Question Tag: Rental Income

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q7 – Capital Gains Tax (CGT)

Compute total income for 2011 tax assessment and capital gains tax for relevant year.

Mr. James Zonto lived in Canada for thirty years and decided to settle down permanently in Nigeria with effect from January 2007.

Based on advice from his secondary school classmate, Mr. James Zonto repatriated a huge amount of money to Nigeria. He took advantage of the better investment climate in Nigeria and acquired the following properties:

  1. Uyo Duplex: Bought on 2 March 2008 for N25,320,000. Rental income: N855,000 per annum (net of withholding tax).
  2. Fixed Deposit Account: Invested N14,000,000 on 4 January 2008 with Doronine Bank Plc, yielding interest (net of withholding tax) of N180,000 per month.
  3. Onitsha Property: Acquired on 6 October 2008 for N31,500,000 with incidental expenses of N2,400,000. Annual rent: N1,800,000.
  4. Okija House: Bought for N10,000,000 as a personal residence; not rented out.

In 2012, he decided to resettle in Toronto and took the following actions:

  • Uyo House: Sold for N47,450,000 after incurring the following expenses:
    • Advertising: N650,000
    • Valuation fees: N2,000,000
    • Estate Agent’s Commission: N2,372,500
    • Legal fees: N1,500,000
  • Fixed Deposit: Matured on 31 December 2011; not rolled over.
  • Onitsha Property: Sold one of the four duplexes for N14,175,000. Remaining duplexes valued at N40,500,000.
  • Okija House: Sold for N36,500,000 after incurring incidental expenses of N3,650,000.

Required:
(a) Compute the Total Income for Income Tax purposes for 2011 year of assessment.
(b) Compute the Capital Gains Tax payable for the relevant year of assessment.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q1 – Elements of Financial Statements

Identifying the item that does not belong in the statement of financial position of a club.

The following items normally feature in the statement of financial position of a club EXCEPT:

A. Current year’s subscription
B. Salary in arrears
C. Rental income received in advance
D. Advance subscription in respect of a coming year
E. Subscription in arrears.

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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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  • 1 Marks

FA – Nov 2013 – L1 – SA – Q30 – Elements of Financial Statements

Identifying the term for payments made by tenants for property use.

The amount agreed to be paid by a tenant to a landlord for the use of his property for economic reasons is known as ____________.

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q6c – Bases of Accounting: Accrual vs. Cash

Prepare the Rental Income Account to recognize rent in the profit or loss.

D’favour owns several properties in Lagos that are let out to tenants. The summary of transactions at December 31, 2014, is given below:

Item N’000
Accrued rent at December 31, 2013 440
Prepaid rent at December 31, 2013 250
Rent received during 2014 2,550
Accrued rent at December 31, 2014 350
Prepaid rent at December 31, 2014 480
Uncollectable rent to be written-off 35
Agreement fee received 50

Required:
Prepare the Rental Income Account to determine the amount of rent to be recognized in the Statement of Profit or Loss. (8 Marks)

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  • 10 Marks

PT – May 2021 – L2 – Q5a – Withholding Tax Administration

Explain the withholding tax rates and treatment for rental income for residential and non-residential premises.

A resident person who makes a payment to another resident person in respect of the rental of residential or non-residential premises is required to withhold tax in accordance with the Income Tax Act, 2015 (Act 896) as amended.

Required:
i) State the taxation principle applicable to rental income and the relevant rates. (5 marks)
ii) Given i) above, how will you treat this transaction, where a resident person makes a payment to another resident person conducting a business of sale or renting of residential or non-residential premises?

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  • 8 Marks

PT – May 2021 – L2 – Q4b – Corporate Tax Liabilities

Compute the tax payable by Fridays Ltd and explain the treatment of rental income and dividends.

Fridays Ltd is a resident company. It provides cleaning services across the country. The following is available from its tax returns for the 2020 year of assessment.

Other relevant information:

  • The dividend was received from Z Ltd, a resident company where Fridays Ltd has 27% shares.

Required:
i) Compute the tax payable assuming its tax rate is 25%. (6 marks)
ii) Explain the treatment of the following:

  • Rental income (1 mark)
  • Dividend (1 mark)

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  • 6 Marks

AT – April 2022 – L3 – Q2c – Tax planning | Business income – Corporate income tax

Explain tax incentives for farming, agro-processing, and rental income from cocoa farming activities.

Tax incentives have traditionally been used by governments as tools to promote a particular economic goal. They are preferential tax treatments offered to a selected group of taxpayers and may take the form of tax exemptions, tax holidays, preferential tax rates, and others.

Required:
Explain the tax implications of the following:
i) A person engaged in Farming activity
ii) A person engaged in Agro-Processing activity
iii) The rental income of a person engaged in Cocoa Farming activity

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  • 8 Marks

AT – Nov 2020 – L3 – Q3b – International taxation

Tax computation for Andrew Soweah as an individual, granting relief under the Ghana/UK Double Taxation Agreement using the credit method.

Andrew Soweah recently relocated to Ghana to commence his business after retirement from TaskForce (UK) Ltd, a security company he served for over 20 years. The nature of the business was to provide private security to diplomats and the very affluent.

Before coming to Ghana, he rented out his apartment in the UK for a yearly rent of £18,000. He also maintained a healthy balance in his account with Diamond Bank in London.

His income for 2019 year of assessment is summarized as follows:

  • Business Income (net of all taxes): GH¢126,000.
  • Dividend received from Faithful Ltd, a resident company at gross amount was GH¢18,000.
  • Rent of £16,200 was paid into his account with Diamond Bank. Withholding tax amounting to £1,800 had been deducted.
  • Diamond Bank credited his account with net of £8,100 bank interest. UK tax rate on interest is 10%.

Additional Information:

  • Exchange rate is GH¢7.5 for £1.
  • Andrew Soweah does not contribute to social security in Ghana.

Required: Compute his tax liability as an individual for the relevant year of assessment while granting him relief for double taxation under the Ghana/UK Double Taxation Agreement using the credit method.

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  • 20 Marks

FA – July 2023 – L1 – Q2 – Preparation of Partnership accounts

Prepare a ledger account for rental income and a partnership's profit and loss appropriation account with related partners' current accounts.

a) A company owns a number of properties which are rented to tenants. The following information is available for the year ended 30 June 2021:

Date Rent in advance (GHȼ) Rent in arrears (GHȼ)
30 June 2020 140,500 5,200
30 June 2021 148,200 9,200

Cash received from tenants for the year ended 30 June 2021 was GHȼ820,400. All rent in arrears was subsequently received.

Required:

Prepare the ledger account for rental income showing the transfer to the Statement of Profit and Loss, for the year ended 30 June 2021. (5 marks)

b) Awuni, Adjetey, and Kwame are in partnership, running an evening school, and sharing residual profits and losses in the ratio 4:3:3 respectively. At 1 October 2021 their capital and current account balances were:

By formal agreement, the partners are entitled to receive interest at 5% on capital. In addition, Adjetey is paid an annual salary of GHȼ5,455 for his part in running the business.

On 1 April 2022, by mutual agreement, Kwame increased his capital by paying a further GHȼ4,000 into the partnership bank account. Awuni reduced his capital by GHȼ5,000, but kept this in the partnership as a loan bearing interest at 10% per annum. Interest on the loans, by agreement, is credited to Awuni’s current account.

The partners are allowed to take out drawings at any time during the year, but they have agreed to charge interest on such drawings. The date of taking out the drawings, the amount drawn out by each partner, and the interest payable, were as follows during the year to 30 September 2022:

Required:

i) Prepare the profit and loss appropriation account for the year ended 30 September 2022. (8 marks)
ii) Prepare the partners’ current accounts for the year ended 30 September 2022. (7 marks)

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q7 – Capital Gains Tax (CGT)

Compute total income for 2011 tax assessment and capital gains tax for relevant year.

Mr. James Zonto lived in Canada for thirty years and decided to settle down permanently in Nigeria with effect from January 2007.

Based on advice from his secondary school classmate, Mr. James Zonto repatriated a huge amount of money to Nigeria. He took advantage of the better investment climate in Nigeria and acquired the following properties:

  1. Uyo Duplex: Bought on 2 March 2008 for N25,320,000. Rental income: N855,000 per annum (net of withholding tax).
  2. Fixed Deposit Account: Invested N14,000,000 on 4 January 2008 with Doronine Bank Plc, yielding interest (net of withholding tax) of N180,000 per month.
  3. Onitsha Property: Acquired on 6 October 2008 for N31,500,000 with incidental expenses of N2,400,000. Annual rent: N1,800,000.
  4. Okija House: Bought for N10,000,000 as a personal residence; not rented out.

In 2012, he decided to resettle in Toronto and took the following actions:

  • Uyo House: Sold for N47,450,000 after incurring the following expenses:
    • Advertising: N650,000
    • Valuation fees: N2,000,000
    • Estate Agent’s Commission: N2,372,500
    • Legal fees: N1,500,000
  • Fixed Deposit: Matured on 31 December 2011; not rolled over.
  • Onitsha Property: Sold one of the four duplexes for N14,175,000. Remaining duplexes valued at N40,500,000.
  • Okija House: Sold for N36,500,000 after incurring incidental expenses of N3,650,000.

Required:
(a) Compute the Total Income for Income Tax purposes for 2011 year of assessment.
(b) Compute the Capital Gains Tax payable for the relevant year of assessment.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q1 – Elements of Financial Statements

Identifying the item that does not belong in the statement of financial position of a club.

The following items normally feature in the statement of financial position of a club EXCEPT:

A. Current year’s subscription
B. Salary in arrears
C. Rental income received in advance
D. Advance subscription in respect of a coming year
E. Subscription in arrears.

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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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  • 1 Marks

FA – Nov 2013 – L1 – SA – Q30 – Elements of Financial Statements

Identifying the term for payments made by tenants for property use.

The amount agreed to be paid by a tenant to a landlord for the use of his property for economic reasons is known as ____________.

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q6c – Bases of Accounting: Accrual vs. Cash

Prepare the Rental Income Account to recognize rent in the profit or loss.

D’favour owns several properties in Lagos that are let out to tenants. The summary of transactions at December 31, 2014, is given below:

Item N’000
Accrued rent at December 31, 2013 440
Prepaid rent at December 31, 2013 250
Rent received during 2014 2,550
Accrued rent at December 31, 2014 350
Prepaid rent at December 31, 2014 480
Uncollectable rent to be written-off 35
Agreement fee received 50

Required:
Prepare the Rental Income Account to determine the amount of rent to be recognized in the Statement of Profit or Loss. (8 Marks)

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  • 10 Marks

PT – May 2021 – L2 – Q5a – Withholding Tax Administration

Explain the withholding tax rates and treatment for rental income for residential and non-residential premises.

A resident person who makes a payment to another resident person in respect of the rental of residential or non-residential premises is required to withhold tax in accordance with the Income Tax Act, 2015 (Act 896) as amended.

Required:
i) State the taxation principle applicable to rental income and the relevant rates. (5 marks)
ii) Given i) above, how will you treat this transaction, where a resident person makes a payment to another resident person conducting a business of sale or renting of residential or non-residential premises?

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  • 8 Marks

PT – May 2021 – L2 – Q4b – Corporate Tax Liabilities

Compute the tax payable by Fridays Ltd and explain the treatment of rental income and dividends.

Fridays Ltd is a resident company. It provides cleaning services across the country. The following is available from its tax returns for the 2020 year of assessment.

Other relevant information:

  • The dividend was received from Z Ltd, a resident company where Fridays Ltd has 27% shares.

Required:
i) Compute the tax payable assuming its tax rate is 25%. (6 marks)
ii) Explain the treatment of the following:

  • Rental income (1 mark)
  • Dividend (1 mark)

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  • 6 Marks

AT – April 2022 – L3 – Q2c – Tax planning | Business income – Corporate income tax

Explain tax incentives for farming, agro-processing, and rental income from cocoa farming activities.

Tax incentives have traditionally been used by governments as tools to promote a particular economic goal. They are preferential tax treatments offered to a selected group of taxpayers and may take the form of tax exemptions, tax holidays, preferential tax rates, and others.

Required:
Explain the tax implications of the following:
i) A person engaged in Farming activity
ii) A person engaged in Agro-Processing activity
iii) The rental income of a person engaged in Cocoa Farming activity

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  • 8 Marks

AT – Nov 2020 – L3 – Q3b – International taxation

Tax computation for Andrew Soweah as an individual, granting relief under the Ghana/UK Double Taxation Agreement using the credit method.

Andrew Soweah recently relocated to Ghana to commence his business after retirement from TaskForce (UK) Ltd, a security company he served for over 20 years. The nature of the business was to provide private security to diplomats and the very affluent.

Before coming to Ghana, he rented out his apartment in the UK for a yearly rent of £18,000. He also maintained a healthy balance in his account with Diamond Bank in London.

His income for 2019 year of assessment is summarized as follows:

  • Business Income (net of all taxes): GH¢126,000.
  • Dividend received from Faithful Ltd, a resident company at gross amount was GH¢18,000.
  • Rent of £16,200 was paid into his account with Diamond Bank. Withholding tax amounting to £1,800 had been deducted.
  • Diamond Bank credited his account with net of £8,100 bank interest. UK tax rate on interest is 10%.

Additional Information:

  • Exchange rate is GH¢7.5 for £1.
  • Andrew Soweah does not contribute to social security in Ghana.

Required: Compute his tax liability as an individual for the relevant year of assessment while granting him relief for double taxation under the Ghana/UK Double Taxation Agreement using the credit method.

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  • 20 Marks

FA – July 2023 – L1 – Q2 – Preparation of Partnership accounts

Prepare a ledger account for rental income and a partnership's profit and loss appropriation account with related partners' current accounts.

a) A company owns a number of properties which are rented to tenants. The following information is available for the year ended 30 June 2021:

Date Rent in advance (GHȼ) Rent in arrears (GHȼ)
30 June 2020 140,500 5,200
30 June 2021 148,200 9,200

Cash received from tenants for the year ended 30 June 2021 was GHȼ820,400. All rent in arrears was subsequently received.

Required:

Prepare the ledger account for rental income showing the transfer to the Statement of Profit and Loss, for the year ended 30 June 2021. (5 marks)

b) Awuni, Adjetey, and Kwame are in partnership, running an evening school, and sharing residual profits and losses in the ratio 4:3:3 respectively. At 1 October 2021 their capital and current account balances were:

By formal agreement, the partners are entitled to receive interest at 5% on capital. In addition, Adjetey is paid an annual salary of GHȼ5,455 for his part in running the business.

On 1 April 2022, by mutual agreement, Kwame increased his capital by paying a further GHȼ4,000 into the partnership bank account. Awuni reduced his capital by GHȼ5,000, but kept this in the partnership as a loan bearing interest at 10% per annum. Interest on the loans, by agreement, is credited to Awuni’s current account.

The partners are allowed to take out drawings at any time during the year, but they have agreed to charge interest on such drawings. The date of taking out the drawings, the amount drawn out by each partner, and the interest payable, were as follows during the year to 30 September 2022:

Required:

i) Prepare the profit and loss appropriation account for the year ended 30 September 2022. (8 marks)
ii) Prepare the partners’ current accounts for the year ended 30 September 2022. (7 marks)

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