- 10 Marks
Question
Kofas Ltd is a mining company incorporated in Ghana. In the 2016 year of assessment, the company furnished the Ghana Revenue Authority with the following:
| Item | GH¢ |
|---|---|
| Revenue | 10,000,000 |
| Cost | 2,500,000 |
| Gross Profit | 7,500,000 |
| Operating expenses | 8,100,000 |
| Net Profit | (600,000) |
Additional Information:
- Foopo Ltd paid a dividend of GH¢50,000 to Kofas Ltd, which was included in the revenue. Kofas Ltd holds 25% of the shares in Foopo Ltd.
- The operating expenses of GH¢8,100,000 include the following:
- Filing penalties: GH¢1,000
- Capital work in progress: GH¢200,000
- Depreciation: GH¢100,000
- It was agreed with the Ghana Revenue Authority that the capital allowance for the 2016 year of assessment would be GH¢300,000. This allowance is yet to be factored into the computation.
Required:
i) Compute the loss to be carried forward. (5 marks)
ii) Comment on the tax treatment of the dividend paid by Foopo Ltd. (2 marks)
iii) How is unrelieved loss in the mining sector treated? (1 mark)
iv) Under what circumstances will a dividend from petroleum operations be paid to the Government of Ghana? (2 marks)
Answer
i) COMPUTATION OF LOSS TO BE CARRIED FORWARD
YEAR OF ASSESSMENT 2016
BASIS PERIOD:
| Item | Amount (GH¢) |
|---|---|
| Net Profit as per accounts | (600,000) |
| Less: Dividend | 50,000 |
| Adjusted Net Profit | (650,000) |
| Add back the following: | |
| Filing penalties | 1,000 |
| Capital work in progress | 200,000 |
| Depreciation | 100,000 |
| Total Add Backs | 301,000 |
| Adjusted Profit/Loss | (349,000) |
| Less: Capital allowance | 300,000 |
| Tax Loss | (649,000) |
ii) Dividend paid to a resident company by another resident company is exempt from tax where the company receiving the dividend controls directly or indirectly, at least 25% of the voting power of the company which paid the dividend. In this case, the dividend paid by Foopo Ltd is exempt from tax in the hands of Kofas Ltd.
iii) Unrelieved loss in the mining sector can be carried forward for 5 years and offset against income earned in subsequent years.
iv) Dividend from petroleum operations shall be paid to the Government of Ghana under the following circumstances:
- When National Oil Companies, established by the Government of Ghana, operate in the upstream petroleum sector and pay dividends.
- When the Government of Ghana holds shares in any company involved in petroleum operations.
(5 marks for i, 2 marks for ii, 1 mark for iii, 2 marks for iv)
- Tags: Dividend, Loss carry forward, Petroleum Tax, Tax
- Level: Level 3
- Topic: Business income - Corporate income tax
- Series: NOV 2017
- Uploader: Dotse