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Question 18 (15 marks) SUPER SPACE Ltd (SS) is a company carrying on trading business in Hong Kong. SS also owns properties for both resale and rental purposes. The income statement for the year ended 31 December 2017 is shown below: SS Ltd Income Statement for the year ended 31 December 2012 $ $ Notes 2 and 3 2,420,000 400,000 380,000 200,000 57.000 3.457.000 Trading profits Profit from sale of properties Rental income Compensation Interest income Less: Directors fees Staff salaries Bank interest expense Other interest expense Legal fees Rent and rates Tation expenses Retirement contribution Depreciation Sundries (all allowable) Insurance Net profit OR 120,000 300,000 263,000 370,000 140,000 $1,000 100.000 130.000 48.000 34.000 22.000 10 (1 610.000) 1.847,000 The supplementary information in support of the income statement is as follows: (ANSS s trading profits and rental income arise in Hong Kong Profits ansing from the sale of properties held for resale are exable for Hong Kong profits tax parties Dunng the yea SS sold two properties A and B which were acquired in 2014) to third parties as y Fong Kong and was latino at Property held for resale whereas Property B Matelasted as proper for rental (fixed ste) in statement of financial (4) During the year, SS received compensation of $200,000 from a Hong Kong customer who terminated a sales contract without reasonable cause. The payment was agreed by both parties as being in settlement of any further dispute. (5) Details of interest income received during the year are: $ HK$ fixed deposit with Chartered Bank, Hong Kong 20,000 US$ fixed deposit with Bank of America, US 35,000 Trade customer in Hong Kong for debt overdue 2,000 57.000 (6. The bank interest expense was incurred on the current account balance overdrawn and used solely for the trading operations. () Other interest expense related to two loans borrowed from a lender company carrying on business in Mainland China. The loans were specifically used to finance the acquisitions of the following tivo properties in Hong Kong Classified as Loan interest Property C Property for rental (fixed asset) $150.000 Property D Property for resale $220,000 Thevender company is not associated with SS and the properties are used as security against the respective loans (8) Legal fees were incurred for a prosecution brought against one of SS s directors for an offence under the Presention of Bribery Ordinance. The litigation is still under appeal (9) Taxation expenses were made up of Property tax paid by SS 60,000 Salaries tax of a director, paid and borne bu $s 40.000 100.000 (10) Contributions to the exempted registered retirement scheme are made up of $ Provision for annual contribution (20% of each member of 80.000 staffs Salary) Prosinon for a special contribution to the same scheme 70.000 to be paid in the next accounting year (10) Contributions to the exempted registered retirement scheme are made up of: $ Provision for annual contribution (20% of each member of 60,000 staffs salary) Provision for a special contribution to the same scheme 70,000 (to be paid in the next accounting year) 130,000 SS also made a special contribution of $30,000 to the above scheme during the accounting year ended 31 December 2014. 12 (11) SS's tax written down values as at 31 December 2016 for plant and machinery and the qualifying com for commercial building allowance were: 20% pool 30% pool Commercial Building Allowance $20,000 $30,000 $2,000,000 There was no movement in qualifying assets during the year. Required: Prepare a Profits Tax Computation to calculate Hong Kong profits tax liability of SS Ltd in respect of the year ended 31 December 2017. State clearly the year of assessment and relevant basis period and show all vour workings. Ignore provisional profits tax and tax rebate or reduction, if any. No detailed explanations are required in this question (15 marks) Question 18 (15 marks) SUPER SPACE Ltd (SS) is a company carrying on trading business in Hong Kong. SS also owns properties for both resale and rental purposes. The income statement for the year ended 31 December 2017 is shown below: SS Ltd Income Statement for the year ended 31 December 2012 $ $ Notes 2 and 3 2,420,000 400,000 380,000 200,000 57.000 3.457.000 Trading profits Profit from sale of properties Rental income Compensation Interest income Less: Directors fees Staff salaries Bank interest expense Other interest expense Legal fees Rent and rates Tation expenses Retirement contribution Depreciation Sundries (all allowable) Insurance Net profit OR 120,000 300,000 263,000 370,000 140,000 $1,000 100.000 130.000 48.000 34.000 22.000 10 (1 610.000) 1.847,000 The supplementary information in support of the income statement is as follows: (ANSS s trading profits and rental income arise in Hong Kong Profits ansing from the sale of properties held for resale are exable for Hong Kong profits tax parties Dunng the yea SS sold two properties A and B which were acquired in 2014) to third parties as y Fong Kong and was latino at Property held for resale whereas Property B Matelasted as proper for rental (fixed ste) in statement of financial (4) During the year, SS received compensation of $200,000 from a Hong Kong customer who terminated a sales contract without reasonable cause. The payment was agreed by both parties as being in settlement of any further dispute. (5) Details of interest income received during the year are: $ HK$ fixed deposit with Chartered Bank, Hong Kong 20,000 US$ fixed deposit with Bank of America, US 35,000 Trade customer in Hong Kong for debt overdue 2,000 57.000 (6. The bank interest expense was incurred on the current account balance overdrawn and used solely for the trading operations. () Other interest expense related to two loans borrowed from a lender company carrying on business in Mainland China. The loans were specifically used to finance the acquisitions of the following tivo properties in Hong Kong Classified as Loan interest Property C Property for rental (fixed asset) $150.000 Property D Property for resale $220,000 Thevender company is not associated with SS and the properties are used as security against the respective loans (8) Legal fees were incurred for a prosecution brought against one of SS s directors for an offence under the Presention of Bribery Ordinance. The litigation is still under appeal (9) Taxation expenses were made up of Property tax paid by SS 60,000 Salaries tax of a director, paid and borne bu $s 40.000 100.000 (10) Contributions to the exempted registered retirement scheme are made up of $ Provision for annual contribution (20% of each member of 80.000 staffs Salary) Prosinon for a special contribution to the same scheme 70.000 to be paid in the next accounting year (10) Contributions to the exempted registered retirement scheme are made up of: $ Provision for annual contribution (20% of each member of 60,000 staffs salary) Provision for a special contribution to the same scheme 70,000 (to be paid in the next accounting year) 130,000 SS also made a special contribution of $30,000 to the above scheme during the accounting year ended 31 December 2014. 12 (11) SS's tax written down values as at 31 December 2016 for plant and machinery and the qualifying com for commercial building allowance were: 20% pool 30% pool Commercial Building Allowance $20,000 $30,000 $2,000,000 There was no movement in qualifying assets during the year. Required: Prepare a Profits Tax Computation to calculate Hong Kong profits tax liability of SS Ltd in respect of the year ended 31 December 2017. State clearly the year of assessment and relevant basis period and show all vour workings. Ignore provisional profits tax and tax rebate or reduction, if any. No detailed explanations are required in this question (15 marks)