Tax Loss – Knowsia

CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)

Discuss IFRS 9 derecognition rules, trade receivables factoring, and FVTOCI investment strategy for Pelumi Limited.

Question

a. Derecognition of financial instruments is the removal of a previously recognised financial asset or liability from an entity’s statement of financial position.

Required:
Discuss the rules of IFRS 9 – Financial Instruments relating to the derecognition of a financial asset. (10 Marks)

b. Royal Business Limited (RBL) held a portfolio of trade receivables with a carrying amount of N40 million as of May 31, 2022. At that date, the entity entered into a factoring agreement with Hexlinks Bank Limited (HBL), whereby it transfers the receivables in exchange for N36 million in cash. Royal Business Limited has agreed to reimburse the factor (HBL) for any shortfall between the amount collected and N36 million. Once the receivables have been collected, any amount above N36 million, less interest on this amount, will be repaid to Royal Business Limited. Royal Business Limited has derecognised the receivables and charged N4 million as a loss to profit or loss.

Required:
Explain how the rules of derecognition of the financial assets will affect the portfolio of trade receivables in Royal Business Limited’s financial statements. (3 Marks)

c. During the year 2021, Pelumi Limited invested in 800,000 shares in an NGX quoted company. The shares were purchased at N4.54 per share. The broker collected a commission of 1% on the transaction. Pelumi Limited elected to measure their shares at fair value through other comprehensive income (FVTOCI). The quoted share price as of December 31, 2021, was N4.22 to N4.26. Pelumi Limited decided to adopt a ‘sale and buy back’ strategy for the shares to realise a tax loss and therefore sold the shares at the market price on December 31, 2021, and bought the same quantity back the following day. The market price did not change on January 1, 2022. The broker collected a 1% commission on both transactions.

Required:
Explain the IFRS 9 accounting treatment of the above shares in the financial statement of Pelumi Limited for the year ended December 31, 2021.
Note: Show relevant calculations. (7 Marks)

Answer

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Tags: Derecognition, Factoring Agreement, Fair Value, Financial instruments, FVTOCI, IFRS 9, Investment strategy, Shares, Tax Loss, Trade receivables
Level: Level 3

Topic: Financial Instruments (IAS 32, IFRS 9)
Series: NOV 2023

AT – May 2021 – L3 – Q5b – Mergers, amalgamation and reorganisation

Advise on the tax implications of Japan Rocks acquiring 60% of shares in Konadu Yiadom Ltd.

Question

The shareholders of Japan Rocks, a computer chip manufacturing company based in Japan, are planning on acquiring 60% of the shares in Konadu Yiadom Ltd in Ghana. The return on income for Konadu Yiadom Ltd for the year ended 31 December 2020 showed a loss of GH¢3,600,000 and the financial cost of GH¢900,000.

Required:
Advise Japan Rocks and its shareholders on the income tax implications of the acquisition of shares by Japan Rocks and the treatment of financial cost.

Answer

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Tags: Acquisition, Corporate Tax, Financial cost, Shareholding, Tax Loss
Level: Level 3

Topic: Mergers, amalgamation, and reorganization
Series: MAY 2021

AT – July 2023 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discussing the tax implications of a 51% share acquisition and strategies to mitigate tax exposure.

Question

Exclusif Homes Ghana Ltd is a wholly owned Ghanaian real estate company. The basis period of the company ends on 31 December each year. The company has obtained a government contract to build low-cost houses across the country. In order to raise additional capital to undertake this project, the company is looking for an investor who would acquire at least 51% of the shares of the company. The managers of the company are engaged in negotiations with several potential investors, and there is the likelihood of having an investor and agreements signed on 31 January 2022.

The financial statements of Exclusif Homes Ghana Ltd revealed that the company made a loss of GH¢2,500,000 for the period ended 31 December 2021. Included in the expenses of the company are financial costs and bad debt amounting to GH¢100,000 and GH¢150,000 respectively.

The company also has a parcel of land located at Abokobi which the company purchased three years ago at the cost of GH¢100,000. The current value of the land is GH¢500,000.

Required:
Advise Exclusif Homes Ghana Ltd on the following:

The income tax implications for the company if an investor acquires 51% of the company’s shares and the tax planning opportunities available which could reduce the income tax exposure of the company if an investor acquires 51% of the company’s shares.
Measures the acquirer can adopt to mitigate the tax effects (if any) of the proposed transaction.

Answer

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Tags: Change in Ownership, Financial cost, Share Acquisition, Tax Loss, Tax Planning
Level: Level 3

Topic: Mergers, amalgamation, and reorganization
Series: JULY 2023

AT – Nov 2019 – L3 – Q2c – Mergers, amalgamation, and reorganization

Analyze the tax implications for Lawomba Ltd after acquiring 68% equity shares of Mbangba Ltd.

Question

The following has been extracted from the tax records of Mbangba Ltd relating to the 2018 year of assessment, which it intends to benefit in terms of tax outcome from the 2019 year of assessment.

Item	Amount (GH¢)
Tax loss recorded for the first time in 2018 Y/A	400,000
Financial Cost carried forward from derivatives- 2018	100,000
Bad Debts from Customers crystallized but not utilized in 2018	1,200,000

Lawomba Ltd in March 2019, acquired 68% equity shares of Mbangba Ltd and rebranded the name as Lawomba Ltd and conveyed the circumstance after the deal was clinched to the Ghana Revenue Authority to amend its records accordingly and recognize them as the legitimate persons in control of Mbangba Ltd.

The management of Lawomba Ltd has written to you making available the above disclosures for your tax opinion.

Required:

What is the tax implication of the above transactions in the records of Lawomba Ltd?

Answer

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Tags: Business Reorganization, Change in Ownership, Tax Loss
Level: Level 3

Topic: Mergers, amalgamation, and reorganization
Series: NOV 2019

CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)

Discuss IFRS 9 derecognition rules, trade receivables factoring, and FVTOCI investment strategy for Pelumi Limited.

Question

a. Derecognition of financial instruments is the removal of a previously recognised financial asset or liability from an entity’s statement of financial position.

Required:
Discuss the rules of IFRS 9 – Financial Instruments relating to the derecognition of a financial asset. (10 Marks)

Required:
Explain how the rules of derecognition of the financial assets will affect the portfolio of trade receivables in Royal Business Limited’s financial statements. (3 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Derecognition, Factoring Agreement, Fair Value, Financial instruments, FVTOCI, IFRS 9, Investment strategy, Shares, Tax Loss, Trade receivables
Level: Level 3

Topic: Financial Instruments (IAS 32, IFRS 9)
Series: NOV 2023

AT – May 2021 – L3 – Q5b – Mergers, amalgamation and reorganisation

Advise on the tax implications of Japan Rocks acquiring 60% of shares in Konadu Yiadom Ltd.

Question

Required:
Advise Japan Rocks and its shareholders on the income tax implications of the acquisition of shares by Japan Rocks and the treatment of financial cost.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition, Corporate Tax, Financial cost, Shareholding, Tax Loss
Level: Level 3

Topic: Mergers, amalgamation, and reorganization
Series: MAY 2021

AT – July 2023 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discussing the tax implications of a 51% share acquisition and strategies to mitigate tax exposure.

Question

The company also has a parcel of land located at Abokobi which the company purchased three years ago at the cost of GH¢100,000. The current value of the land is GH¢500,000.

Required:
Advise Exclusif Homes Ghana Ltd on the following:

The income tax implications for the company if an investor acquires 51% of the company’s shares and the tax planning opportunities available which could reduce the income tax exposure of the company if an investor acquires 51% of the company’s shares.
Measures the acquirer can adopt to mitigate the tax effects (if any) of the proposed transaction.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Change in Ownership, Financial cost, Share Acquisition, Tax Loss, Tax Planning
Level: Level 3

Topic: Mergers, amalgamation, and reorganization
Series: JULY 2023

AT – Nov 2019 – L3 – Q2c – Mergers, amalgamation, and reorganization

Analyze the tax implications for Lawomba Ltd after acquiring 68% equity shares of Mbangba Ltd.

Question

The following has been extracted from the tax records of Mbangba Ltd relating to the 2018 year of assessment, which it intends to benefit in terms of tax outcome from the 2019 year of assessment.

Item	Amount (GH¢)
Tax loss recorded for the first time in 2018 Y/A	400,000
Financial Cost carried forward from derivatives- 2018	100,000
Bad Debts from Customers crystallized but not utilized in 2018	1,200,000

The management of Lawomba Ltd has written to you making available the above disclosures for your tax opinion.

Required:

What is the tax implication of the above transactions in the records of Lawomba Ltd?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business Reorganization, Change in Ownership, Tax Loss
Level: Level 3

Topic: Mergers, amalgamation, and reorganization
Series: NOV 2019

Question Tag: Tax Loss

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CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)

Discuss IFRS 9 derecognition rules, trade receivables factoring, and FVTOCI investment strategy for Pelumi Limited.

AT – May 2021 – L3 – Q5b – Mergers, amalgamation and reorganisation

Advise on the tax implications of Japan Rocks acquiring 60% of shares in Konadu Yiadom Ltd.

AT – July 2023 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discussing the tax implications of a 51% share acquisition and strategies to mitigate tax exposure.

AT – Nov 2019 – L3 – Q2c – Mergers, amalgamation, and reorganization

Analyze the tax implications for Lawomba Ltd after acquiring 68% equity shares of Mbangba Ltd.

CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)

Discuss IFRS 9 derecognition rules, trade receivables factoring, and FVTOCI investment strategy for Pelumi Limited.

AT – May 2021 – L3 – Q5b – Mergers, amalgamation and reorganisation

Advise on the tax implications of Japan Rocks acquiring 60% of shares in Konadu Yiadom Ltd.

AT – July 2023 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discussing the tax implications of a 51% share acquisition and strategies to mitigate tax exposure.

AT – Nov 2019 – L3 – Q2c – Mergers, amalgamation, and reorganization

Analyze the tax implications for Lawomba Ltd after acquiring 68% equity shares of Mbangba Ltd.

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CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)

Discuss IFRS 9 derecognition rules, trade receivables factoring, and FVTOCI investment strategy for Pelumi Limited.

You're reporting an error for "CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)"

AT – May 2021 – L3 – Q5b – Mergers, amalgamation and reorganisation

Advise on the tax implications of Japan Rocks acquiring 60% of shares in Konadu Yiadom Ltd.

You're reporting an error for "AT – May 2021 – L3 – Q5b – Mergers, amalgamation and reorganisation"

AT – July 2023 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discussing the tax implications of a 51% share acquisition and strategies to mitigate tax exposure.

You're reporting an error for "AT – July 2023 – L3 – Q3a – Mergers, amalgamation, and reorganization"

AT – Nov 2019 – L3 – Q2c – Mergers, amalgamation, and reorganization

Analyze the tax implications for Lawomba Ltd after acquiring 68% equity shares of Mbangba Ltd.

You're reporting an error for "AT – Nov 2019 – L3 – Q2c – Mergers, amalgamation, and reorganization"

CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)

Discuss IFRS 9 derecognition rules, trade receivables factoring, and FVTOCI investment strategy for Pelumi Limited.

You're reporting an error for "CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)"

AT – May 2021 – L3 – Q5b – Mergers, amalgamation and reorganisation

Advise on the tax implications of Japan Rocks acquiring 60% of shares in Konadu Yiadom Ltd.

You're reporting an error for "AT – May 2021 – L3 – Q5b – Mergers, amalgamation and reorganisation"

AT – July 2023 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discussing the tax implications of a 51% share acquisition and strategies to mitigate tax exposure.

You're reporting an error for "AT – July 2023 – L3 – Q3a – Mergers, amalgamation, and reorganization"

AT – Nov 2019 – L3 – Q2c – Mergers, amalgamation, and reorganization

Analyze the tax implications for Lawomba Ltd after acquiring 68% equity shares of Mbangba Ltd.

You're reporting an error for "AT – Nov 2019 – L3 – Q2c – Mergers, amalgamation, and reorganization"

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