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Unit 8 - THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS...

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U8_Profits_2 1 THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS BUSI 0018 – Hong Kong Taxation Unit 8 – Profits Tax (2) Coverage 1 Accounting profit vs assessable profit 2 Capital vs revenue receipts 3 Capital vs revenue expenditure 4 General deduction rule: Section 16(1) 5 Specific deduction rule – Interest expense Learning Objectives After completing this unit, you should be able to: distinguish assessable profit versus accounting profit explain the principles distinguishing capital and revenue items identify capital receipts and revenue receipts identify capital expenditures and revenue expenditures explain the general deduction rule under section 16(1) determine the deductibility of interest expense 1 ACCOUNTING PROFIT VS ASSESSABLE PROFIT Accounting Profit = Revenue Expenses Based on generally accepted accounting principles In the Court of Final Appeal in CIR v Secan Ltd (2000) “Both profits and losses must be ascertained in accordance with the ordinary principles of commercial accounting as modified to conform to the Ordinance.” Profit before taxation” in the financial statements is the starting point for the calculation of assessable profit, subject to adjustments which are required either under general rules or specific provisions of IRO Profit before taxation per account Add: Non-deductible expenses Accounting depreciation Taxable items not reflected in account Less: Non-taxable income Depreciation allowance Deductible items not reflected in account = Assessable profit
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