Question Tag: Capital Allowance

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  • 10 Marks

AT – Nov 2024 – L3 – Q5b – Tax Implications of Foreign Acquisition

Evaluate the tax implications of a 70% equity acquisition by a foreign company and the proposed funding option

Baimbil LTD, based in Australia, has decided to acquire a company in Ghana instead of starting a new one.

The shareholders of Borketey LTD, a resident company in Ghana, have decided to sell the company due to cash flow challenges. As a result, Baimbil LTD approached the management of Borketey LTD and engaged a consultancy firm to perform due diligence checks. Following this, Baimbil LTD acquired 70% of the equity of Borketey LTD.

Below is an extract from the books of Borketey LTD for the 2023 year of assessment:

Description Amount (GH¢)
Share Capital 1,000,000
Retained Earnings (500,000)
Shared Deals 50,000
Bad Debts (Sold to MN LTD, now bankrupt) 1,000,000

Proposed Financing by Baimbil LTD:

The following proposals have been tabled for consideration after the acquisition:

  1. Baimbil LTD to provide GH¢100 million as debt with 2% interest above the market rate.
  2. Baimbil LTD to provide GH¢100 million as additional equity capital.
  3. Baimbil LTD to provide collateral for a bank facility of GH¢100 million in Ghana.

Required:

(i) Evaluate the tax implications of the 70% equity acquisition.

(ii) Evaluate the tax implications of the three proposed financing options.

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  • 9 Marks

AT – Nov 2024 – L3 – Q2b – Tax Implications of 100% Acquisition in Mining Operations

Explain the tax implications of a 100% acquisition and compute the gains from the acquisition.

Tongo LTD (Tongo) is a mining company operating in the Upper East Region of Ghana. The following relates to the operations of Tongo for the 2023 year of assessment:

Description GH¢
Revenue (Gross) 200,000,000
Cost of Operations 80,000,000
Margin/Profit 120,000,000

Additional Information:

  1. Tempane Mines LTD acquired 100% interest in Tongo for a consideration of GH¢310,000,000 at the end of 2023.
  2. The cost of assets acquired at their respective acquisition dates are as follows:
Year Cost of Assets (GH¢)
2020 100,000,000
2021 75,000,000
2023 50,000,000

Required:

i) Explain the tax implication of the 100% acquisition.

ii) Compute the gains from the above acquisition and determine how the gains should be treated.

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  • 15 Marks

AT – Nov 2024 – L3 – Q1a – Computation of Partnership Chargeable Income

Compute the partnership's chargeable income for the 2023 year of assessment.

Takyi and Kuro commenced a retail business in Goaso, Ghana on 1 January 2020, under the partnership name Ntaafo LTD, sharing profits and losses equally. On 1 January 2023, Tawia was admitted as a new partner. Takyi, Kuro, and Tawia then shared profits and losses in the ratio of 3:2:1 respectively. The partnership prepares its accounts to 31 December annually.

The partnership’s profit and loss account for the year ended 31 December 2023 is as follows:

Note GH¢ GH¢
Gross Trading Profit 4,365,000
Compensation (1) 50,000
Total Revenue 4,415,000
Less: Operating Expenses
Audit Fees 25,000
Rent and Rates (2) 348,000
Wages and Salaries (3) 1,410,000
Interest on Capital (4) 205,000
Contribution towards National Insurance Scheme 111,000
Trade Debts Written Off (Bad Debts) 92,000
Legal Fees (5) 43,000
Entertainment (6) 270,000
Motor Expenses (7) 87,000
Repairs and Maintenance (8) 190,000
Commission (9) 310,000
Printing and Stationery 82,000
Electricity and Telephone 51,000
Depreciation 123,000
Sundry Expenses 270,000
Total Expenses 3,617,000
Net Profit 798,000

Notes:

  1. Compensation:

    • Compensation received from suppliers for delays in supplies: GH¢70,000
    • Court fines paid to client for negligence: (GH¢20,000)

  2. Rent and Rates:

    • Rent for business premises: GH¢180,000
    • Rent for Takyi’s private residence: GH¢156,000 (Disallowed)
    • Business operating permit paid to Goaso Municipal Assembly: GH¢12,000

  3. Wages and Salaries:

    • Takyi: GH¢180,000
    • Kuro: GH¢240,000
    • Tawia: GH¢66,000
    • Mrs. Takyi (staff): GH¢120,000
    • Mrs. Tawia (staff): GH¢144,000
    • Other staff: GH¢660,000

  4. Interest on Capital:

    • Takyi: GH¢30,000
    • Kuro: GH¢40,000
    • Tawia: GH¢10,000
    • Bank interest: GH¢125,000

  5. Legal Fees:

    • Renewal of annual tenancy agreements: GH¢8,000
    • Collection of trade debts: GH¢10,000
    • Preparing contract documents (suppliers and contractors): GH¢5,000
    • Preparing contract documents to acquire a new company: GH¢20,000 (Disallowed)

  6. Entertainment:

    • The entertainment expenses relate to the partners’ private enjoyment (Disallowed).

  7. Motor Car Expenses:

    • Petrol: GH¢52,000
    • Repairs: GH¢30,000
    • Fines for late renewal of vehicle license: GH¢5,000 (Disallowed)

  8. Repairs and Maintenance:

    • Replacement of bolts and nuts on Plant and Machinery: GH¢10,000
    • Major expenditure on Landscaping and Renovation: GH¢180,000 (Capitalized)

  9. Commission:

    • Takyi (for introducing a new customer to the business): GH¢20,000 (Disallowed)
    • Salesmen and Saleswomen: GH¢230,000
    • Unidentified recipient: GH¢60,000 (Disallowed)

Other Information:

  • Capital allowance agreed with the Ghana Revenue Authority (GRA) was GH¢234,000 for the 2023 year of assessment.

Required:
Compute the partnership’s chargeable income for the 2023 year of assessment.

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  • 10 Marks

PT – Nov 2024 – L2 – Q4a – Chargeable Income Computation

Compute the chargeable income and tax payable for Amasa Architecture and Building LTD for the 2022 and 2023 years of assessment.

Amasa Architecture and Building LTD has been in business for the past seven years. The following information relates to the company’s operations for the years ending 31 December 2022 and 2023.

DETAILS 2022 (GH¢) 2023 (GH¢)
Profit before tax 795,000 2,110,000
Provision for Depreciation 230,000 115,000
Donation to Manhyia Children Home (Approved by Social Welfare Department) 350,000 210,000
Donation towards 2023 Adae Kese Festival 105,000 150,000
Capital allowance agreed with the Ghana Revenue Authority 1,500,000 1,700,000
Withholding tax paid as contained in certificates received 10,000 25,000

Required:
Using the information provided above, compute the chargeable income and tax payable by Amasa Architecture and Building LTD for the years of assessment 2022 and 2023.

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  • 5 Marks

ATAX – May 2017 – L3 – Q2b – Tax Incentives and Reliefs

List five tax incentives for companies utilizing associated gas in downstream operations.

State FIVE incentives available to a company engaged in the utilization of associated gas. (5 Marks)

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  • 20 Marks

ATAX – May 2019 – L3 – Q3 – Taxation of Companies

Prepare capital allowance computations and tax liabilities for Pardo Nigeria Limited based on its financial data and asset acquisitions.

Pardo Nigeria Limited is a manufacturer of polythene bags. It was incorporated on January 1, 2013, but commenced business operations on March 1, 2013. The following is the summary of its adjusted profits for the respective years:

Period Ended Adjusted Profit (₦’000)
December 31, 2013 7,200
December 31, 2014 10,700
December 31, 2015 12,650
December 31, 2016 15,220
December 31, 2017 19,850

The company acquired the following assets:

Date Asset Type Amount (₦’000)
April 5, 2013 Factory building 5,400
January 17, 2014 Office furniture 2,750
December 1, 2014 Motor vehicle 4,500
January 3, 2015 Production plant 1,820

The company sold some of its assets on December 31, 2017 as follows:

Asset Type Cost (₦’000) Proceeds (₦’000)
Office furniture 250,000 35
Production plant 650,000 60

As the newly appointed tax consultant to the company, the managing director sought your advice on both capital allowances available to the company and the tax liabilities resulting from them for the relevant years. He, however, informed you during the finalization of the engagement that the factory building was purchased second-hand from a company that had ceased operation six months earlier.

Required:
Prepare a report addressed to the managing director of the company showing, for all the relevant years:

a. Capital allowance computations (9 Marks)
b. Tax liabilities payable (11 Marks)

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  • 10 Marks

ATAX – Nov 2016 – L3 – Q2c – Petroleum Profits Tax (PPT)

Compute and explain the significance of adjusted profit, chargeable profit, and chargeable tax for Joji Petroleum Company.

Mr. Gillani Azurhi is considering investing in a petroleum company and has provided financial extracts of Joji Petroleum Company Limited for analysis.

Financial Data Provided:

Item N’000
Current year capital allowances 6,080
Previous years’ capital allowances b/f 8,901
Custom duty 125
Royalties not included in accounts 1,638
Loss brought forward 6,250
Petroleum Profits Tax payable 1,336

Tax Rate: 85%

Required:

Compute and explain the significance of each of the following:

i) Adjusted profit (9 Marks)
ii) Chargeable profit (2 Marks)
iii) Chargeable tax (2 Marks)

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  • 30 Marks

ATAX – Nov 2021 – L3 – Q1 – Corporate Tax Compliance and Reporting

Calculation of tax liabilities, corporate tax compliance, and adjustments in financial reporting.

Carrol Nigeria Limited, a medium-sized company, commenced business in 2011. The company has three subsidiaries in the manufacturing of household utensils and baby products. Over the last three years, its fortunes have dwindled due to high costs of imported raw materials, overheads, low patronage from customers, and increasing demands from the host communities for social amenities.

Due to the challenging business environment, the board decided in 2016 to reduce workforce and permanently close one of its subsidiaries. This led to the appointment of a young accountant with limited taxation and fiscal policy knowledge as the Group Accountant after two Finance Department staff were affected.

In the past three years, the company faced challenges with tax authorities on tax compliance. The Group Managing Director was embarrassed when informed by the tax officer that essential records necessary for determining tax liabilities were not maintained. Gaps were also observed in the annual returns filed by the company, and the Revenue Service is conducting a back duty audit.

The Group Managing Director has sought assistance in addressing these challenges and provided documents for recomputation of the company’s income tax liabilities for the year ended December 31, 2020.

The statement of profit or loss for the year ended December 31, 2020, is as follows:

Additional Information:

  1. Other income included ₦320,000 realized from the disposal of an old plant.
  2. Administrative expenses included ₦250,000 paid to a legal practitioner for the defense and release of the company’s driver caught by traffic officers.
  3. 30% of motor running expenses was expended on the personal expenses of the Managing Director.
  4. 20% of the donation was paid to a State Government fund assisting insurgent victims.
  5. Repairs and maintenance included ₦215,000 for erecting a gate destroyed during a youth protest.
  6. Allowance for doubtful debts comprised ₦600,000 in general provision and ₦400,000 in specific provision.
  7. Miscellaneous expenses included ₦450,000 for hamper gifts to customers during Sallah and Christmas.
  8. A review revealed the gross turnover was understated by ₦750,000.
  9. The following is the schedule of qualifying capital expenditure on property, plant, and equipment:
    Nature Date of Acquisition Amount (₦’000)
    Factory building September 8, 2016 3,800
    Furniture & fittings October 12, 2016 1,600
    Motor van June 19, 2018 4,200
    Factory building March 8, 2020 6,500
    Furniture & fittings April 15, 2020 2,000
    Industrial plant July 1, 2020 5,700
    Motor van December 20, 2020 4,240
  10. Unutilized capital allowances brought forward was ₦1,500,000, with a balancing charge of ₦155,000 on disposal of the old plant.

Required:
As the company’s tax consultant, prepare a report to the Group Managing Director covering the following:

a. Provisions of the Companies Income Tax Act CAP C21 LFN 2004 (as amended) and Finance Act 2020 regarding maintenance of books or records of accounts (4 Marks)

b. Back duty audit and its implications (4 Marks)

c. Computation of the company’s tax liabilities (with supporting schedules) for the relevant tax year (22 Marks)

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  • 20 Marks

AT – May 2024 – L3 – SB – Q2 – Taxation of Specialized Businesses

Calculation of hydrocarbon tax payable by New Rain Petroleum and analysis of tax implications for deep offshore investment.

New Rain Petroleum Company Limited has been operating in the onshore and shallow water areas of the Niger Delta region for over fifteen years. The company was granted a petroleum mining lease license in January 2021. In its bid to improve profitability, the company’s management intends to apply for a license to operate in the deep-sea area starting from 2025. The decision of the management is expected to be presented to the company members at the 2023 annual general meeting, scheduled in the second half of 2024.

The following financial data were extracted from the book of accounts of New Rain Petroleum Company for the year ended December 31, 2023:

Income N’ million
Fiscal value of crude oil sold 191,100
Value of condensate from associated gas 84,474
Value of natural gas liquid from associated gas 55,328
Other incidental income 151
Realized exchange gain 38
Gross total income 331,091
Expenses/Deductions N’ million
Royalty incurred and paid 86,200
First exploration wells cost 6,800
First two appraisal wells costs 18,700
Joint cost – terminalling 12,000
Gas reinjection wells cost 3,420
Salaries and wages 9,300
Power cost 1,650
NDDC charge 125
Concessional rentals 60,430
Depreciation of assets 13,860
Allowance for doubtful debts 2,400
Host community trust fund contribution 4,800
Stamp duty 16
Staff welfare 350
Travelling 180
Donations and subscription 6
Decommissioning and abandonment 1,300
Environmental remediation fund contribution 1,250
General expenses 500
Finance costs 1,750
Total Expenses 225,037
Net Profit 106,054

Additional Information:

  1. Data on Crude Oil, Condensate, and Natural Gas Sales:
    Category Quantity (million barrels) Actual Price (USD) Fiscal Price (USD)
    Crude oil 5.25 70 72
    Condensate from associated gas 3.61 45 44
    Natural gas liquid from associated gas 2.80 38 40
  2. Omitted Record:
    • A balancing charge of N1,500,000 was made from the disposal of an old oil equipment platform, which was omitted from the records.
  3. Allowance for Doubtful Debts:
    Type of Provision N’ million
    Specific provisions 900
    General provisions 1,500
    Total 2,400
  4. Donations and Subscription:
    Recipient N’ million
    Recognized orphanage homes 3.0
    Host community’s cultural group 2.0
    Subscription to oil and gas association 1.0
    Total 6.0
  5. General Expenses:
    Expense N’ million
    Penalty for gas flare 250
    Printing of stationery items 140
    State government levy 110
    Total 500
  6. Agreed Capital Allowances:
    Category N’ million
    Brought forward 167
    For the year 2,105
    Total 2,272
  7. Production Allowance:
    Type of Operation N’ million
    Onshore operations 900
    Shallow water operation 1,700
    Total 2,600
  8. Exchange Rate: The exchange rate averaged N520 to 1 USD during the year.
  9. Assumption: Tax liabilities are to be paid in domestic (Naira) currency.

Required:
As the company’s Tax Manager, you are to advise the management, in accordance with the provisions of the Petroleum Industry Act 2021, on:

a. Hydrocarbon tax payable for the relevant assessment year (18 Marks)
b. Tax implications if the company decides to invest in deep offshore areas (2 Marks)

(Total 20 Marks)+

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  • 15 Marks

FM – Nov 2018 – L3 – Q5 – Capital Budgeting under Uncertainty

Analyze whether replacing a machine after three or four years is more beneficial based on economic costs and tax implications.

Kuku Plc. had a need for a machine. After four years of purchase, the machine will no longer be capable of efficient working at the level of use by the company. The company typically replaces machines every four years. The production manager has noted that in the fourth year, the machine will require additional maintenance to maintain normal efficiency. This raises the question of whether the machine should be replaced after three years instead of four years, as per company practice.

Relevant information is as follows:

(i) A new machine will cost N240,000. If retained for four years, it will have zero scrap value at the end. If retained for three years, it will have an estimated disposal value of N30,000. The machine qualifies for capital allowance of 20% on a reducing balance basis each year, except in the last year. In the final year, if the disposal proceeds are less than the tax written-down value, the difference will be an additional tax relief.

The machine is assumed to be bought and disposed of on the last day of the company’s accounting year.

(ii) The company tax rate is 30%, payable on the last day of the relevant accounting year.

(iii) Maintenance costs are covered by the supplier in the first year. In the second and third years, maintenance costs average N30,000 annually. In the fourth year, they increase to N60,000. Maintenance costs are tax-allowable and payable on the first day of the accounting year.

(iv) The company’s cost of capital is 15%.

Required:

a. Prepare calculations to determine whether it is economically beneficial to replace the machine after three years or four years. (12 Marks)

b. Discuss two additional factors that could influence the company’s replacement decision, including any potential weaknesses in the decision criteria. (3 Marks)

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  • 10 Marks

AT – Nov 2020 – L3 – Q2b – Tax planning

Tax implications for a Singaporean investor looking to establish shoe or juice manufacturing companies in Ghana.

Following the government’s commitment to build one factory in each district in Ghana and its desire to ensure food sufficiency through the planting for food and jobs program, an investor from Singapore intends to invest in a shoe manufacturing company to be located at Accra in the Greater Accra Region of Ghana. He also considers starting a juice manufacturing company at Nsawam in the Eastern Region of Ghana in response to the investment drive of the government.

As part of the investment, he intends to incur the following cost and start operations in 2018 on either proposal, which is the shoe manufacturing company or the juice manufacturing company.

Description Amount (GH¢)
Building 7,200,000
Plant and Machinery 11,700,000
Furniture and Fittings 180,000
Computers 180,000

Additionally, he intends to recruit fresh graduates from the All Nations University College of Ghana. It is further projected that in the first three years, 2018, 2019, and 2020, it will incur GH¢36,000, GH¢32,400, and GH¢18,000 losses, respectively. The investor hopes to start making profit from the year 2021. He intends to borrow at 20% interest from his USA associate, amounting to the equivalent of GH¢100,000,000. The equity he intends to start with is GH¢36,000,000.

Required: As a tax adviser, evaluate the proposed investment by the Singaporean investor and the tax implication on the various activities highlighted in the scenario.

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  • 4 Marks

AT – Nov 2015 – L3 – Q2a – Capital allowance

Explaining the conditions under which the Ghana Revenue Authority grants capital allowances.

Capital allowance is an incentive granted to all persons in business and investment. They are, however, granted upon fulfillment of certain conditions.

Required:
Explain fully the conditions under which GRA may grant Capital Allowance to a person.

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  • 5 Marks

AT – May 2017 – L3 – Q5b – Business income – Corporate income tax

Calculate the royalty payable and compute the corporate tax payable by a mining company based on provided financial data.

b) AB Ltd is a mining company and has the following set of data relating to the 2016 year of assessment:

Item Amount (GH¢)
Revenue 5,000,000
Cost of operation 3,000,000
Chargeable income 2,000,000

From the above, the following came to light:

  • Capital allowance of GH¢500,000 was added to the cost.
  • Penalty of GH¢100,000 was imposed by the Minerals Commission for failure to follow standard operating guidelines.
  • Loss from operation amounting to GH¢50,000 recorded in 2010 was added to the cost above.
  • According to the accountant, the company is entitled to carryover its losses.

Required:

i) Calculate the Royalty payable, if any. (2.5 marks)

ii) Compute the corporate tax payable by AB Ltd. (2.5 marks)
(Total: 5 marks)

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  • 10 Marks

AT – May 2017 – L3 – Q5a – Business income – Corporate income tax

Submit a paper explaining the tax provisions on repairs and improvements and the conditions under which capital allowance may be granted.

a) You have recently been employed to join Kwame Adom Consult as a tax professional. Your partner has tasked you to present a paper on the circumstances under which “Repairs and Improvement” under Act 896 (Act 2015) are capitalised and capital allowance granted.

Required:
Submit a seasoned paper on the tax provision on “Repairs and Improvement” and the conditions under which capital allowance may be granted.
(10 marks)

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  • 10 Marks

AT – May 2017 – L3 – Q4c – Business income – Corporate income tax

Calculate the capital allowance for the year 2016 after the exchange of assets, and discuss the treatment of goodwill.

c) Sakote Ltd, a trading company, has the following extracts from its financial records:

  • It bought a 4 X 4 Vehicle for an amount of GH¢225,000.00 in the year 2015. The cost of the vehicle was limited to an amount of GH¢75,000 for capital allowance purposes in the year 2015.
  • It also put up a building at a cost of GH¢150,000.00 in the same year. The cost of the land was GH¢20,000 and GH¢130,000 was the cost of the building.
  • The Company accordingly informed the Commissioner-General about putting the assets into use and in the generation of its income in 2015 year of assessment.
  • In the year 2016, it exchanged the vehicle for 4 plots of land. The value of the plots of land agreed with the landowners was GH¢220,000. The exchange was deemed satisfactory to both parties, and documentations were carried through.

Required:

i) Calculate the amount of capital allowance claimable for 2016 year of assessment by Sakote Ltd. (7 marks)
ii) Sakote Ltd paid for Goodwill amounting to GH¢10,000 in 2016 and intends to grant capital allowance on the value of the goodwill. Explain whether or not this arrangement is in accordance with the tax laws. (3 marks)
(Total: 10 marks)

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  • 20 Marks

AT – March 2023 – L3 – Q4 – Minerals and mining

Compute the taxes payable by Crystal Mining Ltd and advise on tax payment timelines and consequences of non-compliance.

Crystal Mining Ltd is a resident mining company operating in two mining areas in the Eastern and Western parts of Ghana under the name Alpha Ltd and Beta Ltd respectively. Crystal Mining Ltd has a shared processing facility for the two mining areas.

As part of efforts to increase its market share in the sector, it acquired a 40% stake in the operation of Omega Ltd, also a mining company in the Western part of Ghana.

Omega Ltd’s operations are in their early years, hoping to start production in the next three years. Crystal Mining Ltd commenced commercial operations in 2021.

The operational activity of Crystal Mining Ltd for the 2021 year of assessment is as follows:

Description GH¢
Gross Revenue 1,000,000,000
Cost of Operation (300,000,000)
Gross Operating Margin 700,000,000
Operating and Other Costs (340,000,000)
Net Margin 360,000,000
Add: Interest (net of taxes) on current account 1,000,000

Additional Information:

  • Gross Revenue included the sale of an asset worth GH¢2,000,000, whose cost of acquisition was GH¢1,287,000.
  • Gross dividend of GH¢400,000 was received from Axum Ltd, a company resident in Ghana, in which Crystal Mining Ltd holds 40% voting power. Axum Ltd engages in commerce. The dividend was added to the gross revenue above.
  • Revenue from tailings amounting to GH¢1,000,000 was added to the cost of operation.
  • Included in the cost of operation is the excess of financial cost from derivative of GH¢2,000,000 over financial gain from hedged arrangement of GH¢890,000.
  • For the acquisition of a 40% stake in Omega Ltd, Crystal Mining Ltd paid GH¢4,000,000. The amount was added to the cost of operation.
  • Research and development cost amounting to GH¢1,000,000 has been included in operational cost.
  • Depreciation, depletion, and amortization of GH¢6,000,000 were included in the operational cost above.
  • Overburdening stripping and shaft sinking cost of GH¢3,000,000 was added to Gross Revenue as a way of tax planning, according to the accountant. This cost was incurred prior to access to the resource in 2021.
  • Further information:
    • Reconnaissance and prospecting cost up to 2020 in respect of Alpha Ltd amounted to GH¢80,000,000 and was added to the cost of operation.
    • Reconnaissance and prospecting cost up to 2020 in respect of Beta Ltd amounted to GH¢78,000,000 and was added to the cost of operation.
    • Apart from Pay As You Earn (PAYE) from the staff, Crystal Mining Ltd has never paid taxes to the Ghana Government. This is a big concern to the Ministry of Lands and Natural Resources.

Required:
a) Compute the taxes payable by Crystal Mining Ltd and state any assumptions if any. (16 marks)
b) Advise the management of the company on when it must pay its taxes to the Ghana Revenue Authority. (2 marks)
c) What are the sanctions for non-adherence to the obligation of payment of taxes? (2 marks)

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  • 5 Marks

AT – Nov 2023 – L3 – Q5a – Minerals and mining

Advise on what constitutes the cost of an asset at the commencement of commercial production in mineral operations.

ACM Mining Ltd has commenced mining operations in Ghana. It procured heavy-duty machinery and equipment for use in its operations.

Required:
Advise ACM Mining Ltd on what constitutes the cost of an asset at the commencement of commercial production in respect of mineral operations. (5 marks)

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  • 20 Marks

AT – Nov 2023 – L3 – Q4 – Ethical principles in taxation

Compute the chargeable income and tax payable for Fenty Trust Ltd and outline the general tax rules on trusts and beneficiaries.

Fenty Trust Ltd is a non-resident company acting as the trustee for four resident Ghanaians, each holding a 22.5% share in the Trust. The Trust was set up on the instruction of Mr. Karl Odogo before he died. Mr. Karl Odogo was a businessman with interests in real estate, transportation, and numerous natural resources.

The Board of Trustees decided to continue in the above businesses and others. As part of the Trust Deed, the Board of Trustees was to make donations for good causes and discretionary payments to the beneficiaries where appropriate.

In the year 2022, the following transactions took place:

  • Total rental income from the real estate was GH¢9,375,000.
  • Administrative expenses of the Trust for the year 2022 amounted to GH¢725,000.
  • A friend of Karl Odogo contributed GH¢600,000 to the Trust by way of donation.
  • Interest received on the bank account of the Trust was GH¢350,000 gross.
  • The Trust received a total amount of GH¢1,240,000 from the transport operations.
  • Total depreciation computed and treated using generally accepted accounting principles was GH¢104,000.
  • Remuneration and fees of the Trustees for the 2022 year of assessment were GH¢980,000.
  • The External Auditors of the Trust charged GH¢45,000 for the year 2022, and it has been paid.
  • Donations were made to the following persons and institutions:
    • Ghana Heart Foundation (receipt obtained from Ghana Health Service): GH¢15,000
    • Kumasi Children’s Home (receipt from Social Welfare Department): GH¢15,000
    • XYZ Political Party (receipt from the Political Party): GH¢45,000
    • Funeral of a cousin of one of the members of the Governing Board of the Trustees: GH¢5,000
  • The Ghana Revenue Authority has granted a capital allowance of GH¢81,250.
  • Discretionary payments of GH¢265,000 for each beneficiary were made during the year.

Required:
a) Compute the chargeable income and tax payable by the Trust for the 2022 year of assessment. (12 marks)
b) Outline the general tax rules on trust institutions and trust beneficiaries. (8 marks)

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  • 20 Marks

AT – Nov 2023 – L3 – Q3 – Business income – Corporate income tax

Compute the capital allowance and taxable income for AquaFresh Ltd for the 2022 year of assessment.

AquaFresh Ltd is a company based in Osu in Accra, and produces clean water through a desalination process and, as a by-product, produces salt for sale in Ghana.

Desalination is a process that extracts salts and minerals from seawater so that the water becomes fit for human consumption. This desalination process has been declared by the Ghana Revenue Authority (GRA) as a manufacturing process.

During the 2022 year of assessment, AquaFresh Ltd recorded the following transactions:

i) Sale of desalinated water made to private domestic homes totaled GH¢120,000,000 while salt totaled GH¢15,000,000.

ii) Operating costs in respect of AquaFresh Ltd’s manufacturing and processing plant amounted to GH¢50,000,000.

iii) AquaFresh Ltd maintains a stock/inventory of spare components/parts for its processing and manufacturing plants. The inventory includes a special inventory called ‘membranes’ which are used in the desalination process. The company had ten membranes in inventory, at a cost of GH¢250,000 each, at the start of the year 2022. During the year 2022, AquaFresh Ltd purchased an additional two membranes at a cost of GH¢300,000 each. Due to wear and tear, six membranes from the manufacturing plant needed to be replaced during the year. The six torn membranes were accordingly removed and destroyed during the year.

iv) A holding tank for the salt broke and flooded the manufacturing plant. The cost of cleaning the plant was GH¢3,000,000. The holding tank had to be replaced and the replacement holding tank cost AquaFresh Ltd GH¢10,000,000, which was funded mainly by insurance proceeds of GH¢7,000,000. The original holding tank had cost GH¢6,000,000 and had a tax written down value on 1 January 2022 (the start of its last year of tax useful life) of GH¢1,000,000. These tanks are not considered part of the process of manufacture as they merely hold the salt.

v) The water produced is pumped into two temporary holding tanks. These tanks had been purchased by AquaFresh Ltd on 1 June 2022, the same date it acquired some vacant land in James Town in Accra. The land cost GH¢9,000,000 and the two tanks cost GH¢5,000,000 each. These tanks are not considered part of the process of manufacture as they merely hold the desalinated water.

vi) In 2022 AquaFresh Ltd installed sea-based wind and energy turbines along the length of its water pipelines. This was done to offset the high energy requirements for the desalination process. These wind and energy turbines cost a total of GH¢6,000,000. The wind and energy turbines have been certified by Ghana Revenue Authority as manufacturing assets.

vii) Specific bad debts written off amounted to GH¢4,000,000. A further GH¢10,000,000 is listed by AquaFresh Ltd as a general provision for doubtful debts in its accounting provision for the year ended 31 December 2022. The list for the general provision for doubtful debts was GH¢9,000,000 at the start of the tax year.

viii) Wages and salaries paid amounted to GH¢30,500,000.

ix) The written down values of pools of assets as of January 1, 2022, were:

  • Pool 1: GH¢250,000
  • Pool 2: GH¢48,000,000
  • Pool 3: GH¢13,000,000

x) Cost of Buildings as of January 1, 2022, was GH¢5,000,000.

Required:
a) Compute capital allowance of AquaFresh Ltd for the 2022 year of assessment using all the available information. (5 marks)
b) Compute the taxable income of AquaFresh Ltd for the 2022 year of assessment. (15 marks)

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  • 10 Marks

AT – Nov 2019 – L3 – Q5c – Petroleum operations

Compute the tax payable for Kaeka Ltd and comment on the treatment of research and development expenditure.

Kaeka Ltd operates in the Upstream Petroleum Sector. The following relates to its 2018 year of assessment:

Required:
i) Compute the tax payable. (8 marks)
ii) Comment on the treatment of research and development expenditure. (2 marks)

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