Topic: Business income - Corporate income tax

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AT – Nov 2024 – L3 – Q5b – Tax Implications of Foreign Acquisition

Evaluate the tax implications of a 70% equity acquisition by a foreign company and the proposed funding option

Question

Baimbil LTD, based in Australia, has decided to acquire a company in Ghana instead of starting a new one.

The shareholders of Borketey LTD, a resident company in Ghana, have decided to sell the company due to cash flow challenges. As a result, Baimbil LTD approached the management of Borketey LTD and engaged a consultancy firm to perform due diligence checks. Following this, Baimbil LTD acquired 70% of the equity of Borketey LTD.

Below is an extract from the books of Borketey LTD for the 2023 year of assessment:

Description	Amount (GH¢)
Share Capital	1,000,000
Retained Earnings	(500,000)
Shared Deals	50,000
Bad Debts (Sold to MN LTD, now bankrupt)	1,000,000

Proposed Financing by Baimbil LTD:

The following proposals have been tabled for consideration after the acquisition:

Baimbil LTD to provide GH¢100 million as debt with 2% interest above the market rate.
Baimbil LTD to provide GH¢100 million as additional equity capital.
Baimbil LTD to provide collateral for a bank facility of GH¢100 million in Ghana.

Required:

(i) Evaluate the tax implications of the 70% equity acquisition.

(ii) Evaluate the tax implications of the three proposed financing options.

Answer

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Tags: Capital Allowance, Corporate Restructuring, Equity Acquisition, Foreign Investment, Thin Capitalization, Withholding Tax
Level: Level 3

Topic: Business income - Corporate income tax
Series: Nov 2024

AT – Nov 2024 – L3 – Q1a – Computation of Partnership Chargeable Income

Compute the partnership's chargeable income for the 2023 year of assessment.

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

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Tags: Adjusted Profit Computation, Capital Allowance, chargeable income, Disallowed Expenses, Partnership Taxation, Tax adjustments
Level: Level 3

Topic: Business income - Corporate income tax
Series: Nov 2024

AT – Nov 2018 – L3 – Q5b – Business income – Corporate income tax

Computation of taxes payable by a mining support services company, including adjustments for dividends, tax losses, and investment deductions.

Question

Manla Ltd, since its incorporation, has been providing Mining Support Services (MSS) in line with its mandate, and the following is relevant to its operations for the 2017 year of assessment:

Details	GH¢
Chargeable income	240,000,000
Loss from investment deducted in arriving at the chargeable income	700,000
Dividend (gross) received from A Ltd (a mining company) where Manla Ltd has 26% voting power	20,000
Provision for bad debts written off	400,000
Tax loss from 2014 deducted	20,000
Net dividend received from a US-based company after 5% withholding tax	9,500
Items worth GH¢ 60,000 granted to a powerful shareholder were adjusted in arriving at chargeable income	60,000

(Note: Manla Ltd has a basis period from January to December.)

Required:
i) Compute the taxes payable by Manla Ltd. (6 marks)
ii) Comment on the treatment of the investment loss of GH¢700,000. (2 marks)

Answer

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Tags: chargeable income, Dividend tax, Mining Support Services, Tax computation, Tax Losses
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2018

AT – Nov 2018 – L3 – Q3b – Business Income, Corporate Income Tax

Analysis of tax payable for a company planning to operate in a regional capital vs. a district capital based on projected financial performance.

Question

The following information is an extract of projected financial performance of YZ Ltd, a manufacturing company that intends to go into operation with a basis period from January to December. Management is contemplating operating in either Kumasi or Konongo, but the results are expected to be the same irrespective of the location. The following projected results from January to December Year 1 are worth analyzing:

	Kumasi (Regional Capital)	Konongo (District Capital)
Revenue	GH¢ 3,000,000	GH¢ 3,000,000
Cost	GH¢ 1,200,000	GH¢ 1,200,000
Gross Profit	GH¢ 1,800,000	GH¢ 1,800,000
Expenses	GH¢ 1,000,000	GH¢ 1,000,000
Net Profit	GH¢ 800,000	GH¢ 800,000

The following additional information is relevant:
A building to be bought on 1 March Year 1 for GH¢400,000 has been granted full year’s depreciation at the rate of 20%, and the same has been added to the projected cost above.

Required:
i) Compute the projected tax payable based on the information above and recommend where management is likely to site the entity and why.
ii) What other TWO (2) factors, apart from what has been identified in (i) above, may dictate siting a manufacturing business in a regional capital?

Answer

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Tags: Capital Allowance, District Capital, Regional Capital, Tax computation, Tax Decision
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2018

AT – NOV 2018 – L3 – Q2C – Business income – Corporate income tax, Tax administration in Ghana

Calculate taxable income and tax payable for an individual with multiple income sources, and identify tax compliance issues for a private practice.

Question

c) Kate Oppong, a physically challenged, works for the Ministry of Health as an eye surgeon and optician based at Komfo Anokye Teaching hospital in Kumasi. She dedicates most of her free time to her private practice, as well as writing books and articles for the Ghana Medical Journal. Kate is also part of the medical team for the local NGO and Sight Restoration, which is involved in cataract surgery for the disadvantaged members of society in remote rural areas.

Kate’s private practice is located in Kumasi and has a staff complement of six employees who are all full time workers. Kate only attends to the patients at her private practice strictly by appointment and her patient base has been steadily growing due to her experience and dedication.

In terms of her service contract with Sight Restoration, Kate is required to participate in all the cataract operations scheduled for the year. Her service contract is for a year, subject to renewal as and when donor support is available.Sight Restoration’s field staff, of which Kate is one, are paid a predetermined monthly salary plus an attendance allowance which is paid only after each cataract operation. The field staff is also entitled to a one-off representation allowance for participating in scheduled seminars.

Kate Oppong’s earnings and deductions for the year ended 31 December 2017 were:

Notes:

This amount is part repayment of the interest free personal loan of GH¢12,000 advanced to Kate on 1 January, 2017, repayable over two years. The Bank of Ghana interest rate for the year ended 31 December 2017 was constant at 20%.
This amount was fully expended towards the travelling costs for Kate and her minor son for his medical treatment in South Africa.
No employees tax (PAYE) or corporate income tax was paid in respect of the amounts paid to the employees of the private practice (including Kate) or the profits from the practice. This was because in Kate’s opinion her operations were ‘private’ and as such not subject to tax and also because she believed that she was already contributing her fair tax share from her other two employers.
Kate is a single parent and takes care of her single son in the senior high school. She also takes full responsibility of her aged mother.

Required:

i) State the Ghana Revenue Authority’s (GRA) requirements which have been breached by Kate Oppong and consequences of the breach based on the information given in note (3). (5 marks)

ii) Calculate the taxable income of and income tax payable by Kate Oppong for the year ended 31 December 2017. Note: All computations should be rounded to a whole cedi. (9 marks)

Answer

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Tags: Benefits in kind, Corporate Tax, Employment Income, NGO income, PAYE, Personal income tax, Private practice income, Tax Compliance
Level: Level 3

Topic: Business income - Corporate income tax, Tax administration in Ghana
Series: NOV 2018

TX – May 2019 – L3 – Q3A – Capital Gains Tax

Compute the tax on capital gains from a property sale and explain the concept of realisation of capital assets.

Question

a)
i) Anthony purchased a house in Koforidua at a cost of GH¢480,000 in the year 2011. In 2011, he spent GH¢24,000 to repair and renovate the house. In March 2018, he spent extra GH¢18,000 on renovation with the intention to sell the house. Anthony engaged a Valuer in June 2018, to value the building and the Valuer charged GH¢5,400.

In July 2018, he placed an advert on ‘Zuria FM’ for the sale of the building and paid GH¢1,800. During the same period, he sold the house through an agent for GH¢660,000 to Kwame Burger and the agent’s commission was 3% of the sale value. Anthony also paid GH¢1,500 for stamp duty and legal permit for conveyance of the building to Kwame Burger.

Required: i) Compute any tax payable. (4 marks)

ii) What constitutes realisation of capital assets? (2 marks)
i) Compute any tax payable. (4 marks)
ii) What constitutes realisation of capital assets? (2 marks)

Answer

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Tags: Capital Gains, Property Sale, Realisation of Assets, Tax computation, Taxation Act
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2019

TX – May 2019 – L3 – Q5c – Business Income – Corporate Income Tax

Evaluate the statement regarding offsetting losses from export of non-traditional products against profits from local sales.

Question

A company engages in exports of non-traditional products and makes local sales of its products. It has as recently, as of 2018, recorded huge losses on the exports but makes gains on the local sales and intends to offset the loss against the profit from the local sales as both represent its business activities.

Required: Evaluate the above statement critically in light of the tax provisions and its effect, if any, on revenue.
(4 marks)

Answer

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Tags: Business income, Export, Local sales, Losses, Non-Traditional Products, Revenue
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2019

TF – May 2018 – L3 – Q2a – Capital Allowance

Calculate the capital allowances and chargeable income of Sekyiwaa Annam Industries Ltd for the year 2017.

Question

Sekyiwaa Annam Industries Limited manufactures personal hygiene soaps and related products at their factory in Takoradi. The company commenced business operations on 1 April 2016 and had an assessed loss of GH¢150,200 for the period ended 31 December 2016.

The company recorded a net profit of GH¢762,800 for the year ended 31 December 2017 after taking into account the following transactions in the income statement:

Gross rental income of GH¢180,000 received from the leasing of one wing of the office building. The rental income portion constitutes 10% of the office building.
Net interest received on bank deposits from Ghana Commercial Bank of GH¢10,028. Withholding tax of 8% has been deducted.
The registration of Trademarks at a total cost of GH¢75,000 in respect of the Company’s personal hygiene soaps that is to last for 10 years. The research and development expenses incurred in connection with these soaps amounted to GH¢15,000 and the company intends to expense it. The legal costs incurred to complete the registration of the Trademark was GH¢5,000.
A donation of GH¢120,000 worth of furniture was made to a local government-assisted school as part of the Company’s corporate social responsibility program, which was duly acknowledged by Ghana Education Service (GES).
Depreciation of fixed assets of GH¢57,000.
Replacement of two motor vehicle engines costing GH¢51,000.
Exceptional costs amounting to GH¢150,000 as a result of the production manager sustaining an injury while working on one of the production lines in the factory. GH¢35,000 of the costs relate to a payment made to the production manager as severance pay. GH¢110,000 was used to acquire additional computers. The remaining GH¢5,000 of the costs represent fines imposed by the Factory Inspectorate Department of the government following the incident.
Purchases of a Computer Server for accounting and human resource needs at a cost of GH¢20,000.
Additional Information:
Details of the Company’s other fixed assets, at cost, are provided below. These were all acquired/constructed during the year to 31 December 2016:

Asset Cost (GH¢)
Factory Building 800,000
Plant and Machinery 510,000
Office Building 420,000
Furniture and Office Equipment 60,000
Motor vehicles (Goods Vans) 130,000
Computers 30,000

Required:
i) Calculate the capital allowances claimable by Sekyiwaa Annam Industries Limited for the year ended 31 December 2017 using all the available information.
(8 marks)

ii) Calculate the chargeable income of Sekyiwaa Annam Industries Limited for the year ended 31 December 2017 and the tax payable.
(6 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax, Capital allowance
Series: MAY 2018

TF – May 2018 – L3 – Q5b – Minerals and mining

Computation of corporate tax payable for AB Ltd in the mining sector.

Question

AB Ltd is a mining company operating at Kyebi in the Eastern Region. The following data is relevant for the last quarter of 2017 year of assessment:

The following additional information is relevant:
i) Royalty has not been computed and paid on the above yet.
ii) Depreciation of an amount of GH¢1,000,000 was part of the cost of operation above.
iii) Proceeds from sale of depreciable assets amounting to GH¢500,000 were added to
revenue above.
iv) Capital allowance agreed with the Mining Unit of Ghana Revenue Authority was agreed
to be GH¢800,000.
Required:
Compute the taxes payable by AB Ltd to Ghana Revenue Authority and comment on any
TWO items as to why you allowed or disallowed it in the tax computation. (5 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2018

AT – April 2022 – L3 – Q4 – Capital allowance | Business income – Corporate income tax

Calculate capital allowance and chargeable income for Joefel Company Ltd. Explain sources of revenue from upstream petroleum operations in Ghana.

Question

a) Joefel Company Ltd, manufacturer of fruit juice for local consumption commenced business on 1 October 2019, with accounting year-end at 31 December each year. The company submitted its accounts for 2019 and was assessed accordingly. The company submitted its tax returns for 2020 year of assessment to the Ghana Revenue Authority on 30 April 2021. Below are the details:

Additional information:
1) Advert and publicity
Radio and television 3,300
Newspaper advert 2,400
Permanent signboard at the company’s entrance in 2020 18,000

2) Installation of plant and others
Installation of plant 21,500
Heavy duty Generator bought in 2019 to support Plant and Machinery 20,500
General maintenance before the use of the plant 18,000

3) Staff Welfare
Staff medical bills 3,700
Safety wear for staff 10,500
Canteen Equipment purchased on 30 November 2020 12,000

4) Donation and Subscription
Goods given as gratis to customs officials 13,000
Donation of goods to SOS Children Village 10,000
Subscription to Association of Ghana Industries 5,000

5) Wages and Salaries
Old staff 120,000
Fresh graduates employed by Joefel Company Ltd. (Fresh graduates
constitute 1% of total workforce) 26,000

6) Other Income
Compensation from a customer for cancellation of a sale order 8,000
Compensation for loss of trading stock of the company 10,000
Compensation for cancellation of purchase order by supplier 5,000

Note 2) above has not been included in the plant and machinery acquired.

Required:

a
i) Compute the appropriate capital allowance for 2019 and 2020 years of assessment.
(8 marks)
ii) Calculate the chargeable income of the company for the 2020 year of assessment.
(6 marks)
b) Explain of the following sources of revenue accruing to the Government of Ghana from the upstream petroleum operations in Ghana:
i) Royalty.
ii) Carried Interest.
iii) Additional Interest.
iv) Additional Oil Entitlement.
(6 marks)

Answer

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Tags: Additional Interest, Additional Oil Entitlement, Capital Allowance, Carried Interest, chargeable income, Petroleum Operations, Royalty
Level: Level 3

Topic: Business income - Corporate income tax, Capital allowance
Series: APR 2022

AT – Nov 2015 – L3 – Q1c – Business income – Corporate income tax

Treatment of shares issued to employees by the parent company for tax purposes.

Question

Staff of ABC Bank Ghana Limited have been issued shares by ABC Bank Limited – United Kingdom (the Parent company). The shares have been vested and are available to be sold immediately by the beneficiary staff.

Requirement:
With the support of the provisions of the relevant tax laws, how will the above be treated for tax purposes, if any?

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2015

AT – Nov 2017 – L3 – Q3a – Business income – Corporate income tax, Tax planning

Evaluating the tax implications of an ICT hardware manufacturing business versus a mango plantation investment.

Question

Following the government’s commitment to build one factory in each district in Ghana, an investor from Mauritius intends to invest in an ICT-Hardware manufacturing company to be located at Nsawam in the Eastern region of Ghana or start a mango plantation company at Aburi in the Eastern region of Ghana in response to the government’s investment drive.

As part of the investment, he intends to incur the following costs and start operations in 2018 on either proposal (ICT Hardware or Mango plantation):

Item	Cost (GH¢)
Building	4,000,000
Plant and Machinery	6,500,000
Furniture and Fittings	100,000
Computers	100,000

Additionally, he intends to recruit fresh graduates from the Islamic University College of Ghana. It is further projected that in the first 3 years (2018, 2019, and 2020), the business will make losses as follows:

Year 2018: (GH¢20,000)
Year 2019: (GH¢18,000)
Year 2020: (GH¢10,000)

The investor hopes to start making profits from 2021 and intends to borrow a loan at 20% interest from his USA associate, amounting to the equivalent of GH¢80,000,000. The equity he intends to start with is GH¢20,000,000.

Required:
As a tax adviser, evaluate the proposed investment by the Mauritius investor and the tax implication on the various activities highlighted in the scenario.

(10 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax, Tax planning
Series: NOV 2017

AT – Nov 2015 – L3 – Q1b – Business income – Corporate income tax

Circumstances under which shares are not considered chargeable assets for capital gains tax purposes.

Question

Shares of a resident company are classified as chargeable assets under capital gains tax. Under what circumstances will shares not be described as chargeable assets under capital gains tax provision?

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2015

AT – Nov 2017 – L3 – Q2a – Business income – Corporate income tax

Calculating the assessable income and tax payable of Mr. Osei Bobie for the year 2016.

Question

Mr. Osei Bobie, an amputee, was the Senior Accountant of Soroku Mine Company Limited (a mining company) for many years with a basic salary of GH¢54,000 per annum. He was entitled to a company vehicle, fuel, and driver.

He acted for the Director of Finance in March, April, and May 2016, during which month his salary was raised to GH¢5,000 per month.

Mr. Osei Bobie was housed in the company lavishly furnished accommodation on the mine.

He was also entitled to the following monthly allowances:

Professional allowance GH¢400
Responsibility allowance GH¢500

Mr. Osei Bobie resigned from Soroku Mine Limited on 30 June 2016. He received the following on his resignation:

He was allowed to take home the company’s pick-up he was using valued at GH¢5,000.
Cash gifts from staff GH¢6,100.

On 1 August 2016, he took up an appointment as Accounts Manager of Phinex Limited (a retailing company) on a salary of GH¢72,000 per annum. His other entitlements were agreed as follows:

Responsibility Allowance – GH¢150 per month
Cost of Living Allowance – GH¢200 per month
Risk Allowance – GH¢100 per month
Overtime Pay – GH¢250 per month
Bonus – GH¢1,500 in each December
Vehicle and fuel
Accommodation only

Mr. Osei Bobie finances the following insurance policies and also contributes to the Social Security and National Insurance Trust (SSNIT):

Insured	Premium	Sum Assured
Mrs. Gameli (sister)	GH¢500	GH¢4,000
Mr. Osei Bobie	GH¢3,600	GH¢35,000

Mr. Osei Bobie is not married, but he is responsible for his three children, who are all attending registered Senior High Schools. Mr. Osei Bobie supports his 72-year-old grandmother with GH¢300 per month despite her immense wealth. His grandmother depends entirely on him.

Required:
a) Compute the assessable income and tax payable of Mr. Osei Bobie for the year 2016. (17 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2017

AT – May 2017 – L3 – Q5b – Business income – Corporate income tax

Calculate the royalty payable and compute the corporate tax payable by a mining company based on provided financial data.

Question

b) AB Ltd is a mining company and has the following set of data relating to the 2016 year of assessment:

Item	Amount (GH¢)
Revenue	5,000,000
Cost of operation	3,000,000
Chargeable income	2,000,000

From the above, the following came to light:

Capital allowance of GH¢500,000 was added to the cost.
Penalty of GH¢100,000 was imposed by the Minerals Commission for failure to follow standard operating guidelines.
Loss from operation amounting to GH¢50,000 recorded in 2010 was added to the cost above.
According to the accountant, the company is entitled to carryover its losses.

Required:

i) Calculate the Royalty payable, if any. (2.5 marks)

ii) Compute the corporate tax payable by AB Ltd. (2.5 marks)
(Total: 5 marks)

Answer

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Tags: Capital Allowance, Corporate Tax, Mining, Royalty, Tax computations
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2017

AT – May 2017 – L3 – Q5a – Business income – Corporate income tax

Submit a paper explaining the tax provisions on repairs and improvements and the conditions under which capital allowance may be granted.

Question

a) You have recently been employed to join Kwame Adom Consult as a tax professional. Your partner has tasked you to present a paper on the circumstances under which “Repairs and Improvement” under Act 896 (Act 2015) are capitalised and capital allowance granted.

Required:
Submit a seasoned paper on the tax provision on “Repairs and Improvement” and the conditions under which capital allowance may be granted.
(10 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2017

AT – May 2017 – L3 – Q4c – Business income – Corporate income tax

Calculate the capital allowance for the year 2016 after the exchange of assets, and discuss the treatment of goodwill.

Question

c) Sakote Ltd, a trading company, has the following extracts from its financial records:

It bought a 4 X 4 Vehicle for an amount of GH¢225,000.00 in the year 2015. The cost of the vehicle was limited to an amount of GH¢75,000 for capital allowance purposes in the year 2015.
It also put up a building at a cost of GH¢150,000.00 in the same year. The cost of the land was GH¢20,000 and GH¢130,000 was the cost of the building.
The Company accordingly informed the Commissioner-General about putting the assets into use and in the generation of its income in 2015 year of assessment.
In the year 2016, it exchanged the vehicle for 4 plots of land. The value of the plots of land agreed with the landowners was GH¢220,000. The exchange was deemed satisfactory to both parties, and documentations were carried through.

Required:

i) Calculate the amount of capital allowance claimable for 2016 year of assessment by Sakote Ltd. (7 marks)
ii) Sakote Ltd paid for Goodwill amounting to GH¢10,000 in 2016 and intends to grant capital allowance on the value of the goodwill. Explain whether or not this arrangement is in accordance with the tax laws. (3 marks)
(Total: 10 marks)

Answer

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Tags: Asset exchange, Capital Allowance, Corporate Income, Depreciable assets, Tax implications
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2017

AT – May 2017 – L3 – Q4b – Business income – Corporate income tax

Explain the VAT implications on the sale of an asset after failing to claim VAT on its importation.

Question

b) Bossman Ltd acquired assets for GH¢10,000 from outside Ghana but failed to claim Value Added Tax (VAT) on imports of the assets in accordance with the Value Added Tax provisions and later sold the assets for GH¢12,000.

Required:
What is the tax implication of the transaction (if any) in the light of the provisions of the VAT Act 2013 (Act 870)?
(5 marks)

Answer

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Tags: Asset sale, Input Tax, Output Tax, Tax implications, VAT, VAT Act 2013
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2017

AT – May 2017 – L3 – Q4a – Business income – Corporate income tax

Provide tax advice on the sale of a vehicle, considering previous denial of input VAT claims, and explain the implications of the transaction.

Question

a) Eddie Enterprise Ltd imported a vehicle for GH¢30,000 and was denied the claim of input tax (VAT) on the imports in 2014 on the vehicle by the Ghana Revenue Authority. In 2017, it intends to sell the vehicle for an amount of GH¢26,000.

Required:

The Company seeks your views as a seasoned Tax Expert to advise on the possible tax implication of the above transaction.
(5 marks)

Answer

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Tags: Ghana Revenue Authority, Input Tax, Output Tax, Tax implications, VAT, Vehicle sale
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2017

AT – May 2017 – L3 – Q3b – Business income – Corporate income tax

Compute allowable financial cost on hedged transactions and provide management advice on the tax implications.

Question

b) XYZ Ltd runs a business with a basis period from January to December each year. The following information is relevant to its business operations for 2016 year of assessment:

Item	Amount (GH¢)
Chargeable Income from business operations	40,000
Financial cost incurred on hedged transactions	150,000
Financial gain from hedged transactions	60,000

Required:

i) Compute the financial cost to be allowed in 2016 year of assessment. (6 marks)

ii) Advise management on the above results. (4 marks)
(Total: 10 marks)

Answer

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Tags: Allowable expenses, chargeable income, Corporate Tax, Financial cost, Hedging, Tax advice
Level: Level 3