PT - Nov 2021 - L2 - Q1a - Income Tax Liabilities

PT – Nov 2021 – L2 – Q1a – Income Tax Liabilities

Assess the tax payable on a capital transfer from retained earnings to stated capital based on the details provided.

Question

Kawukudi Ltd intends to increase its capital requirement. Therefore, it applied to the Registrar General with the following:

Retained Earnings Account (GHȼ)

Balance b/fwd: 100,000
Transfer from income statement: 1,200,000
Transfer to stated capital: (600,000)
Balance c/fwd: 700,000

Required:
Assess with explanation the tax payable under this circumstance.

Answer

The transfer of GH¢600,000 as income from the income surplus account to the stated capital is referred to as ‘deemed dividend’. This implies that a tax at the rate of 8% shall be imposed on the transfer. Thus, 600,000 X 8% = GH¢48,000.
There will also be a stamp duty payment of 0.5%. Thus, 0.5% x 600,000 = GH¢3,000.

Tags: Capital Transfers, Deemed Dividend, Ghana tax law, Retained Earnings, Tax computation
Level: Level 2

Topic: Income Tax Liabilities
Series: NOV 2021

Uploader: Kwame Aikins