TAX – Nov 2015 – L2 – Q6 – Companies Income Tax (CIT)

This question involves the computation of total capital allowances for JohnGab Ltd's first five years and capital allowances for the first three years of assessment.

Question

As part of the induction programme for the newly recruited staff of your firm of Tax Consultants, you have been saddled with the responsibility of making a presentation on companies tax computation for beginners during the firm’s training session.

The following data were submitted for the purpose of the training:

JohnGab Limited, a training company, was incorporated on 1 June 2008 but commenced business on 1 September 2008. The following information is made available to you:

Period	Assessable Profit (₦’000)
Four month-period ended 31 December 2008	37,500
Year ended 31 December 2009	60,000
Year ended 31 December 2010	90,000

The following assets were purchased during the period:

Date	Asset	Cost (₦’000)
5 June 2008	Land and building	17,500
1 July 2008	Motor car	6,000
15 October 2008	Machinery	14,000
28 February 2009	Furniture	3,750
1 May 2009	Delivery van	5,000

In order to clearly explain the extant rules on computation of capital allowances by
companies, you are required to:
a. State the basis periods of assessment and compute the total capital allowances for the first five years of assessment. (5 Marks)
b. Calculate the capital allowances due to be utilized for the first three years of assessment in respect of the qualifying capital expenditure incurred by the company. (5 Marks)

Answer

JOHNGAB LIMITED
DETERMINATION OF BASIS PERIODS
FOR THE RELEVANT ASSESSMENT YEARS AND CAPITAL ALLOWANCESS