SECTION A – CASE QUESTIONS (Total: 50 marks)Answer ALL of the following compulsory questions. Marks will be awarded for logical argumentation and appropriate presentation of the answers.Nick is a famous composer. He transferred all the rights of his musical works to a Hong Kong company namely Nick Production Workshop Limited (“NPWL”) for commercial exploitation. Nick is the major shareholder and director of NPWL. During the year ended 31 March 2007, NPWL’s profit and loss account shows the following particulars:$IncomeSale of album 4,008,200Royalty income (Note 1) 379,266Rental income (Note 2) 400,000Compensation received (Note 2) 180,0004,967,466ExpensesAuditor’s remuneration 2,250Bank charges 150Legal fee on transfer of the company’s shares 4,800Staff salary 1,923,117Regular contributions to MPF scheme-Mandatory -Voluntary96,156 200,800Compensation payment (Note 3) 480,000Account receivable written off (Note 4) 729,012Penalty for late filing of tax return 205,000Other operating expenses 228,0003,869,285Profit before taxation 1,098,181Note 1The royalty income was derived from XYZ Music Publishing Limited (“XYZ”), a company incorporated in the UK. In February 2006, the Managing Director of XYZ visited Hong Kong and was impressed by the songs written by Nick. By a licensing agreement dated 16 February 2006 (“the Agreement”), NPWL agreed to grant an exclusive licence to XYZ to exploit the rights of certain music works in the territory of Germany, Australia and New Zealand (“the Territory”) in return for a fee. The fee payable by XYZ to NPWL under the Agreement would be a percentage of the actual income received by XYZ from performance and broadcast of NPWL’s musical works in the Territory.XYZ settled the royalties under the Agreement by transfer from its bank account in Australia to NPWL’s bank account, also maintained in Australia. The sum of $379,266 was the net royalty income after the deduction of applicable overseas withholding tax of $31,119 in Australia and New Zealand.Module D (May 2008 Session)Page 1 of 6

香港注册会计师考试试题TAXATIONMay2008Q