Questions 1 (30 marks)
Kwong Fai Co. Ltd has been carrying on business as a garment
manufacturer for many years. The income statement of the company for
the year ended 31 December 2011 is as follows:
$ $
Gross profit from trading 1,185,000
Investment income 114,000
Interest income 39,000
Miscellaneous income 150,000
1,488,000
Less:
Salaries and directors’
remuneration
451,000
Rent and rates 168,000
Electricity and water 37,000
Telephone 13,000
Travelling and entertaining 142,000
General office repairs 239,000
Bad and doubtful debts 66,000
Professional charges 47,000
Sundry expenses 81,000
Depreciation on furniture and
fixture
42,000
Charitable donations 30,000
Net profit for the year
1,316,000
172,000
The following information relating to the above account is available:
i Depreciation charges on plant and machinery of $98,000 is included
in the cost of sales.
2 ACT B414 Taxation I
ii Interest income:
Interest on loan to a wholly owned subsidiary resident in Hong Kong $15,000
Interest on a fixed deposit in US dollars with a local bank $24,000
iii Investment income:
Dividends from a subsidiary in Hong Kong $60,000
Rental income from property in Macau $54,000
iv Miscellaneous income:
Rent from subletting a property in Hong Kong $120,000
Gain on exchange $30,000
(realized, relating to open account with customers)
v Travelling and entertaining:
Workers’ transportation costs $60,000
Travelling allowances to staff $22,000
Cost of gasoline and repairs to the managing director’s car $60,000
vi General office repairs:
Electrical wiring in factory premises $200,000
Repairs to furniture and fixture $15,000
Cost of purchase of sundry utensils $24,000
($20,000 for initial purchases, other purchases are for replacement)
vii The bad debt accounts:
Increase in general provision for bad debts $7,000
Decrease in specific provision for bad debts ($41,000)
Loan to a director written off $100,000
viii Professional charges:
Audit fee $2,000
Legal fee: debt collection $15,000
Fee paid for designing a new machine $30,000
ix Sundry expenses:
Subscription to trade association $3,000
Expenses of staff dinner at the New Year $15,000
Special contribution to a recognized occupational retirement $60,000
scheme established during the year
Miscellaneous expenses (all allowable) $3,000
Attachments:
act b414 tma2….pdf