CTF Ltd carries on business in Hong Kong. It prepares its accounts to 31 March each year. The following summary is extracted from its account and notes for the year ended 31 March 2019.

Gross profit from trading$7,221,000

Profit on sale of technical know-how (Note 1) 100,000

Compensation received (Note 2) 140,000

Dividends received from unquoted shares (Note 3) 110,000

Interest received (Note 4) 80,000

$7,651,000

Less: Salaries and allowances3,100,000

Directors' remuneration1,300,000

Rent and rates (Note 5)320,000

Telephone, water and electricity 66,000

Interest (Note 6) 168,000

Bad debts (Note 7) 230,000

Legal and professional fees (Note 8) 138,000

Advertising 150,000

Repairs and maintenance (Note 9) 640,000

Discounts allowed 25,000

Contributions to MPF (Note 10) 600,000

Donations (Note 11)1,000,000

Insurance 40,000

Travel and transportation (Note 12) 220,000

Motor vehicles expenses (Note 13) 181,000

Depreciation 262,000

Sundry expenses (Note 14) 410,000$8,850,000

Loss for the year $(1,199,000)

Notes:

(1) Sale proceeds of technical know-how 1,100,000

Less: purchase cost 1,000,000

100,000

The purchase cost had been allowed for deduction in the year of assessment 2014/15.

(2) Compensation received from a customer for the cancellation of one of

the sales contracts80,000

Compensation received for loss of trading stock10,000

Compensation received for loss of a motor vehicle50,000

140,000

(3) Dividends from shares listed in Hong Kong72,000

Dividends from a private company in Hong Kong38,000

110,000

(4) Interest on loan to customers20,000

Interest on a fixed deposit placed with a bank in Hong Kong60,000

80,000

(5) Rent for office premises84,000

Rent for director's quarters220,000

Rates for office premises16,000

320,000

(6) Interest paid to a director of the company52,000

Interest paid on a loan from a local bank. The loan was

secured by a director's deposit, which was smaller than the

loan. The director received interest of $47,000 from the deposit 116,000

168,000

(7)Bad debts

Trade debts written off110,000 General allowance b/f 40,000

Loan to a customer written off 90,000 Profit and loss account230,000

General allowance c/f 70,000

270,000270,000

(8) Audit fee 50,000

Collection of trade debts8,000

Handling of investigation by Inland Revenue Department 80,000

138,000

(9) Renovation of office premises450,000

General repairs of fixed assets190,000

640,000

(10) Special contribution 400,000

Annual contributions* 200,000

600,000

*The annual contributions did not exceed 10% of each employee's remuneration.

(11) Cash donations to Community Chest860,000

Donation of prizes for lucky draw for staff at the company's

annual dinner140,000

1,000,000

(12) Overseas business trips 90,000

3-day Taiwan tour for company's employees33,000

Transportation of goods to customers97,000

220,000

(13) Petrol 64,000

Repairs 20,000

Parking charges 90,000

Traffic fines7,000

181,000

(14) Profits tax paid123,000

Property tax paid for director 66,000

Other allowable expenses for tax purposes221,000

410,000

Other information:

The assessor agreed that the company was entitled to total depreciation allowances for plant and machinery of $141,000 for the year of assessment 2018/19.

REQUIRED:

a) Compute CTF Ltd's profits tax liability, if any, for the year of assessment 2018/19. Ignore provisional profits tax. Show all your workings.

b) Give explanations to illustrate the correct tax treatment, including the underlying reasoning in respect

of:

(i)the dividends (Note 3)

(ii) the interest expenses (Note 6)

(iii) the donations made to the Community Chest(Note 11)

All workings must be shown.