Unit 11 Tutorial Questions

Question 1

Kuby Ltd bought a flat in a factory at Quarry Bay at a purchase cost of $4,000,000 (50% of the
purchase cost attributable to cost of construction) in May 2008. The property was used by Kuby
Ltd for manufacturing electronic products. On 1 January 2018, the property was sold to Sand Ltd
at a price of $2,600,000 (50% of price related to the cost of construction). Sand immediately used
the property for the manufacture of garments. Both accounting dates of Kuby Ltd and Sand Ltd are
31 March.
Required:
(a) Compute the amount of industrial building allowance available to Kuby Ltd for the years of
assessment 2008/09 to 2017/18.
(b) Compute the industrial building allowance that Sand Ltd is entitled to claim in the year of
purchase.
Question 2

Hardware Ltd carries on a plastic manufacturing business in Hong Kong and prepares its accounts
to 30 November each year.
On 1 May 2017, Hardware Ltd purchased a piece of land in Tai Po and built a factory for its own
use. Its construction account shows the following expenditure:

$
Year ended 30 November 2017 Land cost 12,000,000
Cost of leveling the land 500,000
Cost of construction 8,000,000
Bank interest (Note 1) 500,000
Year ended 30 November 2018 Cost of construction 3,000,000
Bank interest (Note 2) 1,150,000

Note (1) Bank interest to finance:

Land cost 350,000
Cost of construction 150,000
500,000
Note (2) Bank interest to finance:
Land cost (up to 30 September 2018) 500,000
(after 1 October 2018) 100,000
Cost of construction (up to 30 September 2018) 450,000
(after 1 October 2018) 100,000
1,150,000

The building was completed on 30 September 2018 and Hardware Ltd used the building
immediately for its trade as follows:
Office 15% Manufacturing 85%

Required:

i) Compute the industrial building allowance which Hardware Ltd is entitled to claim for
the years of assessment 2017/18 and 2018/19. Show all your workings
ii) Explain your treatment of' the bank interest included in the construction account.