Question -
PT Ltd is a wholesaler of kitchen equipment in Hong Kong. It prepares its accounts to 31 March each year. The following summary is extracted from its account and notes for the year ended 31 March 2016.
Gross profit from trading $7,421,000
Compensation received (Note 1) 140,000
Dividends received from unquoted shares 110,000
Interest received (Note 2) 80,000
$7,751,000
Less: Salaries and allowances 3,100,000
Directors' remuneration 1,300,000
Rent and rates (Note 3) 320,000
Telephone, water and electricity 66,000
Interest (Note 4) 168,000
Bad debts (Note 5) 230,000
Legal and professional fees (Note 6) 138,000
Advertising 150,000
Repairs and maintenance (Note 7) 640,000
Discounts allowed 25,000
Contributions to MPF (Note 8) 900,000
Donations (Note 9) 700,000
Insurance 40,000
Travel and transportation (Note 10) 220,000
Motor vehicles expenses (Note 11) 181,000
Depreciation 262,000
Sundry expenses (Note 12) 410,000 $8,850,000
Loss for the year $(1,099,000)
Notes:
(1) Compensation received from a customer for the cancellation of one of the sales contracts - 80,000
Compensation received for loss of trading stock - 10,000
Compensation received for loss of a motor vehicle - 50,000
140,000
(2) Interest on loan to customers - 30,000
Interest on a fixed deposit placed with a bank in Hong Kong - 50,000
80,000
(3) Rent for office premises - 84,000
Rent for director's quarters - 220,000
Rates for office premises - 16,000
320,000
(4) Interest paid to a director of the company - 50,000
Interest paid on a loan from a local bank. The loan was secured by a director's deposit, which was smaller than the loan. The director received interest of $25,000 from the deposit - 118,000
168,000
(5) Bad debts
Trade debts written off - 110,000|General allowance b/f - 40,000
Loan to a customer written off - 90,000| Profit and loss account - 230,000
General allowance c/f - 70,000|
270,000| 270,000
(6) Audit fee - 50,000
Collection of trade debts - 8,000
Handling of investigation by Inland Revenue Department - 80,000
138,000
(7) Renovation of office premises - 500,000
General repairs of fixed assets - 140,000
640,000
(8) Special contribution - 400,000
Provision for special contribution - 300,000
Annual contributions - 200,000
900,000
The annual contributions did not exceed 10% of each employee's remuneration.
(9) Cash donations to approved charitable organisation - 560,000
Donation of prizes for lucky draw for staff at the company's annual dinner - 60,000
Donation of kitchen utensil to elderly residential care homes - 80,000
700,000
(10) Overseas business trips - 90,000
3-day Taiwan tour for company's employees - 50,000
Transportation of goods to customers - 80,000
220,000
(11) Petrol - 64,000
Repairs - 20,000
Parking charges - 90,000
Traffic fines - 7,000
181,000
(12) Profits tax paid - 23,000
Property tax paid for director's quarters - 50,000
Other allowable expenses for tax purposes - 337,000
410,000
Other information:
The assessor agreed that the company was entitled to total depreciation allowances for plant and machinery of $141,000 for the year of assessment 2015/16.
REQUIRED:
a) Compute PT Ltd's profits tax liability, if any, for the year of assessment 2015/16. Ignore provisional profits tax. Show all your workings.
b) Briefly explain your tax treatment of the following items in your profits tax computation:
(i) compensation received (Note 1)
(ii) interest expenses (Note 4)
(iii) sundry expenses (Note 12)
Attachment:- Assignment File.rar