hi ...

I would like to seek for the opinion. I was given a balance sheet for analyse, noticed the company has accumulated net loss of $200k, but is very cash rich, and possess one unit of shop house.

what is the implication both in account and tax? is it likely to have substantial cash in hand with loss (is it a small business, limited liability) ?

Thank you

balance sheet = accumulated

P&L = current year


solved ur prob?

Is this for your assignment? We do not discuss assignment issues here.

Paid Up Capital = 1,000K
Accumalated Loss = 200K (total loss over 3 years)
Cash Balance = 500K

Not possible?

Just buy up and take over the company with both eyes closed.

You have the tax advantage plus cash. The rest.............think out of the box.

Since it is your home work, cannot tell you more.

This post has been edited by SKY 1809: Aug 11 2009, 08:04 PM

show the b/s here

Why not? Lots of companies with lots of assets suffers loss. Even with those with a bundle of cash.

Loss is because the business is not doing well or their costs exceeds their profits. Nothing to do with their shoplot or amount of cash they are holding.

You can start a business with RM1 mil and suffer losses for 4 continuous years before you make money. As long as you still have money to roll for the business, you'll stay in business. And you would still have assets. Common in start-ups that require large capital and time to grow profitable.

Taxes are on profit from operations. So if it is making a loss from operations, then no taxes I suppose.

Cash in hand could be from capital invested before making the loss. So every time a loss occurs, their cash balance should reduce appropriately from their cash flow going out.

Their shop lot is just their fixed asset and will have no impact from their losses unless its a re-valuation of assets. As in their property was re-valuated and found to have a lower value than what is stated in the balance sheet. So if re-valuation occurs and it's worth less than stated, the difference must be reflected as a loss.

Good example would be the current US sub-prime mortgage assets the banks are holding. The value they thought they held are actually worthless. So when they write off these assets, it would register as a loss. And the reduction of assets will reflected in their balance sheet.

This post has been edited by skiddtrader: Aug 11 2009, 10:22 PM

its purely manipulating the TAX system.

Apply for Tax Exemption. Simple. Show loss in P&L Statement.. No tax. U still keep the rest of the capital in cash in bank.. only operating profit for the year or since trade shows as negative.

means each accounting year, the cash earned is less than expenses.

like those got grant?

no sales but o/h high?

Loss doesn't mean no tax at all.

As loss can come in a lot of way even though operation business is profitable.

Some company registered lossese because of write-off, inventory value depreciation etc which is not a real loss.

Same with profit.

MAS registered hefty profit on the lastest Q, but actually it is still making loss in operation wise. Profit come from gain in hedging position (on paper).

LHDN won't just see loss, then say no tax, it doesn't work in this way. Same with profit.

Cherroy, my fren company made losses but LHDN cleared the paper-works and declared no TAX to be paid.

I saw the submission myself. (2008 submission).

How can LHDN tax your company if its making losses?

As said losses can come in a lot of way. If operational loss surely no tax. But if registered losses due to others (as mentioned in earlier post), it is not a straight forward answer.

unabsorbed tax losses? capital allowances, deferred tax assets?

Not sure what kind of analysis you're looking for. IMHO, the balance sheet is not that strange. A simple possibility is the Company startup capital was 1 million and has used half of the capital. 300K went into fixed assets while 200K used for operating expenses over the past 3 years. Typically, operating expenses are not capitalizable, hence the accumulated loss. You'd need a lot more information to do a meaningful analysis. From an accounting perspective, the balance sheet is just a point in time and so it may not necessarily be swimming in cash. Take a look at the cashflow projections and budget for the next 1-2 years to get a better idea.

I'm not a Msian tax expert, so I can't comment from the tax perspective. However, I'm aware that recent changes in tax laws has curtailed the tax benefit of using a company to purchase a shoplot.

This post has been edited by okyjace: Aug 12 2009, 10:09 AM

Accountant,
It is always ask in elementary accounting course why a company making profits but have negative cash flow is very normal. you why ahh?

Well, it is quite normal for a new business to break even or losing money for the first 3 years.

Let say you are in a transport line, and all your lorries are on three years " leasing " , does not mean you have to close now on the four year bcos you are just losing money in the first 3 . Simply there are no major expenses ( leasing cost ) to be c/f to the future PL a/c.

Casflow could be positive or not so positive, in case you want to re invest your cashflow into assets ( lorry or shops ) again.

Cashflow projection is your wish to be positive or negative . Though Positive is good, but could be at the expense of your future profits. So have to make a decision as to what you want to achieve.

Those involves in Glove inds may not see good positive cashflow rigth now , if they choose to reinvest to cater for the good demands.

Cash balance of 500K could be a sum you park with a bank in exchange for some credit facilities, but not utilised at the present moment ( for standby like OD ). The OD could be at 5 times of your FD and is for working capital.

Just simply making an assumption only . Tax is left out also.

This post has been edited by SKY 1809: Aug 12 2009, 09:17 PM