- 15 Marks
Question
Duru Cobbler Limited has been in the business of shoe manufacturing for many years. Information contained in the company’s statement of profit or loss for the year ended November 30, 2018, is as follows:
| Details | Amount (N) |
|---|---|
| Revenue | 18,546,000 |
| Other income: | |
| – Rental income (gross) | 240,000 |
| – Profit on sale of property, plant, and equipment | 120,000 |
| – Interest on bank deposits (net) | 234,000 |
| Total Other Income | 594,000 |
| Total Revenue | 19,140,000 |
| Less: | |
| Staff salaries and wages | 6,180,300 |
| Finance cost | 1,144,000 |
| General administration expenses | 10,585,190 |
| Impairment loss | 420,000 |
| Depreciation and amortization | 1,690,000 |
| Total Expenses | 20,019,490 |
| Loss before tax | (879,490) |
| Income tax expense | – |
| Deferred tax provision | (64,380) |
| Loss after tax | (943,870) |
Additional notes provided by the accountant:
- Finance costs include bank charges and interest on overdrafts.
- General administration expenses include:
- Bad debts of N655,000 from bulk sales of shoes to the managing director’s relations.
- Value added tax of N985,000 not imposed on some invoices.
- Capital allowances for the relevant year amount to N1,294,000.
Required:
(a) Compute the total profit and tax liabilities payable by Duru Cobbler Limited for the relevant year of assessment. (10 Marks)
(b) Describe zero-rated goods and services under the Value Added Tax Act Cap VI LFN 2004 (as amended) and identify two transactions that may fall under this category. (3 Marks)
(c) Identify the penalties for non-registration for VAT. (2 Marks)
Answer
a)
Duru Cobbler Limited
Computation of total profit and taxes payable
For 2019 year of assessment
(b) Zero-Rated Goods and Services under VAT Act:
- Zero-rated goods and services refer to items subject to VAT at 0%. They are taxable but have a 0% rate, allowing input tax recovery.
- Examples of zero-rated transactions include:
- Non-oil exports.
- Goods and services for diplomats.
(c) Penalties for Non-Registration for VAT:
- A penalty of N10,000 for the first month of failure.
- N5,000 for each subsequent month.
- Potential business premises closure.
- Tags: Companies Income Tax, Penalties, Tax computation, VAT, Zero-Rated Goods
- Level: Level 2
- Topic: Companies Income Tax (CIT), Value-Added Tax (VAT)
- Series: MAY 2019
- Uploader: Kwame Aikins