Every sitting, ICAG’s Chief Examiner publishes a report alongside the marking scheme, and most students never open it. That’s an expensive habit, because in the August 2022 Advanced Taxation report, the examiner didn’t say “many candidates struggled.” The words were: “More than 99% of the candidates got the capital allowance computation wrong.” Not an obscure technique — a single, learnable cap on repairs and improvement expenditure, worth a meaningful share of a 20-mark question.
The Scenario
Company A and Company B are both resident in Ghana, both located at Dodowa, both preparing for the 2021 year of assessment. Company A has a starting chargeable income of GH¢900,000, Company B has GH¢4,600,000. Both received dividends from a third company, Company C. Both made unapproved contributions to a local football club. And — the detail the whole question hinges on — both companies coincidentally bought two vehicle engines at GH¢80,000 each, spent on assets already sitting inside a Pool 2 with an opening written-down value of GH¢200,000.
The Rule That Separated a Pass From a Fail
Under Ghana’s Income Tax Act, repairs and improvement expenditure on an asset already in a capital allowance pool is not automatically a fresh, fully-expensible cost. There’s a ceiling: you may expense repairs and improvement up to 5% of that pool’s written-down value, straight against income. Anything above that 5% ceiling must instead be capitalised — folded into the pool and recovered through capital allowance over time, not claimed in one go.
On the real figures: Pool 2 opens at GH¢200,000. Ordinary capital allowance at 30% is GH¢60,000, leaving a written-down value of GH¢140,000. The two vehicle engines then bring in GH¢160,000 of repairs and improvement expenditure. Five percent of the GH¢140,000 written-down value is GH¢7,000 — the amount allowed as a straight deduction. The remaining GH¢153,000 must be capitalised into the pool.
Exam Tip: Once repairs-and-improvement expenditure is capitalised, it doesn’t sit as a separate adjustment — it becomes part of the pool’s depreciation basis for the year, and the whole pool’s capital allowance has to be recomputed from that new, higher base. Treating it as a stand-alone addition instead of folding it back into the pool calculation is exactly the mistake that produced a 99%-plus failure rate.
The Recomputation
Add the capitalised GH¢153,000 to the GH¢200,000 opening written-down value, and Pool 2’s new depreciation basis is GH¢353,000. Thirty percent of GH¢353,000 is GH¢105,900. Compare that to the GH¢60,000 already granted earlier in the same computation, and there’s an additional GH¢45,900 of capital allowance the pool is entitled to for the year — the exact figure the examiner says more than 99% of the room never reached.
The Dividend Trap Hiding in the Same Question
Company A added its dividend from Company C to income; Company B instead credited its creditors with the amount received. Under Ghana’s tax law, a dividend from a resident company is exempt from tax where the recipient holds 25% or more of the paying company’s shares — except where the paying company operates in mining or petroleum. Company A holds 25% of Company C, Company B holds 30%; both qualify. That’s precisely why Company A’s dividend has to be deducted back out of an income figure that already included it, and precisely why Company B — which never added it in the first place — needed no such adjustment.
The Rate Trap
Company A sits in its 4th year under a temporary tax concession, taxed at 1%. Company B sits in its 5th year as a free zone enterprise, exempt from tax for its first ten years. Tax expenditure — the revenue government forgoes by granting the concession — is the gap between the standard 25% company rate and whichever concessionary rate actually applies. On Company A’s adjusted chargeable income of GH¢727,100, that 24-point gap is worth GH¢174,504. On Company B’s GH¢4,647,100, the full 25 points are foregone — GH¢1,161,775. Two companies, one identical rule about concessions, over a million cedis apart in real terms.
The Presentation Warning
The examiner’s report closes this area with a pointed comment on form: “Solutions without appropriate headings have become common in the examination. Tax computation is always in respect of a person. That person must always be identified. Any solution that does not identify the tax payer is alien in tax administration.” A correct capital allowance figure attached to no name and no year of assessment is not a complete, markable answer.
Conclusion
The repairs-and-improvement cap isn’t an obscure footnote — it’s a mechanical, five-step rule: identify the pool’s written-down value, apply the 5% ceiling, expense up to that ceiling, capitalise the excess, and recompute the whole pool’s allowance from the new base. More than 99% of one exam hall skipped at least one of those steps. Drill the sequence until it’s automatic, and this becomes one of the most reliable marks on the paper instead of one of the most avoided.
Ready to Go Deeper?
This exact mechanic — and every other capital allowance, tax concession, and computation examiners repeat sitting after sitting — is covered in full inside our self-paced courses. Explore the courses at Profs Study Hub.
For free weekly study tips and exam breakdowns like this one, join the Profs Tax Academy newsletter — and if you’d rather study from a physical textbook, our exam-focused materials are available in hardcopy and digital formats.
