Question Tag: Taxation

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  • 5 Marks

AT – Nov 2024 – L3 – Q3c – Automatic Stabilizers vs Discretionary Fiscal Policies

Explain the difference between automatic stabilizers and discretionary fiscal policies with examples.

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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  • 10 Marks

PT – Nov 2024 – L2 – Q1a – Monetary vs Fiscal Policy and Tools

Comparison of monetary and fiscal policy and identification of key monetary policy tools used in Ghana.

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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  • 10 Marks

MA – Nov 2024 – L2 – Q1a – Transfer Pricing

Explanation of three reasons why Kako PLC determines transfer pricing centrally.

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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  • 20 Marks

FM – Nov 2016 – L3 – SB – Q4 – Investment Appraisal Techniques

Evaluate Gugi Plc.'s proposed investment in a foreign factory, considering costs, revenues, tax, and exchange rate impacts.

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:

  • Annual production and sales in units: 110,000
  • Unit selling price: F$5,000
  • Unit variable cost: F$2,000
  • Unit royalty payable to Gugi Plc: ₦300
  • Incremental annual cash fixed costs: F$50million

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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  • 20 Marks

CR – May 2016 – L3 – Q3 – Income Taxes (IAS 12)

Discuss and account for deferred taxation arising from temporary differences using IAS 12 for Limelight Plc.

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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  • 15 Marks

AT – Nov 2017 – L3 – Q7 – Tax Implications of Mergers and Acquisitions

Advise on tax implications for Aba Foods merger/acquisition options with Ifedi Foods.

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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  • 20 Marks

PSAF – May 2022 – L2 – SA – Q3 – Government Revenue

Identify the powers and functions of state boards of internal revenue and other agencies in revenue generation.

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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  • 4 Marks

TAX – May 2021 – L1 – SB – Q2b – Tax Administration and Enforcement

Discussion of the tax complexities arising from e-commerce and e-business.

“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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  • 20 Marks

TAX – May 2021 – L1 – SB – Q1 – Taxation of Trusts and Estates

Calculation of net distributable income of a trust and assessable income of beneficiaries.

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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  • 1 Marks

TAX – May 2021 – L1 – SA – Q19 – Tax Administration and Enforcement

Objective question on the basis of assessment for an existing business.

For an existing business, the basis of assessment is:
A. Continuity basis
B. Accrual basis
C. Preceding year basis
D. Actual basis
E. Succeeding year basis

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  • 6 Marks

PT – April 2022 – L2 – Q3a – Income Tax Liabilities

Explain the tax treatment for overtime allowance and bonus payments in Ghana.

a) Explain the tax treatment for Overtime Allowance Payment and Bonus Payment.
(6 marks)

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  • 5 Marks

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

Define "Supply of Goods" and "Supply of Services" as per the VAT Act.

There is imposed by the Value Added Tax Act, 2013 (Act 870) a tax to be known as the value added tax, which is to be charged on:
(a) The supply of goods or services made in the country other than exempt goods or services; and
(b) The import of goods or services other than exempt import.

Required:
i) What constitutes “Supply of Goods”?
ii) What constitutes “Supply of Services”?

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  • 5 Marks

PT – Nov 2019 – L2 – Q5d – Pension and Retirement Benefits

Briefly explain the 3-Tier Ghana National Pension Scheme Mechanism.

Explain briefly the 3-Tier Ghana National Pension Scheme Mechanism.
(5 marks)

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  • 5 Marks

PT – Nov2019 – L2 – Q5c – Income Tax Liabilities

This question asks to determine any tax payable and comment on the relevant tax implications of gifts received by Madam Okailey.

Madam Okailey Armah, a prominent market queen and Philanthropist, was nominated Asafouakye of Namoale Traditional Area in Accra in January 2018. At her out-dooring in August 2018 as Naa Okailey Tsofatse II, she sat in state and received homage and gifts from her people, friends, and business associates. The following were the quantifiable gifts she received:
GH¢
Market Queens Association 1,000
Commercial Bank (Pick-Up) 5,000
Namoale Traditional Council 500
Father-in-Law 500
Anonymous admirer
1,000
A week after her out-dooring,
she made the following donations:
Osu Children’s Home Pick-Up Vehicle
GH¢
Children’s Hospital (Accra) 1,000
Weija Leprosarium 500
Children’s Ward Korle Bu (Assorted Biscuits) 200
Thanksgiving Offering (Freeman Memorial Church, Bukom) 200

Determine any tax payable and briefly comment on the relevant tax implications.
(5 marks)

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  • 7 Marks

PT – May 2020 – L2 – Q3c – Income Tax Liabilities

Tax rules governing overtime and bonus payments under employment income.

c) What are the taxation rules for overtime payments and bonus payments under employment income?
(7 marks)

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  • 6 Marks

FR – May 2017 – L2 – Q2c – Financial Reporting Standards and Their Applications

Explain deferred tax, identify reasons for deferred tax increase, and explain overprovision in the income statement.

The draft financial statements for the year ended 31 March 2015 for Kobby Ltd include the following:

Required:
i) Explain how deferred tax arises.
(2 marks)

ii) Identify the most likely reason for the increase of GH¢200,000 in the deferred tax provision for the year to 31 March 2015.
(2 marks)

iii) Explain what the over provision of GH¢50,000 in the income statement represents.
(2 marks)

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  • 5 Marks

PT – March 2023 – L2 – Q5d – Taxation of Capital Gains

Explain the transfer of an asset for no consideration under Section 45 of the Income Tax Act, 2015 (Act 896).

Explain the transfer of asset for no consideration under section 45 of the Income Tax Act, 2015 (Act 896).

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  • 5 Marks

PT – March 2023 – L2 – Q5c – Taxation of Capital Gains

Explain what constitutes the realization of capital assets.

What constitutes the realization of capital assets?

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  • 5 Marks

PT – Dec 2023 – L2 – Q1b – Overview of the Ghanaian Tax System and Fiscal Policy

Explanation of five economic roles that taxation plays in a country's development.

Taxation is a mechanism through which the government seeks to realize some of its economic objectives. It is one of the oldest means by which the government expenditure is funded. Taxation plays a central and significant role in developing countries over the world.

Required:
Explain FIVE (5) economic roles of taxation. (5 marks)

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  • 5 Marks

PT – Nov 2020 – L2 – Q5a – Taxation of Capital Gains

Compute capital gains tax payable on the sale of properties.

Abena Morgan acquired two mansions (one at East Legon, Accra, and the other at Kwadaso, Kumasi) on 1 January 2010 at the cost of GH¢2,000,000 and GH¢11,500,000 respectively. Abena Morgan lives in the property at East Legon. On 10 March 2019, she used GH¢2,500,000 to convert part of this dwelling house into a self-contained flat and sold it to her younger brother for GH¢3,300,000.
The property at Kwadaso in Kumasi consists of two (2) detached bungalows, and she sold one of the bungalows to her elder sister for GH¢6,300,000, also on 10 March 2019.
The market value of the apartment sold to her younger brother at the time of sale was GH¢4,000,000, while the market price of the bungalow sold to her elder sister was GH¢8,750,000. She had used GH¢1,950,000 to refurnish the bungalow that was sold to her sister. The market price of the unsold bungalow on 10 March 2019 was GH¢11,000,000.

Required:
Compute the capital gains tax payable by Abena Morgan. (5 marks)

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