AT – Mar 2025 – L3 – Q1 – Taxation of Companies

Compute allowable financial cost and company tax payable for Afraa LTD for 2024, including tax implications.

Question

a) Afraa LTD made a net profit before tax of GH₵1,100,000 for the year 2024.
The following were effected before arriving at the net profit before tax:

Depreciation: GH₵105,000.
Income tax paid (meant for last quarter of 2023): GH₵22,500.
Financial cost (from financial derivatives): GH₵350,000
Financial gain (from financial derivatives): GH₵105,000

Additional Information:
Capital allowance of GH₵180,000 and Donations to Osu Children’s home of GH₵30,000 which were agreed on with Ghana Revenue Authority are yet to be recognised in the financial statements.
Required:
Compute the allowable financial cost and the company tax payable for 2024. Explain any other tax implications.

b) Premier Insurance Company LTD located at Koforidua submitted the following accounts for the year ended 31 December 2024.

Note	GH₵
Gross premiums received	3,380,000
Premiums returned to insurers	118,500
Reinsurance premiums paid	126,000
Claims settled	1,185,000
Reinsurance claims recovered	24,000
Commissions to agents	271,200
General administrative expenses	881,900
Interest on Bank Deposits (Net)	418,000
Gross income from insurance consultancy services rendered	350,000
Dividends received (Net)	341,000
Reserves for unexpired risk at 31/12/2023	910,000

Notes:

Commissions to agents
| | GH₵ | |——————————–|————| | Casual commission agents | 250,000 | | Unnamed commission agents | 21,200 |
General administrative expenses
| | GH₵ | |——————————–|————| | Water and electricity | 69,200 | | Office wages and salaries | 414,560 | | Repairs to premises | 91,920 | | Motor expenses | 57,040 | | Depreciation | 56,800 | | Loss on sale of equipment | 20,640 | | Professional charges (Note iii) | 66,000 | | Sundry expenses (Note iv) | 103,840 | | Entertainment | 1,900 |

i) Repairs to premises

	GH₵
Construction of main gate and Landscaping	86,360
Minor office decoration	3,600
Re-plastering of damaged walls	1,960

ii) Motor expenses

	GH₵
Travelling expenses	7,200
Purchase of new vehicle engine	35,000
Fuel and lubricants	14,840

iii) Professional charges

	GH₵
Accounting and audit fees	23,200
Cost of obtaining new lease to build an office complex	42,800

iv) Sundry expenses

	GH₵
Penalty for late filling of tax returns	9,500
Donation to Ghana Education Trust Fund (confirmed by GRA)	8,000
Postage and courier services	7,200
Fines for vehicle wrong parking	1,300
Office cleaning	29,000
Business Operating Permit paid to Ada District Assembly	15,000
Printing and stationery	25,500
Telephone and communication/internet services	8,340

Other information:

Reserves for unexpired risk is calculated at 45% of net insurance premium.
Capital allowance for the year has been agreed at GH₵65,400 after consideration of all available information in the tax returns.
Required:
Determine the chargeable income of Premier Insurance Company LTD.
(9 marks)

c) Practice notes are issued by the Commissioner-General of the Ghana Revenue Authority (GRA), by publishing a notice in the Gazette or on their website or in at least two daily newspapers of national circulation.

Required:

As a tax finalist working with Kato Chartered Accountants, explain to your study partner FOUR purposes of issuing practice notes.

Answer

(a). Computation of Allowable Financial Cost and Company Tax Payable for Afraa LTD for 2024

Description	GH₵	GH₵
Net profit before tax		1,100,000
Add back:
Depreciation	105,000
Income tax	22,500	127,500
Subtotal		1,227,500
Less:
Donations	30,000
Capital Allowance	180,000	(210,000)
Subtotal		1,017,500
Add: Financial cost	350,000
Less: Financial gain	(105,000)
Chargeable income without financial cost & gain		1,262,500
Allowable financial cost calculation:
Financial gain	105,000
50% × 1,262,500	631,250	736,250
Computation of tax payable:
Chargeable income	1,262,500
Less: Allowable financial cost	(350,000)
Add: Financial gain	105,000
Taxable income		1,017,500
Tax payable (25% × GH₵1,017,500)		254,375

(b).

Premier Insurance Company LTD
Computation of chargeable income
Y/A 2023
Basis Period Jan – Dec 2023

	GH₵
Gross Premium Received	3,380,000
less: Premium returned	118,500
Re-insurance	126,000	244,500
		3,135,500
Reserves for unexpired risk:
Balance b/d	910,000
Balance c/d 45% × 3135500	(1,410,975)	(500,975)
		2,634,525
Less:
Claims paid	1,185,000
Less recoveries	24,000	1,161,000
		1,473,525
Less: Administrative Exp
Water and Electricity	69,200
Office Wages and Salaries	414,560
Repairs – Minor Office Deco	3,600
Replastering	1,960
Motor Exp – Traveling	7,200
Fuel and Lubricant	14,840
Professional Charges – Accounting and aud	23,200
Sundry Exp
Donation	8,000
Postage	7,200
Office Cleaning	29,000
Business Permit	15,000
Printing and Stationery	25,500
Telephone	8,340
Commission to Agents
Unnamed Agent	250,000
	21,200
Capital Allowance	65,400	964,200
		509,325
Other Income
Consultancy service	350,000
Investment Income – Bank Deposit	454,347.83

(c). Purposes of Practice Notes

The purpose of a Practice Note is to give clarity and provide guidance to officers of the Ghana Revenue Authority, Tax Practitioners, Consultants, Taxpayers and the General Public on the provisions under the tax laws.

They are also issued to:

i) Ensure uniformity or consistency in the administration of the tax laws;

ii) Provide guidance to officers and persons affected by the Act;

iii) Enable taxpayers to know the tax consequences of their (business) transactions; and

iv) Announce procedures to guide individuals in dealing with the tax laws. E.g. conditions for the qualifying for an exemption from WHT.

(4 points @ 1.25 marks each = 5 marks)

Tags: Ghana Revenue Authority, Practice notes, Tax Administration
Level: Level 3

Topic: Tax Administration and Dispute Resolution
Series: MAR 2025

Uploader: Samuel Duah