Reducing Balance Depreciation

ATP – Aug 2017 – L2 – Q5 – Sector-Specific Taxation

Compute Nkrabea Insurance’s 2016 tax liability, including premium income and capital allowances.

Question

Question:
Nkrabea Insurance Company Limited commenced operating in Ghana on 1st January, 2016.
Below is an extract from the Trial Balance as at 31/12/16.

GH¢000
Building (at cost) 1,950
Motor Vehicle (at cost) 630
F & F (at cost) 420
Interest received on loans 183
Interest in Investment 225
Stated Capital 3,600
Gross Premium received 2,760
Claims paid during the year 960
Income Tax paid 210
Commission to Agent 72
General Administrative Expenses 1,050
Reinsurance Premium paid 162
Reinsurance recoveries 540
Premiums returned to clients 57
Notes:
(i) Reserve is calculated at 40% of Net Premium Income
(ii) Assets were acquired on 1st January, 2016
(iii) The General Administration Expenses include GH¢600,000 in respect of depreciation charged for the year.
(iv) The applicable, rates for capital allowance are as follows:

Pool 1 40%
Pool 2 30%
Pool 3 20%
Pool 4 10%
Required:
Compute the tax liability of the company for 2016 year of assessment.
Corporate Tax Rate: 25%

Answer

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Tags: Capital Allowance, Corporate Tax, Insurance Taxation, Reducing Balance Depreciation, Tax Liability
Level: Level 2

Topic: Sector-Specific Taxation
Series: AUG 2017

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

Question

a) Describe the FIVE (5) main elements of financial statements in accordance with the IASB’s Conceptual Framework. (10 marks)

b) Bimbila Ltd commenced business on 1 June 2020 and reported the following net profits during its first two years in business:

	GHȼ
1 June 2020 to 31 May 2021	135,000
1 June 2021 to 31 May 2022	140,000

During this period the following non-current assets were purchased on the dates shown:

Bimbila Ltd has a policy to depreciate machinery at 25% per annum on cost (straight line method) and equipment at 20% per annum on cost (straight line method), rates being charged for each month of ownership. Bimbila Ltd is now considering using the reducing balance method, with the following rates applying to the balance at the end of each year:

Machinery: 20%
Equipment: 15%

A full year’s depreciation is charged irrespective of the date of purchase.

Required:

i) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the original method (straight line) and rates for:

Machinery (2 marks)
Equipment (1 mark)

ii) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the alternative method (reducing balance) and rates for:

Machinery (2 marks)
Equipment (1 mark)

iii) Prepare a statement to show the net profit which would have been reported for each of the years ended 31 May 2021 and 31 May 2022 if the reducing balance method had been used. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Topic: Non-current assets and depreciation, The IASB’s Conceptual Framework
Series: JULY 2023

ATP – Aug 2017 – L2 – Q5 – Sector-Specific Taxation

Compute Nkrabea Insurance’s 2016 tax liability, including premium income and capital allowances.

Question

Question:
Nkrabea Insurance Company Limited commenced operating in Ghana on 1st January, 2016.
Below is an extract from the Trial Balance as at 31/12/16.

Pool 1 40%
Pool 2 30%
Pool 3 20%
Pool 4 10%
Required:
Compute the tax liability of the company for 2016 year of assessment.
Corporate Tax Rate: 25%

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Allowance, Corporate Tax, Insurance Taxation, Reducing Balance Depreciation, Tax Liability
Level: Level 2

Topic: Sector-Specific Taxation
Series: AUG 2017

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

Question

a) Describe the FIVE (5) main elements of financial statements in accordance with the IASB’s Conceptual Framework. (10 marks)

b) Bimbila Ltd commenced business on 1 June 2020 and reported the following net profits during its first two years in business:

	GHȼ
1 June 2020 to 31 May 2021	135,000
1 June 2021 to 31 May 2022	140,000

During this period the following non-current assets were purchased on the dates shown:

Machinery: 20%
Equipment: 15%

A full year’s depreciation is charged irrespective of the date of purchase.

Required:

i) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the original method (straight line) and rates for:

Machinery (2 marks)
Equipment (1 mark)

ii) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the alternative method (reducing balance) and rates for:

Machinery (2 marks)
Equipment (1 mark)

iii) Prepare a statement to show the net profit which would have been reported for each of the years ended 31 May 2021 and 31 May 2022 if the reducing balance method had been used. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Topic: Non-current assets and depreciation, The IASB’s Conceptual Framework
Series: JULY 2023

Question Tag: Reducing Balance Depreciation

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ATP – Aug 2017 – L2 – Q5 – Sector-Specific Taxation

Compute Nkrabea Insurance’s 2016 tax liability, including premium income and capital allowances.

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

ATP – Aug 2017 – L2 – Q5 – Sector-Specific Taxation

Compute Nkrabea Insurance’s 2016 tax liability, including premium income and capital allowances.

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

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ATP – Aug 2017 – L2 – Q5 – Sector-Specific Taxation

Compute Nkrabea Insurance’s 2016 tax liability, including premium income and capital allowances.

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FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

You're reporting an error for "FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework"

ATP – Aug 2017 – L2 – Q5 – Sector-Specific Taxation

Compute Nkrabea Insurance’s 2016 tax liability, including premium income and capital allowances.

You're reporting an error for "ATP – Aug 2017 – L2 – Q5 – Sector-Specific Taxation"

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

You're reporting an error for "FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework"

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