Tema Accountancy Centre: Taxation & Fiscal Policy- Lecturer (Timore Boi Framcis-0540-150-810) MAY 2013 ADVANCED TAXATION

QUESTION 5

Hypec Manufacturing Company Ltd, producers of household utensils for both the local and

export markets, commenced business on 1st

May 2008. The company acquired the following chargeable assets for use in the business which is located at

Tarkwa in the Western Region.

Date of Purchase Cost

GHC

Buildings May 2008 200,000

Office equipment June 2008 15,000

Computers/Software July 2008 400,000

Toyota saloon car Sept. 2008 40,000

Office furniture Feb. 2009 8,000

Nissan bus April 2009 50,000

Toyota Land Cruiser May 2011 80,000

Data Handling Machines July 2011 90,000

Toyota bus Oct. 2011 70,000

Office equipment Nov. 2011 9,000

The Toyota saloon car was sold on 1st

September 2010 for GHC24,000.

The Nissan Bus was involved in an accident in October 2010, and on 15th

December

2010. GHC22,000 compensation was received from the insurance company.

Some of the office equipment bought in 2008 were sold in July 2010 for GHC17,000, and

GHC20,000 was paid in December 2011 for extension works on the

building. Additional information

1. The company’s sales and adjusted profits during the period were as follows:

Period Profit

GHC

Export Sales

GHC

Local Sales

GHC

Period to 31/12/2008 Year to 31/12/2009

Year to 31/12/2010

Year to 31/12/2011

100,000 180,000

108,571

450,000

309,000 450,000

600,000

1,000,000

3,000,000 4,500,000

6,000,000

9,000,000

Require:

Determine the chargeable incomes and tax liability of Hypec Manufacturing Company Ltd for all

the relevant years.

20 marks

Tema Accountancy Centre: Taxation & Fiscal Policy- Lecturer (Timore Boi Framcis-0540-150-810)

Solution 5

HYPEC MANUFACTURING COMPANY LTD

Capital Allowance Computations

2008 (245 days)

Capital allowance

Written down value c/f

Pool 1

40% 400,000

107,397

292,603

Pool 2

30% 25,000

5,034

19,966

Pool 4

20% 15,000

2,014

12,986

Pool 5

(a) 10%

200,000

13,425

186,575

Pool 5

(b) 10%

-

-

-

Totals

127,870

2009 Additions - 50,000 8,000 - -

292,603 69,966 20,986 186,575 -

Capital allowance 117,041 20,990 4,197 20,000 - 162,228

Written down value 175,562 48,976 16,789 166,575 2010 Less disposals - (46,000) (17,000) - 175,562 2,976 NIL 166,575 Capital allowance 70,225 893 - 20,000 91,118 2011 Written down value b/f 2011 105,337 2,083 - 146,575 Additions 90,000 95,000 9,000 - 20,000

195,337 97,083 9,000 146,575 20,000

Capital allowance 78,135 29,125 1,800 20,000 2,000 131,060

117,202 37,958 7,200 126,575 18,000

GHC

Year of Assessment 2008: Profit as per accounts

Less: Capital allowance b/f

Amount utilized

Capital allowance c/f

Chargeable income

Tax

Year of Assessment 2009

Profit as per accounts

Less: Capital allowance b/f

Current

Utilized

c/f

Chargeable income

Tax

Year of Assessment 2010

Profit as per accounts

Additional income 17,000 – 16,789

Assessable income

Less: Capital allowance b/f 10,098

Current 91,118

Chargeable income

Tax

27,870

100,000

27,870

NIL_

27,870

162,228

190,098

180,000

10,098

NIL

GHC1,891.50

100,000

100,000

NIL_

180,000

180,000

NIL_

108,571

211

108,782

101,216

7,566

Tax Liability:

Export 600,000 x 7,566 688

6,600,000

Tax thereon at 8% GHC55.00

Domestic 600,000 x 7,566 6,878

6,600,000

Tax thereon 0.25% GHC1,720

Less Rebate 860

860

Total tax due (55 + 860) = 915

Year of Assessment 2011 (1/1/11 – 31/12/11)

Profit per accounts 450,000

Less Capital allowance 131,060

Chargeable income 318,940

Tax thereon at 8% 2,552

Domestic 9,000,000 x 318,940 287,046

10,000,000

Tax thereon 25% 71,762

Tax rebate 50% 35,881 35,881

38,433

QUESTION 5 (Nov 2012 Advanced taxation & fiscal policy)

Kawado Company Limited, manufacturers of cotton wool for export only, commenced business on

1st

February, 2009 and submitted its first set of accounts for the period ended 30th

September, 2010.

Below are the details:-

Gross profit b/f

Add Dividend Received

GHC GHC

450,000

3,100

Profit on sale of fixed assets 48,500 51,600

501,600

Less Expenses Salaries and Wages 146,000 Directors’ Remuneration 52,000 Electricity and Water 31,500 Printing and Stationery 8,200 Adverts & Publicity 23,700 Telephone and Postage 800 Repairs & Maintenance (Plant & Equipment) 60,000 Repairs & Maintenance (Office & Equipment) 6,500 Insurance 13,800 Registration and Licence 16,200 Depreciation 108,000 Business Promotion and Entertainment 16,000 Legal Fees 8,000 Penalties and Fines 4,200 494,900

Net Profit 6,700

Notes to the accounts:

1. Adverts and Publicity (23,700)

Radio and Television

Daily Graphic

Permanent signboard at entrance of factory

GHC

7,200

2,300

14,200

23,700

2. Repairs & Maintenance (Plant & Equipment (60,000)

Installation of machine

General Maintenance

New standing generator

21,500

18,000

20,500

60,000

5

3. Business Promotion & Entertainment (16,000)

Entertainment (Opening of factory)

Sample products to invited guests

4. Legal Fees (8,000)

Formation of company

Litigation on plot of land

The company’s business assets are made up as follows:

13,500

2,500

16,000

GHC

6,400

1,600

8,000

Types of Asset Date of Acquisition Cost (GHC)

i. Factory Building ii. Plant & Machinery

iii. Generators

iv. Office Building v.

Delivery Van

vi. Toyota Pick-up

January, 2009 March, 2009

June, 2010

May, 2009

September, 2009

April, 2010

230,000 171,000

20,500

106,000

40,000

36,000

Required: Compute the company’s chargeable income for all relevant years. (24 marks)

7

Question 5

Net profit as per a/cs

Deduct: Profit on sale of fixed assets

GHC GHC

6,700

48,500

Dividend received

Add: Depreciation

Permanent signboard

Cost of installation of machines

Cost of standby generators

Entertainment (opening of factory)

Legal expenses (formation)

Adjusted profit

3,100

108,000

4,200

14,200

21,500

20,500

13,500

6,400

51,600

(44,900)

188,300

143,400

Computation of Tax

GHC

2009 (1/2/09-30/9/09) (8/20 x 143,400) 57,360

Less C/Allce 56,701

Chargeable Income 659

2010 (1/10/09 – 30/9/10) (12/20 x 143,400) 86,040

Less C/Allce 94,706

Utilised 86,040 86,040

c/f 8,666 Chargeable Income NIL

CAPITAL ALLOWANCE COMPUTATION

YEARS OF ASSESSMENT

CLASS 2 (30%)

CLASS 4 (20%)

CLASS 5 (10%)

TOTALS

2009 1/2/09 – 30/9/09)

B/F

D/Allce

C/F

2010

(1/10/09 – 30/9/10)

Adds

D/Allce

C/F 2011

40,000

7,956

32,044

36,000

68,044

20,413

47,631

192,500

25,526

166,974

41,000

207,974

41,595

166,379

350,200

23,219

326,981

-

326,981

32,698

294,283

56,701

94,706

QUESTION 1 (May 2013- Principles and Practice of Taxation)

Finestyle Furniture Ltd commenced business on 1st

October 2009 even though the company was

registered on 1st

April 2009.

The company purchased two lathe turner machines on 1/7/09 at a cost of GHC10,000 each and a

spraying machine on 15/10/09 at a cost of GHC20,000.

In October 2009 the company put up structures for the workshop. The cost was GHC5,000.

The company declared the following results:

Period 01/10/09 - 31/12/10 = GHC45,000

Year 01/01/11 - 31/12/11 = GHC60,000

Year 01/01/12 - 31/12/12 = GHC65,000

Required: Compute the tax liabilities of the company for all relevant years.

Year Building Machinery Total

2009

SOLUTION 1 (May 2013 Principles and Practice of taxation)

CAPITAL ALLOWANCES

01/10/09 – 31/12/09

AA (1/4)

Residue c/f

2010

01/01/10 – 31/12/10

Residue b/d

AA

Residua c/f

2011

01/01/11 – 31-12-11

Residua b/d

AA

Residue c/f

2012

01/01/12 -31/12/12

Residue b/d

AA

5,000

125

4,875 4,875

500

4,375 4,375

500

3,875 3,875

500

40,000

3,000

37,000 37,000

11,100

25,900 25,900

7,770

18,130 18,130

5,439

3,125 11,600

8,270

5,939

2009

2010

2011

2012

01/10/09 – 31/12/09 01/01/10 – 31/12/10 01/01/11 – 31/12/11 01/01/12 – 31/12/12

INCOMES

=

Less C.A. =

C.I. =

Tax 25% =

=

Less C.A. =

C.I. =

Tax 25% =

=

Less C.A. =

C. I. =

Tax 25% =

=

Less C.A. =

Tax 25% =

GHC

9,000.00

3,125.00

6,875.00

1,718.75

36,000.00

11,600.00

24,400.00

6,100.00

60,000.00

8,270.00

51,730.00

12,932.50

65,000.00

5,393.00

59,061.00

14,765.25