Understanding Activity-based Costing

Activity based costing involves the identification of the factors which cause the costs of an organization’s major activities. Support overheads are charged to products on the basis of their usage of the factor causing the overheads. This is the definition copied directly from the ACCA F5 - Performance Management textbook.

I am lucky enough to encounter this type of costing system in my recently joined company, practice this system in reality is no doubt complicated. The idea of employing this system into the modern manufacturing environment, direct costs such as labor and material costs are reduced.

In fact, will you see workers paid by piecework now? Does material carries the significant cost to produce goods? Not anymore. Workers are now paid by monthly salary, thanks to our government and union. Technological advancement has eliminated traditional manufacturing system, or at least reduced to minimal. For example, software that we are using nowadays - are they made up from "materials"? Think about it again.

In simple words, Activity-based Costing (ABC) is used to identify what has causes the overall costs in order to provide the service or goods to the consumer or end user. Most of the costs now are fixed and difficult to allocate: labor costs if an IT staff is worked for a software development and also normal office supporting, electricity and rentals, administration staff costs, management costs, and etc.

Overheads are no more affected by the volume of production but activities. Customer service costs goes higher when there are increasing amount of complaint calls, which is also affected by other qualitative reasons like, production staffs are not motivated to work. By using ABC, these causes are able to be identified and analyzed; correction can be carried out accordingly.

The complexity and wider range of products and services provided by companies today are so much different from traditional companies. Traditional companies produced the goods and sell, while modern companies tend to focus on after-sales service, goods returns rate, quality of goods, warranty, insurance, delivery time and so on.

These activities are more concern with customer satisfaction rather than simply production of goods. Thus, the more complex and the wider range of the products, the more support activities will be required. And therefore, it is critical for managers to understand the factor which increases costs to a certain activity. These are known as cost drivers. Examples are as following:

Service Tax - Filing of Return

Service tax is due and payable within 28 days after the taxable period of 2-month-cycle after the invoice has been paid off by client. For example, January to February's service tax is due and payable by 28th of March, March to April's service tax is due and payable by 28th of May.

Firstly, all invoices within the taxable period and with service tax payable are gathered and reconciled to the accounting records to ensure completeness. This step is to report to Customs Authority the total of invoice amount billed WITH service tax. I would recommend entering the invoice details such as issue date, invoice number, client name, amount of service subject to service tax, and service tax amount into a spreadsheet for easy referencing.


Then, check each transaction to find out its paid off date. For invoices issued in taxable period of January - February and invoice paid during February, mark down the paid off date (for instance, 20th Feb) at the last column of the specific transaction in the spreadsheet. This will allow you to identify which invoice's service tax is payable.

Thirdly, total up the amounts and reconcile against your accounting records. You should get a total amount of service tax for invoices issued during the taxable period agee to your service tax payable ledger, and the total service tax payable for all the invoices paid off during the taxable period agree to your debtors ledger.

Finally, fill up the return form obtained from Customs Authority and get Director's signature to approve the return. Cheque is then issued to Customs Authority for the amount payable.

One more additional step will required if the return is not furnished by 28th days after the taxable period, a 10% penalty will be charged to the total amount of service tax payable for every thirty days intervals, up to the maximum of 50%. For instance, if return is submitted after 28th March for Jan-Feb return, you will need to include a 10% penalty charge of the total amount payable. If the return submitted on 1st May (which is more than 30 days after 28th March), the penalty charge increased to 20% of the amount payable. This penalty can be increased up to a maximum of 50%.

Increase of Share Capital

There are several reasons that a company will need to increase in their share capital. These reasons may include injecting new working capital, selling of shares to investors, and so on. It is a rather simple practice in normal course of business.

The company secretary is the major party that involved in this practice. The steps of the whole practice is stated as following:

1. The management instruct the company secretary to increase the share capital.
2. Company secretary will need to acquire proof of injection either by cash injection (Bank in Slip) or by others (amount due to director or creditor account).
3. Company secretary will then prepare the documentation and resolutions for the Board of Directors to sign and return.
4. Upon receipt of documentation, company secretary will file in to SSM for the increase of share application.

Thus, the whole process is completed.

Company Matters - Change of Company's name

In normal course of business, there will be some time that we need to change the company's name to suit the nature of business or for some other reasons. The change of name basically involved in 3 parties: the company (represented by Account Department), Company Secretary, and Suruhanjaya Syarikat Malaysia (SSM). It may involved other authorities, such as Bank Negara Malaysia, if you are licensed under certain Company Acts.

Steps included the following in sequence:-

1. The company's representative contacted Company Secretary firm to do name search with SSM. This step is to ensure that the preferred company's name is available for reservation. If the preferred name is somewhat similar to an existing company's name, SSM will require a Letter of Consent from the existing company to allow the usage of similar name. Otherwise the reservation will not be succeeded.
2. Once the Company Secretary reserved the preferred name from SSM, the reservation will be valid for 3 months. Documents such as Board of Directors Resolution and so on will be prepared for the signature of Directors by the Company Secretary; and this is the stage where planning for such change shall be finalized, i.e. design of logo with new company name such as "XYZ Sdn Bhd (formerly known as ABC Sdn Bhd)". The Italic phrase is required to be included for 1 year w.e.f. the change. Stationery such as letterhead, name cards and envelopes with new logo (with the Italic phrase as well) to be printed for 1 year usage; notification lists for client, suppliers and bankers to be prepared beforehand; and etc.
3. After the documentation and planning in place (it can be planned before the reservation of name), the Company Secretary can then file in the change of company name application with SSM. Once the application is approved, SSM will provide the company a Form 13 to effect the change. Thus, all planned actions shall be acted in order to notify the stakeholders for such changes.

Although the above steps are quite simple, the planning stage is inevitable so that to ensure the smooth transition of such change. You may need to think about the website content to be modified, URL to be changed (or maybe reserve the old one as a secondary page or re-direct page), newspaper advertisement to be posted (when and where), and so on. It is a rather long process so do plan it earlier and expect the whole process to drain your resources for 3-6 months.

Most importantly, consider the cost-benefit-analysis whether the value of such change can cover the cost of the change: all printed materials with the phrase "formerly known as ABC Sdn Bhd" are required to be replaced by ONLY the new company name without the Italic phrase after 1 year. This means that the printer plates for all letterhead, name cards, and envelopes will need to be disposed off (unless you are using a digital printer). These costs maybe big enough to bog down the cashflow twice for the whole name change process.

NST 2009 Post Budget 2010 - Impact on Corporate

The national budget of 2010 included changes that affect the corporate. It will be sub-divided into 2 sections: Direct Impacts on Existing Rules and some (not all) Indirect Impacts that Companies should be prepared for. Enjoy your reading as following. 

Direct Impact on Existing Rules

1. The tax treatment accorded to Special Purpose Vehicle (SPV) established under the Companies Act 1965 be extended to SPV established under the offshore companies act 1990 electing to be taxed under the Income Tax Act 1967. Further details can be obtained from this article http://sc.com.my/ENG/HTML/bondmkt/bonres_FAQ_oABDS1.html.
2. Under current provision, the employer is required to deliver return in prescribed form (borang E) to Director General of IRB within 30 days from date of gazzette the statutory order. The proposal will be no more gazzetting of statutory order and employer is required to complete the submission by 31st March of every year. The employer is required to distribute out EA/EC form or salary statement to its employees by last day of February.
3. Deduction of Tax from Emoluments and Pensions - It is proposed that the withholding of last month salary for employee who ceased employment and leaving Malaysia for more than 3 months will be debt due to the Diretor General of IRB and payable from the employer and if there is a failure to do so civil suit can be instituted against the employer. The amount withheld was not a tax due under current provision therefore civil suit cannot be instituted.
4. When there is a failure to furnish estimate to the IRB, it is proposed that no directions will be given by Director General of IRB, no prosecution under Ssection 120 and tax payable on submission of return. However, the current penalty was calculated if the estimate is lower than actual tax in excessive of 30%, 10% increase will be imposed on the difference. It is proposed that the penalty be calculated as total tax payable increased by 10% if no estimate furnished by taxpayer.
5. Tax rates for Co-operative Society for Chargeable Income (CI) exceedubg RM500,000  is reduced to 26% w.e.f. YA 2010.
6. There are some amendments on PITA (Petroleum Income Tax Act), the details will be interpreted further in my next post.
7. Patent and Trademark are now qualifying expenditures if it was registered in Malaysia. The amount will be deemed incurred when certificate is obtained and can be deducted from Gross Income (GI).
8. The current provision promotion of Malaysia as international Islamic financial centre whereby additional deduction is given to deduct from Gross Income, effective in between YA 2008 - 2010, has now be extended to YA 2015.
9. Export of Private Healthcare Services - The proposal focus on enhancement for deduction (YA 2010 - 2014) , the rate of deductible is now being increased to 100% of the value by less than or equal to 70% of Statutory Income. The exclusion will be not-Malaysian citizen who participating in Malaysia My 2nd Home programme & dependents, with student pass & dependents, and with work permit & dependents. Malaysian who live abroad & dependents are excluded as well.
10. For insurance & Takaful Companies - exemption of 5 consecutive Year of Assessments exemption beginning earlier or at the same of 3rd year. Conditions are as following:
• Companies are licensed insurer, and
• Are registered takaful operator
• For branch / investee companies, it must be located outside Malaysia and commence within 2 years from date of approval by Bank Negara Malaysia (BNM).
• The application to BNM from 24/10/2009 - 31/12/2015.
11. Green Buildings:
• Features:-
• Conservation of energy and resources
• Recycling of materials and greenery
• Minimizing toxic emission
• Impact:-
• Efficient use of resources
• Significant operational savings
• increases workplace productivity
• Process:-
• Application to be submitted to Greenbuildingindex Sdn Bhd
• Board of Architect will approve and issue GBI Certificate
• Cost relating to green building will be indicated in the Certificate.
• Proposed Tax Incentive:-
• Qualifying expenditure = Cost / Incremental Cost certified by Board of Architect
• Deduction from 100% Statutory Income (SI) on obtaining certificate
• Unabsorbed amount can be carried forward until fully utilized.
• Certificate will be awarded in between 24/10/2009 and 31/12/2014
• Person qualified:-
• Owner - individual, company and body of persons
• Having business source of income.
12. Approved Forest Plantation Project
• Incentive has been announced in stimulus package
• Application can be submitted to Ministry of Plantation Industries and Commodity
• With effective from 21/5/2003, proposed application to be submitted latest by 31/12/2011.
13. Approved Consolidation of Management of Smallholding & Idle Land Project:-
• Incentive has been announced in Budget 2003.
• Application to be submitted to Ministry of Plantation Industries and Commodity
• With effective from 1/1/2003, proposed application to be submitted latest by 31/12/2011.
14. Preparation of Corporate Knowledge Based Master Plan:-
• Incentive is announced in Budget 2003.
• Company undertakes -
• Strategic Knowledge - intensive activity under PIA 1986.
• Application to be submitted to MIDA
• With effective from 21/2/2002, proposed application to be submitted latest by 31/12/2011.
15. Stamp Duty Exemption Order:
• Green Building - Subject to Conditions of ANY Building:
• Purchase from developers
• First owner & once only
• S&P agreement executed from 24/10/2009 to 31/12/2014
• Method to compute the duty exempted: (purchase proce - cost per GBI Cert) @ ad volorem.
16. Instrument of Islamic Financing:-
• Extension of remission period from 2/9/2006 - 31/12/2009 to 31/12/2015.

Some Indirect Impacts

1. The Government will also allocate a sum of RM350 million to SME Corp of which RM200 million is for SME soft loans, RM100 million for capacity enhancement, while the balance is for branding and promotion. The interest rate on soft loans offered by SME Corp will be similar to rates offered by development finance institutions.
2. In addition, there are 6 SME funds administered by Bank Negara Malaysia totalling RM13.4 billion. These funds have benefitted 46,000 SMEs with approved total financing of RM20 billion. To ensure faster and easier disbursement of funds, the Government wil ensure financial institutions approve micro financing at an average of 6 days and disbursements at an average of 4 days.
3. To promote green technology, the Government will establish a fund amounting to RM1.5 billion. This fund will provide soft loans to companies that supply and utilise green technology. For suppliers, the maximum financing is RM50 million and for consumer companies RM10 million. The government will bear 2% of the total interest rate. In addition, the government will provide a guarantee of 60% on the financing amount, with the remaining 40% by banking institutions. Loan applications can be made through the National Green Technology Cerntre. This scheme will commence on 1 January 2010 and is expected to benefit 140 companies.

I hope the above will benefit your companies in the foreseeable future of 2010, to relief some of the financial pressure of the recent economic crisis. Although it is not as good as what we have expected for, government has allowed some exemption and extension of incentive period.

NST 2009 - Post Budget 2010 - Impact on Individual

This is my first participation in the annual National Seminar of Taxation conducted by LHDN, a very comprehensive and informative seminar after the announcement made to the Budget 2010 last Friday.

1. Personal Relief of RM8,000 has been increased to RM9,000 w.e.f Year of Assessment (YA) 2010. So for next year filing of return, it will remain as RM8,000 because we are doing Previous Year Return.
2. Subscription of Broad Band is now a relief that you can deduct a maximum of RM500 from your Chargeable Income (CI). The officer has clarified further for individual to be eligible for this relief, there are several conditions:-
• Monthly bill under individual name for separate assessment, and either one of the individual name for joint assessment is eligible for the relief. The amount of relief is restricted to billed amount and up to the maximum of RM500.
• Expended / deemed expended in basis year. For individual, basis year would be starting from 1st January and ending at 31st December of every year. As prudent concept in Accounting, all bills that billed for the month within the basis year (i.e. 1st December 2010) although it is not paid, is deemed expended in the basis year.
• With effect from YA 2010 - 2012.
• Eventhough the subscription fee was paid by the company as a tax-free allowance, individuals can still utilize this relief as long as it is billed to the individual name.
3. The current provision of relief on EPF, Life Insurance and Annuity were up to a maximum of RM6,000 and now has been increased to RM7,000 w.e.f. YA 2010. However, the additional RM1,000 is only eligible for the payment of New Annuity (upgraded or new contract on or after 1st January 2010), a private pension scheme that offered by Insurance Companies. For example, if Mr. A has contributed RM7,000 of EPF, RM2,000 of Life Insurance, and RM800 for New Annuity in YA 2010, he will be eligible to claim [(EPF + Life = RM9,000) Restricted to RM6,000 + (New Annuity = RM800) = RM6,800. Mr. A will not able to utilize the balance RM200 for his EPF and Life Insurance balance after the maximum amount of RM6,000.
4. Tax rates for Non-Resident Individual has been decreased 1% from 27% to 26% w.e.f. YA 2010.
5. For Resident Individual the top band of scale tax rate has been decreased 1% from 27% to 26% w.e.f. YA 2010, other lower bands remain unchanged.
6. A proposal of tax rate for selected resident individual whom is a knowledge worker working in specified region of Iskandar Malaysia and engaged in qualified activity will enjoy a flat rate of 15% w.e.f. YA 2010. The eligibility will be determined by Director General of Inland Revenue Board and further details will be announced later.
7. To promote prudent spending, the government also proposes that service tax of RM50 per year be imposed on each principle credit card and charge card, including those issued free of charge. The government also proposes that service tax of RM25 a year be imposed on each supplementary card. The charges will start be with effect from 1st January 2010. The officer has clarified that this measure is included in those cards being issued prior than 1st of January 2010.
8. There is some amendments in Real Property Gain Tax (RPGT) w.e.f. YA 2010:-
• Submission of Return - both CKHT1 & 2 are required to submit within 60 days from date of disposal. Current provision is Disposer to submit CKHT1 and Acquirer to submit CKHT2 within 1 month from date of disposal.
• Retain and Pay part of Consideration - under current provision, the acquirer is required to retain amount of 5% from consideration (payment for such property) and wait for Director General of Inland Revenue Board to issue requisition to Acquirer and instruct the Acquirer to pay whole / part sum retained within a time specified in the requisition letter. It is proposed that Acquirer to retain & pay Director General of Inland Revenue Board 2% from consideration within 60 days from disposal date. Any failure to payment of such sum will be penalized for additional 10% of the sum. If Acquirer failed to retain the amount from consideration then he/she will need to fork out from his/her own pocket as it is considered due to the IRB. There will be no requisition issued.
• Chargeable Gains & Allowable Losses on Disposal of property: current provision of allowable losses @ appropriate rate which is being deducted as tax rebate to be replaced by a deduction of allowable loss from chargeable gains. Unabsorbed allowable losses can be carried forward.
• Incidental costs - Acquisition price excludes interest paid on capital employed.
• Exemption for individuals - Increased from RM5,000 to RM10,000 or 10% of chargeable gain; whichever is greater..
• During the transition, for all tax rebate unabsorbed till YA 2007 (ending 31st March 2007), can still be deducted from total tax assessed from YA 2010 till fully utilized.
• A flat Tax Rate of 5% is applicable to disposal in 5th year and above after the date of acquisition, calculated as [(Disposal price - Acquisition price - Exemption - Allowable Loss B/F) x 5%]
9. Safeguarding welfare of students - Netbook with free broadband service to be offered to promote broadband services amongst university students for RM50 per month for 2 years. As a start, Telekom Malaysia will offer this package to 100,000 local university students effective from 1st January 2010. Priority will be given to first year students and those from low-income families.
10. Restructuring of Fuel Subsidy Scheme - The fuel subsidy is currently enjoyed by all motorists, including luxury vehicle owners and foreigners which is a strain on Government finance. The government is implementing a fuel subsidy management system in early 2010 to promote a more people-friendly system utilizing MyKad and the existing infrastructure. This approach will ensure the subsidy provided to the targeted groups and also for other commodities.

It concludes that the government is actually working towards to ensure recovery of national economic by lowering the tax rates. However, personally I still think that it is not really good enough to help the public as 1% does not consider a lot in reduction. The increase and newly introduced reliefs are actually great approach to help lower down the tax payable for individuals. In contrast of the imposed of RPGT at the flat rate of 5% can be interpret as a revenue recoupment from the reliefs and reduce in tax rates for the government.


Do share with us if there is any additional information that you might know and that will benefit all of us as Rakyat of Malaysia.

Productivity of Meeting - Is it Achieved, Boss?

Meeting can be a way to sort things out right and to gather opinions from people who is having specialized knowledge with. It is supposingly conducted to improve effective communication within the departments. However, the HOD meetings (or the recently-changed-name as Divisional Meeting) that are being held by my company regulary on Monday morning, are indeed a failure to the purpose.

In such autocratic environment, decisions are made by one person - the boss. There is no room for different opinion; no way to improve things if the concept of improvement is against the boss will; and the boss will treat whatever opinion as 'reference' only as he always came out with decision that was totally different from what we have discussed to show his power over matters. Therefore, no one is paying attention to the topic that he brought up; people do whatever he instructed, and that is it.

So now, if this is the case, why he still conducting the weekly meeting if he can make all the decision by himself? If this question was to be posted to me, I would answer it this way: it is not the solution he comes after, but the feeling of control, the pride that he can make all the decision especially when people disagree with him, are on top of the purpose of meeting.

In fact, the participants are getting quiet. Silent flows with feelings of 'don't care' flooded. One is standing infront of the stage, talking excitedly with saliva flying around. He is seemed as a fool to the staffs underneath (and he still yet to know about this, of course!). We smiled to each other wishing the time past as fast as it can. Time for lunch though!

Hi everyone! Wish you enjoy reading all time!

I think, a brief introduction of mine should be sufficient for now.

I am currently working in a Financial Planning Firm in Malaysia (quite a pioneer company) selling Life Insurance, General Insurance, Investment, Wealth Preservation and Planning, Family Office Advisory, and so on. The account department of this company was previously outsourced. I was hired to design and implement the proper account department to handle not only for Accounting purposes but also Human Resource, Operation and IT Management.

In another hand, I am also pursuing ACCA expect to be graduated by year of 2011. I have taken F2 -Management Accounting, F3 - Financial Accounting, F5 - Performance Management, F6 - Taxation; all passed in first attempt (and hopefully the luck will continue) and F1 - Accountant in Business exempted. In this term of December 2009 exam I have only taken one paper: F8 - Audit & Assurance.

Let me share my thoughts, knowledge, experience, and whatsoever that may benefit you, and do leave me questions and I will try my best to solve it for you. Learning is a process that never-ever end, let's learn and grow ourselves together!