This is a Hong Kong Tax question. Question Mr. X, a sole proprietor, carries on

Question

This is a Hong Kong Tax question.

Question Mr. X, a sole proprietor, carries on a trade in retailing industry. The business produces accounts to 31 March each ycar. The busincss has no loss brought forward from prior periods. He has hired Ms. Y as the office assistant. The trading and profit and loss account for the year ended 31 March 2017 is as follows: Sales Less: Cost of sales 1,090,967 827,375 263,592 Gross profit Less: Expenses: Utilities Wages Repairs Sundry Travel and entertaining Bad debts Depreciation Tax paid 18,324 24,705 8,900 8,542 9,900 5,260 3,650 8,000 4 (87,281) 176,311 Net profit Note: 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 to a fitness club for Mr. and Mrs. X of $5,000. The balance is allowable expenditure Travel and entertaining 3 Mr. X's car expenses Employces' business travel Entertaining for business purposes 5,200 1,200 500 9,900 Bad debts Loan to Ms. Y the office assistant Increase in gencral provisio Bad debt written off I ,500 3,200 Tax paid: Salaries tax of Mrs. X (who is not employed by the business) Salaries tax of Ms. Y 3,000 5,000 8,000 The IRD have accepted that Mr. X used his car 75% for business purposes. Depreciation allowances for the year have been agreed as $5,500 Required a. Compute the net assessable profit of Mr. X for the YA 2016/17 b. Compute the corresponding profits tax payable for the YA 2016/17. Disregard provision tax and tax reduction.

Explanation / Answer

(a) Mr. X's net asseable profit and profit tax computations for YA 2016/17:-

$ $

Profit as per Accounts: 176,311

Add: Non allowable Expenses:

Net Profit Before Depreciation 199,661

Less: Allowable Depreciation -5,500

Net assesable profit    194,161

(b) The corresponding profits tax payable for the YA 2016-17 is:-

$ 194161*28%

$ 54,365.08

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