Taxation problem

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Reference no: EM1375614

Wu has carried on a business of manufacturing toys in Hong Kong for many years. The business closes its accounts to 31 December each year. The tax written down values of plant and machinery brought forward from the year of assessment 2004/05 are as follows:


10% pool                                                                     142,000
20% pool                                                                     128,000
30% pool                                                                     261,000

Motor van A under hire purchase(30%) (Note 1)         38,000

Motor car X (30%) (Note 2)                                          32,000

(1) The hire purchase instalments had been fully paid in the year of assessment 2004/05. The cash price of motor van A was 5110,000.

(2) The motor car was used partly by Wu for private purposes. The portion attributable to private use was 40%.

You have been supplied with the following movements of plant and machinery of the business during the year ended 31 December 2005:

(1) Two sets of manufacturing machines(AA:30%) were purchased by means of hire purchase under the following, terms:

Cash price:                           S400,000
Down payment                     S40.000 each paid on 1 July 2005
Monthly instalment:              S14,000 each commencing 1 August 2005 for 30months

(2) One manufacturing machine was sold for S500,000. The machine was purchased in April 2003 for S1,400,000. A new manufacturing machine was purchased for $1,200,000.

(3) Motor van A was damaged in an accident and compensation of $40,000 was received from the insurance company. Motor van B(AA:30%) was purchased at a cost of $125,000.

(4) Motor car X was sold for S50,000.The 30%pool includes motor car Y, which has been used by Wu for private purposes since] January 2005. The portion of private use is 40%. Motor car Y was purchased in October 2004 at a cost of S20,000.The assessor agreed that the market value of the motor car on 1 January 1005 was $100.000.

(5) The old air-conditioning plant(AA:10%) was scrapped and it was replaced by a new one costing $120,000.Three air-conditioner units(AA:10%) were purchased at a total cost of $9,000.

Reference no: EM1375614

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