Question

7. FaCal Sdn Bhd, a manufacturing company, incurred capital expenditure on the following assets in the year ended 30 September 2019: RM RM New factory Construction Land cost Design and plan fees for building Legal fees & stamp duty (for purchase of land) Total cost of new factory 235,000 90,000 40,000 2,000 367,000 Production machinery (non-heavy machinery) Office equipment New computer system New motor car 195,000 18,000 85,000 125,000 Three assets had been acquired in previous years by the company. Two of these assets were disposed of during the year ended 30 September 2019. The relevant details of the three assets are as follows: Motor car (acquired second hand) Office equipment Lorry Cost Residual expenditure Disposal price RM RM RM 75,000 10,000 18,000 25,000 7,500 2,400 150,000 60,000 Still in use Required: Compute the capital allowances, balancing allowance(s) and/or balancing charge(s) for FaCai Sdn Bhd for the year of assessment 2019. (30 marks) 4

Answer 1

Answer:

Let's discuss first on what is Capital allowance, Balancing allowance & Balancing charge.

Capital allowance:  

It is an expenditure that can be claimed against Business taxable profits and can be claimed on purchase of assets for use in the business. Please note that not every asset purchased is eligible to be claimed for capital allowance.Assets that cannot be included in capital allowance claims include any asset that was bought before the start of the business (even though the assets are used currently for the business).Most common assets on which capital allowance can be claimed are Plant and machinery, Vehicles, Equipment etc. (All these assets must be used for the purpose of running Business)Therefore the capital allowance can be calculated as under:

Particulars	Explanation	Capital Allowance
Cost of New Factory	Not Eligible Because Launched Before Starting Business	$               -
Production Machinery	Eligible Because Using for the Propose of Business and Bought after starting Business	$ 1,95,000
New Computer	$    18,000
New Motor Car	$    85,000
(Assumed that car is Used for the Purpose of Business)	$ 1,25,000
Total Capital Allowance is		$ 4,23,000

Balancing charge: Balancing charge makes sure the company do not claim higher tax relief on the cost of an asset that has been bought for business purpose. Balancing charge is simply the the opposite of a capital allowance.(Capital allowance ensure you pay less tax, Balancing charge ensures you pay high tax i.e it caps the limit that you claim as tax benifit). Balancing charge can be calculated when the disposal value of asset is more than the residual expenditure,therefore: Balancing charge is ( Motor car) 18000-10000= 8000 ( Assumed that Car do not form part of Plant and Machinery in the country where the company is located)Balancing allowance: When the disposal price is less than residual expenditure a balancing allowance arises, But however please be noted that, In case of plant and machinery, balancing allowance is generally done by reference to the entire pool of assets rather than on an asset by asset basis. Since office equipment is part of Plant and Machinery(P&M) and the P&M total pool value put together did not exhaust in the year end sep 2019. There would not be any balancing allowance.Please note that the capital allowances, Balancing allowances and charge depends on the respective country laws and regulations. And there is a chance that the answers discussed above may change depending on the country where it is located.

Please give a Positive Rating..