Question Tag: Rent

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  • 10 Marks

PT – July 2023 – L2 – Q5a – Withholding Tax Administration

Calculate taxes and determine whether each is final based on various transactions provided.

The following information is available to you as a tax consultant:

Description Amount (GH¢)
Dividend paid to resident person 100,000
Dividend paid to non-resident person 200,000
Payment of goods to resident person 300,000
Payment of goods to non-resident person 400,000
Rent – residential property 150,000
Rent – commercial property 300,000
Natural Resource Payment 1,000,000
Management and Technical Service fees to non-resident 400,000
Interest paid to resident financial institution 20,000,000
Royalty paid to non-resident person 400,000

Required: Compute taxes from the above information and indicate whether the tax is final or not final.

Description Amount (GH¢) Tax Rate (%) Tax to be Withheld (GH¢) Remarks
Dividend paid to resident person 100,000 8 8,000 Final Tax
Dividend paid to non-resident person 200,000 8 16,000 Final Tax
Payment of goods to resident person 300,000 3 9,000 Not a Final Tax
Payment of goods to non-resident person 400,000 20 80,000 Final Tax
Rent – residential property 150,000 8 12,000 Final Tax
Rent – commercial property 300,000 15 45,000 Final Tax
Natural Resource Payment 1,000,000 15 150,000 Not a Final Tax
Management and Technical Service fees to non-resident 400,000 20 80,000 Final Tax
Interest paid to resident financial institution 20,000,000 0 0 Exempt
Royalty paid to non-resident person 400,000 15 60,000 Final Tax
  • 20 Marks

FA – Nov 2021 – L1 – Q2 – Accruals and prepayments | Preparation of Partnership accounts

Recording rent transactions and preparing financial statements related to the retirement of a partner, including revaluation and goodwill adjustments.

a) Ansong is a sole proprietor whose accounting year is 1 November to 31 October. Ansong rents factory space at the cost of GHȼ10,000 per quarter, payable in advance. Payments for rent were made on 1 January, 1 April, 1 July, and 1 October during the year 2020.

Required:
i) Show the ledger entries to record the above transactions for the year ended 31 October 2020.
(4 marks)

ii) Prepare an extract for the Statement of Profit or Loss and Statement of Financial Position.
(1 mark)

b) Agyei, Bobo, and Dago have been in partnership for some years, sharing profits and losses in the ratio 3:2:1, respectively. The partnership statement of financial position as at 30 June 2020 was as follows:

Assets GHȼ GHȼ
Non-current assets
Premises 80,000
Office equipment 58,400
Motor vehicles 45,000
Total Non-current assets 183,400
Current assets
Inventory 28,600
Trade receivables 25,800
Bank 5,650
Total Current assets 60,050
Total assets 243,450
Capital and Liabilities
Capital accounts
Agyei 95,000
Bobo 60,000
Dago 50,000
Total Capital 205,000
Current accounts
Agyei 15,200
Bobo 7,040
Dago (debit balance) (10,200)
Total Current accounts 12,040
Current liabilities
Trade payables 26,410
Total Capital and Liabilities 243,450

The partners have agreed that the following should take effect on 1 July 2020 upon the retirement of Dago:

  • Goodwill is to be valued at GHȼ60,000 and will not remain in the books of account.
  • Premises are to be revalued to GHȼ116,325.
  • Dago is to take inventory costing GHȼ8,400 and a Motor Vehicle with a net book value of GHȼ20,500 as part settlement of his capital.
  • A specific allowance for receivables is to be made for GHȼ5,300 owed by an individual customer. In addition, a general allowance for receivables is to be made at 5% of the remaining trade receivables.
  • Agyei and Bobo will continue in partnership, sharing profits and losses in the ratio 3:2.
  • Dago will transfer GHȼ12,000 to a loan account to be repaid in full in 2025. No loan interest will be charged on this amount.
  • The remaining balance from combining both Dago’s capital account and current account will be paid from the business bank account.

Required:
i) Prepare the partners’ capital accounts on 1 July 2020 to show the retirement of Dago.
(7 marks)

ii) Prepare the partnership statement of financial position as at 1 July 2020.
(8 marks)

a)

Workings:
1. Revaluation surplus calculation:
GHȼ (116,325 – 80,000) – GHS (5,300 + (25,800 – 5,300) x 5%) = GHȼ30,000
Agyei 30,000 x 3/6 = 15,000
Bobo 30,000 x 2/6 = 10,000
Dago 30,000 x 1/6 = 5,000
2. Goodwill in old ratio:
Agyei 60,000 x 3/6 = 30,000
Bobo 60,000 x 2/6 = 20,000
Dago 60,000 x 1/6 = 10,000
3. Goodwill in new ratio:
Agyei 60,000 x 3/5 = 36,000
Bobo 60,000 x 2/5 = 24,000

ii) Partnership Statement of Financial Position as at 1 July 2020

  • 20 Marks

FA – Nov 2020 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | The IASB’s Conceptual Framework

Question on various accounting principles and preparation of specific accounts related to rent, rates, bad debts, and doubtful debts.

a) Accounting principles and concepts are of fundamental importance in the preparation of financial statements.
Required:
With the aid of relevant examples, outline your understanding on any FOUR (4) of the following concepts/principles: i) Accruals
ii) Going Concern
iii) Historical Cost
iv) Materiality
v) Break up basis
(10 marks)

b) Patricia Ltd prepares accounts to 31 December each year. The following transactions relate to Rent and Rates: i) 31 December 2018 three months’ rent owing amounted to GH¢6,000.
ii) 31 December 2018 two months rates prepaid amounted to GH¢5,250.
iii) During the year 2019, cash paid for rent and rates amounted to GH¢90,000
iv) Rent owing as at 31 December 2019 amounts to GH¢9,000
v) Rates prepaid as at 31 December 2019 amounts to GH¢2,250
Required:
Prepare a combined rent and rates account to disclose the amount that is chargeable to the profit or loss account for the year ended 31 December, 2019.
(4 marks)

c) The following information was extracted from the books of Maanaa and Co.:

Year Bad debts written off (GH¢) Trade Receivables (GH¢) Allowance for doubtful debt (%)
1 200,000 1,200,000 10
2 300,000 1,800,000 5
3 100,000 3,000,000 5

Required:
Prepare the following accounts for the 3 years to determine the amount chargeable to the Profit or Loss account:
i) Bad debts written off account (2 marks)
ii) Allowance for doubtful debt account (4 marks)

a)
Accruals
Income is recognized in the financial statements as it is earned, not when the cash is received. Expenditure is recognized as it is incurred, not when it is paid for. When income is incurred over time (e.g., rental/interest income) or expenditures are time-based (e.g., rent payments), the income and expenditure recognized in the income statement should relate to the time period, not to the receipts and payments of cash. For example, the sale of a good is recognized in the financial statements when the rights and rewards of ownership have passed from the seller to the purchaser not when the cash is received.

Going Concern
Financial transactions are usually prepared on the assumption that the business will continue in operational existence for the foreseeable future. This means that the financial statements are drawn up on the assumption that there is no intention or necessity to close down the business. If the financial statements are not prepared on the going concern basis, then they must be prepared on what is known as the break-up basis. The break-up basis reflects the following:

  • Some non-current assets may be sold at less than their value on the statement of financial position, whilst a machine may have a use for specific business, it may be scrap or no use to other businesses.
  • In contrast, property may be sold for a value in excess of that shown in the statement of financial position based on original cost.
  • If the entire inventory is sold at once, then it will not be sold for as much money as if it were sold in the normal way.
  • Some receivables may decide not to pay the business if it is known the business is about to go into liquidation.

In most cases, financial statements are prepared on a going concern basis unless there is evidence to the contrary.

Historical Cost
Assets are recorded at historical cost, i.e., what they were bought for. Liabilities are valued at the amount initially received in exchange for the obligation. Thus, the figure shown in the financial statements for an item is the value of the item when the transaction occurred, not its current market value. Historical cost has many drawbacks, a significant one being that the non-current assets of the business tend to be undervalued and therefore the statement of financial position does not show the true value of the business. Historical cost continues to be used, however, for the following reasons: it is simple and cheap to apply, figures used are objective and verifiable, and the lack of a sound and acceptable alternative. An example of the historical cost concept is valuing buildings at a cost price of GH¢100,000 even though the current market value of the buildings is GH¢250,000.

Materiality
Materiality is a threshold quality that is demanded of all information given in the financial statements. When immaterial information is given in the financial statements, the resulting clutter can impair the understandability of the other information provided. An item’s size is judged in the context both of the financial statements as a whole and of the other information available to users that would affect their evaluation of the financial statements. An example of a material item is the value of non-current assets of GH¢250,000 in the financial statement of an entity with total assets of GH¢320,000. The non-current assets are material to the financial statements of the entity.

(4 principles well explained @ 2.5 = 10 marks)

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