Question $2$

ABC group comprises Ace Sdn Bhd$,$ the holding company, and two wholly owned subsidiaries.

At three companies make up their accounts annualy to $31$ December. They run a profitable

business as follows:

After forming a company, they have decided as below:

Mode of financing the fred asset acquisitions

To acquire a new plant and machinery of RM$5$ millon using the following alternative methods.

$(1)$ Acquisition financed by hire purchase. This would require MAS Sdn Bhd to pay

the bank an inibial payment of RMSC$0\mathrm{.}000$ followed by $60$ montly payments of

RuM$110,000$ over a period of five years.

$(2)$ Leasing arrangement under which MAS Sdn Bhd will be required to pay a

monthly amount of RM$140,000$ for five years.

$(3)$ Acquired the plart and machinery using a cash loan.

The financial controller has been informed that each monthly installment under hire purchase

includes RMB$0,000$ regarding the capital cost of the assets and RM$40,000$ regarding the

bank's interest. The rate of annual allowances is $20\%.$ MAS Sdn Bhd will make new

acquisitions from the begirning of its financial year.

Baising capital of RM$100$ million

The group wants to expand and estimates that the expansion will require about RM$100$ million

of addrional capital. The group also intends to lst on the lursa Saham Malaysia and to carry

out an initial public offering $($ IPO $)$ in three years" time.

An explanation of the tax implications of raising capital by way of:

$(1)$ A loan to be taken from a commercial bark by each user.

$(2)$ Loans from shareholders who are also directors.

$(3)$ Additional equity from existing shaneholder.

Required:

$($a$)$ Tabulate the income tax treatment of the above acquisition. For each of the alternative

methods above explain:

$($i$)$ Qualifying plant and expenditure

$($ii$)$ Eligibality for enpital allowance

$($iii$)$ Tax deduction in arriving at the adjusted income

$(15$ marks$)$

$($b$)$ Briefly explain the tax treatment of the incidental expenses of raising the capital, the

interest expense on the amount borrowed, and the potential control over the interest rate

applicable.