Question Tag: Petroleum Operations

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  • 20 Marks

AT – Nov 2017 – L3 – Q2 – Taxation of Companies

Compute assessable profit, chargeable profit, and tax for Skkye Petroleum Plc.

Skkye Petroleum Plc. began operations over ten years ago and uses December 31 as its accounting date. The following details were extracted from the accounting records for the year ended December 31, 2016:

  1. Crude oil exported – 3,500,000 barrels
  2. Crude oil used locally – 1,200,000 barrels at N100 per barrel
  3. Incidental income from petroleum operations – ₦26,750,000
  4. Exploration and drilling costs – ₦30,000,000
  5. Management and administration expenses – ₦240,500,000
  6. Non-productive rents – ₦8,300,000
  7. Provision for bad debts:
    • General – ₦7,500,000
    • Specific – ₦11,200,000
  8. Depreciation – ₦7,250,000
  9. Losses brought forward – ₦13,200,000

Qualifying capital expenditures:

  • Pipeline and storage tanks (March 2016, Continental Shelf, 190 meters depth) – ₦48,000,000
  • Plant and machinery (June 2014, Territorial Waters, 90 meters depth) – ₦63,800,000
  • Furniture and fittings (May 2013, Territorial Waters, 95 meters depth) – ₦21,000,000
  • Buildings (April 2015, onshore) – ₦71,000,000

Breakdown of Management and Administration expenses:

  • Donations to XYZ Political Party – ₦8,500,000
  • Expenditure on information regarding petroleum deposits – ₦4,700,000
  • Companies income tax of an associated company – ₦5,000,000
  • Interest on inter-company loans (market terms) – ₦2,600,000
  • Staff salaries – ₦175,000,000
  • Royalties on export sales – ₦6,200,000
  • Repairs and renewals on PPE for petroleum operations – ₦2,900,000
  • Rent for land/buildings under an Oil Prospecting License – ₦3,600,000
  • Other administrative expenses – ₦32,000,000

The international market price of crude oil in 2016 was USD $75 per barrel, with an exchange rate of USD $1 = ₦280.

Required:
a. Compute the assessable profit.
b. Compute the chargeable profit.
c. Compute the assessable tax.
d. Compute the chargeable tax.
e. Compute the Tertiary Education Tax.

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  • 8 Marks

TX – May 2019 – L3 – Q5b – Petroleum Operations

Compute the royalty payable by a petroleum company and discuss the tax implications of production costs and the relevance of government interest in upstream operations.

b) The following relates to Ablorh Ltd from petroleum operations relating to 2017 year of assessment:

Production (in barrels): 100,000,000
Selling Price per barrel ($): 100
Production cost per barrel ($): 50
Capital allowance agreed ($): 800,000
Required: i) Compute the royalty payable to the Government of Ghana by Ablorh Ltd and state the tax implication of production cost on Royalty. (5 marks)

ii) Explain THREE (3) relevance of initial interest of Government in the Upstream Petroleum Operations. (3 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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  • 10 Marks

AT – Aug 2022 – L3 – Q5a – Petroleum operations

Compute the tax payable by Alpha Ltd for the 2020 year of assessment in the upstream petroleum sector.

a) Alpha Ltd is a company operating in the upstream petroleum sector and commenced
production in 2020. The Accountant who is new to the industry provided the following extract
for the 2020 year of assessment with basis period 1 January to 31 December, 2020.

Additional information:
i) Production in barrels is 120,000,000.
ii) Finance Lease:
Principal Repayment is GH¢15,000,000.
Finance cost is GH¢1,200,000.
Lease is over 6 years starting from 1/1/2020.

Required:
Compute the tax payable for Alpha Ltd for 2020 year of assessment. (10 marks)

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  • 20 Marks

AT – Nov 2015 – L3 – Q5 – Business income – Corporate income tax

Analyzing withholding tax, taxable gifts, upstream petroleum taxation, carried interest, and mining license factors.

a) Songe Enterprise Limited is a dealer in rice. It buys its rice from the Rice Masters, a wholesaler, and sells to retailers. It has not over the years deducted withholding tax on payments to its suppliers, and its management is contemplating doing so to avoid any possible sanctions from the Ghana Revenue Authority. It has received a letter from the Ghana Revenue Authority to conduct a tax audit on its activities. Ahead of the tax audit, the management has invited you as a Tax Consultant to conduct a tax health check on its operations and put things right.

Required:
Advise the company on the withholding tax situation on payment to its suppliers.
(6 marks)

b) What constitutes taxable gifts under Direct Tax?
(3 marks)

c) Should a contractor in the upstream petroleum sector be subject to tax by the Ghana Revenue Authority in a situation where its products are exported to its Parent Company without evidence of sale (technically called “export without sale”)?
(4 marks)

d) Carried interest is part of the income stream by the Host Government. What is the basis for the ownership of carried interest under petroleum upstream operations and the mining and mineral operations?
(4 marks)

e) CJA Ltd has been incorporated and intends to go into mining operations. You have been approached as a Tax Consultant on the key considerations for the issuance of a mining license.

Required:
What are the factors to be considered by the Minerals Commission before a license is recommended for issuance?
(3 marks)

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  • 5 Marks

AT – Nov 2023 – L3 – Q5b – Petroleum operations

Compute the government take from royalty, carried interest, and additional participation interest in petroleum operations.

Nananom Petroleum Ghana Ltd produced 3,000,000 barrels of oil per month. The crude oil was sold at $70 per barrel. Royalty due is 5%, Carried Interest of 11%, and Additional Interest of 3.75%.

Required:
Compute the state or government take in the following:
i) Royalty
ii) Carried interest
iii) Additional participation interest

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  • 20 Marks

AT – Nov 2017 – L3 – Q2 – Taxation of Companies

Compute assessable profit, chargeable profit, and tax for Skkye Petroleum Plc.

Skkye Petroleum Plc. began operations over ten years ago and uses December 31 as its accounting date. The following details were extracted from the accounting records for the year ended December 31, 2016:

  1. Crude oil exported – 3,500,000 barrels
  2. Crude oil used locally – 1,200,000 barrels at N100 per barrel
  3. Incidental income from petroleum operations – ₦26,750,000
  4. Exploration and drilling costs – ₦30,000,000
  5. Management and administration expenses – ₦240,500,000
  6. Non-productive rents – ₦8,300,000
  7. Provision for bad debts:
    • General – ₦7,500,000
    • Specific – ₦11,200,000
  8. Depreciation – ₦7,250,000
  9. Losses brought forward – ₦13,200,000

Qualifying capital expenditures:

  • Pipeline and storage tanks (March 2016, Continental Shelf, 190 meters depth) – ₦48,000,000
  • Plant and machinery (June 2014, Territorial Waters, 90 meters depth) – ₦63,800,000
  • Furniture and fittings (May 2013, Territorial Waters, 95 meters depth) – ₦21,000,000
  • Buildings (April 2015, onshore) – ₦71,000,000

Breakdown of Management and Administration expenses:

  • Donations to XYZ Political Party – ₦8,500,000
  • Expenditure on information regarding petroleum deposits – ₦4,700,000
  • Companies income tax of an associated company – ₦5,000,000
  • Interest on inter-company loans (market terms) – ₦2,600,000
  • Staff salaries – ₦175,000,000
  • Royalties on export sales – ₦6,200,000
  • Repairs and renewals on PPE for petroleum operations – ₦2,900,000
  • Rent for land/buildings under an Oil Prospecting License – ₦3,600,000
  • Other administrative expenses – ₦32,000,000

The international market price of crude oil in 2016 was USD $75 per barrel, with an exchange rate of USD $1 = ₦280.

Required:
a. Compute the assessable profit.
b. Compute the chargeable profit.
c. Compute the assessable tax.
d. Compute the chargeable tax.
e. Compute the Tertiary Education Tax.

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  • 8 Marks

TX – May 2019 – L3 – Q5b – Petroleum Operations

Compute the royalty payable by a petroleum company and discuss the tax implications of production costs and the relevance of government interest in upstream operations.

b) The following relates to Ablorh Ltd from petroleum operations relating to 2017 year of assessment:

Production (in barrels): 100,000,000
Selling Price per barrel ($): 100
Production cost per barrel ($): 50
Capital allowance agreed ($): 800,000
Required: i) Compute the royalty payable to the Government of Ghana by Ablorh Ltd and state the tax implication of production cost on Royalty. (5 marks)

ii) Explain THREE (3) relevance of initial interest of Government in the Upstream Petroleum Operations. (3 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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  • 10 Marks

AT – Aug 2022 – L3 – Q5a – Petroleum operations

Compute the tax payable by Alpha Ltd for the 2020 year of assessment in the upstream petroleum sector.

a) Alpha Ltd is a company operating in the upstream petroleum sector and commenced
production in 2020. The Accountant who is new to the industry provided the following extract
for the 2020 year of assessment with basis period 1 January to 31 December, 2020.

Additional information:
i) Production in barrels is 120,000,000.
ii) Finance Lease:
Principal Repayment is GH¢15,000,000.
Finance cost is GH¢1,200,000.
Lease is over 6 years starting from 1/1/2020.

Required:
Compute the tax payable for Alpha Ltd for 2020 year of assessment. (10 marks)

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  • 20 Marks

AT – Nov 2015 – L3 – Q5 – Business income – Corporate income tax

Analyzing withholding tax, taxable gifts, upstream petroleum taxation, carried interest, and mining license factors.

a) Songe Enterprise Limited is a dealer in rice. It buys its rice from the Rice Masters, a wholesaler, and sells to retailers. It has not over the years deducted withholding tax on payments to its suppliers, and its management is contemplating doing so to avoid any possible sanctions from the Ghana Revenue Authority. It has received a letter from the Ghana Revenue Authority to conduct a tax audit on its activities. Ahead of the tax audit, the management has invited you as a Tax Consultant to conduct a tax health check on its operations and put things right.

Required:
Advise the company on the withholding tax situation on payment to its suppliers.
(6 marks)

b) What constitutes taxable gifts under Direct Tax?
(3 marks)

c) Should a contractor in the upstream petroleum sector be subject to tax by the Ghana Revenue Authority in a situation where its products are exported to its Parent Company without evidence of sale (technically called “export without sale”)?
(4 marks)

d) Carried interest is part of the income stream by the Host Government. What is the basis for the ownership of carried interest under petroleum upstream operations and the mining and mineral operations?
(4 marks)

e) CJA Ltd has been incorporated and intends to go into mining operations. You have been approached as a Tax Consultant on the key considerations for the issuance of a mining license.

Required:
What are the factors to be considered by the Minerals Commission before a license is recommended for issuance?
(3 marks)

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  • 5 Marks

AT – Nov 2023 – L3 – Q5b – Petroleum operations

Compute the government take from royalty, carried interest, and additional participation interest in petroleum operations.

Nananom Petroleum Ghana Ltd produced 3,000,000 barrels of oil per month. The crude oil was sold at $70 per barrel. Royalty due is 5%, Carried Interest of 11%, and Additional Interest of 3.75%.

Required:
Compute the state or government take in the following:
i) Royalty
ii) Carried interest
iii) Additional participation interest

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