Year / 2006

by Edgar

Stock Grant vs Stock Option

What is stock grant?
Company buys shares from open market and gives them to its staff according to an incentive programme.

What is stock option?
A company issues papers to its employees giving them the right to subscribe to shares of the company at a pre-determined price (usually below current market price) after a certain vesting period.

Similarities
Both forms of incentive plan enable the company to motivate employees to achieve superior performance as well as to align the interests of employees and shareholders’.
Both costs of incentive plan have to be expensed off against profit.

Differences
Expenses incurred to do stock grant is tax deductible as per cash compensation to employees. Stock option expenses are NOT tax deductible.
Determination of cost for stock grant is more definitive. There has been constant debate over the valuation of stock options.

Conclusion
SIA, SembCorp Industries, SMRT and StarHub, are recent adopters that have awarded employees with stock grants for the first time this year.

More expected to follow forth.

by Edgar

Hong Kong drops sales tax

What is proposed?
5% sales tax that would raise HKD3.8bio per annum.

Why the drop?
Politically inconvenience. Sadly it reflects very poor planning.

What is the current budget situation in HK?
1. About 1/3 of income earners pay tax. Very narrow tax base.
2. They have been living admist budget deficits.

I wonder how have they been funding their budgets year in year out.
More land sales? How much more land you can sell?
More Disneylands? Oops.. that is certainly a costly exercise.

Any alternatives?

  • More “sin” taxes ie. on cigarettes and liquors. Maybe it is a good outcome afterall.
  • Capital gains tax – very painful for Hong Kongers as “buying and selling” is a favourite past time activity there.
  • More taxes on car – another possible good outcome of no sales tax – it would help with the smog.

I hope Hong Kongers will take action to avoid borrowing from the future generations and spend today.

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by Edgar

AirAsia may have to restate earnings?

Issue
In early Nov 2006, AirAsia, the Malaysian budget airline, have indicated that it may have to restate its earnings for its fiscal year ended June 2006. This is a result of difference in interpretation of a certain accounting policy. The dispute would translate to RM40mio swing in profit.

What is the accounting policy under dispute?

The focus is on FRS 112 under the Malaysian standard.

AirAsia has maintained their position that the International Financial Reporting Standard (IFRS) allows it to recognise unused investment tax allowances as deductible temporary differences.

It argued that its accounts for year ended 30 Jun 2006 will not present a true and fair view of the company’s financial performance if it were to comply strictly with FRS 112 under the Malaysian standard.

Malaysia’s Securities Commission (SC) had asked AirAsia to restate its accounts.

The Malaysian Accounting Standards Board (MASB) confirmed recently that FRS 112 was not a new standard, and that it is also consistent with the international standard.

Bottomline
AirAsia’s accounts could be qualified. The profit definition difference would have no impact on its financial position as the accounting treatment is non-cash in nature.

Anybody got any update on this case?

by Edgar

GST – It is unfair to me.


Goods and Services Tax (GST) is a pay-as-you-consume tax.

So if I were to buy anything ie. anything until the day I die and buried, part of my cash is actually going to the government coffer.

Even if I were to buy from a non-GST registered retailers, he/she would charge a price that would cover the costs of its raw materials etc etc. As most of what we consumed are imported, GST is levied on these imports as they leave the ports.

All my expenses during my retirement will be funded by savings I am accumulating since I started work. These savings are derived from after-income-tax income.

Tax and tax on the same income?

Illustration
Let say my income tax bracket is 10% and GST is 7%. I assume I spend every cent of my disposable income after tax. Let’s say, my annual income is $100,000.

$90,000 would be my after-income-tax income. 7% of $90,000 is $6,300.

I would have paid $16,300 in taxes for $100,000 income ie. 16.3%.

While this illustration is taking to the extreme, it serves to illustrate the importance of looking at your total tax burden over time.

I was looking forward to my retirement. But now I have to work harder as I have to protect my savings against normal inflation rate + a factor of GST.

So it now look that I will pay GST until all my funeral expenses are paid from my estate.

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by Edgar

Bodyguard expenses not tax deductible

What is the issue?
A company seeks the High Court’s decision to allow the expenses for the body guards for a director as tax-deductible expenses.

Decision – The High Court ruled that the expenses are not tax-deductible.

On what ground?
The costs of hiring the bodyguard in this case are ruled not wholly and exclusively incurred in the production of income. [Mr Goh Sher Wee’s voice on this line echoes in my empty head.] The company concerned is in the business of exhibiting motion pictures.

How much monies involved?
About $70,000 costs of body guards per annum. So at 20% corporate tax for example, that would translate to $14,000 in tax deductibles per annum. If the expenses were incurred back in 1970s till 2006, the amount involved would be substantial.

What defence has the appellant’s counsel presented?

  • In 1972, there was a kidnap attempt. 4 men with guns. Shot the director in the arm. Director managed to escape.
  • CID recommended that the director be given the necessary protection.

Information I don’t know

  • When were the expenses incurred?
  • What has a 1972’s incident got to do with 2006?
  • What was the motive for attempted kidnap? Was it business-related?

Even if the director is a key man to the company, the company cannot be incurring expenses for director’s personal matters.

In my opinion, there maybe some grounds for appeal if one can prove that the kidnap attempt was a consequence of the director’s action in effecting his duties for the company. The company would then be obliged to act responsibly in return.

Similarly, the President of USA is well protected at the expense of the nation and certain banks may pay for the insurance of credit card debt collection employees.

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by Edgar

ACRA goes XBRL

Wef 1 April 2007, ACRA will require companies and local branches of foreign companies to file their financial statements in XBRL format via Bizfile.

To know more, sign up for “Public Awareness Seminar” and learn how to prepare and file financial statements in XBRL format.

Seminar will be held at Supreme Court Auditorium on Thursday, 30 November 2006 at 8.30 am to 12.30 noon. The eflyer says $12 (I think).

I would love to go and learn but alas I will not be in town. So to whoever intends to attend, pls share with us. Go to http://www.acra.gov.sg for more info.

Do a bit of national service for ACRA la..

by Edgar

N Khan says…

“Dear Mr. Wong,

My name is Nus and I am one of your I.IJ (revision class) student. I am a student of Singapore Accountancy Academy as well but this is the first time I am joining your class. I have already attended the first lesson and I think you have a brilliant approach to make everybody learn the concept and actually “apply” it in examination question.

You said in class, you send reading materials and assignments through the e-mails, and I would be very glad if you send me some materials as well.

I am very determine to pass this coming 1.1 exam and I believe your help will lead me to reach my destination.

Thank You So Much for taking your time to read this.”

Your Student,
Ms Khan, May 2006 Revision Class

P/S On 15 Sep 2006, she did passed.

by Edgar

J Liew says…

“I have just completed paper 1.1 in the recent June 2005 exams.

The months of hard work have paid off and I would like to express my appreciation to Mr Edgar Wong for his unwavering commitment, patience and guidance. He has definitely helped his students cope with the subject at a more comfortable pace.”

J Liew, Sep 2005
by Edgar

Serene says…

“By the way, I must say that you teach really well, whereby you’ll put yourself in students’ shoes and explain. As I had taken accounts back in Secondary and Poly days (lecturer seems to be teaching himself or maybe he could not explain clearly).

I didn’t actually learn through so much understanding. I’ve only memorised to pass this far. As a matter of fact, I hated accounts in secondary days. I know I can’t play a fool with ACCA now. Have to work triplely hard.”

Serene, Sep 2005
by Edgar

Helena says…

“You are excellent lecturer. Your lecturing is very interesting.


I never felt boring or tired when attending your lecture after work. Besides you are very responsible lecturer who really cares about the improvement of the students.”

Helena, Sep 2005