TV Ltd (the Company), a Hong Kong incorporated company, carries on business in Hong Kong selling toys. For the year ending 31 December 2019, the Company has the following projected income and expenditure: Note Income Net toy sales Finance income 5,000,000 (1) 400,000 20,000 300,000 Interest income Compensation income Expenses Directors' fees Staff costs 5,720,000 (4) 200,000 (5) 700,000 240,000 50,000 16,000 30,000 28,000 40,000 214,000 Office rent and rates Legal and professional fees Interest expenses Insurance Office consumables (all deductible) (6) (7) Donations Selling and distribution expenses Depreciation Loss on asset disposal 180,000 22,000 (10) 1,720,000 4,000,000 Profit before tax for the year Notes: (1) The Company imports toys from the US and sells them through Hong Kong retail outlets. (2) Gain from trading in PRC listed shares Loss from trading in Hong Kong listed shares Exchange gain (unrealised) from the year end conversion of foreign currency bank deposit Total per accounts $480,000 (100,000) 20,000 400,000 (3) Interest on HKS deposit with a bank in Hong Kong Interest on USS deposit with a bank in New York Interest on HKS loan made to an individual employee in Hong Kong Interest on tax reserve certificates bought from HKSAR government Total per accounts $4,000 7,000 8,000 1.000 20,000 (4) In October 2019, a supplier in the US terminated a contract with the Company. Under the terms of the contract, the Company is entitled to receive a compensation of $300,000. Salaries and allowances $400,000 32,000 (5) Regulatory MPF contribution (8% per staff) Special MPF contribution (one-off payment) Payment to a leaving staff member for a promise of not to compete for two years Total per accounts 100,000 168.000 700,000 (6) Audit and tax filing fees Tax advisory fees for lodging a tax appeal Legal fees for claiming compensation from the US supplier [note (4) above] Total per accounts $29,000 12,000 9,000 50.000 Interest on unsecured loan from an overseas associate company for operation Interest on bank overdraft secured by director's personal guarantee Total per accounts $14,000 2.000 16,000 (7) (8) During the year, the Company made donations to the Community Chest of Hong Kong (cash of $30,000) and the Tung Wah Group of Hospitals (toys valued at $10,000). (9) The selling and distribution expenses of $214,000 included $5,000 paid as parking fines. (10) The depreciation charge for the year of $180,000 is calculated based on the projected book value of the Company's fixed assets as at 31 December 2019. During the year, the following additions/disposals are made: (i) Purchase of new computers at a cost of $80,000. Replacement of office carpets at a cost of $50,000. (ii) (iii) Disposal of furniture and fixtures for S15,000. The net book value of the furniture and fixtures was $37,000, resulting in loss of $22,000. (11) The tax depreciation schedules in the Company's 2018/19 tax return showed the tax written down value carried forward to 2019/20 for its 20% and 30% plant and machinery pools are S150,000 and S120,000 respectively. (12) The Company has been filing its Hong Kong profits tax returns on the basis that all of its income is subject to Hong Kong profits tax. As shown in its last profits tax return for the 2018/19 assessment year, a tax loss of $86,000 was eligible for carry-forward to future years. Required: (a) Prepare the profits tax computation for TV Ltd for the year ending 31 December 2019. Clearly identify the year of assessment, the basis period, the net assessable profits/adjusted loss and profits tax payable, if any. Show all your workings including the depreciation allowance calculation. Ignore provisional tax and overseas tax. (33 marks) (b) Assuming that TV Ltd discovered that it has over-reported its assessable profits in its 2018/19 profits tax return due to a missing purchase invoice: (i) advise TV Ltd of any appropriate actions it may take in respect of the understated cost of sales due to the missing purchase invoice if the 2018/19 notice of assessment is issued and received by TV Ltd two days ago. (6 marks) (ii) advise TV Ltd of any appropriate actions it may take in respect of the understated cost of sales due to the missing purchase invoice if the 2018/19 notice of assessment is issued and received by (6 marks) (Total for Question 2: 45 marks) TV Ltd three months ago. TV Ltd (the Company), a Hong Kong incorporated company, carries on business in Hong Kong selling toys. For the year ending 31 December 2019, the Company has the following projected income and expenditure: Note Income Net toy sales Finance income 5,000,000 (1) 400,000 20,000 300,000 Interest income Compensation income Expenses Directors' fees Staff costs 5,720,000 (4) 200,000 (5) 700,000 240,000 50,000 16,000 30,000 28,000 40,000 214,000 Office rent and rates Legal and professional fees Interest expenses Insurance Office consumables (all deductible) (6) (7) Donations Selling and distribution expenses Depreciation Loss on asset disposal 180,000 22,000 (10) 1,720,000 4,000,000 Profit before tax for the year Notes: (1) The Company imports toys from the US and sells them through Hong Kong retail outlets. (2) Gain from trading in PRC listed shares Loss from trading in Hong Kong listed shares Exchange gain (unrealised) from the year end conversion of foreign currency bank deposit Total per accounts $480,000 (100,000) 20,000 400,000 (3) Interest on HKS deposit with a bank in Hong Kong Interest on USS deposit with a bank in New York Interest on HKS loan made to an individual employee in Hong Kong Interest on tax reserve certificates bought from HKSAR government Total per accounts $4,000 7,000 8,000 1.000 20,000 (4) In October 2019, a supplier in the US terminated a contract with the Company. Under the terms of the contract, the Company is entitled to receive a compensation of $300,000. Salaries and allowances $400,000 32,000 (5) Regulatory MPF contribution (8% per staff) Special MPF contribution (one-off payment) Payment to a leaving staff member for a promise of not to compete for two years Total per accounts 100,000 168.000 700,000 (6) Audit and tax filing fees Tax advisory fees for lodging a tax appeal Legal fees for claiming compensation from the US supplier [note (4) above] Total per accounts $29,000 12,000 9,000 50.000 Interest on unsecured loan from an overseas associate company for operation Interest on bank overdraft secured by director's personal guarantee Total per accounts $14,000 2.000 16,000 (7) (8) During the year, the Company made donations to the Community Chest of Hong Kong (cash of $30,000) and the Tung Wah Group of Hospitals (toys valued at $10,000). (9) The selling and distribution expenses of $214,000 included $5,000 paid as parking fines. (10) The depreciation charge for the year of $180,000 is calculated based on the projected book value of the Company's fixed assets as at 31 December 2019. During the year, the following additions/disposals are made: (i) Purchase of new computers at a cost of $80,000. Replacement of office carpets at a cost of $50,000. (ii) (iii) Disposal of furniture and fixtures for S15,000. The net book value of the furniture and fixtures was $37,000, resulting in loss of $22,000. (11) The tax depreciation schedules in the Company's 2018/19 tax return showed the tax written down value carried forward to 2019/20 for its 20% and 30% plant and machinery pools are S150,000 and S120,000 respectively. (12) The Company has been filing its Hong Kong profits tax returns on the basis that all of its income is subject to Hong Kong profits tax. As shown in its last profits tax return for the 2018/19 assessment year, a tax loss of $86,000 was eligible for carry-forward to future years. Required: (a) Prepare the profits tax computation for TV Ltd for the year ending 31 December 2019. Clearly identify the year of assessment, the basis period, the net assessable profits/adjusted loss and profits tax payable, if any. Show all your workings including the depreciation allowance calculation. Ignore provisional tax and overseas tax. (33 marks) (b) Assuming that TV Ltd discovered that it has over-reported its assessable profits in its 2018/19 profits tax return due to a missing purchase invoice: (i) advise TV Ltd of any appropriate actions it may take in respect of the understated cost of sales due to the missing purchase invoice if the 2018/19 notice of assessment is issued and received by TV Ltd two days ago. (6 marks) (ii) advise TV Ltd of any appropriate actions it may take in respect of the understated cost of sales due to the missing purchase invoice if the 2018/19 notice of assessment is issued and received by (6 marks) (Total for Question 2: 45 marks) TV Ltd three months ago