Question Tag: Income Surplus

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  • 3 Marks

TX – May 2019 – L3 – Q1a – Tax planning-+

Analyze the tax implications for a company increasing its stated capital by transferring funds from income surplus.

Management of Kwame Enterprise Ltd considers increasing its stated capital by transferring GH¢600,000 from Income Surplus in 2019 year of assessment in its bid to expand its business horizon in future. The management of the company intends to consult widely on the taxability, if any, on this line of action.

Required:

Assess the tax implication of this funding arrangement by Management of Kwame Enterprise Ltd.
(3 marks)

The Management of Kwame Enterprise Limited’s proposal to increase its stated capital will have to be given a legal effect. This arrangement therefore will require a payment of stamp duty. The stamp duty, which is a direct tax, is calculated at the rate of 0.5% of the amount of stated capital. In this case, the amount of stamp duty is (0.5% x 600,000) = GH¢3,000.00. The transfer from income surplus shall be treated as dividend with withholding tax at the rate of 8% imposed on the transfer. Management of Kwame Enterprise Ltd shall pay an amount of three thousand Ghana cedis as stamp duty to Ghana Revenue Authority through the Registrar General Department before the proposed transaction will take legal effect and an amount of forty-eight thousand Ghana cedis as dividend withholding tax.

  • 12 Marks

BCL – May 2019 – L1 – Q6a – Company Law

Explains the concepts of floating charge, naked debentures, and income surplus in company law.

a) Explain the following:
i) Floating charge
ii) Naked Debentures
iii) Income Surplus
(12 marks)

i) Floating Charge:

  • A floating charge is an equitable charge over the whole or a specified part of the company’s undertaking and assets, both present and future. This type of charge does not preclude the company from dealing with such assets until the security becomes enforceable. The charge crystallizes into a fixed equitable charge on the company’s assets upon certain events, such as the appointment of a receiver or manager, the company going into liquidation, or a court order.

    (4 marks)

ii) Naked Debentures:

  • Naked Debentures are unsecured debentures having no charge, either fixed or floating. This means that the debenture holders do not have any claim over specific assets of the company as security for the loan.

    (4 marks)

iii) Income Surplus:

  • Income Surplus is defined by Section 70 of the Companies Act, 1963 (Act 179) as the net assets of the company, which is the total value of the assets less liabilities and stated capital. It excludes any unrealized appreciation in the value of the company’s assets and any credit balance on the share deals account immediately before the ascertainment of the income surplus.

    (4 marks)

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