Program: PROFESSIONAL PROGRAM

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  • 20 Marks

PBL – APR 2024 – L1 – Q1 – Negligence in Consumer Product Liability

Advise Yaa Asantewaa on a negligence case against Denice Breweries after she was injured due to kerosene found in a bottle of Denice Ginger Beer.

Yaa Asantewaa bought and drank Denice Ginger Beer manufactured by Denice Breweries. She got injured because kerosene was found in the bottle of the ginger beer. Advise Yaa Asantewaa on a case of negligence against Denice Breweries.

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  • 20 Marks

STP – Feb 2018 – L2 – Q4- Taxation and Operating Strategies

Calculate Honson Plc's tax liability for Kumasi/Accra, advise on Nsawam, and discuss non-tax factors for facility location.

Honson Pic, a UK-based manufacturing company, is planning to build a new processing facility in Ghana. The Chief Executive Officer in a meeting with Management needs to decide whether to cite the facility in Accra or in Kumasi. Market intelligence has no preference for citing the facility either in Kumasi or Accra since information gathered indicate that business activities would largely be same in Kumasi and Accra for the next 10 years.

The following forecast information is relevant for the decision-making process being considered by management.

Kumasi Accra GH¢ GH¢

Required: i. Calculate Hamson Plc’s income tax liability for each proposed location for the first year. ii. Would you advise Hamson Plc to consider citing the facility in Nsawam, taking into consideration the close proximity of Nsawam to Accra? iii. Discuss three (3) non-tax factors that Hamson UK Plc may consider in the decision-making process to locate the facility either in Kumasi, Accra or elsewhere in the country.

b). With reference to the Income Tax Act, 2015 (Act 896) explain the following: i. Private Ruling issued by the Commissioner-General: (2 marks) ii. Conditions under which a Private Ruling will be binding on the Commissioner-General and on the person to whom the Private Ruling is issued.

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  • 18 Marks

STP – Feb 2018 – L2 – Q3 – Tax Administration

Explain categories of tax representatives for companies and local authorities under VAT Act 870, and their responsibilities.

The VAT Act, 2013 (Act 870) accepts that tax consultants may act in a representative capacity for and on behalf of the substantive taxpayer. This provision in the law encourages and accepts the professional development of private tax practitioners but lays down the specific parameters which would qualify such professionals to act as taxpayers’ representatives.

As the Tax Partner for ABC Practice Firm, a new entrant of the firm has approached you with a request to educate him on the types of persons who can act in a representative capacity for an on behalf of the taxpayer.

Required a) With reference to the provisions of Act 870, specify the categories of persons who qualify to be declared by the Commissioner-General as a representative person of: i. a Company; ii. a Local Authority?                                                                              b) What are the responsibilities of the tax representative of a taxable person?

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  • 20 Marks

STP – Feb 2018 – L2 – Q2 – VAT Credit Notes

Explain circumstances for issuing VAT Credit Notes and tax implications for prior period supplies.

a) As a Tax Consultant, you receive a note from Mr. Emilio Ditto, the Managing Director of a company based in the United Kingdom seeking to expand its operations in Africa through the opening of an office in Accra. He is interested in discussing with you details of some aspects of the VAT regime in Ghana particularly, the basic VAT concepts on the following:
(i) Under what circumstances can a VAT-registered person issue a Credit Note to cancel or amend a VAT invoice?
(ii) What are the tax liability implications for a VAT-registered person who issues a Credit Note to a customer for a supply that was made in a previous tax period?

Required:
Provide a brief for Mr. Emilio Ditto giving your responses to the issues raised above, with reference to the VAT Act, 2013 (Act 870) as amended.

b) Under the provisions of the Excise Duty Act, 2014 (Act 878), the Commissioner-General may, based on any information available, make an assessment of the amount of excise duty payable by a person.

Required:
State four (4) different circumstances under which the Commissioner-General may exercise the discretion to make an assessment of the excise duty payable by a person.

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  • 20 Marks

STP – Feb 2018 – L2 – Q1 – Duty Drawback

Explain "drawback" under Customs Act 2015 and circumstances for goods deemed exported for drawback.

a) In recent times the export business community has increasingly expressed concern about the issue of duty drawback management by the Ghana Revenue Authority (GRA), particularly undue delays and non-payment of duty drawback claims as accrued over the years.

As an expert tax consultant, you have been invited by the Ghana National Chamber of Commerce for a technical meeting with representatives of the business community on the duty drawback regime.

You are required to prepare a brief paper for discussion at the meeting covering the following areas:

i) An explanation of the term “drawback” as prescribed under the provisions of the Customs Act, 2015 (Act 891), including the two different categories of duty drawback that may be paid by the Commissioner-General.

ii. Under what circumstances will goods be deemed to have been exported for drawback purposes as prescribed under Act 891?

b) Corncob Industries Ltd. a company based in the Central Region of Ghana which processes agricultural products is contemplating diversifying its product lines to take advantage of an identified market potential for a particular maize-based cereal. This will require:

  • Retrofitting one of their production machines which will enhance its value and performance by about 75%.
  • Repairs to the equipment used for packaging the products. This will enhance its value by approximately 10%.
  • Servicing of a component of the sterilization unit which is still under the manufacturer’s warranty.
    Management of the company has concluded discussions with the manufacturer of the machinery, equipment and sterilization unit based in France to undertake the retrofitting, repairs and servicing, if Corncob Industries Ltd. can have the items shipped to their factory in Milan, Italy for the purpose.
    Alternatively, the manufacturer’s technicians may be brought over to Ghana with the necessary materials to undertake the retrofitting and repairs at the factory premises of Corncob Industries Ltd. Management of Corncob Ind. Ltd. is not certain of the Customs implications of shipping the items out to Italy for the works, which will take four weeks and subsequently re-importing the processed items into the country.

Required:
With reference to the Customs Act, 2015 (Act 891), explain to Management of Corncob Industries Ltd. details of the customs procedure for re-importation of goods after outward processing and the related liability to customs duty, with respect to the following issues:
i. condition under which the outward processing procedure may be used.
ii. period for discharge of the outward processing procedure.
iii. import duty liability on the goods when re-imported into Ghana after processing abroad.

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  • 20 Marks

STP – Feb 2007 – L3 – Q4 – Employee Loan Taxation

Advise on tax implications of a $300M loan and bonus for Dr. Ababio, including relevant Tax Act provisions.

(a). Dr. Ababio discusses an engagement she recently accepted with an investment banker with you for advice. She indicates that one of the recruiting inducements that convinced her to accept the position is a $300M loan from her employer. She will receive the loan proceeds on her first day of work and must sign a note to repay the loan plus accrued interest in five equal annual installments.

The employer will forgive any amount of the unpaid debt if Dr. Ababio dies, becomes disabled, or is terminated from employment through no fault of her own. Dr. Ababio’s contract provides that the employer will pay an annual bonus equal to each loan repayment. The contract stipulates that the bonus must be applied to the repayment of her loan.

Required:
i) Advise Dr. Ababio on the implications, if any, of this engagement provisions.
ii) Discuss any three provisions in the Tax Act which will support the position the Commissioner will take in respect of the taxability or otherwise of this engagement provision.

(b). The Free Zone Act declares a 10-year tax holiday for Free Zone Operators. Sweet Entities Inc. desires to set up in the Free Zone enclave but requires an understanding of the practical tax concessions granted to free operators. To this effect, the Tax Director of Sweet Entities Inc. requires that you do a practical presentation of the flow of the corporate tax-exempt concession as extended to the operator. He therefore provides you with the following business forecast for the first 10-year period as follows.
All figures in $M

Year 1 2 3 4 5 6 7 8 9 10
Adjusted Profit 10 60 150 500 1,000 1,000 1,000 520 600 620
Capital Allowance 1000 600 300 150 50 20 20 600 340 200

Compute the tax position, if any, of Sweet Entities Inc. for the exempt period.

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  • 15 Marks

STP – Feb 2020 – L2 – Q5 – Anti-Avoidance Provisions

Identify and discuss three anti-avoidance provisions in the Income Tax Act, 2015 (Act 896) and their limitations on tax planning.

Although tax planners have the liberty to devise schemes which reduce the tax liability of their clients, the Income Tax Act, 2015 (Act 896) contains provisions which limit tax planning schemes.

Required:
Identify any three (3) anti-avoidance provisions in Act 896 and discuss how each of these provisions places a limitation on the ability of a person to engage in tax planning.

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  • 20 Marks

STP – Feb 2007 – L3 – Q3 – Venture Capital Taxation

Present tax concessions for Venture Capital Operators compared to traditional banks.

As part of the post qualification requirements of The Chartered Institute of Taxation, you have been invited to do a presentation on the topic “Venture Capital Fund” to a select group of business men, tax professionals, financial institutions and students.

Invitation
Members of the Ghana Institute of Taxation and the Institute of Bankers wish to use this opportunity to strengthen the cordial relationship subsisting between them and have therefore invited you to do a presentation on the tax effects of Venture Capital Operators as compared with that of the traditional financial institutions.

Required:
Please prepare a presentation as required under Invitation above clearly distinguishing between Tax concessions granted to a Venture Capital as compared with the Bank.

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  • 20 Marks

STP – Feb 2007 – L3 – Q2 – Employee Taxation

Outline Ghanaian tax and social security implications for a French employee working in Ghana under a Double Tax Treaty.

Mr. Nor Amid, the Human Capital Resource Person of Amanda Inc, an entity registered in France sends a brief note to you in respect of a duty tour of an employee as follows:
“Amanda is sending an employee to Ghana and I am hoping that you could provide guidance for Amanda. Our understanding is as that:

  • The employee is French and may be kept on the French payroll
  • The employee’s remuneration will be cross charged to Amanda in France and Ghana
  • The employee, according to French Tax Law, will be French for tax purposes
  • The employee will spend 40% or less of his time in France
  • The employee will spend between 40 to 60% of his time in Ghana and whilst in Ghana the employee will be accommodated in hotels, will have free use of car with fuel and free meal.
  • The employee will spend his time in Ghana from 7 to 25 days at a time depending on need.

Would you kindly provide us with a brief outline of the Ghanaian tax and social security implications for Amanda and the employee? Kindly note that Ghana has an operating ‘Double Tax Treaty’ with France.

Required:
(a). Please submit a memo to respond to the concerns raised by Mr. Nor Amid.

(b). Ghana has general tax-avoidance rules in the tax acts. Kindly discuss any three practice methods adopted by the Revenue Agencies to regulate transfer pricing between related parties?

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  • 22 Marks

STP – Feb 2020 – L2 – Q4 – Business Entity Tax Implications

Advise on tax implications of establishing a company, partnership, or sole proprietorship and identify which offers the least tax exposure for an investor.

As a renowned tax consultant, a potential investor in the real estate sector in Ghana is seeking your expert opinion on the tax implications of establishing a company, a partnership or a sole proprietorship and which form of the business organisations gives the least tax exposure for an investor.

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  • 20 Marks

ATP – Aug 2019 – L2 – Q1 – Tax Administration

Identify functions of Ghana Revenue Authority under Act 791 for tax collection objectives.

(a). The Ghana Revenue Authority Act, 2009 (Act 791) sets out the objectives to be achieved in the performance of its duties as an agency of the state responsible for the collection of both direct and indirect taxes.

Required:

Identify the functions that are set out in Act 791 that are to be performed by the Ghana Revenue Authority to enable it achieve the said objectives.

(b). Section 18 of Act 915, Revenue Administration Act, 2016 sets out prohibition on representation and tax advice.

Required:

Explain the conditions under which a person can act as a Tax Consultant.

(c). Section 100 of Act 915, Revenue Administration Act, 2016 provides guidelines to achieve consistency in the administration of the tax laws and provide guidance to affected persons. The Commissioner-General is therefore required to issue practice notes.

Required:

Explain the principles that guide the Commissioner-General in issuing practice notes.

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  • 20 Marks

TAI – Feb 2020 – Q2- Audit Planning

Outline a plan for a tax audit of Timpani Ltd for 2015-2018, to be completed within 30 days.

(A) You have been asked to lead a team of tax auditors to audit Timpani Ltd covering the period January 2015 to December 2018. The company has its financial year end 31st December each year. The agreed date for the commencement of the audit is 3rd January 2020. You have been told that in view of the urgency required of the work, the audit report should be produced not later than 30 days after the date of commencement of the audit for the report to be sent to Commissioner-General.

Required:
As the audit supervisor, draw up an outline plan of how the audit assignment will be arranged. This will form the basis of your detailed audit work to be carried out.                                                                                                                                                                                                                                                                                                                                                                                                                                (B)

In the course of auditing the Tax Returns and records of Timpani Limited, the following observations have been made by the team and your audit manager has invited you to discuss its tax implication from both the Value Added Tax (VAT) and Direct tax point of view.

The company has multiple ‘strategic business units (SBU) located throughout the country and other West Africa countries. As part of your review of the records of (SBUs)’ you noticed the following:
i. Same components of material are purchased by different units at different prices.
ii. Marketing personnel have been offering discount/price reductions on catalogue/quoted prices beyond the authorized quantum/range, some of which were ratified subsequently.
iii. The company has written off all debts which have been outstanding for more than three years in its books. The total amount was GH¢680,000 and has also made provision for 5% on the outstanding debt of GH¢3.5 million.
iv. The company normally sends goods on sale or return basis. At the end of the year 2019, goods valued at GH¢10 millions were still in the custody of the agent and another goods worth GH¢1.5million had been returned by customers for defects. It is the policy of the company to issue VAT invoice to accompany all goods sent out to both customers and agents.

Required:
Draft a report to your audit manager covering the above observations and discuss the tax implications of these observations vis-a-vis the returns submitted by the taxpayer. Make assumptions, if necessary.

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  • 20 Marks

TAI – Feb 2020 – Q1- Tax Audit Objectives

Explain four objectives of Ghana Revenue Authority's audit of taxpayer returns and records.

(A) The Ghana Revenue Authority is empowered under the tax laws to audit, or review returns, and information submitted by taxpayers.

Required:
i) Explain briefly four (4) objectives why Ghana Revenue Authority may conduct an audit of a taxpayer’s returns and records.

ii) Mention and explain five (5) circumstances that may necessitate Ghana Revenue Authority to audit the returns and records of a taxpayer.

(B) Your firm is the external auditor of Waheed Engineering Services Limited, a listed company, which has turnover of GH 100 million. The head office site includes the manufacturing unit, the accounting functions and main administration. There are a number of sales offices in different parts of the country.

Your client has received the following letter from the Ghana Revenue Authority, Sunyani Medium Taxpayer Office.

The Managing Director,
Waheed Engineering Services Limited
Kenyasi Ahafo.
Dear Sir,
AUDIT OPERATIONS
This letter serves to introduce to you:
Awura Amma Druwaa: and
Haruna Wahab Rashid.
of the Medium Taxpayer Office, Sunyani who have been assigned to conduct audit verification into the operations of your business vis-à-vis your declaration to the Ghana Revenue Authority. We request in accordance with the Income Tax Act, 2015 (Act 896) and Value Added Tax Act 2013 (Act 870) and accompanying Regulations, you provide them with all relevant information, records and other documents to enable them to complete the assignment on time.

Yours faithfully,

Signed
GRA

Upon receipt of the letter, your client has expressed concerns that, the audit cannot proceed properly because the present condition makes it difficult for him to cooperate and as such, he requests that, the audit should be temporarily suspended. Your client has asked you to write to the Ghana Revenue Authority to that effect.

Required:
i. Discuss five (5) situations which a taxpayer can request temporarily suspension of audit.

ii. State any three (3) rights available to the taxpayer under an audit engagement other than the right to postpone audit engagement.

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  • 20 Marks

ATP – Aug 2020 – L2 – Q5 – Tax Compliance Framework

Explain Self-Assessment and Provisional Assessment in tax administration.

a) The Government of Ghana has changed the policy to “Self-Assessment” as a means to improve on revenue mobilisation as against the policy of “Provisional Assessment”. Explain the terms “Self-Assessment” and “Provisional Assessment” in tax administration.

b) Discuss the rationale for the moving away from Provisional Assessment to Self-Assessment.

c) Adebayo Adadeji has operated as Customs House Agent in Lagos over the years and has decided to take advantage of the common currency due to be introduced into the ECOWAS region. He has approached you to seek your advice as Chartered Tax Consultant on the possibility of forming a company as a Customs House Agent in Tema. With reference to the Customs Act, 2015 (Act 891) as amended, you are required to advise him on the categories of persons that can engage in the business of customs house agent.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q5 – Customs and Excise Duties Valuation

Explain calculation of "value for duty purposes" for imports, locally manufactured goods, and exports.

A) In relation to customs and excise duties, explain how the “value for duty purposes” is calculated on the following:

i. Imports

ii. Locally manufactured goods and services

iii. Export

(B) As part of the revenue mobilization campaign of the Ghana Revenue Authority, your firm, Messrs. Skin Pain & Co. has been contracted to carry out tax audit on the 2018 published accounts of a member of a group companies engaged in the importation of used spare parts. One of the audit teams has just returned to the office and submitted their audit file on Tom and Jerry Company Limited to you for review. The team has made the following findings:

  1. The total IDF value of imports was $5,330,844.56, Import Duty and VAT paid were GH¢7,475,654.23 and GH¢6,546,689.04 respectively.
  2. Total amount transferred to Okamoto Trading Corporation of Japan; the main suppliers was $9,182,250.00. This transfer included $1,237,500 allegedly transferred from the Managing Director’s own resources. The company has a ninety-day credit facility with Okamoto Trading Corporation.
  3. Statement of account for the year ended 31/12/18 from Okamoto Trading Corporation indicated opening and closing balances as $540,690.60 and $708,732.02 respectively.
  4. The account audited which had been filed with Ghana Revenue Authority indicated purchases of GH¢509,552.03 is local purchases from other importers.
  5. Amount of Import Duty and VAT charged in the published accounts amounted to GH¢710,068.11 and GH¢461,544.51 respectively.
  6. Note that import duty rate is 20%; VAT rate is 17½%; and $1.00=GH¢4.20.

You are required to:
i. Analyze the findings of the Audit Team and present a report to your Audit Manager indicating any tax implications of their findings.
ii. What further audit work would you advise the audit team to undertake on the transfer by the managing director to assure yourself that is not business income of funds belonging to the company or from a taxable source.

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  • 20 Marks

ATP – Aug 2020 – L2 – Q3 – Income Tax Computation

Compute Dr Kodwo Kusi-Appiah’s tax liability for 2017, including salary and consultancy income.

Dr Kodwo Kusi-Appiah, a physically challenged, is a lecturer at University of Ghana, School of Veterinary Medicine. He dedicates most of his free time providing consultancy services in animal health biosecurity to his clients and Animal Husbandry services in his piggery. He is also a member of team of consultants who provides consultancy services to the Ministry of Food and Agriculture, Animal Production Directorate. In terms of his service contract with Animal Production Directorate, he is required to participate in all anthrax out breaks for cattle and swine fever for pigs. His service contract is for a year, subject to renewal as and when donor funds are available. All the consultancy team members of which Dr Kusi Appiah was one, were paid a predetermined monthly salary GH¢ 4,000 each and an all – inclusive field attendance allowance of GH¢ 1,000.00 each, per day at any disease outbreak site in any part of the country. During the year under review, there was no outbreak of any of the diseases that warranted their field visit.

Dr Kusi-Appiah’s private consultancy practice to Cattle, Pigs and Poultry farmers is strictly by appointment and his clientele base has been growing steadily due to his dedication to work and experience. He earned a total of GH¢12,000 during the year ended 31st December, 2017.

Dr Kusi-Appiah’s earnings and deductions from his employment at the University of Ghana for the year ended 31 December 2017 were:

Item GH¢
Basic Salary 60,000.00
Transport allowance 3,000.00
M Phil Supervision 2,500.00

10% of Basic Salary in lieu of leave

Other benefits from his Employment with the University include:

a) 5.5% of Basic Salary contributions to SSNIT and the 1st Tier Pension Fund. He also contributes 10% of his salary to Staff Savings Scheme to which his employer does not contribute.

b) Soft Furnished Accommodation at the University of Ghana.

c) He was granted two months’ salary advance on 1st February, 2017 to meet the medical treatment of his wife Mrs Rhoda Kusi-Appiah in London. The loan is repayable within one year at an interest rate 10%.

The following additional information are available on the other earnings of Dr Kusi Appiah. He started a piggery project, trading as Kusi-Appiah Farms on 1st January, 2012. The net income from the operations of the piggery for the year ended 31st December, 2017 was GH¢10,500.00

He earned GH¢24,000.00 in respect of his private consultancy services during the year ended 31st December, 2017. With the exception of a total tax of GH¢13,500.00 paid at source from his earnings as a lecturer and GH¢3,600.00 withheld by the Ministry of Agriculture, no other taxes were paid.

You are required to compute the tax liability of Mr Kodwo Kusi –Appiah for the 2017 Year of Assessment.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting

Recommend examination procedures for reviewing God’s Time Ltd.’s profit forecast for COVID-19 financial assistance.

In order to assist businesses during the COVID-19 period, the Government of Ghana has announced various packages including financial assistance to various companies and other Small and Medium Enterprises. Your firm, Prosper & Co has been approached to perform an assurance engagement for God’s Time Ltd; the engagement will be a review of prospective financial information which is needed to support the company’s application for financial assistance provided under COVID-19 facilities. God’s Time Ltd had its financial year ended 31st December each year.

The operating profit forecast for the two years to 31st December 2020 prepared by a member of the accounting team of God’s Time Ltd is shown below, along with some accompanying notes.

Six months to 30th June 2019 Six months to 31st Dec. 2019 Six months to 30 June. 2020 Six months to 31st Dec. 2020
GH¢ GH¢ GH¢ GH¢
Earnings 2,801,597 3,088,680 4,210,265 4,429,728
Direct costs 2,135,938 2,315,746 3,413,711 3,618,584
Gross Profit 665,659 772,934 796,554 811,144
Operating Exp.
Wages & Salaries 168,452 184,864 209,546 218,762
Advertising 13,840 20,542 28,548 31,540
Design costs 21,580 32,456 50,452 43,546
Marketing 10,896 12,458 16,520 34,450
Interest on Loan 45,543 48,620 51,654 60,542
Other Operating Exp 266,264 309,173 318,622 324,458
Net Profit 139,084 164,821 121,212 97,846

Additional Notes: i. God’s Time Ltd is a producer of greetings cards and giftware; the demand for which is seasonal in nature.

ii. Design costs are mostly payroll costs of the staff working in the company’s design team, and the costs relate to the design and development of new product ranges.

iii. The total ‘Other expenses’ is calculated based on 40% of the projected revenue for the six-month period.

iv. In 2019, the company was granted a loan facility to complete the ongoing factory project.

Required:

Recommend the examination procedures which should be used in the review of the profit forecast.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      (B)

You are the supervisor in-charge of the audit of Titi bidi Construction Company Limited. The audit of the company is near completion, and you are finalizing the audit report. As part of your final review, you want a confirmation that, the tax liability as reported is accurate and as such there is no liability that has not been captured.

Required:

Outline the audit steps to verify that, all tax payments and tax credits has been captured and the liability as reported is accurate.

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  • 20 Marks

ATP – Aug 2020 – L2 – Q1 – Indirect Taxes

Calculate NHIL, GET Fund, VAT, and Withholding Tax for Fafali Ghana Limited for January 2019.

Fafali Ghana Limited produces aluminium roofing sheets for both the domestic market and exports to other West African countries. The company is registered with the Ghana Revenue Authority for Value Added Tax (VAT). The company’s transactions during the month of January, 2019 were as follows:

Item GH¢
Sales (VAT Inclusive) 6,804,000.00
Exports to Sierra Leone (US Dollars) 120,000.00
Relief Supplies 148,000.00
Purchase of Modelling Equipment 160,500.00
Staff Training (VAT Inclusive) 10,800.00
Assembly of Equipment (US Dollars) 15,600.00
Alumina imported (All duties paid at importation) 141,750.00
Local Purchases 180,000.00

Unless otherwise stated, Sales and Purchases are all Value Added Tax exclusive. National Health Insurance and GET Fund Levies are also exclusive except where it has been specifically stated. The assembling of equipment was a payment made to a foreign consultant for the service rendered. The average exchange rate for the month was GH¢5.5 to one US dollar.

Required:

a) Calculate the NHIL and GET fund levies, VAT payable, if any, and Withholding Tax for January 2019.

b) State the last date when each payment is due.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

(a) You are a tax audit team leader responsible for the audit of Mina Macarthy Limited.

Mina Macarthy Limited owns a block of flats and earns its income through rentals and general dealing. On 1st January 2019, the ledger accounts of the company included the following balances.

Debtors’ account GH¢475,000

Provision for doubtful debts account GH¢ 42,235

The balance on the provision account consisted of the following: GH¢

Specific provision of 100% against the debt of Charles Sulemana, a tenant 31,500

General provision of 1% against remaining debts
12,235

During the year ended 31st December 2019, the following events occurred.

i. Charles Sulemana paid Mina Macarthy GH¢11,150 and then vanished without trace to new world, leaving no assets.

ii. Another tenant, Antonio Banderas, who owed GH¢3,900 fell into a river and was also found to have died penniless.

iii. Azuma Nickson returned from total obscurity and paid an amount of GH¢6,450 which Mina Macarthy Ltd had written off in 2017.

iv. Credit sales for the year amounted to GH¢8,167,400 and cash received from debtors (other than Sulemana and Azuma) totaled GH¢3,150,000

v. On 31st December 2019, Mina Macarthy Ltd decided to provide in full against a disputed debt of GH¢51,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other debtors.

Additional notes

The company has submitted its returns for 2019 which showed a profit before tax of GH¢375,650.

Required: Comment on the matters to be considered. In addition to your comments, explain the audit evidence expected to be obtained during your review of Mina Macarthy Limited’s audit working papers prepared by the audit team member in respect of each of the issues described above.                                                                                                                                                                                                                                                                                                                                                                                                                             (bi)

In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

i. Explain how a bad debt may arise for VAT.

(bii) In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

ii. Explain the circumstances under which a bad debt relief can be claimed.

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  • 20 Marks

ATP – Feb 2020 – L2 – Q5 – Income Tax Computation

Compute depreciation allowances for Menyami Limited for 2016, 2017, and 2018.

Menyami Limited has been in operations as a Timber Merchant for several years and prepares accounts to 31st December each year. The company’s Non-Current Assets as at 31st December, 2016 were as follows:

Description GH¢
Timber Concession (30 years Lease) 1,500,000
Building 400,000
Plant and Machinery 2,800,000
Timber Trucks 1,200,000
Land Cruiser Vehicle (1/3/2017) 280,000
Pick Up Vehicle (1) (1/5/2018) 180,000
Computers and Accessories 30,000
Furniture and fittings 12,000

Menyami Limited applied to the Commissioner-General and was granted depreciation allowances for the use of the above Non-Current Assets over the years.
In July, 2017, the company acquired a Plywood processing plant on hire purchase at the cost of GH¢1,800,000. The Company paid a deposit of GH¢800,000 and the balance is to be paid over a period of four years in advance starting from 1st January, 2018. The first instalment was paid on due date.
During the year 2018, a plant which was acquired in January, 2016 was rehabilitated at the cost of GH¢20,000.00.

The depreciation allowance rates applicable to each pool of depreciable assets are as follows:

Class Rate
Class 1 40%
Class 2 30%
Class 3 20%
Class 4 10%

All the assets unless otherwise indicated were all bought in January 2016.

Required:
Compute the depreciation allowances for the years 2016, 2017 and 2018 in a columnar format.

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