Question Tag: chargeable income

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  • 15 Marks

AT – Nov 2024 – L3 – Q1a – Computation of Partnership Chargeable Income

Compute the partnership's chargeable income for the 2023 year of assessment.

Takyi and Kuro commenced a retail business in Goaso, Ghana on 1 January 2020, under the partnership name Ntaafo LTD, sharing profits and losses equally. On 1 January 2023, Tawia was admitted as a new partner. Takyi, Kuro, and Tawia then shared profits and losses in the ratio of 3:2:1 respectively. The partnership prepares its accounts to 31 December annually.

The partnership’s profit and loss account for the year ended 31 December 2023 is as follows:

Note GH¢ GH¢
Gross Trading Profit 4,365,000
Compensation (1) 50,000
Total Revenue 4,415,000
Less: Operating Expenses
Audit Fees 25,000
Rent and Rates (2) 348,000
Wages and Salaries (3) 1,410,000
Interest on Capital (4) 205,000
Contribution towards National Insurance Scheme 111,000
Trade Debts Written Off (Bad Debts) 92,000
Legal Fees (5) 43,000
Entertainment (6) 270,000
Motor Expenses (7) 87,000
Repairs and Maintenance (8) 190,000
Commission (9) 310,000
Printing and Stationery 82,000
Electricity and Telephone 51,000
Depreciation 123,000
Sundry Expenses 270,000
Total Expenses 3,617,000
Net Profit 798,000

Notes:

  1. Compensation:

    • Compensation received from suppliers for delays in supplies: GH¢70,000
    • Court fines paid to client for negligence: (GH¢20,000)

  2. Rent and Rates:

    • Rent for business premises: GH¢180,000
    • Rent for Takyi’s private residence: GH¢156,000 (Disallowed)
    • Business operating permit paid to Goaso Municipal Assembly: GH¢12,000

  3. Wages and Salaries:

    • Takyi: GH¢180,000
    • Kuro: GH¢240,000
    • Tawia: GH¢66,000
    • Mrs. Takyi (staff): GH¢120,000
    • Mrs. Tawia (staff): GH¢144,000
    • Other staff: GH¢660,000

  4. Interest on Capital:

    • Takyi: GH¢30,000
    • Kuro: GH¢40,000
    • Tawia: GH¢10,000
    • Bank interest: GH¢125,000

  5. Legal Fees:

    • Renewal of annual tenancy agreements: GH¢8,000
    • Collection of trade debts: GH¢10,000
    • Preparing contract documents (suppliers and contractors): GH¢5,000
    • Preparing contract documents to acquire a new company: GH¢20,000 (Disallowed)

  6. Entertainment:

    • The entertainment expenses relate to the partners’ private enjoyment (Disallowed).

  7. Motor Car Expenses:

    • Petrol: GH¢52,000
    • Repairs: GH¢30,000
    • Fines for late renewal of vehicle license: GH¢5,000 (Disallowed)

  8. Repairs and Maintenance:

    • Replacement of bolts and nuts on Plant and Machinery: GH¢10,000
    • Major expenditure on Landscaping and Renovation: GH¢180,000 (Capitalized)

  9. Commission:

    • Takyi (for introducing a new customer to the business): GH¢20,000 (Disallowed)
    • Salesmen and Saleswomen: GH¢230,000
    • Unidentified recipient: GH¢60,000 (Disallowed)

Other Information:

  • Capital allowance agreed with the Ghana Revenue Authority (GRA) was GH¢234,000 for the 2023 year of assessment.

Required:
Compute the partnership’s chargeable income for the 2023 year of assessment.

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  • 10 Marks

PT – Nov 2024 – L2 – Q4a – Chargeable Income Computation

Compute the chargeable income and tax payable for Amasa Architecture and Building LTD for the 2022 and 2023 years of assessment.

Amasa Architecture and Building LTD has been in business for the past seven years. The following information relates to the company’s operations for the years ending 31 December 2022 and 2023.

DETAILS 2022 (GH¢) 2023 (GH¢)
Profit before tax 795,000 2,110,000
Provision for Depreciation 230,000 115,000
Donation to Manhyia Children Home (Approved by Social Welfare Department) 350,000 210,000
Donation towards 2023 Adae Kese Festival 105,000 150,000
Capital allowance agreed with the Ghana Revenue Authority 1,500,000 1,700,000
Withholding tax paid as contained in certificates received 10,000 25,000

Required:
Using the information provided above, compute the chargeable income and tax payable by Amasa Architecture and Building LTD for the years of assessment 2022 and 2023.

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  • 20 Marks

TAX – May 2015 – L2 – SB – Q4 – Taxation of Partnerships and Sole Proprietorships

Calculate the chargeable income of each partner before and after the admission of a new partner and determine the basis period.

The Managing Partner of Aarinola Sunkanmi & Co., a firm of Estate Surveyors and Valuers based in Lagos, has invited you to calculate the Chargeable income of each of the firm’s partners after the admission of Mariam in 2014.

The information relating to the Partnership are as follows:

(a) The firm makes up its accounts up to 31 December of each year.

(b) Extracts from the books of account for the year ended 31 December 2014, are listed below:

Description Amount (₦)
Net profit for the year 1,380,000
Depreciation 450,000
Capital Allowances for the year 366,300
Balancing Allowance 72,500
Balancing Charge 75,480
Profit on sale of fixed assets 77,500
Legal expenses for successfully defending one of the partners for professional misconduct 14,000

(c) Other information:

(i) The THREE partners are Aarinola, Olasunkanmi and Murphiefe.

(ii) Profit sharing ratio is as follows:

  • Aarinola: 2
  • Olasunkanmi: 1
  • Murphiefe: 1

(iii) Aarinola and Murphiefe received ₦15,000 each as interest on loan per annum.

(iv) Salaries paid to each partner are as follows:

  • Aarinola: ₦140,000 per annum
  • Olasunkanmi: ₦60,000 per annum
  • Murphiefe: ₦60,000 per annum

(v) Olasunkanmi ceased to be a partner on 30 June 2014. Mariam was admitted on 1 July 2014. Mariam’s salary was fixed at ₦60,000 per annum. She also received interest on capital of ₦10,000 per annum.

(vi) Included in travelling expenses is the sum of ₦12,000 paid towards the annual vacation of Aarinola, the Principal Partner.

(vii) On Mariam’s admission in July 2014, the profit sharing ratio was changed to:

  • Aarinola: 10
  • Murphiefe: 7
  • Mariam: 3

Required:

a. Compute the Chargeable Income of each partner: i. Prior to admission of Mariam (9 Marks)
ii. Post-admission of Mariam (9 Marks)

b. State the basis period for the existing partners. (2 Marks)

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  • 20 Marks

TAX – May 2017 – L2 – SB – Q3 – Taxation of Partnerships and Sole Proprietorships

Computation of adjusted income and chargeable income for partners in a firm with adjustments for disallowable expenses.

Muyiwa, Seyi, and Akpan are partners in an accounting firm in Lagos, Museak & Co (Chartered Accountants). The Statement of Profit or Loss for the year ended December 31, 2015, is shown below:

Additional Information:

  1. Donation was for laying the foundation of a new church.
  2. Repairs for Muyiwa’s wife’s vehicle, costing ₦550,000, were included under repairs and maintenance.
  3. Medical expenses of ₦500,000 were incurred for flying a partner’s father-in-law abroad.
  4. Akpan contributed ₦500,000 under the Pension Reforms Act 2004 (as amended).
  5. Capital allowances agreed with the tax authority were ₦4,000,000.
  6. Partners’ profit-sharing ratio: Muyiwa 6; Seyi 4; Akpan 2.

Required:

  1. Compute the adjusted income of Museak & Co for tax purposes. (6 Marks)
  2. Compute the chargeable income of each partner. (6 Marks)
  3. Compute the tax payable by each partner. (8 Marks)

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  • 20 Marks

TAX – Nov 2018 – L2 – SA – Q1a – Personal Income Tax (PIT)

Calculate the personal income tax payable by Dr. Ogungbemi for the relevant year of assessment.

Dr. Alade Ogungbemi retired from the service of Oyo State Government after attaining 60 years of age on July 31, 2017. He secured an employment with TUC Foods Limited as human resources manager, effective August 1, 2017.

The following details were provided:

  1. Salary: January 1 – July 31, 2017: N420,000 per month
  2. New employment: N4,800,000 per annum
  3. Pension income, effective August 1, 2017: N840,000 per annum
  4. Transport allowance (new employment): N120,000 per annum
  5. Rent allowance (new employment): N720,000 per annum
  6. Contributions to national housing fund and contributory pension fund scheme at 2½% and 7½% of gross income, respectively
  7. Rental income received (gross):
    • July 19, 2015: N240,000
    • December 1, 2015: N120,000
    • July 4, 2016: N360,000
    • December 4, 2016: N420,000
  8. Dr. Ogungbemi is married and has four children. All except one, aged 20 years, are still in school.
  9. Dr. Ogungbemi has a life assurance policy with a sum assured of N7,500,000 and an annual premium of N460,000. His aged parents live with him, and neither of them has an income.

Required:
Compute the personal income tax payable by Dr. Ogungbemi for the relevant year of assessment.

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  • 10 Marks

PT – April 2022 – L2 – Q1c – Tax Administration

Calculate the taxes payable for each quarter for Bumu Manufacturing Company based on estimated chargeable income and tax paid.

c) You have been offered an appointment by Bumu Manufacturing Company (BMC) as Tax Manager responsible for preparing and filing tax returns on behalf of the company. BMC files its returns with the Osu Medium Taxpayers Office of the Ghana Revenue Authority. The company’s Tax Identification Number is C0000261178. The company prepares accounts to 31 December each year.

BMC estimated its chargeable income for the 2019 year of assessment as GH¢3,000,000. Subsequently, the company secured a Government contract and anticipates in the third (3rd) quarter that its chargeable income would be GH¢4,500,000.

Additional Information:
Tax paid on account:
1st quarter GH¢100,000
2nd quarter GH¢120,000
3rd quarter GH¢200,000

Required:
Compute the taxes payable for BMC for each quarter.
(10 marks)

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  • 20 Marks

PT – Nov 2023 – L2 – Q3a – Income Tax Liabilities

Computation of chargeable income for a physically challenged employee with various benefits and allowances.

Mr. Antitom (physically challenged) was employed as a Chief Accountant of Nangode Ltd on 1 April 2020 on an annual basic salary of GH¢60,000 x 10,000 – GH¢100,000. He was entitled to the following monthly allowances and benefits:

Allowances & Benefits Monthly Amount (GH¢)
Responsibility Allowance 4,400
Professional Allowance 6,600
House Help Allowance 8,200
Utilities 4,200
Overtime Allowance 6,000
Provision of furnished accommodation by the employer for which he paid 5% of his basic salary.
Provision of vehicle and fuel by the employer for both official and private use.
Bonus payment amounting to 25% of his basic salary.
He contributed 5.5% of his basic salary to the Mandatory Pension Scheme and an additional 10% to a Voluntary Pension Scheme approved by the National Pension Regulatory Authority.
Married with 3 children, 2 in approved Senior High Schools in Ghana, 1 at the University of South Africa.
Earned interest of GH¢4,000 on a savings account with Kilma Bank.
Received a net dividend of GH¢20,480 from an investment with Enoga Securities.
Required:
Compute the chargeable income of Mr. Antitom for the 2022 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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  • 6 Marks

PT – Nov2019 – L2 – Q3c – Income Tax Liabilities

This question focuses on determining the chargeable income and tax liability of an expatriate working in Ghana.

Lord Pakro was seconded to Ghana from the Crops Scientists Institute in USA as a Crop Scientist to Crop Research Institute in Ghana, for a period of 5 months, starting from 1 August, 2018. He was based at Nyankpala (Northern part of Ghana), one of the farming sites of the Crop Research Institute.

His conditions of service were as follows:
GH¢

Salary: 6,000 per month
Expatriate allowance: 2,000 per month
Risk allowance: 1,000 per month
He was provided with a furnished bungalow and a Toyota Pick-up vehicle with driver and fuel for both official and private activities.

In addition to the above, the parent company agreed to meet his commitment at home during his six-month stay in Ghana at $1,200 per month. The average exchange rate has been $1=GH¢5.00.

Required:
Determine Lord Pakro’s chargeable income and tax liability, if any, during his stay in the country. Produce the related notes guiding your determination.
(6 marks)

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  • 12 Marks

PT – May 2020 – L2 – Q4b – Special considerations for taxation of gifts and capital allowances.

Calculation of the chargeable income for Stella-VD Ltd for the 2018 year of assessment.

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:
Required:
a) Compute the appropriate capital allowance for 2017 and 2018 year of assessment. (8 marks)
b) Calculate the chargeable income of the company for assessment year 2018.
(12 marks)

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  • 12 Marks

AT – Aug 2022 – L3 – Q1b – Business income – Corporate income tax | Tax planning

Discuss tax implications of holding voting power and tax payments made abroad by resident companies.

The following relates to information of two companies, both resident in Ghana, for 2021 year of assessment with the basis period January to December each year:

Company A (GH¢) Company B (GH¢)
Income 10,000,000 12,000,000
Cost of Sales (4,200,000) (4,400,000)
Gross Profit 5,800,000 7,600,000
Less: Operating Costs (4,900,000) (3,000,000)
Chargeable Income 900,000 4,600,000

Additional information:

  1. Dividend paid to each company by Company C, another resident company in Ghana, is as follows:
    • Company A: GH¢200,000
    • Company B: GH¢230,000
      Both companies hold shares in Company C:
    • Company A holds 25%
    • Company B holds 30%
  2. Contribution towards Kanzo Football Club, a local football club, amounted to GH¢80,000 (Company A) and GH¢100,000 (Company B). Both companies could not show government approval for the contribution.
  3. Two vehicle engines, each costing GH¢80,000, were purchased by both companies. Pool 2 had a written down value of GH¢200,000.
  4. Company B paid foreign employees’ tax to the UK, as the employees were from the UK.

Required:
i) What is the tax implication of holding 25% or more of the voting power of another resident company? (1.5 marks)
ii) What is the position of the tax law on tax payment made by Company B to the UK? (1.5 marks)
iii) What is the total tax payable by both companies? (8 marks)
iv) What is the total tax expenditure? (1 mark)
(12 marks)

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  • 20 Marks

AT – Nov 2021 – L3 – Q4 – Business income – Corporate income tax | Minerals and mining

Compute the chargeable income and tax payable for Akwatia Gold Mines for 2020 and identify tax optimization opportunities.

Akwatia Gold Mines was established ten years ago. For the year ended 31 December 2020, the following income statement was prepared and submitted to the Ghana Revenue Authority as part of its financial statement.

Akwatia Gold Mines
Income Statement for the Year Ended 31/12/2020

1.

2.

3.

4.

5.

6.

7.

The capital allowance agreed for the period was GH¢24,320,500.

Required:
a) Compute the chargeable income of the company and the tax payable. (15 marks)

b) Advise Akwatia Gold Mines on how to identify opportunities within the tax laws to optimise tax payable for the year ended 31 December 2020.  (5 marks)

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  • 17 Marks

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

Mamavi is a retail business woman with a chain of shops in Ghana. She commenced business on 1 March 2011, with the business name of Unity Enterprise. She sells health foods, fruits, vegetables and juices.

The Enterprise’ profit or loss account for the year ended 31 December 2018 as prepared by the Accountant are reproduced below:

NOTES

A business loan was taken out to finance the cost of improvements to the store, in particular
the juice bars. The interest element included in the loan repayment amounted to GH¢1,750.
A mortgage loan was taken out by Mamavi to buy the family a house in Hlefi, Volta Region.
The interest element in the loan repayment for the mortgage was GH¢2,670.

This court case was as a result of a car hitting Mamavi when she was walking her dog out
at night. The car owner claimed Mamavi stepped out in front of him and therefore it was
her fault. Mamavi’s Lawyer told her to respond to the allegation because she needed five
sessions of physiotherapy to help heal her leg. Mamavi is suing the car owner for her costs.

GH¢700 of the painting cost related to the painting of Mamavi’s private house. The balance
related to painting her shop. GH¢1,200 lease charges relate to the leasing of a car for the
business
Required:
Compute Mamavi’s chargeable income for the year ended 31 December 2018

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  • 20 Marks

AT – MAR 2024 – L3 – Q4 – Business Income – Corporate Income Tax | Capital Allowance

Covers capital allowance computation, tax rules on long-term contracts, and chargeable income calculation.

Finstruct Ltd has been awarded an airport terminal project. The project started on 1 January 2022 for a contract sum of GH¢60,000,000. The construction of the airport is to be completed on 31 December 2023.

Finstruct Ltd has a financial year ending on 31 December each year. On 31 December 2022, the accounts appropriate to the airport contract contained the following:

Cost Item GH¢
Cost of construction materials 25,500,000
Direct wages of construction staff 22,100,000
Hire of special equipment 300,000
Cost of soil test 100,000
Purchase of fuel and lubricants 750,000
Consultancy services 135,000

Additional information:
i) Materials costing GH¢340,000 sent to the site were returned to the company’s warehouse.
ii) Materials sent to the site worth GH¢675,000 were still unused at the construction site as of 31 December 2022.
iii) Finstruct Ltd pays some of its workers the first week of the ensuing month after the end of the current month. GH¢57,000 is still owed for wages as of the close of the year 2022, and this was not included in the accounts.
iv) A bill amounting to GH¢45,000 was submitted late by Finstruct Ltd, and as of 31 December 2022, the bill had not yet been paid. This was not included in the accounts.
v) It is estimated that the cost to complete the project as of 31 December 2022 should be GH¢8,265,180.
vi) The following details are available on assets of Finstruct Ltd:

Required:
a) Compute the capital allowance for Finstruct Ltd for the year 2022. (6 marks)
b) Explain the tax rules on long-term contracts and compute the percentage of contract completion of the project. (4 marks)
c) Compute the chargeable income of Finstruct Ltd for the year ended 31 December 2022. (10 marks)

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  • 10 Marks

AT – May 2017 – L3 – Q3b – Business income – Corporate income tax

Compute allowable financial cost on hedged transactions and provide management advice on the tax implications.

b) XYZ Ltd runs a business with a basis period from January to December each year. The following information is relevant to its business operations for 2016 year of assessment:

Item Amount (GH¢)
Chargeable Income from business operations 40,000
Financial cost incurred on hedged transactions 150,000
Financial gain from hedged transactions 60,000

Required:

i) Compute the financial cost to be allowed in 2016 year of assessment. (6 marks)

ii) Advise management on the above results. (4 marks)
(Total: 10 marks)

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  • 20 Marks

AT – May 2017 – L3 – Q2 – Business income – Corporate income tax

Compute the chargeable income, explain adjustments, and compute tax payable for a self-employed individual.

Mr. George Amoako, a self-employed single parent with two children attending a private University in Ghana trades as George Amoako Enterprise. He commenced business on 1st January 2016 and submitted the following extracts of his financial statements for the year ended 2016:

Item Amount (GH¢)
Gross Profit b/d 20,420
Interest on savings account 2,020
Gifts received 1,500
Interest on treasury bills 790
Auditor’s fees 800
Depreciation of assets 1,200
Computers purchased 2,500
PAYE paid on his personal salary 450
Employee social security contribution (other staff) 396
Office rent 2,400
Personal salary (net) 7,200
Other staff wages 4,300
Stationery 852
Vehicle purchased for CEO’s personal use 18,000
Transport 1,300
Net Loss (14,668)
Total 24,730

Required:

a) Determine the Chargeable Income of Mr. George Amoako for 2016 year of assessment. (10 marks)

b) Support your computations with relevant explanations. (5 marks)

c) Compute all Taxes payable. (5 marks)

(Total: 20 marks)

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  • 6 Marks

AT – May 2016 – L3 – Q3b – Business income – Corporate income tax

Compute the penalties payable by the company

b) ABC Ltd is a company under self-assessment and prepares accounts to 31st March each year. Its estimated chargeable income for the year 2014 was GH¢1.2 billion. However, the Company’s Returns, which were submitted to the Large Tax Payers Office at the VAT House on 15th April, 2015, showed a chargeable income of GH¢1.8 billion.

Compute the penalties payable by the company.

(6 marks)

(Note: Rate of Company Tax: 25%)

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