Tax Deductibles – NBC Institute

PT – Nov 2023 – L2 – Q4a – Income Tax Liabilities

Explanation of tax treatment of research and development expenses, contributions to worthwhile causes, and financial costs from derivatives.

Question

Your company has recruited five new employees, and the Director of Training has instructed you to explain certain provisions in the Income Tax Act, 2015 (Act 896) to them:

i) Research and development expenditure (3 marks)
ii) Contribution and donations to worthwhile causes (3 marks)
iii) Financial cost from derivatives (4 marks)

Answer

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Tags: Contributions, Donations, Financial instruments, Research and Development, Tax Deductibles, Tax law
Level: Level 2

Topic: Contributions, Financial Cost
Series: NOV 2023

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

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

Question

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:

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.
Travelling Expenses:
28% of the travelling expenses were for private journeys.
Maintenance:
The maintenance figure includes GH¢11,500 for furniture and fittings bought for the shop and GH¢10,000 for painting her apartment.
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
Bad Debts:
- General provision: GH¢26,000
- Specific provision: GH¢10,000
- Loan to husband written off: GH¢16,000
Sanitation:
GH¢1,000 was spent on acquiring equipment for cleaning the office premises.
Business Promotion:
- Permanent billboard: GH¢8,000
- Television advertisement: GH¢6,620
- Entertainment of customers: GH¢11,000
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.
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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bad Debt, Capital Allowance, chargeable income, Tax Deductibles
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2023

PT – Nov 2023 – L2 – Q4a – Income Tax Liabilities

Explanation of tax treatment of research and development expenses, contributions to worthwhile causes, and financial costs from derivatives.

Question

Your company has recruited five new employees, and the Director of Training has instructed you to explain certain provisions in the Income Tax Act, 2015 (Act 896) to them:

i) Research and development expenditure (3 marks)
ii) Contribution and donations to worthwhile causes (3 marks)
iii) Financial cost from derivatives (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contributions, Donations, Financial instruments, Research and Development, Tax Deductibles, Tax law
Level: Level 2

Topic: Contributions, Financial Cost
Series: NOV 2023

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

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

Question

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:

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.
Travelling Expenses:
28% of the travelling expenses were for private journeys.
Maintenance:
The maintenance figure includes GH¢11,500 for furniture and fittings bought for the shop and GH¢10,000 for painting her apartment.
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
Bad Debts:
- General provision: GH¢26,000
- Specific provision: GH¢10,000
- Loan to husband written off: GH¢16,000
Sanitation:
GH¢1,000 was spent on acquiring equipment for cleaning the office premises.
Business Promotion:
- Permanent billboard: GH¢8,000
- Television advertisement: GH¢6,620
- Entertainment of customers: GH¢11,000
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.
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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bad Debt, Capital Allowance, chargeable income, Tax Deductibles
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2023

Question Tag: Tax Deductibles

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PT – Nov 2023 – L2 – Q4a – Income Tax Liabilities

Explanation of tax treatment of research and development expenses, contributions to worthwhile causes, and financial costs from derivatives.

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

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

PT – Nov 2023 – L2 – Q4a – Income Tax Liabilities

Explanation of tax treatment of research and development expenses, contributions to worthwhile causes, and financial costs from derivatives.

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

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

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PT – Nov 2023 – L2 – Q4a – Income Tax Liabilities

Explanation of tax treatment of research and development expenses, contributions to worthwhile causes, and financial costs from derivatives.

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

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

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PT – Nov 2023 – L2 – Q4a – Income Tax Liabilities

Explanation of tax treatment of research and development expenses, contributions to worthwhile causes, and financial costs from derivatives.

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

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

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