- 10 Marks
Question
Obiba JK Enterprise imports component parts from China and assembles them into various forms of office equipment. On 1 January 2016, component parts were imported with the following details:
| Item | Cost ($) |
|---|---|
| Cost of containers | 2,200 |
| Cost of packing for labor and materials | 550 |
| Cost of materials used in production | 15,600 |
| Cost of tools inserted in the components | 3,750 |
| Development and design costs | 630 |
| Royalties and licenses | 330 |
| Cost of labor and others in China | 7,400 |
| Shipping and transport to Tema Harbour | GH¢16,200 |
| Loading, unloading, and handling charges | GH¢5,400 |
| Cost of marine insurance | GH¢2,958.30 |
| Assembling overhead cost | GH¢23,400 |
| Fees for freight services to Tema Harbour | GH¢3,700 |
Additional Information:
- Trade discount of 2% on the cost of goods (not yet accounted for).
- Excise duty of $560 paid in China (included in the labor cost).
- Contingent discounts and rebates of 1% (already accounted for).
- Technical assistance of GH¢3,000 after the goods arrived at the factory.
- Average exchange rate was $1 = GH¢3.11.
- Import duty is 20%.
Required:
i) Compute the Cost, Insurance, and Freight (CIF), clearly showing workings of each component.
(9marks)
ii) Compute the VAT/NHIL. (1 mark)
Answer
i) Computation of Cost, Insurance, and Freight (CIF):
| Item | Amount (GH¢) |
|---|---|
| Cost of containers ($2,200 x GH¢3.11) | 6,842.00 |
| Cost of packing for labor and materials ($550 x GH¢3.11) | 1,710.50 |
| Cost of materials used in production ($15,600 x GH¢3.11) | 48,516.00 |
| Cost of tools inserted in the components ($3,750 x GH¢3.11) | 11,662.50 |
| Development and design costs ($630 x GH¢3.11) | 1,959.30 |
| Royalties and licenses ($330 x GH¢3.11) | 1,026.30 |
| Cost of labor and others in China ($7,400 x GH¢3.11) | 23,014.00 |
| Total | 94,730.60 |
Less:
- Trade discount (2% x 94,730.60) = (1,894.61)
- Excise duty in China ($560 x GH¢3.11) = (1,741.60)
Add: - Contingent discounts and rebates (1% x GH¢94,730.60) = 947.31
Net Cost: - GH¢92,041.70
| Cost Insurance and Freight (CIF) | Amount (GH¢) |
|---|---|
| Insurance | 2,958.30 |
| Cost + Insurance | 95,000.00 |
| Shipping and transport cost to Tema Harbour | 16,200.00 |
| Loading, unloading, and handling charges up to Tema Harbour | 5,400.00 |
| Freight services | 3,700.00 |
| Cost Insurance and Freight (CIF) | 120,300.00 |
ii) Computation of VAT/NHIL:
- Import duty (20% x GH¢120,300) = GH¢24,060
- VAT/NHIL (17.5% x (120,300 + 24,060)) = GH¢25,263
Import Duty = 0.5 marks
VAT/NHIL = 0.5 marks
- Tags: Cost Insurance and Freight (CIF), Import Duties, Tax computation, VAT/NHIL
- Level: Level 3
- Topic: International taxation
- Series: NOV 2017
- Uploader: Dotse