- 20 Marks
Question
ABC Nigeria Limited is a company engaged in the importation of ladies’ wigs and hair attachments. As a result of difficulties in procuring foreign currency needed for importations, the Board of Directors of the company decided to cease operations on April 30, 2024.
The following adjusted profits were extracted from the company’s records:
| N’000 | |
|---|---|
| Year ended December 31, 2022 | 16,800 |
| Year ended December 31, 2023 | 30,000 |
| Year ended April 30, 2024 | 9,800 |
After the date of cessation, the following transactions took place:
(i) A trade creditor with outstanding balance of N4,125,000 was paid N2,970,000 in full and final settlement of debts.
(ii) A trade receivable amounting to N2,750,000 that was written off as bad debt was duly recovered.
(iii) The delivery van used to distribute the company’s products to customers across the country which was snatched at gunpoint along Iperu-Sagamu Expressway was recovered by the Nigeria Police Force and the van was sold for N9,650,000.
(iv) The company’s lawyer who helped in the recovery of the delivery van and bad debt was paid a commission of N2.5 million.
Required:
a. Explain how the post cessation transactions will be treated for tax purposes. (4 Marks)
b. Compute the assessable profits for all relevant years of assessments. (11 Marks)
c. How do the provisions of Finance Act, 2019, on the cessation of business affect ABC Nigeria Limited?
(5 Marks)
Answer
a. Post cessation transactions are deemed to have taken place on the last day of business, hence all sums received or paid after the date of cessation are captured as part of cessation activities.
b. ABC Nigeria Limited Computation of assessable profit for 2023 – 2024 YOAs
| Year of assessment | Basis period | Assessable profit |
|---|---|---|
| 2023 | 01/01/22 – 31/12/22 | 16,800 |
| 2024 | 01/01/23 – 31/12/23 | 30,000 |
| 2024 | 01/01/24 – 30/04/24 wk 1 | 16,730 |
Workings:
| N’000 | |
|---|---|
| Profit on cessation | 9,800 |
| Receivables recovered | 2,750 |
| Sale of stolen vehicle recovered | 9,650 |
| Trade creditor settled | (2,970) |
| Lawyer’s commission | (2,500) |
| Assessable profit | 16,730 |
c. In line with provisions of Finance Act 2019, on cessation of business, companies will file returns on or before 6 months after the date of cessation of business while individuals will file returns 3months after cessation. Therefore, ABC Nigeria Limited, will file two returns for 2024 YOA because the company ceased operations on April 30 and the tax liability will be paid before the end of the year.
- Topic: Companies Income Tax (CIT)
- Series: MAY 2025
- Uploader: Samuel Duah