Question Tag: Manufacturing

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TAX – May 2024 – L2 – SA – Q5 – Value Added Tax (VAT)

Compute VAT payable by Havillah Manufacturing Limited and identify VAT-exempt goods and services.

Question

Havillah Manufacturing Limited, engaged in manufacturing perfumes and other cosmetic products, has the following profit or loss statement for the year ended September 30, 2021:

Additional Information:

Turnover includes N64,350,000 from export sales and N141,900,000 from local sales.
Cost of Sales includes:
- Opening inventory (VAT inclusive): N24,915,000
- Closing inventory (VAT inclusive): N40,865,000
- Purchase of raw materials: N94,600,000
- Freight charges: N20,570,000
- Other direct materials: N13,530,000
Plant and machinery purchased for N24,750,000 is included in opening inventory, VAT inclusive.
VAT and withholding tax remitted during the year amounted to N2,173,180 and N1,787,500, respectively.

Required: a. Compute the net VAT payable by Havillah Manufacturing Limited for the year. (10 Marks)
b. State FIVE VAT-exempt goods. (2½ Marks)
c. State FIVE VAT-exempt services. (2½ Marks)

Answer

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Tags: Exempt Goods, Exempt Services, Manufacturing, Net VAT Payable, VAT
Level: Level 2

Topic: Value-Added Tax (VAT)
Series: MAY 2024

TAX – Nov 2020 – L1 – SA – Q2a – Companies Income Tax (CIT)

Compute the income tax liability for three companies based on their total profits and provide reasons.

Question

Alhaji Jimoh Abdulahi retired from public service in 2010 and went into business. His friend advised him to incorporate some companies.

The following information in respect of the companies is provided:

Name of Company	Apex Manufacturing Co. Limited	Zenith Foods Limited	Base Nigeria Limited
Date of Commencement of Business	January 2, 2010	January 2, 2017	January 2, 2017
Nature of Business	Manufacturing	Agriculture	Trading
Date of Accounts	Year ended December 31, 2018	Year ended December 31, 2018	Year ended December 31, 2018
Revenue (N)	990,400	896,400	900,500
Total Profit (N)	384,000	421,000	396,000

Required:
Compute the income tax liability of each of the companies for the relevant assessment year. Give reasons for your computations.
(11 Marks)

Answer

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Tags: Agriculture, Income Tax Liability, Manufacturing, Tax computation, Trading
Level: Level 1

Topic: Companies Income Tax (CIT)
Series: NOV 2020

TAX – Nov 2021 – L2 – Q3a – Value Added Tax (VAT)

Calculation of total VAT payable by Adegboyega Enterprises to the Federal Inland Revenue Service (FIRS) for product sales.

Question

Adegboyega Enterprise is a manufacturing outfit based in Jankara, Lagos State. In 2020, the company sold its vatable product to a wholesaler, Ikeja Venture, for N3,500,000. The wholesaler sold the products to a retailer, Mrs. Adeosun, for N4,900,000, who finally sold it to consumers for N6,300,000 (VAT inclusive). Assume there was no closing inventory at each stage of the transaction.

Required:
a. Compute the total VAT payable to the Federal Inland Revenue Service by Adegboyega Enterprises on the transactions stated above.

Answer

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Tags: Manufacturing, Sales, Taxable Goods, VAT, VAT Computation
Level: Level 2

Topic: Value-Added Tax (VAT)
Series: NOV 2021

FA – May 2014 – L1 – SA – Q15 – Cost Classification

This question tests knowledge of classifying costs in a manufacturing context.

Question

For your organisation which is engaged in the production of industrial blocks, bricks and construction, where would you classify the remuneration of a forklift truck operator and the cost of steel girders?

Answer

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Tags: Direct Costs, Indirect Costs, Manufacturing
Level: Level 1

Topic: Cost Classifications
Series: MAY 2014

BMF – May 2021 – L1 – SA – Q7 – Basic Management Functions

Identifies which activity does not belong to the manufacturing function in an organization.

Question

Which of the following activities may NOT be taken as part of manufacturing function in an organization?
A. Engineering and maintenance work
B. Physical delivery of goods to customers
C. Production planning and control
D. Quality control and checking
E. Inspection of finished goods

Answer

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Tags: Business operations, Manufacturing, Quality control
Level: Level 1

Topic: Basic Management Functions
Series: MAY 2021

MI – Nov 2019 – L1 – SA – Q7 – Costing Methods

This question asks for the system designed to suit the way goods are manufactured or services are provided.

Question

The system designed to suit the ways goods are manufactured or processed or the way services are provided is referred to as:
A. Job costing
B. Specific order costing
C. Costing methods
D. Process costing
E. Batch costing

Answer

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Tags: Costing Systems, Management Information, Manufacturing, MCQ
Level: Level 1

Topic: Costing Methods
Series: NOV 2019

PT – May 2021 – L2 – Q1a – Overview of the Ghanaian Tax System and Fiscal Policy

Discuss how location benefits young entrepreneurs aged 35 years or younger in manufacturing regarding tax planning.

Question

The location of an entity is of importance in tax planning. How does location inure to the benefit of a young entrepreneur aged 35 years or younger in the manufacturing business?

Answer

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Tags: Location Incentives, Manufacturing, Tax Planning, Young Entrepreneurs
Level: Level 2

Topic: Overview of the Ghanaian Tax System and Fiscal Policy
Series: MAY 2021

PT – Dec 2023 – L2 – Q2a – Value-Added Tax (VAT), Customs, and Excise Duties

Conditions VAT-registered manufacturing companies must meet for VAT relief on imported raw materials.

Question

According to section (38) of the Value Added Tax Act, 2013 (Act 870), the Minister may by legislative instrument make regulations to grant relief from tax on taxable imports of goods or taxable supplies of goods acquired in the country to the persons specified in the Third Schedule.

Required:
State FOUR (4) conditions that must be satisfied by VAT-registered manufacturing companies before they are granted upfront relief of VAT and levies on imported raw materials. (10 marks)

Answer

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Tags: Manufacturing, Raw Materials, Tax law, VAT Act 2013, VAT Relief
Level: Level 2

Topic: Value-Added Tax (VAT), Customs, and Excise Duties
Series: DEC 2023

TF – May 2018 – L3 – Q2a – Capital Allowance

Calculate the capital allowances and chargeable income of Sekyiwaa Annam Industries Ltd for the year 2017.

Question

Sekyiwaa Annam Industries Limited manufactures personal hygiene soaps and related products at their factory in Takoradi. The company commenced business operations on 1 April 2016 and had an assessed loss of GH¢150,200 for the period ended 31 December 2016.

The company recorded a net profit of GH¢762,800 for the year ended 31 December 2017 after taking into account the following transactions in the income statement:

Gross rental income of GH¢180,000 received from the leasing of one wing of the office building. The rental income portion constitutes 10% of the office building.
Net interest received on bank deposits from Ghana Commercial Bank of GH¢10,028. Withholding tax of 8% has been deducted.
The registration of Trademarks at a total cost of GH¢75,000 in respect of the Company’s personal hygiene soaps that is to last for 10 years. The research and development expenses incurred in connection with these soaps amounted to GH¢15,000 and the company intends to expense it. The legal costs incurred to complete the registration of the Trademark was GH¢5,000.
A donation of GH¢120,000 worth of furniture was made to a local government-assisted school as part of the Company’s corporate social responsibility program, which was duly acknowledged by Ghana Education Service (GES).
Depreciation of fixed assets of GH¢57,000.
Replacement of two motor vehicle engines costing GH¢51,000.
Exceptional costs amounting to GH¢150,000 as a result of the production manager sustaining an injury while working on one of the production lines in the factory. GH¢35,000 of the costs relate to a payment made to the production manager as severance pay. GH¢110,000 was used to acquire additional computers. The remaining GH¢5,000 of the costs represent fines imposed by the Factory Inspectorate Department of the government following the incident.
Purchases of a Computer Server for accounting and human resource needs at a cost of GH¢20,000.
Additional Information:
Details of the Company’s other fixed assets, at cost, are provided below. These were all acquired/constructed during the year to 31 December 2016:

Asset Cost (GH¢)
Factory Building 800,000
Plant and Machinery 510,000
Office Building 420,000
Furniture and Office Equipment 60,000
Motor vehicles (Goods Vans) 130,000
Computers 30,000

Required:
i) Calculate the capital allowances claimable by Sekyiwaa Annam Industries Limited for the year ended 31 December 2017 using all the available information.
(8 marks)

ii) Calculate the chargeable income of Sekyiwaa Annam Industries Limited for the year ended 31 December 2017 and the tax payable.
(6 marks)

Answer

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Tags: Capital Allowance, chargeable income, Corporate Tax, Manufacturing, Taxable Income
Level: Level 3

Topic: Business income - Corporate income tax, Capital allowance
Series: MAY 2018

AT – Mar 2024 – L3 – Q2c – Business income – Corporate income tax

Evaluating the tax benefits of manufacturing ceramics using local and foreign materials versus importing finished ceramics.

Question

Talantula Ltd has engaged you as an ICAG final level candidate on the options that would provide enormous benefits to them and also to the government. The two options are:

To manufacture ceramics using both local and foreign materials. The products will be sold locally and on the international market.
To import finished ceramics for sale in Ghana.

Required:
Evaluate FIVE (5) tax benefits of either of the business options you will want them to associate with over the other.

Answer

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Tags: Corporate Tax, Importation, Locational incentives, Manufacturing, Tax Benefits
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAR 2024

MA – Dec 2023 – L2 – Q2c – Decision making techniques

This question explains why standard costing may not be appropriate in a Just-In-Time (JIT) and Total Quality Management (TQM) environment.

Question

Explain why a standard costing system may not be considered appropriate for the following modern manufacturing environments listed below:
i) Just-In-Time (JIT).
ii) Total Quality Management (TQM).

Answer

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Tags: JIT, Manufacturing, Standard Costing, TQM
Level: Level 2

Topic: Decision making techniques
Series: DEC 2023

AT – Nov 2023 – L3 – Q3 – Business income – Corporate income tax

Compute the capital allowance and taxable income for AquaFresh Ltd for the 2022 year of assessment.

Question

AquaFresh Ltd is a company based in Osu in Accra, and produces clean water through a desalination process and, as a by-product, produces salt for sale in Ghana.

Desalination is a process that extracts salts and minerals from seawater so that the water becomes fit for human consumption. This desalination process has been declared by the Ghana Revenue Authority (GRA) as a manufacturing process.

During the 2022 year of assessment, AquaFresh Ltd recorded the following transactions:

i) Sale of desalinated water made to private domestic homes totaled GH¢120,000,000 while salt totaled GH¢15,000,000.

ii) Operating costs in respect of AquaFresh Ltd’s manufacturing and processing plant amounted to GH¢50,000,000.

iii) AquaFresh Ltd maintains a stock/inventory of spare components/parts for its processing and manufacturing plants. The inventory includes a special inventory called ‘membranes’ which are used in the desalination process. The company had ten membranes in inventory, at a cost of GH¢250,000 each, at the start of the year 2022. During the year 2022, AquaFresh Ltd purchased an additional two membranes at a cost of GH¢300,000 each. Due to wear and tear, six membranes from the manufacturing plant needed to be replaced during the year. The six torn membranes were accordingly removed and destroyed during the year.

iv) A holding tank for the salt broke and flooded the manufacturing plant. The cost of cleaning the plant was GH¢3,000,000. The holding tank had to be replaced and the replacement holding tank cost AquaFresh Ltd GH¢10,000,000, which was funded mainly by insurance proceeds of GH¢7,000,000. The original holding tank had cost GH¢6,000,000 and had a tax written down value on 1 January 2022 (the start of its last year of tax useful life) of GH¢1,000,000. These tanks are not considered part of the process of manufacture as they merely hold the salt.

v) The water produced is pumped into two temporary holding tanks. These tanks had been purchased by AquaFresh Ltd on 1 June 2022, the same date it acquired some vacant land in James Town in Accra. The land cost GH¢9,000,000 and the two tanks cost GH¢5,000,000 each. These tanks are not considered part of the process of manufacture as they merely hold the desalinated water.

vi) In 2022 AquaFresh Ltd installed sea-based wind and energy turbines along the length of its water pipelines. This was done to offset the high energy requirements for the desalination process. These wind and energy turbines cost a total of GH¢6,000,000. The wind and energy turbines have been certified by Ghana Revenue Authority as manufacturing assets.

vii) Specific bad debts written off amounted to GH¢4,000,000. A further GH¢10,000,000 is listed by AquaFresh Ltd as a general provision for doubtful debts in its accounting provision for the year ended 31 December 2022. The list for the general provision for doubtful debts was GH¢9,000,000 at the start of the tax year.

viii) Wages and salaries paid amounted to GH¢30,500,000.

ix) The written down values of pools of assets as of January 1, 2022, were:

Pool 1: GH¢250,000
Pool 2: GH¢48,000,000
Pool 3: GH¢13,000,000

x) Cost of Buildings as of January 1, 2022, was GH¢5,000,000.

Required:
a) Compute capital allowance of AquaFresh Ltd for the 2022 year of assessment using all the available information. (5 marks)
b) Compute the taxable income of AquaFresh Ltd for the 2022 year of assessment. (15 marks)

Answer

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Tags: axable Income, Capital Allowance, Corporate Tax, Ghana Revenue Authority, Manufacturing
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2023

AT – Nov 2023 – L3 – Q2b – Tax planning

Assess the tax implications of the setup, location, and planned interventions for the establishment of Gigani Ltd.

Question

Some investors have invited you for comments on a business they intend to establish in four years’ time. Your comments are critical to the investors in making a choice on the establishment of one of the two entities, that is:

Manufacturing company or
Free zone company.

The investors intend to name the entity Gigani Ltd and establish it in Ghana. The following relates to the projected business of Gigani Ltd:

The shareholders plan to establish Gigani Ltd in either Accra/Tema, Ashanti Regional capital, or Kasoa in the Central Region. It is anticipated that irrespective of the location, Gigani Ltd would generate the same amount of profit in year 1 and grow by 5% each year, all things being equal.

Its first year’s financial performance is projected as follows:

Location	Profit (GH¢)
Accra/Tema	10,000,000
Ashanti Regional Capital	10,000,000
Kasoa, Central Region	10,000,000

Additional interventions on what the investors intend to do in the future when Gigani Ltd is established are as follows:

Establish the business with four resident shareholders.
Start with share capital of GH¢2 million from the contribution of the shareholders.
Raise a debt from two main sources: GH¢10 million from a financial institution in Ghana and GH¢20 million from shareholders with interest at 4% above the market rate.
Transfer an amount of GH¢2 million from retained earnings to share capital to increase the worth of the shareholders after the second year.
Recruit fresh graduates each year from the University of Ghana and Massachusetts Institute of Technology in Boston, USA for the next 5 years until it meets its staff requirement yet to be decided.

Required:
You are required to assess the tax implications of the: i) Set-up.
ii) Location.
iii) Interventions to be introduced.
(12 marks)

Answer

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Tags: Business Setup, Corporate Tax, Free Zone, Location Incentives, Manufacturing, Tax implications
Level: Level 3

Topic: Tax planning
Series: NOV 2023

BMIS – May 2020 – L1 – Q4a – Operations strategy

Identify and explain the most appropriate plant layout for a fishing boat manufacturing company and outline its advantages.

Question

A fishing boat manufacturing company at Elmina intends to expand its business and has decided to locate another production facility at Winneba.

Required:
Identify and explain the most appropriate plant layout for the company’s operations and explain FOUR (4) advantages associated with the selected plant layout. (10 marks)

Answer

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Tags: Manufacturing, Operations Management, Plant Layout
Level: Level 1

Topic: Operations strategy
Series: MAY 2020

BMIS – July 2023 – Q4b – Operations strategy

List and explain five advantages of a product layout in manufacturing.

Question

Product layout is a production layout used for manufacturers who produce large volumes of goods to ensure smooth rapid flow of production. Required: Highlight FIVE (5) advantages of a product layout.

Answer

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Tags: Advantages, Efficiency, Manufacturing, Operations Strategy, Product Layout
Level: Level 1

Series: JULY 2023

BMIS – Dec 2023 – L1 – Q4b – Operations strategy

Explains the functions to be performed by the Head of Quality Control in a manufacturing company.

Question

Mr. Brown has been appointed as head of the Quality Control Department of Real Marines Manufacturing Ltd, a company that processes tuna.

Required:

Explain FIVE (5) functions to be performed by Mr. Brown on his appointment.

Answer

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Tags: Manufacturing, Operations Management, Quality control
Level: Level 1

Topic: Operations strategy
Series: DEC 2023

Question Tag: Manufacturing

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TAX – May 2024 – L2 – SA – Q5 – Value Added Tax (VAT)

Compute VAT payable by Havillah Manufacturing Limited and identify VAT-exempt goods and services.

TAX – Nov 2020 – L1 – SA – Q2a – Companies Income Tax (CIT)

Compute the income tax liability for three companies based on their total profits and provide reasons.

TAX – Nov 2021 – L2 – Q3a – Value Added Tax (VAT)

Calculation of total VAT payable by Adegboyega Enterprises to the Federal Inland Revenue Service (FIRS) for product sales.

FA – May 2014 – L1 – SA – Q15 – Cost Classification

This question tests knowledge of classifying costs in a manufacturing context.

BMF – May 2021 – L1 – SA – Q7 – Basic Management Functions

Identifies which activity does not belong to the manufacturing function in an organization.

MI – Nov 2019 – L1 – SA – Q7 – Costing Methods

This question asks for the system designed to suit the way goods are manufactured or services are provided.

PT – May 2021 – L2 – Q1a – Overview of the Ghanaian Tax System and Fiscal Policy

Discuss how location benefits young entrepreneurs aged 35 years or younger in manufacturing regarding tax planning.

PT – Dec 2023 – L2 – Q2a – Value-Added Tax (VAT), Customs, and Excise Duties

Conditions VAT-registered manufacturing companies must meet for VAT relief on imported raw materials.

TF – May 2018 – L3 – Q2a – Capital Allowance

Calculate the capital allowances and chargeable income of Sekyiwaa Annam Industries Ltd for the year 2017.

AT – Mar 2024 – L3 – Q2c – Business income – Corporate income tax

Evaluating the tax benefits of manufacturing ceramics using local and foreign materials versus importing finished ceramics.

MA – Dec 2023 – L2 – Q2c – Decision making techniques

This question explains why standard costing may not be appropriate in a Just-In-Time (JIT) and Total Quality Management (TQM) environment.

AT – Nov 2023 – L3 – Q3 – Business income – Corporate income tax

Compute the capital allowance and taxable income for AquaFresh Ltd for the 2022 year of assessment.

AT – Nov 2023 – L3 – Q2b – Tax planning

Assess the tax implications of the setup, location, and planned interventions for the establishment of Gigani Ltd.

BMIS – May 2020 – L1 – Q4a – Operations strategy

Identify and explain the most appropriate plant layout for a fishing boat manufacturing company and outline its advantages.

BMIS – July 2023 – Q4b – Operations strategy

List and explain five advantages of a product layout in manufacturing.

BMIS – Dec 2023 – L1 – Q4b – Operations strategy

Explains the functions to be performed by the Head of Quality Control in a manufacturing company.

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