- 20 Marks
Question
Question:
Nkrabea Insurance Company Limited commenced operating in Ghana on 1st January, 2016.
Below is an extract from the Trial Balance as at 31/12/16.
GH¢000
Building (at cost) 1,950
Motor Vehicle (at cost) 630
F & F (at cost) 420
Interest received on loans 183
Interest in Investment 225
Stated Capital 3,600
Gross Premium received 2,760
Claims paid during the year 960
Income Tax paid 210
Commission to Agent 72
General Administrative Expenses 1,050
Reinsurance Premium paid 162
Reinsurance recoveries 540
Premiums returned to clients 57
Notes:
(i) Reserve is calculated at 40% of Net Premium Income
(ii) Assets were acquired on 1st January, 2016
(iii) The General Administration Expenses include GH¢600,000 in respect of depreciation charged for the year.
(iv) The applicable, rates for capital allowance are as follows:
Pool 1 40%
Pool 2 30%
Pool 3 20%
Pool 4 10%
Required:
Compute the tax liability of the company for 2016 year of assessment.
Corporate Tax Rate: 25%
Answer
NKRABEA INSURANCE COMPANY LIMITED
COMPUTATION OF TAX LIABILITY
2016 YEAR OF ASSESSMENT
GH¢000 GH¢000
Gross Premium Received 2,760
Less:
Returns 57
Reinsurance Premium Paid 162
219
Net Premium Received 2,541
Deduct:
Reserves (40% of 2,541) 1,017.4
Add: Claims Paid 960
Less: Reinsurance Recoveries (540)
Commission Paid (72) 1,364.40
Profit from Operations 1,176.60
Less: General Administration Expenses 1,050.00
Net Profit 126.60
Add: Other Incomes
Interest Received on Loans 183
Interest on Investment 225
408.00
Net Profit 534.60
NKRABEA INSURANCE COMPANY LIMITED
COMPUTATION OF TAX LIABILITY
FOR THE YEAR 2016 YEAR OF ASSESSMENT
GH¢000 GH¢000
Net Profit 534.60
Add Back: Depreciation 600.00
Adjusted Profit 1,134.60
Less: Capital Allowance 310.50
Chargeable Income 833.10
Tax Charged 25% 208.28
Computation of Capital Allowance
| Pool 2 | Pool 3 | Pool 4 | Total | |
|---|---|---|---|---|
| 30% | 20% | 10% | ||
| GH¢000 | GH¢000 | GH¢000 | GH¢000 | |
| Motor Vehicle | Furniture & Fittings | Building | ||
| Cost | 75 | 420 | 1,950 | 2,445.00 |
| C/A | 22.5 | 84 | 195 | 301.50 |
| WDV | 52.50 | 336.00 | 1,755 | 2,143.50 |
Alternative Solution
Candidates who treated the Motor Vehicle as Motor Vehicles
Net Profit 534.60
Add Back: Depreciation 600.00
Adjusted Profit 1,134.60
Less: Capital Allowance 468.00
Chargeable Income 666.60
Tax Charged 25% 166.65
| Pool 2 | Pool 3 | Pool 4 | Total | |
|---|---|---|---|---|
| 30% | 20% | 10% | ||
| GH¢000 | GH¢000 | GH¢000 | GH¢000 | |
| Motor Vehicles | Furniture & Fittings | Building | ||
| Cost | 630 | 420 | 1,950 | 2,445.00 |
| C/A | 189 | 84 | 195 | 468.00 |
| WDV | 441 | 336 | 1,755 | 2,532.00 |
- Topic: Sector-Specific Taxation
- Series: AUG 2017
- Uploader: Samuel Duah