Question Tag: Capital allowances

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  • 20 Marks

ATP – Aug 2019 – L2 – Q3 – Corporate Tax and Penalties

Compute Yentua Limited’s 2018 tax liabilities, including penalties, using financial statement data.

Yentua Limited is a company registered in Ghana under the Companies Act 1963, Act 179 on 15th September 2017. It started operations on 1st October, 2017. The company buys metal scraps both from internal and external sources and sells to the iron rod manufacturers in Tema. The company was not registered with the Ghana Revenue Authority and therefore has never submitted any tax returns on its operations. The activities of the company came to light when a team of Revenue Officers from the Enforcement unit of the Ghana Revenue Authority met the Managing Director and his staff in full operation. The team educated the Managing Director and his management team on importance of payment of taxes and registering with the Ghana Revenue Authority and submitting the tax returns to the Authorities regularly. The Managing Director then presented Tax Credit Certificates (TCC) totalling GH¢ 134,000 and receipts for duties paid on imported goods as taxes paid and therefore claimed his company was tax compliant. The Managing Director later approached you as a Tax Practitioner to help the company complete its tax returns on its business operations to Ghana Revenue Authority. The extracts from the company’s financial statement presented by the Finance officer for the year ended 30th September 2018 were as follows:

Yentua Limited
Income Statement

GH¢ GH¢
Turnover 7,800,000.00
Cost of Sales (6,929,300.00)
Gross Profit 870,700.00
Administration and General Expenses (660,000.00)
Net Profit 90,000.00

Note 2: Cost of Sales

GH¢
Local Purchases 4,400,000.00
Imports 1,580,000.00
Freight and Insurance 98,500.00
Import Duties 436,000.00
Cargo Truck 240,000.00
Repairs and Maintenance 52,000.00
Depreciation – Truck 48,000.00
Fuel and Lubricants 24,000.00
Transport and Handling 50,800.00
Total 6,929,300.00

Note 3: Administration and General Expenses

GH¢
Salaries and Allowances 285,000.00
Directors Remuneration 64,000.00
Consultancy Fees 90,000.00
Printing and Stationery 10,500.00
Rent (Office Building) 60,000.00
Rent (Residential) 36,000.00
Equipment Rentals 79,000.00
Utilities 35,500.00
Total 660,000.00

Required:
Determine the tax liabilities due from the company in respect of direct taxes for 2018 year of assessment, including any relevant penalties that are applicable. Corporate Tax rate applicable to the company is 25%.

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  • 20 Marks

ATP – Feb 2020 – L2 – Q5 – Income Tax Computation

Compute depreciation allowances for Menyami Limited for 2016, 2017, and 2018.

Menyami Limited has been in operations as a Timber Merchant for several years and prepares accounts to 31st December each year. The company’s Non-Current Assets as at 31st December, 2016 were as follows:

Description GH¢
Timber Concession (30 years Lease) 1,500,000
Building 400,000
Plant and Machinery 2,800,000
Timber Trucks 1,200,000
Land Cruiser Vehicle (1/3/2017) 280,000
Pick Up Vehicle (1) (1/5/2018) 180,000
Computers and Accessories 30,000
Furniture and fittings 12,000

Menyami Limited applied to the Commissioner-General and was granted depreciation allowances for the use of the above Non-Current Assets over the years.
In July, 2017, the company acquired a Plywood processing plant on hire purchase at the cost of GH¢1,800,000. The Company paid a deposit of GH¢800,000 and the balance is to be paid over a period of four years in advance starting from 1st January, 2018. The first instalment was paid on due date.
During the year 2018, a plant which was acquired in January, 2016 was rehabilitated at the cost of GH¢20,000.00.

The depreciation allowance rates applicable to each pool of depreciable assets are as follows:

Class Rate
Class 1 40%
Class 2 30%
Class 3 20%
Class 4 10%

All the assets unless otherwise indicated were all bought in January 2016.

Required:
Compute the depreciation allowances for the years 2016, 2017 and 2018 in a columnar format.

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  • 20 Marks

ATP – Feb 2017 – L3 – Q3 – Pooling System

Explain general features of the pooling system for capital allowances.

You are a Chartered Tax Practitioner and you have been consulted to produce an article for publication in The Tax Collector, the monthly journal of the Ghana Revenue Authority on the topic “The Pooling System of granting allowance as provided in the Income Tax Act, 2015 (Act 896).

Required:

a. Explain the general features of the pool system. (10 Marks)

b. What are conditions expected to be satisfied before the grant of Capital Allowances? (8 Marks)

 

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  • 20 Marks

ATP – Aug 2015 – L2 – Q4 – Income Tax Computation

Compute chargeable income for partners of Zee & Associates for 2012-2014, including capital allowances.

Ace, Brace and Crate have been in partnership since 2006 trading as Zee & Associates dealing in cement and preparing accounts to December 31 each year. Their Partnership Agreement showed that they share profits in the ratio 5:4:3 respectively.

The written-down values of the assets used in their operations as at 31st December, 2011 were as follows:

GH¢
Office Equipment 148,000.00
Pick–up vehicles 95,000.00
Saloon vehicles 80,000.00

Brace resigned from Zee & Associates on 2nd January 2013 and on his exit, Ace and Crate continued the business agreeing to share profits in the ratio 2:1 respectively.

The partnership Firm acquired the following additional assets:

a) A building for office annex costing GH¢430,000.00 on 4th October, 2013.

b) One Toyota Camry for GH¢85,000.00 on 26th March 2012

c) One Toyota Land Cruiser Prado at a cost of GH¢188,000.00 on 3rd July, 2013

Some of the office equipment were sold on 15th June, 2013 for GH¢35,000.00.

The Firm’s adjusted profits for tax purposes but before grant of capital allowance were as follows:

Year to 31/12/2012 GH¢315,000.00
Year to 31/12/2013 GH¢298,000.00
Year to 31/12/2014 GH¢328,000.00

You are required to compute the chargeable income, if any, of each partner for the relevant years of assessment on the assumption that no other incomes accrued to any of the partners.

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  • 2 Marks

PT – Nov 2024 – L2 – Q4c – Tax Treatment of Repairs and Renovations

Explains the tax treatment of repairs and renovations for businesses.

Question:
Repairs are essential for maintaining the safety of a property, and renovation improves the overall functionality of a property.

Required:
What is the tax treatment of repairs and renovations?

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  • 30 Marks

AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

Zezee Nigeria Limited was incorporated on September 7, 2012, but it did not commence business until July 1, 2013. Based on the Memorandum and Articles of Association, the company was incorporated to carry on the business of distributorship and general contracting.

Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:

Period 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Revenue 5,430,000 12,600,000 18,400,000
Direct Cost (890,000) (1,345,000) (1,910,000)
Gross Profit 4,540,000 11,255,000 16,490,000
Other Income 45,000 458,150 201,000
Distribution Cost (386,000) (820,000) (1,060,500)
Administrative Expenses (4,810,550) (6,510,440) (8,240,600)
Other Expenses (41,000) (113,240) (145,100)
Net (Loss)/Profit (652,550) 4,269,470 7,244,800

Additional Information:

  1. Other Income Comprises:
Details 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Sale of Scraps – 57,000 –
Interest Received on Treasury Bills – 325,000 120,000
Interest on Domiciliary Account 45,000 76,150 81,000
Total Other Income 45,000 458,150 201,000
  1. Administrative Expenses Include:
Details 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Depreciation 160,000 320,000 440,000
Preliminary and Formation Expenses 216,000 – –
Penalties and Fines – – 65,000
General Provision for Bad Debts 110,000 180,000 240,000
Staff Salaries 2,060,000 4,230,000 4,230,000
Office Rent 600,000 1,200,000 1,800,000
  1. Details of Property, Plant, and Equipment are as follows:
Asset Date of Purchase Cost (N)
Furniture and Fittings June 7, 2013 980,000
Motor Vehicles June 30, 2013 2,400,000
Office Equipment July 1, 2013 1,200,000
  1. On January 2, 2015, the company bought another motor vehicle for N1,800,000.
  2. Extracts of the Statements of Financial Position:
Period 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Net Assets 1,360,000 2,870,500 3,260,700
Paid-up Share Capital 5,000,000 5,000,000 5,000,000

Required:

For all the relevant years of assessment, you are required to:

a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)

(Total 30 Marks)

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  • 5 Marks

ATAX – May 2019 – L3 – Q7b – Corporate Tax Compliance and Reporting

Compute the total tax liabilities for Alaba Trading Limited for the 2018 assessment year, considering its assessable profit, capital allowances, and dividend payable.

For the assessment year 2018, below are the extracts from the tax computations of Alaba Trading Limited:

Item Amount (₦)
Assessable profit 8,200,000
Capital allowances 5,400,000
Dividend payable 6,000,000

Required:
Determine the total tax liabilities of Alaba Trading Limited for the assessment year.

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  • 30 Marks

ATAX – May 2022 – L3 – Q1 – Taxation of Companies

Determination of tax liabilities, treatment of donations, and exemptions of dividends based on CIT Act provisions.

Dadinkowa Nigeria Limited has been in business since 2009 as a manufacturer of sugar cubes. The company sources its raw materials, sugar cane, from the Northern part of the country. However, due to local security challenges, the company has faced supply disruptions since 2016.

Additionally, the company has disagreements with tax authorities regarding the treatment of certain items (e.g., donations and dividend income) in their financial statements and returns. High overhead costs, especially energy expenses, have worsened operational challenges.

At a recent board meeting, the directors proposed either a temporary closure or relocating to a neighboring country if conditions do not improve in the next fiscal year. The General Manager shared this with you during your visit as the company’s tax consultant, seeking your advice to address these issues.

A scheduled meeting with the Managing Director requires you to prepare a comprehensive tax report addressing:

  1. Determination of the company’s tax liabilities for the relevant tax year.
  2. Analysis of the treatment of donations and exemptions of dividend income under the Companies Income Tax Act (CITA).

The profit or loss account for the year ended December 31, 2021, is as follows:

Profit or Loss Account:

Extract from the company’s statement of financial position as at December 31, 2021 revealed:

The following additional information was made available:

(v) Interest on loan was paid on a facility obtained from a licensed Nigerian deposit money bank at commercial interest rate.
(vi) General and administrative expenses were made up of:

(vii) Donations and subscriptions
Included in donations was N12,000,000 paid to a fund created by the Federal Government for victims of communal crisis that took place where the company is situated.
(viii) The tax written down values of the qualifying capital expenditure (QCE) items as at December 31, 2020 were:

(ix) Additions to QCEs during the year ended December 31, 2021 were:

(x) Unrelieved capital allowances brought forward were N15,200,000.
(xi) Unabsorbed losses from previous years were:

Required:

As the company’s Tax Consultant, you are to draft a report to the Managing Director for the scheduled meeting expected to hold next week. This is expected to address the following:
a. Determination of the company’s tax liabilities for the relevant tax year. (20 Marks)
b. Comment, in line with the provisions of Companies Income Tax Act Cap C21 LFN 2004 (as amended) on:
i. The treatment of donations made by the company during the year under review (5 Marks)
ii. Exemption of dividends from taxation (5 Marks)

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  • 11 Marks

ATAX – Nov 2016 – L3 – Q6b – Petroleum Profits Tax (PPT)

Determines assessable profit, chargeable profit, assessable tax, and chargeable tax for Bivenette Petroleum Company Limited.

Bivenette Petroleum Company Limited has been in the oil prospecting business for some years. Extracts from its financial statements for the year ended December 31, 2013 show the following information:

Additional Information:

  1. Petroleum Profits Tax rate: 85%
  2. Interest paid includes N12,000,000 paid to an affiliated company.
  3. Capital allowances agreed at N253,750,000.
  4. Operating costs include N302,000,000 paid to a company for information on oil prospect in Adamawa State.
  5. The company is entitled to an Investment Allowance of N173,000,000.

You are required to:

  • Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

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  • 20 Marks

ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)

Tax computation for Debby Oil Limited, including adjustments, capital allowances, and tertiary education tax.

Debby Oil Limited is an oil prospecting company that has been operating in the deep ocean of the Niger Delta since 1990. The company makes up its accounts to December 31 each year.

The company is in discussion with a consortium of five deposit money banks in Nigeria for the purposes of taking a medium-term (5 years) loan facility of USD 5 million to finance further expansion of its facilities and acquisition of a marginal field. As part of the documents required by the banks for processing the loan facility are the audited financial statements and tax computations for the last five financial years. The company is yet to submit the documents for the year ended December 31, 2020, to the consortium.

The extract from its activities for the year ended December 31, 2020, is as presented below:

Item Amount (₦’000)
Oil inventory (Jan 1, 2020) 1,220,000
Oil inventory (Dec 31, 2020) 1,380,000
Sales – Export 9,524,000
Sales – Local 2,900,500
Other income 1,235,300
Production cost 3,440,000
Operating expenses 1,789,600
Intangible drilling cost 1,425,200
Tangible drilling cost 532,000
Traveling expenses 54,000
Salaries and wages 1,860,000
Pension fund contribution 175,000
Loan interest 150,000
General expenses 800,500
Depreciation 170,000
Royalties and production rentals 810,000
Donation 20,000
Bank charges 25,300
Harbour dues 15,000
Non-productive rent 350,000
Audit and accountancy fees 28,000
Customs duty on essentials 7,300
Income tax provision 865,860
Transfer to general reserves 900,000

Additional Information:

  1. Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
  2. Actual realised price is adjusted for deviation from the standard API gravity. Each degree change in API results in a price adjustment of USD 0.20.
  3. 650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
  4. Other income of ₦735 million was generated from the company’s ocean tanker business. Associated expenses of ₦580.5 million were included in general expenses.
  5. Operating expenses included ₦9 million for short lease renewal.
  6. Pension fund contributions were approved by the State Internal Revenue Service.
  7. Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
  8. A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
  9. Transfer to general reserves was board-approved.
  10. Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
  11. Assume USD 1 is equivalent to ₦420.

Required:
As the company’s Assistant Tax Manager, draft a report to the Tax Manager showing the company’s tax liability for the relevant assessment year according to the Petroleum Profits Tax Act, Cap P.13, Laws of the Federation of Nigeria 2004 (as amended).

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  • 20 Marks

ATP – Aug 2019 – L2 – Q3 – Corporate Tax and Penalties

Compute Yentua Limited’s 2018 tax liabilities, including penalties, using financial statement data.

Yentua Limited is a company registered in Ghana under the Companies Act 1963, Act 179 on 15th September 2017. It started operations on 1st October, 2017. The company buys metal scraps both from internal and external sources and sells to the iron rod manufacturers in Tema. The company was not registered with the Ghana Revenue Authority and therefore has never submitted any tax returns on its operations. The activities of the company came to light when a team of Revenue Officers from the Enforcement unit of the Ghana Revenue Authority met the Managing Director and his staff in full operation. The team educated the Managing Director and his management team on importance of payment of taxes and registering with the Ghana Revenue Authority and submitting the tax returns to the Authorities regularly. The Managing Director then presented Tax Credit Certificates (TCC) totalling GH¢ 134,000 and receipts for duties paid on imported goods as taxes paid and therefore claimed his company was tax compliant. The Managing Director later approached you as a Tax Practitioner to help the company complete its tax returns on its business operations to Ghana Revenue Authority. The extracts from the company’s financial statement presented by the Finance officer for the year ended 30th September 2018 were as follows:

Yentua Limited
Income Statement

GH¢ GH¢
Turnover 7,800,000.00
Cost of Sales (6,929,300.00)
Gross Profit 870,700.00
Administration and General Expenses (660,000.00)
Net Profit 90,000.00

Note 2: Cost of Sales

GH¢
Local Purchases 4,400,000.00
Imports 1,580,000.00
Freight and Insurance 98,500.00
Import Duties 436,000.00
Cargo Truck 240,000.00
Repairs and Maintenance 52,000.00
Depreciation – Truck 48,000.00
Fuel and Lubricants 24,000.00
Transport and Handling 50,800.00
Total 6,929,300.00

Note 3: Administration and General Expenses

GH¢
Salaries and Allowances 285,000.00
Directors Remuneration 64,000.00
Consultancy Fees 90,000.00
Printing and Stationery 10,500.00
Rent (Office Building) 60,000.00
Rent (Residential) 36,000.00
Equipment Rentals 79,000.00
Utilities 35,500.00
Total 660,000.00

Required:
Determine the tax liabilities due from the company in respect of direct taxes for 2018 year of assessment, including any relevant penalties that are applicable. Corporate Tax rate applicable to the company is 25%.

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  • 20 Marks

ATP – Feb 2020 – L2 – Q5 – Income Tax Computation

Compute depreciation allowances for Menyami Limited for 2016, 2017, and 2018.

Menyami Limited has been in operations as a Timber Merchant for several years and prepares accounts to 31st December each year. The company’s Non-Current Assets as at 31st December, 2016 were as follows:

Description GH¢
Timber Concession (30 years Lease) 1,500,000
Building 400,000
Plant and Machinery 2,800,000
Timber Trucks 1,200,000
Land Cruiser Vehicle (1/3/2017) 280,000
Pick Up Vehicle (1) (1/5/2018) 180,000
Computers and Accessories 30,000
Furniture and fittings 12,000

Menyami Limited applied to the Commissioner-General and was granted depreciation allowances for the use of the above Non-Current Assets over the years.
In July, 2017, the company acquired a Plywood processing plant on hire purchase at the cost of GH¢1,800,000. The Company paid a deposit of GH¢800,000 and the balance is to be paid over a period of four years in advance starting from 1st January, 2018. The first instalment was paid on due date.
During the year 2018, a plant which was acquired in January, 2016 was rehabilitated at the cost of GH¢20,000.00.

The depreciation allowance rates applicable to each pool of depreciable assets are as follows:

Class Rate
Class 1 40%
Class 2 30%
Class 3 20%
Class 4 10%

All the assets unless otherwise indicated were all bought in January 2016.

Required:
Compute the depreciation allowances for the years 2016, 2017 and 2018 in a columnar format.

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  • 20 Marks

ATP – Feb 2017 – L3 – Q3 – Pooling System

Explain general features of the pooling system for capital allowances.

You are a Chartered Tax Practitioner and you have been consulted to produce an article for publication in The Tax Collector, the monthly journal of the Ghana Revenue Authority on the topic “The Pooling System of granting allowance as provided in the Income Tax Act, 2015 (Act 896).

Required:

a. Explain the general features of the pool system. (10 Marks)

b. What are conditions expected to be satisfied before the grant of Capital Allowances? (8 Marks)

 

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  • 20 Marks

ATP – Aug 2015 – L2 – Q4 – Income Tax Computation

Compute chargeable income for partners of Zee & Associates for 2012-2014, including capital allowances.

Ace, Brace and Crate have been in partnership since 2006 trading as Zee & Associates dealing in cement and preparing accounts to December 31 each year. Their Partnership Agreement showed that they share profits in the ratio 5:4:3 respectively.

The written-down values of the assets used in their operations as at 31st December, 2011 were as follows:

GH¢
Office Equipment 148,000.00
Pick–up vehicles 95,000.00
Saloon vehicles 80,000.00

Brace resigned from Zee & Associates on 2nd January 2013 and on his exit, Ace and Crate continued the business agreeing to share profits in the ratio 2:1 respectively.

The partnership Firm acquired the following additional assets:

a) A building for office annex costing GH¢430,000.00 on 4th October, 2013.

b) One Toyota Camry for GH¢85,000.00 on 26th March 2012

c) One Toyota Land Cruiser Prado at a cost of GH¢188,000.00 on 3rd July, 2013

Some of the office equipment were sold on 15th June, 2013 for GH¢35,000.00.

The Firm’s adjusted profits for tax purposes but before grant of capital allowance were as follows:

Year to 31/12/2012 GH¢315,000.00
Year to 31/12/2013 GH¢298,000.00
Year to 31/12/2014 GH¢328,000.00

You are required to compute the chargeable income, if any, of each partner for the relevant years of assessment on the assumption that no other incomes accrued to any of the partners.

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  • 2 Marks

PT – Nov 2024 – L2 – Q4c – Tax Treatment of Repairs and Renovations

Explains the tax treatment of repairs and renovations for businesses.

Question:
Repairs are essential for maintaining the safety of a property, and renovation improves the overall functionality of a property.

Required:
What is the tax treatment of repairs and renovations?

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  • 30 Marks

AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

Zezee Nigeria Limited was incorporated on September 7, 2012, but it did not commence business until July 1, 2013. Based on the Memorandum and Articles of Association, the company was incorporated to carry on the business of distributorship and general contracting.

Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:

Period 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Revenue 5,430,000 12,600,000 18,400,000
Direct Cost (890,000) (1,345,000) (1,910,000)
Gross Profit 4,540,000 11,255,000 16,490,000
Other Income 45,000 458,150 201,000
Distribution Cost (386,000) (820,000) (1,060,500)
Administrative Expenses (4,810,550) (6,510,440) (8,240,600)
Other Expenses (41,000) (113,240) (145,100)
Net (Loss)/Profit (652,550) 4,269,470 7,244,800

Additional Information:

  1. Other Income Comprises:
Details 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Sale of Scraps – 57,000 –
Interest Received on Treasury Bills – 325,000 120,000
Interest on Domiciliary Account 45,000 76,150 81,000
Total Other Income 45,000 458,150 201,000
  1. Administrative Expenses Include:
Details 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Depreciation 160,000 320,000 440,000
Preliminary and Formation Expenses 216,000 – –
Penalties and Fines – – 65,000
General Provision for Bad Debts 110,000 180,000 240,000
Staff Salaries 2,060,000 4,230,000 4,230,000
Office Rent 600,000 1,200,000 1,800,000
  1. Details of Property, Plant, and Equipment are as follows:
Asset Date of Purchase Cost (N)
Furniture and Fittings June 7, 2013 980,000
Motor Vehicles June 30, 2013 2,400,000
Office Equipment July 1, 2013 1,200,000
  1. On January 2, 2015, the company bought another motor vehicle for N1,800,000.
  2. Extracts of the Statements of Financial Position:
Period 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Net Assets 1,360,000 2,870,500 3,260,700
Paid-up Share Capital 5,000,000 5,000,000 5,000,000

Required:

For all the relevant years of assessment, you are required to:

a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)

(Total 30 Marks)

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  • 5 Marks

ATAX – May 2019 – L3 – Q7b – Corporate Tax Compliance and Reporting

Compute the total tax liabilities for Alaba Trading Limited for the 2018 assessment year, considering its assessable profit, capital allowances, and dividend payable.

For the assessment year 2018, below are the extracts from the tax computations of Alaba Trading Limited:

Item Amount (₦)
Assessable profit 8,200,000
Capital allowances 5,400,000
Dividend payable 6,000,000

Required:
Determine the total tax liabilities of Alaba Trading Limited for the assessment year.

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  • 30 Marks

ATAX – May 2022 – L3 – Q1 – Taxation of Companies

Determination of tax liabilities, treatment of donations, and exemptions of dividends based on CIT Act provisions.

Dadinkowa Nigeria Limited has been in business since 2009 as a manufacturer of sugar cubes. The company sources its raw materials, sugar cane, from the Northern part of the country. However, due to local security challenges, the company has faced supply disruptions since 2016.

Additionally, the company has disagreements with tax authorities regarding the treatment of certain items (e.g., donations and dividend income) in their financial statements and returns. High overhead costs, especially energy expenses, have worsened operational challenges.

At a recent board meeting, the directors proposed either a temporary closure or relocating to a neighboring country if conditions do not improve in the next fiscal year. The General Manager shared this with you during your visit as the company’s tax consultant, seeking your advice to address these issues.

A scheduled meeting with the Managing Director requires you to prepare a comprehensive tax report addressing:

  1. Determination of the company’s tax liabilities for the relevant tax year.
  2. Analysis of the treatment of donations and exemptions of dividend income under the Companies Income Tax Act (CITA).

The profit or loss account for the year ended December 31, 2021, is as follows:

Profit or Loss Account:

Extract from the company’s statement of financial position as at December 31, 2021 revealed:

The following additional information was made available:

(v) Interest on loan was paid on a facility obtained from a licensed Nigerian deposit money bank at commercial interest rate.
(vi) General and administrative expenses were made up of:

(vii) Donations and subscriptions
Included in donations was N12,000,000 paid to a fund created by the Federal Government for victims of communal crisis that took place where the company is situated.
(viii) The tax written down values of the qualifying capital expenditure (QCE) items as at December 31, 2020 were:

(ix) Additions to QCEs during the year ended December 31, 2021 were:

(x) Unrelieved capital allowances brought forward were N15,200,000.
(xi) Unabsorbed losses from previous years were:

Required:

As the company’s Tax Consultant, you are to draft a report to the Managing Director for the scheduled meeting expected to hold next week. This is expected to address the following:
a. Determination of the company’s tax liabilities for the relevant tax year. (20 Marks)
b. Comment, in line with the provisions of Companies Income Tax Act Cap C21 LFN 2004 (as amended) on:
i. The treatment of donations made by the company during the year under review (5 Marks)
ii. Exemption of dividends from taxation (5 Marks)

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  • 11 Marks

ATAX – Nov 2016 – L3 – Q6b – Petroleum Profits Tax (PPT)

Determines assessable profit, chargeable profit, assessable tax, and chargeable tax for Bivenette Petroleum Company Limited.

Bivenette Petroleum Company Limited has been in the oil prospecting business for some years. Extracts from its financial statements for the year ended December 31, 2013 show the following information:

Additional Information:

  1. Petroleum Profits Tax rate: 85%
  2. Interest paid includes N12,000,000 paid to an affiliated company.
  3. Capital allowances agreed at N253,750,000.
  4. Operating costs include N302,000,000 paid to a company for information on oil prospect in Adamawa State.
  5. The company is entitled to an Investment Allowance of N173,000,000.

You are required to:

  • Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

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  • 20 Marks

ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)

Tax computation for Debby Oil Limited, including adjustments, capital allowances, and tertiary education tax.

Debby Oil Limited is an oil prospecting company that has been operating in the deep ocean of the Niger Delta since 1990. The company makes up its accounts to December 31 each year.

The company is in discussion with a consortium of five deposit money banks in Nigeria for the purposes of taking a medium-term (5 years) loan facility of USD 5 million to finance further expansion of its facilities and acquisition of a marginal field. As part of the documents required by the banks for processing the loan facility are the audited financial statements and tax computations for the last five financial years. The company is yet to submit the documents for the year ended December 31, 2020, to the consortium.

The extract from its activities for the year ended December 31, 2020, is as presented below:

Item Amount (₦’000)
Oil inventory (Jan 1, 2020) 1,220,000
Oil inventory (Dec 31, 2020) 1,380,000
Sales – Export 9,524,000
Sales – Local 2,900,500
Other income 1,235,300
Production cost 3,440,000
Operating expenses 1,789,600
Intangible drilling cost 1,425,200
Tangible drilling cost 532,000
Traveling expenses 54,000
Salaries and wages 1,860,000
Pension fund contribution 175,000
Loan interest 150,000
General expenses 800,500
Depreciation 170,000
Royalties and production rentals 810,000
Donation 20,000
Bank charges 25,300
Harbour dues 15,000
Non-productive rent 350,000
Audit and accountancy fees 28,000
Customs duty on essentials 7,300
Income tax provision 865,860
Transfer to general reserves 900,000

Additional Information:

  1. Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
  2. Actual realised price is adjusted for deviation from the standard API gravity. Each degree change in API results in a price adjustment of USD 0.20.
  3. 650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
  4. Other income of ₦735 million was generated from the company’s ocean tanker business. Associated expenses of ₦580.5 million were included in general expenses.
  5. Operating expenses included ₦9 million for short lease renewal.
  6. Pension fund contributions were approved by the State Internal Revenue Service.
  7. Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
  8. A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
  9. Transfer to general reserves was board-approved.
  10. Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
  11. Assume USD 1 is equivalent to ₦420.

Required:
As the company’s Assistant Tax Manager, draft a report to the Tax Manager showing the company’s tax liability for the relevant assessment year according to the Petroleum Profits Tax Act, Cap P.13, Laws of the Federation of Nigeria 2004 (as amended).

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