Southern Ltd carries on a trading business in Hong Kong whose profits is chargeable to Hong Kong profits tax. The company has accounting profits of $3,600,000 for the year ended 31 March 2023, which was arrived at after taking into account the following items: Income: Dividend Profits from sale of trademark Interest income Expenses: Bad debts Compensation Depreciation Exchange differences Interest expenses Legal and professional fee Repairs and maintenance Donation Profits tax Royalty Notes: 1. 2. Note 1 2 3 4 5 6 7 8 9 10 $ 50,000 250,000 138,500 189,900 120,000 313,000 30,800 543,900 100,200 248,800 74,000 340,000 500,000 The trademark was acquired in June 2010 at a cost of $500,000 from an associated corporation for use in selling a product. The company sold the trademark during the year for $750,000 and a gain on disposal of $250,000 was recognised in the accounts. Interest on time deposits placed with Hang Seng Bank, Hung Hom branch Interest on time deposits placed with Bank of China, Shenzhen branch, securing general banking facilities (see note 6 below) Interest on tax reserve certificates $ 37,000 96,000 5,500 138,500

Southern Ltd carries on a trading business in Hong Kong whose profits is chargeable to Hong Kong profits tax. The company has accounting profits of $3,600,000 for the year ended 31 March 2023, which was arrived at after taking into account the following items: Notes: 1. The trademark was acquired in June 2010 at a cost of $500,000 from an associated corporation for use in selling a product. The company sold the trademark during the year for $750,000 and a gain on disposal of $250,000 was recognised in the accounts. 4. Due to defective products, the company made a compensation payment to a customer to end a lawsuit brought against the company. 5. Exchange gain on collection of trade debts (37,200) Exchange loss on conversion of foreign currency deposits 30,80068,000 6. The banking facility of $6,000,000 with Bank of China (Hong Kong) was used to finance the company's operations in Hong Kong. It was secured by the deposits of $4,000,000 placed with Bank of China in Shenzhen (see note 2 above) and a personal guarantee given by a company director. The loan borrowed from Dah Sing Bank was used to finance the purchase of a warehouse used by the company for the storage of goods and was secured by a mortgage over that property. 9. Botn organzations are approved cnaritaoe insutuuons in Hong Kong. 10. The royalty was paid to Power Ltd, an unrelated company carrying on business in Singapore, for the right to use a trademark in selling a product in Hong Kong. Power Ltd is the registered owner of the trademark in Singapore, Hong Kong, United States and other countries. 11. The total amount of depreciation allowances agreed with the Inland Revenue Department was $582,000 for the year. Required: (a) Compute the Hong Kong profits tax liability of Southem Ltd for the year of assessment 2022/23. Ignore provisional tax. (15 marks) (b) Explain your tax treatments accorded to various items in your tax computation with reference to the Inland Revenue Ordinance and Departmental Interpretation and Practice Notes, including those which require no adjustments in the tax computation. (30 marks)