Kanawu Mine Resources Limited was incorporated on 1 January 2017 to mine gold and diamonds at Prestea in the Western region of Ghana. Various reconnaissance and prospecting activities took place from 2017 to 2019. Actual production started on 1 January, 2020.

The following were the cost and revenue relative to reconnaissance and prospecting activities and cost from 2017 to 2019.

The following transactions took place from 1 January, 2020 to 31 December, 2020:
i) The company received a compensation of GH¢3,500,000 from their insurers for destruction of some gold mined.
ii) Mining and processing cost, including wages and salaries, incurred during the year was GH¢120,345,000.
iii) Sales of gold and diamonds GH¢378,532,900.
iv) Ground rent paid to the Administrator of Stool Lands GH¢321,500.
v) The company undertook further research and development studies at the cost of GH¢374,300.
vi) Royalties amounting to GH¢11,355,987 was paid to the government.

vii) The company acquired a new Mineral Right at a cost of GH¢5,000,000. Bonus payment made in respect of grant of the new mineral right was GH¢300,000. The legal and other professional fees paid with respect of the acquisition of the new right was GH¢121,800.
viii) Stope preparation and development cost paid was GH¢884,300. The total cost of the stope preparation and development incurred was GH¢1,021,700.
ix) The total cost of business operating permits was GH¢5,563,200. This amount includes GH¢400,000 provision for 2021.
x) Other general and administrative expense totaled GH¢190,467,100. This includes construction of a huge iron gate at the entrance of the mine at a cost of GH¢421,600.
xi) Selling and distribution cost paid was GH¢172,554,700.
xii) Finance charge of operations, including interest on loans and bank charges, incurred was GH¢211,500,000.

Required:
a) Compute capital allowance claimable in 2020. (6 marks)

b) Compute the chargeable income of the company and the tax payable for the year 2020.     (10 marks)

c) Comment on the tax treatment of Royalty Payment and acquisition of new mineral rights.   (4 marks)

A mining Company in Ghana intends buying a vehicle (Pajero) for official use under a finance lease arrangement or an outright purchase. The cost profile of the vehicle is as follows:
i) Outright Purchase: Cost at GH¢80,000.
ii) Finance Lease Arrangement: Cost inclusive of interest is GH¢105,000, to be paid over three years. The interest component is GH¢30,000 to be spread over the three years.

Required:
Determine which of the option you would advise to be adopted.                 (6 marks)

Kaka Ltd is a mining company that has been operating in Ghana for some time now. The following relates to Kaka Ltd’s 2019 year of assessment:
                                                 GH¢
Revenue                              10,200,000
Cost                                       4,000,000
Profit                                     6,200,000

The following additional information is relevant and has been adjusted in arriving at the profit stated above:
                                                                                         GH¢
i) Depreciation, Depletion and Amortization              2,000,000
ii) Cost incurred in overburden stripping and shaft sinking during production to improve access amounted to GH¢800,000.
iii) Contribution towards worthwhile cause is GH¢10,000. This was in support of a hole-in heart child. This was duly acknowledged by Ghana Health Service.
iv) Royalty of GH¢80,000 was paid without recourse to the revenue from production.

Additional information:

• An asset (Capital Asset) acquired in 2016 for GH¢1,000,000 was sold for GH¢200,000 in 2019.
• Capital allowance (written down value brought forward) on the assets as at 31 December 2018 was GH¢4,000,000
• 10 fresh graduates were recruited in 2019 year of assessment, 4 of the fresh graduates completed universities in the United States of America while the others completed University for Development Studies in Ghana. They were paid GH¢120,000 as salaries. Total workforce for 2019 year of assessment was 60.

Required:
i) Compute the tax payable by Kaka Ltd.             (10 marks)

ii) The mining company indicated that it had an idle cash of GH¢100,000. If it adds it to its working capital, an additional income of GH¢10,000 would accrue but with an option to purchase Treasury Bills, the interest would remain at GH¢10,000.

Required:
Advise Management on the tax implication of the proposed investment.                  (2 marks)