THE UNIVERSITY OF HONG KONG

FACULTY OF BUSINESS AND ECONOMICS

ACCT3107 – Hong Kong Taxation

Tutorial Questions
Unit 11– Depreciation Allowance: Plant and Machinery

Question 24

(a) ABC Limited is a trading company. During the year to 31 December 2018, three
items of office furniture (20%) were purchased for $8,000 and two old items (the
cost of which was $3,000 and the tax reducing value was $900) were sold for $700.
The tax reducing value of the assets as at 1 January 2018 was:
20% pool $65,000
30% pool $30,000

Required:

Compute the depreciation allowance for the year of assessment 2018/19 for ABC
Limited.

(b) Mr. Cheung purchased a new delivery van under hire purchase on 1 January 2019 to
replace the old one for his business during the year ending 31 March 2019.

Cost of the new van (cash price) $40,000

Less: Old van trade-in value (5,000)
35,000
Less: Down payment (10,000)
25,000
Add: Interest (5,000)
30,000

The sum of $30,000 is payable by 30 equal monthly installments of $1,000 each

commencing 1 January 2019. The cost of the old van was $20,000 and its tax
written down value as at 1 April 2018 was $4,000. It was the only asset in the 30%
pool of Mr. Cheung’s business.

Required:

Compute the depreciation allowance (or balancing allowance/charge as appropriate)

for the old van and the new van respectively for the year of assessment 2018/19.

Check figures of depreciation allowances:

(a) $27,300
(b) new van: $19,350
old van (balancing charge): $1,000

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Question 25

Wong Company (a sole proprietorship) is an established textile manufacturing business in

Hong Kong. It makes up its accounts annually to 31 March.

The tax written down values of the assets as at 31 March 2018 were as follows:
20% Pool $300,000
30% Pool $200,000

The following particulars were extracted from its plant register for the year ended 31
March 2019:

Date Particulars

1.4.2018 Bought additional office furniture and fixtures for $100,000.

1.6.2018 Bought 10 spinning machines for $30,000 each.

10.7.2018 Installed a computerised weaving machine for $100,000.

1.8.2018 Purchased 4 air-conditioning units for $20,000 for the office.

15.8.2018 Transferred to business use by sole proprietor a motor vehicle (open market
value as at 15.8.2018: $25,000). The vehicle had been bought for private
use on 1.8.2017 for $30,000.

1.11.2018 Sold 2 air-conditioning units for $8,000.

15.1.2019 Sold the computerised weaving machine bought on 10.7.2018 for $110,000.

28.2.2019 Purchased a motor vehicle on hire purchase with monthly installment of

$10,000 for three years, the first installment was due and paid on
31.3.2019. The cash price for the vehicle was $300,000 and the deposit
paid for it on 28.2.2019 was $40,000. The vehicle was imported from
Japan and Wong Company received it on 2.4.2019.

Required:

Calculate the depreciation allowances for Wong Company for the year of assessment
2018/19.

Check figures:
DA: pooling system - $206,300
DA: HP asset - $28,333
Total DA: $234,633

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Question 26

Mr. Wong is the owner of a cold storage business of which the accounts are made up to 31
March. The written down values of various ranking assets as at 31 March 2017
were as follows:
Rate of Written Down
Depreciation Value
% $
Air-conditioning plant 10 1,550,000
Furniture 20 205,000
Delivery trucks 30 950,000
Motor cars 30 630,000
Machinery (under hire purchase, note 7 below) 30 900,000

The following information for the two years ended 31 March 2019 was available:

(1) New furniture at a cost of $150,000 was acquired on 1 July 2017; the scrap value
received for old items disposed of at the same time was $9,000.

(2) One of the trucks was sold on 30 September 2017 for $45,000 and a new one was
purchased on the same date at a cost of $100,000.

(3) On 1 January 2018, Mr. Wong took one of the cars which had previously been
used exclusively for business purposes for his own private use and replaced it with
his own private car which was thereafter used wholly for business purposes. The
open market value of the business car at 1 January 2018 was $64,000 (original cost
$100,000). Mr. Wong's private car was acquired at a cost of $120,000 on 15
October 2015.

(4) On 1 November 2017, Mr. Wong purchased for business use a computer on hire-
purchase terms. The cash price was $68,000. He paid $20,000 deposit and the
balance was to be paid by 12 monthly installments of $5,000 each made up of
$4,000 capital and $1,000 hire-purchase interest. The first instalment was due on 1
December 2017.

(5) On 14 April 2018, a fire broke out in the business premises. On 1 June 2018, the
company received $500,000 insurance compensation of which a quarter was for
damage to the furniture whereas the balance was for damage to the old air-
conditioning plant.

(6) Mr. Wong's son completed his studies abroad and returned to Hong Kong on 3
January 2019. Mr. Wong allowed him to use one of the business cars whenever he
liked. The Assessor agreed that the market value of the car as at 3 January 2019
was $80,000 (original cost $100,000) and that on average one third of the use in
the year was for private purposes by Mr. Wong's son.

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(7) Monthly installment for the machinery bought under hire purchase was $50,000
(including interest portion of $10,000). The last installment was paid on 31 March
2018. The title of the machinery was then transferred to the business on the same
day.

Required:

Compute the depreciation allowances to which Mr. Wong’s business was entitled for the
years of assessment 2017/18 and 2018/19 respectively.

Check figures for 2017/18:

DA: pooling system: $827,140
DA: HP items: $35,520; $471,600
Total DA: $1,334,260

Check figures for 2018/19:

DA: pooling system: $552,138
DA: HP items: $23,184; $16,000
Total DA: $591,322

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