SECTION 4(b): BUSINESS INCOME
TUTORIAL 4 – BUSINESS INCOME
Net Profit/ Loss before tax
Other income not falling under S.4(a) eg. rental, interest, dividend,
disposal of fixed asset
Other income not falling under S.4(a) eg. rental, interest, dividend,
disposal of fixed asset not yet recorded
Business income not yet recorded
All non-allowable expenses eg. depreciation, non-trade bad debt
write-off, excess of 19% EPF, renovation, donation
All non-allowable expenses eg. depreciation, non-trade bad debt
write-off, excess of 19% EPF, renovation, donation not yet recorded
Allowable expenses not yet recorded
Double deduction e.g salary of disable employee, halal certification,
advertising on Malaysian brand name
Adjusted income from business
Add: Balancing charge
Less: Capital allowances
Unabsorbed CA
Less: Current year CA
Less: Balancing allowance
Statutory income (if more than 1 source, add every sources and
becoming aggregate income)
Less: Unabsorbed business losses
Add: Other taxable income under 4(c), 4(d), 4(f)
Aggregate income
Less: Approved donation (10% from company aggregate income)
Total / Chargeable income
1
(-)
xx
(+)
XX
XX
Nil
XX
XX
Nil
XX
XX
(XX)
XX
XX
XX
(XX)
(XX)
(XX)
XX
(XX)
XX
XX
(XX)
XX
SECTION 4(b): BUSINESS INCOME
QUESTION 1
Encik Zami; a sole trader operating an established landscape shop in Kuala Terengganu.
The following is the Statement of Comprehensive Income of ZLPP for the year ended
31 December 2021
ZLPP
Statement of Comprehensive Income for the year ended 31 December 2021
Notes
Sales
Less: cost of goods sold
Gross profit
Add: Dividend
Other income
Less: operating expenses
Advertising
Water and electricity
Telephone
Staff remuneration
Fees'
Repairs and maintenance
Entertainment
Provision for bad debts
Depreciation
General expenses
Donations
Transportation
Insurance
Net profit
RM
1
2
54,500
56,300
3
18,200
9,500
4,200
270,750
16.000
202.000
112,600
17,200
47,000
14,150
40,000
37,000
24.000
4
5
6
7
8
9
10
11
12
RM
2,800,000
(1.350,000)
1,450,000
110,800
1 ,560,800
(812,600)
748,200
Additional information:
1. Dividends:
Received from Pernas Bhd (net)
Received from Telekom Malaysia Bhd (net)
Received from Multi Computer Bhd (net)
2. Other income:
Interest on fixed deposit
Compensation received from customers due to breach of contract
Rental of house in Ampang
2
RM
16,000
28,000
10,500
54,500
RM
15,900
29,000
14,400
56,300
SECTION 4(b): BUSINESS INCOME
3. Advertising cost of RM4,000 for placing an advertisement in "Home Concept"
magazine for the months of November 2020 up to February 2021 was not recorded.
4. Staff remuneration:
RM
98,500
95,000
18,000
27,700
5,250
22,100
4,200
270,750
Zami’ salary, bonus & EPF
Salary
- Normal employees
- Disable employees
Bonus
- Normal employees
- Disable employees
EPF
- Normal employees
- Disable employees
5. Fees
Legal fees on the recovery of loan to ex-employee of ZLPP
Legal fees on income tax appeal
Cost for renewal of land lease agreement
Approved training fees
Annual fees to Persatuan LandskapTerengganu
6. Repairs and maintenance:
4,000
RM
3,100
6,000
1,000
1,900
16,000
RM
170,000
26,800
5,200
202,000
Renovation of showroom
Repairs on machines
En. Zami’s car repair
7. Entertainment:
Staff annual dinner
Hosting dinner for clients & staff
Leave passage for employees to Bukit Merah
RM
48,600
58,000
6,000
112,600
8. Bad debts and provision for doubtful debts:
Bad debts and provision for doubtful debts
RM
Bad debts written Off
9,500 Specific provision b/d
Specific provision c/d
50,000 General provision b/d
General provision c/d
26,000 Bad debts recovered
Profit and loss
85,500
3
RM
38,700
18,800
10,800
17,200
85,500
SECTION 4(b): BUSINESS INCOME
Off the RM9,500 bad debts written off, RM2,900 was in respect of a loan to En.
Zami’s brother and the balance was a trade debt. Included in bad debts
recovered, RM3,000 is in relation to non trade debt.
9.
General expenses:
Fine paid to customs office
Medical fees for employees
Penalty for late submission of En. Zami’s annual return to IRB
Miscellaneous expenses (it was agreed that 2/3 was for business
purposes)
10.
Donations:
Donation to "Rumah Kebajikan Masyarakat"
(approved under section 44(6))
Donate six computers to Kuala Terengganu Public Library
11.
RM
3,000
6,000
800
4,350
14,150
RM
8,000
32,000
40,000
Transportation:
The transportation expenses included rental of two lorries since November 2020
for the delivery of garden furniture. The amount of rental paid was RM1,250 per
month.
12.
Insurance:
Premium on fire insurance policy for the shop
Life insurance policy of the employees
Life insurance policy of En. Zami’s family members
13.
RM
8,000
12,000
24,000
The balancing charge, balancing allowance and capital allowance for the year of
assessment 2021 were RM5,000, RM3,000 and RM64,300 respectively.
Required:
Compute the statutory business income for En. Zami for the year of assessment 2021.
QUESTION 2
4
SECTION 4(b): BUSINESS INCOME
Encik Kamarul owns a mini market business in Batu Pahat. The following was the
statement of comprehensive income for the year ended 31 July 2021
RM
RM
RM
Sales
365,000
Less: Cost of goods sold
(1)
140.000
Gross profit
225,000
Add: Other income
Dividend (net)
9,500
Rent received
3,000
Gain on disposal of van
2,000
14,500
239,500
Less: Expenses
Salary, bonus and EPF
(2)
71,600
Transportation
(3)
5,850
Water & electricity
(4)
2,700
Insurance
(5)
4,000
Entertainment
(6)
3,500
Fees and donations
(7)
9,700
Depreciation
12,000
Bad debts
(8)
3,000
Tax
(9)
2,100
Repair and maintenance
(10)
2,700
Rent
(11)
9,000
126,150
Net profit
113,350
Notes:
1.
Included in the cost of goods sold was RM8,OOO (at cost) of goods taken by
Encik Kamarul without paying for them. The market value of these goods were
RM9,500.
2.
Salary, bonus and EPF for Encik Kamarul were RM25,OOO, RM4,OOO and
RM3,OOO respectively. The salaries, bonus and EPF for the employees were
RM26,000, RM6,600 and RM7,OOO respectively.
3.
The carriage inwards and outwards were RM1,800 and RM2,200 respectively
while the cost of moving into new house (Encik Kamarul) was RM1,850.
4.
Two thirds (2/3) of the water and electricity expenses was for business use.
5.
Insurance premium on Encik Kamarul’s life was RM1,500, educational insurance
for the children were RM1,OOO while the fire insurance premium on business
premises was RM1 ,500.
5
SECTION 4(b): BUSINESS INCOME
6.
10% of the entertainment expenses was spent to celebrate Hari Raya for the
employees, 20% to celebrate Encik Kamarul’s children birthday parties and the
balance was to entertain the current and potential clients.
7.
The fees and donations consist of trade debts collection fees RM4,900, donations
to the Rumah Anak Yatim (approved) RM4,200, personal overdraft application
fees RM500 and penalty for late payment of income tax RM100.
8.
One half (1/2) of the bad debts written off was related to trade debts while the
other half (1/2) were loans to the employees written off.
9.
The quit rent for the mini market premises was RM900 while Encik Kamarul’s
income tax on business income was RM1,200.
10.
Three quarter (3/4) of the total repairs and maintenance cost was for business
purpose.
11.
The rent was for the three-story shop houses where Encik Kamarul occupied the
top floor while the other two floors were used for operating the mini market
business.
Required:
Compute the statutory business income for Encik Kamarul for basis year 2021
(Commence your calculation from the net profit).
QUESTION 3
6
SECTION 4(b): BUSINESS INCOME
Mr Ong Kah Jun is the sole proprietor of Ong Enterprise, a stationery store, in Kuala
Ibai, Terengganu. The following is Statement of Comprehensive Income for the year
ended 31 December 2021.
RM
Gross sales
RM
RM
298,800
Cost of sales
(194,220)
Gross Profit
104,580
Profit from sale of van
2,000
Gross dividends
1,500
108,080
Less: Expenses
Salary, Bonus and EPF
(a)
46,125
Interest
(b)
2,925
Bad debts
(c)
900
Entertainment
(d)
1,500
Rent
(e)
7,200
Water and Electricity
1,000
Depreciation
(f)
3,000
Taxes
(h)
1,875
Donations
(i)
3,975
Motor Vehicle Expenses
(j)
750
Miscellaneous Expenses
(k)
3,750
(73,000)
Net Profit
35,080
Notes to the accounts:
(a) Salary, bonus and EPF consist of the following:
Salary
Bonus
EPF
RM
RM
RM
Ong Kah Jun
18,000
9,000
2,000
Employees
10,800
1,800
4,525
28,800
10,800
6,525
7
SECTION 4(b): BUSINESS INCOME
(b) Interest is based on loans taken in the previous year at the rate of 9 per cent per
year. RM12,500 loan was taken for the purpose of buying shares and RM20,000
used to purchase assets of the business.
(c) Trade debts written off was RM700, and specific and general provisions for bad
debts of RM300 and RM400 respectively.
(d) Entertainment expenses include RM1,000 Chinese New Year lunch for employees
and RM500 for entertaining potential clients.
(e) Ong Kah Jun rented a double story shop house where his family occupied the
upper floor. The IRB has agreed to allow 60 per cent of the rent as business
expenses.
(f) Depreciation is on fixed assets used in the business. The capital allowances
related to these assets are RM2,400. The balancing charge related to the sale of van
is RM1,100.
(g) Taxes consists of the following:RM
Road tax for van used in the business
400
Income tax of Ong Kah Jun
1,325
Penalty on late submission of income tax return
150
(h) Donations were made to a political party of RM3,000 and Universiti Utara
Malaysia of RM975
(i) It has agreed that 2/3 of the motor vehicle was for business used
(j) Miscellaneous expenses include RM2,000 air ticket to Taiwan for Ong Kah Jun’s
daughter.
8
SECTION 4(b): BUSINESS INCOME
(k) Some supplies costing RM400 were taken out by Ong Kah Jun for personal
consumption. The market value of these supplies was RM500 and it was not
recorded anywhere.
REQUIRED
Determine the statutory income of Ong Kah Jun’s business for the year of
assessment 2021
QUESTION 4
9
SECTION 4(b): BUSINESS INCOME
Sathiya is a sole trader operating a mini market in Kuala Berang since 2014. He
thought that the income tax he has to pay was based on the net profit shown in the
Statement of Comprehensive Income. You, as the tax consultant, are asked to
advise him on his tax chargeability. The following was Sathiya Statement of
Comprehensive Income for the year ending 31 December 2021
Note
RM
Sales
Less: Cost of sales
Opening stock
(+)Purchases
(-) closing stock
Gross Profit
Add: Other Income
Dividend (net)
Interest
Gain on disposal of a car
RM
189,500
26,000
111,500
137,500
(34,500)
(a)
(103,000)
86,500
(b)
(b)
5,000
1,000
10,200
16,200
102,700
Less:
Salaries
Bonus
EPF
Insurance
Advertising
Bad debts & provision for
doubtful debts
Depreciation
Fees and donation
Entertainment
Rental
Water and Electricity
Telephone
Transportation
(c)
(c)
(c)
(d)
31,900
2,525
3,598
1,930
1,500
(e)
940
1,700
3,200
1,500
2,700
1,474
2,700
2,925
(f)
(g)
(h)
(i)
(j)
(k)
(58 592)
44,108
Net Profit
Notes to the accounts:
10
SECTION 4(b): BUSINESS INCOME
(a) Closing stocks has already taken into accounts the stocks taken by En Sathiya for
personal consumption. The costs of the goods was RM3,425 and the market
value was RM3,600.
(b) Dividend and interest were all derived from Malaysia.
(c) En Sathiya is entitled to a salary of RM16,600. Details of the salaries, bonuses
and EPF of the employees were as follows:
Salaries
Bonus (RM)
EPF (RM)
(RM)
Ishak
8,400
1,400
1,756
Yusuff
5,400
750
1,486
Zainab
1,500
375
356
(d) Insurance
Fire insurance for the shop
Insurance for the business van
Son’s educational insurance
(started paying in January)
RM780
RM550
RM50 per month
(e) Bad debts and provision for doubtful debt account:
RM
RM
Bad debts write off
520 Specific provision b/d
220
Specific provision c/d
780 General provision b/d
470
General provision c/d
890 Bad debts recovered
560
_______ Profit and Loss
2,190
2,190
Note: all the debts recorded were trading debts
(f) Fees and donation
RM
Donation to a poor cousin
400
Trade debts collection fees
800
Annual fees for Mini Market Association
500
Personal overdraft application fees
1,500
(g) Entertainment expense:
11
940
SECTION 4(b): BUSINESS INCOME
RM
800
700
Family day gathering for staffs
Entertainment for clients
(h) Rental expenses referred to a double storey shop house where, En Sathiya
occupied the second floor
(i) The portion of water and electricity was shared according to the space occupied
in the shop house
(j) Telephone bill
RM
700
2,000
Personal calls
Business call
(k) Included in the transportation costs were the cost of holiday passage to Thailand
given to Encik Yusoff, being the best employee of the year. The cost was
RM1,000. En Sathiya attended a seminar on IT in Singapore which related to his
personal development and the traveling cost amounted to RM1,125. The balance
was referred to transportation cost for delivering of goods to customers.
(l) For the year of assessment 2021, the capital allowances claimed amounted to
RM3,600
(m) All the advertising expenses was spent for the business.
Required:
Compute the adjusted and statutory business income for Encik Sathiya for the year
of assessment 2021 (compute to the nearest RM)
QUESTION 5
12
SECTION 4(b): BUSINESS INCOME
OMARHANA Enterprise is a sole proprietorship business of Omar, which deals in retailing
electronic products. Below is the Profit or Loss Account of OMARHANA Enterprise for
the year ending 30 June 2021.
Note
RM
RM
Sales
2,100,000
Less: Cost of foods sold
1
1,470,000
Gross Profit
630,000
Add.
Recovery from insurance
Dividend income (net)
2
3
30,00
10,800
Less:
Payroll
Rental Expense
4
5
243,000
36,000
6
7
8
10,000
12,000
50,000
25,000
40,000
6,000
3,000
20,000
30,000
6,000
Entertainment
Interest
Repairs & Renovations
Depreciation
Utilities
Bad & Doubtful Debts
Fines & Penalties
Donations
General Operating Expenses
Provision For Tax
Net Profit
9
10
11
12
13
14
40,800
670,800
481,000
189,800
Notes:
1.
In March 2021, Omar took a TV set without paying, for the use of his family.
The cost of the TV set was RM2,000, which was included in the cost of goods
sold. The selling price was RM2,500.
2.
In November, due to floods, some equipment and electronic goods were
damaged. Omar made a claim and was paid compensation by an insurance
company, the amount being as follows:
RM
Compensation for the damaged electronic goods
20,000
Compensation for the damaged equipment (fixed assets)
10,000
3.
The dividends were received in April 2021 from Malaysian resident companies.
4.
Payroll expenses are as follows:
RM
13
SECTION 4(b): BUSINESS INCOME
Salaries (Omar)
Salaries (sales & technical employees)
Bonus (for all employees)
EPF Contribution (for all employees)
60,000
110,500
30,000
30,500
Each employee was paid bonus equivalent to three months of his/her
remuneration. EPF contributions amounted to 20% of each respective
employee's remuneration.
5.
The rental expense was for a two storey- shophouse. The ground floor was used
by OMARHANA Enterprise, while the first floor was occupied by Omar's family. It
was agreed that only 60% of the expenses were attributable to OMARHANA
Enterprise.
6.
Entertainment expenses are as follows:
RM
Lunch %& dinner for employees
Drinks for customers
Dinner for business associates
3,000
2,000
5,000
7.
Interest of RM12,000 was on a RM100,000 bank loan from Mmaybank Bhd.
Omar used RM60,000 of the loan to buy shares, while the balance of RM40,000
was used as working capital for OMARHANA Enterprise.
8.
Repairs and Renovation are as follows:
Minor repairs to equipment
RM5,000
Renovations to showroom
45,000
9.
The expenses for utilities were for water, electricity, quit rent and assessment for
the shop house. It was agreed that 30% of these expenses be attributed to
private and domestic purposes.
10.
Bad Debts are as follows:
Provision for doubtful debts- specific
Provision for doubtful debts - general
Trade debts written off
Loan to an employee written off
11.
Fines & Penalties were for not displaying price tags.
12.
Donations were given to:
14
RM
2,000
1,000
500
2,500
SECTION 4(b): BUSINESS INCOME
RM
12,000
8,000
Government General Hospital
Electronic Dealers Association
13.
All general operating expenses were for the purpose of the business.
14.
Provision for tax was for Arshard's personal income tax for the year of
assessment 2019.
Required:
Based on the given information, compute the Adjusted Income of OMARHANA Enterprise
for the year of assessment 2021. Commence your computation with the Net Profit.
QUESTION 6
Encik Nasa owns a Mini Market in Pahang. The following is the Profit or Loss Account for
the basis year 2021
Profit or Loss Account
For the Year Ended 31 December 2021
RM
Sales
Less:
Cost of Goods Sold
Opening Stock
Add: Purchases
(1)
104,000
446,000
550,000
(5,000)
545,000
(138,500)
Income from other sources
Dividend (net)
Rent received
Gain on disposal of fixed asset
(13)
(13)
(14)
10,000
1,850
1,200
Expenses
Salary
Bonus
EPF
Transportation
Water and Electricity
Rent
Insurance
(2)
(2)
(2)
(3)
(4)
(5)
(6)
62,600
6,250
2,754
5,850
2,950
10,800
3,860
Less: Returns outward
Less: Closing stock
Gross Profit
Add:
Less:
15
RM
758,000
(406,500)
351,500
13,050
364,550
SECTION 4(b): BUSINESS INCOME
Entertainment expenses
Fees and donations
Advertising
Depreciation
Bad Debts
Tax
Medical expenses
Repairs and maintenance of motor vehicle
Net Profit
(7)
(8)
(9)
(10)
(11)
(12)
3,000
12,800
6,050
6,750
2,500
2,400
3,500
2,700
134,764
229,786
Notes:
1.
Included in the cost of goods sold figure was RM6,850 (at cost) of supplies taken
by Nasa’s wife without paying for them. The market value of these goods was
RM7,200.
2.
Salaries, bonuses and EPF:
Encik
Encik
Encik
Encik
3.
Nasa
Ramlan
Ridhuan
Haris
Salary
(RM)
32,000
16,800
10,800
3,000
62,600
Bonus
(RM)
4,000
1,500
750
6,250
Transportation expenses :
Transporting supplies to and from the Mini Market
Private moving expenses
4.
EPF
(RM)
1,512
972
270
2,754
RM
4,550
1,300
Water and electricity:
RM
2,000
950
For Encik Nasa’s business
For Encik Nasa’s residence
5.
Rent:
The rent paid included RM3,600 which was rent paid for Encin Nasa’s own
residence.
6.
Insurance:
Insurance premium on Encik Nasa’s life
Fire insurance premium on Encik Nasa’s residence
Fire insurance premium on business premises
7.
Entertainment:
16
RM
800
920
2,140
SECTION 4(b): BUSINESS INCOME
RM
Hari Raya treat for the employees
Encik Nasa’s birthday party expenses
8.
2,000
1,000
Fees and donations
RM
Trade debts collection fees
Mini Market Association fees
Donations to government
Donations to Mini Market Association
Personal overdraft application fees and interest
9.
5,700
600
2,500
1,000
3,000
Bad debts
RM
Trade debts written off
Loan to a friend
Loan to Ramlan (employee) written off
10.
1,550
500
450
Tax
RM
Quit rent – business premises
Property tax – business premises
Encik Nasa’s income tax – on business income
300
600
1,500
11.
Medical expenses included treatment for Encik Nasa’s wife RM1,600
12.
Repairs and maintenance
RM
Cost of fuel and repair of motor vehicle. 1/3 of the total
cost is for private use
Cost of fuel and maintenance of a van that was used for
delivering goods
13.
1,050
1,650
Dividend and rental income were derived from Malaysia
14.
This gain was from the disposal of Encik Nasa’s car which had a book value of
RM13,500. The car was purchased on 30 April 2021 at the cost of RM18,000.
15.
Business adjusted losses carried forward from the basis year 2019 is RM16,600
16.
Total capital allowance for the year of assessment 2019 is RM9,500.
Required:
Determine Encik Nasa’s statutory income from business and also his total income for
year of assessment 2021
QUESTION 7
17
SECTION 4(b): BUSINESS INCOME
Hakim commenced business on 1 April 2012 as a sole-proprietorship. The net profit of
RM43,260 was extracted from the profit and loss account for the year ended 31 March
2021, after charging and crediting the following items: (extracted)
Credit side (Revenues)
RM
(1)
Sales
350,000
(2)
Commission
2,560
(3)
Dividends (Net)
8,320
Debit side Expenditures)
(4)
Salary
43,200
Bonus
17,800
EPF contribution
12,290
(5)
Traveling expenses
6,750
(6)
Water and electricity
1,756
(7)
Telephone bill
3,675
(8)
Insurance
2,432
(9)
Entertainment
6,543
(10)
Bad debts
2,818
(11)
Fees
2,160
(12)
Donation
4,427
(13)
Depreciation
9,200
(14)
Tax
3,750
(15)
Sundry expenses
7,542
Additional Information:
1. Sales did not include RM5,560 for goods drawn by Hakim. Cost of goods was
RM5,050 and was recorded in the accounts.
2. The commission was not received until 31 May 2021
3. Dividends were from:
5 November 2019
10 January 2019
15 February 2019
Nur Bhd (Malaysian resident company)
Ambo Ltd
ASM (Pioneer status company)
4. Salary, Bonus and EPF contribution:
Salary
RM
Hakim
24,000
Budin (employee)
12,000
Adam (employee)
7,200
43,200
5. Traveling expenses:
Bonus
RM
10,000
6,000
1,800
17,800
EPF
RM
6,800
3,600
1,890
12,290
RM
18
RM
2,765(gross)
1,037
4,518
SECTION 4(b): BUSINESS INCOME
Carriage inwards
4,550
Hakim’s holiday to Langkawi
2,200
6. Water and electricity: Including two-third (2/3) for private use
7. Telephone bill:
Charges related to his wife’s business
Hakim’s business
RM1,500
RM2,175
8. Insurance:
Premium paid on life of Hakim
RM950
Premium on fire insurance for shop premises
Premium paid on life of Hakim’s wife
9. Entertainment:
Annual anniversary for Hakim’s wedding
Special gift to regular customer
RM508
RM 974
RM
2,000
1,143
Hari Raya gathering for staff
1,500
Free 2019 diary with the business logo
10. Bad debts:
Loan to ex-worker
General provision for Bad Debts
1,900
2,000
Debts to client written off
Bad debt recovered from Sundry debtor
11. Fees:
Fees to Golf Club
Fees to a political party
1,200
250
(632)
1,350
250
Entrance fees to business association
12. Donation:
19
560
SECTION 4(b): BUSINESS INCOME
Donation to Hospital USM (approved)
650
Donation to Public Library
Donation to Political party
Business zakat
1,655
1,500
622
13. Depreciation on the following assets used in business:
Depreciation (RM)
Cap. Allowance
(RM)
Furniture
2,200
2,000
Motor vehicle
4,500
4,700
Refrigerator
1,500
2,300
Other equipments
1,000
14. Tax:
Hakim’s business tax
Quit rent for business premises
250
3,500
15. Sundry Expenses included medical expenses RM320 for Adam (employee) who
was handicapped and for Hakim’s wife RM265.
Required:
Determine Hakim’s Income from business and also his total income for the year of
assessment 2021. (Start your answer with Net Profit of RM43,260)
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SECTION 4(b): BUSINESS INCOME
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SECTION 4(b): BUSINESS INCOME
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SECTION 4(b): BUSINESS INCOME
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SECTION 4(b): BUSINESS INCOME
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