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Examiners report

FTX Foundations in Taxation (MYS) June 2012


General Comments The paper comprised 2 sections: Section A Section B 20 marks 80 marks

Section A comprised ten multiple choice questions carrying from 1 to 3 marks each while Section B was made up of nine questions (the first two for 15 marks each and next two questions for 10 marks each and the last five questions for 6 marks each adding up to 80 marks). All questions were compulsory. This report deals only with Section B. The June 2012 was the first exam session where the 2-hour format was adopted. There was evidence that the candidates attempted all the questions within the time allotted and no evidence that candidates had difficulties in completing the paper on time. Many candidates scored high marks. There were also candidates who scored poorly and did not complete all the questions and it was obvious that they either were not prepared for the exam or concentrated on certain parts of the syllabus, or both. It is important that in view of the fact that there are 9 questions in Section B candidates are encouraged to focus on all parts of the syllabus. Overall, candidates performed generally well on all the questions except for certain parts in questions 3, 4 and 6. Some common issues arose in candidates answers: There were candidates who did not refer to the table of rates and information provided in the question booklet and used the old rates. Candidates must refer to and use the table provided in the question booklet. Candidates must read the question and answer as per the requirement. Candidates provided the statutory income of the partners which was not required and computed the real property gains tax payable which was not required. By answering as per the requirement, candidates can save valuable time under the new 2-hour format. Candidates must answer each question on new separate sheets clearly indicating the question they are answering by shading the top of the answer sheet. This facilitates for easier marking and tracking. Candidates must answer the multiple choice question (MCQ) on the appropriate sheet provided together with the answer booklet. This will ensure that the marks for MCQ will be awarded accordingly. There were some candidates who wrote their answers to the MCQ in the sheets in the answer booklet together with their answers in Section B. It is advisable for candidates who repeat answers to the same one question to delete the superseded answers.

Examiners report FTX (MYS) June 2012

Specific Comments Question One This 15-mark question tested the tax computation for an individual, Farah, who was employed and enjoyed a living accommodation benefit and incurred expenses. This question was well answered and many candidates scored high marks. Some common issues were: Some candidates did not calculate the benefit relating to the furniture correctly. Candidates are required to read and use the rates in the table of rates and information provided in the booklet. A few candidates used the previous rate for self relief. Candidates must state that the reliefs were restricted to the maximum allowed, where appropriate. Dividend income from single-tier system was wrongly treated as taxable income whereas such dividends are tax exempt in the hands of the shareholder. There were candidates who did not compute the income tax payable and lost valuable marks, as a result. Question Two This was 15-mark question requiring the computation of chargeable income and tax payable for a company, Cosmic Sdn Bhd. Most candidates did well in this question. There were some candidates who did not read the requirement in the question carefully and commenced the computation with gross income. The requirement clearly stated to commence with the profit before tax. Some candidates were not aware that capital allowances were to be set-off against adjusted income in arriving at statutory income in the question. The following were noted: Candidates must write descriptions in full and avoid any symbols such as Adjusted Y. All amounts are to be stated in full unless otherwise, stated. Interest income from a local bank was not adjusted to reduce from profit before tax as it was a nonbusiness source income. Many candidates wrongly treated interest as exempt income. Many candidates were not aware that the expenses relating to setting up a company is capital in nature and therefore, not allowable in arriving at the adjusted income. There were candidates who did not compute the income tax payable and lost valuable marks, as a result. Many candidates mistakenly brought into account the share capital amount into the computation of chargeable income which was of no relevance as the companys share capital is part of share holders investments and part of the balance sheet.

Question Three This 10-mark question tested on the computation of computation of capital allowances and was answered well except for the acquisition of the van on hire purchase. Many candidates were not aware of the calculation of capital allowances for the van that was acquired on hire purchase. Candidates were not aware that qualifying expenditure was made up of deposits paid and the capital portion of instalments paid and not based on the cost of the van. Examiners report FTX (MYS) June 2012 2

Question Four This 10-mark question tested the computation of chargeable gains subject to real property gains tax (RPGT) in respect of compliance due dates to submit the RPGT in part (a) and computation of chargeable gain before any exemptions in part (b) for a company, Sealand Sdn Bhd. Many candidates were not aware of the due dates for submission of RPGT tax returns. Some candidates had stated that the due date was within two months whereas the due date was within 60 days of the signing the sales and purchase agreement. Candidates should know the details such as due dates. A number of candidates were not aware that exemption under Schedule 4, i.e. 10% of chargeable gain or RM10,000 whichever is higher, is only applicable for disposal by individuals and not company. Almost all of the candidates showed the threshold exemption calculation and also many computed the real property gains tax payable, which were not required. Candidates must read and answer as per the requirement. Many candidates did not show the interest expense adjustment although it was a nil adjustment. Candidates must answer as per the question which required them to indicate by the use of the word nil even for those items which had no adjusting entry. A number of candidates were not familiar with the deductibility of an allowable loss. Candidates need to be clear as to what types of permitted expenses and incidental expenses are to be set-off against disposal consideration in arriving at disposal price and what adjustments are to be made in arriving at acquisition price. Question Five This question tested service tax for 6 marks requiring candidates to identify the items which are subject and not subject to service tax by way of preparation of an invoice. Candidates performed this satisfactorily. Candidates had to correctly identify those items that are subject and not subject to service tax. Most candidates were not aware that disbursements such as travelling and photocopying charges in the context of the scenario given in the question were not subject to income tax. Some candidates applied the old service tax rate of 5% and some erroneously applied the sales tax rate. Question Six This 6-mark question involved testing the area of withholding tax and was only satisfactorily done. Candidates were not aware that withholding tax did not apply on payments for purchase of goods from Japan and many did not know that the withholding tax rate for interest payments to non-residents is 15%. Candidates need to aware of the scope of withholding tax. Question Seven This 6-mark question tested partnerships and most of candidates did well. Most of the candidates identified the provisional adjusted income and divisible income correctly although some were not clear. However, many candidates provided the statutory income of the partners which was not a requirement in the question. Candidates must answer as per the requirement and avoid spending time in providing unnecessary answers. Question Eight Examiners report FTX (MYS) June 2012 3

This was a question on compliance and due dates and a calculation of the penalty for underestimation of tax under self-assessment system for 6 marks, and was reasonably well done. Candidates should be well aware of the basics of the self-assessment system. Question Nine This 6-mark question tested the area of ability of completing an extract of a tax return for an individual. It was encouraging to see that the candidates did well in this relatively new and integral area of the syllabus. Candidates should have a basic level of understanding of completing tax returns for Form BE, B (both for individuals), P (for partnerships) and C (for company).

Examiners report FTX (MYS) June 2012