Month / December 2008

by Edgar

Capture Theory

roaring biz

I am required to explain Capture Theory in my coming 3rd year class on Accounting Theory. The theory is used to explain the necessity of regulation in the disclosure of accounting information and the dynamics between the Regulator and the regulated.

What is Capture Theory?
The regulated party seeks to take charge (capture) of the Regulator with the intention that the rules subsequently released by Regulator will be in favour of the regulated party.

In more human language, I would paraphrase by saying, “Those people you are out to control in the first place, actually taken control of you.”

Can Edgar relate the Theory to some real life applications in Singapore context?
National Wage Council is a tripartite entity made up of the employers, the union representatives and the Government. A tripartite entity would ensure nobody get “captured”.

Under Code of Corporate Governance, the Board of Directors are required to be represented by independent directors too. Whether the independent directors are “captured” by directors who are in executive positions/representing majority shareholders are less clear and it varies from company to company.

In the recent ACCA conference, there was a rallying call from a leading accounting professional from Malaysia to fellow professionals and interest groups in this region, to speak up and participate actively in the IFRS standard-setting process. I guess this is ensure that IFRS put into law are not “captured”.

by Edgar

Your IR8A

The Inland Revenue Authority of Singapore (IRAS) encourages all employers to join the Auto-Inclusion Scheme for Employment Income. It is a scheme where employers submit their employees’ income information to IRAS electronically.

The employment income information will be shown on the employees’ electronic tax return and automatically included in their income tax assessments.

Well if things go according to plan as above, all parties involved ie. employer, employee, IRAS and the mother Earth will be all happy.

But what happen when there has been an error or omission in the employer’s submission?

For any omission/error in the Form IR8A, the penalties for any tax understated are imposed on the employer for a failure to report.

However, penalties may also be separately imposed on the employee for failure to report in his personal tax return. You can’t argue with IRAS that the mistake was committed by your employer.

Remember you are the person who finally submit the return!

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by Edgar

The End of Double Entry?

the start of Bintan golf

I am reading a couple of textbooks at the same time for the new term of 2009. I wish with you these few interesting paragraphs challenging the existence of the double-entry system.

The books that I am reading credited the first organised written thought on double entry system to this Franciscan monk called Luca Pacioli and his now famous work called “Summa de Arithmetica, Geometrica, Proportioni et Proportionalita” published in Venice back in 1494. It is simply a system of debits and credits, where the debits going to the left and credits going to the right. It is a system of subtraction-by-opposition ie. put on the opposite side if you want to minus.

Then a clever chap (possibly someone who cannot handle double entry) asked, “Why can’t we use positive and negative numbers instead of T-accounts?”

So if you want to pay salary, you just add to Salary expenses and minus the same amount from the Cash/Bank.

FYI – negative numbers were only accepted in the mathematics world in 17th century while double entry has been around since 13th/14th century.

In the 21st century’s classes of Edgar, both systems are used in our learning programmes.

P/S – http://accountingwithedgar.blogspot.com/2007/09/origin-of-debit-credit.html

by Edgar

Gold farmers?


Who are they?
Players who repetitiously slay virtual monsters in online games in order to earn virtual “gold” and “equipment”. Such winnings could be sold for real money offline.

Some of them could do so well at this that they are able to hire “employees” to run errands such as buying lunches/drinks and collecting money from buyers from all over Singapore.

Are the taxman interested in the income?
Definitely yes. Korea National Tax Service taxes these farmers up to 40% on their profits. China authority arrived in Oct 2007. Singapore’s IRAS said such income is definitely taxable.

But I wonder who in Singapore with this vocation has actually declared and paid taxes on their income? If you had, please share with the details.

Why is it taxable?
Under Tax 101, we learned the “badges of trade”. Of the six badges, these two would nail the farmers ie.

  • frequency or number of similar transactions by an individual
  • the essence of a profit seeking motive

Now I got to go check on my children playing on their computer games!!

Source – yesterday’s ST pp 2

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by Edgar

What is a business’ commencement date?


I am duly notified today that IRAS has issued a directive in an attempt to define a business’ commencement date.

What is the definition of the business’ commencement date?
It is only when the business has established its profit-making structure and started its
first commercial activity that it can be regarded as having commenced operation.

What is profit-making structure?
No specific definition. It depends on the nature of the business. IRAS has however provided several examples in the directive.

If you were runnning a supermarket, it commences business when it opens its door and offers its goods for sale to the public. It is definitely not the date of opening ceremony.

For a manufacturing entity, it is the date the entity is in a position to start its first commercial production.

The start date for a hotel is simpler. It is the day it receives the certificate of registration.

A property developer seems to be getting a rough deal. The business commences when it buys its first piece of land or building for sale.

For a set up to provide professional service, it is deemed to have started business when it is ready to commence marketing activities. So if you are still in the midst of hiring staff and putting your office together, you have not started your business yet.

In case of doubt, you can always write in to IRAS for assistance.

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