CAPITAL ALLOWANCES 1. Comfort Sdn Bhd, which prepares its accounts to 30 June an
ID: 2569232 • Letter: C
Question
CAPITAL ALLOWANCES 1. Comfort Sdn Bhd, which prepares its accounts to 30 June annually, carries on a shoe manufacturing business in a rented factory up to 31 July 2014. In April 2014, it completed the construction of its own factory and office premises and commenced manufacturing operations in its new building on 1 August 2014, 15% of the total floor space of the factory building was used as an office and showroom. The details of its expenditure for the year ended 30 June 2015 are as follows: RM Land Legal fees: Agreement for purchase of land Agreement with building contractor Consultants' fees and building plans Stamp duty for purchase of land Construction costs Plumbing and wiring 10.900 10,000 55,000 5,000 1,881,400 The company also owns the following assets as at 30 June 2015. No new assets were acquired during the year Cost Van (acquired in 2012) Heavy machine (acquired in 2013) Motorcar Furniture and fittings 250,000 135,000 (residual expenditure brought forward- RM18,500) ACC2054-Malaysian Taxation System ADDITIONAL MATERIALS The company bought a used Mercedes Benz costing 135,000 on 15 July 2013 by hire purchase. The company paid deposit of RM35,000 and the instalment of RM4,280 is payable in 25 months commencing 1 August 2015. a) Where a person has incurred qualifying plant expenditure for the purpose of a business, he is Explain the differences between entitled to claim an initial allowance and annual allowance. the two allowances. b) Prepare the computation of the industrial building allowance/ capital allowances for Comfort Sdn Bhd for the year of assessment 2015 using all information givenShow the residual expenditure of all assets as at the end of the basis period of the year of assessment 2015 clearly.Explanation / Answer
Difference between Initial Allowance and Annual Allowance
Capital allowance is only applicable to business activity and not for individual.
The purpose of capital allowance is to give a relief for wear and tear of fixed assets for business. Some examples of assets that are normally used in business are motor vehicles, machines, office equipments and furniture.
In order to qualify, expenditure must be capital in nature and used for business purposes. Claims for capital allowance can be made in the relevant column provided in the Tax Return Form.
In determining the business adjusted income during the basis period, no deductions are allowed for expenditures which are capital in nature or depreciation value for the assets which are used in the production of that business income. However, Schedule 3 of the Income Tax Act 1967 has laid down several allowable deductions in the form of allowances, for the capital expenditures that have been incurred.
Capital allowances consist of an initial allowance and annual allowance. Initial allowance is fixed at the rate of 20% based on the original cost of the asset at the time when the capital expenditure is incurred.
While annual allowance is a flat rate given every year based on the original cost of the asset. The annual allowance is given for each year until the capital expenditure has been fully written off, unless the fixed asset is sold, scrapped or disposed, in which case a balancing allowance or balancing charge will be calculated.
Total Land and Building 18,81,400 15% of Office Use 2,82,210 Qualified Expenditure (QE) 15,99,190 Total Cost Per Centage (%) Annual Allowance Industrial Building 18,81,400 3% 56,442 VAN 1,30,000 20% 26,000 Heavy Machine 2,50,000 20% 50,000 Motor Car 1,35,000 20% 27,000 Furtniture & Fittings 25,000 10% 2,500 Total 1,61,942 Industril Building - Initial Allowance 15,99,190 10% 1,59,919 Total Allowance can be claimed during the year 3,21,861Related Questions
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