FINAL LEVEL 2 MOCK 1

QUESTION 1

Fred Agyemang has been working with the Controller and Account General’s
Department(CAGD) since 2010.At the beginning of January 2016,he was seconded to Kumasi
Metropolitan Assembly(KMA) for a period of six months to be part of a team to spearhead a
restructuring exercise and the review of the system of internal control at the Revenue Department
of KMA.

Terms of the KMA Engagement

The CAGD was to be paid a one off settlement of GHS 10,000 at the completion of the
engagement as well as the reimbursement of the monthly operational expenses incurred based on
the submission of relevant invoices.

Fred’s only entitlements from the KMA were the following monthly allowances;

GHS
Fuel coupons 300
Extra duties Allowance 200

Fred’s secondment to KMA did not in any way affect his salary and other entitlements from his
employer,CAGD,as these continued to accrue to him during the period of the secondment.

Fred’s earnings and entitlements from the CAGD for the year ended 31 December 2016

GHS
Basic salary 46,000
Bonus 9,500
Fuel allowance 1,750
Entertainment allowance 7,500

Additional information;

1. Fred stays in a fully furnished CAGD bungalow at Nhyieaso in Kumasi.The CAGD

charges him nominal rent of GHS 150 per month.
2. Fred makes use of a company vehicle,driver and fuel for his duties.
3. On 1 January 2016 Fred successfully applied for a GHS 10,000 loan from his
employer,the CAGD.He used the money to pay for his post graduate studies.His
employer charged him interest of 2% per annum on the loan.During this period,the Bank
of Ghana policy rate was 15%.The loan is repayable within 10 months.
4. The CAGD runs a scheme for its executive staff whereby it provides twice a year,free
goods ranging from household effects,clothing and groceries.During the year ended 31
December,2016,Fred received such goods valued at GHS 9,000.
5. On 1 October,2016,Fred commenced part-time lecturing in Accounting at a local private
Senior High School.He is paid monthly for his services and the total amount received for
3 months ended 31 December,2016 was 5,000 gross.
6. Fred’s other non-employment income during the year 2016 include;

GHS
Net royalties received from his accounting textbook 21,250
Gross local company Dividends(unquoted shares) 13,000
Interest on Bank Deposits from local financial 10,000
institutions
Gross lottery winnings 12,000

Required;
a) State KMA’s tax obligation when making the disbursement of GHS 10,000 to
CAGD. (5 marks)
b) Calculate Fred Agyemang’s taxable income and tax payable for the 2016 Year of
Assessment in respect of all income streams accrue to him (15 marks)
Note;All computations should be rounded to a whole cedi.
QUESTION 2
STE Ltd was incorporated in 2015 and commenced business operations on 1
January,2016,specializing in the manufacturing and distribution of solar panels,solar lights and
solar powered related products.STE’s head office and business Premises is currently located at
Tema.The Managing Director has come out with a proposal that the company should either move
to Takoradi or Achimota.

On 30 June 2015,STE had successfully applied for a 2 year loan of GHS 750,000 with an interest
rate of 15% per annum from a leading local financial institution.The loan was applied as follows;
GHS
Construction of Showroom at Tema 100,000
Procurement of plant and machinery 250,000
Procurement of raw materials 300,000
Procurement of Commercial vehicle 100,000
Total 750,000

STE’s fixed assets acquired in 2016 and related depreciation are;

Cost Depreciation
GHS GHS
Head office building 150,000 3,750
Factory building 120,000 6,000
Furniture and fittings 65,000 6,500
Office computers 80,000 16,000
Total 415,000 32,250

Note;

The fixed assets procured using the loan have not been included in the fixed assets acquired in
2016 and neither was the expenditure on raw material procurement recorded in STE’s
books.These assets were first bought into use on 1 January,2016.

STE’s Statement of Comprehensive Income for the year ended 31 December,2016

GHS GHS
Turnover 4,834,500
Cost of Sales(Excluding initial raw materials) (796,338)
Gross profit 4,038,168
Add;other operating income
Financial gains 7,000
Sales commission 48,000 55,000
4,093,168
Less;Operating expenses
Salaries and wages 480,000
Electricity and water 32,700
Repairs and maintenance 98,050
Industrial research and development 76,300
Bank loan interest 183,750
Advertising and marketing 203,800
Depreciation 32,250
Financial cost 60,000
Provision for bad debt 5,000
Tax 244,625
Penalties 5,600 1,422,075
Net Profit 2,671,093

Additional information;

1) Included in the repairs and maintenance is an expense of 35,000 repairs on plant and
machinery.
2) Tax is made up of quarterly instalment of GHS 150,000 and PAYE of GHS 23,656.25 per
quarter.
3) Penalty relates to court fines for careless driving by one of the company drivers
4) Included in Advertising and Marketing costs is a Neon signboard worth GHS
200,000.This is purchased on a hire purchase basis and to be paid in four equal
installments.
5) Provision for bad debt relates to general estimates made
6) Industrial research includes a Patent of GHS 40,000 with a useful life of 10 years.

Required;

As a renowned tax practitioner,

a) Compute the maximum Depreciation allowance claimable by STE limited for the year
ended 31 December,2016 (8 marks)
b) Calculate the Chargeable income of STE Ltd for the 2016 YOA (7 marks)
c) Advice the Managing Director on the tax implications of his proposals as well as any
non-tax factors to be considered.Your answers should include figures for illustration.
(5 marks)
QUESTION 3

a) Some of your clients have over the years asked several questions about the operations of the
Customs Division of the Ghana Revenue Authority. Your firm has therefore decided to
organise a seminar for them on Customs operations. You have been assigned to brief the
clients on the following:

i. The functions of the Customs Division of the Ghana Revenue Authority (5 marks)

ii. How Customs arrive at the duty to pay on imported goods (5marks)
iii. The procedure for clearing imported general goods (5 marks)

b) At the end of the seminar one of your clients approached you and informed you that he is
desirous of buying an auction vehicle from one of the Ministries. The vehicle, which was
imported into the country in 2010 was exempted from import duty.

Required:
Advise him on the tax implication of that transaction. (5 marks)

c) Tax reforms have characterised global taxation. Countries have embarked on various reforms
geared towards improvement in tax revenue to help the basis for infrastructure and guarantee
sustainable development. Ghana has not been left out in these critical reforms.

Tax administration in Ghana therefore has seen a number of reforms since the 1960s, with
the most recent being the integration of the Revenue Agencies to an Authority to act as a
one stop shop as per the Ghana Revenue Authority Act, 2009 (Act 791).

Required:

Discuss the governance structure of the Ghana Revenue Authority (5 marks)

QUESTION 4

Mr. Kwame Berko graduated from the University of Ghana in 2017. In 2019, he secured a
Government of Ghana scholarship to pursue a master’s program in Agricultural Science at the
University of Alabama in the United States of America. During the course of the master’s
program, he developed unique ideas on how to establish a commercial farm and also engage in
the processing of the farm products.

On his return to Ghana, he decided to implement the ideas developed during his time at the
University of Alabama.
His business plan shows that he intends to:

i. establish a farm to grow coconut and as well as an associated factory to process the
coconut into milk for domestic consumption.
ii. establish a poultry farm to produce chicken and eggs for domestic consumption.
Mr. Berko has submitted his business plan to you for tax advice.

Required:

As a tax advisor of high repute, advise Mr. Kwame Berko on the following:

a. the income tax benefits of farming coconut and establishing a processing factory. (8 marks)
b. the income tax benefits of establishing a poultry farm. (4 marks)

c. the most suitable place in Ghana to establish the farms and the factory in order to derive
maximum tax benefits. (8 marks)
TOTAL 20 MARKS

d. Pearl House Ltd is a company incorporated in Ghana and contemplates applying for a licence
to operate within the Free Zone environment from the Free Zone Board as opposed to an
earlier decision to run a Micro Finance Business. Management has been at a crossroads on
the decision to make.

Required:
As a Tax Consultant, the Management of Pearl House Ltd has approached you to join them at a
breakfast meeting and convince them on the tax benefits if any that Pearl House Ltd stands to
gain from the operations in the Free Zone milieu. (10 marks)
QUESTION 5

a) Auntie Awo is a VAT trader who sells exempt and taxable supplies.The following list of
items have been extracted from the records of the firm for the month of February,2016.
GHS
Total amount of exempt supplies 635,000
Total amount of relief supplies 62,500
Total amount of taxable activities 2,732,000
Total amount of zero-rated supply 51,600
Input VAT on taxable supplies 250,000
Input VAT that cannot be attributable to exempt or taxable 73,500
supplies
Purchase of Toyota Camry(Invoice value) 48,500

Included in the Input VAT on taxable supplies is the Input VAT of the Toyota Camry and
Entertainment expenses input VAT of GHS 5,000.Take Withholding VAT at 7%

Required;

a.Determine the VAT,NHIL and GETFUND payable (5 marks)

b. What are the conditions for refund of Input tax? (5 marks)

c. Nangodi Enterprise in its bid to be tax compliant has sought your opinion on the circumstances
under which its registration under Value Added Tax can be cancelled by the Commissioner
General.
Required:
What are the conditions under which the Nangodi Enterprise’s registration can be
cancelled? (5 marks)