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home / study / business / accounting / accounting questions and answers / question 2 case 2 dalmo bhd is an investment holding company and curre…
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QUESTION CASE 2
Dalmo Bhd is an investment holding company and currently it has 3 subsidiaries as stated below. Dalmo Bhd group of companies nancial year end is st March.
The shareholding structure of Dalmo group of companies is as follows -
75% shares in Dalmci Sdn Bhd
90% shares in Palmca Sdn Bhd
80% shares in Ruba Sdn Bhd.
Palmca Sdn bhd (Palmca) is a loss-making company with a paid-up capital of RM million.
It has a current year loss of RM in YA. Palmca is expected to continue incur huge losses next nancial year. Recently, Pamlca has conducted a brainstorming session amongst its top management to come up with anew ve-year business plan for the company to start making pro t after several years of losses. One of the recommendations is to replace old machineries with more sophisticated machineries. Hence some of the old machines will be disposed including a stamping machine which was bought on st June 2019. These old machines must be disposed in this nancial year or latest, by next nancial year (i.e year ending March 2021). The accountant is of the view some of the machines will have to be sold at a loss.
Ruba Sdn Bhd (Ruba), a pro table company, is currently involved in manufacturing of promoted products and just started claiming rst year of Investment Tax Allowance. The company has come up with a business plan which involves purchasing a huge amount of new machineries in the near future. Ruba is currently still undecided whether to use leasing or long- term loan to nance the purchase of new machineries.
Dalmci Sdn Bhd (Dalmci) is the most pro table company in the group which has just nished claiming pioneer status after 5 years of operation. Dalmci is interested to expand its business through acquisition of another company Tsg Sdn Bhd (Tsg) which has similar nature of business. Tsg is currently claiming its rst year of Pioneer Status but its latest 5 year forecasted nancial result is showing losses for the next 5 years. As such, the owner of Tsg (Encik
CONFIDENTIAL 4 JUNE 2021/ TAX GROUP PROJECT Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
Ramlan) is contemplating to exit from Tsg and move onto another type of business i.e trading.
Hence, Encik Ramlan agreed to dispose the company’s business to Dalmci since
Dalmci is very con dent they can turnaround Tsg into a pro table company within one year as they have the expertise because of similar nature of business between Dalmci and Tsg. Dalmci also has another option of taking over another loss-making company, KY Sdn Bhd which is currently a dormant company having a huge amount of unabsorbed lossess.
Required:
Note: Your answer on the following must be from the perspective of taxation only i.e for tax saving.
a) Advise Palmca on the disposal of its machineries in term of timing (assuming all machines will be disposed to external parties except for the stamping machine. Note:
you must state the month of disposal, i.e be speci c in your answer marks)
b) Advise Palmca on how to save taxon the disposal of the stamping machine marks)
c) State whether Dalmco group of companies can make use of group relief to reduce tax liabilities in Years of Assessment 2020 and 2021.
(4 marks)
d) Advise Ruba on the best method of nancing its purchase of new machineries. State your reasons marks)
e) Advise Dalmci on which company should betaken over, Tsg Sdn Bhd or KY Sdn Bhd and the method of acquisition (i.e by acquiring assets or shares. State your reasons marks)
Anonymous answered this answers
Solution :-
Step Here the most pro table company was Dalmic which has just nished claiming pioneer status after ve years of operation. Now Dalmic is interested to expand their business by acquiring other businesses. There are two choices which was prevailed by Dalmic one is Tsg and the other is Ky. While considering the acquisition process Tsg company has similar nature of business as like Dalmic but the problem is just started pioneer status and the nancial projection which states that there must be losses incurred within the ve-year operations of the business. Another company Ky is loss-making company and has a different type of business nature with an incurred huge amounts of unabsorbed losses.
Step 2
Hereunder this context, the best possible option for taking over the acquisition is Tsg which has a similar line of business and has started the pioneer status in the business which has huge tax bene ts which are associated with this. Tag company got the partial tax bene t exemption due to this pioneer status which was started by the company. Another important aspect in the acquisition was the Tsg has a similar line of business compared with the Dalmci which has easier in the process of acquisition by taken over the assets and liabilities and shares of Tsg company. While taking consideration of acquisition of business it's ready to takeover the total assets and meet the obligation of liabilities of the company and taken over the shares which are persisted in Tsg companies to complete with the total acquisition procedures. It's needed huge investment funding while acquiring in nature of both assets and shares of the company which are bene ciated in the taxation advantages to the company as well while implementing the acquisition procedures.
Here to apply the Horizontal acquisition which is best suitable for Tsg because both companies rely upon the same eld of profession and methodology while doing this it is bene cial in the market share of the business and grabs more customer base in this regard as well. It increases the chance of market share in the future as well.
While implementing the acquisition procedure then it can be the added advantage for the taxation bene t because huge funds can be invested in this regard which got the bene tout through the tax as well.
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