- 8 Marks
Question
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)
Answer
i) Royalty Payable to Government by Ablorh Ltd:
Royalty Computation:
Rate of Royalty: 5%
Production: 100,000,000 barrels
Royalty Payable to Government:
5% x 100,000,000 = 5,000,000 barrels
The Royalty of the government is taken in kind and GNPC sells it on behalf of the Government.
Tax Implication of Production Cost on Royalty:
As per the petroleum taxation, the Government takes Royalty without paying anything towards any cost.
The Royalty of 5,000,000 barrels is without any cost to the Ghana Government.
Total Marks: 5
ii) Relevance of the Initial Interest of Government in the Upstream Petroleum Operations:
- Equity of Government: The initial interest represents the equity of the government in the petroleum operations, entitling it to a share of production.
- Cost Sharing: The government is carried through exploration and development costs, contributing only towards production costs proportional to its interest.
- Low Financial Risk: The government’s contribution is limited to production costs, minimizing financial risk while still benefiting from the operation’s output.
Total Marks: 3
- Topic: Petroleum operations
- Series: MAY 2019
- Uploader: Cheoli