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AT – May2024 – PL – SB – Q2 – Petroleum Profits Tax

Compute hydrocarbon tax for 2023 and advise on tax implications of investing in deep offshore areas for a petroleum company.

Question

New Rain Petroleum Company Limited has been operating in the onshore and shallow water areas of the Niger Delta region for over fifteen years. The company was granted a petroleum mining lease licence in January 2021. In its bid to improve profitability, the company‟s management intends to apply for licence to operate in the deep sea area as from 2025. The decision of the management is expected to be laid before the members of the company at the 2023 annual general meeting, which comes up in the second half of 2024.

The following was extracted from the book of accounts of the company for the year ended December 31, 2023:

Income:	N‟ million	N‟ million
Fiscal value of crude oil sold (note 1)		191,100
Value of condensate from associated gas sold (note 1)		84,474
Value of natural gas liquid from associated gas sold (note 1)		55,328
Other incidental income		151
Realised exchange gain		38
Gross total income		331,091
Expenses/deductions:
Royalty incurred and paid	86,200
First exploration wells cost	6,800
First two appraisal wells costs	18,700
Joint cost- terminalling	12,000
Gas reinjection wells cost	3,420
Salaries and wages	9,300
Power cost	1,650
NDDC charge	125
Concessional rentals	60,430
Depreciation of assets	13,860
Allowance for doubtful debts (note 3)	2,400
Host community trust fund contribution	4,800
Stamp duty	16
Staff welfare	350
Travelling	180
Donations and subscription (note 4)	6
Decommissioning and abandonment	1,300
Environment remediation fund contribution	1,250
General expenses (note 5)	500
Finance costs	1,750	225,037
Net profit		106,054

The following additional information was also provided:

(i) Data on crude oil; condensate from associated gas sold; and natural gas liquid from associated gas sold;

Category	Quantity (million barrels)	Actual price USD	Fiscal price USD
Crude oil	5.25	70	72
Condensate from associated gas	3.61	45	44
Natural gas liquid from associated gas	2.80	38	40

(ii) Omitted from the records was a balancing charge of N1, 500,000 made from disposal of an old oil equipment platform;

(iii) Allowance for doubtful debts:

	N‟ million
Specific provisions	900
General provisions	1,500
	2,400

(iv) Donations and subscription:

	N‟ million
Recognised orphanage homes	3.0
Host community‟s cultural group	2.0
Subscription to oil and gas association	1.0
	6.0

(v) General expenses:

	N‟ million
Penalty for gas flare	250
Printing of stationery items	140
State government levy	110
	500

(vi) Agreed capital allowances:

	N‟ million
Brought forward	167
For the year	2,105
	2,272

(vii) Production allowance:

	N‟ million
Onshore operations	900
Shallow water operation	1,700
	2,600

(viii) The exchange rate averaged N520 to 1 USD during the year; and

(ix) Assume the tax liabilities are to be paid in domestic (Naira) currency.

Required:

As the company’s Tax Manager, you are to advise the management, in accordance with the provisions of Petroleum Industry Act 2021, on:

a. Hydrocarbon tax payable in the relevant assessment year (18 Marks)

b. The tax implications, if the company decides to involve or invest in deep offshore areas

(2 Marks)

Answer

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Tags: Capital allowances, Cost-Price Ratio, Hydrocarbon Tax, Offshore Operations, Petroleum Industry Act, Production Allowances
Level: Level 3

Topic: Petroleum Profits Tax (PPT), Taxation of Specialized Businesses
Series: MAY 2024

AT – May2024 – PL – SA – Q1 – Taxation of Companies

Advise on treatment of excess deductible interest on foreign loan, compute adjusted profit for 2022, and tax liabilities for 2018-2023 assessment years for an agro-allied company.

Question

Soft Farm and Agro-Allied Limited, a subsidiary of Emperor Agro Incorporated, Italy, was incorporated in Nigeria in January 2018. Soft Farm and Agro-Allied Limited produces palm kernel for domestic use and export to the European market.

The Managing Director of the company has just received a letter from the head office (parent company) of an impending visits occasioned by poor business performance (below the group‟s return on investment benchmark of 25%) since commencement of the business, in spite of financial and technical supports rendered by the parent company. It would be recalled that in January 2022, the parent company granted the loan request of N100 million to Soft Farm and Agro- Allied Limited for business expansion.

The Board has scheduled a special meeting for next month for the consideration of the financial report of Soft Farm and Agro-Allied Limited for the year ended December 31, 2022 and review of past financial reports and tax assessments.

As the newly engaged Tax Consultant to the company, you have been invited to be part of the meeting for the purpose of providing professional opinion on tax related issues that may arise. To help you prepare adequately for the meeting, the Financial Accountant has been directed by the Managing Director to make available to you the financial statements for all the periods under review, books of accounts, returns filed with tax authorities and other supporting documents.

You noted from the preliminary review of the financial report for the year ended December 31, 2022, an item that requires further discussions with management of the company. This issue is in respect of interest paid on loan obtained from the parent company.

Extract from the financial statements for the year ended December 31, 2022 reveals:

	N‟000	N‟000
Gross turnover:
Domestic sales		147,500
Export sales		200,100
Other operating income		3,300
Total gross turnover		350,900
Deduct:
Staff salary	122,600
Ground rent paid to the State government	3,200
Motor running expenses	1,750
Audit and accountancy fees	1,000
Repairs and maintenance	5,800
Depreciation of assets	38,240
Rent paid	1,850
Power and lightning	5,400
Legal cost	5,000
Rates (water)	2,100
Allowance for doubtful debts	10,500
Donations	4,000
Interest and other finance costs paid	15,600
Income tax provision	23,400
General expenses	5,900	246,340
Net profit		104,560

The following additional information is available:

(i) Export sales

20% of the export sales was made to the parent company at the prevailing

international market price.

(ii) Other operating income:

	N‟000
Dividend received (net)	2,700
Profit from disposal of non-current asset	600
	3,300

(iii) Repairs and maintenance:

	N‟000
Repairs of plantation equipment	1,200
Repairs to premises (non-industrial building)	900
Expansion to warehouse (industrial building)	3,700
	5,800

(iv) Rent paid:

This is in respect of accommodation for the newly employed General Manager, whose basic salary is N4,800,000.

(v) Legal cost:

	N‟000
Cost of income tax appeal	850
Cost of debt collection	1,300
Cost of acquiring new lease	1,700
Renewal of old lease	1,150
	5,000

(vi) Allowance for doubtful debts:

	N‟000
Specific provisions	5,230
General provisions	7,870
Bad debts recovered	(2,600)
	10,500

(vii) Donations:

	N‟000
Palm Oil Research Institute	1,400
National Library	600
Cocoa Research Institute of Nigeria	1,000
Women Society of the host community	1,000
	4,000

(viii) Interest and other finance costs paid

In January 2022, the company obtained a loan facility of N100 million from the parent company forthe purpose of expansion of the business at a competitive interest rate of 12% per annum. The duration of the facility is 10 years.

The company is expected to pay interest due for the first 3 years, while from years 4 to 10, both principal and interest dues are to be paid at the end of each year.

The balance as shown in the financial statements is attributed to other finance cost and bank charges paid to domestic deposit money banks on various accounts operated by the company.

(ix) General expenses:

	N‟000
Wedding gift to staff	350
Fine imposed on a company‟s driver for traffic offense	150
Haulage expenses	3,200
Transport and travelling	2,200
	5,900

(x) Schedule of prior years‟ turnover and assessable profits:

Year ended December 31	Turnover N‟000	Assessable profit N‟000
2018	154,400	78,750
2019	198,600	95,120
2020	310,300	142,800
2021	314,900	166,900

(xi) Schedule of qualifying capital expenditure incurred:

Date of acquisition	Asset type	Amount N‟000
August 31, 2017	Plantation equipment	4,600
August 31, 2017	Industrial building	12,000
August 31, 2017	Non-industrial building	9,000
January 1, 2018	Motor vehicles (3)	8,400
January 1, 2018	Furniture and fittings (10)	1,500
February 14, 2021	Motor vehicles (2)	5,600
June 12, 2022	Furniture and fittings (10)	2,000
July 8, 2022	Research and development	7,000

Required:

As the Tax Consultant to the company, you are to draft a report to the Managing Director of Soft Farm and Agro-Allied Limited, in line with the provisions of the Companies Income Tax Act Cap C21 LFN 2004 (as amended). The report should provide professional advice on the:

a. Treatments of excess amount of deductible interest paid

(6 Marks)

b. Adjusted profit of the company for the year ended December 31, 2022 (7 Marks)

c. Tax liabilities for all the relevant assessment years

(17 Marks)

Answer

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Tags: Adjusted Profit, Agro-Allied Business, Capital allowances, Companies Income Tax, Foreign Loan, Interest Deductibility, Tertiary Education Tax
Level: Level 3

Topic: International taxation, Tax Incentives, Taxation of Companies, Transfer Pricing
Series: MAY 2024

TX – May 2024 – L2 – SB – Q2 – Companies Income Tax

Compute assessable profits and company income tax liabilities for Adidas Nigeria Limited for relevant years after accounting date change.

Question

Adidas Nigeria Limited has been in business for so many years. The company is into supply of furniture, fixtures and fittings.

Since the date of commencement of business to the accounting year ended October 31, 2018, it had posted reasonable profits. In year 2019, a competitor, ABC Limited, was able to introduce a new brand of furniture into the market, which boosted the sales of the company. Unfortunately, this had an adverse effect on the gross turnover of Adidas Nigeria Limited. Despite concerted efforts made by Adidas Nigeria Limited to compete favourably with ABC Limited, its fortunes continued to dwindle.

To allow for capital injection, the directors of Adidas Nigeria Limited, decided on February 1, 2020, to change its accounting date to be in line with one of its foreign partners. The board, therefore, decided that the accounting year-end be changed to December 31, every year.

You are provided with the following additional information:

(i) Adjusted profits	N
Year ended October 31, 2019	24,500,000
Period ended December 31, 2020 (14 months)	38,200,000
Year ended December 31, 2021	44,100,000

(ii) Gross turnover	N
Year ended October 31, 2019	49,100,200
Period ended December 31, 2020	75,200,500
Year ended December 31, 2021	101,300,000

(iii) Capital allowances	N
Assessment year 2020	850,000
Assessment year 2021	720,000
Assessment year 2022	600,000

Required: For the relevant assessment years:

a. Compute the assessable profits

(14 Marks)

b. Compute the company‟s income tax liabilities

(6 Marks) (Ignore minimum tax computation)

Answer

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Tags: Adjusted Profits, Assessable Profits, Capital allowances, Change of Accounting Date, Companies Income Tax, Gross Turnover, Income Tax Liabilities
Level: Level 2

Topic: Companies Income Tax (CIT)
Series: MAY 2024

AT – Nov 2022 – Q7 – Deferred Tax Provisions

Compute tax liabilities for 2021 assessment year and deferred tax provisions for 2021 and 2022 for ICTREC Mining Company Limited using provided financial data.

Question

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

PROFESSIONAL LEVEL EXAMINATION – NOVEMBER 2022

ADVANCED TAXATION

The issue of correct computation and presentation of deferred taxes in financial statements has been a source of worry to the Managing Director of ICTREC Mining Company Limited. Last year, the Federal Inland Revenue Service raised a query on the financial statements of the company and the annual tax returns filed for purposes of tax assessment.

In order to avoid any tax query on the financial statements, your firm of chartered accountants has been approached by the Managing Director of the company to assist in the preparation of financial statements suitable for presentation at the annual general meeting of the company and to the tax authorities for purposes of determination of tax liabilities payable.

All the relevant books of accounts have been made available to you in respect of the company’s financial transactions. The extract from the accounts of the company for the year ended December 31, 2021, revealed the following:

N’000 Turnover

125,400 Rent and rates 12,200

Direct mining transportation cost 1,190

Direct mining cost 47,400 60,790 Gross profit

64,610 Dividends income (net)

3,900 Interest on foreign deposit

2,750

71,260 Salaries and wages 25,340

Depreciation of mining plant 2,500

Depreciation (other non-current assets) 7,840

Other administrative and general expenses 4,210

Loan interest 850

Loss on sale of old mining plant 200 40,940 Net profit

30,320

The following additional information was provided:

(i) The interest on foreign deposit was repatriated to the country through the company’s domiciliary account in a Nigerian deposit money bank.

(ii) The company has unrelieved losses of N2,800,000.

(iii) Capital allowance as agreed with the relevant tax authorities for the year was N7,250,000.

(iv) The tax written down value of qualifying capital expenditure as at December 31, 2021, after the above capital allowances have been taken into account was N35,110,000, while the net book value on the same date was N23,700,000.

(v) The opening tax written down values and net book values were N42,620,000 and N33,900,000, respectively.

(vi) Unpaid tax at the beginning of the year was N15,620,000, while payment in the year was N18,860,000.

(vii) Assume a depreciation rate of 10% per annum on its mining plant.

(viii) The company revalued its mining plant during the year ended December 31, 2017. The revaluation surplus there from which amounted to N5 million was reflected in the company’s financial statements for that year.

Required: You have been directed by your Principal Partner to work on this assignment and present a draft of the report to him for review before sending it to the Managing Director of ICTREC Mining Company Limited. The report should show explicitly the computation of the companies:

a. Tax liabilities for the relevant year of assessment b. Deferred tax provisions for 2021 and 2022

Answer

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Tags: Adjusted Profit, Capital allowances, Computation, Deferred Tax, Depreciation, Financial Statements, Mining Company, Revaluation Surplus, Tax liabilities, Tertiary Education Tax
Level: Level 1

Topic: Corporate Tax Compliance and Reporting, Taxation of Companies, Taxation of Specialized Business Sectors
Series: NOV 2022

AT – May 2025 – PL – SC – Q7 – Taxation of Specialized Businesses

Prepare a report on possession/purchase of minerals, tax incentives for pioneer industries, treatment of losses/capital allowances, and restrictions for pioneer industries.

Question

According to the National Bureau of Statistics, the solid mining sector contributed 7.86% to the overall gross domestic product (GDP), in the first quarter of 2024. Although, this figure is higher than those recorded in the first quarter of 2023 (6.73%) and fourth quarter of 2023 (4.47%), in real terms, the mining sector grew by 6.30% year-on-year in the first quarter of 2024.

The abysmal performance of the sector to the growth and development of the Nigerian economy has been a cause of concern to the government. In a bid to address this issue, the Federal Government has unveiled series of transformative strides aimed at revitalising the sector.

At the forefront of this transformation is the complete overhauling of the procedures involved in the possession and purchase of minerals as provided for in Sections 92 – 96 of the Nigerian Minerals and Mining Act, 2007 (as amended).

The Federal Government is also reviewing the possibility of encouraging both incorporated and proposed mining companies enjoy the various taxation incentives as enshrined in the Industrial Development (Income Tax Relief) Act and other pioneer incentives regulations released by the Nigerian Investment Promotion Commission (NIPC) in 2014 and 2017.

The Managing Director of a mining company, which was incorporated three years ago, has approached your firm of Chartered Accountants to provide advice on government policy direction in the sector.

Required: As the Manager in charge of corporate tax matters in the accounting firm, you have been directed by the Principal Partner to prepare a report for his review before sending same to the client, addressing the following:

a. Possession and purchase of minerals in accordance with the provisions of the Principal Act (5 Marks)

b. Tax incentives available to pioneer industries (3 Marks)

c. Treatment of losses and capital allowances for pioneer products (5 Marks)

d. Restrictions applicable to pioneer industries (2 Marks)

Answer

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Tags: Capital allowances, Losses Treatment, Minerals Possession, Nigerian Minerals and Mining Act, Pioneer Industries, Purchase of Minerals, Restrictions, Tax Incentives
Level: Level 3

Topic: Tax Administration and Dispute Resolution, Tax Incentives and Reliefs, Taxation of Specialized Business Sectors
Series: MAY 2025

AT – May 2025 – PL – SB – Q2 – Petroleum Profits Tax

Compute hydrocarbon tax for Dandy Producing Company Limited under the Petroleum Industry Act 2021 for the year ended December 31, 2023.

Question

Dandy Producing Company Limited operates in both onshore and offshore in the riverine areas in Nigeria. It has been in the oil prospecting business for many years.

The company applied for and was granted a petroleum prospecting licence (PPL) on January 1, 2023 after studying the provisions of the Petroleum Industry Act, 2021.

The company’s financial records for the year ended December 31, 2023 are as follows:

Revenue earned:	N’million	N’million
Value of crude oil sold		486,000
Value of condensate from associated gas sold		128,000
Value of natural gas liquid from associated gas sold		112,500
Income from refinery operations		25,100
Gross revenue		751,600

Expenses deducted:
Production cost	330,400
Cost of gas reinjection wells	1,600
Drilling cost incurred	6,650
Depreciation of plant, machinery and fixtures	2,010
Decommissioning and abandonment cost	2,500
Repairs and maintenance	4,200
Royalty cost incurred and paid	171,500
Niger Delta Development Commission charge	340
Finance cost and bank charges	615
Terminaling cost	2,345
Donations to approved charity homes	195
Concession rentals	74,110
Host community fund	23,200
Local government municipal levy	250
Environmental remediation fund	2,800
Cost incurred in seeking information for oil deposits	540	623,255
Net profit		128,345

Additional information made available:

(i) Losses brought forward from previous year was N380 million.

(ii) Repairs and maintenance:

	N’million
Repairs of plant and machinery	970
Repairs or alteration of production utensils	3,230
	4,200

(iii) Drilling cost incurred comprised:

	N’million
Tangible drilling cost for first exploration well	3,990
Drilling of the first two appraisal wells	2,660
	6,650

(iv) Production allowance after commencement of the Petroleum Industry Act, 2021 amounted to N6,401 million.

(v) Capital allowances computed and agreed:

	N’million
– For the current year	2,750
– Unrecouped brought forward	1,350
	4,100

(vi) Exchange rate agreed with the CBN was N752 to a USD ($).

Required: As a newly qualified accountant just appointed by the company as its Tax Consultant, compute hydrocarbon tax in line with the provisions of Petroleum Industry Act, 2021.

Answer

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Tags: Capital allowances, Drilling Costs, Hydrocarbon Tax, Losses Brought Forward, Petroleum Industry Act, Production Allowance, Repairs and Maintenance, Royalty
Level: Level 3

Topic: Petroleum Profits Tax (PPT), Tax Incentives and Reliefs, Taxation of Specialized Businesses
Series: MAY 2025

AT – May 2025 – PL – SA – Q1 – Taxation of Companies

Draft a report for Nancy Nigeria Limited on adjusted profit for 2024, tax liabilities from inception, and provisions on back duty audit under CITA 2004.

Question

Nancy Nigeria Limited, a manufacturer of soaps and detergents, was incorporated on April 1, 2020, but commenced business on July 1, 2020.

At the 2023 Annual General Meeting of the company, the shareholders approved resolutions for the increase in the company’s share capital in 2024 and request for long-term bank loan in the first quarter of 2025, to fund expansion of the company’s operations.

In December 2024, the company made preliminary request to its bankers and part of the documents to be submitted included the audited financial statements and tax clearance certificate (TCC) of the last three years. The company has been paying its taxes regularly, but it is yet to request for TCC since the commencement of business.

The appointment of the company’s former tax consultants was terminated in early 2024, after the discovery by the Federal Inland Revenue Service (FIRS) of the tax consultancy firm’s professional misconduct in the annual returns filed on behalf of a client. The matter is currently before a Court of competent jurisdiction.

Your firm of tax consultants has been engaged to procure the TCC for the company, after recomputing the tax liabilities from inception to the financial year ended December 31, 2024. The Managing Director stressed that the company is willing to make additional tax payments, if a case of under-payment of taxes is established.

After accepting the engagement, your Principal Partner, during interaction with the Managing Director, opined that based on the provisions of the Companies Income Tax Act 2004 (as amended), the FIRS may consider instituting back duty audit on the company, hence the need for early preparation for their visit. The Managing Director seems not to understand the submission made by the Principal Partner.

The company has provided all the financial records necessary for the conduct of this assignment.

The following details of the statement of profit or loss were extracted from the financial records of the company for the year ended December 31, 2024:

	N‟000	N‟000
Turnover		145,700
Cost of sales		(66,250)
Gross profit		79,450
Other operating income		3,000
		82,450
Deduct:
Personnel cost	21,000
Power and rates	3,800
Depreciation	5,500
Repairs and maintenance	1,900
Allowance for doubtful debts	5,800
Finance cost	2,200
Donations and subscriptions	2,450
Legal and professional fees	4,500
Transport and travelling	1,100
Telephone and postage	900
Loss on disposal of a motor vehicle	1,800
Other operating expenses	3,350
Preliminary expenses written off	1,200
Transfer to general reserve	2,000	57,500
Net profit for the year		24,950

The following additional information was made available:

(i) Adjusted profit/(loss) and turnover:

Accounting period	Adjusted profit/(loss) N‟000	Turnover N‟000
Period ended December 31, 2020	(27,950)	65,800
Year ended December 31, 2021	2,600	90,500
Year ended December 31, 2022	6,200	108,250
Year ended December 31, 2023	12,870	124,600

(ii) Other operating income:

	N‟000
Excess on revaluation of industrial building	1,300
Dividend received (net)	1,700
	3,000

(iii) Repairs and maintenance:

	N‟000
Improvement to industrial warehouse	1,000
Repairs of industrial plant	400
Renewals of tools and implements	200
Maintenance of motor vehicle	300
	1,900

(iv) Allowance for doubtful debts:

	N‟000
General allowance for doubtful debt	4,350
Specific allowance for doubtful debt	1,750
Bad debt written off	900
Bad debt recovered	(1,200)
	5,800

(v) Donations and subscriptions:

	N‟000
Contribution to a fund created by a State Government for victims of flooding	1,000
Award of scholarship to 3 indigent students	1,200
Subscription to manufacturers‟ association	250
	2,450

(vi) Legal and professional fees:

	N‟000
Audit and accountancy fees	1,600
Legal- acquisition of long-term lease	1,500
Legal- new issue of shares	1,400
	4,500

(vii) Other operating expenses:

	N‟000
Provision of unbranded Xmas hampers to customers	1,100
Local government tenement rate	750
Income tax provisions	1,500
	3,350

(viii) Schedule of qualifying capital expenditure:

QCE	Date of acquisition	Number of items	Amount N’000
Industrial building	May 15, 2020	1	15,000
Non-industrial building	June 6, 2020	2	8,000
Furniture and fittings	June 16, 2020	10	2,400
Industrial plant	July 1, 2020	1	12000
Motor vehicles	July 1, 2020	3	7,500
Motor vehicles	July 1, 2022	2	6,000
Furniture and fittings	September 1, 2022	2	600
Industrial plant	October 1, 2024	1	18,000

(ix) A motor vehicle assigned to the General Manager, which cost N3 million at the date of purchase on July 1, 2022, was sold for N1.2 million on December 31, 2024.

Required: As the newly engaged Tax Consultant, you are to draft a report to the Managing Director showing/stating the:

a. Adjusted profit for the year ended December 31, 2024 (7 Marks)

b. Company’s tax liabilities for the relevant assessment years (ignore minimum tax computations) (20 Marks)

c. Provisions of the CITA 2004 (as amended) on back duty audit

Answer

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Tags: Adjusted Profit, Back Duty Audit, Capital allowances, Capital Expenditure, Companies Income Tax Act, Depreciation, Donations, Legal Fees, Tax Clearance Certificate, Tax liabilities
Level: Level 3

Topic: Tax Administration and Dispute Resolution, Taxation of Companies
Series: MAY 2025

AT – Nov 2022 – Q1 – Taxation of Companies

Compute adjusted profit for 2021 and tax liabilities for 2021-2022 for a post-pioneer company, including reliefs and allowances.

Question

As a result of the developing nature of Nigeria’s economy, there are some industries and products that are not well developed on a scale that can adequately cater for the needs of the populace. One of the investment incentives available to industries and products in this category, is contained in the Industrial Development (Income Tax Relief) Act 1971. Application has to be made to the Federal Government in order to enjoy any of these numerous investment incentives.

Owoeye Machine Tools Nigeria Limited was incorporated on January 20, 2016, and was initially granted a pioneer certificate on April 1, 2016. At the end of the pioneer period, the company, as a result of negligence, failed to follow due process in applying for extension of the pioneer certificate. The company, however, retained March 31 as its financial year end.

The following records and information were obtained from the company:

(i) Qualifying capital expenditure on property, plant and equipment (certified by the Federal Inland Revenue Service) incurred during the pioneer period:

N’000 Industrial building 23,800

Building (non-industrial) 11,600 Motor vehicles 6,200 Plant 10,400 Furniture and fittings 5,800

(ii) Statement of adjusted profits/(losses) during the pioneer period:

Period under review Total profits/(losses)

N’000 Year ended March 31, 2017 (44,450) Year ended March 31, 2018 (23,140) Year ended March 31, 2019, 8,700

(iii) Both the qualifying capital expenditure on property, plant and equipment and adjusted profits/(losses) were certified by the Federal Inland Revenue Service.

(iv) The company made a gross turnover of N312,450,000 and adjusted profit of

N52,250,000 during the year ended March 31, 2020.

(v) Extract from the statement of profit or loss for the year ended March 31, 2021, revealed the following:

N’000 Gross turnover

320,220 Less: Cost of sales

(176,550) Gross profit

143,670 Less: Expenses:

Salaries and wages 48,430

Transport and traveling 2,360

Motor running expenses 1,580

Postage and telephone 1,150

Bank charges 870

Repairs and maintenance 3,660

Auditors‟ remuneration 1,500

Legal and professional fees (see note i) 2,000

Depreciation 15,770

Donations 1,600

Allowance for doubtful debts (see note ii) 7,000

Administrative expenses (note iii) 10,070 95,990 Net profit

47,680

Notes:

 Legal and professional fees included N1,400,000 paid to the company’s lawyer in respect of acquisition of land for the purposes of the business.

 Allowance for doubtful debts comprised: N1,350,000 for specific provision; N4,150,000 for general provision; and N1,500,000 for bad debts written off.

 Administrative expenses included N850,000 paid to a financial consultant who helped in preparing feasibility study on viability of a proposed product line.

 The schedule of qualifying capital expenditure on property, plant and equipment purchased during the year ended March 31, 2021, is as follows:

Type Date of acquisition Amount

N’000 Motor vehicles (2) April 15, 2020, 3,200 Plant (1) July 1, 2020, 5,000 Furniture and fittings (4) February 13, 2021, 1,200

Required:

As the company’s Tax Manager, you are to prepare a report for the attention of the Managing Director showing the companies:

a. Adjusted profit for the year ended March 31, 2021, b. Tax liabilities for 2021 and 2022 assessment years

Answer

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Tags: Adjusted Profit, Assessable Profit, Capital allowances, Company Taxation, Minimum Tax, Pioneer Status, Tax computation, Tax liabilities, Tax Reliefs, Tertiary Education Tax
Level: Level 1

Topic: Corporate Tax Compliance and Reporting, Tax Incentives and Reliefs, Tax Planning and Management, Taxation of Companies
Series: Nov 2024

TX – May 2025 – SKILLS – Q4 – Companies Income Tax and Tax Administration

Compute taxes for Success Nigeria Limited, explain conditions for allowable donations, and detail required company returns to FIRS.

Question

Segun, Alao and Kishi have been in partnership for a long time before incorporating a limited liability company, Success Nigeria Limited, to take over the business of the partnership. The limited liability company has been carrying on the same business of the partnership which is manufacturing of tyres.

The Directors of the company met and observed that the tax compliance requirements about limited liability companies are more intricate and very different from those of partnerships. In order not to run foul of the relevant laws, it was decided that a Tax Consultant should be appointed to handle its tax matters.

You have been appointed as the Tax Consultant and you were provided with an extract of the financial statements of the company for the year ended June 30, 2024, as follows:

	N	N
Gross profit		87,500,000
Less
Building fund	1,600,000
Senior staff club house	3,200,000
Depreciation	7,200,000
Salaries and wages	12,200,000
Directors’ remuneration (Non-Executive)	2,200,000
Directors’ remuneration (Executive)	5,300,000
Donation to Red Cross Society	360,000	32,060,000
Net profit		55,440,000

Other information includes: (i) Commission received of ₦2,400,000 has not been taken into account (ii) Capital allowance agreed with the Revenue was ₦2,750,000 (iii) Bad debt of ₦3,200,000 was recovered

Required:

a. Compute the taxes payable by the company for the relevant assessment year. (10 Marks)

b. Explain FIVE conditions under which a donation charged against income is allowable for ascertaining the profit of a business. (5 Marks)

c. Explain the returns to be filed by every incorporated company carrying on business in Nigeria to the Federal Inland Revenue Service. (5 Marks)

Answer

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TX – May 2025 – SKILLS – Q2 – Taxation of Partnerships and Sole Proprietorships

Compute income tax liabilities for partners Engineer Sanni Abudukar and Chief Caleb Ariwaya in consultancy firm for 2025 assessment year.

Question

Engineer Sanni Abudukar and Chief Caleb Ariwaya are partners in a consultancy firm based in Abakaliki. The firm renders engineering and geological services to all companies at various oil fields in the country.

An extract from the statement of profit or loss of the firm – Abubakar Ariwaya & Associates, for the year ended December 31, 2024, revealed the following:

	N’000	N’000
Gross fees		236,500
Sundry income		7,975
		244,475
Subscriptions and donations	2,475
Administrative expenses	48,000
Rent	8,250
Depreciation	41,250
Sundry expenses	33,000
Interest on loan and overdraft	8,250
Repairs and maintenance	30,800	(172,025)
Net profit		72,450

Other information provided by the firm includes:

(i) Engineer Abubakar is married with six children. All the children are studying in various higher institutions across the country. He has an aged father of about 85 years old who received an annual pension of N1.2 million from the Nigerian Railway Corporation. He spends about N800,000 per annum to maintain him.

(ii) Chief Ariwaya has no dependent relative but he is married with two children both of whom are schooling abroad. He has an insurance policy for his family on which he pays a premium of N250,000 per annum on a sum of N30 million at the end of 25 years.

(iii) Engineer Abubakar and Chief Ariwaya did not have any partnership agreement in writing but they opted for sharing the firm’s profit or losses equally.

(iv) Sundry income included the profit on sales of motor vehicle amounting to N5,330,000.

(v) Administrative expenses is made up of:

	N’000
– Office stationery	4,650
– Telephone and internet	1,850
Upkeep of partners:
– Rent paid for residential house – Engr. Abubakar	5,450
– Medical expenses of Chief Ariwaya’s social acquaintance	1,250
– Maintenance of the firm’s office	4,800
– Other allowable expenses	30,000
	48,000

(vi) Subscriptions and donations comprise:

	N’000
– Journal, newspapers and magazines	575
– Subscription of partners and senior staff professional institutions	638
– Trade associations	762
– Donation to Ebonyi Social Club	500
	2,475

(vii) The sum of N1,980,000 included in the interest charged by banks on loans and overdraft related to loan obtained by the partners from the banks to finance their domestic residences which were still under construction.

Chief Ariwaya took a loan of N10 million while Engr. Abubakar’s loan was N8 million. The accruing interests are shared according to loan obtained.

(viii) Withholding tax deducted on fees income was at the rate of 5%.
(ix) Computed capital allowances claimable for the relevant year of assessment are as follows:

	N
– Initial allowance	7,715,000
– Annual allowance	14,080,000
– Balancing charge	1,795,000

Required:
Compute the partners’ income tax liabilities for the relevant year of assessment.

Answer

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Tags: Adjusted Profit, Capital allowances, Dependent Relatives, Partnership Tax, Personal income tax, Withholding Tax
Level: Level 2

Topic: Taxation of Partnerships and Sole Proprietorships
Series: MAY 2025

AT – May2024 – PL – SB – Q2 – Petroleum Profits Tax

Compute hydrocarbon tax for 2023 and advise on tax implications of investing in deep offshore areas for a petroleum company.

Question

The following was extracted from the book of accounts of the company for the year ended December 31, 2023:

Income:	N‟ million	N‟ million
Fiscal value of crude oil sold (note 1)		191,100
Value of condensate from associated gas sold (note 1)		84,474
Value of natural gas liquid from associated gas sold (note 1)		55,328
Other incidental income		151
Realised exchange gain		38
Gross total income		331,091
Expenses/deductions:
Royalty incurred and paid	86,200
First exploration wells cost	6,800
First two appraisal wells costs	18,700
Joint cost- terminalling	12,000
Gas reinjection wells cost	3,420
Salaries and wages	9,300
Power cost	1,650
NDDC charge	125
Concessional rentals	60,430
Depreciation of assets	13,860
Allowance for doubtful debts (note 3)	2,400
Host community trust fund contribution	4,800
Stamp duty	16
Staff welfare	350
Travelling	180
Donations and subscription (note 4)	6
Decommissioning and abandonment	1,300
Environment remediation fund contribution	1,250
General expenses (note 5)	500
Finance costs	1,750	225,037
Net profit		106,054

The following additional information was also provided:

(i) Data on crude oil; condensate from associated gas sold; and natural gas liquid from associated gas sold;

Category	Quantity (million barrels)	Actual price USD	Fiscal price USD
Crude oil	5.25	70	72
Condensate from associated gas	3.61	45	44
Natural gas liquid from associated gas	2.80	38	40

(ii) Omitted from the records was a balancing charge of N1, 500,000 made from disposal of an old oil equipment platform;

(iii) Allowance for doubtful debts:

	N‟ million
Specific provisions	900
General provisions	1,500
	2,400

(iv) Donations and subscription:

	N‟ million
Recognised orphanage homes	3.0
Host community‟s cultural group	2.0
Subscription to oil and gas association	1.0
	6.0

(v) General expenses:

	N‟ million
Penalty for gas flare	250
Printing of stationery items	140
State government levy	110
	500

(vi) Agreed capital allowances:

	N‟ million
Brought forward	167
For the year	2,105
	2,272

(vii) Production allowance:

	N‟ million
Onshore operations	900
Shallow water operation	1,700
	2,600

(viii) The exchange rate averaged N520 to 1 USD during the year; and

(ix) Assume the tax liabilities are to be paid in domestic (Naira) currency.

Required:

As the company’s Tax Manager, you are to advise the management, in accordance with the provisions of Petroleum Industry Act 2021, on:

a. Hydrocarbon tax payable in the relevant assessment year (18 Marks)

b. The tax implications, if the company decides to involve or invest in deep offshore areas

(2 Marks)

Answer

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Tags: Capital allowances, Cost-Price Ratio, Hydrocarbon Tax, Offshore Operations, Petroleum Industry Act, Production Allowances
Level: Level 3

Topic: Petroleum Profits Tax (PPT), Taxation of Specialized Businesses
Series: MAY 2024

AT – May2024 – PL – SA – Q1 – Taxation of Companies

Advise on treatment of excess deductible interest on foreign loan, compute adjusted profit for 2022, and tax liabilities for 2018-2023 assessment years for an agro-allied company.

Question

Extract from the financial statements for the year ended December 31, 2022 reveals:

	N‟000	N‟000
Gross turnover:
Domestic sales		147,500
Export sales		200,100
Other operating income		3,300
Total gross turnover		350,900
Deduct:
Staff salary	122,600
Ground rent paid to the State government	3,200
Motor running expenses	1,750
Audit and accountancy fees	1,000
Repairs and maintenance	5,800
Depreciation of assets	38,240
Rent paid	1,850
Power and lightning	5,400
Legal cost	5,000
Rates (water)	2,100
Allowance for doubtful debts	10,500
Donations	4,000
Interest and other finance costs paid	15,600
Income tax provision	23,400
General expenses	5,900	246,340
Net profit		104,560

The following additional information is available:

(i) Export sales

20% of the export sales was made to the parent company at the prevailing

international market price.

(ii) Other operating income:

	N‟000
Dividend received (net)	2,700
Profit from disposal of non-current asset	600
	3,300

(iii) Repairs and maintenance:

	N‟000
Repairs of plantation equipment	1,200
Repairs to premises (non-industrial building)	900
Expansion to warehouse (industrial building)	3,700
	5,800

(iv) Rent paid:

This is in respect of accommodation for the newly employed General Manager, whose basic salary is N4,800,000.

(v) Legal cost:

	N‟000
Cost of income tax appeal	850
Cost of debt collection	1,300
Cost of acquiring new lease	1,700
Renewal of old lease	1,150
	5,000

(vi) Allowance for doubtful debts:

	N‟000
Specific provisions	5,230
General provisions	7,870
Bad debts recovered	(2,600)
	10,500

(vii) Donations:

	N‟000
Palm Oil Research Institute	1,400
National Library	600
Cocoa Research Institute of Nigeria	1,000
Women Society of the host community	1,000
	4,000

(viii) Interest and other finance costs paid

The company is expected to pay interest due for the first 3 years, while from years 4 to 10, both principal and interest dues are to be paid at the end of each year.

The balance as shown in the financial statements is attributed to other finance cost and bank charges paid to domestic deposit money banks on various accounts operated by the company.

(ix) General expenses:

	N‟000
Wedding gift to staff	350
Fine imposed on a company‟s driver for traffic offense	150
Haulage expenses	3,200
Transport and travelling	2,200
	5,900

(x) Schedule of prior years‟ turnover and assessable profits:

Year ended December 31	Turnover N‟000	Assessable profit N‟000
2018	154,400	78,750
2019	198,600	95,120
2020	310,300	142,800
2021	314,900	166,900

(xi) Schedule of qualifying capital expenditure incurred:

Date of acquisition	Asset type	Amount N‟000
August 31, 2017	Plantation equipment	4,600
August 31, 2017	Industrial building	12,000
August 31, 2017	Non-industrial building	9,000
January 1, 2018	Motor vehicles (3)	8,400
January 1, 2018	Furniture and fittings (10)	1,500
February 14, 2021	Motor vehicles (2)	5,600
June 12, 2022	Furniture and fittings (10)	2,000
July 8, 2022	Research and development	7,000

Required:

a. Treatments of excess amount of deductible interest paid

(6 Marks)

b. Adjusted profit of the company for the year ended December 31, 2022 (7 Marks)

c. Tax liabilities for all the relevant assessment years

(17 Marks)

Answer

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Tags: Adjusted Profit, Agro-Allied Business, Capital allowances, Companies Income Tax, Foreign Loan, Interest Deductibility, Tertiary Education Tax
Level: Level 3

Topic: International taxation, Tax Incentives, Taxation of Companies, Transfer Pricing
Series: MAY 2024

TX – May 2024 – L2 – SB – Q2 – Companies Income Tax

Compute assessable profits and company income tax liabilities for Adidas Nigeria Limited for relevant years after accounting date change.

Question

Adidas Nigeria Limited has been in business for so many years. The company is into supply of furniture, fixtures and fittings.

You are provided with the following additional information:

(i) Adjusted profits	N
Year ended October 31, 2019	24,500,000
Period ended December 31, 2020 (14 months)	38,200,000
Year ended December 31, 2021	44,100,000

(ii) Gross turnover	N
Year ended October 31, 2019	49,100,200
Period ended December 31, 2020	75,200,500
Year ended December 31, 2021	101,300,000

(iii) Capital allowances	N
Assessment year 2020	850,000
Assessment year 2021	720,000
Assessment year 2022	600,000

Required: For the relevant assessment years:

a. Compute the assessable profits

(14 Marks)

b. Compute the company‟s income tax liabilities

(6 Marks) (Ignore minimum tax computation)

Answer

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Tags: Adjusted Profits, Assessable Profits, Capital allowances, Change of Accounting Date, Companies Income Tax, Gross Turnover, Income Tax Liabilities
Level: Level 2

Topic: Companies Income Tax (CIT)
Series: MAY 2024

AT – Nov 2022 – Q7 – Deferred Tax Provisions

Compute tax liabilities for 2021 assessment year and deferred tax provisions for 2021 and 2022 for ICTREC Mining Company Limited using provided financial data.

Question

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

PROFESSIONAL LEVEL EXAMINATION – NOVEMBER 2022

ADVANCED TAXATION

N’000 Turnover

125,400 Rent and rates 12,200

Direct mining transportation cost 1,190

Direct mining cost 47,400 60,790 Gross profit

64,610 Dividends income (net)

3,900 Interest on foreign deposit

2,750

71,260 Salaries and wages 25,340

Depreciation of mining plant 2,500

Depreciation (other non-current assets) 7,840

Other administrative and general expenses 4,210

Loan interest 850

Loss on sale of old mining plant 200 40,940 Net profit

30,320

The following additional information was provided:

(i) The interest on foreign deposit was repatriated to the country through the company’s domiciliary account in a Nigerian deposit money bank.

(ii) The company has unrelieved losses of N2,800,000.

(iii) Capital allowance as agreed with the relevant tax authorities for the year was N7,250,000.

(v) The opening tax written down values and net book values were N42,620,000 and N33,900,000, respectively.

(vi) Unpaid tax at the beginning of the year was N15,620,000, while payment in the year was N18,860,000.

(vii) Assume a depreciation rate of 10% per annum on its mining plant.

a. Tax liabilities for the relevant year of assessment b. Deferred tax provisions for 2021 and 2022

Answer

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Tags: Adjusted Profit, Capital allowances, Computation, Deferred Tax, Depreciation, Financial Statements, Mining Company, Revaluation Surplus, Tax liabilities, Tertiary Education Tax
Level: Level 1

Topic: Corporate Tax Compliance and Reporting, Taxation of Companies, Taxation of Specialized Business Sectors
Series: NOV 2022

AT – May 2025 – PL – SC – Q7 – Taxation of Specialized Businesses

Prepare a report on possession/purchase of minerals, tax incentives for pioneer industries, treatment of losses/capital allowances, and restrictions for pioneer industries.

Question

The Managing Director of a mining company, which was incorporated three years ago, has approached your firm of Chartered Accountants to provide advice on government policy direction in the sector.

a. Possession and purchase of minerals in accordance with the provisions of the Principal Act (5 Marks)

b. Tax incentives available to pioneer industries (3 Marks)

c. Treatment of losses and capital allowances for pioneer products (5 Marks)

d. Restrictions applicable to pioneer industries (2 Marks)

Answer

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Tags: Capital allowances, Losses Treatment, Minerals Possession, Nigerian Minerals and Mining Act, Pioneer Industries, Purchase of Minerals, Restrictions, Tax Incentives
Level: Level 3

Topic: Tax Administration and Dispute Resolution, Tax Incentives and Reliefs, Taxation of Specialized Business Sectors
Series: MAY 2025

AT – May 2025 – PL – SB – Q2 – Petroleum Profits Tax

Compute hydrocarbon tax for Dandy Producing Company Limited under the Petroleum Industry Act 2021 for the year ended December 31, 2023.

Question

Dandy Producing Company Limited operates in both onshore and offshore in the riverine areas in Nigeria. It has been in the oil prospecting business for many years.

The company applied for and was granted a petroleum prospecting licence (PPL) on January 1, 2023 after studying the provisions of the Petroleum Industry Act, 2021.

The company’s financial records for the year ended December 31, 2023 are as follows:

Revenue earned:	N’million	N’million
Value of crude oil sold		486,000
Value of condensate from associated gas sold		128,000
Value of natural gas liquid from associated gas sold		112,500
Income from refinery operations		25,100
Gross revenue		751,600

Expenses deducted:
Production cost	330,400
Cost of gas reinjection wells	1,600
Drilling cost incurred	6,650
Depreciation of plant, machinery and fixtures	2,010
Decommissioning and abandonment cost	2,500
Repairs and maintenance	4,200
Royalty cost incurred and paid	171,500
Niger Delta Development Commission charge	340
Finance cost and bank charges	615
Terminaling cost	2,345
Donations to approved charity homes	195
Concession rentals	74,110
Host community fund	23,200
Local government municipal levy	250
Environmental remediation fund	2,800
Cost incurred in seeking information for oil deposits	540	623,255
Net profit		128,345

Additional information made available:

(i) Losses brought forward from previous year was N380 million.

(ii) Repairs and maintenance:

	N’million
Repairs of plant and machinery	970
Repairs or alteration of production utensils	3,230
	4,200

(iii) Drilling cost incurred comprised:

	N’million
Tangible drilling cost for first exploration well	3,990
Drilling of the first two appraisal wells	2,660
	6,650

(iv) Production allowance after commencement of the Petroleum Industry Act, 2021 amounted to N6,401 million.

(v) Capital allowances computed and agreed:

	N’million
– For the current year	2,750
– Unrecouped brought forward	1,350
	4,100

(vi) Exchange rate agreed with the CBN was N752 to a USD ($).

Required: As a newly qualified accountant just appointed by the company as its Tax Consultant, compute hydrocarbon tax in line with the provisions of Petroleum Industry Act, 2021.

Answer

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Tags: Capital allowances, Drilling Costs, Hydrocarbon Tax, Losses Brought Forward, Petroleum Industry Act, Production Allowance, Repairs and Maintenance, Royalty
Level: Level 3

Topic: Petroleum Profits Tax (PPT), Tax Incentives and Reliefs, Taxation of Specialized Businesses
Series: MAY 2025

AT – May 2025 – PL – SA – Q1 – Taxation of Companies

Draft a report for Nancy Nigeria Limited on adjusted profit for 2024, tax liabilities from inception, and provisions on back duty audit under CITA 2004.

Question

Nancy Nigeria Limited, a manufacturer of soaps and detergents, was incorporated on April 1, 2020, but commenced business on July 1, 2020.

The company has provided all the financial records necessary for the conduct of this assignment.

The following details of the statement of profit or loss were extracted from the financial records of the company for the year ended December 31, 2024:

	N‟000	N‟000
Turnover		145,700
Cost of sales		(66,250)
Gross profit		79,450
Other operating income		3,000
		82,450
Deduct:
Personnel cost	21,000
Power and rates	3,800
Depreciation	5,500
Repairs and maintenance	1,900
Allowance for doubtful debts	5,800
Finance cost	2,200
Donations and subscriptions	2,450
Legal and professional fees	4,500
Transport and travelling	1,100
Telephone and postage	900
Loss on disposal of a motor vehicle	1,800
Other operating expenses	3,350
Preliminary expenses written off	1,200
Transfer to general reserve	2,000	57,500
Net profit for the year		24,950

The following additional information was made available:

(i) Adjusted profit/(loss) and turnover:

Accounting period	Adjusted profit/(loss) N‟000	Turnover N‟000
Period ended December 31, 2020	(27,950)	65,800
Year ended December 31, 2021	2,600	90,500
Year ended December 31, 2022	6,200	108,250
Year ended December 31, 2023	12,870	124,600

(ii) Other operating income:

	N‟000
Excess on revaluation of industrial building	1,300
Dividend received (net)	1,700
	3,000

(iii) Repairs and maintenance:

	N‟000
Improvement to industrial warehouse	1,000
Repairs of industrial plant	400
Renewals of tools and implements	200
Maintenance of motor vehicle	300
	1,900

(iv) Allowance for doubtful debts:

	N‟000
General allowance for doubtful debt	4,350
Specific allowance for doubtful debt	1,750
Bad debt written off	900
Bad debt recovered	(1,200)
	5,800

(v) Donations and subscriptions:

	N‟000
Contribution to a fund created by a State Government for victims of flooding	1,000
Award of scholarship to 3 indigent students	1,200
Subscription to manufacturers‟ association	250
	2,450

(vi) Legal and professional fees:

	N‟000
Audit and accountancy fees	1,600
Legal- acquisition of long-term lease	1,500
Legal- new issue of shares	1,400
	4,500

(vii) Other operating expenses:

	N‟000
Provision of unbranded Xmas hampers to customers	1,100
Local government tenement rate	750
Income tax provisions	1,500
	3,350

(viii) Schedule of qualifying capital expenditure:

QCE	Date of acquisition	Number of items	Amount N’000
Industrial building	May 15, 2020	1	15,000
Non-industrial building	June 6, 2020	2	8,000
Furniture and fittings	June 16, 2020	10	2,400
Industrial plant	July 1, 2020	1	12000
Motor vehicles	July 1, 2020	3	7,500
Motor vehicles	July 1, 2022	2	6,000
Furniture and fittings	September 1, 2022	2	600
Industrial plant	October 1, 2024	1	18,000

(ix) A motor vehicle assigned to the General Manager, which cost N3 million at the date of purchase on July 1, 2022, was sold for N1.2 million on December 31, 2024.

Required: As the newly engaged Tax Consultant, you are to draft a report to the Managing Director showing/stating the:

a. Adjusted profit for the year ended December 31, 2024 (7 Marks)

b. Company’s tax liabilities for the relevant assessment years (ignore minimum tax computations) (20 Marks)

c. Provisions of the CITA 2004 (as amended) on back duty audit

Answer

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Level: Level 3

Topic: Tax Administration and Dispute Resolution, Taxation of Companies
Series: MAY 2025

AT – Nov 2022 – Q1 – Taxation of Companies

Compute adjusted profit for 2021 and tax liabilities for 2021-2022 for a post-pioneer company, including reliefs and allowances.

Question

The following records and information were obtained from the company:

(i) Qualifying capital expenditure on property, plant and equipment (certified by the Federal Inland Revenue Service) incurred during the pioneer period:

N’000 Industrial building 23,800

Building (non-industrial) 11,600 Motor vehicles 6,200 Plant 10,400 Furniture and fittings 5,800

(ii) Statement of adjusted profits/(losses) during the pioneer period:

Period under review Total profits/(losses)

N’000 Year ended March 31, 2017 (44,450) Year ended March 31, 2018 (23,140) Year ended March 31, 2019, 8,700

(iii) Both the qualifying capital expenditure on property, plant and equipment and adjusted profits/(losses) were certified by the Federal Inland Revenue Service.

(iv) The company made a gross turnover of N312,450,000 and adjusted profit of

N52,250,000 during the year ended March 31, 2020.

(v) Extract from the statement of profit or loss for the year ended March 31, 2021, revealed the following:

N’000 Gross turnover

320,220 Less: Cost of sales

(176,550) Gross profit

143,670 Less: Expenses:

Salaries and wages 48,430

Transport and traveling 2,360

Motor running expenses 1,580

Postage and telephone 1,150

Bank charges 870

Repairs and maintenance 3,660

Auditors‟ remuneration 1,500

Legal and professional fees (see note i) 2,000

Depreciation 15,770

Donations 1,600

Allowance for doubtful debts (see note ii) 7,000

Administrative expenses (note iii) 10,070 95,990 Net profit

47,680

Notes:

 Legal and professional fees included N1,400,000 paid to the company’s lawyer in respect of acquisition of land for the purposes of the business.

 Allowance for doubtful debts comprised: N1,350,000 for specific provision; N4,150,000 for general provision; and N1,500,000 for bad debts written off.

 Administrative expenses included N850,000 paid to a financial consultant who helped in preparing feasibility study on viability of a proposed product line.

 The schedule of qualifying capital expenditure on property, plant and equipment purchased during the year ended March 31, 2021, is as follows:

Type Date of acquisition Amount

N’000 Motor vehicles (2) April 15, 2020, 3,200 Plant (1) July 1, 2020, 5,000 Furniture and fittings (4) February 13, 2021, 1,200

Required:

As the company’s Tax Manager, you are to prepare a report for the attention of the Managing Director showing the companies:

a. Adjusted profit for the year ended March 31, 2021, b. Tax liabilities for 2021 and 2022 assessment years

Answer

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Tags: Adjusted Profit, Assessable Profit, Capital allowances, Company Taxation, Minimum Tax, Pioneer Status, Tax computation, Tax liabilities, Tax Reliefs, Tertiary Education Tax
Level: Level 1

Topic: Corporate Tax Compliance and Reporting, Tax Incentives and Reliefs, Tax Planning and Management, Taxation of Companies
Series: Nov 2024

TX – May 2025 – SKILLS – Q4 – Companies Income Tax and Tax Administration

Compute taxes for Success Nigeria Limited, explain conditions for allowable donations, and detail required company returns to FIRS.

Question

You have been appointed as the Tax Consultant and you were provided with an extract of the financial statements of the company for the year ended June 30, 2024, as follows:

	N	N
Gross profit		87,500,000
Less
Building fund	1,600,000
Senior staff club house	3,200,000
Depreciation	7,200,000
Salaries and wages	12,200,000
Directors’ remuneration (Non-Executive)	2,200,000
Directors’ remuneration (Executive)	5,300,000
Donation to Red Cross Society	360,000	32,060,000
Net profit		55,440,000

Required:

a. Compute the taxes payable by the company for the relevant assessment year. (10 Marks)

b. Explain FIVE conditions under which a donation charged against income is allowable for ascertaining the profit of a business. (5 Marks)

c. Explain the returns to be filed by every incorporated company carrying on business in Nigeria to the Federal Inland Revenue Service. (5 Marks)

Answer

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TX – May 2025 – SKILLS – Q2 – Taxation of Partnerships and Sole Proprietorships

Compute income tax liabilities for partners Engineer Sanni Abudukar and Chief Caleb Ariwaya in consultancy firm for 2025 assessment year.

Question

An extract from the statement of profit or loss of the firm – Abubakar Ariwaya & Associates, for the year ended December 31, 2024, revealed the following:

	N’000	N’000
Gross fees		236,500
Sundry income		7,975
		244,475
Subscriptions and donations	2,475
Administrative expenses	48,000
Rent	8,250
Depreciation	41,250
Sundry expenses	33,000
Interest on loan and overdraft	8,250
Repairs and maintenance	30,800	(172,025)
Net profit		72,450

Other information provided by the firm includes:

(iii) Engineer Abubakar and Chief Ariwaya did not have any partnership agreement in writing but they opted for sharing the firm’s profit or losses equally.

(iv) Sundry income included the profit on sales of motor vehicle amounting to N5,330,000.

(v) Administrative expenses is made up of:

	N’000
– Office stationery	4,650
– Telephone and internet	1,850
Upkeep of partners:
– Rent paid for residential house – Engr. Abubakar	5,450
– Medical expenses of Chief Ariwaya’s social acquaintance	1,250
– Maintenance of the firm’s office	4,800
– Other allowable expenses	30,000
	48,000

(vi) Subscriptions and donations comprise:

	N’000
– Journal, newspapers and magazines	575
– Subscription of partners and senior staff professional institutions	638
– Trade associations	762
– Donation to Ebonyi Social Club	500
	2,475

Chief Ariwaya took a loan of N10 million while Engr. Abubakar’s loan was N8 million. The accruing interests are shared according to loan obtained.

(viii) Withholding tax deducted on fees income was at the rate of 5%.
(ix) Computed capital allowances claimable for the relevant year of assessment are as follows:

	N
– Initial allowance	7,715,000
– Annual allowance	14,080,000
– Balancing charge	1,795,000

Required:
Compute the partners’ income tax liabilities for the relevant year of assessment.

Answer

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Tags: Adjusted Profit, Capital allowances, Dependent Relatives, Partnership Tax, Personal income tax, Withholding Tax
Level: Level 2

Topic: Taxation of Partnerships and Sole Proprietorships
Series: MAY 2025

Question Tag: Capital allowances

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