Year / 2008

by Edgar

Sec 10(2)(c) Place of Residence provided by the Employer

This is an undoubtedly a taxable benefit. The only doubt here is how to compute the quantum of taxable benefit.

Benefit is applicable to employees. Not applicable to directors who are employees too.

What is the Rule?
The taxable value of the accommodation is the lower of:-

  • 10% of the gains or profits from employment LESS any rent paid by the employee; OR;
  • the annual value of the premises.

Illustration

Annual value – $38,000

Rent paid by employee – $700 x 12 months = $8,400

Remuneration from employment – $150,000

Which of the following presentation is correct?

Option A

Lower of:-

  • (10% x $150,000) = $15,000 or
  • $38,000

The lower amount being $15,000 ==> taxable benefit would be $15,000 less $8,400 = $6,600.

Option B

Lower of:-

  • (10% x $150,000) less $8,400 = $6,600 OR;
  • $38,000

Thus the taxable benefit would be $6,600.

Which do you think is the correct presentation though both give you the same answer?

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by Edgar

FRS 7 Cash Flow Statements – Summary

FRS 7 prescribes the principles in preparing cash flow statements.

The standard requires the provision of information about historical changes in cash and cash equivalents of a company by means of a cash flow statement that classifies cash flows during the period by operating, investing and financing activities.

Operating activities are the principal revenue-producing activities of the enterprise. Cash flows from operating activities are disclosed either using the:-

a) direct method (disclosure of major categories of gross cash receipts and payments); or

b) indirect method (profit or loss for the period is adjusted for non cash items (such as depreciation, foreign exchange losses etc.) and income or expense related items related to investing and financing activities to determine the operating cash flows.

Investing activities are those expenditures incurred with an intention to generate future income and cash flows.

Financing activities are those expenditures incurred that result in changes in the size and composition of the contributed equity and borrowings of the entity.

“Do you know the definition of “cash and cash equivalents”? Can you name some examples of cash equivalents?”, ask Edgar.

Source – ICPAS ePublication 22 November 2005 Issue 11/2005

by Edgar

GST on Donation

In BT dated June 4, 2008, Wong Sze Teen and Yeo Kai Eng also discusses the implication of GST on donations.

What is the Rule?
Generally, no GST on CASH donations if the amount involved is small and no tangible benefits granted to Donor.

But when Donors are entitled to some form of benefits ie. chance of a lucky draw to win a trip to Timbuktu, technically speaking such donations attract GST.

IRAS Concessionary Exemption is granted to certain benefits if:-
– the benefit is given as part of acknowledging the donation made and;
– the benefit has no resale value.

Thus certain acts by the Recipients, which are technically speaking, benefits to the Donors, are exempted. Eg. Donors could be invited to and honoured at a Gala Dinner held in conjuction to the Charity.

What if your GST-registered business gave a donation in kind?
Donor has to account for output GST on deemed supply except if:-
– less than $200 and;
– is not part of a series of gifts.

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by Edgar

The GST trap of Sponsorship, Grant and Donation

such beautiful mature bamboo

In BT today, Wong Sze Teen and Yeo Kai Eng, GST experts from Ernst & Young, wrote an article on the implication of GST on sponsorship, government grants and donation.

I will cover issues on sponsorship and grants first.

Situation
Company X gives $1,000,000 to Company Y as sponsorship for a certain event that Company B is organising. Assuming both are GST-registered.

What is the Rule?
IRAS said sponsorship will not attract GST if company X:-
– did it voluntarily without any obligation and;
– did not receive any tangible benefits in return.

Failing which, company Y would have to issue a GST-tax invoice to company X.

For what amount should the invoice be issued on?
Answer – It depends on the market value of the benefits company Y would have to give to company X.

If market value of benefits < $1,000,000 eg. $800,000, company Y would have to issue an invoice for $800,000 inclusive of GST. Thus company Y would have to account for output GST of $52,236.45 to IRAS. Company X could then account for input GST of the same amount.

Any difficulty?
Firstly, when is a benefit given is considered a benefit given?
Secondly, company Y would have to determine the market value the benefits granted.

Government Grants
Generally and simply said – Attracts no GST to both the Giver and Recipient.

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by Edgar

FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Summary

The objective of FRS 8 is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors.

Changes in accounting policies
An entity should change its accounting policies only if the change is required by the Standards or the change results in a more relevant and reliable information about the entities financial position. Any changes in accounting policies shall be accounted for in accordance with the specific transitional provisions of the Standards. If there are no specific transitional provisions, the change in accounting policies shall be done retrospectively as though the new accounting policy had always been applied.

Changes in accounting estimates
Changes in accounting estimates should be recognised prospectively in the profit and loss account either in the period of the change only or the period of change and future periods, if the changes affect both. Any corresponding changes in assets, liabilities or equity are recognised by making adjustments to the carrying amount of the assets, liabilities or equity in the period of change.

Errors
Material errors in financial statements that are discovered in subsequent periods must be adjusted retrospectively in the first set of financial statements authorized for issue after their discovery. The comparative amounts for prior period are either restated or if the error occurred before the earliest prior period presented, the opening balances of the assets, liabilities and equity for the earliest prior period are restated.

FRS 8 specifies that in instances where it is impracticable to do a retrospective adjustment for change in accounting policy, the entity should restate the comparative information prospectively from the earliest date practicable.

FRS 8 also specifies the disclosures required of changes in accounting policies, accounting estimates and errors.

What is prior period errors? When did an error occur?

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:-

  • was available when financial statements for those periods were authorised for issue; and

  • could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Source – ICPAS ePublication 29 Nov 2005 Issue 12/2005

by Edgar

FRS 2 Inventories – Summary

Objective
FRS 2 provides guidance on the determination of cost of inventories and its subsequent recognition as an expense, any write down to net realizable value.

FRS 2 applies to all inventories except for:

a) WIP under construction contracts;
b) Financial instruments; and
c) Biological assets related to agricultural activity produce at the point of harvest.

Inventories are measured at the lower of cost and net realisable value (NRV).

  • NRV is the estimated selling price in the ordinary course of business less estimated costs of completion and costs necessary to make the sale.
  • Cost of inventories comprise of cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Three methods of costing inventories are specified under paragraph 23-27 of FRS 2.

i) Specific identification of costs method

ii) First-In, First-Out (FIFO) costs method

iii) Weighted average costs method

FRS 2 requires that the amount of write down of inventories to NRV is recognised as an expense in the period the write down or loss occurs. Any reversals of the write down, as a result of increase in NRV, is recognised as a reduction in amount of inventories recognized as an expense in the period the reversal occurs.

FRS 2 also specifies the disclosures required of inventories.

Source – ICPAS ePublication

by Edgar

FRS 1 – Presentation of Financial Statements Nov 2005

Objectives

  1. To prescribe the basis of presentation of general purpose financial statements and;
  2. To ensure comparability of entity’s financial statements with previous periods and with other entities’ financial statements.

Below is a summary of the overall considerations for the presentation of financial statements.

  • Fair presentation and compliance with FRS

A faithful representation of the effects of transactions, events and conditions in accordance with the FRS.

  • Going concern

Preparation of financial statements with the assumption that the business will continue indefinitely.

  • Accrual basis of accounting

A method where income and expense items are recognized and recorded when income is earned and expense is incurred, regardless of when cash is actually received or paid.

  • Consistency of presentation

Presentation and classification of items in financial statements are retained from one period to the next unless the standard requires a change in presentation or there is a significant change in the nature of the entity’s operations, such that another presentation would be more appropriate.

  • Materiality and aggregation

Similar items of each material class are to be presented separately.

  • Offsetting

No offsetting of asset and liabilities, and income and expenses unless permitted by a Standard.

  • Comparative information

To disclose comparative information of previous period for comparative purposes.

FRS 1 also specifies the minimum line item disclosure required on the face of the balance sheet, income statement, statement of changes in equity and notes to the financial statements except for presentation of cash flow statements which is covered under FRS 7.

FRS 1 also specifies that entities disclose information that is presented in the financial statements such as the accounting policies, judgments and key sources of estimation uncertainty at the balance sheet date.

Source – ICPAS ePublication 8 November 2005 Issue 9/2005

by Edgar

GST-inclusive price

I have been paying attention to the numerous huge advertisements by the many industry players in the red hot lasik market in Singapore. Prices of lasik is definitely on a downtrend and possibility of hitting sub-$1,000 per eye for standard lasik is very real. (someone told me the limit has been breached already)

In today’s national paper, I notice a lasik provider has now included the GST-inclusive price of $2,341.16 into the advert albeit in a smaller font size.

In the heat of competition, perhaps many have forgotten the small detail of the need to place GST-inclusive prices.

What is the Law?
According to reg 77(1) of GST regulations, “where a taxable person publicly displays or advertises the price of any supply of goods and services he makes, or intends to make, it has to be the “GST-inclusive” price.

Any exception to this law must be approved by IRAS.

Edgar says…
While such taxable persons may not be sufficiently in tune with all details, I wonder whether the advertising agents or media owners should play a role in removing such “printing errors or omissions”.
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by Edgar

Cake or biscuit = GBP3.5m error

Situation

Under UK tax rules, most traditional bakery products such as bread, cakes, flapjacks and Jaffa Cakes are free of Value Added Tax (VAT).

But the tax is payable on some other items eg. cereal bars, shortbread and partly-coated or wholly-coated biscuits.

The confusion arose when the Authority is not sure when a CAKE is not a bread or when a BREAD is actually a cake etc etc etc….

Customers of Marks & Spencer in UK, who had been paying VAT for the last 20 years for a product called “teacakes” realised recently that VAT should not have been applied on the product. How come? The authorities have accepted the product was actually a cake, which does not command VAT!!! A mistake realised after 20 years.

Conclusion
This incident serves to explain why the Government has chosen not to heed calls from some quarters to apply a lower GST rate on necessities.
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by Edgar

Ms Ong Bee Lian, the Bookkeeper

Ms Ong Bee Lian, the precedent partner of Ongserve Management, a firm providing bookkeeping and secretarial service, had wilfully with intent to evade tax, consistently understated the profits of the Firm for the Years of Assessment 1998 to 2000 and 2002. The total amount understated was $156,000.

Her Modus Operandi, not much but here it is.
Evidence dug up by IRAS shows that Ms Ong has wilfully and intentionally falsified and claimed fictitious management fee expenses in the accounts of the Firm for the Years of Assessment 1998 to 2000 and 2002. Aiya…

So what has happened to her?
She will be accorded government’s food and lodging for 2 weeks ie. imprisonment plus order to pay a penalty of 3 times the amount of tax undercharged.
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