ACT B414 Taxation s Question 3 (35 marks) Impractical Education Limited CIEL\'),

Question

ACT B414 Taxation s Question 3 (35 marks) Impractical Education Limited CIEL'), a Hong Kong incorporated company, provides professional teaching services to various organizations and clients. IEL's statement of profit or loss for the year ended 31 December 2016 is as follows: Income Service income Interest income 11,250,000 2 27,000 Profit on disposal of fixed assets 5,000 1,282,000 Expenses Salaries and wages Legal and professional fees Provident fund Depreciation Insurance Bank charges and interest Exchange gain Travelling costs-overseas Advertising Printing and stationery Provision for accounts receivables Donations to Community Chest Sundry expenses 300,000 50,000 90,000 59,000 3,500 5 20,000 6 (1,000) 19,000 11,000 130,000 72,000 8,500 8 59.000 (751,000) 531,000 Profit before tax The following notes provide further details of IEL's operations during the year During the year, IEL gave two seminars in Singapore, for which it received a total remuneration of $150,000. The remuneration covered learning materials, seminar facilitators and other teaching- related equipment. The travel costs from Hong Kong to Singapore for the facilitators totalled $19,000 1 2 Interest income comprises the following: $20,000 from a USS fixed deposit placed with HSBC, New York branch i $2,000 from a HKS savings account placed with HSBC, Hong Kong branch ii ii $5,000 from local customers who were late in settlements

Explanation / Answer

a. Income from Business (A) Particulars $ Profit before tax as given in question 531000 Add: Items wrongly debited /Items should be credited Profits on Disposal of fixed assets 5000 Tax filing penalty 8000 singapore personla income tax for staff 18000 Depreciation already debited 59000 Accrual for special contribution to provident fund (90000-60000) 30000 Donation to Community Chest 8500 659500 Less: Items wrongly credited/ Items should be deducted Depreciation allowed 65000 Interest Income from fixed deposits 20000 Interest Income from saving account 2000 Exchange gain on settlement 1000 Income from Profits 571500 Income from Other sources (B) Particulars $ Interest Income from fixed deposits 20000 Interest Income from saving account 2000 Exchange gain on settlement 1000 Patent to produce certain materials 800000 Income from other sources 823000 TOTAL TAXABLE INCOME (A+B) 1394500 Less: Tax loss from previous year 88000 Net Taxable Income to be Taxed 1306500 b. Item 4 Where actiual payment is not made within the due date, it is not allowable expense. So, accrual for a specific contribution in December,2016 will be added back to nullify the deduction. Item 6 Exchange gain included in the calculation of profits from business should be excluded and to be included in other sources income Item 8 Tax late filing penalty is not allowable in profit & loss account so added back to nullify the deduction.    Also Singaporepersonal income tax for staff is not allowable so added back.

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