Question

The principal activities of Good Food Products Sdn Bhd are the manufacturing of dried food products
and investment holding. The company has been carrying out its manufacturing activities at its factory
building in Banting, Selangor since 2012. The company prepares its accounts to June 30 annually. During
the year ended June 30, 2016, the company embarked on a four-year expansion programme with the
view to increasing its production of dried food products for the export market. The company’s profit and
loss account for the year ended June 30, 2016 is as follows:

Notes RM'000 RM'000

Sales 33000
Less Cost of sales:
Opening stock 4500
Cost of goods manufactured 1 17160
21660
Closing stock 2 4050 17610
Gross profit 15310
Less:
Selling and distribution expenses:
Advertising, publicity and entertainment 3 3300
Traveling expenses 4 1320
Remuneration 5 2750 7370

Administrative expenses:
Salaries and allowances 6 2010
Depreciation 310
Legal and professional fees 7 240
Insurance, maintenance and utilities 8 1050
Miscellaneous expenses (all allowable) 570 4180

Financial expenses:
Interest expense 9 390
Foreign exchange differences 10 620 1010

Add Other income:

Dividend income 11 40
Interest income 12 50
Loss on disposal of quoted shares (160) (70)
Profit before taxation 2760

Notes

1. Cost of goods manufactured incudes:

a) Depreciation amounting to RM1500000.

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 b) Insurance premium of RM10000 paid to the Safety Insurance Bhd, a company incorporated in
the Malaysia, for insuring raw materials imported from Taiwan.
c) Research and development expenses
 Quality control testing amounting to RM80000
 Payment for the use of services of an approved research and development institute
RM120000
 Market survey on customer's food preferences in Malaysia amounting to RM30000

2. Closing stock is arrived at after deduction of allowances for stock obsolescence at 10% of the year end
stock balance.

3. Advertising, publicity and entertainment comprises:

RM'000
Staff annual dinner 180
Client entertainment (entertain distributors) 125
Cash donations to BAKTI, an approved institution 10
Participation in approved trade fairs 65
Cost of maintaining sales office in Saudi Arabia 320
Family day expenses for company employees 50
Donation of to unapproved welfare homes 40
730

4. Travelling expenses include

a) A one leave passage and three local leave passages of the company's managing director and
technical director respectively, costing RM75,000
b) Lease rental payments for the company's motor vehicles are as follows:

Type of vehicle Commencement of Monthly lease rental (RM)

lease
BMW (cost RM280000) August 1 2015 8000
Lorry April 1 2015 10000

5. Remuneration comprises:

RM'000
Salaries 2200
Bonuses (paid on June 25 2016) 100
EPF 450
2750
The rate of EPF contribution and the basis of bonus entitlement are the same for all employees within
the selling and distribution department.

6. Salaries and allowances comprises:

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 RM'000
Salaries 1320
Bonuses (paid on June 25 2016) 300
EPF 200
Provision for retirement gratuity 190
2010
The rate of EPF contribution and the basis of bonus entitlement are the same for all employees within
the administration department.

7. Legal and professional fees comprise:

RM'000
Audit and taxation fees 50
Legal fees on preparing loan agreement 48
Stamp duty on loan facility 20
Legal fees incurred on trade debt recovery 17
Technical assistance fees paid to Taiwanese company (withholding tax has not 105
been complied with)
240

8. Included in insurance, maintenance and utilities is an amount of RM36,000 relating to fire insurance
premium for insuring the company's fixed assets for the 12-month period to December 31, 2016.

9. Interest expense includes interest expense on a loan of RM4 million obtained from a local bank on
July 1 2015. 40% of the loan was used to finance the company's acquisition of its investment in Safe
Packaging Sdn Bhd whilst the balance of 60% was used to finance the company's working capital. The
loan carries an interest rate of 7% per annum. Under the terms of the loan agreement, there is no
capital repayment during the first 24 months but interest payments are to be made at the end of each
12-month period.

10. Foreign exchange differences comprises:

RM'000
Loss rising from translation of debts owing to foreign suppliers at year end 250
Loss arising from payment to foreign suppliers of raw materials 390
Gain arising from trade debts collected (20)
600

11. Dividend income includes:

RM'000
Tax exempt dividends 10
Interim dividend received from Safe Packaging Sdn Bhd on June 20, 2016 30
Dividend received from Safe Packaging Sdn Bhd on December 27, 2016 355

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12. Interest income represents interest charged on late payments of trade debts.

13. Other information

a) The balance in the allowances for retirement gratuity account as at June 30, 2016 and June 30, 2015
are RM290,000 and RM150,000 respectively.
b) The company incurred the following capital expenditure during the year ended June 30, 2016:

RM'000
Plant and machinery -cash purchase 1200
Plant and machinery on hire purchase:
Acquired on September 1, 2015
Cash price 3000
Deposit 600
Hire-purchase loan 2400
Monthly installment (24 installments commencing October 1, 2015) 110
Office furniture and fittings 100
The company's capital allowances claims on all its qualifying expenditure (including those mentioned
above) for the year of assessment 2016 totaled RM1460000 whilst the unutilised capital allowances
brought forward for the year of assessment 2015 is RM739000.
c) The company has unabsorbed business losses brought forward from the year of assessment 2015 of
RM708000.

Required
a. Compute the chargeable income of Appropriate Products Sdn Bhd for the year of assessment 2016.
b. Explain your answer for notes number 1 to 12.
(40 marks)