ATAX – Nov 2016 – L3 – Q2c – Petroleum Profits Tax (PPT)

Compute and explain the significance of adjusted profit, chargeable profit, and chargeable tax for Joji Petroleum Company.

Question

Mr. Gillani Azurhi is considering investing in a petroleum company and has provided financial extracts of Joji Petroleum Company Limited for analysis.

Financial Data Provided:

Item	N’000
Current year capital allowances	6,080
Previous years’ capital allowances b/f	8,901
Custom duty	125
Royalties not included in accounts	1,638
Loss brought forward	6,250
Petroleum Profits Tax payable	1,336

Tax Rate: 85%

Required:

Compute and explain the significance of each of the following:

i) Adjusted profit (9 Marks)
ii) Chargeable profit (2 Marks)
iii) Chargeable tax (2 Marks)

Answer

2c
JOJI PETROLEUM COMPANY LIMITED
COMPUTATION OF PETROLEUM PROFITS TAX

i. The significance of Adjusted Profit for tax purpose is that it incorporates adjustments for disallowable expenses distinct from the computation of Net Profit or Surplus for the year for accounting purposes.
ii. The significance of Chargeable profit is that it incorporates adjustments for losses brought forward (if any), Tertiary Education Tax and Capital Allowance. It is the amount on which Petroleum Profits Tax is charged.
iii. The significance of Chargeable Tax is that it is the tax that will be paid for the year of assessment to which it relates.

Tags: Adjusted Profit, Capital Allowance, Chargeable Profit, Chargeable Tax, Petroleum Tax
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

Uploader: Kofi