Assume the date is 25 January 2024. You work for a firm of ICAEW Chartered Accountants....

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Assume the date is 25 January 2024. You work for a firm of ICAEW Chartered Accountants. Yesterday, your manager met with the chief financial officer (CFO) of the Red Lion Sdn. Bhd. (RLSB). Extracts of the record of the meeting and from an email from your manager are set out below. RLSB is a family owned company whose shareholders are all tax residents of Malaysia. The firm has been selling pharmaceutical items for the last three years and has just started to become profitable in the financial year ended 31 December 2023. Extract of note during the meeting with the CFO: RLSB is determining the best method to raise the extra RM 1 million required to purchase new equipment (general plant). For taxation purposes, RLSB is currently categorised as a small and medium business (SME). The financial statements of RLSB for the year ended 31 December 2023 indicate the following: paid-up share capital of RM2 million; bank borrowings of RM4 million at 6% interest per annum which give rise to annual interest expense of RM240,000 and retained earnings of RM1 million; All borrowed funds were put to use in the company. To eliminate the interest expense, RLSB is considering offering a rights issue to its shareholders to raise an additional RM5 million in the financial year ended 31 December 2024. The amount raised from right issue will be used to fully repay the bank borrowings and also to acquire 500 units of new equipment from an overseas supplier. The new equipment costs RM1,950 per unit and will be used in inventory management. The overseas supplier will also provide some technical advice to RLSB on how to operate the equipment. RLSB forecasts a net profit (before interest expense and tax) of RM3 million for the year ended 31 December 2024. It proposes to distribute an annual dividend of 6% in each of the next three years. The CFO wants to know the tax treatment of the expenditure incurred in connection with the rights issue, payments to the overseas supplier for the equipment and technical advice and the impact on RLSB's SME status for tax purposes. Assume the date is 25 January 2024. You work for a firm of ICAEW Chartered Accountants. Yesterday, your manager met with the chief financial officer (CFO) of the Red Lion Sdn. Bhd. (RLSB). Extracts of the record of the meeting and from an email from your manager are set out below. RLSB is a family owned company whose shareholders are all tax residents of Malaysia. The firm has been selling pharmaceutical items for the last three years and has just started to become profitable in the financial year ended 31 December 2023. Extract of note during the meeting with the CFO: RLSB is determining the best method to raise the extra RM 1 million required to purchase new equipment (general plant). For taxation purposes, RLSB is currently categorised as a small and medium business (SME). The financial statements of RLSB for the year ended 31 December 2023 indicate the following: paid-up share capital of RM2 million; bank borrowings of RM4 million at 6% interest per annum which give rise to annual interest expense of RM240,000 and retained earnings of RM1 million; All borrowed funds were put to use in the company. To eliminate the interest expense, RLSB is considering offering a rights issue to its shareholders to raise an additional RM5 million in the financial year ended 31 December 2024. The amount raised from right issue will be used to fully repay the bank borrowings and also to acquire 500 units of new equipment from an overseas supplier. The new equipment costs RM1,950 per unit and will be used in inventory management. The overseas supplier will also provide some technical advice to RLSB on how to operate the equipment. RLSB forecasts a net profit (before interest expense and tax) of RM3 million for the year ended 31 December 2024. It proposes to distribute an annual dividend of 6% in each of the next three years. The CFO wants to know the tax treatment of the expenditure incurred in connection with the rights issue, payments to the overseas supplier for the equipment and technical advice and the impact on RLSB's SME status for tax purposes.

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