Question Tag: Capital allowances

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  • 20 Marks

ATP – Aug 2019 – L2 – Q3 – Corporate Tax and Penalties

Compute Yentua Limited’s 2018 tax liabilities, including penalties, using financial statement data.

Yentua Limited is a company registered in Ghana under the Companies Act 1963, Act 179 on 15th September 2017. It started operations on 1st October, 2017. The company buys metal scraps both from internal and external sources and sells to the iron rod manufacturers in Tema. The company was not registered with the Ghana Revenue Authority and therefore has never submitted any tax returns on its operations. The activities of the company came to light when a team of Revenue Officers from the Enforcement unit of the Ghana Revenue Authority met the Managing Director and his staff in full operation. The team educated the Managing Director and his management team on importance of payment of taxes and registering with the Ghana Revenue Authority and submitting the tax returns to the Authorities regularly. The Managing Director then presented Tax Credit Certificates (TCC) totalling GH¢ 134,000 and receipts for duties paid on imported goods as taxes paid and therefore claimed his company was tax compliant. The Managing Director later approached you as a Tax Practitioner to help the company complete its tax returns on its business operations to Ghana Revenue Authority. The extracts from the company’s financial statement presented by the Finance officer for the year ended 30th September 2018 were as follows:

Yentua Limited
Income Statement

GH¢ GH¢
Turnover 7,800,000.00
Cost of Sales (6,929,300.00)
Gross Profit 870,700.00
Administration and General Expenses (660,000.00)
Net Profit 90,000.00

Note 2: Cost of Sales

GH¢
Local Purchases 4,400,000.00
Imports 1,580,000.00
Freight and Insurance 98,500.00
Import Duties 436,000.00
Cargo Truck 240,000.00
Repairs and Maintenance 52,000.00
Depreciation – Truck 48,000.00
Fuel and Lubricants 24,000.00
Transport and Handling 50,800.00
Total 6,929,300.00

Note 3: Administration and General Expenses

GH¢
Salaries and Allowances 285,000.00
Directors Remuneration 64,000.00
Consultancy Fees 90,000.00
Printing and Stationery 10,500.00
Rent (Office Building) 60,000.00
Rent (Residential) 36,000.00
Equipment Rentals 79,000.00
Utilities 35,500.00
Total 660,000.00

Required:
Determine the tax liabilities due from the company in respect of direct taxes for 2018 year of assessment, including any relevant penalties that are applicable. Corporate Tax rate applicable to the company is 25%.

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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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  • 20 Marks

ATP – Feb 2017 – L3 – Q3 – Pooling System

Explain general features of the pooling system for capital allowances.

You are a Chartered Tax Practitioner and you have been consulted to produce an article for publication in The Tax Collector, the monthly journal of the Ghana Revenue Authority on the topic “The Pooling System of granting allowance as provided in the Income Tax Act, 2015 (Act 896).

Required:

a. Explain the general features of the pool system. (10 Marks)

b. What are conditions expected to be satisfied before the grant of Capital Allowances? (8 Marks)

 

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  • 20 Marks

ATP – Aug 2015 – L2 – Q4 – Income Tax Computation

Compute chargeable income for partners of Zee & Associates for 2012-2014, including capital allowances.

Ace, Brace and Crate have been in partnership since 2006 trading as Zee & Associates dealing in cement and preparing accounts to December 31 each year. Their Partnership Agreement showed that they share profits in the ratio 5:4:3 respectively.

The written-down values of the assets used in their operations as at 31st December, 2011 were as follows:

GH¢
Office Equipment 148,000.00
Pick–up vehicles 95,000.00
Saloon vehicles 80,000.00

Brace resigned from Zee & Associates on 2nd January 2013 and on his exit, Ace and Crate continued the business agreeing to share profits in the ratio 2:1 respectively.

The partnership Firm acquired the following additional assets:

a) A building for office annex costing GH¢430,000.00 on 4th October, 2013.

b) One Toyota Camry for GH¢85,000.00 on 26th March 2012

c) One Toyota Land Cruiser Prado at a cost of GH¢188,000.00 on 3rd July, 2013

Some of the office equipment were sold on 15th June, 2013 for GH¢35,000.00.

The Firm’s adjusted profits for tax purposes but before grant of capital allowance were as follows:

Year to 31/12/2012 GH¢315,000.00
Year to 31/12/2013 GH¢298,000.00
Year to 31/12/2014 GH¢328,000.00

You are required to compute the chargeable income, if any, of each partner for the relevant years of assessment on the assumption that no other incomes accrued to any of the partners.

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  • 2 Marks

PT – Nov 2024 – L2 – Q4c – Tax Treatment of Repairs and Renovations

Explains the tax treatment of repairs and renovations for businesses.

Question:
Repairs are essential for maintaining the safety of a property, and renovation improves the overall functionality of a property.

Required:
What is the tax treatment of repairs and renovations?

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  • 30 Marks

AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

Zezee Nigeria Limited was incorporated on September 7, 2012, but it did not commence business until July 1, 2013. Based on the Memorandum and Articles of Association, the company was incorporated to carry on the business of distributorship and general contracting.

Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:

Period 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Revenue 5,430,000 12,600,000 18,400,000
Direct Cost (890,000) (1,345,000) (1,910,000)
Gross Profit 4,540,000 11,255,000 16,490,000
Other Income 45,000 458,150 201,000
Distribution Cost (386,000) (820,000) (1,060,500)
Administrative Expenses (4,810,550) (6,510,440) (8,240,600)
Other Expenses (41,000) (113,240) (145,100)
Net (Loss)/Profit (652,550) 4,269,470 7,244,800

Additional Information:

  1. Other Income Comprises:
Details 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Sale of Scraps – 57,000 –
Interest Received on Treasury Bills – 325,000 120,000
Interest on Domiciliary Account 45,000 76,150 81,000
Total Other Income 45,000 458,150 201,000
  1. Administrative Expenses Include:
Details 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Depreciation 160,000 320,000 440,000
Preliminary and Formation Expenses 216,000 – –
Penalties and Fines – – 65,000
General Provision for Bad Debts 110,000 180,000 240,000
Staff Salaries 2,060,000 4,230,000 4,230,000
Office Rent 600,000 1,200,000 1,800,000
  1. Details of Property, Plant, and Equipment are as follows:
Asset Date of Purchase Cost (N)
Furniture and Fittings June 7, 2013 980,000
Motor Vehicles June 30, 2013 2,400,000
Office Equipment July 1, 2013 1,200,000
  1. On January 2, 2015, the company bought another motor vehicle for N1,800,000.
  2. Extracts of the Statements of Financial Position:
Period 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Net Assets 1,360,000 2,870,500 3,260,700
Paid-up Share Capital 5,000,000 5,000,000 5,000,000

Required:

For all the relevant years of assessment, you are required to:

a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)

(Total 30 Marks)

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  • 5 Marks

ATAX – May 2019 – L3 – Q7b – Corporate Tax Compliance and Reporting

Compute the total tax liabilities for Alaba Trading Limited for the 2018 assessment year, considering its assessable profit, capital allowances, and dividend payable.

For the assessment year 2018, below are the extracts from the tax computations of Alaba Trading Limited:

Item Amount (₦)
Assessable profit 8,200,000
Capital allowances 5,400,000
Dividend payable 6,000,000

Required:
Determine the total tax liabilities of Alaba Trading Limited for the assessment year.

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  • 30 Marks

ATAX – May 2022 – L3 – Q1 – Taxation of Companies

Determination of tax liabilities, treatment of donations, and exemptions of dividends based on CIT Act provisions.

Dadinkowa Nigeria Limited has been in business since 2009 as a manufacturer of sugar cubes. The company sources its raw materials, sugar cane, from the Northern part of the country. However, due to local security challenges, the company has faced supply disruptions since 2016.

Additionally, the company has disagreements with tax authorities regarding the treatment of certain items (e.g., donations and dividend income) in their financial statements and returns. High overhead costs, especially energy expenses, have worsened operational challenges.

At a recent board meeting, the directors proposed either a temporary closure or relocating to a neighboring country if conditions do not improve in the next fiscal year. The General Manager shared this with you during your visit as the company’s tax consultant, seeking your advice to address these issues.

A scheduled meeting with the Managing Director requires you to prepare a comprehensive tax report addressing:

  1. Determination of the company’s tax liabilities for the relevant tax year.
  2. Analysis of the treatment of donations and exemptions of dividend income under the Companies Income Tax Act (CITA).

The profit or loss account for the year ended December 31, 2021, is as follows:

Profit or Loss Account:

Extract from the company’s statement of financial position as at December 31, 2021 revealed:

The following additional information was made available:

(v) Interest on loan was paid on a facility obtained from a licensed Nigerian deposit money bank at commercial interest rate.
(vi) General and administrative expenses were made up of:

(vii) Donations and subscriptions
Included in donations was N12,000,000 paid to a fund created by the Federal Government for victims of communal crisis that took place where the company is situated.
(viii) The tax written down values of the qualifying capital expenditure (QCE) items as at December 31, 2020 were:

(ix) Additions to QCEs during the year ended December 31, 2021 were:

(x) Unrelieved capital allowances brought forward were N15,200,000.
(xi) Unabsorbed losses from previous years were:

Required:

As the company’s Tax Consultant, you are to draft a report to the Managing Director for the scheduled meeting expected to hold next week. This is expected to address the following:
a. Determination of the company’s tax liabilities for the relevant tax year. (20 Marks)
b. Comment, in line with the provisions of Companies Income Tax Act Cap C21 LFN 2004 (as amended) on:
i. The treatment of donations made by the company during the year under review (5 Marks)
ii. Exemption of dividends from taxation (5 Marks)

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  • 11 Marks

ATAX – Nov 2016 – L3 – Q6b – Petroleum Profits Tax (PPT)

Determines assessable profit, chargeable profit, assessable tax, and chargeable tax for Bivenette Petroleum Company Limited.

Bivenette Petroleum Company Limited has been in the oil prospecting business for some years. Extracts from its financial statements for the year ended December 31, 2013 show the following information:

Additional Information:

  1. Petroleum Profits Tax rate: 85%
  2. Interest paid includes N12,000,000 paid to an affiliated company.
  3. Capital allowances agreed at N253,750,000.
  4. Operating costs include N302,000,000 paid to a company for information on oil prospect in Adamawa State.
  5. The company is entitled to an Investment Allowance of N173,000,000.

You are required to:

  • Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

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  • 20 Marks

ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)

Tax computation for Debby Oil Limited, including adjustments, capital allowances, and tertiary education tax.

Debby Oil Limited is an oil prospecting company that has been operating in the deep ocean of the Niger Delta since 1990. The company makes up its accounts to December 31 each year.

The company is in discussion with a consortium of five deposit money banks in Nigeria for the purposes of taking a medium-term (5 years) loan facility of USD 5 million to finance further expansion of its facilities and acquisition of a marginal field. As part of the documents required by the banks for processing the loan facility are the audited financial statements and tax computations for the last five financial years. The company is yet to submit the documents for the year ended December 31, 2020, to the consortium.

The extract from its activities for the year ended December 31, 2020, is as presented below:

Item Amount (₦’000)
Oil inventory (Jan 1, 2020) 1,220,000
Oil inventory (Dec 31, 2020) 1,380,000
Sales – Export 9,524,000
Sales – Local 2,900,500
Other income 1,235,300
Production cost 3,440,000
Operating expenses 1,789,600
Intangible drilling cost 1,425,200
Tangible drilling cost 532,000
Traveling expenses 54,000
Salaries and wages 1,860,000
Pension fund contribution 175,000
Loan interest 150,000
General expenses 800,500
Depreciation 170,000
Royalties and production rentals 810,000
Donation 20,000
Bank charges 25,300
Harbour dues 15,000
Non-productive rent 350,000
Audit and accountancy fees 28,000
Customs duty on essentials 7,300
Income tax provision 865,860
Transfer to general reserves 900,000

Additional Information:

  1. Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
  2. Actual realised price is adjusted for deviation from the standard API gravity. Each degree change in API results in a price adjustment of USD 0.20.
  3. 650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
  4. Other income of ₦735 million was generated from the company’s ocean tanker business. Associated expenses of ₦580.5 million were included in general expenses.
  5. Operating expenses included ₦9 million for short lease renewal.
  6. Pension fund contributions were approved by the State Internal Revenue Service.
  7. Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
  8. A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
  9. Transfer to general reserves was board-approved.
  10. Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
  11. Assume USD 1 is equivalent to ₦420.

Required:
As the company’s Assistant Tax Manager, draft a report to the Tax Manager showing the company’s tax liability for the relevant assessment year according to the Petroleum Profits Tax Act, Cap P.13, Laws of the Federation of Nigeria 2004 (as amended).

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  • 5 Marks

TAX – May 2018 – L2 – Q5b – Tax Administration and Enforcement

Explain briefly conditions for granting capital allowances.

Explain briefly THREE conditions for granting capital allowances.

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  • 10 Marks

TAX – May 2018 – L2 – Q5a – Tax Administration and Enforcement

Explain rules that guide the determination of residence for individuals.

Identify and explain FIVE rules that guide the determination of residence for different categories of individuals.

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  • 20 Marks

TAX – May 2018 – L2 – Q2 – Tax Planning and Management

Compute assessable incomes from various investments for Tosin Oguntona.

Tosin Oguntona was an employee of a Federal Government parastatal in Nigeria. While in service, he invested his earnings in various investments, deriving incomes from them along with his monthly pension. The following details were provided:

Assessment Years 2013 2014
Dividend Income
Dividend from Nigerian companies N1,200,000 N1,500,000
Dividend from abroad paid into a domiciliary account $4,000 $4,500
Rental Income
Rent from buildings in Ibadan N630,000 N720,000
Rent from buildings in Abuja N1,500,000 N1,740,000
Rent from buildings in Oyo N420,000 N520,000
Rent from buildings in Lagos N750,000 N780,000
Expenses
Repairs and maintenance N90,000 N96,000
Personal income tax paid N240,000 N280,000
Water rate N40,000 N50,000
Depreciation on building N620,000 N700,000
Agent’s commission N96,000 N108,000
Insurance N120,000 N150,000
Depreciation on plant N150,000 N162,000
Interest Incomes
Interest received from bank N360,000 N420,000
Interest on domiciliary account $1,200 $1,500

Other information:

  1. Capital allowances agreed with the revenue authority for 2013 and 2014 assessment years were N150,000 and N180,000 respectively.
  2. Insurance on properties included N24,000 and N30,000 for 2013 and 2014, respectively, for his private residence.
  3. Pension of N80,000 per month was received.
  4. Exchange rate: N160 to $1.

Required:
Compute the Assessable Incomes of Tosin Oguntona for 2013 and 2014 Assessment Years.

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  • 20 Marks

TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

Mr. Bulamoyoh who lived in the Eastern part of Nigeria died testate in January 2015. He had three children: Moses, Peter, and Nana, but left his business with the trustees. Moses, the eldest son, thought he should be fully in charge of his father’s entire business and told the trustees not to bother about the payment of tax. The trustees claimed that they had a statutory obligation to render yearly tax returns for the estate to the relevant tax authority.

You are provided with the following information:
(i) Net profit of the business as adjusted for tax purposes for the year ended June 30, 2018 was N10,270,000.
(ii) Qualifying property, plant, and equipment acquired during the year ended June 30, 2018 were:

  • Motor vehicles: N3,650,000
  • Plant and machinery: N1,250,000
  • Furniture: N220,000
    (iii) The tax written down value of motor vehicles acquired prior to the current year was N345,000, out of which N315,000 is to be allowed as an annual allowance in the current assessment year.
    (iv) Moses, Peter, and Nana are entitled to ¼ each of the net distributable income.
    (v) Fixed annuity paid to a beneficiary was N250,000.
    (vi) Interest on debt repayment by the trustees was N120,000.
    (vii) Trustees’ fixed remuneration was N260,000 per annum.
    (viii) Administration and other expenses by the trustee amounted to N45,000.
    (ix) The trustees, in line with the terms of the trust deed, made the following discretionary payments to the children:
  • Moses: N310,000
  • Peter: N225,000
  • Nana: N460,000

Required:
(a) Explain the following terminologies:
(i) Trust (1 Mark)
(ii) Beneficiary (1 Mark)
(iii) Life tenant (1 Mark)
(b) Compute capital allowances for the relevant year of assessment. (8 Marks)
(c) Compute the income tax payable by the trustees on the income for the relevant year of assessment. (9 Marks)
(Total 20 Marks)

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  • 16 Marks

TAX – Nov 2018 – L2 – SC – Q5a – Companies Income Tax (CIT)

Compute the companies' income tax payable for Mandy Construction Nigeria Limited for the 2017 assessment year.

Mandy Construction Nigeria Limited is an engineering company incorporated on January 1, 2009, and commenced business the same day. The company makes up its accounts to June 30 each year. The company had prepared its tax returns for the 2017 assessment year and was of the opinion that it had no total profit and therefore was not subject to companies income tax.

As a tax consultant, the chief executive officer has requested you to review the tax returns to ascertain if any provision of the tax laws stipulates procedures to determine the tax payable in situations where there is no taxable profit or the total profit results in no tax payable.

The following information relates to the company’s records for the year ended June 30, 2016:

Statement of Profit or Loss for the year ended June 30, 2016:

Particulars N’000
Revenue 5,656,000
Cost of Sales (4,404,211)
Gross Profit 1,251,789
Other Income 152,240
Administrative Expenses (907,906)
Operating Profit 496,123
Investment Income 50,934
Finance Costs (890,657)
Loss Before Tax (343,600)
Income Tax –
Loss for the Year (343,600)

Additional Information:
(i) Included in administrative expenses are the following:

  • Loss on disposal of property, plant, and equipment: N4,352,400
  • Depreciation: N5,184,700

(ii) Capital allowances agreed with the tax office: N1,065,000

The company’s authorized, issued, and fully paid-up share capital of N1 each is provided as follows:

The net assets of the company extracted from the statement of financial position as at June 30, 2016, was N3,441,041,000.

Required:
From the available information, compute the companies income tax payable by Mandy Construction Nigeria Limited for the relevant assessment year.

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  • 20 Marks

PT – April 2022 – L2 – Q4 – Corporate Tax Liabilities

Calculate the tax payable for Therry Ltd for the 2020 year of assessment using the provided financial data and adjustments.

The following extract relates to the financial data of Therry Ltd, a company resident in Ghana with a basis period from January to December each year. Therry Ltd has submitted its tax returns to GRA for the 2020 year of assessment:

The following additional information is available:

Interest Charges:
a. Interest on loan for MD’s personal housing project GH¢500,000
b. Foreign exchange loss on loan GH¢320,500
c. Bank charges GH¢75,000
Donations:
a. Osu Children Home GH¢10,000
b. Pastor (Azigi Church) GH¢30,000
c. Labone Senior High School GH¢20,000
d. National Disaster Management Organisation GH¢50,000
e. Political Parties Fundraising GH¢90,000
An amount of GH¢200,000 disclosed in the accounts was paid for repairs and improvements of an old machine bought three years ago. It is hoped that the performance of the machine will be enhanced after the improvements.
Creditors of the company agreed to cancel an amount of GH¢120,000 standing as part of the credit balance as incentive to the company. This has not been taken into account by the company in its tax returns to GRA.
An amount of GH¢300,000 being cost price of goods was issued to a related party outside Ghana at cost. The margin on the goods waived was sighted as GH¢40,000 in a correspondence with the related party.
Tax paid on account was GH¢20,000.
The company booked capital allowance unutilised certified by GRA from 2019 year of assessment as GH¢300,000.
Capital allowance agreed with GRA after taking into account all relevant issues was GH¢1,050,000 for 2020 year of assessment.
The machine (Pool 3 asset) had a written down value of GH¢4,000,000 as at 1 January 2020.
An allowable bad debt included in the selling and distribution expenses for 2019 amounted to GH¢100,000. The company recovered the amount in 2020 but no transaction was recorded in 2020.
Therry Ltd disposed off one of its capital assets for GH¢250,000 to the Managing Director. It cost the company GH¢300,000 to acquire the asset some years ago. An investigation revealed that the market value of the asset at the time of the sale was GH¢350,000. The company has already included the loss of the sale of the asset in administration expenses.
Required:
Determine the tax payable for the 2020 year of assessment. (20 marks)

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  • 10 Marks

PT – Nov2019 – L2 – Q4a – Corporate Tax Liabilities

This question asks to compute the chargeable income of Valentine Ghana Limited for the 2018 tax year based on the provided financial statements and additional information.

Valentine Ghana Limited is a producer of love greeting cards, and the following was extracted from its financial statements for the year ended 31 December 2018.
a) Valentine Ghana Limited is a producer of love greeting cards and the following was
extracted from its financial statements for the year ended 31 December,2018.

Deduct:

Net Profit: GH¢346,110
Additional Information:
i) Capital allowances for the year were GH¢204,000, as agreed with the Ghana Revenue Authority (GRA).
ii) The figures for repairs and maintenance include an amount of GH¢33,150 for the cost of erecting a new gate to the factory.
iii) 50% of other income was the personal rental income of the Managing Director.
iv) One-third of vehicle running expenses was expended on the personal car of the Managing Director, used for the company’s operation based on company policy.

Required:
Calculate the chargeable income of Valentine Ghana Limited for 2018 Year of Assessment.
(8 marks)

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  • 8 Marks

PT – May 2020 – L2 – Q4a – Capital Allowance and tax reliefs

Computation of capital allowance for Stella-VD Ltd for the 2017 and 2018 years of assessment.

Stella-VD Company Limited, manufacturers of fruit juice for local consumption, commenced business on 1/10/2017, with an accounting year-end at 31 December. The company submitted its accounts for 2017 and was assessed accordingly. The company submitted its tax returns for the 2018 year of assessment to the Ghana Revenue Authority on 30/04/2019. Below are the details:


iii) Staff Welfare

Staff Medical Bills: 3,700
Safety Wear for Staff: 10,500
Canteen Equipment purchased on 30/11/2018: 12,000
iv) Donation and Subscription

Goods given as Gratis to Customs Officials: 13,000
Donation of Goods to SOS Children Village: 10,000
Subscription to Association of Ghana Industries: 5,000
v) Wages and Salaries

Old Staff: 120,000
Fresh Graduates employed by Stella-VD Ltd: 26,000
Fresh Graduates constitute 0.9% of the total workforce
vi) Other Income

Compensation from a Customer for Cancellation of Sale Order: 8,000
Compensation for Loss of Trading Stock of the Company: 10,000
Compensation for Cancellation of Purchase Order by Supplier: 5,000
The Company’s assets include the following:

Type of Assets Date of Acquisition Cost (GH¢)
Factory Building 01/10/2017 300,000
Plant and Machinery 25/10/2017 171,000
Delivery Van 01/11/2017 50,000
Computers 01/10/2017 40,000
Furniture and Fittings 10/12/2017 150,000
Other Office Equipment 01/10/2017 200,000
Office Building 30/06/2018 500,000
Required:
a) Compute the appropriate capital allowance for the 2017 and 2018 years of assessment.
(8 marks)

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  • 20 Marks

PT – Nov 2020 – L2 – Q4 – Corporate Tax Liabilities

Compute capital allowances for a manufacturing company over two years and explain the class or pool system of capital allowances.

Fafana Manufacturing Company Ltd, producers of special fruit juice, started business on 01/01/2016 and prepares accounts to 31 December each year. The company had constructed an office building, which was put into use on 01/01/2016. The following are the capital allowance written down values brought forward from pools of assets as at 01/01/2017:

Item Written Down Value (GH¢)
Pool 1 12,000
Pool 2 520,000
Pool 3 405,000
Office Building 540,000
Patent (acquired in 2016 for five years) 48,000

The company acquired the following chargeable assets for the business in 2017:

  • Factory Buildings GH¢958,000
  • Plant and Machinery GH¢2,500,000
  • File Cabinet GH¢10,000
  • Electric Ceiling and Standing Fans GH¢20,000
  • Window and Split Air Conditioners GH¢157,000
  • Motor Vehicles GH¢110,000
  • Photocopier GH¢14,000
  • LCD Television GH¢3,000
  • Visitors Chairs GH¢5,500
  • Office Chairs and Tables GH¢56,000

Some assets were disposed of in 2017, namely:

  • Computers and Accessories GH¢11,600
  • Standing Fans GH¢3,500

The company acquired the following chargeable assets for the business in 2018:

  • Toyota Salon Car GH¢70,000
  • Toyota Pick-up (only one) GH¢95,000
  • LCD Projector GH¢5,500
  • Data Handling Machine GH¢36,000
  • Trucks and Trailers GH¢54,000
  • Trademark (registered for 8 years) GH¢72,000

One of the vehicles was involved in an accident in 2018, and the company received GH¢45,000 as insurance compensation.

Required:
a) Determine the capital allowances for Fafana Manufacturing Company Ltd for 2017 and 2018 years of assessment. (16 marks)
b) Indicate how the class or pool system works with the treatment of capital allowances. (4 marks)

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  • 20 Marks

AT – NOV 2021 – L3 – Q3 – Business income – Corporate income tax | Capital allowances

Compute taxable income and tax payable for Partey Ltd after business restructuring involving transfer of assets to employees and disposal of assets.

Partey Ltd (Partey) produces flour and various soup powders, and the company is considered as a priority company. On 1 January 2019, Partey owned two refineries in Accra (Weija and Mamprobi) and a refinery in Takoradi. Each refinery comprises building, plant and equipment and a warehouse, all of which were owned by Partey.

Partey has been having financial difficulties and, on 1 February 2019, engaged the services of a business consultant to recommend a survival plan for the company. Unfortunately, staff morale was very low when the business consultant was engaged because their salaries were six months in arrears.

The business consultant’s recommendations were agreed and implemented in the year ended 31 December 2019 as follows:

i) The Takoradi refinery was transferred to the employees at market value to be operated as independent business ventures. The inventory in the warehouse was included in the transfer.

ii) The Weija refinery was disposed off, together with all its related fixed assets, to fund Partey’s future business operations and pay off part of the arrears of salaries due to the employees. The employees at this refinery were all reassigned elsewhere. The inventory at the warehouse, valued at cost, was given to the employees as final settlement of their salaries in arrears.

Both the disposal of the Weija refinery and the transfer of the Takoradi refinery to their employees were made on 30 March 2019.

Details of the fixed assets disposed and transferred are:

Partey’s statement of profit or loss for the year ended 31 December 2019 in respect of
Mamprobi is as follows:

Notes:
i) This amount represents Partey’s ordinary sales for the year.
ii) Included in the cost of sales is the total value of inventory at cost transferred to the
employees (in accordance with the business consultant’s recommendations) on 30 March
2019. No other adjustments were recorded regarding this inventory transfer.

Required:

a) Outline the tax consequences for Partey due to the transfer of the fixed assets and inventory to the employees on 30 March 2019, stating when any taxes should be paid. (4 marks)

b) Assess the tax implications:

i) When the proceeds from the realisation of depreciable assets exceed the written down values? (1.5 marks)

ii) When the proceeds from the realisation of depreciable assets are less than the written down values? (1.5 marks)

c) Calculate the taxable income of Partey for the year ended 31 December 2019. (8 marks)

d) Explain how shareholders of a company are taxed? (5 marks)

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