QUALITY TUITION CENTRE

ADVANCED TAXATION

ICAG PAST QUESTIONS ON CAPITAL ALLOWANCE & CORPORATE INCOME

TAXATION

4 a) Bubandushe is a Non-Governmental Organisation (NGO) located in Accra with operational

area in the Northern Regions of Ghana. The NGO buys rice from a super market in Accra and
transports it to Northern Regions for distribution to widows and orphans.

Its main source of funding is from a benefactor based in the Netherlands, who has been
supporting the project since its inception.

In support of its operations, it engaged Chartered Accountants from the Institute of

Chartered Accountants (Ghana) as employees. Their role is basically to organize training

programmes for Government Institutions on budget preparation using advanced financial models
for a fee. This additional source of income equally supports the operations of this NGO.

Ghana Revenue Authority (GRA) has written to this NGO to regularize its operations with it for
tax purposes. The Management of the NGO has argued that it is exempt from tax on its income.
The management has written to you to offer professional help on the matter.

Required:

i) Determine whether the NGO is required under the tax laws to pay tax and if yes what type of
taxes. (6 marks)

ii) On what basis are NGOs liable to tax or exempt? (2 marks)

b) Askona is run as a Trust for Maame Kukua, a Ghanaian based in the USA. Askona is based in
the USA and represents a lot of people in trust arrangements. Under the arrangement,

Maame Kukua who is currently living in the USA has acquired a transporter vehicle for

Askona to use it for the benefit of her two children -Yaaya Mensah and Nana Yaw Mensah who
are both resident in Ghana.

In January 2019, Askona made a distribution to Yaaya Mensah and Nana Yaw Mensah in Ghana
via Western Union Money Transfer. Maame Kukua has asked you, a young Tax Expert in Ghana
to advise on the taxability or otherwise of the above transaction in Ghana.

Required:

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Advise on whether a distribution by a non-resident trust such as Askona is taxable and how? (4
marks)

2020 MAY

4 a) Mamavi is a retail business woman with a chain of shops in Ghana. She commenced
business on 1 March 2011, with the business name of Unity Enterprise. She sells health foods,
fruits, vegetables and juices.

The Enterprise’ profit or loss account for the year ended 31 December 2018 as prepared by the
Accountant are reproduced below:

Notes GH¢ GH¢

Sales 150,450
Opening Inventory 4,005
Purchases i) 55,402
59,407
Closing Inventory (3,125)
(56,282)
94,168
Add:
Rental income ii) 1,500
Interest Earned 150 1,650
95,818
Less
Promotion/Entertainment iii) 1,800
Wages iv) 32,740
Electricity and Water v) 4,500
Bank Payments vi) 12,400
Telephone vii) 2,703
Depreciation 5,100
Bad Debts 1,450
Rent 5,000
Rates viii) 2,000
General Bad Debt Provision 1,750
Insurance ix) 2,280
Legal and other fees x) 2,300
Sundry xi) 8,800 (82,823)
Net Profit 12,995
Notes

i) Purchases

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The purchases figure includes GH¢2,200 in respect of goods taken by Mamavi for her own use
with a mark-up of 25%.

ii) Rental Income

In 2018 Mamavi earned GH¢1,500 for the rent of her holiday home in Ho, Volta Region, for the
year.

iii) Promotion/Entertainment GH¢

Golf lessons 600
Christmas party 900
Advertising on Health foods 300
1,800
iv) Wages GH¢
Drawings by Mamavi 12,740
Staff wages 10,000
Paying Baby-Sitter to take care of Mamavi’s daughter 6,500
Tax payment on account for Mamavi 3,500
32,740
v) Electricity and Water
Mamavi pays electricity and water for her home and office, 20% of the cost relates to her home.
vi) Bank Payments GH¢
Business loan repayments 5,200
Mortgage loan repayments 7,200
12,400
A business loan was taken out to finance the cost of improvements to the store, in particular the
juice bars. The interest element included in the loan repayment amounted to GH¢1,750.

A mortgage loan was taken out by Mamavi to buy the family a house in Hlefi, Volta Region.

The interest element in the loan repayment for the mortgage was GH¢2,670.

vii) Telephone

20% of the telephone costs relate to private use.

viii) Rates

This figure includes GH¢120 in respect of the local property tax for Mamavi’s home. The
difference is business rates.

ix) Insurance GH¢

Premises Insurance (Business) 800
General Business Insurance 1,000
Private medical insurance for Mamavi’s children 480
2,280
x) Legal and other fees GH¢

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Accountancy Fee 1,200
Court case following a car accident 700
Speeding fines 400
2,300
This court case was as a result of a car hitting Mamavi when she was walking her dog out at
night. The car owner claimed Mamavi stepped out in front of him and therefore it was her fault.
Mamavi’s Lawyer told her to respond to the allegation because she needed five sessions of
physiotherapy to help heal her leg. Mamavi is suing the car owner for her costs.

xi) Sundry GH¢

Painting 1,200
Juicers/Food Processors for shop 5,000
Advertising 600
Lease charges 1,200
Stationery 800
8,800
GH¢700 of the painting cost related to the painting of Mamavi’s private house. The balance
related to painting her shop. GH¢1,200 lease charges relate to the leasing of a car for the
business.

Required:

Compute Mamavi’s chargeable income for the year ended 31 December 2018. (17 marks)

b) ABC Ltd declared profit (loss) as provided for in the table below:

Year of Assessment Business Income/ (Loss) Investment Income /(Loss)

GH¢ GH¢
2017 100,000 (50,000)
2018 (40,000) 120,000
Required:
Explain how the unrelieved losses will be treated. (3 marks)

2020 NOVEMBER

5 a) You have been engaged by Kaek Consult, a tax consulting firm as an intern to be confirmed
when you complete the final level of the ICAG examinations.

Your first assignment is to draft a paper to Gona Jon Ltd who intends to take advantage of
contributions and donations to a worthwhile cause. Your write up should classify the types of
worthwhile causes and donations available, circumstances under which they can be accessed and
their benefits.

Required:

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Write a draft paper for your manager’s consideration, which will be reviewed and finalized for
Gona Jon Ltd on the worthwhile causes, benefits and how to access them.

2021 NOVEMBER

3. Partey Ltd (Partey) produces flour and various soup powders, and the company is considered
as a priority company. On 1 January 2019, Partey owned two refineries in Accra (Weija and
Mamprobi) and a refinery in Takoradi. Each refinery comprises building, plant and equipment
and a warehouse, all of which were owned by Partey.

Partey has been having financial difficulties and, on 1 February 2019, engaged the services of a
business consultant to recommend a survival plan for the company. Unfortunately, staff morale
was very low when the business consultant was engaged because their salaries were six months
in arrears.

The business consultant’s recommendations were agreed and implemented in the year ended 31
December 2019 as follows:

i) The Takoradi refinery was transferred to the employees at market value to be operated as
independent business ventures. The inventory in the warehouse was included in the transfer.

ii) The Weija refinery was disposed off, together with all its related fixed assets, to fund Partey's
future business operations and pay off part of the arrears of salaries due to the employees. The
employees at this refinery were all reassigned elsewhere. The inventory at the warehouse, valued
at cost, was given to the employees as final settlement of their salaries in arrears.

Both the disposal of the Weija refinery and the transfer of the Takoradi refinery to their
employees were made on 30 March 2019.

Details of the fixed assets disposed and transferred are:

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Partey’s statement of profit or loss for the year ended 31 December 2019 in respect of Mamprobi
is as follows:

Note GH¢
Revenue i) 2,800,000
Cost of sales ii) (1,600,000)
Gross profit 1,200,000
Other income iii) 370,000
Distribution costs iv) (295,000)
Administrative expenses v) (440,000)
Other expenses (180,000)
Finance costs vi) (95,000)
Profit before tax 560,000
Income tax expense vii) (50,000)
Profit for the period 510,000
Notes:
i) This amount represents Partey’s ordinary sales for the year.
ii) Included in the cost of sales is the total value of inventory at cost transferred to the employees
(in accordance with the business consultant’s recommendations) on 30 March 2019. No other
adjustments were recorded regarding this inventory transfer.
iii) Other income comprises: GH¢
Rent received 260,000
Hire of refining plants 110,000
370,000
iv) Distribution costs comprise: GH¢
Motor vehicle expenses 170,000
Vehicle licence penalty 7,000
Legal fees and fines for unlawfully damaging a client items 118,000
295,000
v) Administrative expenses comprise: GH¢

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Staff costs 233,750
PAYE on arrears of salaries 45,000
PAYE penalty on arrears of salaries 47,250
Software upgrade 30,000
Allowance for receivables 40,000
Depreciation 44,000
440,000
vi) Finance costs relate to: GH¢
Trade payables 35,000
Long-term loan 60,000
95,000
vii) Assessed losses brought forward from the last two years was GH¢45,000
Capital allowance agreed was GH¢50,000
Required:

a) Outline the tax consequences for Partey due to the transfer of the fixed assets and inventory to
the employees on 30 March 2019, stating when any taxes should be paid. (4 marks)

b) Assess the tax implications:

i) When the proceeds from the realisation of depreciable assets exceed the written down values?
(1.5 marks)

ii) When the proceeds from the realisation of depreciable assets are less than the written down
values? (1.5 marks)

c) Calculate the taxable income of Partey for the year ended 31 December 2019. (8 marks)

d) Explain how shareholders of a company are taxed?

2022 APRIL

1 a) All persons can carry over their losses, so far as it can be proven that it is a loss by the
person making the claim. This was mooted at a seminar organised for a business community in
some parts of Accra, the capital city of Ghana.

Required:
Explain the mechanism of carryover of losses. (6 marks)

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2022 APRIL
4 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:
Note GH¢ GH¢
Gross profit 900,000
Other income 6 23,000
923,000
Less operating expenses
Wages and salaries 5 146,000
Directors’ remuneration 52,000
Electricity and water 31,500
Printing and stationery 8,200
Telephone and postage 1,800
Installation of plant and others 2 60,000
Registration and licensing 12,100
Depreciation 2,700
Business promotion 6,000
Legal fees 8,000
Staff welfare 3 26,200
Donation and subscription 4 28,000
Advert and publicity 1 23,700
406,200
Net profit 516,800
Additional information:
GH¢
1) Advert and publicity
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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
The company’s assets include the following:
Type of Assets Date of Acquisition Cost (GH¢)
Factory Building 1/10/2019 300,000
Plant and Machinery 25/10/2019 171,000
Delivery Van 1/11/2019 50,000
Computers 1/10/2019 40,000
Furniture and Fittings 10/12/2019 150,000
Other Office Equipment 1/10/2019 200,000
Office Building 30/06/2020 500,000
Note 2) above has not been included in the plant and machinery acquired.
Required:
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)

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5 a) You are a Trainee Accountant, and your manager has asked you to correct a company tax
computation which has been prepared by the Managing Director of Prime Shea Ltd, a
manufacturing company located in Batanyili, a suburb of Tamale in the Northern Region.
The company commenced business on 1 January 2014. The company tax computation is for the
year ended 31 March 2020 and contains a significant number of errors:

2022 AUGUST
2 b) Dekey Company Ltd was incorporated under the Companies Act, 2019, (Act 992) on 1
January, 2021 to prospect for diamonds in the Densu River in the Eastern Region of Ghana.

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A review of its Comprehensive Income Statement for the year ended 31 December, 2021 showed
a loss of GH¢29,304,000 for 2021 year of assessment.

The CEO of Dekey Company Ltd remembered a discussion on “Unrelieved Losses” during a
training workshop. The CEO has approached you, a final year tax candidate to explain and
advise him on the implications of the loss on future tax liabilities of the company.
Required:
Write a report explaining to the CEO what “Unrelieved Losses” are and the rights available to
the company for the loss declared at the end of its first year of operations under the Income Tax
Act, 2015 (Act 896). (10 marks)
(Note: the format of a report must be followed)

4. Zimbo Ltd (Zimbo) specialises in the manufacture of personal hygiene soaps and related
products at their factory in the industrial area of Accra. Zimbo commenced business operations
on 1 April 2020 and had an assessed loss of GH¢112,000 for the period ended 31 December
2020 attributable to large start-up costs in the first period of trading.
Turnover for the year ended 31 December 2021 amounted to GH¢1,980,000 of which
GH¢700,000 relates to export sales. Zimbo is trying to increase its turnover from export sales
through participation in foreign market trade fairs as well as other marketing campaigns. The
gross profit margin for the year ended 31 December 2021 was 60%.
Zimbo recorded a net profit of GH¢315,000 for the year ended 31 December 2021 after taking
into account the following transactions:

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Required:
a) Calculate the capital allowances claimable by Zimbo for the year ended 31 December 2021,
assuming all favourable elections are made. (6 marks)
b) Calculate the provisional tax which should have been paid by Zimbo for the year ended 31
December 2021, clearly indicating the due dates and the respective tax amounts. (3 marks)
c) Calculate the chargeable income and company tax payable by Zimbo for the year ended 31
December 2021. (10 marks)
Note: Your calculations should assume that the provisional tax paid was as calculated in part b)
of the question.
d) Compute any other tax liability apart from the company tax. (1 mark)

2022 DECEMBER
1. Gomoa Ltd is a resident of United States of America. Gomoa Ltd established two companies,
Komenda Ltd and Abirem Ltd resident in South Africa and Ghana respectively.

The Ghana Revenue Authority (GRA) requested for information from other companies which
deal with Abirem Ltd and same was furnished to enable the GRA make a determination on
Abirem Ltd.

The details relating to 2021 year of assessment are as follows.

Komenda Ltd (Resident in South Africa) Abirem Ltd (resident in Ghana)

GH¢ GH¢
Sales 200,000,000 200,300,000
Cost of Sales (110,000,112) (120,001,200)
Gross Profit 89,999,888 80,298,800
Less Operating Exp. 76,000,000 89,700,000
Net Profit / Loss 13,999,888 (9,401,200)
Additional information:

i) Gomoa Ltd invoiced goods to Abirem Ltd at price of GH¢1,900,000 which is 10% more than
the market price.

ii) Dividend of GH¢700,000 paid by Abirem Ltd to the Gomoa Ltd, has been incorporated in the
cost of Abirem Ltd.

iii) Management and Technical Services in the sum of GH¢1,290,000 paid to the group by
Abirem Ltd at gross has been added to operating expenses

iv) Goods invoiced to Komenda Ltd by Gomoa Ltd amounted to GH¢1,000,000. This was 15%
below the arm’s length price.

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v) Dividend of GH¢200,000 received by Abirem Ltd from a resident company has been included
in the revenue of Abirem Ltd. Abirem Ltd holds 25% voting power of the resident company.

vi) Komenda Ltd made a profit of GH¢200,000 from the engagement of business activities in the
United States of America.

vii) The Managing Director of Abirem Ltd took some of the goods for his personal use. The cost
price was GH¢200,000 with a margin of 20%. The cost price of such goods were incorporated in
the cost price of the goods above

viii) The Managing Director of Abirem Ltd took goods worth GH¢130,000 at cost for home
consumption. This amount was not added to the cost of the goods above. The goods were sold at
a mark-up of 10%.

ix) Abirem Ltd paid tax at a rate of 27% which amounted to GH¢20,000 in South Africa. This
was in respect of goods sold. The net sales have been added to revenue of Abirem Ltd.

x) Abirem Ltd receive a loan from Komenda Ltd to support its operations in Ghana. The details
of the loan are as follows:
 Loan amount: GH¢10 million at the beginning of the year.
 Interest on loan payable for the year was GH¢1,000,000.
 Foreign exchange loss on the loan amount settled was GH¢200,000.

xi) Equity at the beginning of the year stood at GH¢2,000,000 and closed the year with GH¢2,800,000.

Additional Information:

 Financial gain from derivative was GH¢2.5 million while that of financial cost from derivative
was GH¢6 million. The excess has been added to the cost of operation.

 Capital allowance agreed with the GRA stood at GH¢1,000,000.

Required:
Calculate the tax payable by Abirem Ltd.

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2022 December
3 a) Conti Ltd has been in the buying and selling of baskets business for some time now. Conti
Ltd’s basis period is January to December each year. The Chargeable income of Conti Ltd for
2021 year of assessment is GH¢ 7,000,000.
The chargeable income was arrived at after taking into account the following:
1) An amount of GH¢200,000 was spent on staff lunch with evidence on how much each
benefited. The staff were not affected by this payment according to the management of the
Company.
2) Financial cost from derivative was GH¢20,000,000.
3) Financial gain from swaps arrangement was GH¢1,000,000.
4) Goods amounting to GH¢12,000,000 were invoiced to another company in controlled
relationship. Such goods in the hands of uncontrolled persons should have been GH¢13,130,000
From the scrutiny of the accounts of the company, the following additional information emerged:
 Interest on loan amounting to GH¢3,200,000 was added to the financial cost above. 80% of
the interest relates to capital work in progress and the rest to support working capital.
The capital work in progress will come on stream in the next 5 years.
 An amount of GH¢500,000 was received as net dividend from Ann Ltd, a resident entity,
where Conti Ltd holds 24% voting power. This was added to the revenue.
Required:
i) Compute the tax payable. (5 marks)
ii) What are the tax implication of the lunch for staff, interest paid and the dividend received?
(3 marks)
iii) What are the potential tax planning measures you have identified that Conti Ltd must work
on to reduce its tax liability in relation to the dividend? (2 marks)
iv) What is the tax implication of financial cost from derivative and what is its impact on the
company? (2 marks)
3 c) Expenditures which are considered domestic in character may be converted or treated as
allowable deduction under certain conditions in line with section 130 of the Income Tax
Act, 2015 (Act 896).
Required:
What constitutes domestic expenditure and how does such expenditure become allowable for tax
purpose? (4 marks)

4. STE was incorporated in 2020 and commenced business operations on 1 January 2021,
specialising in the manufacturing and distribution of solar panels, solar lights and solar powered
related products. STE’s head office and business premises are situated in Tema.
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On 30 June 2020, STE successfully applied for a two-year loan of GH¢750,000 with an interest
rate of 15% p.a. from a leading local financial institution. The loan was applied as follows:

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4) Motor vehicle expenses:
GH¢
Fuel and vehicle servicing 33,000
Insurance and licences 15,600
Vehicle tracking equipment 30,000
78,600

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2023 MARCH
2 a) A Pastor of a Church at Kasoa intends to run a Non-Governmental Organisation (NGO) to
serve the needs of the catchment area with the hope that, it would serve as a springboard to get a
lot of people to fellowship with the Church.
The Pastor has invited you as a member of the community to give an advice on how to position
the NGO in order not to run into problems with the Ghana Revenue Authority in respect of tax
issues.
Required:
Discuss the position of the tax laws on Non-Governmental Organisations. (6 marks)

Executive Directors:
The amount spent in 2020 was on providing security arrangements in the private
residence of the Managing Director. The 2021 amount was spent on recreational facility
at the Deputy Managing Director’s private home. They have both put in their best for the
organisation.
Non-Executive Director:
The amounts for both years were spent to provide the directors with employable skills on
the international arena when they exit as non-directors.
Required:
Enumerate the tax implication of these expenditures and comment on how the Ghana
Revenue Authority would treat each of the expenditure. (6 marks)
3 d) You have been asked to contribute to a public forum on the topic “business losses though
not good have a direct effect on business development and growth as they are deductible
allowance.

When businesses make losses, to the extent that the losses are allowable, management become
happy from the stand point of taxation while shareholders are not too happy about the losses as
these may make it impossible for them to receive dividend.

Required:

How are tax losses treated in businesses and how does the tax law support the growth of business
in loss making? (4 marks)

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2023 MARCH

5a) Randy Koomson who hails from Cape Coast in the Central Region, died in January, 2021
and left his businesses and estates with trustees, who happened to be non-residents. Randy
Koomson has two children: Araba Koomson and Kwamina Koomson. These two children were
made the beneficiaries and each of them is entitled to 1/3 of the net distributable income of the
trust with the rest for administrative expenses.

The terms of the trust deed provided for discretionary payments to the beneficiaries and
donations towards worthwhile causes. During the year 2021 discretionary payment of GH
¢300,000 each were made to the children.

Gross Profit, before discretionary payments and other expenses below, for the year 2021 was GH
¢3,500,000.

The following expenses were incurred:

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2023 JULY

4. The following relates to the financial records of Konadu Yiadom Company Ltd submitted to
the Ghana Revenue Authority for the year ended 31 December, 2021. The company is into retail
operations.

Notes GH¢ GH¢

Sales 1 932,770
Opening Inventory 54,000
Purchases 2/3 252,000
306,000
Closing Inventory (32,750)
Cost of sales 273,250
Gross Profit 659,520
Other Income
Discount received 13,250
Rent received 19,920
Interest Earned on bank deposit 24,330
Bad Debts Recovered 15,530
73,030
732,550
Less
Staff cost 4 136,415
Promotion and Advertising 5 11,310
Interest and Bank payments 6 10,120
Telephone 47,100
Discount allowed 78,535
Legal and other fees 7 12,910
Electricity and Wa ter 24,810
Repair and maintenance 42,670
Company tax paid – for year 2020 37,500
Depreciation 55,820
Bad debts 8 1,005
Packaging and postage 21,890

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Motor expenses 9 18,410
Sundry expeses 10 113,840
612,335
Net profit 120,215
Notes:
1) The sales figure includes GH¢21,500 from the sale of old shop fittings which were replaced
by new fittings during the year. The profit on the sale of the shop fittings was GH¢3,770.

2) Following completion of the accounts, the accountant received an invoice dated 14 December
2021 in respect of goods for resale which were delivered in late December. This invoice was not
recorded and you have been informed that the total amount on the invoice including VAT was
GH¢15,110. VAT included on the invoice was GH¢440. All levies are inclusive.

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Additional Information:

The Ghana Revenue Authority has assessed and granted capital allowance of GH¢57,000 for the
2021 year of assessment.

Required:

You are required to compute the chargeable income for Konadu Yiadom Company for the 2021
year of assessment. Indicate clearly all necessary assumptions. (Total: 20 marks)

2023 November

1 c) Zantem Ltd has equity of GH¢10,000,000 while Bonty Ltd has equity of GH¢12,000,000.

The two companies are in competition for the same market space. This has increased their
advertising and marketing costs. The Ghana Revenue Authority (GRA) has threatened to
disallow a portion of their advertising and marketing costs which appear astronomically high.

The Management of the two companies have invited you, a tax expert to be part of a discussion
to look at the possible ways the two companies can eliminate or reduce any tax exposure to their
shareholders with the potential threat from the GRA.

Required:

Advise the Management on the tax strategy(ies) to adopt to reduce their cost while creating value
for their shareholders. (6 marks)

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4. AquaFresh Ltd is a company based in Osu in Accra, and produces clean water through a
desalination process and, as a by-product, produces salt for sale in Ghana.

Desalination is a process which extracts salts and minerals from seawater so that the water
becomes fit for human consumption. This desalination process has been declared by the

Ghana Revenue Authority (GRA) as a manufacturing process.

During the 2022 year of assessment, AquaFresh Ltd recorded the following transactions:

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5. Fenty Trust Ltd is a non-resident company acting as the trustee for four resident Ghanaians of
whom each has 22.5% share in the Trust. The Trust was set up on the instruction of Mr Karl
Odogo before he died. Mr Karl Odogo, was a businessman with interest in real estate,
transportation, and numerous natural resources.

The Board of trustees decided to continue in the above businesses and others. As part of the
Trust Deed, the Board of trustees were to make donations for good causes and discretionary
payments to the beneficiaries where appropriate.

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Required:

a) Compute the chargeable income and tax payable by the Trust for the 2022 year of assessment.
(12 marks)

b) Outline the general tax rules on trust institutions and trust beneficiaries. (8 marks)

5. c) Repairs and improvements are not mutually exclusive in tax administration because one
leads to the other and one cannot happen without the other. The Commissioner-General ensures
that certain conditions are met before an amount of repairs and improvements is taken as an
allowable deduction under the deductibility principles in tax administration.

You are the Tax Manager for Akwaaba and Associates, a firm of tax consultants. The

Finance Manager of APC Ltd, a client of your firm is contemplating how to treat major repair
works being undertaken on their warehouse.

Required:

Write a memo to the Finance Manager of APC Ltd explaining what constitutes residual
deduction rule and state FOUR (4) conditions under which repairs and improvements are
considered allowable deductions.

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2024 MARCH
Finstruct Ltd has been awarded an airport terminal project. The project started on 1 January
2022 for a contract sum of GH¢60,000,000. The construction of the airport is to be completed on
31 December 2023.
Finstruct Ltd has a financial year ending on 31 December each year. On 31 December 2022 the
accounts appropriate to the airport contract contained the following:
GH¢
Cost of construction materials 25,500,000
Direct Wages of construction staff and project managers 22,100,000
Other Costs: Hire of Special Equipment 300,000
Cost of soil test 100,000
Purchase of fuel and lubricants 750,000
Consultancy services 135,000
Additional Information:
i) Materials costing GH¢340,000 sent to the site were returned to the Company’s warehouse.
ii) Materials sent to the site worth GH¢675,000 were still unused at the construction sites as at 31
December 2022.
iii) Finstruct Ltd pays some of its workers the first week of the ensuing month after the end of
the current month. In view of this arrangement, GH¢57,000 is still owed for wages as at the close
of the year 2022. This was not included in the accounts.
iv) A bill amounting to GH¢45,000 was submitted late by Finstruct Ltd and as at 31 December
2022, the bill had not yet been paid. This was not included in the accounts.
v) To determine the estimated profit on the contract, it was estimated that the cost to complete
the project as at 31 December 2022 should be GH¢8,265,180.
vi) Assets:
WDA at 01/01/2022 Acquired in 2022 Disposals in 2022
GH¢ GH¢ GH¢
Trucks and Trailers 420,000 600,000
Electric ceiling and standing fans 60,000
Window and Split Air conditioners 71,000 8,000
Dozer 760,000 900,000 80,000
Wheel Loaders 1,260,000 200,000
Computers 50,000 22,000
Rollers 540,000
Data Handling Equipment 35,000
Office Photocopier 7,000
Office LCD Television 6,600
Vibratory Compactor 580,000
Hydraulic Excavator 670,000
Motor Vehicles 630,000 60,000
Visitors chairs 3,000
Office Chairs and Tables 35,000 20,000 5,000
Office Building 916,000
File Cabinets 15,000
Pick-Up Vehicle (bought 1) 140,000
The values of the assets sold during the year were all for cash.

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vii) The building at the start of the year 2022 was constructed 6 years ago and 6 years’ capital
allowances have been enjoyed.
Required:
a) Compute the capital allowance for Finstruct Ltd for the year 2022. (6 marks)
b) Explain the tax rules on long term contract and compute the percentage of contract completion
of the project. (4 marks)
c) Compute the chargeable income of Finstruct Ltd for the year ended 31 December 2022. (10marks)

Practice breeds confidence Page 29