- 15 Marks
Question
Takyi and Kuro commenced a retail business in Goaso, Ghana on 1 January 2020, under the partnership name Ntaafo LTD, sharing profits and losses equally. On 1 January 2023, Tawia was admitted as a new partner. Takyi, Kuro, and Tawia then shared profits and losses in the ratio of 3:2:1 respectively. The partnership prepares its accounts to 31 December annually.
The partnership’s profit and loss account for the year ended 31 December 2023 is as follows:
| Note | GH¢ | GH¢ |
|---|---|---|
| Gross Trading Profit | 4,365,000 | |
| Compensation | (1) | 50,000 |
| Total Revenue | 4,415,000 | |
| Less: Operating Expenses | ||
| Audit Fees | 25,000 | |
| Rent and Rates | (2) | 348,000 |
| Wages and Salaries | (3) | 1,410,000 |
| Interest on Capital | (4) | 205,000 |
| Contribution towards National Insurance Scheme | 111,000 | |
| Trade Debts Written Off (Bad Debts) | 92,000 | |
| Legal Fees | (5) | 43,000 |
| Entertainment | (6) | 270,000 |
| Motor Expenses | (7) | 87,000 |
| Repairs and Maintenance | (8) | 190,000 |
| Commission | (9) | 310,000 |
| Printing and Stationery | 82,000 | |
| Electricity and Telephone | 51,000 | |
| Depreciation | 123,000 | |
| Sundry Expenses | 270,000 | |
| Total Expenses | 3,617,000 | |
| Net Profit | 798,000 |
Notes:
-
Compensation:
- Compensation received from suppliers for delays in supplies: GH¢70,000
- Court fines paid to client for negligence: (GH¢20,000)
-
Rent and Rates:
- Rent for business premises: GH¢180,000
- Rent for Takyi’s private residence: GH¢156,000 (Disallowed)
- Business operating permit paid to Goaso Municipal Assembly: GH¢12,000
-
Wages and Salaries:
- Takyi: GH¢180,000
- Kuro: GH¢240,000
- Tawia: GH¢66,000
- Mrs. Takyi (staff): GH¢120,000
- Mrs. Tawia (staff): GH¢144,000
- Other staff: GH¢660,000
-
Interest on Capital:
- Takyi: GH¢30,000
- Kuro: GH¢40,000
- Tawia: GH¢10,000
- Bank interest: GH¢125,000
-
Legal Fees:
- Renewal of annual tenancy agreements: GH¢8,000
- Collection of trade debts: GH¢10,000
- Preparing contract documents (suppliers and contractors): GH¢5,000
- Preparing contract documents to acquire a new company: GH¢20,000 (Disallowed)
-
Entertainment:
- The entertainment expenses relate to the partners’ private enjoyment (Disallowed).
-
Motor Car Expenses:
- Petrol: GH¢52,000
- Repairs: GH¢30,000
- Fines for late renewal of vehicle license: GH¢5,000 (Disallowed)
-
Repairs and Maintenance:
- Replacement of bolts and nuts on Plant and Machinery: GH¢10,000
- Major expenditure on Landscaping and Renovation: GH¢180,000 (Capitalized)
-
Commission:
- Takyi (for introducing a new customer to the business): GH¢20,000 (Disallowed)
- Salesmen and Saleswomen: GH¢230,000
- Unidentified recipient: GH¢60,000 (Disallowed)
Other Information:
- Capital allowance agreed with the Ghana Revenue Authority (GRA) was GH¢234,000 for the 2023 year of assessment.
Required:
Compute the partnership’s chargeable income for the 2023 year of assessment.
Answer
Takyi, Kuro, and Tawia – Computation of Chargeable Income for 2023 Y/A
| Particulars | GH¢ |
|---|---|
| Net Profit per Account | 798,000 |
| Add: Disallowed Expenses | |
| Court fines | 20,000 |
| Rent for Takyi’s residence | 156,000 |
| Depreciation | 123,000 |
| Wages and salaries of partners | 486,000 |
| Interest on capital of partners | 80,000 |
| Legal fees for new company acquisition | 20,000 |
| Entertainment (Partners’ private enjoyment) | 270,000 |
| Sundry expenses | 270,000 |
| Motor expenses – fines | 5,000 |
| Repairs and maintenance (Landscaping and renovation) | 180,000 |
| Commission – Takyi | 20,000 |
| Commission – unidentified recipient | 60,000 |
| Total Disallowed Expenses | 1,690,000 |
| Adjusted Profit | 2,488,000 |
| Less: Capital Allowance | (234,000) |
| Chargeable Income | 2,254,000 |
- Topic: Business income - Corporate income tax
- Series: Nov 2024
- Uploader: Salamat Hamid