Question Tag: chargeable income

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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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  • 20 Marks

TAX – May 2015 – L2 – SB – Q4 – Taxation of Partnerships and Sole Proprietorships

Calculate the chargeable income of each partner before and after the admission of a new partner and determine the basis period.

The Managing Partner of Aarinola Sunkanmi & Co., a firm of Estate Surveyors and Valuers based in Lagos, has invited you to calculate the Chargeable income of each of the firm’s partners after the admission of Mariam in 2014.

The information relating to the Partnership are as follows:

(a) The firm makes up its accounts up to 31 December of each year.

(b) Extracts from the books of account for the year ended 31 December 2014, are listed below:

Description Amount (₦)
Net profit for the year 1,380,000
Depreciation 450,000
Capital Allowances for the year 366,300
Balancing Allowance 72,500
Balancing Charge 75,480
Profit on sale of fixed assets 77,500
Legal expenses for successfully defending one of the partners for professional misconduct 14,000

(c) Other information:

(i) The THREE partners are Aarinola, Olasunkanmi and Murphiefe.

(ii) Profit sharing ratio is as follows:

  • Aarinola: 2
  • Olasunkanmi: 1
  • Murphiefe: 1

(iii) Aarinola and Murphiefe received ₦15,000 each as interest on loan per annum.

(iv) Salaries paid to each partner are as follows:

  • Aarinola: ₦140,000 per annum
  • Olasunkanmi: ₦60,000 per annum
  • Murphiefe: ₦60,000 per annum

(v) Olasunkanmi ceased to be a partner on 30 June 2014. Mariam was admitted on 1 July 2014. Mariam’s salary was fixed at ₦60,000 per annum. She also received interest on capital of ₦10,000 per annum.

(vi) Included in travelling expenses is the sum of ₦12,000 paid towards the annual vacation of Aarinola, the Principal Partner.

(vii) On Mariam’s admission in July 2014, the profit sharing ratio was changed to:

  • Aarinola: 10
  • Murphiefe: 7
  • Mariam: 3

Required:

a. Compute the Chargeable Income of each partner: i. Prior to admission of Mariam (9 Marks)
ii. Post-admission of Mariam (9 Marks)

b. State the basis period for the existing partners. (2 Marks)

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  • 20 Marks

TAX – May 2017 – L2 – SB – Q3 – Taxation of Partnerships and Sole Proprietorships

Computation of adjusted income and chargeable income for partners in a firm with adjustments for disallowable expenses.

Muyiwa, Seyi, and Akpan are partners in an accounting firm in Lagos, Museak & Co (Chartered Accountants). The Statement of Profit or Loss for the year ended December 31, 2015, is shown below:

Additional Information:

  1. Donation was for laying the foundation of a new church.
  2. Repairs for Muyiwa’s wife’s vehicle, costing ₦550,000, were included under repairs and maintenance.
  3. Medical expenses of ₦500,000 were incurred for flying a partner’s father-in-law abroad.
  4. Akpan contributed ₦500,000 under the Pension Reforms Act 2004 (as amended).
  5. Capital allowances agreed with the tax authority were ₦4,000,000.
  6. Partners’ profit-sharing ratio: Muyiwa 6; Seyi 4; Akpan 2.

Required:

  1. Compute the adjusted income of Museak & Co for tax purposes. (6 Marks)
  2. Compute the chargeable income of each partner. (6 Marks)
  3. Compute the tax payable by each partner. (8 Marks)

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  • 20 Marks

TAX – Nov 2018 – L2 – SA – Q1a – Personal Income Tax (PIT)

Calculate the personal income tax payable by Dr. Ogungbemi for the relevant year of assessment.

Dr. Alade Ogungbemi retired from the service of Oyo State Government after attaining 60 years of age on July 31, 2017. He secured an employment with TUC Foods Limited as human resources manager, effective August 1, 2017.

The following details were provided:

  1. Salary: January 1 – July 31, 2017: N420,000 per month
  2. New employment: N4,800,000 per annum
  3. Pension income, effective August 1, 2017: N840,000 per annum
  4. Transport allowance (new employment): N120,000 per annum
  5. Rent allowance (new employment): N720,000 per annum
  6. Contributions to national housing fund and contributory pension fund scheme at 2½% and 7½% of gross income, respectively
  7. Rental income received (gross):
    • July 19, 2015: N240,000
    • December 1, 2015: N120,000
    • July 4, 2016: N360,000
    • December 4, 2016: N420,000
  8. Dr. Ogungbemi is married and has four children. All except one, aged 20 years, are still in school.
  9. Dr. Ogungbemi has a life assurance policy with a sum assured of N7,500,000 and an annual premium of N460,000. His aged parents live with him, and neither of them has an income.

Required:
Compute the personal income tax payable by Dr. Ogungbemi for the relevant year of assessment.

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  • 10 Marks

PT – April 2022 – L2 – Q1c – Tax Administration

Calculate the taxes payable for each quarter for Bumu Manufacturing Company based on estimated chargeable income and tax paid.

c) You have been offered an appointment by Bumu Manufacturing Company (BMC) as Tax Manager responsible for preparing and filing tax returns on behalf of the company. BMC files its returns with the Osu Medium Taxpayers Office of the Ghana Revenue Authority. The company’s Tax Identification Number is C0000261178. The company prepares accounts to 31 December each year.

BMC estimated its chargeable income for the 2019 year of assessment as GH¢3,000,000. Subsequently, the company secured a Government contract and anticipates in the third (3rd) quarter that its chargeable income would be GH¢4,500,000.

Additional Information:
Tax paid on account:
1st quarter GH¢100,000
2nd quarter GH¢120,000
3rd quarter GH¢200,000

Required:
Compute the taxes payable for BMC for each quarter.
(10 marks)

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  • 20 Marks

PT – Nov 2023 – L2 – Q3a – Income Tax Liabilities

Computation of chargeable income for a physically challenged employee with various benefits and allowances.

Mr. Antitom (physically challenged) was employed as a Chief Accountant of Nangode Ltd on 1 April 2020 on an annual basic salary of GH¢60,000 x 10,000 – GH¢100,000. He was entitled to the following monthly allowances and benefits:

Allowances & Benefits Monthly Amount (GH¢)
Responsibility Allowance 4,400
Professional Allowance 6,600
House Help Allowance 8,200
Utilities 4,200
Overtime Allowance 6,000
Provision of furnished accommodation by the employer for which he paid 5% of his basic salary.
Provision of vehicle and fuel by the employer for both official and private use.
Bonus payment amounting to 25% of his basic salary.
He contributed 5.5% of his basic salary to the Mandatory Pension Scheme and an additional 10% to a Voluntary Pension Scheme approved by the National Pension Regulatory Authority.
Married with 3 children, 2 in approved Senior High Schools in Ghana, 1 at the University of South Africa.
Earned interest of GH¢4,000 on a savings account with Kilma Bank.
Received a net dividend of GH¢20,480 from an investment with Enoga Securities.
Required:
Compute the chargeable income of Mr. Antitom for the 2022 year of assessment.
(20 marks)

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  • 10 Marks

PT – Nov2019 – L2 – Q4a – Corporate Tax Liabilities

This question asks to compute the chargeable income of Valentine Ghana Limited for the 2018 tax year based on the provided financial statements and additional information.

Valentine Ghana Limited is a producer of love greeting cards, and the following was extracted from its financial statements for the year ended 31 December 2018.
a) Valentine Ghana Limited is a producer of love greeting cards and the following was
extracted from its financial statements for the year ended 31 December,2018.

Deduct:

Net Profit: GH¢346,110
Additional Information:
i) Capital allowances for the year were GH¢204,000, as agreed with the Ghana Revenue Authority (GRA).
ii) The figures for repairs and maintenance include an amount of GH¢33,150 for the cost of erecting a new gate to the factory.
iii) 50% of other income was the personal rental income of the Managing Director.
iv) One-third of vehicle running expenses was expended on the personal car of the Managing Director, used for the company’s operation based on company policy.

Required:
Calculate the chargeable income of Valentine Ghana Limited for 2018 Year of Assessment.
(8 marks)

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  • 6 Marks

PT – Nov2019 – L2 – Q3c – Income Tax Liabilities

This question focuses on determining the chargeable income and tax liability of an expatriate working in Ghana.

Lord Pakro was seconded to Ghana from the Crops Scientists Institute in USA as a Crop Scientist to Crop Research Institute in Ghana, for a period of 5 months, starting from 1 August, 2018. He was based at Nyankpala (Northern part of Ghana), one of the farming sites of the Crop Research Institute.

His conditions of service were as follows:
GH¢

Salary: 6,000 per month
Expatriate allowance: 2,000 per month
Risk allowance: 1,000 per month
He was provided with a furnished bungalow and a Toyota Pick-up vehicle with driver and fuel for both official and private activities.

In addition to the above, the parent company agreed to meet his commitment at home during his six-month stay in Ghana at $1,200 per month. The average exchange rate has been $1=GH¢5.00.

Required:
Determine Lord Pakro’s chargeable income and tax liability, if any, during his stay in the country. Produce the related notes guiding your determination.
(6 marks)

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  • 12 Marks

PT – May 2020 – L2 – Q4b – Special considerations for taxation of gifts and capital allowances.

Calculation of the chargeable income for Stella-VD Ltd for the 2018 year of assessment.

The Company’s assets include the following:

Type of Assets Date of Acquisition Cost (GH¢)
Factory Building 01/10/2017 300,000
Plant and Machinery 25/10/2017 171,000
Delivery Van 01/11/2017 50,000
Computers 01/10/2017 40,000
Furniture and Fittings 10/12/2017 150,000
Other Office Equipment 01/10/2017 200,000
Office Building 30/06/2018 500,000
Required:
Required:
a) Compute the appropriate capital allowance for 2017 and 2018 year of assessment. (8 marks)
b) Calculate the chargeable income of the company for assessment year 2018.
(12 marks)

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  • 20 Marks

PT – March 2023 – L2 – Q4 – Income Tax Liabilities

Compute the chargeable income and capital allowance for Adwoa Mansa based on her accounts.

Adwoa Mansa is self-employed and has not filed her tax returns to the Ghana Revenue Authority. She applied for a tax clearance certificate in February 2023, and the head of her Tax Office insisted that she submit her accounts for the 2022 year of assessment. Below are the details from her auditors for the year ended 31 December 2022.

Details Amount (GH¢)
Gross Profit 5,200,000
Expenses:
Utilities 70,000
Travelling expenses 43,000
Depreciation 30,500
Rent 21,200
Maintenance 25,260
Donations 60,250
Bad debts 52,000
Sanitation 20,000
Business promotion 25,620
Salaries 86,000
Net profit 4,766,170

Additional Information from Adwoa Mansa in response to queries raised by the tax official:

  1. Utilities and Rent:
    Adwoa Mansa and her husband occupy the apartment next to the shop. 25% of the expenditure on utilities and rent relates to her home.
  2. Travelling Expenses:
    28% of the travelling expenses were for private journeys.
  3. Maintenance:
    The maintenance figure includes GH¢11,500 for furniture and fittings bought for the shop and GH¢10,000 for painting her apartment.
  4. Donations:
    • Donation to Covid-19 fund: GH¢32,250
    • Donation to Mallam Atta Women’s Association: GH¢19,500
    • Donation to Farmers Day celebration: GH¢8,500
  5. Bad Debts:
    • General provision: GH¢26,000
    • Specific provision: GH¢10,000
    • Loan to husband written off: GH¢16,000
  6. Sanitation:
    GH¢1,000 was spent on acquiring equipment for cleaning the office premises.
  7. Business Promotion:
    • Permanent billboard: GH¢8,000
    • Television advertisement: GH¢6,620
    • Entertainment of customers: GH¢11,000
  8. Dividend and Interest:
    Adwoa Mansa received a dividend of GH¢18,800 (net) from her investment with Tarzan Ltd and interest of GH¢15,600 from Government Treasury bills. These amounts were included in her gross profit.
  9. Assets Purchased in 2022:
    • Computers: GH¢300,000
    • Warehouse: GH¢330,000
    • Air conditioners: GH¢100,700
      All assets are depreciable for capital allowance purposes.

Required:

a) State the circumstances under which bad debt will be allowable.
(4 marks)

b) Calculate the chargeable income of Adwoa Mansa for the 2022 year of assessment.
(16 marks)

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  • 14 Marks

PT – Aug 2022 – L2 – Q3b – Income Tax Liabilities

Compute the chargeable incoPartnership Income, Chargeable Income, Capital Allowanceme for three partners for the years 2018, 2019, and 2020.

Elorm and Eyram entered into a partnership on 1 January 2018 to produce hair products. They agreed to share profit and losses equally after charging:

  • Annual Salaries: Elorm: GH¢10,000,000, Eyram: GH¢14,000,000.
  • Interest on capital of 5% p.a. was deducted from the profit.
  • Depreciation deducted from the profits for the various years of assessment were GH¢80,000 (2018), GH¢60,000 (2019), and GH¢180,000 (2020).
  • Capital contributed by the partners: Elorm: GH¢100,000,000, Eyram: GH¢80,000,000.
  • To introduce a new product, they invited Elinam to join the partnership on 1 January 2019. Elinam was to receive a salary of GH¢6,000,000 annually in addition to an equal share of profit. He will not be entitled to interest on his capital of GH¢60,000,000.
  • Elorm resigned as a partner on 30 June 2020 after being elected as a Member of Parliament.
  • Operational profit/loss of the partnership: GH¢500,000,000 (2018), GH¢(180,000,000) (2019), GH¢1,000,000,000 (2020).
  • Capital allowance of GH¢60,000 has been granted by Ghana Revenue Authority for each year of assessment.

Required:
Compute the chargeable income of Elorm, Eyram, and Elinam for the 2018, 2019, and 2020 years of assessment. (14 marks)

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  • 20 Marks

PT – Dec 2023 – L2 – Q3 – Income Tax Liabilities

Calculate chargeable income for a Finance Manager based on detailed employment benefits and allowances.

Abotsi has been in employment at Asempa Ltd since 1 August 2019 as Finance Manager on a salary scale of GH¢32,000 by GH¢8,000 to GH¢48,000.

His service conditions include the following:
i) Responsibility allowance of 18% of basic salary
ii) Utilities allowance per annum of 10% of basic salary
iii) Risk allowance of 20% on basic salary and car maintenance allowance of 5% of basic salary
iv) Leave allowance of GH¢1,900 per annum
v) Medical allowance per annum of GH¢3,500
vi) Meals allowance of GH¢700 per month
vii) Two house helps on GH¢500 wages per month each. The amount is paid to Abotsi in cash directly by the company
viii) Bonus of 25% of annual basic salary
ix) Annual Overtime allowance of GH¢18,000
x) Unaccountable entertainment allowance of GH¢2,000 a year
xi) Provision of a well-furnished bungalow in respect of which he pays GH¢400 per month as rent by way of deduction at source
xii) Provision of a vehicle with driver and fuel for both official and private purposes
xiii) Special retirement package by way of a provident fund of which he contributes 9% of his basic salary, while the company contributes 11%. (The scheme is approved by the regulatory body)
xiv) Social Security and National Insurance Trust contribution of 5.5% and the employer contributes 13% of basic salary
xv) On 1 January 2021, he was given a car loan of GH¢20,000 to purchase a car for his mother at a simple interest rate of 15% per annum. The institution gives similar facilities to other customers at the rate of 28% but the statutory rate (Bank of Ghana rate) is 25%. The loan is to be paid within the period of 24 months
xvi) He is married to Abotsiwaa and Abotsimaa who are unemployed and contribute little or no financial support to their husband. Their responsibilities are limited to the management of the house
xvii) He has six (6) children, four (4) of whom are in Silicon Valley International School, Accra-Ghana, while the rest are working
xviii) He is also responsible for the upkeep of four (4) aged relatives of his
xix) He is currently pursuing MPHIL in Finance at UPSA where he incurred GH¢25,000 by way of educational expenses in 2021
xx) He is a director of Adwoa Mansa Ltd and receives a director’s emolument of GH¢24,450 (net of taxes)
xxi) He received a dividend of GH¢20,000 (net of taxes) from the Afia Manu Bank. The dividend was taxed at 8%.

Required:
Calculate his chargeable income for the 2021 Year of Assessment. (20 marks)

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  • 10 Marks

PT – Aug 2022 – L2 – Q1c – Income Tax Liabilities

Calculate interest for underestimation of tax for Vito Ltd for the 2019 year of assessment.

The estimated chargeable income for Vito Ltd for the 2019 year of assessment was GH¢50,000,000, but its actual chargeable income declared at the end of the year was GH¢80,000,000. The company prepares accounts to 31 December each year. The company submitted its returns on 30 April, 2020. The BOG prevailing discount rate is 25%.

Required:
Calculate the interest for underestimation of tax.

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  • 8 Marks

AT – Nov 2018 – L3 – Q5b – Business income – Corporate income tax

Computation of taxes payable by a mining support services company, including adjustments for dividends, tax losses, and investment deductions.

Manla Ltd, since its incorporation, has been providing Mining Support Services (MSS) in line with its mandate, and the following is relevant to its operations for the 2017 year of assessment:

Details GH¢
Chargeable income 240,000,000
Loss from investment deducted in arriving at the chargeable income 700,000
Dividend (gross) received from A Ltd (a mining company) where Manla Ltd has 26% voting power 20,000
Provision for bad debts written off 400,000
Tax loss from 2014 deducted 20,000
Net dividend received from a US-based company after 5% withholding tax 9,500
Items worth GH¢ 60,000 granted to a powerful shareholder were adjusted in arriving at chargeable income 60,000

(Note: Manla Ltd has a basis period from January to December.)

Required:
i) Compute the taxes payable by Manla Ltd. (6 marks)
ii) Comment on the treatment of the investment loss of GH¢700,000. (2 marks)

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  • 20 Marks

AT – April 2022 – L3 – Q5 – Business income – Corporate income tax | Tax planning

A trainee accountant is tasked with correcting errors in the tax computation of Prime Shea Ltd. The tasks include determining allowable financial costs, preparing a revised tax computation, calculating the tax payable, and recommending a process for appeal against a tax audit assessment.

a) You are a Trainee Accountant, and your manager has asked you to correct a company tax
computation which has been prepared by the Managing Director of Prime Shea Ltd, a
manufacturing company located in Batanyili, a suburb of Tamale in the Northern Region.
The company commenced business on 1 January 2014. The company tax computation is
for the year ended 31 March 2020 and contains a significant number of errors:

Required:
i) Determine the allowable financial cost for the year ended 31 December 2020. (4 marks)
ii) Prepare a revised tax computation to determine the chargeable income for the year ended
31 December 2020. (4 marks)
iii) Calculate the tax payable by Prime Shea Ltd under the Income Tax Act 2015 (Act 896) as
amended. (2 marks)

 

b) You are a final level CA student who has been helping Naagode Ltd on tax issues. Naagode Ltd has been doing business in the international space, importing and exporting products. You have been told that when you qualify, you would manage their Tax Department.

What has baffled the company lately is an audit outcome by the Ghana Revenue Authority. The audit was done in two-folds. One by the Post Clearance Audit Department of the Customs Division and the other by Tax Audit and Quality Assurance (TAQA) Department of Domestic Tax Revenue Division.

The audit findings are as follows:

Post Clearance Audit Department of the Custom Division:
Import Duties GH¢10,000,000
Value Added Tax (VAT) GH¢12,000,000
National Health Insurance Levy (NHIL) GH¢4,000,000
Ghana Education Trust Fund (GET/Fund) GH¢4,000,000

TAQA Department of Domestic Tax Revenue Division:
Corporate Tax GH¢230,000,000
VAT GH¢29,000,000
NHIL GH¢29,000,000
Withholding Tax (WHT) GH¢105,000,000

The management of Naagode Ltd has asked you to assess the chances of the Company if an objection to the assessment is raised as it considers the assessment quite excessive.

Required:
Recommend the process that the management should adopt to ensure success in its appeal.

 

 

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  • 14 Marks

TF – May 2018 – L3 – Q2a – Capital Allowance

Calculate the capital allowances and chargeable income of Sekyiwaa Annam Industries Ltd for the year 2017.

Sekyiwaa Annam Industries Limited manufactures personal hygiene soaps and related products at their factory in Takoradi. The company commenced business operations on 1 April 2016 and had an assessed loss of GH¢150,200 for the period ended 31 December 2016.

The company recorded a net profit of GH¢762,800 for the year ended 31 December 2017 after taking into account the following transactions in the income statement:

Gross rental income of GH¢180,000 received from the leasing of one wing of the office building. The rental income portion constitutes 10% of the office building.
Net interest received on bank deposits from Ghana Commercial Bank of GH¢10,028. Withholding tax of 8% has been deducted.
The registration of Trademarks at a total cost of GH¢75,000 in respect of the Company’s personal hygiene soaps that is to last for 10 years. The research and development expenses incurred in connection with these soaps amounted to GH¢15,000 and the company intends to expense it. The legal costs incurred to complete the registration of the Trademark was GH¢5,000.
A donation of GH¢120,000 worth of furniture was made to a local government-assisted school as part of the Company’s corporate social responsibility program, which was duly acknowledged by Ghana Education Service (GES).
Depreciation of fixed assets of GH¢57,000.
Replacement of two motor vehicle engines costing GH¢51,000.
Exceptional costs amounting to GH¢150,000 as a result of the production manager sustaining an injury while working on one of the production lines in the factory. GH¢35,000 of the costs relate to a payment made to the production manager as severance pay. GH¢110,000 was used to acquire additional computers. The remaining GH¢5,000 of the costs represent fines imposed by the Factory Inspectorate Department of the government following the incident.
Purchases of a Computer Server for accounting and human resource needs at a cost of GH¢20,000.
Additional Information:
Details of the Company’s other fixed assets, at cost, are provided below. These were all acquired/constructed during the year to 31 December 2016:

Asset Cost (GH¢)
Factory Building 800,000
Plant and Machinery 510,000
Office Building 420,000
Furniture and Office Equipment 60,000
Motor vehicles (Goods Vans) 130,000
Computers 30,000

Required:
i) Calculate the capital allowances claimable by Sekyiwaa Annam Industries Limited for the year ended 31 December 2017 using all the available information.
(8 marks)

ii) Calculate the chargeable income of Sekyiwaa Annam Industries Limited for the year ended 31 December 2017 and the tax payable.
(6 marks)

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  • 20 Marks

AT – April 2022 – L3 – Q4 – Capital allowance | Business income – Corporate income tax

Calculate capital allowance and chargeable income for Joefel Company Ltd. Explain sources of revenue from upstream petroleum operations in Ghana.

a) Joefel Company Ltd, manufacturer of fruit juice for local consumption commenced business on 1 October 2019, with accounting year-end at 31 December each year. The company submitted its accounts for 2019 and was assessed accordingly. The company submitted its tax returns for 2020 year of assessment to the Ghana Revenue Authority on 30 April 2021. Below are the details:

Additional information:
1) Advert and publicity
Radio and television 3,300
Newspaper advert 2,400
Permanent signboard at the company’s entrance in 2020 18,000

2) Installation of plant and others
Installation of plant 21,500
Heavy duty Generator bought in 2019 to support Plant and Machinery 20,500
General maintenance before the use of the plant 18,000

3) Staff Welfare
Staff medical bills 3,700
Safety wear for staff 10,500
Canteen Equipment purchased on 30 November 2020 12,000

4) Donation and Subscription
Goods given as gratis to customs officials 13,000
Donation of goods to SOS Children Village 10,000
Subscription to Association of Ghana Industries 5,000

5) Wages and Salaries
Old staff 120,000
Fresh graduates employed by Joefel Company Ltd. (Fresh graduates
constitute 1% of total workforce) 26,000

6) Other Income
Compensation from a customer for cancellation of a sale order 8,000
Compensation for loss of trading stock of the company 10,000
Compensation for cancellation of purchase order by supplier 5,000

Note 2) above has not been included in the plant and machinery acquired.

Required:

a
i) Compute the appropriate capital allowance for 2019 and 2020 years of assessment.
(8 marks)
ii) Calculate the chargeable income of the company for the 2020 year of assessment.
(6 marks)
b) Explain of the following sources of revenue accruing to the Government of Ghana from the upstream petroleum operations in Ghana:
i) Royalty.
ii) Carried Interest.
iii) Additional Interest.
iv) Additional Oil Entitlement.
(6 marks)

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  • 20 Marks

AT – May 2021 – L3 – Q4 – Minerals and mining

Compute the capital allowance and chargeable income for Kanawu Mine Resources Ltd for 2020.

Kanawu Mine Resources Limited was incorporated on 1 January 2017 to mine gold and diamonds at Prestea in the Western region of Ghana. Various reconnaissance and prospecting activities took place from 2017 to 2019. Actual production started on 1 January 2020.

The following were the cost and revenue relative to reconnaissance and prospecting activities and costs from 2017 to 2019:

Activities 2017 (GH¢) 2018 (GH¢) 2019 (GH¢)
Analyzing historical exploration data 250,000 – –
Purchase of motor vehicles 1,000,000 – –
Exploratory drilling and sampling – 2,500,000 –
Purchase of surveying infrastructure 500,000 – –
Construction of office building – 3,700,000 –
Conducting market and finance studies – – 300,000
Renting of office space 400,000 – –
Sinking shafts and underground drifts – – 5,400,000
Purchase of land – 460,000 –
Permanent excavations – 400,000 3,000,000
Constructing roads and tunnels – 2,200,000 1,100,000
Purchase of drilling machines – 700,000 900,000
Purchase of office equipment 50,000 550,000 120,000
Legal fees for acquisition of lease – 130,000 –
Purchase of software – 230,000 –
Removal of overburden and waste rock – – 470,000
Acquisition of rights to explore 300,000 – –
Protocols to chiefs of Prestea 10,000 5,000 23,000
Topographical and geophysical studies 25,000 56,000 –
Geological and geochemical studies 35,000 300,000 –
Sale of surveying software – – (130,000)
Trenching and sampling expenses – 400,000 100,000
Sale of drilling equipment – – (50,000)
Revenue from pre-production gold – – (500,000)

The following transactions took place from 1 January 2020 to 31 December 2020:

  1. The company received compensation of GH¢3,500,000 from their insurers for destruction of some gold mined.
  2. Mining and processing cost, including wages and salaries incurred during the year, was GH¢120,345,000.
  3. Sales of gold and diamonds: GH¢378,532,900.
  4. Ground rent paid to the Administrator of Stool Lands: GH¢321,500.
  5. Further research and development studies at the cost of GH¢374,300.
  6. Royalties paid to the government: GH¢11,355,987.
  7. Acquisition of a new mineral right: GH¢5,000,000.
  8. Bonus payment for the new mineral right: GH¢300,000.
  9. Legal and other professional fees for the acquisition of the new mineral right: GH¢121,800.
  10. Stope preparation and development cost: GH¢1,021,700.
  11. Business operating permits: GH¢5,563,200 (includes GH¢400,000 provision for 2021).
  12. General and administrative expenses: GH¢190,467,100 (includes GH¢421,600 for a new iron gate).
  13. Selling and distribution costs: GH¢172,554,700.
  14. Finance charge, including interest on loans and bank charges: GH¢211,500,000.

Required:
a) Compute the capital allowance claimable in 2020.
b) Compute the chargeable income and tax payable for the 2020 year of assessment.
c) Comment on the tax treatment of royalty payments and the acquisition of new mineral rights.

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  • 20 Marks

AT – Aug 2022 – L3 – Q4 – Capital Allowance

Calculation of capital allowances, provisional tax, chargeable income, company tax, and additional tax liability for Zimbo Ltd for the year ended 31 December 2021.

Zimbo Ltd (Zimbo) specialises in the manufacture of personal hygiene soaps and related
products at their factory in the industrial area of Accra. Zimbo commenced business operations
on 1 April 2020 and had an assessed loss of GH¢112,000 for the period ended 31 December
2020 attributable to large start-up costs in the first period of trading.
Turnover for the year ended 31 December 2021 amounted to GH¢1,980,000 of which
GH¢700,000 relates to export sales. Zimbo is trying to increase its turnover from export sales
through participation in foreign market trade fairs as well as other marketing campaigns. The
gross profit margin for the year ended 31 December 2021 was 60%.
Zimbo recorded a net profit of GH¢315,000 for the year ended 31 December 2021 after taking
into account the following transactions:

Additional information:
i) The gross rental income earned was from leasing one wing of the head office building. The
wing constitutes 10% of the entire building.
ii) The registration of three trademarks, ‘Cleanex’, ‘Perfect’ and ‘Alfresh’ at a total cost of
GH¢30,000 in respect of Zimbo’s personal hygiene soaps that is to last for fifteen years. The
market research expenses incurred in connection with the development of these soaps
amounted to GH¢65,000.
iii) The donation was made to a local government assisted school as part of Zimbo’s corporate
social responsibility programme.
iv) GH¢25,000 of the marketing cost was incurred when the export market Development Manager
attended two trade conventions and one trade mission as part of Zimbo’s efforts to increase its
export sales. The trade mission was duly approved. The remaining GH¢63,000 of costs were
incurred in marketing Zimbo’s soaps to foreign markets.
v) GH¢28,000 of the general costs was incurred in underpinning the office building to strengthen
its foundations against sinking.
vi) The compensation cost was as a result of the production manager incurring an injury while
working on one of the production lines in the factory. The Production Manager was rendered
incapacitated as a result of the incident. Zimbo settled out of court. GH¢250 000 of the costs
relate to a payment made to the Production Manager in full settlement of the case. GH¢50,000
of the GH¢250,000 out-of-court settlement was paid in order to prevent the Production
Manager from setting up a similar business in competition with Zimbo. The remaining
GH¢40,000 of costs represent fines imposed by the Factory Inspectorate Division following
the incident. The production line was also condemned as a result.
vii)The interest paid was incurred in respect of Zimbo’s GH¢200,000 overdraft facility.
GH¢100,000 of the facility was applied towards recurrent expenditure while the other
GH¢100,000 of the facility was applied towards the cost of a new showroom.
viii) Ghana Revenue Authority considers 40% of other expenses to be prohibited for tax purposes.
ix) Zimbo’s projected taxable income for the year ended 31 December 2021 was GH¢360,000.
The Accountant remitted the provisional tax for the three quarterly payment dates (QPDs) on
time but, due to the pressures of year-end work, forgot to submit the return for the final QPD.
The Accountant also omitted the brought forward assessed loss from his computations of the
provisional tax.
x) During the year, a showroom was constructed in close proximity to Zimbo’s factory building.
The showroom is used to display the soaps from the factory as well as for storage purposes
pending shipment to various destinations. The showroom was constructed at a total cost of
GH¢100,000 and was wholly funded by Zimbo’s overdraft facility. The showroom was
brought into use on 1 August 2021. Zimbo has made all tax appropriate elections in connection
with the showroom.
xi) Details of Zimbo’s other fixed assets are provided below. These were all acquired/constructed
during the year to 31 December 2020:

 

Required:
a) Calculate the capital allowances claimable by Zimbo for the year ended 31 December 2021,
assuming all favourable elections are made. (6 marks)
b) Calculate the provisional tax which should have been paid by Zimbo for the year ended 31
December 2021, clearly indicating the due dates and the respective tax amounts. (3 marks)
c) Calculate the chargeable income and company tax payable by Zimbo for the year ended 31
December 2021. (10 marks)
Note: Your calculations should assume that the provisional tax paid was as calculated in
part b) of the question.
d) Compute any other tax liability apart from the company tax. (1 mark)
(Total: 20 marks)

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