Cheung & Chan Ltd ("CC") carried on a trading business in Hong Kong. CC operated a head office in Hong Kong and maintained a branch in Taiwan. While all profits of the Hong Kong head office were returned as assessable profits, all profits of the Taiwan branch were agreed by the Inland Revenue Department as not derived from Hong Kong. CC makes up its accounts annually to 31 December.

The tax written down values brought forward from 2018/19 in respect of the plant and machinery of the business were as follows:

20% Pool $1,440,000

30% Pool $960,000

The following information was extracted from its fixed assets register for the year ended 31 December 2019:

Date Particulars

1 January 2019 CC purchased a computerised production system at a cost of $200,000. The system was used by a sub-contractor of CC to manufacture goods in Hong Kong.

15 March 2019 CC sold an office equipment at a price of $120,000. The acquisition cost of the equipment was $160,000. The accounting net book value as at 31 December 2018 of the equipment was $80,000.

1 May 2019 The Taiwan branch transferred a car to the Hong Kong head office. The Taiwan branch acquired the car in November 2018 at a price of $1,200,000.

The Hong Kong head office transferred certain office furniture to the Taiwan branch. The market value of the furniture was $200,000 in May 2019. The furniture was acquired in June 2017 at a price of $200,000, with accounting net book value of $240,000 as at 31 December 2018.

1 July 2019 CC bought a second-hand air pollution control machine (30% pool, if applicable) on hire purchase terms (cash price $800,000). A down-payment of $200,000 was paid on 1 July 2019. The monthly instalment was $48,000 (fifteen instalments, with the first instalment due on 1 July 2019). Initial repair expense of $48,000 was paid for obtaining the operating permit from the government. Also, installation costs of $60,000 was incurred.

Required:

For the purposes of Hong Kong profits tax, compute the depreciation allowances and other deductions, if any, to which CC was entitled to for the year of assessment 2019/20. Show all your workings. Explanatory notes writing is NOT required.

Tax Rates

Standard rate 15%

Corporate profits tax rate

First $2,000,000 8.25%

Remainder 16.5%

Progressive rates

First $50,000 2%

Next $50,000 6%

Next $50,000 10%

Next $50,000 14%

Remainder 17%

Tax Reduction (where applicable)

Percentage of reduction 100%

Maximum per case $20,000

Personal Allowances $

Basic 132,000

Married person's 264,000

Child - 1st to 9th (each) 120,000

Additional (for year of birth, each) 120,000

Dependent parent / grandparent (each)

Basic 50,000

(aged 55 or above but below 60: $25,000)

Additional 50,000

(aged 55 or above but below 60: $25,000)

Dependent brother / sister (each) 37,500

Single parent 132,000

Personal disability 75,000

Disabled dependant (each) 75,000

Deductions (maximum)

Self-education expenses 100,000

Home loan interest 100,000

Elderly residential care expenses 100,000

Contributions to recognised retirement schemes 18,000

VHIS policy premiums (for each insured person) 8,000

Annuity premiums and tax deductible MPF voluntary contributions 60,000

Depreciation Allowance

Plant and machinery

Initial - 60%

Annual - Air-conditioning plant: 10%

Furniture and fixtures, office equipment, room air-conditioning units,

domestic appliances: 20%

Motor vehicles, electronic data processing equipment (computer),

electric cookers, production machines: 30%