by Wonda and her family amounting to
RM15,000. The catering price of these meals is RM17,900.
2. Wonda made a cash donation to an approved institution in Perak on 1 July 2024 amounting
to RM3,500 and the balance is zakat payment on her business income.
3. The leave passage cost relates to a trip made by Wonda and her family to visit her relatives
in Singapore.
4. The van was bought for cash by Wonda three years ago at a cost of RM84,000. It was
agreed by the Inland Revenue Board that 75% of the van running expenses are attributable
to business purposes.
5. Included in salaries and wages is a sum of RM24,000, being salary drawn by Wonda.
6. The computer was bought for her daughter (20 years old) who is studying full-time at
Sunway College.
7. On 31 October 2024, Wonda organised a weekend trip to Langkawi for her staff and their
families. The details of the expenses are as follows:

RM
Food 6,000
Accommodation 4,000
Leave passage 5,000

8. Other information:

a) Wonda has 2 residential properties as follows:

Semi-detached house:
Gross rental from 1 July to 31 December 2024 is at RM6,000 per month.
Quit rent from 1 January to 31 December 2024 was RM300.
Assessment for the year (1 January to 31 December 2024) was RM700.

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 Condominium:
RM
Gross rental per annum 8,400
Assessment 450
Interest on loan 4,000
Repairs and repainting 4,200

b) She also received a royalty of RM32,000 from a book translation. However, the
translation was not approved by the relevant authority and the whole amount was
donated to an approved charitable organisation.

c) She donated a dialysis machine costing RM25,000 to a kidney centre approved by

the Ministry of Health. The value of the gift was certified by the Ministry of Health
at RM25,000.

d) She received an alimony of RM500 per month from her ex-husband, who divorced
her 4 years ago. The alimony is paid in accordance with a court order.

Required:
Compute the total income of Wonda for the year of assessment 2024.

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Question 7
Ranveer and Neha have approached you for advice on the preparation of their tax computation
for the year of assessment 2024. The following information has been provided to you:

Ranveer

(i) Employment income

Ranveer works as a financial analyst in a listed company. In view of his good performance in
the previous year, the company gave him an increment with effect from 1 May 2024. His salary
for the year 2024 is therefore as follows:

January – April RM6,600 per month

May – December RM7,500 per month

Other details relating to his employment are:

• Effective from 1 April 2024, a company car costing RM160,000 together with a
driver, was provided to him. Fuel was also provided.
• Living accommodation in Damansara was provided to him free with effect from 1
May 2024. The monthly rental for the fully furnished house is RM5,000 (including
rental of furniture of RM600 per month)
• A domestic helper was provided from 1 May 2024.

(ii) Business income 1

Ranveer runs a cafe outlet in Shah Alam. The outlet’s statement of profit and loss for
the year ended 31 December 2024 is as follows:

RM RM
Sales 390,000
Less: Cost of sales (130,000)
Gross profit 260,000
Less: Expenses:
Staff salaries 39,000
Salary to wife Neha 18,000
Salary to proprietor 12,000
Medical expenses for Ranveer’s parents 6,000
Rental (business premises) 24,000
Utilities – water and electricity 8,000
Entertainment for suppliers 13,400
General provision for doubtful debts 32,000
Travelling – business 12,500
Donation of health care equipment 25,300 (190,200)
approved by Minister of Health
Net profit before tax 69,800

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Other information:

• Some of the office equipment was disposed of during the year and a balancing charge
of RM4,500 is applicable.
• The claim for capital allowances for the year of assessment 2024 is RM6,700.

(iii) Dividend income

RM
Malaysian (net) – Windcon Bhd 7,920
Malaysian – Pioneer company 4,000
Brunei (received on 2 June 2024) 4,700

(iv) Interest income

Ranveer acquired bonds from Malaysian Technology Bhd, a company listed on Bursa
Malaysia, and received the following interest income:

Principal Interest income

RM RM
Convertible bonds (received 31 October 2024) 140,000 8,000
Non-convertible bonds (received 30 November 2024) 160,000 9,500

Neha

Apart from helping Ranveer in his cafe business, Neha also operates an orchid farm in
Selayang. As a result of the economic downturn, the business incurred an adjusted loss of
RM22,000 for the year ended 31 December 2024. Capital allowances for the year of assessment
2024 amounted to RM6,000.

She also provided you with the following details:

• Royalty income: RM48,000. This royalty income is in relation to a music composition

for a concert held at the National Theatre.
• Adjusted Rental income: RM66,000

Required:
Compute total income for Ranveer and Neha for the year assessment 2024.

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 Topic: Capital Allowance

Question 1
Vida Sdn Bhd, a manufacturing company with a financial year ending 31 December, purchased
a machine on 1 May 2024 at a cost of RM262,000. The company incurred RM22,000 on-site
preparation for the installation of the machine in the factory.

Required:
Determine the qualifying expenditure and compute the appropriate allowance for YA 2024
under Sch 3 of the Act.

Question 2
King Shop Sdn Bhd, a manufacturing company, incurred capital expenditure on machinery as
follows, for the year ended 30 November 2024.

RM
Office equipment 27,000
Computer system 98,000
Motor car 143,000
Production machine (heavy machinery) 580,000

During the year, King Shop sold the following:

Cost Residual expenditure Disposal price

RM RM RM
Used motor car 85,000 20,000 20,000
(purchased in May 2022)

Required:
Compute the capital allowance(s), balancing allowance(s) and/or balancing charge(s) for King
Shop Sdn Bhd for the YA 2024.

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Question 3
BFF Sdn Bhd, a company manufacturing boxes, acquired the following machine on hire
purchase:

RM
Cost of machine 138,000
Deposit paid on 1 June 2023 30,000
Hire purchase amount 124,800
Hire purchase interest 16,800
Term of repayment 24 months

The first instalment of RM5,200 commenced on 1 July 2023. The company ends its accounts
on 30 September annually.

Required:
Compute the capital allowances in respect of the machine (which does not qualify as heavy
machinery) for years of assessment 2023 and 2024.

Question 4
Nutella Sdn Bhd, which made up its accounts to 31 March annually, acquired a machine on
1.7.2019 for RM50,000. Notional allowance was computed for YA 2021 as the machine was
not used for the business. The company disposed of the machine on 31.03.2024 for RM53,000.

Required:
Compute the capital allowances and balancing charge/allowance for the machine, up to YA
2024.

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 Topic: Partnerships

Question 1
Cumi and Ciki are partners. Their business accounts show a net loss of RM72,000 for the year
ended 31 December 2024. Business expenses include:

Depreciation RM2,900

Provision for bad debts RM2,600

Entertainment of clients RM5,400 of which one-third of the entertainment is

private in nature. The balance is wholly related to
sales.

Donation RM1,000 of which RM800 was donated to

approved bodies.

The partnership agreement provides for an annual salary of RM18,000 to Cumi, RM24,000 to
Ciki and interest on capital of RM900 to Cumi. The profit-sharing ratio is 70% to Cumi and
30% to Ciki. Capital allowances for the year of assessment 2024 amount to RM2,200.

Cumi has rental income of RM3,000 for the year ending 31 December 2024. Ciki received
dividends totaling RM1,800 in November 2024.

Required:

(a) Compute the provisional adjusted income/loss and divisible income/loss of the
partnership for the year of assessment 2024.

(b) Based on the information given above, compute the total income of each of the partners
for the year of assessment 2024.

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Question 2
The partnership firm of Anggerik, Melur and Ros closes its annual accounts on 31 December.
Ros ceased to be a partner on 30 March 2024. Teratai joined the partnership on 1 April 2024.
The partnership agreement provides for the profits for the year 2024 to be shared as follows:

Salary Interest on capital

RM RM
Anggerik 36,000 4,500
Melur 32,400 Nil
Ros Nil 3,000
Teratai 20,000 1,800
Total 88,400 9,300

Profit sharing ratio:

Anggerik Melur Ros Teratai
1 January to 30 March 2024 2/4 1/4 1/4 -
1 April to 31 December 2024 1/3 1/3 - 1/3

The partnership’s profit before tax for the year ending 31 December 2024 is expected to amount
to RM324,400 after taking into account the following:

RM RM
Rental income received from the lessee of the 24,000
partnership’s previous premises
Depreciation 21,600
Private expenses:
Anggerik: private use of car 5,000
Ros: medical expenses 1,000 6,000
Partners’ salaries 88,400
Interest on capital 9,300
Cash donation to approved institution on 7 10,000
February 2024.
Cash donated to approved institution paid on 9 4,000
November 2024

Capital allowances for the year of assessment 2024 are expected to amount to RM21,000.

Required:

(a) Compute the provisional adjusted income and divisible income of the partnership for
the year of assessment 2024.

(b) Based on the information given above, compute the total income of each of the four
partners for the year of assessment 2024.

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Question 3

Lala and Lili are partners in the partnership business of manufacturing various types of cakes.
The partnership accounts for the year ended 31 December 2024 are as follows:

RM RM
Sales 800,000
Less: Cost of sales (500,000)
Gross profit 300,000

Less:
Partners’ salary 42,000
Partners’ interest on capital 2,100
Office administration 6,200
Sales commission 10,600
Salaries 120,000
Van driver’s allowance 900
Van maintenance 20,700
Entertainment 1,500
Employee provident fund 18,000
Provision for bad debts 8,000
Depreciation 8,100
Approved donation 10,000 248,100
51,900
Add:
Rental income 12,000
Net profit for the year 63,900

The partners have furnished the following information:

(a) Salary
Lala RM18,000
Lili RM24,000
Lulu -

(b) It is agreed that one-third of the entertainment is private in nature. The balance is wholly
related to sales.

(c) Lala and Lili contributed RM20,000 and RM30,000 capital respectively into the
partnership. On 30.9.2024, Lala sold off his rights to the share of the partnership to Lulu
for RM45,000. The new partnership of Lili and Lulu continued without any change in
the business name and the accounting date.

(d) Partners’ interest on capital is as follows:

Lala RM900
Lili RM1,200
Lulu -

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 (e) From experience, Lili knows that normally about 10% of the debtors do not settle their
bills. This year Lili decided to provide for these debts.

(f) Partnership profits were shared as follows:

Lala and Lili shared profits equally up to 30 September 2024. From 1 October
2024, the profit-sharing ratios changed to 60% for Lili and 40% for Lulu.

(g) Capital allowances for the year of assessment 2024 were RM11,150.

(h) Lulu joined as a silent partner and it was agreed that he should not be drawing any
salary.

Required:
(a) Compute the divisible income from the partnership business.

(b) Compute the total income of each partner for the year of assessment 2024.

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