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- 20 Marks
Question
Shika, Bekwai, and Sena, who are in partnership, have agreed to share profits and losses in the ratio of 2:2:3, respectively. During the year ended 31 December 2018, their books showed an adjusted profit of GH¢210,000 after accounting for the following:
| Shika | Bekwai | Sena | |
|---|---|---|---|
| Salaries | 70,000 | 80,000 | 150,000 |
| Interest on Capital | 12,000 | 16,000 | 12,000 |
| Partners’ Drawings | 6,000 | 4,000 | 10,000 |
You are given the following additional information:
i) Shika is married with two children who are in school and maintained two dependent relatives, who are more than 60 years, on which she spends GH¢10,000 annually.
ii) Shika also has a life assurance policy on herself attracting capital sum of GH¢1,600,000 but pays annual premium of GH¢1,800.
iii) Bekwai took a mortgage for his building and has been paying GH¢4,000 per month as mortgage interest.
iv) Bekwai is undertaking a two-week training program to update his knowledge on how to manage accounting software used in partnership businesses. He has spent GH¢1,500 on the training.
v) Bekwai received a television as a gift valued at GH¢3,000 for being the best worker in 2018 in Ghana.
vi) Sena is 62 years old and unmarried but has three dependent children while Bekwai is also unmarried but has one child who is schooling in Ghana.
Required:
a) Compute the assessable income for each partner for the year 2018. (10 marks)
b) The partnership business has some casual workers, temporary workers, and part-time workers. What are the taxation rules and tax liabilities of such workers? (6 marks)
c) Shika is an ‘international woman’ who travels often. There was confusion in 2018 as to whether she should be taxed as a resident or non-resident. What constitutes a resident individual for taxation purposes in Ghana? (4 marks)
Answer
a) Computation of Partners’ Assessable Income for 2018
| Shika (GH¢) | Bekwai (GH¢) | Sena (GH¢) | |
|---|---|---|---|
| Salaries | 70,000 | 80,000 | 150,000 |
| Interest on Capital | 12,000 | 16,000 | 12,000 |
| Share of Profit | 62,857 | 62,857 | 94,286 |
| Gross Income | 144,857 | 158,857 | 256,286 |
| Gifts (Television) | – | 3,000 | – |
| Mortgage Interest | – | (48,000) | – |
| Marriage Responsibility Relief | (200) | – | (200) |
| Child Education Relief | (400) | (200) | – |
| Dependent Relatives Relief | (200) | – | – |
| Self-Education Relief | – | (400) | – |
| Old Age Relief | – | – | (200) |
| Chargeable Income | 144,057 | 113,257 | 255,886 |
Workings:
- Adjusted Profit = GH¢210,000
- Add Partners’ Drawings:
- Shika: GH¢6,000
- Bekwai: GH¢4,000
- Sena: GH¢10,000
- Total Profit for distribution = GH¢220,000
- Profit Sharing Ratio (2:2:3):
- Shika = 2/7 × 220,000 = GH¢62,857
- Bekwai = 2/7 × 220,000 = GH¢62,857
- Sena = 3/7 × 220,000 = GH¢94,286
b) Taxation Rules and Liabilities of Casual, Temporary, and Part-Time Workers
- Casual Workers:
Payments to casual workers are taxed at a flat rate of 5%, and this is treated as final tax. Casual workers are those employed for a short term, not exceeding six months, with wages paid on a daily basis.
(2 marks) - Temporary Workers:
Temporary workers are employed for a continuous period of not less than one month and their remuneration is taxed according to the graduated individual rates.
(2 marks) - Part-Time Workers:
For resident part-time workers, tax is withheld at a rate of 10%. For non-resident part-time workers, the rate is 20%. The tax withheld is treated as a final tax in both cases.
(2 marks)
c) Definition of Resident Individual for Tax Purposes
An individual is considered resident in Ghana for tax purposes if:
- They are present in Ghana for an aggregate period of at least 183 days in a 12-month period.
- They are a citizen of Ghana, and do not have a permanent home outside of Ghana, residing in Ghana throughout the year.
- They are an employee or official of the Government of Ghana posted abroad during the year.
- They are a citizen who is temporarily absent from Ghana for not more than 365 continuous days, provided they have a permanent home in Ghana.
(4 marks)
- Topic: Income Tax Liabilities
- Series: NOV 2020
- Uploader: Joseph