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ACCT3161ass4_1011_1st

ACCT3161ass4_1011_1st - THE CHINESE UNIVERSITY OF HONG KONG...

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THE CHINESE UNIVERSITY OF HONG KONG School of Accountancy ACCT 3161 – Taxation (1 st Term, 2010-2011) Assignment 4 Due Date: December 6, 2010 (Monday) 4:00 pm Question 1 Modern Concept Ltd is an established garment manufacturer in Hong Kong. Its trading and profit and loss account for the year ended 31 March 2008 contained the following items: Note $ Income Sales – garment manufacturing business 7,680,000 – handbag manufacturing business 564,000 Other items: Dividends (1) 800,000 Interest income (2) 268,000 Rental income (3) 1,000,000 Sale proceeds of patent (4) 500,000 Gain on sale of certificates of deposit in Hong Kong 30,000 Miscellaneous 70,000 10,912,000 Less: Expenses Cost of sales 3,210,000 Other items: Bad debt written off (5) 200,000 Commission (6) 400,000 Contribution to a recognised retirement scheme (7) 120,000 Cost of patent (4) 700,000 Charitable donations (8) 689,000 Legal fees (9) 90,000 Severance payments (10) 40,000 Others sundry (all allowable) 350,000 5,799,000 Net profit 5,113,000 Notes 1. Dividends comprised: $ From a subsidiary company incorporated in Hong Kong 400,000 From a subsidiary company incorporated in Singapore 100,000 From shares acquired on the New York Stock Exchange 300,000 800,000 2. Interest income comprised: $ On credit balances in current accounts with USA customers 38,000 On fixed US$ deposits with a bank in New York 89,000 On fixed HK$ deposits with a bank in Hong Kong 101,000 On a loan granted to a personal friend of a director in Hong Kong (including the interest written off as per Note 5) 40,000 268,000 Data file: ch/ ACCT3161ass4_1011_1st Page 1
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3. Rental income comprised: $ From a block of factory buildings in Hong Kong 750,000 From a shop in New York 250,000 1,000,000 4. Patent On 1 June 2006, the company acquired from a famous handbag manufacturer in New York a patent in respect of its products for use in the company’s newly established handbag manufacturing business in Hong Kong. The purchase price of the patent was $700,000. The new business turned out to be a failure. The patent was eventually sold for $500,000. 5. Bad debt written off The amount written off represented the principal and interest on a loan made to a personal friend of a director of the company and comprised the following: $ Principal of the loan 180,000 Interest (included in Note 2 above) accepted by the assessor to be irrecoverable 20,000 200,000 6. Commission comprised: $ Paid to US residents for introducing orders from USA customers 100,000 Paid to Hong Kong residents for introducing orders * 300,000 400,000 * This amount included $100,000 that was paid to people whose particulars the company was unwilling to supply. 7. Contribution to a recognised retirement scheme comprised: Total emoluments of the Annual employees in the year contribution ended 31 March 2008 paid $ $ Managing director 350,000 40,000 Financial controller 300,000 40,000 General manager 200,000 40,000 120,000 On 1 January 2006, an additional contribution of $300,000 was made by the company to cover the potential deficit of the scheme on the advice of an actuary. 8. Charitable donations comprised: $ Cost of a rehabilitation van purchased by the company and given to an approved charitable institution 300,000 Cash donated to three other approved charitable institutions 389,000 689,000 9. Legal fees comprised: $
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