Bookcentre Ltd (the company) is a printer and publisher of books carrying on business in Hong Kong. The company also holds Hong Kong residential flats both for resale and long- term investment. The Commissioner of Inland Revenue accepts that for profits tax purposes the company's property dealing and investment activities can be separated on the basis of the classification adopted in its accounts. For the year ended 31 March 2020, the company's profit and loss account shows:

		HK$	HK$
	Profit from publishing		1,300,000
	Profit from property trading		200,000
	Rental income (net of expenses)		400,000
	Compensation payment for loss of contract (1)		380,000
	Royality income (2)		200,000
	Interest income (3)		120,000
			2,600,000
Less:	Interest (4)	280,000
	Rent and rates	300,000
	Legal fees (5)	54,000
	Staff salaries (6)	980,000
	Taxes (7)	63,000
	Depreciation	85,400
	Compensation for cancellation of contract (8)	10,000
	Retirement fund (9)	89,000
	Miscellaneous (all allowable)	53,000
	Carpet (10)	60,000
	Reseach (11)	170,000	2,144,400
Net profit			455,600

Notes:

1. (1) Compensation was received from a Singapore customer who terminated a printing contract signed in an earlier year.

2. (2) The company purchased a proprietary right of a foreign language book written in country A. The related purchase contract was effected in country A. The company was able to provide full documentary evidence to demonstrate the locality of where the purchase contract was effected. The royalty income was earned from an unrelated business in Hong Kong by allowing it to print the book in Hong Kong.

3. Details of interest income received are:
   -Interest on HK$ fixed deposit placed with Citibank, Hong Kong branch. $ 45,000 - Interest on US$ fixed deposit placed with Bank of America, New York branch. $ 65,000 - Interest from a trade customer in Singapore due to overdue accounts $ 10,000

4. (4) To finance the purchase of two residential flats, the company borrowed money from an unrelated company carrying on manufacturing business in Mainland China. Details of the interest paid on the loan is as follows: - Interest paid for the flat in North Point $ 100,000 -Interest paid for the flat in Shatin $ 180,000 The flat in North Point is now leased for rental income and is held as a long-term investment. The flat in Shatin was sold three months after acquisition.

5. The legal fees were incurred to defend the prosecution of a company director for an offence under the Prevention of Bribery Ordinance. The director was convicted and is now in prison.

6. Staff salaries included the following payments made to a technical writer: Severance payment $ 172,000 Reimbursement of traffic fines $ 8,000

7. The taxation expenses were as follows: Hong Kong property tax $ 42,000 Salaries tax paid on behalf of managing director $ 21,000

8. The company paid $10,000 to a supplier as damages to cancel a six months contract for the purchase of paper. The company broke this contract because it found a cheaper source of supply.

9. Contributions to the retirement fund comprise the following: Provision for annual contribution to registered scheme (representing 18% of individual staff salaries), due in April 2020 $39,000 Provision for special contribution to the registered scheme due to the forecasted stormy economy in 2021. $50,000. Records also show that the company had made a special payment of $30,000 to the same scheme in the year ended 31 March 2016.

10. The company director’s room was originally covered with wooden flooring. In the current year of assessment, the company decided to dismantle the wooden floor and install black carpet.

11. In January 2019 the company entered into an agreement with a university in country A to carry out research on the development of an eco-friendly printing method. During the current year of assessment, the company paid $170,000 to the university.

12. Tax depreciation allowance as agreed with the Inland Revenue Department for the year of assessment was $157,000.

13. Required:
    Compute the profits tax liability for Bookcentre Ltd for the year of assessment 2019/20 (ignore provisional tax and tax rebate). Tax computation in proper format and all related workings (if any) must be shown. 

Answer rating: 100% (QA)

ATax payable by Bookcentre Ltd for the year of assessment 201920 The companys tax payable for ... View the full answer