- 20 Marks
Question
Xornami Insurance Company Limited has been operating a general insurance business in Ghana since 1st January, 2016.
Below is an extract from the Trial Balance as at 31/12/18:
| Description | GH¢000 |
|---|---|
| Land (Leasehold) | 10,000 |
| Building (at cost) | 130,000 |
| Motor Vehicles (at cost) | 22,000 |
| Furniture & Fittings (at cost) | 4,500 |
| Interest received on loans | 19,500 |
| Interest on Investment | 4,450 |
| Stated Capital | 100,000 |
| Gross Premium received | 127,600 |
| Claims paid during the year | 11,960 |
| Income Tax paid | 2,250 |
| Commission paid to Agents | 6,172 |
| General Administrative Expenses | 40,650 |
| Reinsurance Premium paid | 13,250 |
| Reinsurance recoveries | 18,540 |
| Premiums returned to clients | 19,308 |
The following additional information are made available to you:
(i) The lease is over a period of 40 years.
(ii) The General Administration Expenses include GH¢15,400 and GH¢2,500 in respect of depreciation and the Lease respectively for the year.
(iii) The company’s reserve for unexpired risk for the year ended 31st December, 2017 was GH¢42,000.
(iv) Assume that the depreciation charged in the financial statements for the year is equal to the depreciation allowances applicable to the company.
(v) Corporate Tax Rate: 25%.
Required:
Compute the tax liability of the company for 2018 year of assessment.
Answer
Computation of Tax Liability for Xornami Insurance Company Limited for 2018
| Description | GH¢ | GH¢ |
|---|---|---|
| Gross Premium | 127,600 | |
| Less: | ||
| Premium Returned | 19,308 | |
| Re-insurance paid | 13,250 | |
| 32,558 | ||
| Net Premium | 95,042 | |
| Less: | ||
| Reserve for Unexpired risk for previous year | 42,000.00 | |
| Reserve for unexpired Risk @ (95,042 x 30%) | 28,512.60 | |
| 13,487.40 | ||
| 108,529.40 | ||
| Deduct Actual Losses: | ||
| Less: Reinsurance Recoveries | 18,540 | |
| Claims paid | 11,960 | |
| 6,580.00 | ||
| 115,109.40 | ||
| Less: | ||
| General and Administration Expenses | 40,650 | |
| Commission Paid to Agents | 6,172 | |
| 46,822.00 | ||
| 68,287.40 | ||
| Add: | ||
| Interest Received | 19,500 | |
| Interest on investment | 4,450 | |
| 23,950 | ||
| Chargeable Income | 92,237.4 | |
| Tax Charged @ 25% | GH¢ 23,059.35 |
- Tags: Insurance, Premiums, Reserves, Tax Liability
- Level: Level 2
- Topic: Sector-Specific Taxation
- Series: FEB 2020
- Uploader: Samuel Duah