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
Buildings
Office equipment
Computers/Software
Toyota saloon car
Office furniture
Nissan bus
Toyota Land Cruiser
Data Handling Machines
Toyota bus
Office equipment

May 2008
June 2008
July 2008
Sept. 2008
Feb. 2009
April 2009
May 2011
July 2011
Oct. 2011
Nov. 2011

Cost
GHC
200,000
15,000
400,000
40,000
8,000
50,000
80,000
90,000
70,000
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 companys sales and adjusted profits during the period were as follows:
Period
Period to 31/12/2008
Year to 31/12/2009
Year to 31/12/2010
Year to 31/12/2011

Profit
GHC
100,000
180,000
108,571
450,000

Export Sales
GHC
309,000
450,000
600,000
1,000,000

Local Sales
GHC
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
2009

Additions

Capital allowance
Written down value
2010 Less disposals
Capital allowance
2011 Written down value b/f 2011
Additions
Capital allowance

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%
-

292,603
117,041
175,562
175,562
70,225
105,337
90,000
195,337
78,135
117,202

50,000
69,966
20,990
48,976
(46,000)
2,976
893
2,083
95,000
97,083
29,125
37,958

8,000
20,986
4,197
16,789
(17,000)
NIL
9,000
9,000
1,800
7,200

186,575
20,000
166,575
166,575
20,000
146,575
146,575
20,000
126,575

Totals

127,870

162,228

91,118
20,000
20,000
2,000
18,000

131,060

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

100,000
27,870
100,000
27,870

100,000
NIL_

NIL_
180,000
27,870
162,228
190,098
180,000
10,098

180,000
NIL_

NIL
108,571
211
108,782
101,216
7,566
GHC1,891.50

Tax Liability:
Export

600,000 x 7,566
6,600,000

688

Tax thereon at 8%
Domestic

GHC55.00

600,000 x 7,566
6,600,000

6,878

Tax thereon 0.25%

Less Rebate
Total tax due (55 + 860)

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

Profit per accounts
Less Capital allowance
Chargeable income
Tax thereon at 8%

450,000
131,060
318,940

Domestic

287,046

9,000,000 x 318,940
10,000,000

Tax thereon 25%

Tax rebate 50%

GHC1,720
860
860
915

2,552

71,762
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:GHC
Gross profit b/f
Add Dividend Received
Profit on sale of fixed assets

GHC
450,000

3,100
48,500

51,600
501,600

Less Expenses
Salaries and Wages
Directors Remuneration
Electricity and Water
Printing and Stationery
Adverts & Publicity
Telephone and Postage
Repairs & Maintenance (Plant & Equipment)
Repairs & Maintenance (Office & Equipment)
Insurance
Registration and Licence
Depreciation
Business Promotion and Entertainment
Legal Fees
Penalties and Fines
Net Profit

146,000
52,000
31,500
8,200
23,700
800
60,000
6,500
13,800
16,200
108,000
16,000
8,000
4,200

494,900
6,700

Notes to the accounts:

1.

Adverts and Publicity (23,700)

Radio and Television
Daily Graphic
Permanent signboard at entrance of factory

2.

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

Installation of machine
General Maintenance
New standing generator

GHC
7,200
2,300
14,200
23,700
21,500
18,000
20,500
60,000

3.

Business Promotion & Entertainment (16,000)

Entertainment (Opening of factory)
Sample products to invited guests

13,500
2,500
16,000

4. Legal Fees (8,000)

GHC
6,400
1,600
8,000

Formation of company
Litigation on plot of land

The companys business assets are made up as follows:

i.
ii.
iii.
iv.
vi.

Types of Asset
Factory Building
Plant & Machinery
Generators
Office Building v.
Delivery Van
Toyota Pick-up

Date of Acquisition
January, 2009
March, 2009
June, 2010
May, 2009
September, 2009
April, 2010

Cost (GHC)
230,000
171,000
20,500
106,000
40,000
36,000

Required: Compute the companys chargeable income for all relevant years. (24 marks)

7
Question 5

GHC

Net profit as per a/cs

Deduct: Profit on sale of fixed assets

GHC
6,700

48,500

Dividend received

3,100

Add: Depreciation
Permanent signboard
Cost of installation of machines
Cost of standby generators
Entertainment (opening of factory)
Legal expenses (formation)
Adjusted profit

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
2009

GHC
57,360
56,701
659

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

Less C/Allce
Chargeable Income

2010

(1/10/09 30/9/10) (12/20 x 143,400)

Less C/Allce
Utilised
c/f
Chargeable Income

CAPITAL ALLOWANCE COMPUTATION

YEARS OF
CLASS 2
ASSESSMENT
(30%)
2009
1/2/09 30/9/09)
B/F
D/Allce
C/F

86,040
94,706
86,040
8,666

86,040
NIL

CLASS 4
(20%)

CLASS 5
(10%)

40,000
7,956
32,044

192,500
25,526
166,974

350,200
23,219
326,981

36,000
68,044
20,413
47,631

41,000
207,974
41,595
166,379

326,981
32,698
294,283

TOTALS

56,701

2010
(1/10/09 30/9/10)
Adds
D/Allce
C/F 2011

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
Year
Year

01/10/09 - 31/12/10 =
01/01/11 - 31/12/11 =
01/01/12 - 31/12/12 =

GHC45,000
GHC60,000
GHC65,000

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

SOLUTION 1 (May 2013 Principles and Practice of taxation)

CAPITAL ALLOWANCES

Year

Building

Machinery

Total

5,000
125
4,875

40,000
3,000
37,000

3,125

2010
01/01/10 31/12/10
Residue b/d
AA
Residua c/f

4,875
500
4,375

37,000
11,100
25,900

11,600

2011
01/01/11 31-12-11
Residua b/d
AA
Residue c/f

4,375
500
3,875

25,900
7,770
18,130

8,270

2012
01/01/12 -31/12/12
Residue b/d
AA

3,875
500

18,130
5,439

2009
01/10/09 31/12/09
AA (1/4)
Residue c/f

5,939

INCOMES
2009

01/10/09 31/12/09

Less C.A.

=
=
=
=
=
=
=
=
=
=
=
=
=
=

Tax 25%

Less C.A.
C.I.
Tax 25%
2010

01/01/10 31/12/10
Less C.A.
C.I.
Tax 25%

2011

01/01/11 31/12/11
Less C.A.
C. I.
Tax 25%

2012

01/01/12 31/12/12

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