ATAX – May 2016 – L3 – Q2 – Petroleum Profits Tax (PPT)

Compute assessable and chargeable profits, assessable and chargeable taxes, and tertiary education tax for Sky Petroleum Plc.

Question

Sky Petroleum Plc commenced operations over ten years ago and makes up accounts to December 31 annually. The following details have been extracted from the accounting records for the year ended December 31, 2014:

Details	Amount
Crude Oil Exported	3,500,000 barrels
Crude Oil Used Locally	1,200,000 barrels at ₦100 per barrel
Incidental Income from Petroleum Operations	₦26,750,000
Exploration and Drilling Costs	₦30,000,000
Management and Administration Expenses	₦240,500,000
Non-Productive Rents	₦8,300,000
Allowance for Bad Debts – General	₦7,500,000
Allowance for Bad Debts – Specific	₦11,200,000
Depreciation	₦7,250,000
Losses Brought Forward	₦13,200,000

Qualifying Capital Expenditure:

Asset	Date Acquired	Location	Amount (₦)
Pipeline and Storage Tanks	March 2014	Continental Shelf (190m water depth)	₦48,000,000
Plant and Machinery	June 2012	Territorial Waters (90m water depth)	₦63,800,000
Furniture and Fittings	May 2011	Territorial Waters (95m water depth)	₦21,000,000
Building	April 2013	Onshore	₦71,000,000

Breakdown of Management and Administration Expenses:

Item	Amount (₦)
Donations to Political Parties	₦8,500,000
Expenditure for Petroleum Deposit Information	₦4,700,000
Companies Income Tax of an Associated Company	₦5,000,000
Interest on Inter-Company Loans (at market terms)	₦2,600,000
Staff Salaries	₦175,000,000
Royalties on Export Sales	₦6,200,000
Repairs and Renewals on PPE for Petroleum Operations	₦2,900,000
Rents Paid for Oil Prospecting License	₦3,600,000
Other Administrative Expenses	₦32,000,000
Total	₦240,500,000

Additional Information:

International market price of crude oil in 2014 was USD $75 per barrel.
Exchange rate: USD $1 = ₦280.

Required:

a. Compute the Assessable Profit. (11 Marks)
b. Compute the Chargeable Profit. (5 Marks)
c. Compute the Assessable Tax. (1 Mark)
d. Compute the Chargeable Tax. (2 Marks)
e. Compute the Tertiary Education Tax. (1 Mark)

Answer

SKY PETROLEUM PLC
COMPUTATION OF PETROLEUM PROFITS TAX
FOR 2014 ASSESSMENT YEAR

Note:
There is no indication in the question that this company operates under the Deep Offshore and Inland Basin Production Sharing Contracts, hence no section 20 deductions are applicable.

Workings
Computation of Capital Allowances and Petroleum Investment Allowance