Give step-by-step solution with explanation and final answer:Question 3.
XYZ Berhad, a manufacturing company, incurred the following expenses during the
year ended 31 August 2020:
Cost of land [EEE

Question

Give step-by-step solution with explanation and final answer:Question 3.
XYZ Berhad, a manufacturing company, incurred the following expenses during the
year ended 31 August 2020:
Cost of land [EEE =r g4s;008
Stamp duty on purchase of land EN 26,000
Legal charges on S&P Agreement [EEE 81000
Cost of construction of the building Fe
wow ———
«A storage building” 54,000 =
woo. tH
« Living quarters for factory worker 90,000 EE
« Living quarters for administrative staff 120,000 600,000
Legal chargers on the Contract agreement 10,000 i
for the construction of the buildings
Architect fees regarding the buildings [EE 20 000
The construction of the buildings was completed in February 2020 and the building
were put into use for the business from March 2020.
The company also incurred RM75 000 on cutting and levelling the land to prepare a
site for the installation of heavy machinery, costing RM800,000 which was purchased |
on January 2020. The machinery was put into use for business from march 2020.
"The storage building which is used for the storage of finished products is adjacent to
the factory I I I (Hi
Required: fi li LR
2 Compute XYZ Berhad's capital allowance under

VIPSolutions · Accepted Answer

Let's break down solution step by step as required:

---

## **a. Compute XYZ Berhad’s Capital Allowance (CA) under Schedule 3**

### **Step 1: Identify Qualifying Capital Expenditure (QCE)**
#### **Plant and Machinery:**  
- Cost of machinery: **RM800,000**
- Cost of cutting and levelling land for machinery installation: **RM75,000**  
  (This is allowable as part of the cost of preparing the site for machinery.)

#### **Industrial Building Allowance (IBA):**
Qualifying building costs (used for business purposes, not for administrative/management staff):
- Factory: **RM300,000**
- Storage building (adjacent to factory for storage of finished goods): **RM54,000**
- Canteen and restrooms: **RM36,000**
- Living quarters for factory worker: **RM90,000**
- **Subtotal:** RM480,000

**Add:**
- Legal charges on contract for construction: **RM10,000**
- Architect fees: **RM20,000**
- **Total (for IBA purposes):** RM510,000

**Exclude:**
- Living quarters for administrative staff (not eligible for IBA): **RM120,000**

### **Step 2: Calculate Capital Allowance on Plant & Machinery**

#### **Initial Allowance (IA):**
- **20% of QCE**  
- IA = 20% x (RM800,000 + RM75,000) = 20% x RM875,000 = **RM175,000**

#### **Annual Allowance (AA):**
- **14% of QCE**  
- AA = 14% x RM875,000 = **RM122,500**

#### **Total Capital Allowance for Year of Assessment 202:**
- **Initial Allowance:** RM175,000
- **Annual Allowance:** RM122,500
- **Total CA:** RM297,500

#### **Residual Expenditure Carried Forward:**
- Cost: RM875,000  
- Less: Total CA claimed (RM297,500)  
- **Residual Expenditure:** RM577,500

---

### **Step 3: Calculate Industrial Building Allowance (IBA)**

#### **Initial Allowance (IA):**
- **10% of QCE**  
- IA = 10% x RM510,000 = **RM51,000**

#### **Annual Allowance (AA):**
- **3% of QCE**  
- AA = 3% x RM510,000 = **RM15,300**

#### **Total IBA for Year of Assessment 202:**
- **Initial Allowance:** RM51,000
- **Annual Allowance:** RM15,300
- **Total IBA:** RM66,300

#### **Residual Expenditure Carried Forward:**
- Cost: RM510,000  
- Less: Total IBA claimed (RM66,300)  
- **Residual Expenditure:** RM443,700

---

## **Summary Table**

| Asset                  | Initial Allowance | Annual Allowance | Total Allowance | Residual Expenditure |
|------------------------|------------------|------------------|-----------------|---------------------|
| Plant & Machinery      | RM175,000        | RM122,500        | RM297,500       | RM577,500           |
| Industrial Building    | RM51,000         | RM15,300         | RM66,300        | RM443,700           |

---

## **b. Treatment of Cost of Cutting and Levelling Land**

### **Explanation:**
- The cost of cutting and levelling land (**RM75,000**) to prepare the site for installation of plant and machinery is treated as part of the cost of plant and machinery under Malaysian tax law (Schedule 3).
- It **qualifies for capital allowance** as it is necessary for the installation and use of the machinery.
- Therefore, it is **added to the cost of plant and machinery** for the purpose of computing capital allowances, rather than being expensed off or capitalized as part of the land or building.

---

## **Final Answers**

### **a. Capital Allowance (CA) and Residual Expenditure**
- **Plant & Machinery**:  
  - Total CA for 202: **RM297,500**  
  - Residual expenditure: **RM577,500**
- **Industrial Building**:  
  - Total IBA for 202: **RM66,300**  
  - Residual expenditure: **RM443,700**

### **b. Treatment of Cutting and Levelling Land**
- **Included as part of the cost of plant and machinery** for capital allowance purposes, capitalized and not expensed.

---

If you need the workings for other capital expenditures (like land), let me know!

✨ VIPSolutions

Question:

Final Answer:

📢 Instructions:

Study Help, Fast Answers

✨ VIPSolutions

Question:

Final Answer:

📢 Instructions:

Related Answers

Study Help, Fast Answers