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CTEA 2220 BUSINESS AND CORPORATE TAXATION

TUTORIAL 4

Question 1
PTR Manufacturing Sdn. Bhd. specialized in the manufacture of printer in Malaysia. It was
incorporated on 1 January 2012 and commenced business on 1 June 2012. It made up its
first set of accounts to 31 May 2013. Since its incorporation, it has incurred the following
expenses for the construction of a factory:
Date
Expenditure
(RM000
)
04.01. 2012

Land

400

15.01. 2012

Piling

50

20.01. 2012

Clearing the site & excavating

60

01.03. 2012

Architect fees

200

12.03. 2012

Cost of preparing plans in connection with the erection of


factory

10

10.05. 2012

Legal fees (Land RM45 & Building RM45)

90

01.07.2012

Construction cost

01.02.2013

Plumbing and wiring

3,035
160
3,975

The factory was completed on 1 April 2013 and was used in the business from the same
date.
You are required to compute the qualifying building expenditure for the industrial
building available to the company for YA2013.
Question 2
Ratu Sdn. Bhd. has been in business of manufacturing jewellery since 2000. The company
commences construction of a factory building on 1.3.2012 and completed the building on
1.12.2013. Twenty percent of the total floor space of the factory building was used as an
office. The cost of the land and building was as follows:

Date

Expenditure

(RM000)

04.01.2012

Cost of land

200

15.01. 2012

Legal fees & stamp duty on acquiring of land

20

20.01. 2012

Architect fees

30
1

01.03. 2012

Building plan approval fee

20

12.03. 2012

Construction costs

850

10.05. 2012

Wiring & plumbing

100
1,220

In respect of each item of expenditure listed in the scenario, compute qualifying


building expenditure for the industrial building available to the company for YA2013.
Question 3
Imara Sdn Bhd which prepares its accounts to September 30 annually, carries on a medical
products manufacturing business. The company incurred the following expenditures during
its financial year ended 30 September 2013.
1. Costs of land in Senawang amounting to RM300,000 for the construction of the
building stated below.
2. Cost of constructing a building amounting to RM860,000. The building comprises a
factory and and office. The construction cost of the office was RM112,000.
3. Costs of constructing a building used as a power station to supply electricity to the
factory amounting to RM20,000.
4. Cost of constructing an extension to the factory building to be used as a warehouse
for the storage of finished goods amounting to RM130,000.
5. Cost of leveling land for the installation of machinery amounting to RM454,300. The
machinery cost RM135,700.
6. Cost of constructing living accommodation for the factory workers amounting to
RM80,000.
7. Cost of constructing a warehouse in Penang for the storage of finished products for
distribution to the retailers in the region amounting to RM105,000.
8. Expenditure incurred on the purchased of buildings as follows:
A factory in Sepang purchased on 21 February 2013 for RM166,000
A childcare facility in Sepang for its employees purchased for RM210,000.
All of the above assets were in use for the business of Imara Sdn Bhd as at 30 September
2013.
(i)
(ii)

You are required to:


compute qualifying building expenditure for the industrial building available to the
company for YA2013.
State, giving brief explanations, your treatments of the expenditure incurred in item
(2) concerning the construction of an office and item (5) concerning cost of leveling
land for the installation of machinery.

Question 4
Kelly Sdn Bhd, which prepares its accounts to September 30 annually, carries on a shoe
manufacturing business in rented factory up to 31.08.2013. In June 2013, it completed the
construction of its own factory and office premises and commenced manufacturing
operations in its new building on 01.09. 2013. Nine percent of the total floor space of the
factory building was use as an office and showroom. The details of its expenditure for the
year ended 30.09.2013 are as follows:
Expenditure

RM

Land

250,000

Legal fees for:


- agreement for purchase of land

1,900

- agreement with the building contractor

1,000

Consultants fees and building plans

49,000

Stamp duty for purchase of land

2,500

Construction costs

400,000
704,400

In respect of each item of expenditure listed in the scenario:


(i) Determine the amount of the qualifying expenditure for the purposes of
IBA;
(ii) Compute the IBA due to the company for the YA2013
Question 5
Spectra Sdn. Bhd., a manufacture of household goods, built a factory which was completed
on 19 .01.2010. Capital expenditure in connection with the factory was as follows:
Expenditure
RM000
Date incurred
Cost of site

1,000

10.04.2008

Architects fees

120

20.05.2008

Piling and foundation works

280

15.06.2008

Construction

800

10.01.2010

The company makes up accounts to year end 31 December. The company did claim initial
allowance for the year of assessment 2011 and annual allowance for all other relevant years
of assessment. The factory was sold during the year to 31 December 2013 for RM 3.5
million (including RM 2 million in respect of the factory site).
You are required to compute the industrial building allowances for each of the
relevant years of assessment and the balancing charge resulting from the sale.

Question 6
Lanyard Sdn Bhd is a manufacturer of watersport equipment and supplies products based
in Kuala Lumpur, which makes up its accounts annually to 30 June. Lanyard Sdn Bhd is also
a contract manufacturer for an overseas company from which it imports raw materials which
it processes and exports.
Details of the fixed assets acquired by Lanyard Sdn Bhd in the basis period for the year of
assessment 2011 are shown below:
Asset description

Qualifying expenditure
RM

Factory building
Warehouse building used solely for import of raw materials
and

1,000,000
300,000

goods, processing and re-export


During the board of directors meeting on 2 June 2012, it was determined that there was an
increase in demand for companys products in Malaysia and the finance manager was
instructed to look into constructing a storage warehouse exclusively for the Malaysian
market. He is considering the following two options:
Option 1 To construct a warehouse within the curtilage of the current factory premises.
Option 2 To construct a warehouse 20 kilometres away in Port Klang.
Required:
(i)

Compute the industrial building allowance for the year of assessment 2012 for the
factory building and warehouse building and the residual expenditure carried forward
to the year of assessment 2013;
Note: Industrial Building Allowance (IA: 10%, AA: 3%); Warehouse (IA: 0%, AA: 10%)

(ii)

Explain the income tax implications of each of the options for the construction of the
warehouse from the perspective of claiming industrial building allowance and advise
which would be more tax efficient.