CC Computer Ltd carries on a business in Hong Kong as a computers distributor for many years. The company was solely owned by Mr. Lee. The company's operating results for the year ended 31 March 2019 are as follows: Gross Profits Interest received (Note 1) Commission received (Note 2) Profit on disposal of fixed asset Sundry income (Note 3) 2.600,000 80,000 55,000 15,000 27.500 2.777,500 Less: Expenses Salaries and bonuses to staff Rent and rates Telephone, telex and postage Entertainment and travelling (Note 4) Legal and professional fee (Note 5) Interest expenses (Note 6) Repairs and maintenance (Note 7) Insurance (Note 8) Salaries to Mr. Lee Provision for bad debts (Note 9) Depreciation for fixed assets Donations (Note 10) Miscellaneous expenses (Note 11) 550.000 350,000 23,500 100,000 65,000 105,000 162,000 (23,000) 162.000 30.000 85,000 6,000 8,000 Net profits 1.623.500 1.154.000 Additional information: (1) Interest received (i) US$ deposits placed with a bank in Singapore (ii) Euro$ fixed deposits with a local bank (iii) Debentures registered in the US (iv) HK$ deposits placed with a local bank (deposits were used to secure for bank borrowings - see note 6) $40,000 16,000 8,000 16,000 $80.000 (2) Commission received from a company in Malaysia for the sale of certain products. Sale contracts were negotiated and concluded by in Malaysia by sending its employees there. (3) Sundry income Dividend from shares investment (listed on Hong Kong stock exchange) Sale of slow-moving stock to staff $10,000 17.500 27.500 $60,000 (4) Entertainment and travelling Air tickets and hotel charges for sales manager's trip to attend an exhibition in the US Entertainment of local customers Travelling expenses in respect of commission income mentioned in note (2) above 30,000 10,000 100.000 (5) Legal and professional fee 2020 AF5208_14_Profits_3_que $45,000 Solicitor fees and stamp duty for the purchase of a new office Solicitor fees for litigation to recover debts from-customers - staff (loan to staff) Registration of trade mark in HK 12.000 3,000 5.000 _65.000 (6) Interest expenses (i) Interest on bank overdrafts (secured by a personal guarantee given by Mr. Lee) (ii) Interest paid to Mr. Lee for a shareholder's loan $8,000 25,000 42,000 (iii) Interest paid to a local bank for a mortgage to finance the purchase of the new office (iv) Interest on bank borrowings secured by the bank deposits as mentioned in (1)(iv) above 30,000 105.000 All borrowings were used to finance the company's operations in Hong Kong. (7) Repairs and maintenance Decoration of new office Repairs and maintenance of office equipment $150,000 12,000 162.000 (8) Insurance account included a credit entry for a compensation of $28,000 received from the insurance company for the loss of stock in a fire. The cost of the stock loss of $32,000 has been written off. Annual fire insurance premium of $5,000 was paid. (9) Provision for bad debts Increase in general provision Trade debts recovered (previously allowed for tax deduction) Specific provision for bad debts - trade debts - staff loans Bad debts written off-loans to customers (the loans were not trade debts) $10,000 (7,000) 12,000 5,000 10,000 30.000 (10) Donations Paid to Tung Wah Group of Hospitals charitable organization) Paid to a hospital in Shenzhen, PRC (approved $1,000 5.000 _6,000 (11) Miscellaneous expenses include office expenses of $6,000 and government traffic fines of $2,000 (12) Depreciation allowance for fixed assets for the year of assessment 2018/19 as agreed with the IRD is $92,000. Required: (a) Prepare the profits tax computation for the year of assessment 2018/19. (b) Explain the tax treatment you have accorded to the issues arising in the above notes. Check figure: Assessable profits: $1,268,000 CC Computer Ltd carries on a business in Hong Kong as a computers distributor for many years. The company was solely owned by Mr. Lee. The company's operating results for the year ended 31 March 2019 are as follows: Gross Profits Interest received (Note 1) Commission received (Note 2) Profit on disposal of fixed asset Sundry income (Note 3) 2.600,000 80,000 55,000 15,000 27.500 2.777,500 Less: Expenses Salaries and bonuses to staff Rent and rates Telephone, telex and postage Entertainment and travelling (Note 4) Legal and professional fee (Note 5) Interest expenses (Note 6) Repairs and maintenance (Note 7) Insurance (Note 8) Salaries to Mr. Lee Provision for bad debts (Note 9) Depreciation for fixed assets Donations (Note 10) Miscellaneous expenses (Note 11) 550.000 350,000 23,500 100,000 65,000 105,000 162,000 (23,000) 162.000 30.000 85,000 6,000 8,000 Net profits 1.623.500 1.154.000 Additional information: (1) Interest received (i) US$ deposits placed with a bank in Singapore (ii) Euro$ fixed deposits with a local bank (iii) Debentures registered in the US (iv) HK$ deposits placed with a local bank (deposits were used to secure for bank borrowings - see note 6) $40,000 16,000 8,000 16,000 $80.000 (2) Commission received from a company in Malaysia for the sale of certain products. Sale contracts were negotiated and concluded by in Malaysia by sending its employees there. (3) Sundry income Dividend from shares investment (listed on Hong Kong stock exchange) Sale of slow-moving stock to staff $10,000 17.500 27.500 $60,000 (4) Entertainment and travelling Air tickets and hotel charges for sales manager's trip to attend an exhibition in the US Entertainment of local customers Travelling expenses in respect of commission income mentioned in note (2) above 30,000 10,000 100.000 (5) Legal and professional fee 2020 AF5208_14_Profits_3_que $45,000 Solicitor fees and stamp duty for the purchase of a new office Solicitor fees for litigation to recover debts from-customers - staff (loan to staff) Registration of trade mark in HK 12.000 3,000 5.000 _65.000 (6) Interest expenses (i) Interest on bank overdrafts (secured by a personal guarantee given by Mr. Lee) (ii) Interest paid to Mr. Lee for a shareholder's loan $8,000 25,000 42,000 (iii) Interest paid to a local bank for a mortgage to finance the purchase of the new office (iv) Interest on bank borrowings secured by the bank deposits as mentioned in (1)(iv) above 30,000 105.000 All borrowings were used to finance the company's operations in Hong Kong. (7) Repairs and maintenance Decoration of new office Repairs and maintenance of office equipment $150,000 12,000 162.000 (8) Insurance account included a credit entry for a compensation of $28,000 received from the insurance company for the loss of stock in a fire. The cost of the stock loss of $32,000 has been written off. Annual fire insurance premium of $5,000 was paid. (9) Provision for bad debts Increase in general provision Trade debts recovered (previously allowed for tax deduction) Specific provision for bad debts - trade debts - staff loans Bad debts written off-loans to customers (the loans were not trade debts) $10,000 (7,000) 12,000 5,000 10,000 30.000 (10) Donations Paid to Tung Wah Group of Hospitals charitable organization) Paid to a hospital in Shenzhen, PRC (approved $1,000 5.000 _6,000 (11) Miscellaneous expenses include office expenses of $6,000 and government traffic fines of $2,000 (12) Depreciation allowance for fixed assets for the year of assessment 2018/19 as agreed with the IRD is $92,000. Required: (a) Prepare the profits tax computation for the year of assessment 2018/19. (b) Explain the tax treatment you have accorded to the issues arising in the above notes. Check figure: Assessable profits: $1,268,000