CERTIFIED INTERNATIONAL TAX ACCOUNTANTS UK SAMPLE QUESTIONS SUBJECT/MODULE: PROGRAMME / LEVEL: Tax Accounting II CITA Level II 1
INSTRUCTION: Answer any Four (4) questions 25 marks each TIME: 3hrs APPLICATION: Students are advised to apply the Tax Laws of their respective countries and all assumptions must be stated. Question one Doctor William Hayes, An Irish citizen, was seconded to Ashanti Goldfields Company Ghana Limited and assumed duty on 1/03/2015 on a consolidated annual salary of 30,000.00. He was provided with a fully furnished accommodation on the mining site and a Toyota hilux pickup with fuel and a driver. He enjoyed a risk allowance of 8,000.00 per annum and an overseas allowance of 10,000.00 per annum. Ashanti Goldfields Limited paid 5½% to the Social Security Fund for Dr. Hayes. Accommodation allowance was 600.00 monthly. Due to ill health Dr. Hayes left to Britain on 1/08/2015 for another appointment. Calculate Doctor Hayes chargeable income and the tax payable if any, for the year of assessment 2015. 25 Marks Question Two The following is the Profit and Loss Account of God s Grace for the year ended 31/12/2015. Gross Profit B/F 3,000,000.00 Rent Income received 150,000.00 Dividend Received 100,000.00 Salaries and wages 35,000.00 Subscriptions and donation 2,000.00 Audit fees 15,000.00 Depreciation 10,000.00 Bank Charges 3,000.00 Legal Expenses 3,000.00 Office Rent 20,000.00 Repairs and Maintenance 15,000.00 Provision for bad and doubtful debts 7,000.00 Registration and licenses 1,500.00 Electricity and water 1,000.00 Income tax already paid 15,000.00 Sundry expenses 3,500.00 (131,000.00) Net Profit 419,000.00 Notes 1. Capital allowance for the year amounts to 15,000.00 2. Corporate tax rate applicable is 25% 2
3. Bank charges include an unrealized exchange loss (due to an accounting adjustment of exchange rate to match group policy). The amount of unrealized loss is 1,000.00 4. Unutilized capital allowance brought forward is 8,000 5. Donations include an amount of 1,500.00 donated to a political party. 6. Salaries and wages includes an employer s contribution to provident fund of 12,000.00 7. Provision for bad debt includes an amount of 3,000.00 that is a general provision in line with accounting conventions. 8. Dividend was received net of withholding tax of 10% 9. Rent income was received net of withholding tax of 10% 10. Bank charges include an amount of 1,500.00 in relation to interest on the property rented out. Re-adjust and Compute the chargeable income and tax thereon for God s Mercy for the year of assessment 2015 using the accrual concept. 25 Marks Question Three Gross Profit B/F 3,000,000.00 Rent Income received 150,000.00 Dividend Received 100,000.00 Salaries and wages 35,000.00 Subscriptions and donation 2,000.00 Audit fees 15,000.00 Depreciation 10,000.00 Bank Charges 3,000.00 Legal Expenses 3,000.00 Office Rent 20,000.00 Repairs and Maintenance 15,000.00 Provision for bad and doubtful debts 7,000.00 Registration and licenses 1,500.00 Electricity and water 1,000.00 Income tax already paid 15,000.00 Sundry expenses 3,500.00 (131,000.00) Net Profit 419,000.00 NOTES 1. Salaries and wages outstanding amounted to 15,000 were included in the Income Statement. 2. Accrued Audit fees for the period amounted to 5,000. 3. An amount of 1,000 of legal expense which was unpaid has been included in the Income Statement. 3
4. Office rent included 5,000 owing. 5. Electricity and water outstanding amounted to 500 but was included in the Income Statement. 6. Income tax unpaid but included in the income statement amounted to 5,000 7. Sundry expense accrued but included in the income statement totaled 1,000 Compute the chargeable income and tax thereon of God s Mercy for the year of assessment 2007 using cash accounting concept. 25 Marks Question Four Rita Tetteh built a house at Tamale at a cost of 40,000.00 in March 2015. She incurred a further 40,000.00 in extending the house into a two storey building. She sold the house for 140,000.00 after paying for legal fees of 4,000.00 and valuation fees of 3,000.00 before the sale. Compute the Capital Gain Tax payable by Rita Tetteh. 25 Marks Question Five Gloria Boafo acquired ordinary shares of the same class in Unilever limited on a piecemeal basis at the following values: 200 shares in June 2002 30,000.00 400 shares in April 2003 45,000.00 150 shares in December 2005 18,000.00 200 shares in July 2007 40,000.00 Total cost of shares 133,000.00 In December 2007 she sold 300 shares for 45,000.00. The market price per share at the time of the disposal was 200.00. Compute her capital gains and the tax thereon. 25 Marks 4
Question six 1. Mr. Paul Simpson is the financial controller of Hopes Ltd. His contract of employment entitled him to an annual salary of 60,000, free fully furnished accommodation, a car with fuel and driver, unaccountable entertainment allowance, payment of utility bills and bonus detailed as below: i. Unaccountable entertainment allowance 500 per month ii. Electricity and water 400 per month iii. Telephone 200 per month iv. Professional allowance 10% of his Basic salary v. Fixed Bonus allowance 1,200 monthly Mr. Simpson is 62 and married to Vivian. He has 2 children who are all married. Determine his chargeable income for 2015 Y/A and the tax payable. Question seven 2. Isaac Huston is employed as an accountant at Coca Cola Bottling Company in Cameroon. He has been in employment since 1990 and currently on an annual salary of 18,000.00. He is provided with accommodation in the company guesthouse but share the premises with other company staff who are also being accommodated by the company. Isaac is not married and has no children; however he has an adopted son for whom he provides the necessaries of life. Isaac s adopted son is currently in basic school at Achimota primary school. After school he engages in minor activities that earns him 500 per annum. Aside being employed by Coca Cola Bottling Company, Isaac has a business. He engages in trading under a business registered as Isaac Enterprise. Isaac s business has been in existence for over 20 years preparing accounts to 30 September each year. In 2015 his accounting books showed a profit of 10,000.00 but this included depreciation of 2,000.00 and a total disallowable expenditure for tax purposes of 2,500.00. Allowable capital allowance is 16,000.00. In 2016 his books showed a profit of 15,000.00 but this included depreciation of 2,000.00 and a total disallowable expenditure for tax purposes of 2,500.00. Capital allowance for 2016 is 8,000.00 5
Aside the above, Isaac has a farm and a consultant on farming matters to a lot of other people. Below is an extract of Isaac other incomes aside those enumerated above. Year Consultancy Rents Income (Gross) Farming Gross Dividend 2015 7,000.00 10,000.00 (5,000.00) 6,000.00 2016 8,000.00 12,000.00 7,500.00 11,000.00 Compute Isaac s chargeable income and total tax payable for the 2015 years of assessment. Question Eight 3. Mr. Martin Mason was seconded to Dammew Ltd on 1 st October, 1999 as Financial Controller with the following service conditions: Salary 10,000 X 2,000 18,000 Fully furnished accommodation Vehicle with Fuel & driver Utility Allowance of 600 per annum Cook and Laundryman each paid 50 per month (added to his salary) Parent Company paid 250 each month for his wife s upkeep in London. ( 1 = 1.40) Compute Martin Mason s Chargeable Income for the 2016 Year of Assessment. 6
Question Nine 4. Alhaji Amadu was employed as site manager of ALFFA CONSTRUCTION WORKS LTD on 1 st December, 2008 on salary scale of 8,600 X 600 14,000. His service conditions include the following: Provision of a Pick Up car for both official and private purposes and a fuel allowance of 2000 monthly. Provision of a well furnished accommodation at the construction site for which he pays 5% of his basic salary as rent to his employer. His returns submitted to tax office on 23/03/16 in respect of 2016 Year of Assessment discloses the following unconsolidated allowances and benefits: Fixed Bonus allowance 2,400 monthly Accountable entertainment allowance 400 per month Risk allowance (7.5% of basic salary) Inconvenience allowance (12.5% of basic salary) House help allowance (added to his salary) 300 per month Duty post allowance 200 per month Utility allowance (15% of basic salary) Alhaji Amadu contributed 500 each month towards the SSF. Alhaji Amadu is a Moslem and has two wives (Fati and Abiba). He also has five children who are all attending SSS in Accra. His returns indicated that he finances the following Life Assurance Policies in 2016: INSURED INSURANCE CO. PREMIUM/ANNUM CAPITAL SUM ASS. SELF DONEWELL 400 4,500 FATI SIC 350 4,000 ABIBA SIC 250 3,000 SELF SIC 350 4,000 SELF ENTERPRISE 550 5,000 He also earns an interest of 180 on his flexi savings account with CAL Bank Ltd and receives endorsement fees of 500 (Net of 15% WHT) and Director s fees of 1,530 (Net of 15% WHT). Agreed profit for the year from his Consultancy Services was 1, 160 for which he paid 230 as tax. Lastly, a tax of 4,632.15 was withheld from his salary during year. Compute his Net Tax Payable for 2016 Year of Assessment. 7
Question Ten 5. James Brown is a 59 year old widower who has two daughters who were all gainfully employed. He was employed as a General Manager of God s Will Company Limited on 1 st September, 2000 on a salary scale of 12,000 X 600-15,000. His Returns submitted in respect of 2016 Year of Assessment revealed the following: i. Fully furnished accommodation ii. Vehicle with fuel and driver iii. 7.5% of his basic salary as duty post allowance iv. 15% of his basic salary as professional allowance v. 2.5% of his basic salary as risk allowance vi. Unaccountable entertainment allowance 200 per month vii. He contributed 5% of his basic salary towards the Social Security Fund viii. He contributed 10% of his basic salary towards the Company s Credit Union ix. He was provided with the following household items: soap, gas, toilet rolls amounting to 120 each month. x. He was paid a fixed monthly bonus of 3,000 in 2007 for which a tax of 168.75 was deducted and paid to IRS xi. He engaged in part time teaching at Accra Polytechnic and was paid 1,980 (net of 10% WHT) xii. He also marked WASSCE scripts in Mathematics and was paid 450 (net of 10% WHT) xiii. He also has a fleet of five (5) taxi cars and the agreed profit from the Transport Income for 2016 was 3,400. He paid VIT (Vehicle Income Tax) the total charge is 6.00 per taxi per quarter xiv. A monthly PAYE tax of 240.25 was deducted from his salary each month and paid to the Tax office. Compute his Net Tax Payable for 2016 Year of Assessment. Question Eleven 6. Mr. Gem Jeremiah was employed by Gem Ltd. On a flat salary of 3,475 as the financial controller of the company. He is provided with the following as part of his condition of service for 2010 Year of Assessment. i. Well-furnished rented flat provided by his employers in respect of which he pays 50 per month as rent by way of deductions at source. ii. Watchman allowance of 172 per annum, paid directly to Gem Jeremiah 8
iii. Risk allowance of 15% on basic salary. iv. Leave allowance of 445 per annum. v. Garden boy allowance of 95 per quarter paid directly to Mr. Jeremiah vi. Medical allowance of 680 per annum. vii. Meals allowance of 18 per month. viii. Two maidservants each on wages of 182.5 per annum. The /amount is paid to the maid servants directly by the Company. ix. A fixed Bonus of 40% of annual basic salary. x. Entertainment allowance of 400 a year (unaccountable). xi. Duty post allowance of 112 per month xii. He has Life Assurance Policy with Enterprise Insurance Ltd. The details are as follows: Policy Sum Assured Premium A 4,000 420 B 2,800 240 C 16,000 1,650 D 5,000 525 xiii. xiv. xv. He is entitled to company car, driver and fuel for both official and private use. He has two wives and ten children; four of whom are in Senior High Schools in Accra and the rest are gainfully employed; He caters for 3 of his aged relatives. He contributed 7% of his basic salary towards the company s Provident fund which has been approved by the National Pensions Authority; he also contributes 5.5% of his basic salary towards the Social Security Fund. (i) Compute his tax liabilities for the year of assessment 2016. (ii) Determine his take home pay for the 2016 year of assessment. 9
Question Twelve PROFIT AND LOSS ACCOUNTING FOR THE YEAR ENDED 31 ST DECEMBER, 2005 2016 2015 000 000 Sales 15,206 13,524 Cost of sales 3,009 3,007.... Gross Profit 12,197 10,517 Distribution costs 3,006 1,996 Administrative expenses 996 1,768 Selling expenses 3,002 274 Profit from operations 5,195 6,479 Net interest receivable 995 395.... Profit before tax 6,190 6,874 Corporation tax 3,104 1,452 Net profit 3,086 5,422 Dividends paid 1,469 1,439.... Retained profits 1,617 3,983 ===== ===== Accounting ratios and percentages Earnings per share 0.43 1.04 Performance ratios include the following: Gross margin 0.80 0.78 Expenses as a percentage of sales: Distribution costs 0.20 0.15 Administrative expenses 0.07 0.13 Selling expenses 0.20 0.02 Operating profit 0.34 0.48 Evaluate these ratios vis a vis its profitability per the attached profit & loss accounts. Comment on the assessable income and the investment income tax payable. 10
Question Thirteen The following is the Profit and loss Accounts of Fruits and Vegetables Limited (a farming concern) for the year ended 31 st December, 2011. The company exports processed fruits to United States of America. Gross Profit 50,110,000.00 Other income (Hiring of Vehicles) 430,400.00 LESS EXPENSE Audit fees 2,110,000.00 Salaries and Wages 2,171,800.00 Subscription and Donation 269,000.00 Legal expenses 101,000.00 Depreciation 19,600,000.00 Rent 45,880.00 Repairs and Maintenance 54,000.00 Bank charges 990,350.00 Registration and License 57,600.00 Sundry expenses 39,800.00 Electricity and Water 62,500.00 25,501,930.00 Net profit (transferred to income surplus account) 25,038,470.00 NOTES TO THE ACCOUNTS 1. Sundry expenses included first Quarter corporate tax paid 2,200.00. 2. Other Income refers to income from hiring of vehicles to the public. 50,540,400.00 3. Legal expenses included an amount of 90,000.00 incurred on the legal team for defending the company for its failure to keep its environment clean. 4. Subscription and donation included an amount of 22,000.00 donated towards Managing Director s Birth Day party 5. Loss on company s operation brought forward from 2010, was 5,500.00 6. Salary and Wages included an amount of 15,710.00 paid to a journalist in attempt to influence him to stop publishing malicious story about the school. 7. The company has the following written down values in their assets register: Pool 1 2,332.00 Pool 2 23,500.00 11
Pool 4 50,000.00 The following additional fixed assets were acquired during 2011 year of assessment. Motor Vehicle costing 3,300.00 Air conditioner costing 5,500.00 During the same year, the company made the following disposal: Motor vehicle valued 6,500.00 Sets of furniture and fittings valued 10,000.00 Compute the chargeable income of the company and all the taxes payable. 12