Question 5 a) On 1 January 2018, Apple Limited took up a 5-year lease of an office which was in a bad state of repair at a rent of $20,000 per month for the first 12 months. The rent was then increased to $40,000 per month for the next 4 years. During the year ended 31 December 2018, Apple Limited incurred $120,000 to renovate the office into a usable condition before moving into it. b) Beet Limited has a practice of paying a gratuity to the retiring employees who have worked for the company for more than 3 years. The gratuity is based on the years of service of the employee in the company. Beet Limited paid $3,000,000 as gratuity during the year ended 31 December 2018. c) Cherry Limited had a sales office in Wanchai. However, it was found that it was not profitable to retain the sales office. During the year ended 31 December 2018, the sales office was closed down with a payment of $200,000 to the landlord to cancel the lease ent. d) During the year ended 31 December 2018, Durian Limited incurred $50,000 to repair the machinery which was damaged during the typhoon and recovered $35,000 from its insurance company for this damage. e) On 1 January 2017, Eel Limited (with 31 December as accounting year-end) let a residential flat in Kowloon to Mr Chan for a monthly rent of $10,000 for a period of 5 years. On 1 January 2018, Eel Limited sold the right to receive rent for two years to Fan Limited for a consideration of $220,000. On 1 January 2020, Eel Limited sold the residential flat with Mr Chan maintaining his tenancy and obtained a disposal gain of $1,000,000. Required: Assume all the above companies carry on businesses in Hong Kong and all their profits are derived from Hong Kong. Critically evaluate the deductibility/taxability of the above expenditures/receipts. [Word limit is 300 words] [4 marks for (a), 2 marks for (b), 2 marks for (C), 2 marks for (d), 6 marks for (e)] (16 marks)