STP – Aug 2016 – L2 – Q5 – Corporate Tax and Compliance

Compute corporate tax, capital allowances, tax position, and withholding taxes for SKABY Bank for 2014 and 2015.

Question

Due to the aggressive stance of the GRA in recent times, the urgency and pace of submission of tax returns to the GRA has more than doubled. The Chief Finance Officer of SKABY BANK Ltd. requires to discuss Skaby’s Tax returns for year 2014 and 2015 by close of day today to enable him engage the Finance committee of the Board with the various tax liabilities arising from the two years’ banking activities and also access the Bank’s tax compliance level.

As Tax Consultant to SKABY BANK Ltd., extracts of the 2014 and 2015 financial statement which read as follows, has been deposited on your table for your necessary action.

SKABY COMMERCIAL BANK
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015

Note	2015 GHC’000	2014 GHC’000
	505,055.00	377,000.00
2	(82,200.00)	(51,300.00)
	422,855.00	325,700.00
	398,444.00	75,555.00
	(10,424.00)	(8,200.00)
	88,020.00	67,355.00
	24,800.00	15,980.00
	45,620.00	8,300.00
	30,420.00	24,280.00
	541,295.00	417,335.00
	9,000.00	7,992.00
	550,295.00	409,343.00
	225,000.00	215,560.00
	325,295.00	193,783.00
	82,000.00	32,000.00
	243,295.00	161,783.00

	2015 GHC’000	2014 GHC’000
	242,000.00	180,600.00
	256,920.00	190,600.00
	6,135.00	5,800.00
	505,055.00	377,000.00

b) Necessary default certificates of GHC20,000.00 have been received on income included in investment return for year 2015.

Note 2: a) Interest Expense paid

	2015 GHC’000	2014 GHC’000
Borrowings	9,900.00	8,900.00
Current and Savings A/c	45,650.00	20,500.00
Time and Other deposits	26,650.00	21,900.00
	82,200.00	51,300.00

b) $20%$ of interest expense payments’ mandatory withholding tax deduction has not been made.

Note 3: Fees and Commission Income

	2015 GHC’000	2014 GHC’000
Commission on letters of credit	3,200.00	2,650.00
Commission on Turnover	39,050.00	34,000.00
Processing fees	5,000.00	4,500.00
Commission of foreign services	2,200.00	3,060.00
Other fees and Commissions	48,994.00	31,345.00
	98,444.00	75,555.00

Note 4: Other Income

	2015 GHC’000	2014 GHC’000
Dividend Income	2,000.00
Bad Debt recovery		3,000.00
Profit on sale of property	2,200.00
Rental Income	2,470.00	2,200.00
Other Income		3,100.00
	8,300.00	8,300.00

Note 5 a). Operating Expenses Include

	2015 GHC’000	2014 GHC’000
Advertising	2,000.00	2,000.00
Rental of premises	45,000.00	40,450.00
Directors fees	2,100.00	3,000.00
Depreciation	16,000.00	15,000.00
Amortization	6,000.00	2,500.00
Donation to MD on death of mother	62,500.00
Purchase of computers	50,000.00	2,000.00
Goodwill paid	20,000.00	25,000.00

b). Tax on rental of premises has not been accrued or paid to the GRA.

Note 6: Income Tax

	2015 GHC’000	2014 GHC’000
Balance b/f	200.00
Paid for year	65,000.00	20,000.00
Deferred Tax	17,000.00	10,000.00
Total	82,000.00	30,200.00

Note 7: Extracts from the Property, Plant and Equipment schedule is as below

2015	Land & Building GHC’000	Equipment Further GHC’000	Computers GHC’000	Motor Vehicles GHC’000	Total GHC’000
Cost as at 1 January 2015	50,000.00	53,000.00	32,000.00	57,000.00	192,000.00
Additions for year	2,500.00	12,200.00	7,500.00	2,550.00	24,750.00
Disposals	–	(250.00)	(350.00)	(2,300.00)	(2,900.00)
Write-off	–	(200.00)	(45.00)	–	(245.00)
At 31 December 2015	52,500.00	64,750.00	39,105.00	57,250.00	213,605.00

Note 8 Extracts from the Intangible Assets (GOODWILL) Register is as below

	2015 GHC’000	2014 GHC’000
Cost as at 1 January 2015	7,500.00
Acquisition	10,500.00	7,500.00
Bal at year end 2015	18,000.00	7,500.00

Management policy for writing off goodwill is 10 years.

Required
Kindly present to the Chief Finance Office tax information on;
a) Corporate tax computation for year 2015 and 2014,
(10 marks)
b) Capital Allowance computation for year 2015 and 2014,
(8 marks)
c) Skabi’s Tax Position for year 2015 and 2014,
(2 marks)
d) Withholding taxes payable by Skabi to the GRA.
(2 marks)

Answer

SKABY Commercial Bank
Income Tax Computation for year 2015 and 2014
Basis Period: 1/1/2015 – 31/12/2015; 1/1/2014 – 31/12/2014

	2015 GHC	2014 GHC
Profit as Financial Statement	325,295.00	193,783.00
Add: Depreciation	16,000.00	15,000.00
Amortization	6,000.00	2,500.00
Donation to MD	62,500.00
Goodwill	20,000.00	25,000.00
Purchase of computers	50,000.00	2,000.00
	105,000.00	417,295.00
Less: Capital Allowance	64,947.00	48,750.00
Bad Debts	20,000.00
Dividend	2,000.00	3,000.00
Rent Income	1,800.00	2,200.00
	88,747.00	53,950.00
Chargeable Income	328,548.00	244,833.00
Tax charged @ 25%	82,137	61,208.25

(10 Marks)

Year 2014

Capital Allowance computation for SKABY Commercial Bank

Description	Bal b/f	Addition	Deletion	Total	Cap Rate	Cap Allow	Bal c/f
Computers	32,000.00	–	–	32,000.00	0.40	12,800.00	19,200.00
Vehicles	57,000.00	–	–	57,000.00	0.30	17,100.00	19,900.00
Equipment	53,000.00	–	–	53,000.00	0.20	10,600.00	42,400.00
Buildings	50,000.00	–	–	50,000.00	0.10	5,000.00	45,000.00
Goodwill	32,500.00	–	–	32,500.00	10 YEARS	3,250.00	29,250.00

(4 marks)

Year 2015

Capital Allowance computation for SKABY Commercial Bank

Description	Bal b/f	Addition	Deletion	Total	Cap Rate	Cap Allow	Bal c/f
Computers	19,200.00	57,500.00	(395.00)	76,305.00	0.40	30,522.00	45,783.00
Vehicles	39,900.00	2,550.00	(2,100.00)	40,150.00	0.30	12,045.00	28,105.00
Equipment	42,400.00	12,200.00	(450.00)	54,150.00	0.20	10,830.00	43,320.00
Buildings	45,000.00	–	–	45,000.00	0.10	5,000.00	40,000.00
Building 2		2,500.00	–	2,500.00	0.10	250.00	2,250.00
Goodwill	29,250.00	–	–	29,250.00	10 YEARS	3,250.00	26,000.00
Goodwill 2		30,500.00		30,500.00		3,050.00	27,450.00

(4 marks)

c.
Tax Position

Year	C I	Tax Charged	Tax Paid	Tax O/S(Cr)
2014	244,833.00	61,208.25	20,000.00	41,208.25
2015	328,548.00	82,137	65,000.00	17,137
	Tax Corp tax due			58,345.25

d.
Withholding taxes due

	2015	2014
Rent Expense	45,000	40,450
Tax payable @8%	3,600	3,236
Director’s fees	2000	3000
Tax @ 5%	100	150

Tags: Banking, Capital Allowance, Corporate Tax, Tax Compliance, Withholding Tax
Level: Level 2

Topic: Tax Administration and Management
Series: AUG 2016

Uploader: Samuel Duah