- 15 Marks
Question
Raposa Nigeria Limited, a company located in Sambisa Forest, Kutunwegi State of Nigeria, commenced operations on November 1, 2017. The accounting year-end was September 30. Due to government policy restricting rice importation, the business’s going concern was threatened, leading the Board of Directors to decide to cease operations on December 31, 2022.
The adjusted profits for the relevant periods are as follows:
| Period | Adjusted Profit (N) |
|---|---|
| Period to September 30, 2019 | 2,100,000 |
| Year ended September 30, 2020 | 2,400,000 |
| Year ended September 30, 2021 | 3,640,000 |
| Year ended September 30, 2022 | 6,300,000 |
| Period to December 31, 2022 | 500,000 |
Additional Information:
- A bad debt of N120,000, written off in the 2020 assessment year, was recovered in October 2021.
- N20,000 was spent to recover this debt.
- An expenditure of N350,000 incurred in the 2020 assessment year was accounted for in the profit or loss but was not paid until August 2022.
Upon cessation, the revenue authority planned a back-duty investigation and informed the taxpayer accordingly. As a tax consultant, you are invited to determine the assessable profits for the relevant periods from the commencement of trade to business cessation.
Required: a. State THREE reasons why a business may cease trading. (3 Marks)
b. Compute net terminal adjusted profit. (6 Marks)
c. Compute assessable profits for all the relevant years of assessment. (6 Marks)
Answer
a. Reasons Why a Business May Cease Trading:
-
- Government Policy Changes: Regulatory changes, such as import restrictions or trade barriers, can negatively impact business viability.
- Financial Challenges: Consistent losses or cash flow issues can lead to an inability to meet operational costs, prompting closure.
- Market Conditions: Increased competition, declining demand, or economic downturns may force a business to cease operations.
b. Raposa Nigeria Limited
Computation of net terminal adjusted profit
The net terminal adjusted profit was N500,000
NOTE:
(i) Bad debts recovered in October 2021 must have been captured in the relevant accounting year.
(ii) Amount spent in recovering the debt must also have been captured in the same accounting year.
(iii) The expenditure of N350,000 was actually passed through the books before the year of cessation.
Given the fact that the transactions occurred before the date of cessation, informed the decision to ignore same in the computation of the net terminal adjusted profit.
c. Raposa Nigeria Limited
Computation of assessable Profit
For the relevant assessment years
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