ACCT3161_0910_1st_MT

ACCT3161_0910_1st_MT - ‘ ACY3161 Mid-term Common...

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Unformatted text preview: ‘ ACY3161 Mid-term Common Examination (2009/2010) Name: I Student ID: SCHOOL OF ACCOUNTANCY 33°80“ THE CHINESE UNIVERSITY OF HONG KONG ACY 3161ABC Taxation MID~TERM EXAMINATION TIME: 2 HOURS ttsmvti‘all us Problem 1 (32%) Mr. Kwan is a director and shareholder of two Hong Kong companies, Limited A and Limited B. Limited A acquired 80% of Limited B’s common shares on 1 Jan 2005. During the year ended 31 March 2007, he received the following income: (1) (2) (3) (4) (5) (6) (7) (3) (9) Limited A Limited B ' $ :5 Salaries 600,000 - 120,000 Bonus 75,000 ' 10,000 Dividend 150,000 100,000 Mr Kwan rented a flat for his residence at a monthly rent Of $30,000. Limited B refunded $28,000 to him. The rateable value Of the flat for the year Of assessment 2006/07 was $200,000. 011 3 February 2006, Mr Kwan was granted the right to acquire at a cost of $20,000 an Option with which he was entitled to purchase 100,000 shares Of Limited A's shares at $2.5 per share within two years. On 30 April 2006, he acquired the Option. On 1 September 2006, Mr Kwan assigned half of the Option to his friend at a consideration Of $110,000. On the same date, he exercised the other half of the Option. The market value Of the shares Of Limited A at the above relevant dates were as follows: ~ Date Market value per share $ 1 February 2006 _ - 6.00 30 April 2006 4.80 1 September 2006 8.20 31 March 2007 79.00 On 15 August 2006 Mr Kwan received a notice of salaries tax assessment from the Inland Revenue Department with salaries tax of $87,000 and $16,000 due on 3 January 2007 and 8 April 2007 respectively. Limited A paid the tax for Mr Kwan on the due dates. ' During the year, Mr Kwan took a ten-day business trip to France to be followed by eight days' vacation leave there. Mrs Kwan travelled with him throughout the trip. Limited A paid $44,000 for the whole trip for both of them as follows: ' Air tickets: $18,000 ($9,000 each) Accommodation and meals: $18,000 Sightseeing expenses during vacation: $8,000 During the year ended 31 March 2007, Mr Kwan paid for the following expenses: (a) Allowable outgoings and expenses: $8,000 ' (b) Cash donations to approved charitable institutions: $220,000 (0) Mandatory contributions tO MPF scheme: 5% of his income (d) _ Salary to domestic helper: $36,000 Mrs Kwan is a part-time employee Of an accounting firm. Her annual salaries and bonus are $200,000 and $80,000 respectively in 2006/07. She needed to contribute 5% Of her income to MPF. Mr and Mrs Kwan are living with their child aged 13 and Mr Kwan's parents aged 62 and 58 respectively. (10) In February 2007, Mr Kwan informed Limited B that he intended to purchase a residence by means of a mortgage loan starting from'i April 2007. Limited B advised Mr Kwan that instead Of refunding him the rile ItsrodiFits/szsmrwraeya161ABCmre200010dee 200971080030» 01:54 Page I ' ACY3161 Mid-term Common Examination (2009/2010) monthly rent of $28,000, the Limited would pay him a housing allowance of $30,000 starting from 1 Aprii 2007 to assist him to- repay the mortgage loan. ‘ REQUIRED: (a) Compute Mr Kwan's share option gain for the year of assessment 2006/07 and explain why Mr. Kwan sells the option to his friend at a great discount. ' (4%) (1)) Compute the taxable amount of Mr Kwan's holiday journey benefit for the year of assessment 2006/07. (3%) (0) Compute Mr Kwan's and Mrs. Kwan’s net assessable income and net changeable income under separate taxation and join assessment for the year of assessment 2006/07. (21%) - (d) Advise Mr Kwan about the salaries tax implications on (i) the rent refund,'(ii) the housing allowance and (iii) the repayment of mortgage loan. (4%) Problem 2 (35%) Mr Chu and Mrs Chu are residents of I-Iong Kong. They supplied you with the following information for the yea. i ended 31 March 2008: - Mrs Chu Mr Chu $ $ Income (Losses): - (1) Employment salary 600,000 (2) Director's fee from a Hong Kong Limited 180,000 0 (3) Assessable profit from sole—owned business in Hong Kong 400,000 0 (4) Share of loss from a partnership business in Hong Kong (380,000) _ 0 (5) Rental income 360,000 240,000 Expenditure: (1) Contributions to MPF scheme 5% of income 5% of income (2) Approved charitable donations . 240,000 _ 10,000 (3) Fees paid to a residential care home for the care in respect of _ ' Mr Chu's father aged 66 58,000 0 (4) Mortgage loan interest for letting properties 140,000 240,000 (5) Home loan interest for their home 70,000 0 (6) Salary to a domestic servant 70,000 48,000 Other information: (1) They have a child aged 10. REQUIRED: _ - (a) Compute the property tax, salaries tax and profits tax payable by Mr Chu and Mrs Chu respectively for the year of assessment 2007/08. Ignore provisional tax. (20%) (b) Compute the total tax payable/refundabie (if any) under personal assessment by Mr Chu and Mrs Chu. (15%) File: Kstoch FlLE;/KSK/EXAM/acy3lolABleaEOUEi-|0.duc 20090021307341? 0] :54 _ . _ ' .Pagc 2 ii ii ACY3161 Mid-term Common Examination (2009/2010) Problem 3 (24%) (a) (b) ' _ (c) - REQUIRED: If a corporation owns a property in Hong Kong, its rental income received may be chargeable to property tax and profits tax. REQUIRED: Under what circumstances can a corporation claim exemption from property tax in respect of its property in Hong Kong? (3%) KC Ltd is carrying on business in Hong Kong and owns a property in Hong Kong. it let the property to Mr Chan under a five-year lease starting from 1 October 2007. The income from the letting of the property is the only income of the Limited. During the year ended 31 March 2008, it had the following income and expenditure in connection with the property: ' Income: I - ‘5 Rental income (1 Oct 2007 —31 March 2008) ($15,000 x 6) 90,000 Premium (Received on 1 J an 2008) 480,000 570,000 Expenditure: Rates (for the quarter ended 31 December 2007) 4,000 Management fee ' 9,000 Mortgage loan interest (for financing the purchase of the property) 240,000 2; 3,000 Other information: ' (1) KC Limited prepares its accounts to 31 March each year. (2) KC Limited is entitled to a depreciation allowance of $72,000 in 2007708. (3) KC Limited credited the premium to the profit and loss account over the period of the lease. (4) Rates for the other three quarters in the year ended 31 March 2008 were waived. (5) KC Limited needs to pay commission, major repair etc in 2008/09 or future years. REQUIRED: _ (i) Compute the prepelty tax payable by KC Ltd for the year of assessment 2007/08. Ignore provisional preperty tax. (5%) (ii) Explain whether it is to the advantage of KC Ltd to charge its rental income under profits tax instead of property tax? (9%) Mr L0 is the owner of a residentiai flat in Wanchai. The property was let to Mr Kim under the following terms: Lease period: 1 October 2005 -30 September 2007 (2 years) Monthly rent: $13,000 payable at the beginning of each month Premium: $60,000 payable on 1 September 2005, the date Mr. Lo signed the Lease agreement. Rates: $2,200 per quarter payable by Mr Lo Management fee: $1,300 per month payable by Mr Kim Mr Kim failed to pay rent starting from 1 March 2007 and he moved out from the property on 30 September 2007. At that time, he also owed 2 months' management fees. It was agreed by the Inland Revenue Department that the rent owed by Mr Kim was irrecoverable when he moved out from the property. On 15 February 2008, the property was let to Mr Ng under the following terms: Lease period: 15 February 2008 -14 February 2009 (1 year) Quarterly rent: $3 0,000 payable at the beginning of each period Rates: $2,200 per quarter payable by Mr Lo Management fee: $1 ,3 00 per month payable by Mr Ng During the year ended 31 March 2008, Mr Lo had the following-expenses: (1) Rates: $2,200 for the quarter ended 31 December 2007 only (rates for other 3 quarters were waived) (2) Management fee: $6,000 ' (3) Mortgage loan interest: $79,000 Compute the net assessable value of the Mr Lo‘s property for the year of assessment 2007/08. (7%) Iiilc: KsKich FILELI‘KSKIEXAMJach lfiiABCIinflUOQalOdoc 2009/10/30T’41 01:54 Page 3 - " ACY3161 Mid-term Common Examination (2009/2010) Problem 4 (9%) Miss Suki is a Japanese. Her husband is living in Tokyo. She is employed as a flight attendant by a non—Hong Kong airline Limited. The numbers of days of her presence in Hong Kong and her employment income during the following years were: Days Total Income Year ended 31 March 2006 98 380,000 Year ended 31 March 2007 65 - 410,000 Year ended 31 March 2008 42 450,000 Year ended 31 March 2009 99 480,000 REQUIRED: (i) Advise Miss Suki the circumstances under which the remuneration received by an aircrew is exempted from salaries tax under the Inland Revenue Ordinance. (4%) (ii) State whether Miss Suki is chargeable to salaries tax for the years of assessment 2006/07 and 2007/08 and if chargeable, the amount(s) of assessable income for the relevant year(s) of assessment. - (5%) ***END*** i-‘iic. KSK/ch FiLEJKSIUEXAWachIfilABleeZOO9-10.doc 2009/] 0801751 01:54 _ Page 4 ...
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ACCT3161_0910_1st_MT - ‘ ACY3161 Mid-term Common...

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