Question

Ahmad, Bong and Cathy are the directors of Alpha Sdn Bhd (“Alpha”), a private limited company situated in Bandar Sunway. The company is involved in the leisure and hospitality business covering theme parks, gaming, hotels, seaside resorts and entertainment for over 50 years. Each of the directors holds 15% of the company’s share capital. Answer the following separate and independent questions:

a. Beta Bhd (“Beta”) is a public limited company. The company wishes to enter into a contract with “Alpha” for the supply of iron and steel to be used for Alpha’s theme parks. The Board of Directors of “Alpha” had a meeting last month to decide on the matter. They decided that the company will proceed with the contract with “Beta”. However, recently, after entering and completing the contract, they discovered that the Managing Director of “Beta” is Bakar, who is a good friend of Bong.

b. Recently, “Alpha” contracted to buy a piece of land from Ahmad which was to be converted to a water theme park. The market value of the land is RM 600,000. “Alpha” bought the property at RM 550,000.
Advise the Board of Directors of “Alpha” on the legal issues arising in the above questions.

Answer 1

a. There would be an ethical issue of conflict of interest in this situation.however the legal issues will arise only if Bakar had been the director of ALPHA .Since he is only a good friend of Bong , there are no relevant legal issues considering the matter.

b. Land is reported at cost price rather than at market value under US GAAP. If the market value of land increases ,it is still reported at cost price as it is based on the assumption that land is bought for business use and not used as asset that is held for sale.Therefore ,it is a gain to the buyers.

if you sell the land at a price lower than the market value to a friend, relative,etc it will be considered as gift

In the scenario,the gain on purchase is $50000, however this would be treated as other income when calculating taxable income by IRS. Therefore the tax to be paid would rise.

IFRS allows anyone to give up $14000 per year without having to pay gift taxes. Anything above that is taxable .