Funny Limited carries on a trading and distribution business in Hong Kong. The below is information extracted from the company’s financial statements for the year ended 31 March 2021, which indicated net income of $7,123,000 after taking into account the following items:

	Note	$
Income:
Dividend income		33,000
Interest income	1	74,700
Profit on disposal of fixed assets		121,000
Compensation	2	100,000
Expenses:
Bad debts	3	79,200
Depreciation	4	321,500
Donations	5	148,800
Interest	6	963,000
Legal and professional fees	7	130,400
Repairs and maintenance	8	142,600

Notes to the accounts:

	$
1. Interest income:	27,000
Interest on deposits placed with DBS Bank in Hong Kong	44,000
Interest on loan advanced to a director *	3,700
Interest on overdue trade debts	74,700

* The company has advanced a low-interest rate loan to a director to finance his acquisition of a residential property in Taiwan. The funds were remitted to his bak account in Taiwan.

2. One of the company's distributors has terminated the distribution contract with the company and paid compensation of $100,000 as liquidated damages pursuant to the contract.

3. Bad debts:
Increase in allowance for doubtful account computed at various	$
percentages of trade debts outstanding based on their ageing	26,000
Writing off of trade debts for which recovery action taken in vain	113,200
Partial recovery of a loan advanced to a distributor (written off as
bad in 2018	(60,000)
	79,200

4. Depreciation

Funny Limited incurred the following capital expenditure and sold equipment in the year ended 31 December 2021.

- Proceeds of $30,000 from the sale of furniture which qualifies for 20% annual allowance (cost $100,000).

- Proceeds of $450,000 from the sale of vehicles which qualifies for 30% annual allowance (cost $450,000).

- Purchase of a vehicle with qualifies for annual allowance of 30% at a cost of $450,000.

- Purchase of office furniture which qualifies for annual allowance at a cost of $100,000.

The WDV for 20% and 30% pool were $572,000 and $200,000, respectively.

5. Donations:	$
Cash donated to Red Cross Hong Kong	50,000
Purchase of a commemorative banknote (the proceeds of which)
were to be donated to an approved charity in Hong Kong	88,800
Purchase of raffle tickets issued by Tung Was Group of Hospitals	10,000
	148,800

6. Interest:	$
Bank interest paid to DBS Bank (banking facilities being secured
by the deposits placed with same bank, see note 1 above)	163,000
Debenture interest *	800,000
	963,000

* The debentures were listed on a recognised stock exchange. Throughout the year, 20% of the debentures were held by Affluent Limited, a fellow subsidiary carrying on trading business in Taiwan.

7. Legal and professional fees:	$
Annual retainer fe for general legal consultation	30,000
Legal fees for recovery of a loan to a distributor (see note 3 above)	5,000
Fine for illegal parking	2,000
Other (allowable)	93,400
	130,400

8. Repairs and maintenance:	$
Replacement of carpet	42,000
Renovation of showroom **	55,000
Repair of office equipment	16,000
Other (allowable)	29,600
	142,600

** The whole amount incurred has been charged to the income statement.

9. Applicable profits tax rate is 16.5%

Required:

1. Prepare Depreciation Allowance Schedule for Funny for the year of assessment 2020/21. 

2. Prepare the profits tax computation for Funny Limited for the year of assessment 2020/21. Ignore provisional tax and any one-off tax waiver. 

Answer rating: 100% (QA)

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