AT – May – 2018 – L3 – SC – Q5b – Petroleum Profits Tax (PPT)

Tax computation for Ayokunle Oil Nigeria Ltd., a petroleum company, including assessable and chargeable profit based on expenses and sales.

Question

Ayokunle Oil Nigeria Limited engages in petroleum operations. The company was incorporated in 2005 but commenced business in January 2010. It operates in the continental shelf at a water depth of 155 metres. The company makes up its accounts to December 31 each year.

The company has presented the following statement of activities for the year ended December 31, 2016:

Sales of crude oil:
- Exported at $52 per barrel: 120,500 barrels
- Domestic at N12,250 per barrel: 70,000 barrels
Chargeable natural gas sold: N300,800,000
Income from other sources: N6,770,000

Expenses incurred:

Expense Type	Amount (₦)
Operating costs	523,750
Non-productive rent	110,420
Intangible drilling cost	439,000
Custom duty	53,200
Salaries and other personnel costs	280,500
Interest paid	50,410
Royalty on oil exported	110,600
Royalty on local sales	41,200
Stamp duty	1,050
Donations	22,000
Transportation	72,070
Administration and general expenses	340,200
Bad debts	66,000
Pension contribution	21,000
Miscellaneous expenses	32,170

Additional Information:

Capital allowances were agreed at ₦133,000,000.
Plant and storage tank acquired and used during the year amounted to ₦80,000,000.
Depreciation of ₦105,000,000 was included in operating costs.
Custom duty on plant and storage tank, ₦2,250,000, was included in miscellaneous expenses.
70% of custom duty was on essential items.
The average exchange rate during the period was ₦365 to $1 (USA).