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Question 27

On 1 August 2005, Hing Wong Ltd. purchased from a property development company a newtwo-storeyed building at a price (excluding the value of the land) of $5 million. The buildingwas immediately used by the company for its garment manufacturing business.

On 1 April 2006, the company let out the building to its subsidiary for use as a retail shop.One year later, it repossessed the building and used it again for its manufacturing business.

On 1 May 2008, the company redeveloped the building into a ten-storeyed factory building ata construction cost of $20 million for resale to the public.

On 1 September 2009, the whole building was sold to Tai Fat Ltd. for $30 million (excludingthe value of the land). The company immediately used the building for manufacturing

purposes.

All companies use 31 March as their accounting date.

Required:

Compute the depreciation allowances for Hing Wong Ltd and Tai Fat Ltd for all relevantyears of assessment.

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Question 28

Blue Star Company Ltd. carries on business in Hong Kong as a textile manufacturer andprepares accounts to 31 December. As at 31 December 2008, the company owned a factorybuilding in Shatin which it purchased from the developer in late 2008. The company carrieson its manufacturing business in the upper floor and leases the lower floor to a storage

company who uses it as a godown.

Details of the costs incurred by the developer of the building are as follows:Cost of land $1,500,000Payment made to existing tenants 600,000Construction costs 900,000

3,000,000

The company paid the developer a price of $4,000,000 for the factory.

In September 2009, the roof of the factory was damaged by a typhoon. The companyreplaced the original tiled roof with a roof made of cement at a cost of $450,000.

In October 2009, the company spent $300,000 to construct an extension to the factory.

In November 2009, the company bought another factory in Tuen Mun at a price of$2,750,000 (including the cost of land at $1,500,000). The factory was originally constructed

by the vendor for its own use at a cost of $900,000 but due to a change in the company'spolicy, it had not been put into use and was sold to the company at a fair market price. Thefactory was immediately put into use.

Required:

Compute the depreciation allowances for Blue Star Company Ltd. for the year of assessment2009/10. Give your explanations where necessary.

Check Figures:

Question 26(b)Balancing allowance (Red Ltd.): $1,540,000 restricted to $880,000Annual allowance (Blue Ltd.): $102,222

Question 27Residual before sale (Hing Wong Ltd): $3,400,000Total allowance in Y/A 2009/10 (Tai Fat Ltd): $4,800,000

Question 28Total allowances (Shatin factory): $288,000 (Y/A 2008/09); $120,000 (Y/A 2009/10)Total allowances (Tuen Mun factory): $216,000 (Y/A 2009/10)