Taxation II
Tutorial 8
Industrial Building Allowance
ANSWER SCHEME
Question 1
Ali Sdn Bhd in its accounting year ended 31 October 2013 constructed a building for use in
manufacturing machineries. The land was purchased at a price of RM1,000,000 during the year
ended 31 October 2010. The building was completed in May 2013. The costs of construction
were:
RM
Land premium (before 31 December 2010) 1,000,000
Architect’s fee (December 2011) 50,000
Foundation preparation (January 2012) 80,000
Building cost (before May 2013) 3,900,000
Loans interest (before May 2013) 120,000
Cost of lifts 200,000
Cost alteration and levelling the lifts 600,000
Total cost 5,950,000
The interest of RM120,000 was paid on following loans: RM
(a) Loan of RM600,000 borrowed in 2010 to finance the 50,000
land cost
(b) Loan of RM840,000 borrowed in the year to finance 70,000
the cost of construction
120,000
After the completion of construction, the company will had an outstanding loan of RM1,000,000
and interest of RM20,000 was paid on this loan during the period from May 2013 to October 2013.
The building was completed on 1 May 2013 and used as a factory for manufacturing purposes.
The company divide the building into the following function:
10 % as general office
5% as showroom
5% as design office
10% as canteen for workers
70% as work place for manufacturing
You are required to find the industrial building allowance for Year of assessment 2013.
Answer:
Qualifying Building Expenditure
RM
Architect’s fee 50,000
Foundation preparation 80,000
Building cost 3,900,000
Loans interest (interest on construction loan) 70,000
Cost of lifts 200,000
Cost alteration and levelling the lifts 600,000
QBE 4,900,000
*lift qualified as QBE because cost of alteration and levelling lift is 75% more than the aggregate
cost (cost of lift + cost of alteration lifts).
Multiuse building (more than 10% use for other purpose)
10 % as general office X
5% as showroom X
5% as design office √
10% as canteen for workers √
70% as work place for manufacturing √
Hence, only 85% of the area qualified to be industrial building area.
Year 2013:
QBE = RM4,900,000 x 85% = RM4,165,000
RM
Initial allowance (10%) 416,500
Annual allowance (3%) 124,950
Total allowance 2013 541,450
Question 2
Monika Sdn Bhd manufacture noodles (accounts ending on 31 December) purchased a factory
building on 15.1.2017 for RM950,000. The company could not submit the cost of land and building
separately since both of the costs are not specified in the sale and purchase agreement. The
company wanted to claim IBA on the factory building of RM978,500 which includes legal fees
relating to the cost of building and land totalling RM28,500 commencing from YA 2017.
The purchase price that can be taken into account as QBE is the cost of building and legal fees
relating to the cost of building only, the cost of land and legal fees relating to the cost of land is
excluded. The professional valuer had determined the costs of land and building as follows:
Cost of land RM500,000
Cost of building RM450,000
Purchase price RM950,000
Required: Calculate the QBE for the year of assessment.
Answer:
Legal fees:
Land – (RM500,000 / RM950,000 X RM28,500) = RM15,000
Building – (RM450,000 / RM950,000 X RM28,500) = RM13,500
QBE = RM450,000 + RM13,500 = RM463,500
Question 3
Bionik Adli Sdn Bhd manufacture high plastic material has incurred capital expenditure for the
installation of a new vacuum emulsifier machine in the factory. The function of this machine is to
produce a product in liquid form. The expenditure incurred is as follows:
Cost of the machine RM40,000
Cost of preparing site for installation RM121,000
Required: Calculate the QBE for the year of assessment
Answer:
Cost of the machine RM40,000
Cost of preparing site for installation RM121,000
Aggregate cost RM161,000
75% x RM161,000 = RM120,750
Cost of preparing > 75% of AC
QBE = RM161,000
