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Practical Question 4- Tax On Profit for Trading Company

 

Top Trading Group Co.,Ltd is merchandising company, and company has two major products.

Under the tax regulations, Top Trading Group Co.,Ltd is required to calculate and pay annual Tax on Profit. The following extracts of transactions for financial statement in relation to the tax year ended 31 December 2016.

Top Trading Group Co.,Ltd

 

Income Statement

 

For 2016

 
  Note
Sale:  
    Sale from Product 1 ………………………..          220,000  
    Sale from Product 2 ………………………..          110,000  
    Sale from Other Products ……………….          176,000  
Total Sale ……………………………………..          506,000  
Cost of Goods Sold:  
    Product 1-COGS …………………………………….          151,800 1
    Product 2-COGS ………………………………….            99,000 1
    Other Products-COGS …………………………..          123,200 1
 Total COGS ……………………………………..          374,000  
 Gross Profit …………………………………….          132,000  
    Other Income – Office Rental Income …………              3,000  
Total Expense:  
   Advertising ……………………………………………..              4,400 2
   Salary ……………………………………………………..              9,000  
   Office supply …………………………………………..                 600  
   Electricity …………………………………………..              2,000  
   Water supply…………………………………………..                 350  
   Rental ……………………………………………………            18,000  
   Telephone and Internet…………………………                 880  
   Depreciation…………………………………………..               6,750 3
   Interest expense……………………………………              1,600 4
   Other expense……………………………………            10,500 5
Total Expense…………………………………………..            54,080  
Profit/(loss) before tax …………………………………            80,920  

The following notes are as follows:

Note 1

Company has no beginning and ending inventories.

Note 2

Company included previous marketing expense 2015 of $400.

Note 3

Depreciation expense with accounting policy is $6,750, but depreciation allowance with tax law is $7,500.

Note 4

Interest expense from local bank is $1,000, and remaining interest is from oversea bank.

Note 5

  • One customer among other customers is bankrupt, so company wrote off this debt of $2,000.
  • Company has policy for returning product 1 from customers for repairing within two months after selling products, so company made provision for warranty expense on product 1 is $4,000.
  • Repair and maintenance of company’s car is $500.
  • Entertainment party for staffs is $ 2,500.
  • Patent expense is $300.
  • Top Trading Group Co.,Ltd donated $1,200 for homeless people.

Required:

 Prepare extracts of income statement, costs of goods sold table and Tax on Profit Calculation Table which are completed and complied with tax form requirement as follows:

  1. Components of income statement are from Bo to B42 if any.
  2. Components of costs of goods sold table are from D1 to D9 if any.
  3. Components of Tax on Profit Calculation Table are from E1 to E30 if any.

 

 

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