Question 3 (40 marks) Mr. Chan is the sole shareholder and director of Chan's Company Limited carries on a trading and retailing business in Hong Kong. The company producing accounts to 31 July each year and the trading and profit and loss account for the year ended 31 July 2020 was as follows: Note 1,090,967 Sales Less: Costs of sales Opening stock Purchase 726,776 223,161 Less: closing stock 949,937 (122,562) (827,375) 263,592 Gross profit Less: Expenses Heat and light Wages Repairs Sundry expenses Travel and entertaining Bad debts Depreciation Tax paid 1 2 3 18.324 24,705 8.900 8.542 9,900 5.260 3,650 8,000 $ (87.281) Net profit 176,311 Notes 1. Repairs include the replacement of utensils of $5,000 and $3,900 on a new sign for the shop 2. Sundry expenses include a subscription $5,000 to a health club for Mr. and Mrs. Chan. The balance is allowable expenditure. Page 4 of 7 3. Travel and entertaining: Mr. Chan's car expenses Employee's business travel Entertaining 5,200 1,200 3,500 9.900 4. Bad debts: Loan to an employee, Mrs. Po Increase in general provision Bad debt written off 1,500 3,200 560 5.260 3,000 5. Tax paid Salaries tax of Mrs. Chan (who is not employed by the business) Salaries tax of Mrs. Po 5.000 8.000 6. The IRD have accepted that Mr. Chan used his car 75% for business purposes. 7. Depreciation allowances for the year have been agreed as $5,500. Required Compute the Hong Kong profits tax liability of Chan's Company Limited for year assessment 2020/21. (Ignore two-tiered profits tax rate regime, tax reduction and provisional tax). (Round your answer to integers) (40 marks) Question 3 (40 marks) Mr. Chan is the sole shareholder and director of Chan's Company Limited carries on a trading and retailing business in Hong Kong. The company producing accounts to 31 July each year and the trading and profit and loss account for the year ended 31 July 2020 was as follows: Note 1,090,967 Sales Less: Costs of sales Opening stock Purchase 726,776 223,161 Less: closing stock 949,937 (122,562) (827,375) 263,592 Gross profit Less: Expenses Heat and light Wages Repairs Sundry expenses Travel and entertaining Bad debts Depreciation Tax paid 1 2 3 18.324 24,705 8.900 8.542 9,900 5.260 3,650 8,000 $ (87.281) Net profit 176,311 Notes 1. Repairs include the replacement of utensils of $5,000 and $3,900 on a new sign for the shop 2. Sundry expenses include a subscription $5,000 to a health club for Mr. and Mrs. Chan. The balance is allowable expenditure. Page 4 of 7 3. Travel and entertaining: Mr. Chan's car expenses Employee's business travel Entertaining 5,200 1,200 3,500 9.900 4. Bad debts: Loan to an employee, Mrs. Po Increase in general provision Bad debt written off 1,500 3,200 560 5.260 3,000 5. Tax paid Salaries tax of Mrs. Chan (who is not employed by the business) Salaries tax of Mrs. Po 5.000 8.000 6. The IRD have accepted that Mr. Chan used his car 75% for business purposes. 7. Depreciation allowances for the year have been agreed as $5,500. Required Compute the Hong Kong profits tax liability of Chan's Company Limited for year assessment 2020/21. (Ignore two-tiered profits tax rate regime, tax reduction and provisional tax). (Round your answer to integers) (40 marks)