Question 3 Full Wealth Ltd (FWL) carries on business in Hong Kong. Its gross profits was...

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Question 3 Full Wealth Ltd ("FWL") carries on business in Hong Kong. Its gross profits was returned as chargeable to Hong Kong profits tax. For the year ended 31 March 2022, FWL reported an accounting profit of $4,380,000, which was arrived at after including the following income and expenses: Income Investment income Gain on disposal of trademark Note 1 179,000 2 140,000 Expenses Bad debts 3 117,600 Contributions to recognised retirement scheme 4 538,600 Depreciation 473,000 Donation 88,000 Interest expenses 6 264,200 Legal and professional fees 7 233,500 Research and development 8 660,000 Taxation 9 494,170 $ 6. Interest paid to HSBC bank, the borrowings were secured by a mortgage over FWL's office premises 163,700 Interest paid to DBS bank, the borrowings were secured by the deposits placed with the bank (see note 1 above) Hire purchase interest incurred on the purchase of equipment used in the business 95,000 5,500 264,200 All the bank borrowings were used to finance the company's business operations in Hong Kong. 7. Fee for annual audit and tax filing 70,200 Fee for lodging objection to the profits tax assessment for 2020/21 20,000 Stamp duty and legal fee for acquiring a warehouse 133,000 Fee for collection of trade debts 10,300 233,500 8. Salaries paid to research staff 490,000 Equipment acquired for research and development 170,000 660,000 Notes: 1. Dividends from shares listed on the stock exchange in Singapore Interest on deposits placed with HSBC bank, Hung Hom branch Interest on deposits placed with DBS bank in Singapore* Interest on long term qualifying debt instruments 77,000 33,000 51,000 18.000 179,000 *The deposits were used to guarantee bank borrowings (see note 6 below). 2. FWL acquired a registered trademark for use in Hong Kong for $500,000 in December 2018 from an unrelated company. The trademark was sold for $640,000 during the year and the gain was recognised in the accounts. 3. Trade debts written off 24,600 100,000 (30,000) 23,000 117,600 Staff loan written off Bad debts recovered (trade debts written off in prior years) Allowance for doubtful accounts* *The allowance was made based on an ageing analysis of the trade debts outstanding at the end of the year. The qualifying research and development activities were wholly undertaken in Hong Kong. 9. Profits tax paid and provision Salaries tax paid for a senior staff 410,000 84,170 494,170 10. The total amount of depreciation allowances agreed by the Inland Revenue Department for the year was $510,000. Required: (a) Compute the Hong Kong profits tax liability of Full Wealth Ltd for the year of assessment 2021/22. Ignore provisional tax. (17 marks) (b) Analyse the tax treatments of the following items under the Inland Revenue Ordinance: (i) investment income (note 1); and (ii) interest expenses (note 6). (11 marks) Total: 28 marks 4. Ordinary contributions made at 5% of employees' salaries Ordinary contributions made at 20% of directors' fees 5. 298,600 240,000 538,600 FWL donated cash of $38,000 to Red Cross and slow moving inventory with cost of $50,000 to an elderly centre. Both organisations are approved charitable institutions. .... Question 3 Full Wealth Ltd ("FWL") carries on business in Hong Kong. Its gross profits was returned as chargeable to Hong Kong profits tax. For the year ended 31 March 2022, FWL reported an accounting profit of $4,380,000, which was arrived at after including the following income and expenses: Income Investment income Gain on disposal of trademark Note 1 179,000 2 140,000 Expenses Bad debts 3 117,600 Contributions to recognised retirement scheme 4 538,600 Depreciation 473,000 Donation 88,000 Interest expenses 6 264,200 Legal and professional fees 7 233,500 Research and development 8 660,000 Taxation 9 494,170 $ 6. Interest paid to HSBC bank, the borrowings were secured by a mortgage over FWL's office premises 163,700 Interest paid to DBS bank, the borrowings were secured by the deposits placed with the bank (see note 1 above) Hire purchase interest incurred on the purchase of equipment used in the business 95,000 5,500 264,200 All the bank borrowings were used to finance the company's business operations in Hong Kong. 7. Fee for annual audit and tax filing 70,200 Fee for lodging objection to the profits tax assessment for 2020/21 20,000 Stamp duty and legal fee for acquiring a warehouse 133,000 Fee for collection of trade debts 10,300 233,500 8. Salaries paid to research staff 490,000 Equipment acquired for research and development 170,000 660,000 Notes: 1. Dividends from shares listed on the stock exchange in Singapore Interest on deposits placed with HSBC bank, Hung Hom branch Interest on deposits placed with DBS bank in Singapore* Interest on long term qualifying debt instruments 77,000 33,000 51,000 18.000 179,000 *The deposits were used to guarantee bank borrowings (see note 6 below). 2. FWL acquired a registered trademark for use in Hong Kong for $500,000 in December 2018 from an unrelated company. The trademark was sold for $640,000 during the year and the gain was recognised in the accounts. 3. Trade debts written off 24,600 100,000 (30,000) 23,000 117,600 Staff loan written off Bad debts recovered (trade debts written off in prior years) Allowance for doubtful accounts* *The allowance was made based on an ageing analysis of the trade debts outstanding at the end of the year. The qualifying research and development activities were wholly undertaken in Hong Kong. 9. Profits tax paid and provision Salaries tax paid for a senior staff 410,000 84,170 494,170 10. The total amount of depreciation allowances agreed by the Inland Revenue Department for the year was $510,000. Required: (a) Compute the Hong Kong profits tax liability of Full Wealth Ltd for the year of assessment 2021/22. Ignore provisional tax. (17 marks) (b) Analyse the tax treatments of the following items under the Inland Revenue Ordinance: (i) investment income (note 1); and (ii) interest expenses (note 6). (11 marks) Total: 28 marks 4. Ordinary contributions made at 5% of employees' salaries Ordinary contributions made at 20% of directors' fees 5. 298,600 240,000 538,600 FWL donated cash of $38,000 to Red Cross and slow moving inventory with cost of $50,000 to an elderly centre. Both organisations are approved charitable institutions. ....