Question Tag: Corporate Income Tax

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  • 12 Marks

AT – Nov 2020 – L3 – Q4a – Business income, Corporate income tax

Compute the tax payable by Kaka Ltd for the 2019 year of assessment, including capital allowances, fresh graduate incentives, and royalties.

Kaka Ltd is a mining company that has been operating in Ghana for some time now. The following relates to Kaka Ltd’s 2019 year of assessment:

Description Amount (GH¢)
Revenue 10,200,000
Cost 4,000,000
Profit 6,200,000

The following additional information is relevant and has been adjusted in arriving at the profit stated above:

  1. Depreciation, depletion, and amortization: GH¢2,000,000.
  2. Cost incurred in overburden stripping and shaft sinking during production to improve access amounted to GH¢800,000.
  3. Contribution towards a worthwhile cause is GH¢10,000. This was in support of a hole-in-heart child, duly acknowledged by the Ghana Health Service.
  4. Royalty of GH¢80,000 was paid without recourse to the revenue from production.

Additional information:

  • An asset (Capital Asset) acquired in 2016 for GH¢1,000,000 was sold for GH¢200,000 in 2019.
  • Capital allowance (written down value brought forward) on the assets as of 31 December 2018 was GH¢4,000,000.
  • 10 fresh graduates were recruited in the 2019 year of assessment; 4 of them completed universities in the USA, while the others completed the University for Development Studies in Ghana. They were paid GH¢120,000 as salaries. The total workforce for 2019 was 60 employees.

Required: i) Compute the tax payable by Kaka Ltd.
(10 marks)

ii) The mining company indicated that it had an idle cash of GH¢100,000. If it adds it to its working capital, an additional income of GH¢10,000 would accrue but with an option to purchase Treasury Bills, the interest would remain at GH¢10,000.

Required:
Advise Management on the tax implication of the proposed investment.
(2 marks)

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  • 20 Marks

AT – Nov 2020 – L3 – Q1 – Tax administration in Ghana | Business Income – Corporate Income Tax

A report on tax incentives for Free Zone Enterprises, tax implications for local sales, and requirements for foreign investors to start trading in Ghana.

Esther Naah, a Ghanaian by birth, has spent most of her life in the United Kingdom. She has made a lot of savings and would want to invest in Ghana. She has heard of the Ghana Free Zone Authority and been told that the rationale behind the free trade zone is the development of disadvantaged regions. You work in a Tax Consulting firm and your Managing Partner has called on you to brief Esther, on the following issues during her next appointment to the Tax Consulting firm.

Required: Draft a report that will incorporate the following:

a) Tax incentives and benefits for Free Zone Enterprises.
(10 marks)

b) What will be the tax implication if the Free Zone Enterprise sells into the local markets?
(4 marks)

c) What are the requirements a foreigner should meet in order to start a trade in Ghana?
(6 marks)

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  • 20 Marks

AT – Dec 2023 – L3 – Q4 – Business income – Corporate income tax

Computing the maximum capital allowances and chargeable income for STE Ltd for the year ended 31 December 2021.

STE Ltd was incorporated in 2020 and commenced business operations on 1 January 2021, specializing in manufacturing and distributing solar panels and related products. The company secured a two-year loan of GH¢750,000 with an interest rate of 15% per annum from a local financial institution. The loan was applied as follows:

Loan Application Amount (GH¢)
Showroom construction at Tema 100,000
Procurement of plant and machinery 250,000
Procurement of raw materials 300,000
Procurement of commercial vehicles 70,000
Amount applied towards 2021 consultancy fees 30,000
Total 750,000

The company’s fixed asset register as at 31 December 2021 is as follows:

Fixed Assets Cost (GH¢) Depreciation (GH¢) Net Book Value (GH¢)
Head office building 150,000 3,750 146,250
Factory building 120,000 6,000 114,000
Furniture and fittings 65,000 6,500 58,500
Office computers 80,000 16,000 64,000
Total 415,000 32,250 382,750

STE’s statement of comprehensive income for the year ended 31 December 2021 is as follows:

Additional information:

  1. Staff welfare includes a penalty for late PAYE payment (GH¢5,000), staff end-of-year party (GH¢7,350), and initial payroll software license (GH¢14,000).
  2. Advertising and marketing includes GH¢3,800 spent on entertaining the Marketing Director’s family and friends.
  3. Utility costs include GH¢13,640 for installing solar panels at the Tema showroom.
  4. Interest consists of GH¢15,000 for a loan establishment fee, GH¢56,250 for 2020 interest, and GH¢112,500 for 2021 interest.
  5. Research and development contributions were made to the Energy Commission of Ghana for solar-powered cookers and heaters research.
  6. The operating licence was paid to the Tema Metropolitan Assembly for the factory’s initial license.

Required:
a) Calculate the maximum capital allowances claimable by STE Ltd for the year ended 31 December 2021.
b) Calculate the chargeable income and tax payable by STE Ltd for the year ended 31 December 2021.

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  • 12 Marks

AT – Dec 2023 – L3 – Q3a – Business income – Corporate income tax

Computing tax payable for Conti Ltd with adjustments for lunch, interest on loans, derivative transactions, and dividends.

Conti Ltd has been in the business of buying and selling baskets. The company’s chargeable income for the 2021 year of assessment is GH¢7,000,000.

The chargeable income includes the following adjustments:

  1. GH¢200,000 was spent on staff lunch, with management stating that the staff were not affected by this payment.
  2. Financial cost from derivative transactions amounted to GH¢20,000,000.
  3. Financial gain from swaps arrangement was GH¢1,000,000.
  4. Goods invoiced to a related company amounted to GH¢12,000,000, although these goods would have been sold to unrelated parties at GH¢13,130,000.

Additional information:

  • Interest on loans amounting to GH¢3,200,000 was added to the financial cost. 80% of the interest relates to capital work in progress, and the remainder supports working capital.
  • GH¢500,000 in net dividends was received from Ann Ltd, a resident company where Conti Ltd holds 24% voting power. The dividend has been added to revenue.

Required:
i) Compute the tax payable.
ii) What are the tax implications of the lunch for staff, interest paid, and the dividend received?
iii) Identify tax planning measures to reduce the tax liability related to the dividend.
iv) What is the tax implication of the financial cost from derivative transactions, and what is its impact on the company?

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  • 7 Marks

AT – Nov 2015 – L3 – Q1c – Business income – Corporate income tax

Treatment of shares issued to employees by the parent company for tax purposes.

Staff of ABC Bank Ghana Limited have been issued shares by ABC Bank Limited – United Kingdom (the Parent company). The shares have been vested and are available to be sold immediately by the beneficiary staff.

Requirement:
With the support of the provisions of the relevant tax laws, how will the above be treated for tax purposes, if any?

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  • 10 Marks

AT – Nov 2016 – L3 – Q1a&b – Business income – Corporate income tax

Calculate the tax due to GRA for the year 2014 based on the income statement of Samada Insurance Company.

You have been appointed as the Tax Manager of Samada Insurance Company. The Executive Director has expressed his persistent worry with the Chief Accountant to accurately calculate the company’s tax obligations to agree with what is assessed by the Ghana Revenue Authority each year. He has thus, provided you with the Income Statement below for your consideration and advice.

SAMANDA INSURANCE COMPANY LIMITED
Income Statement for the years ended 2013 and 2014

  1. Additional Information:
    i) Capital allowance agreed for the year 2014 was GH¢2,450,000
    ii) Reserve is calculated at 40% of Net premium.

Required:
a) Compute the tax due to the GRA for 2014 year of Assessment. (8 marks)

b) Support your computations with relevant explanations. (2)

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  • 12 Marks

AT – Nov 2020 – L3 – Q4a – Business income, Corporate income tax

Compute the tax payable by Kaka Ltd for the 2019 year of assessment, including capital allowances, fresh graduate incentives, and royalties.

Kaka Ltd is a mining company that has been operating in Ghana for some time now. The following relates to Kaka Ltd’s 2019 year of assessment:

Description Amount (GH¢)
Revenue 10,200,000
Cost 4,000,000
Profit 6,200,000

The following additional information is relevant and has been adjusted in arriving at the profit stated above:

  1. Depreciation, depletion, and amortization: GH¢2,000,000.
  2. Cost incurred in overburden stripping and shaft sinking during production to improve access amounted to GH¢800,000.
  3. Contribution towards a worthwhile cause is GH¢10,000. This was in support of a hole-in-heart child, duly acknowledged by the Ghana Health Service.
  4. Royalty of GH¢80,000 was paid without recourse to the revenue from production.

Additional information:

  • An asset (Capital Asset) acquired in 2016 for GH¢1,000,000 was sold for GH¢200,000 in 2019.
  • Capital allowance (written down value brought forward) on the assets as of 31 December 2018 was GH¢4,000,000.
  • 10 fresh graduates were recruited in the 2019 year of assessment; 4 of them completed universities in the USA, while the others completed the University for Development Studies in Ghana. They were paid GH¢120,000 as salaries. The total workforce for 2019 was 60 employees.

Required: i) Compute the tax payable by Kaka Ltd.
(10 marks)

ii) The mining company indicated that it had an idle cash of GH¢100,000. If it adds it to its working capital, an additional income of GH¢10,000 would accrue but with an option to purchase Treasury Bills, the interest would remain at GH¢10,000.

Required:
Advise Management on the tax implication of the proposed investment.
(2 marks)

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  • 20 Marks

AT – Nov 2020 – L3 – Q1 – Tax administration in Ghana | Business Income – Corporate Income Tax

A report on tax incentives for Free Zone Enterprises, tax implications for local sales, and requirements for foreign investors to start trading in Ghana.

Esther Naah, a Ghanaian by birth, has spent most of her life in the United Kingdom. She has made a lot of savings and would want to invest in Ghana. She has heard of the Ghana Free Zone Authority and been told that the rationale behind the free trade zone is the development of disadvantaged regions. You work in a Tax Consulting firm and your Managing Partner has called on you to brief Esther, on the following issues during her next appointment to the Tax Consulting firm.

Required: Draft a report that will incorporate the following:

a) Tax incentives and benefits for Free Zone Enterprises.
(10 marks)

b) What will be the tax implication if the Free Zone Enterprise sells into the local markets?
(4 marks)

c) What are the requirements a foreigner should meet in order to start a trade in Ghana?
(6 marks)

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  • 20 Marks

AT – Dec 2023 – L3 – Q4 – Business income – Corporate income tax

Computing the maximum capital allowances and chargeable income for STE Ltd for the year ended 31 December 2021.

STE Ltd was incorporated in 2020 and commenced business operations on 1 January 2021, specializing in manufacturing and distributing solar panels and related products. The company secured a two-year loan of GH¢750,000 with an interest rate of 15% per annum from a local financial institution. The loan was applied as follows:

Loan Application Amount (GH¢)
Showroom construction at Tema 100,000
Procurement of plant and machinery 250,000
Procurement of raw materials 300,000
Procurement of commercial vehicles 70,000
Amount applied towards 2021 consultancy fees 30,000
Total 750,000

The company’s fixed asset register as at 31 December 2021 is as follows:

Fixed Assets Cost (GH¢) Depreciation (GH¢) Net Book Value (GH¢)
Head office building 150,000 3,750 146,250
Factory building 120,000 6,000 114,000
Furniture and fittings 65,000 6,500 58,500
Office computers 80,000 16,000 64,000
Total 415,000 32,250 382,750

STE’s statement of comprehensive income for the year ended 31 December 2021 is as follows:

Additional information:

  1. Staff welfare includes a penalty for late PAYE payment (GH¢5,000), staff end-of-year party (GH¢7,350), and initial payroll software license (GH¢14,000).
  2. Advertising and marketing includes GH¢3,800 spent on entertaining the Marketing Director’s family and friends.
  3. Utility costs include GH¢13,640 for installing solar panels at the Tema showroom.
  4. Interest consists of GH¢15,000 for a loan establishment fee, GH¢56,250 for 2020 interest, and GH¢112,500 for 2021 interest.
  5. Research and development contributions were made to the Energy Commission of Ghana for solar-powered cookers and heaters research.
  6. The operating licence was paid to the Tema Metropolitan Assembly for the factory’s initial license.

Required:
a) Calculate the maximum capital allowances claimable by STE Ltd for the year ended 31 December 2021.
b) Calculate the chargeable income and tax payable by STE Ltd for the year ended 31 December 2021.

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  • 12 Marks

AT – Dec 2023 – L3 – Q3a – Business income – Corporate income tax

Computing tax payable for Conti Ltd with adjustments for lunch, interest on loans, derivative transactions, and dividends.

Conti Ltd has been in the business of buying and selling baskets. The company’s chargeable income for the 2021 year of assessment is GH¢7,000,000.

The chargeable income includes the following adjustments:

  1. GH¢200,000 was spent on staff lunch, with management stating that the staff were not affected by this payment.
  2. Financial cost from derivative transactions amounted to GH¢20,000,000.
  3. Financial gain from swaps arrangement was GH¢1,000,000.
  4. Goods invoiced to a related company amounted to GH¢12,000,000, although these goods would have been sold to unrelated parties at GH¢13,130,000.

Additional information:

  • Interest on loans amounting to GH¢3,200,000 was added to the financial cost. 80% of the interest relates to capital work in progress, and the remainder supports working capital.
  • GH¢500,000 in net dividends was received from Ann Ltd, a resident company where Conti Ltd holds 24% voting power. The dividend has been added to revenue.

Required:
i) Compute the tax payable.
ii) What are the tax implications of the lunch for staff, interest paid, and the dividend received?
iii) Identify tax planning measures to reduce the tax liability related to the dividend.
iv) What is the tax implication of the financial cost from derivative transactions, and what is its impact on the company?

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  • 7 Marks

AT – Nov 2015 – L3 – Q1c – Business income – Corporate income tax

Treatment of shares issued to employees by the parent company for tax purposes.

Staff of ABC Bank Ghana Limited have been issued shares by ABC Bank Limited – United Kingdom (the Parent company). The shares have been vested and are available to be sold immediately by the beneficiary staff.

Requirement:
With the support of the provisions of the relevant tax laws, how will the above be treated for tax purposes, if any?

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  • 10 Marks

AT – Nov 2016 – L3 – Q1a&b – Business income – Corporate income tax

Calculate the tax due to GRA for the year 2014 based on the income statement of Samada Insurance Company.

You have been appointed as the Tax Manager of Samada Insurance Company. The Executive Director has expressed his persistent worry with the Chief Accountant to accurately calculate the company’s tax obligations to agree with what is assessed by the Ghana Revenue Authority each year. He has thus, provided you with the Income Statement below for your consideration and advice.

SAMANDA INSURANCE COMPANY LIMITED
Income Statement for the years ended 2013 and 2014

  1. Additional Information:
    i) Capital allowance agreed for the year 2014 was GH¢2,450,000
    ii) Reserve is calculated at 40% of Net premium.

Required:
a) Compute the tax due to the GRA for 2014 year of Assessment. (8 marks)

b) Support your computations with relevant explanations. (2)

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