Evaluate the deductibility of expenditure/loss incurred in each of the following cases:

(a) Company A placed the sale proceeds it received from a local customer into a three-months’ time deposit with a bank in Hong Kong. The account was in Japanese Yen. However, owing to fluctuation in the exchange rate, it suffered an exchange loss when converting the deposit back to Hong Kong dollars.

(b) Company B is an international medicine manufacturer. One of its chief researchers retired and the company paid him a substantial sum of money for entering into an agreement whereby he agreed not to become involved in any activities which might compete directly or indirectly with the company’s business for two years.

(c) In order to maintain a constant source of supply of raw materials, Company C made a loan to one of its major suppliers which had a serious financial problem. However, the supplier later went into liquidation. The company could not recover this loan and it was written off as bad in its accounts.

(d) Company D, a local television company, paid a royalty to a foreign film production company for allowing it to show in Hong Kong certain designated films which were produced offshore. The film production company has no representative office or agent in Hong Kong.

(e) Company E, a manufacturing company, earns profits from the sale of its products in Hong Kong. The products were partly manufactured in Hong Kong and partly in mainland China. The manufacturing activities conducted in the mainland under contract processing arrangements were greatly involved by Company E in terms of expertise, machinery, raw materials and quality control. The following costs were incurred:

(i) cost of machinery used in the mainland factory;

(ii) cost of staff who regularly visited the mainland factory; and

(iii) cost of raw materials used in manufacturing.