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(a) What is Public Finance? [4 marks]
(b) Explain four (4) areas where governments allocate funds to meet their spending obligations and fulfil their functions. [8 marks] (c) Differentiate between Fiscal Policy and Monetary Policy. [4 marks]
(d) What is the role of Taxation in controlling Inflation? [4 marks]
(Total: 20 marks)
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a). Differentiate between Assessable Income and Chargeable Income. (5 Marks)
b). Within the context of third-party security, what is a Letter of Comfort? (5 Marks)
c. What is the doctrine of ‘Forum Non-Conveniens’ and what is its utility in conflicts that may arise in International Banking transactions? (10 Marks)
[Total = 20 Marks]
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The following trial balance relates to Halidu LTD (Halidu) at 30 June 2024:
| GH¢’000 | GH¢’000 | |
|---|---|---|
| Revenue | 3,120,000 | |
| Cost of sales | 1,757,400 | |
| Distribution costs | 45,600 | |
| Administration expenses | 118,800 | |
| Loan interest paid | 28,800 | |
| Property – cost | 1,200,000 | |
| Property – depreciation at 1 July 2023 | 225,000 | |
| Plant and equipment – cost | 1,011,600 | |
| Plant and equipment – depreciation at 1 July 2023 | 291,600 | |
| Licence – cost | 240,000 | |
| Licence – amortisation at 1 July 2023 | 96,000 | |
| Trade receivables | 259,200 | |
| Inventory – 30 June 2024 | 112,800 | |
| Bank | 78,000 | |
| Trade payables | 211,200 | |
| Share capital (GH¢0.25 each) | 420,000 | |
| Revaluation surplus | 78,000 | |
| 12% loan note (issued 1 July 2023) | 240,000 | |
| Taxation | 12,000 | |
| Retained earnings at 1 July 2023 | 68,700 | |
| 4,774,200 | 4,774,200 |
The following notes are relevant:
i) Halidu made credit sales for GH¢196 million on a sale or return basis and this is currently included in revenue in the trial balance. At 30 June 2024 customers who had not paid for the goods, had the right to return GH¢62.4 million of them. Halidu applied a mark-up on cost of 30% on all these sales. In the past Halidu’s customers have sometimes returned goods under this type of agreement.
ii) On 1 July 2023, Halidu revalued its property to GH¢1,440 million, of which GH¢360 million relates to the land. This property was acquired 10 years ago at a cost of GH¢1,200 million which included GH¢300 million for the land. The building had an estimated life of 40 years when it was acquired and this has not changed as a result of the revaluation. Depreciation is charged on a straight line basis. The revaluation has not yet been recorded in the books. Halidu has a policy of transferring any excess depreciation to retained earnings.
iii) During the year, Halidu sold some plant that cost GH¢120 million on 1 December 2020. The proceeds of this sale were GH¢72 million and these have been credited to cost of sales. No other entries have been made relating to the disposal. Plant and equipment is to be depreciated on the reducing balance basis at a rate of 20% per annum. Halidu charges a full year’s depreciation in the year of acquisition and none in the year of disposal.
iv) The licence is being amortised on the straight line basis at a rate of 20% per annum. All depreciation and amortisation is to be charged to cost of sales.
v) The directors have estimated the provision for income tax for the year ended 30 June 2024 at GH¢76.2 million. The balance of taxation in the trial balance relates to over/under provision of tax in the previous year. The only deferred tax consequence relates to those mentioned in note (ii) above. The company pays tax on profit at the rate of 25%.
vi) Halidu intends to dispose of a major line of its business operations in the course of the year. At the date the held for sale criteria were met, the carrying amount of the assets and liabilities comprising the line of business were:
| GH¢’000 | |
|---|---|
| Plant and equipment | 138,000 |
| Trade receivables | 9,000 |
| Trade payables | 7,000 |
It is anticipated that Halidu will realise GH¢135 million for the business. No entries have yet been made in respect of this information.
Required:
Prepare and present a statement of comprehensive income, a statement of changes in equity and a statement of financial position at 30 June 2024 in a form suitable for presentation to the shareholders and in accordance with the requirements of International Financial Reporting Standards (IFRS).
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Some commentators in Ghana have argued that economic policymakers should allow automatic stabilizers to shape and direct the destiny of the economy rather than discretionary fiscal policies since the latter has failed woefully.
Required:
Distinguish between automatic stabilizers and discretionary fiscal policies as economic tools. Illustrate with examples.
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a) Monetary policy and fiscal policy are two different tools that have an impact on the economic activity of a country. Policy adjustments and institutional safeguards are needed to ensure that the two policies remain firmly within the region of stability.
Required:
i) Distinguish between Monetary Policy and Fiscal Policy.
ii) State FOUR monetary policy tools used in Ghana.
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Kako PLC is a multinational company with production divisions trading in many countries across the globe. Trade takes place between a number of the divisions in different countries, with intermediate products being transferred between them. Where a transfer takes place between divisions trading in different countries, it is the policy of the board of the company to determine centrally the right transfer price without reference to the managers in the division.
Required:
i) Explain THREE possible reasons for Kako PLC to determine transfer prices of goods from the head office.
ii) Explain TWO criticisms of the central determination of transfer pricing.
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Gugi Plc. is a highly successful manufacturing company operating in Nigeria. In addition to sales within Nigeria, the company also exports to a foreign country (with currency F$) along the ECOWAS sub-region. The export sales generate annual net cash inflow of ₦50,000,000. Gugi Plc. is now considering whether to establish a factory in the foreign country and stop exporting from Nigeria to the country. The project is expected to cost F$1 billion, including F$200million for working capital.
A suitable existing factory has been located, and production could commence immediately. A payment of F$950million would be required immediately, with the remainder payable at the end of year one. The following additional information is available:
Assume that the above cash items will remain constant throughout the expected life of the project of 4 years. At the end of year 4, it is estimated that the net realisable value of the non-current assets will be F$1.40billion.
It is the policy of the company to remit the maximum funds possible to the parent (i.e., Gugi Plc.) at the end of each year. Assume that there are no legal complications to prevent this.
If the new factory is set up and export to the foreign country is stopped, it is expected that new export markets of a similar worth in North Africa could replace the existing exports.
Production in Nigeria is at full capacity, and there are no plans for further capacity expansion.
Tax on the company’s profits is at a rate of 40% in both countries, payable one year in arrears. A double taxation agreement exists between Nigeria and the foreign country, and no double taxation is expected to arise. No withholding tax is levied on royalties payable from the foreign country to Nigeria.
Tax allowable “depreciation” is at a rate of 25% on a straight-line basis on all non-current assets.
The Directors of Gugi Plc. believe that the appropriate risk-adjusted cost of capital for the project is 13%.
Annual inflation rates in Nigeria and the foreign country are currently 5.6% and 10%, respectively. These rates are expected to remain constant in the foreseeable future. The current spot exchange rate is F$1.60 = N1. You may assume that the exchange rate reflects the purchasing power parity theorem.
Required:
a. Evaluate the proposed investment from the viewpoint of Gugi Plc.
Notes:
i. Show all workings and calculations to the nearest million.
ii. State all reasonable assumptions. (18 Marks)
b. State TWO further information and analysis that might be useful in the evaluation of this project?
(2 Marks)
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Limelight, a public limited company, is a major player in commodity brokerage and supplies. The following transactions relate to the year ended December 31, 2014.
Profit before taxation for the year was ₦487.5m. Taxable profit for the same period was ₦131.25m.
The balances of non-current assets of the company, at December 31, 2014:
| N’000 | Amount |
|---|---|
| Accounting carrying amount | 937,500 |
| Tax written down value | 637,500 |
The balances above do not include a freehold building purchased in February 2014 for ₦750m. This building was revalued to ₦985m on December 31, 2014.
Accrued rental income on investment property at December 31, 2014, amounted to ₦9.75m. This income was credited to the statement of profit or loss as at year-end but was not received until three months after. Rental income is taxed by the Federal Inland Revenue Service on an actual basis when it is received.
No other temporary differences exist at December 31, 2014. Income tax and Withholding taxes on rental income are paid at 30% and 10% respectively, six months after the year.
Required:
a) Discuss the conceptual basis for the recognition of deferred taxation by Limelight Plc using the temporary difference approach in accordance with IAS 12, arising from the above transactions.
b (i) Outline how the above transactions should be accounted for using journal entries where appropriate.
b (ii) Calculate the provision for deferred tax after any necessary adjustments to the financial statements at December 31, 2014, and use journal entries.
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The prevailing economic condition has led to the business cessation of many SMEs. Aba Foods Limited, a well-known food and beverage company in Abia State, faced difficulties in securing long-term loans, preventing the replacement of its outdated equipment and leading to losses. To ensure continuity, the company considered mergers or acquisitions and entered discussions with Chief Egodi of Ifedi Group. Chief Egodi, concerned about the tax implications of potential arrangements, sought advice from your firm, Aliyara & Co., Chartered Accountants.
Required:
Provide a presentation in the form of advice:
(a) Explain the tax implications of Aba Foods Limited merging with Ifedi Foods and Beverage Limited, with Ifedi inheriting all assets and liabilities. (5 Marks)
(b) Explain the tax implications if Ifedi Foods and Beverage Limited is reconstituted to take over Aba Foods’ assets and liabilities. (5 Marks)
(c) Explain the tax implications if Ifedi Foods and Aba Foods enter a Joint Venture or Partnership Agreement. (5 Marks)
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Revenue generation is an important role carried out by some agencies of government with a view to meeting the expenditure of government, required for taking care of the welfare of the citizens. Revenue Mobilisation, Allocation and Fiscal Commission Act 1989 specifically mentioned some powers and functions of the Commission.
Required:
a. Identify FOUR powers and responsibilities of State Board of Internal Revenue Service in Nigeria. (4 Marks)
b. Explain FOUR specific functions of the Department of Petroleum Resources (DPR). (4 Marks)
c. Highlight SIX powers entrusted to the Revenue Mobilisation, Allocation and Fiscal Commission. (6 Marks)
d. Explain THREE sources of revenue payable to the federation account in Nigeria. (6 Marks)
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“E-commerce” and e-business present a major challenge for tax administrators given the often multi-jurisdictional nature of the transactions and the potential anonymity of the parties. Based on the above, it is, therefore, crucial to give the subject a critical examination through the lenses of relevant statutes.
Required:
State the tax complexities of “e-commerce” and “e-business”. (4 Marks)
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Chief Adio Jaiyesimi, a Chartered Accountant, died in London after a brief illness on June 10, 2015. He was survived by four children namely: Akeem; Ayodeji; Olabisi; and Adekunle. He created a trust for the benefits of his four children. The records of the trustee for the year ended December 31, 2020, have revealed the following:
| Description | Amount (N) |
|---|---|
| Adjusted trading profits for the year ended December 31, 2020 | 36,400,000 |
| Dividend (gross) | 305,000 |
| Rental income (gross) | 820,000 |
| Interest received (gross) | 118,500 |
| Sundry income | 24,800 |
Additional information:
(i) Fixed annuity paid to Deji, his first child: 81,000
(ii) Fixed remuneration for the trustee: 500,000
(iii) Variable remuneration of the trustee – 5% of gross income: 56
(iv) Allowable expenses of the trustee as agreed: 60,000
(v) Capital allowances as agreed with the Revenue: 395,000
(vi) Discretionary payments were made by the trustee in agreement with the trust deed as follows:
| Beneficiary | Amount (N) |
|---|---|
| Akeem | 300,000 |
| Ayodeji | 250,000 |
| Olabisi | 220,000 |
| Adekunle | 180,000 |
(vii) One third of the distributable income is to be shared equally among the children.
Required:
a. Compute the net distributable income in the hands of the trustee. (13 Marks)
b. Compute the assessable income in the hands of each beneficiary. (7 Marks)
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Which of the following is NOT a consideration that influences the identification of badges of trade?
A. The subject matter of the realisation
B. The length of period of ownership
C. The frequency or number of similar transactions
D. The circumstances that were responsible for the realisation
E. The date of incorporation of the company
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Which court has exclusive jurisdiction on matters pertaining to the taxation of limited liability companies?
A. High Court of a State
B. High Court of the Federal Capital Territory
C. Federal High Court
D. Court of Appeal
E. Supreme Court
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Dome Ltd has 5,000,000 ordinary shares in issue and also had in issue in 2020:
The total earnings in 2020 were GH¢1,750,000. The rate of income tax is 35%.
Required:
In accordance with IAS 33: Earnings Per Share, calculate the basic and diluted earnings per share.
(4 marks)
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As the Head of Finance of SavvyTech plc, the Director of Finance and Operations has assigned you to use the forecast data (Table 8) and the “additional information” provided to calculate the following to support engagement by the management team with the Board.
Required:
Calculate the group profits to be realised from the sale of HVSC, if the transfer price for the component is set at its market price, which is GH¢26 per unit (total Ghana cost) plus 25% of Utopia’s unit cost.
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