Question 3 Blue Star Company Ltd carries on business in Hong Kong as a textile manufacturer and
Question:
Question 3
Blue Star Company Ltd carries on business in Hong Kong as a textile manufacturer and prepares accounts to 31 December. As at 31 December 2016, the company owned a factory building in Shatin which it purchased from the developer in October 2016. The company carried on its manufacturing business in the lower floor and leased the upper floor to a drug manufacturer which used it to house a laboratory for scientific research and product testing.
Details of the costs incurred by the developer of the building are as follows:
Cost of land $1,500,000
Payment made to existing tenants 600,000
Construction costs 900,000
3,000,000
The company paid the developer a price of $4,000,000 for the factory.
In September 2017, the roof of the factory was damaged by a typhoon. The company replaced the original tiled roof with a roof made of cement at a cost of $450,000.
In October 2017, the company spent $300,000 to construct an extension to the factory.
In November 2017, the company bought another factory in Tuen Mun at a price of $2,750,000 (including the land value of $1,500,000). The factory was originally constructed by the vendor for its own use at a cost of $900,000 but due to a change in the company's policy, it had not been put into use and was sold to the company at a fair market price. The factory was immediately put into use.
Required:
Compute the depreciation allowances for Blue Star Company Ltd for all relevant years of assessment. Give explanations where necessary.
Expert Answer:
Calculating Depreciation Allowances for Blue Star Company Ltd Factory in Shatin Cost of land Land is not depreciable Payment to existing tenants This is not part of the buildings cost and is not depre... View the full answer
