Attention Ltd opted for a finance lease, securing equipment with a total value of GHS450,000. The amount is further detailed with GHS350,000 designated for principal repayment and GHS100,000 for interest costs. The five (5) year repayment period involves annual principal payments of GHS70,000 and annual interest costs of GHS30,000. The lease commenced in January 2020. What will be the capital allowance for the 2024 year of assessment? A. GH¢47,206 B. GH¢47,026 C. GH¢47,062 D. GH¢47,602
Question
Attention Ltd opted for a finance lease, securing equipment with a total value of GHS450,000. The amount is further detailed with GHS350,000 designated for principal repayment and GHS100,000 for interest costs. The five (5) year repayment period involves annual principal payments of GHS70,000 and annual interest costs of GHS30,000. The lease commenced in January 2020. What will be the capital allowance for the 2024 year of assessment? A. GH¢47,206 B. GH¢47,026 C. GH¢47,062 D. GH¢47,602
Solution
To calculate the capital allowance for the 2024 year of assessment, we need to determine the remaining balance of the finance lease at the end of 2023.
The lease commenced in January 2020 and has a five-year repayment period. This means that by the end of 2023, three years of principal payments and three years of interest costs would have been made.
The annual principal payment is GHS70,000, so after three years, the total principal payments made would be 3 x GHS70,000 = GHS210,000.
Similarly, the annual interest cost is GHS30,000, so after three years, the total interest costs incurred would be 3 x GHS30,000 = GHS90,000.
To find the remaining balance, we subtract the total principal payments and interest costs made from the total value of the equipment.
Total principal payments made: GHS210,000 Total interest costs incurred: GHS90,000 Total value of the equipment: GHS450,000
Remaining balance = GHS450,000 - (GHS210,000 + GHS90,000) = GHS150,000
Now, we can calculate the capital allowance for the 2024 year of assessment. The capital allowance is calculated as a percentage of the remaining balance.
The capital allowance rate is not provided in the question, so we cannot calculate the exact amount. Therefore, none of the options A, B, C, or D can be determined as the correct answer without knowing the capital allowance rate.
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