Tax adjustments – NBC Institute

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

Question

Mr. Ojoowuro, the director of a grocery store, has noticed that the tax charge for his company is N15million on profits before tax of N105million. This is an effective rate of 14.3%. Another company, Irin Plc, has an income tax charge of N30million on profit before tax of N90million. This is an effective rate of tax of 33.3%, yet both companies state that the rate of income tax applicable to them is 25%. Mr. Ojoowuro has also noticed that in the statements of cash flows, each company has paid the same amount of tax of N24million.

Required:
Advise Mr. Ojoowuro on the possible reasons why the income tax charge in the financial statements as a percentage of the profit before tax may not be the same as the applicable income tax rate and why the tax paid in the statement of cash flows may not be the same as the tax charge in the statement of profit or loss and other comprehensive income. (7 Marks)

Answer

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Tags: Cash Flow Variances, Deferred Tax, Effective Tax Rate, Financial Statements, Income Tax, Tax adjustments, Tax provisions
Level: Level 3

Topic: Income Taxes (IAS 12)
Series: NOV 2013

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

Question

Mamavi is a retail business woman with a chain of shops in Ghana. She commenced business on 1 March 2011, with the business name of Unity Enterprise. She sells health foods, fruits, vegetables and juices.

The Enterprise’ profit or loss account for the year ended 31 December 2018 as prepared by the Accountant are reproduced below:

NOTES

A business loan was taken out to finance the cost of improvements to the store, in particular
the juice bars. The interest element included in the loan repayment amounted to GH¢1,750.
A mortgage loan was taken out by Mamavi to buy the family a house in Hlefi, Volta Region.
The interest element in the loan repayment for the mortgage was GH¢2,670.

This court case was as a result of a car hitting Mamavi when she was walking her dog out
at night. The car owner claimed Mamavi stepped out in front of him and therefore it was
her fault. Mamavi’s Lawyer told her to respond to the allegation because she needed five
sessions of physiotherapy to help heal her leg. Mamavi is suing the car owner for her costs.

GH¢700 of the painting cost related to the painting of Mamavi’s private house. The balance
related to painting her shop. GH¢1,200 lease charges relate to the leasing of a car for the
business
Required:
Compute Mamavi’s chargeable income for the year ended 31 December 2018

Answer

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Tags: Allowable Deductions, Business income, chargeable income, Disallowable expenses, Tax adjustments
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2020

AT – Dec 2023 – L3 – Q1 – International taxation

Calculating tax adjustments for related party transactions between Abirem Ltd and Gomoa Ltd, including pricing and dividend issues.

Question

Gomoa Ltd, a resident of the United States of America, established two companies, Komenda Ltd (resident in South Africa) and Abirem Ltd (resident in Ghana). The Ghana Revenue Authority (GRA) requested information about Abirem Ltd for tax purposes.

The details for the 2021 year of assessment are as follows:

Additional information:
i) Gomoa Ltd invoiced goods to Abirem Ltd at a price of GH¢1,900,000, which is 10% higher than the market price.
ii) Dividend of GH¢700,000 paid by Abirem Ltd to Gomoa Ltd has been incorporated into Abirem Ltd’s cost.
iii) Management and technical services fee of GH¢1,290,000 paid to the group by Abirem Ltd has been added to operating expenses.
iv) Goods invoiced to Komenda Ltd by Gomoa Ltd amounted to GH¢1,000,000, priced 15% below the arm’s length price.
v) Dividend of GH¢200,000 received by Abirem Ltd from a resident company is included in its revenue. Abirem Ltd holds 25% of the resident company’s voting power.
vi) The Managing Director of Abirem Ltd took goods for personal use, valued at GH¢200,000 (cost), with a margin of 20%.
vii) The Managing Director of Abirem Ltd took additional goods worth GH¢130,000 at cost for home consumption, which was not added to the cost of goods above. The goods were sold at a 10% markup.
viii) Abirem Ltd paid GH¢20,000 in tax in South Africa at a rate of 27% on goods sold, which was included in its revenue.
ix) Abirem Ltd received a loan from Komenda Ltd for operations. Loan details are as follows:

Loan amount: GH¢10 million
Interest on loan payable: GH¢1,000,000
Foreign exchange loss on the loan: GH¢200,000
x) Equity at the start of the year: GH¢2,000,000, and at the end of the year: GH¢2,800,000
xi) GH¢400,000 was transferred from retained earnings to share capital.
xii) Financial gain from derivative: GH¢2.5 million, and financial cost from derivative: GH¢6 million, included in operating expenses.

Required:
Calculate the tax payable by Abirem Ltd for the 2021 year of assessment.

Answer

Find Related Questions by Tags, levels, etc.

Tags: International Taxation, Related Party Transactions, Tax adjustments, Thin Capitalization, Transfer Pricing
Level: Level 3

Topic: International taxation
Series: DEC 2023

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Flow Variances, Deferred Tax, Effective Tax Rate, Financial Statements, Income Tax, Tax adjustments, Tax provisions
Level: Level 3

Topic: Income Taxes (IAS 12)
Series: NOV 2013

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

Question

The Enterprise’ profit or loss account for the year ended 31 December 2018 as prepared by the Accountant are reproduced below:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Allowable Deductions, Business income, chargeable income, Disallowable expenses, Tax adjustments
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2020

AT – Dec 2023 – L3 – Q1 – International taxation

Calculating tax adjustments for related party transactions between Abirem Ltd and Gomoa Ltd, including pricing and dividend issues.

Question

The details for the 2021 year of assessment are as follows:

Loan amount: GH¢10 million
Interest on loan payable: GH¢1,000,000
Foreign exchange loss on the loan: GH¢200,000
x) Equity at the start of the year: GH¢2,000,000, and at the end of the year: GH¢2,800,000
xi) GH¢400,000 was transferred from retained earnings to share capital.
xii) Financial gain from derivative: GH¢2.5 million, and financial cost from derivative: GH¢6 million, included in operating expenses.

Required:
Calculate the tax payable by Abirem Ltd for the 2021 year of assessment.

Answer

Find Related Questions by Tags, levels, etc.

Tags: International Taxation, Related Party Transactions, Tax adjustments, Thin Capitalization, Transfer Pricing
Level: Level 3

Topic: International taxation
Series: DEC 2023

Question Tag: Tax adjustments

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CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

AT – Dec 2023 – L3 – Q1 – International taxation

Calculating tax adjustments for related party transactions between Abirem Ltd and Gomoa Ltd, including pricing and dividend issues.

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

AT – Dec 2023 – L3 – Q1 – International taxation

Calculating tax adjustments for related party transactions between Abirem Ltd and Gomoa Ltd, including pricing and dividend issues.

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CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

You're reporting an error for "CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)"

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

You're reporting an error for "AT – May 2020 – L3 – Q4a – Business income – Corporate income tax"

AT – Dec 2023 – L3 – Q1 – International taxation

Calculating tax adjustments for related party transactions between Abirem Ltd and Gomoa Ltd, including pricing and dividend issues.

You're reporting an error for "AT – Dec 2023 – L3 – Q1 – International taxation"

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

You're reporting an error for "CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)"

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

You're reporting an error for "AT – May 2020 – L3 – Q4a – Business income – Corporate income tax"

AT – Dec 2023 – L3 – Q1 – International taxation

Calculating tax adjustments for related party transactions between Abirem Ltd and Gomoa Ltd, including pricing and dividend issues.

You're reporting an error for "AT – Dec 2023 – L3 – Q1 – International taxation"

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