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  • 5 Marks

PT – Nov 2019 – L2 – Q2c – Withholding Tax Administration

Calculates withholding tax due from various contracts awarded to KPP Books & Stationery Ltd. by Ghana Water Company.

c) Below are the various contracts awarded to KPP Books and Stationery Limited by the Ghana Water Company for the 2018 year of assessment:

1st contract: supply of stationery costing GH¢1,000 in January 2018.
2nd contract: supply of Station Diaries costing GH¢900 in March 2018.
3rd contract: supply of additional stationery costing GH¢900 on August 16, 2018.
Required:
What amount of withholding tax is due to the Ghana Revenue Authority in the year 2018 from Ghana Water Company? (5 marks)

i) The 1st contract sum of GH¢1,000 does not meet the threshold amount of GH¢2,000, so there will be no tax withheld on the amount.
(1 mark)

ii) The 2nd contract sum of GH¢900 also does not meet the threshold of GH¢2,000. Furthermore, the aggregate value of the 1st and 2nd contracts (GH¢1,000 + GH¢900 = GH¢1,900) also does not meet the threshold of GH¢2,000, so no withholding tax will be charged on payment of the 2nd contract.
(1.5 marks)

iii) The 3rd contract sum of GH¢900 does not meet the threshold of GH¢2,000. However, the aggregate value of the 1st, 2nd, and 3rd contracts (GH¢1,000 + GH¢900 + GH¢900 = GH¢2,800) exceeds the threshold of GH¢2,000, so the cumulative amount of GH¢2,800 will be subject to withholding tax at the applicable rate of 3%.

Tax withheld is 3% x GH¢2,800 = GH¢84.
(1.5 marks)

Note: A student would also be correct if he or she states that, at the start of the year, the company anticipates that purchases from the vendor will exceed the threshold of GH¢2,000. In this case, the first, second, and third purchases will all be taxed at 3%, and the same tax liability will result.
(1 mark)

  • 5 Marks

CR – Mar 2024 – L3 – Q2c – IFRS 15: Revenue from Contracts with Customers

This question requires determining whether Odjani Plc should recognize revenue as a principal or agent in the sale of airline tickets, based on IFRS 15.

Odjani Plc (Odjani) negotiates with major local and international airlines to purchase tickets at reduced rates compared with the price of tickets sold directly by the airlines to the public. Odjani agrees to buy a specific number of tickets and must pay for those tickets regardless of whether it is able to resell them. The reduced rate paid by Odjani for each ticket purchased is negotiated and agreed in advance. Odjani determines the prices at which the airline tickets will be sold to its customers. Odjani sells the tickets and collects the consideration from customers when the tickets are purchased. The entity also assists the customers in resolving complaints with the service provided by the airlines. However, each airline is responsible for fulfilling obligations associated with the ticket, including remedies to a customer for dissatisfaction with the service.

Required:
In line with IFRS 15: Revenue from Contracts with Customers, explain whether Odjani is a principal or agent and indicate how it would determine the amount of revenue to recognize from the ticket sales.

Under IFRS 15, the determination of whether an entity is acting as a principal or an agent is based on who controls the goods or services before they are transferred to the customer.

  1. Principal vs Agent Assessment:
    • Principal: An entity is a principal if it controls the goods or services before they are transferred to the customer. As a principal, Odjani would recognize revenue at the gross amount received from the customer.
    • Agent: An entity is an agent if it arranges for another party to provide the goods or services to the customer. The agent would recognize revenue as the net amount (i.e., the difference between what it receives from the customer and what it pays to the supplier).
  2. Odjani’s Role:
    • Odjani negotiates and purchases tickets in advance and assumes the risk of payment whether or not the tickets are resold. This indicates that Odjani controls the tickets before transferring them to customers.
    • Additionally, Odjani has the discretion to set the selling price for the tickets, which further suggests that Odjani is acting as the principal in the arrangement.
    • Although the airline fulfills the service obligations (i.e., providing the flight), Odjani’s control over the tickets and pricing means it is acting as a principal.
  3. Revenue Recognition:
    • Since Odjani is acting as a principal, it should recognize the gross amount received from customers as revenue.
    • The costs associated with purchasing the tickets from the airlines would be recognized as expenses, separate from the revenue recognized.
  • 4 Marks

CR – Nov 2023 – L3 – Q2c – IFRS 15: Revenue from Contracts with Customers

Revenue recognition for a data provider offering real-time and historical data access based on IFRS 15 for the year ended 31 May 2023.

Accra Investors Help (AIH), a large stock market data provider in Ghana, provides stock market data to investors across major markets in Africa.

On 1 June 2022, the data provider sold a client access to its real-time database for three (3) years at an invoiced price of GH¢3.6 million. The client has the right of access to AIH’s database any time, 24 hours each day, to obtain the real-time data about stock prices around the African markets. On the same date, AIH sold to another client for GH¢800,000 access to 30 years of historical data for the next two (2) years. The client has the right to access the data, containing historical information from 1992-2021 (24 hours each day) and is also free to download the data and retain it after the two-year access to AIH’s system has elapsed.

Required:
Advise on how much revenue AIH would recognize for the year ended 31 May 2023 on each of the two contracts. (4 marks)

The case would be dealt with in accordance with rules set out under IFRS 15: Revenue from Contracts with Customers.

IFRS 15 requires entities to apply a five-step model to recognize revenue in a manner that depicts the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. More specifically, in this scenario, it is important to determine when the promised data access would transfer to the clients as this shows when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer).

In the first situation, where Accra Investors Help (AIH) sold access to a real-time database, AIH has granted the right to access its intellectual property as it exists at the time of access. Further, the content of that intellectual property is constantly updated. That allows the customer to simultaneously receive and consume benefits from AIH’s performance of the obligation.

Therefore, AIH recognizes the revenue on that contract over time; i.e. GH¢1.2 million (GH¢3.6 million divided by 3 years). The remaining GH¢2.4 million would be presented as half current liability and half non-current liability.

In the second situation, where AIH sold historical data, it provided the customer with intellectual property as of a point in time. In this case, access over time does not seem to be a key aspect of the performance obligation, and AIH’s performance obligation is satisfied at the time of sale.

Thus, AIH recognizes GH¢800,000 of revenue at the time of the sale (1 June 2022).

(Any 4 valid points for explanations for 4 marks)

  • 6 Marks

CR – Nov 2019 – L3 – Q3a – IFRS 15 – Revenue from Contracts with Customers

IFRS 15 to recognize revenue for contracts with customers involving deferred payments and prepayments.

a) IFRS 15: Revenue from Contracts with Customers specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers.

Mankranso Ltd, a hotel, had the following transactions during the year:

i) On 31 March 2019, Mankranso Ltd signed a contract to supply 50,000 units of food packs at an agreed price of GH¢10 per unit. On the same day, 30,000 units were delivered at that date, with the remainder delivered on 1 June 2019. It was agreed that the customer would have extended credit terms of 12 months from the date of delivery. Mankranso Ltd’s cost of capital is 10%.
(3 marks)

ii) During the year ended 31 March 2019, Mankranso Ltd received payment in advance for the supply of 2,000 hotel room-nights to customers at GH¢100 per room per night. Only 400 of these had been occupied by 31 March 2019. The amounts paid by the customers are non-refundable unless the company fails to provide the agreed accommodation.
(3 marks)

Required:
In each scenario above, calculate the amount of revenue to be recognised in the financial statements of Mankranso Ltd for the year ended 31 March 2019. Justify the correct accounting treatment for each transaction.

i) Revenue from the Sale of Food Packs (Deferred Payment):

  • Step 1: Identify the contract: A contract exists as Mankranso Ltd agreed to deliver 50,000 food packs at a price of GH¢10 per unit.
  • Step 2: Identify performance obligations: Delivery of 50,000 food packs, with 30,000 delivered by 31 March 2019 and the remaining 20,000 to be delivered on 1 June 2019.
  • Step 3: Determine the transaction price: The price is GH¢10 per unit.
  • Step 4: Allocate the transaction price: The 30,000 units delivered by 31 March 2019 represent a performance obligation fulfilled, and thus revenue should be recognized for those units. However, because the customer has 12 months to pay, the transaction price must reflect the time value of money.
  • Step 5: Recognize revenue: Mankranso Ltd must discount the price of 30,000 units to reflect the deferred payment. The effective revenue to be recognized for 30,000 units is:Revenue recognized=30,000×GH¢10×11.10=GH¢272,727\text{Revenue recognized} = 30,000 \times GH¢10 \times \frac{1}{1.10} = GH¢272,727

Thus, revenue of GH¢272,727 is recognized for the year ended 31 March 2019.

ii) Revenue from Advance Payment for Room-Nights:

  • Step 1: Identify the contract: A contract exists for the supply of 2,000 hotel room-nights at GH¢100 per night.
  • Step 2: Identify performance obligations: The obligation is to provide the hotel rooms. As of 31 March 2019, 400 room-nights have been provided.
  • Step 3: Determine the transaction price: GH¢100 per room-night.
  • Step 4: Allocate the transaction price: The transaction price is allocated based on room-nights provided. For the 400 room-nights provided by 31 March 2019, revenue can be recognized.
  • Step 5: Recognize revenue: Revenue is recognized for the 400 room-nights provided as follows:Revenue recognized=400×GH¢100=GH¢40,000\text{Revenue recognized} = 400 \times GH¢100 = GH¢40,000

The remaining GH¢160,000 (for the 1,600 unoccupied room-nights) is recognized as deferred revenue.

Thus, GH¢40,000 is recognized as revenue for the year ended 31 March 2019, and GH¢160,000 is deferred revenue.

  • 4 Marks

BCL – Nov 2016 – L1 – Q3a – Contract Law

List the modifications made to the doctrine of consideration by the Contracts Act, 1960 (Act 25).

The Contracts Act, 1960, Act 25, has modified the common law doctrine of consideration. List FOUR of the modifications.

Modifications to the Doctrine of Consideration:

  1. A promisor who has promised to keep his offer open for a specified period is not at liberty to withdraw the offer before the expiration of that period on the ground that the promisee has not provided any consideration for the offer.
  2. A creditor who promises, without receiving consideration, to forego the whole or part of a debt or to waive the performance of some other contractual or legal obligation can be held to his promise. The promise of waiver shall not be invalid as a contract by reason only of the absence of any consideration for it.
  3. If one is legally bound to perform a legal duty, the performance, or promise to perform that act may be sufficient consideration.
  4. It is possible for consideration to be supplied by someone other than the promisee. The beneficiary need not be the promisee. (Section 10 of the Contracts Act).
    (4 points at 1 mark each = 4 marks)
  • 8 Marks

BCL – Nov 2016 – L1 – Q2b – Sale of Goods/Hire Purchase

Identify differences between Free On Board (FOB) and Cost, Insurance, and Freight (CIF) contracts.

Identify FOUR differences each between Free On Board (FOB) contracts and Cost, Insurance, Freight (CIF) contracts.

Free On Board (FOB) Contracts

  • The buyer is entitled and bound to nominate a ship to the seller calling during the agreed period.
  • The seller is bound at his own expense, to have the goods on the ship nominated by the buyer.
  • The seller is bound at his own expense, to give such notice to the buyer.
  • The seller is not bound to effect any insurance on the goods.
  • The seller is bound to transmit to the buyer bills of lading by which the goods are deliverable to the buyer.
  • The risk of the goods passes to the buyer when they are shipped.
    (4 points at 1 mark each = 4 marks)

Cost, Insurance, and Freight (CIF) Contracts

  • The seller is bound at his own expense to ship the goods during the period, if any, to the port agreed upon or to acquire goods afloat which have been so shipped.
  • The seller is bound, at his own expense, to effect on the goods an insurance of the type normal for goods and voyage of the kind in question.
  • The seller is bound to transfer to the buyer proper shipping documents in accordance with the terms of the contract.
  • The buyer is bound to take up proper shipping documents and, on doing so, to pay the price in accordance with the terms of the contract.
  • The goods are deemed to be delivered to the buyer, and the property therein accordingly passes to the buyers, on the transfer to him of the bills of lading.
  • The risk in the goods passes to the buyer when they are shipped or acquired afloat.
    (4 points at 1 mark each = 4 marks)
  • 6 Marks

BCL – Nov 2016 – L1 – Q2a – Sale of Goods/Hire Purchase

Explain the relationship between the parties under the Sale of Goods Act.

Mr. Bossman bought a Nissan diesel vehicle from Trans Africa Engineering and Motor Co. Ltd. However, when the vehicle broke down, Mr. Bossman did not go to the dealers for spare parts, but rather went to Messrs Jones Williams & Co., and through one of its directors, placed an order for the spare parts from Japan. The order was placed for the spare parts with TSS Co. Ltd, and by Telex, headed “we quote for Japan,” TSS Co Ltd, supplied Jones Williams & Co. with the requisite quotation, and that the spare parts would be delivered in three (3) months’ time. Mr. Bossman then got his foreign bankers to transfer the amount, being the cost of the spare parts to the bankers of Messrs Jones Williams & Co. Ltd, who in turn, paid the amount to the suppliers. When the spare parts were not forthcoming, Mr. Bossman sued Messrs Jones Williams & Co. for the return of his money, interest, and damages. Before the court case started, Mr. Bossman received the spare parts, and therefore had to abandon his claims.

Required:
a) Explain the following in terms of the provisions of the Sale of Goods Act, 1962 (Act 137):
i) The relationship between Mr. Bossman and Messrs Jones Williams & Co. Ltd.
ii) The relationship between TSS Co. Ltd and Messrs Jones Williams & Co. Ltd.

i) The relationship between Mr. Bossman and Messrs Jones Williams & Co. Ltd:

  • The relationship is one of agency and not of sale of goods.
  • Messrs Jones Williams & Co. Ltd never delivered to Mr. Bossman a pro-forma invoice of its own stating the price at which it would sell the spare parts to Mr. Bossman or the time it would deliver the goods.
  • All that Messrs Jones Williams & Co., Ltd did was to give Mr. Bossman a copy of the telex from the suppliers and asked him to pay for the cost of the spare parts calculated from the unit prices.
  • The obligation that Messrs Jones Williams & Co Ltd assumed towards Mr. Bossman was that of using its best endeavors to procure the goods for him on the most favorable terms, and they were not responsible for the delay.
    (3 marks)

ii) The relationship between TSS Co. Ltd and Messrs Jones Williams & Co. Ltd:

  • When the TSS Co. Ltd agreed to procure the goods for Messrs Jones Williams & Co. Ltd, TSS Co. Ltd did that as the agent of Messrs Jones Williams & Co. Ltd, or as a principal party standing towards Messrs Jones Williams & Co. Ltd in the relationship of a seller.
  • The contract between the supplier TSS Co. Ltd and Jones Williams & Co. Ltd was of the type in commercial circles known as Free on Board (FOB) contract. By the rules of FOB Contracts, the supplier assumed the responsibility for shipping the goods to the buyer.
  • The seller TSS Co. Ltd assumed no responsibility for insurance or freight, nor did it give guarantees as to the time of the arrival of the ship at its destination.
  • The only representation which TSS Co. Ltd made was that it was ready, willing, and able to deliver the goods (spare parts) within three (3) months to any port in Japan nominated by Jones Williams & Co. Ltd and load them at their own expense on the ship designated by them (Messrs Jones Williams & Co. Ltd).
    (3 marks)
  • 5 Marks

BCL – Nov 2023 – L1 – Q1d – Contract Law

Advise on the enforceability of a contract involving a civil servant.

Frank James is a foreign national and businessman. He approached Rampa, an accountant and civil servant at the Registrar General Department for assistance to establish a factory. Rampa was ready to help if Frank James offered him 20% of the yearly profit from the business. Subsequently, Frank James and Rampa signed a written agreement for Rampa to have 20% of yearly profit from the business. Frank James paid the 20% for the first two years. In the third and fourth years, Frank James failed to pay the agreed 20% on profit. Rampa insists on enforcing the agreement.

Required: Advise Rampa on the chances of success of his claim. (5 marks)

 

The case falls in the area of contract to use official position or public office to secure private reward. In the present scenario, the conduct of Rampa was injurious to the public interest as his expectation of private financial gains was bound to conflict with his official duties. The contract was illegal and unenforceable on the grounds of public policy. (5 marks)

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