- 20 Marks
AT – Mar 2025 – L3 – Q1 – Taxation of Companies
Compute allowable financial cost and company tax payable for Afraa LTD for 2024, including tax implications.
Question
a) Afraa LTD made a net profit before tax of GH₵1,100,000 for the year 2024.
The following were effected before arriving at the net profit before tax:
- Depreciation: GH₵105,000.
- Income tax paid (meant for last quarter of 2023): GH₵22,500.
- Financial cost (from financial derivatives): GH₵350,000
- Financial gain (from financial derivatives): GH₵105,000
Additional Information:
Capital allowance of GH₵180,000 and Donations to Osu Children’s home of GH₵30,000 which were agreed on with Ghana Revenue Authority are yet to be recognised in the financial statements.
Required:
Compute the allowable financial cost and the company tax payable for 2024. Explain any other tax implications.
b) Premier Insurance Company LTD located at Koforidua submitted the following accounts for the year ended 31 December 2024.
| Note | GH₵ |
|---|---|
| Gross premiums received | 3,380,000 |
| Premiums returned to insurers | 118,500 |
| Reinsurance premiums paid | 126,000 |
| Claims settled | 1,185,000 |
| Reinsurance claims recovered | 24,000 |
| Commissions to agents | 271,200 |
| General administrative expenses | 881,900 |
| Interest on Bank Deposits (Net) | 418,000 |
| Gross income from insurance consultancy services rendered | 350,000 |
| Dividends received (Net) | 341,000 |
| Reserves for unexpired risk at 31/12/2023 | 910,000 |
Notes:
- Commissions to agents
| | GH₵ | |——————————–|————| | Casual commission agents | 250,000 | | Unnamed commission agents | 21,200 | - General administrative expenses
| | GH₵ | |——————————–|————| | Water and electricity | 69,200 | | Office wages and salaries | 414,560 | | Repairs to premises | 91,920 | | Motor expenses | 57,040 | | Depreciation | 56,800 | | Loss on sale of equipment | 20,640 | | Professional charges (Note iii) | 66,000 | | Sundry expenses (Note iv) | 103,840 | | Entertainment | 1,900 |
i) Repairs to premises
| GH₵ | |
|---|---|
| Construction of main gate and Landscaping | 86,360 |
| Minor office decoration | 3,600 |
| Re-plastering of damaged walls | 1,960 |
ii) Motor expenses
| GH₵ | |
|---|---|
| Travelling expenses | 7,200 |
| Purchase of new vehicle engine | 35,000 |
| Fuel and lubricants | 14,840 |
iii) Professional charges
| GH₵ | |
|---|---|
| Accounting and audit fees | 23,200 |
| Cost of obtaining new lease to build an office complex | 42,800 |
iv) Sundry expenses
| GH₵ | |
|---|---|
| Penalty for late filling of tax returns | 9,500 |
| Donation to Ghana Education Trust Fund (confirmed by GRA) | 8,000 |
| Postage and courier services | 7,200 |
| Fines for vehicle wrong parking | 1,300 |
| Office cleaning | 29,000 |
| Business Operating Permit paid to Ada District Assembly | 15,000 |
| Printing and stationery | 25,500 |
| Telephone and communication/internet services | 8,340 |
Other information:
- Reserves for unexpired risk is calculated at 45% of net insurance premium.
- Capital allowance for the year has been agreed at GH₵65,400 after consideration of all available information in the tax returns.
Required:
Determine the chargeable income of Premier Insurance Company LTD.
(9 marks)
c) Practice notes are issued by the Commissioner-General of the Ghana Revenue Authority (GRA), by publishing a notice in the Gazette or on their website or in at least two daily newspapers of national circulation.
Required:
As a tax finalist working with Kato Chartered Accountants, explain to your study partner FOUR purposes of issuing practice notes.
Find Related Questions by Tags, levels, etc.
- Tags: Ghana Revenue Authority, Practice notes, Tax Administration
- Level: Level 3
- Topic: Tax Administration and Dispute Resolution
- Series: MAR 2025
