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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:
| 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 |
| 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 |
| 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 |
| 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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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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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:
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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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:
You are required to:
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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:
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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Sunny Oil Producing Nigeria Limited is engaged in petroleum exploration in the deep sea off the coast of Bight of Benin in the Niger delta region since 2005. It is involved in a production sharing contract with the Nigerian National Petroleum Corporation. In order to consolidate its position in the Nigerian oil and gas sector, the company intends to diversify its operations into the ocean-going oil tanker transportation business in the next few months.
The company submitted its annual returns and statement of tax computation in respect of the year ended December 31, 2018, to the Federal Inland Revenue Service office in April 2019, but there was a disagreement between the amount raised by the tax office and that of the company. A check by the financial accountant of the company revealed that capital allowances on plant and equipment acquired for N120.5 million during the year, as well as a donation of N50 million made to an institution of higher learning, were not taken into consideration in the determination of assessable profit. A letter explaining this discrepancy was written by the Managing Director to the FIRS, but instead of the issue being resolved, a notice, giving the company date and time for hearing before the Tax Appeal Tribunal was received.
In order for the company to be properly guided in the pursuit of the case before the tribunal, it was resolved that a competent firm of Chartered Accountants with a bias in oil and gas accounting and taxation should be engaged.
Your firm has been appointed as the company‘s tax consultants with the mandate of representing the company at the sittings of the Tax Appeal Tribunal. Relevant documents in respect of the acquisition of the plant and equipment and donation were made available to you.
The extract from the books of accounts of the company for the year ended December 31, 2018 revealed the following:
(i) Export sales:
Price per barrel at 36° API:
(ii) Actual realised price is arrived at after adjusting for the variance in API. For every API, $0.03 is the variance in price at 36°.
(iii) Domestic sales: 80,000 barrels at N720 per barrel.
(iv) Expenses incurred include:
| Description | Amount (N’000) |
|---|---|
| Operating expenses | 255,000 |
| Production and exploration | 1,100,600 |
| Intangible drilling cost | 420,800 |
| Administrative expenses | 225,500 |
| Non-productive rent | 80,700 |
| Bad debts written off | 20,150 |
| Repairs and renewals | 92,600 |
| Transportation and traveling | 73,200 |
| Royalties | 222,900 |
| Miscellaneous expenses | 63,800 |
| Salaries and wages | 830,700 |
| Pension fund contribution | 74,450 |
| Customs duty (non-essentials) | 10,400 |
| Harbour dues | 3,300 |
| Stamp duties on debenture | 2,500 |
| Interest on loan | 52,350 |
| Cost of 3 appraisal wells | 120,000 |
| Income tax provision | 750,000 |
| Transfer to special reserves | 255,000 |
Additional Information:
(i) Production and exploration include N80 million incurred on tangible drilling operation and depreciation of N200.2 million.
(ii) Royalties include an amount of N22.5 million in respect of royalties on domestic sales.
(iii) Miscellaneous expenses include, among others, N12.75 million spent on obtaining information on the existence of oil in the Middle-Belt and N50 million donation to a public university in one of the states in the Niger delta region.
(iv) The Joint Tax Board gave approval for the operation of the pension fund contribution in the company.
(v) Interest on the loan includes N12.3 million paid to a subsidiary company. The transaction was made at the prevailing market rate.
(vi) The company entered into a gas contract with the following:
| Company | Load factor | Amount (N’000) |
|---|---|---|
| Akin Gas Limited | 66 | 220,000 |
| Bollah Limited | 71 | 350,000 |
(vii) Schedule of qualifying capital expenditure:
(viii) Unutilised capital allowance and loss brought forward from the previous year were N12.5 million and N750 million, respectively.
(ix) Capital allowance as agreed with the relevant tax authority was N130.25 million.
(x) The amount stated in respect of transfer to special reserves was approved by the company’s Board of Directors to be utilised for future investment opportunities.
(xi) Assume N305 is equivalent to US $1.
(xii) Profits from petroleum exported or sold domestically are taxable at 85%.
Required:
a. As the company‘s tax consultant, you are to draft a report to the Managing Director explaining the following:
i. The preparation which you and the company should make before the commencement of the proceedings at the tribunal. (2 Marks)
ii. Steps to be taken by the company if the decision of the tribunal is not acceptable to it. (2 Marks)
iii. The tax implication of the company‘s proposed transportation business. (1 Mark)
b. Re-computing the following:
i. Assessable profit (8 Marks)
ii. Chargeable profit (3 Marks)
iii. Assessable tax (1 Mark)
iv. Chargeable tax (1 Mark)
v. Total tax payable (2 Marks)
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Ayokunle Oil Nigeria Limited engages in petroleum operations. The company was incorporated in 2005 but commenced business in January 2010. It operates in the continental shelf at a water depth of 155 metres. The company makes up its accounts to December 31 each year.
The company has presented the following statement of activities for the year ended December 31, 2016:
Expenses incurred:
| Expense Type | Amount (₦) |
|---|---|
| Operating costs | 523,750 |
| Non-productive rent | 110,420 |
| Intangible drilling cost | 439,000 |
| Custom duty | 53,200 |
| Salaries and other personnel costs | 280,500 |
| Interest paid | 50,410 |
| Royalty on oil exported | 110,600 |
| Royalty on local sales | 41,200 |
| Stamp duty | 1,050 |
| Donations | 22,000 |
| Transportation | 72,070 |
| Administration and general expenses | 340,200 |
| Bad debts | 66,000 |
| Pension contribution | 21,000 |
| Miscellaneous expenses | 32,170 |
Additional Information:
Required:
Determine for the relevant assessment year the following:
a. Assessable Profit (7 Marks)
b. Chargeable Profit (3 Marks)
c. Chargeable Tax (1 Mark)
(Total 15 Marks)
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Ibrahim Oil Nigeria Limited is an oil prospecting company which commenced production in commercial quantity in 2008. Its accounting year end is December 31. The company has provided the following Statement of Profit or Loss for the year ended December 31, 2016:
| Description | Amount (N’000) |
|---|---|
| Revenue (value of oil produced) | 2,455,200 |
| Operating costs | (952,500) |
| Non-productive rent | (63,200) |
| Royalty on export sales | (14,775) |
| Depreciation of Property Plant and Equipment | (65,400) |
| Tangible drilling cost | (53,800) |
| Donation | (2,500) |
| Stamp duties | (1,250) |
| Repairs and renewal of machinery | (2,000) |
| Exploration and drilling costs | (100,300) |
| Custom duties on Plant and Machinery | (1,130) |
| Bad and doubtful debts | (26,500) |
| Pension and provident funds | (30,600) |
| Interest paid | (26,200) |
| General expenses | (11,050) |
| Income tax provision | (120,000) |
| Net Profit | 983,995 |
Additional Information:
Required: Determine for the relevant assessment year, the following:
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Tamilore Limited (TL) is an agro-based firm, specializing in yam and rice production in Benue State of Nigeria. One of the harvesters is due to be replaced on November 30, 2018, the last day of TL’s current financial year. An investment appraisal exercise has recently been completed which confirmed that it is financially beneficial to replace the machine at this point. TL is now considering how best to finance the acquisition of the harvester to be replaced. TL is already highly geared.
A government development agency has offered the following two alternative methods of financing the machine:
Alternative 1
A loan of N49,200,000 at 6% interest rate to buy the machine on November 30, 2018. If this option is selected, the machine will be depreciated on a straight-line basis over its estimated useful life of 5 years.
Alternative 2
Enter into a finance lease. This will involve payment of annual rental of N12 million with the first payment due on November 30, 2019. The lease payments will be for the entire estimated useful life of the machine, which is 5 years, after which ownership will pass to TL without further payment.
Other information
(i) Whether leased or purchased outright, maintenance would remain the responsibility of TL and would be N450,000 payable annually in advance.
(ii) TL is liable to tax at a rate of 25%, payable annually at the end of the year in which the tax charge or tax saving arises.
(iii) TL is able to claim capital allowances on the full capital cost of the machine in equal installments over the first four years of the machine.
(iv) Assume that TL has sufficient taxable profits to benefit from any savings arising therefrom.
(v) All workings in N’000.
Required:
a. Show that the implied interest rate in the lease agreement is 7%. (3 Marks)
b. Advise, using present value method, whether Tamilore Limited should borrow to buy the machine or lease it. (12 Marks)
c. Instead of lease financing, one director has suggested an equivalent Islamic finance.
i. Explain briefly the principles of Islamic finance. (2 Marks)
ii. Explain three main advantages of Islamic finance. (3 Marks)
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Udi Nigeria Limited is a mining company which was established ten years ago. The company makes up its accounts to December 31 of every year. The Managing Director, who is an engineer, while having a chat with his former colleagues in the university during the week, heard for the first time, the concept of tax neutralities. He wondered how tax could be neutral.
On getting to the office the following week, he requested further information on tax neutralities from the accountant, but based on his personal opinion, the accountant’s response was not convincing enough.
The company is in the process of filing its annual returns for the year ended December 31, 2021, to the tax authorities. The Managing Director has directed the Financial Accountant to forward the following reports to you (being the company’s Tax Consultant) in respect of the company’s operational activities for the year:
Operational Results:
| Description | N’000 |
|---|---|
| Gross Turnover | 125,490 |
| Salaries and Wages | 25,900 |
| Depreciation of Mining Equipment | 15,400 |
| Transport and Traveling | 2,100 |
| Repairs and Maintenance | 3,700 |
| Allowance for Bad Debts | 6,200 |
| Electricity and Other Utilities | 4,660 |
| Legal and Professional Fees | 4,850 |
| Certified Exploration Expenditure | 4,500 |
| Administrative Expenses | 1,450 |
| Development and Processing Expenditure | 2,500 |
| Miscellaneous Expenses | 3,420 |
| Total Deductibles | 74,680 |
| Net Profit | 50,810 |
Additional Information:
Required:
As the company’s Tax Consultant, you are to prepare a report to the Managing Director of Udi Nigeria Limited, which will:
a. Show the tax liabilities payable by the company for the relevant assessment year in line with the provisions of Nigerian Minerals and Mining Act 2007 (as amended). (9 Marks)
b. Explain the concept of tax neutralities and its applications to specific policy issues. (6 Marks)
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Paper World Nigeria Limited, Ibadan, a manufacturer of paper pulp, paper, and paperboard, was granted a pioneer certificate by the Federal Government on May 1, 2017, for an initial period of three years. Due to unfavorable business conditions and interference by the Ministry of Industry on dividend policy, loss treatment, and capital allowances, the company did not apply for an extension to the pioneer status.
The company’s financial statements for the first three years are as follows:
| Year End | April 30, 2018 | April 30, 2019 | April 30, 2020 |
|---|---|---|---|
| N’000 | N’000 | N’000 | |
| Net loss | (28,700) | (25,500) | (20,200) |
| After charging: | |||
| Salaries and wages | 15,300 | 16,100 | 17,360 |
| Transport and traveling | 1,100 | 1,700 | 1,820 |
| Depreciation | 6,800 | 7,530 | 8,600 |
| Rent and rates | 1,200 | 1,400 | 1,500 |
| Donations to social clubs | 100 | 0 | 250 |
| Allowance for doubtful debts: | |||
| Specific | 1,400 | 1,200 | 1,500 |
| General | 1,850 | 1,750 | 1,800 |
| General expenses | 1,650 | 1,820 | 1,900 |
| QCE | Number of Items | Amount (N’000) | Date of Acquisition |
|---|---|---|---|
| Furniture and fittings | 2 | 500 | June 12, 2020 |
| Motor vehicles | 1 | 2,200 | March 7, 2021 |
| Description | N’000 |
|---|---|
| Turnover | 102,500 |
| Dividend income (grossed up) | 1,200 |
| Other operating income | 800 |
| Total | 104,500 |
| Deductions: | |
| Salaries and wages | 39,600 |
| Repairs and maintenance | 3,500 |
| Depreciation | 15,300 |
| Rents and rates | 6,800 |
| General and administrative expenses | 9,970 |
| Legal fees | 2,500 |
| Audit and accountancy fees | 3,200 |
| Allowance for doubtful debts | 6,600 |
| Bank charges | 2,100 |
| Net profits | 14,930 |
| Category | Amount (N’000) |
|---|---|
| Manufacturing plant repairs | 1,500 |
| Motor vehicle maintenance | 800 |
| Non-industrial building improvement | 1,200 |
| Category | Amount (N’000) |
|---|---|
| Transport and traveling | 3,750 |
| Advertisement | 4,920 |
| Transfer to revenue reserve | 1,300 |
| Category | Amount (N’000) |
|---|---|
| Collection of trade debts | 1,100 |
| Fine for late tax filing | 50 |
| Legal expenses on new share issue | 1,350 |
| Category | Amount (N’000) |
|---|---|
| Bad debts written off | 2,800 |
| Specific provision | 2,500 |
| General provision | 3,700 |
| Bad debts recovered | (2,400) |
Required: As the company’s newly appointed Tax Consultant, prepare a report to the Managing Director stating the:
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The Managing Director of ICTREC Mining Company Limited is concerned about the correct computation and presentation of deferred taxes in the company’s financial statements. Last year, the Federal Inland Revenue Service raised a query on the company’s financial statements and the annual tax returns filed for tax assessment purposes.
To avoid any future tax queries on the financial statements, the Managing Director has approached your firm of chartered accountants to assist in preparing financial statements suitable for presentation at the company’s annual general meeting and submission to the tax authorities for determining tax liabilities.
All relevant books of accounts for ICTREC Mining Company Limited’s financial transactions have been made available to you. The following is an extract from the accounts for the year ended December 31, 2021:
Income and Expenses (N’000):
Additional Information:
Required:
You have been directed by your Principal Partner to work on this assignment and prepare a draft report for his review. The report should show the computation of the following:
Total: 15 Marks
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The Managing Partner of Aarinola Sunkanmi & Co., a firm of Estate Surveyors and Valuers based in Lagos, has invited you to calculate the Chargeable income of each of the firm’s partners after the admission of Mariam in 2014.
The information relating to the Partnership are as follows:
(a) The firm makes up its accounts up to 31 December of each year.
(b) Extracts from the books of account for the year ended 31 December 2014, are listed below:
| Description | Amount (₦) |
|---|---|
| Net profit for the year | 1,380,000 |
| Depreciation | 450,000 |
| Capital Allowances for the year | 366,300 |
| Balancing Allowance | 72,500 |
| Balancing Charge | 75,480 |
| Profit on sale of fixed assets | 77,500 |
| Legal expenses for successfully defending one of the partners for professional misconduct | 14,000 |
(c) Other information:
(i) The THREE partners are Aarinola, Olasunkanmi and Murphiefe.
(ii) Profit sharing ratio is as follows:
(iii) Aarinola and Murphiefe received ₦15,000 each as interest on loan per annum.
(iv) Salaries paid to each partner are as follows:
(v) Olasunkanmi ceased to be a partner on 30 June 2014. Mariam was admitted on 1 July 2014. Mariam’s salary was fixed at ₦60,000 per annum. She also received interest on capital of ₦10,000 per annum.
(vi) Included in travelling expenses is the sum of ₦12,000 paid towards the annual vacation of Aarinola, the Principal Partner.
(vii) On Mariam’s admission in July 2014, the profit sharing ratio was changed to:
Required:
a. Compute the Chargeable Income of each partner: i. Prior to admission of Mariam (9 Marks)
ii. Post-admission of Mariam (9 Marks)
b. State the basis period for the existing partners. (2 Marks)
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Campbell Limited, located in Arama Town, has been in business since 1994 and manufactures plastic containers. The company’s accounts for the year ended December 31, 2014, showed the following results:
a. Compute Capital Allowances assuming assets purchased in 2011 have been used for two years. (7 Marks)
b. Compute the Total Profits, Companies Income Tax (CIT), and Tertiary Education Tax (TET) for the relevant year of assessment. (8 Marks)
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As part of the induction program for the newly recruited staff of your firm of tax consultants, you have been tasked with a presentation on companies’ income tax computation for beginners during the firm’s training session.
You are provided with the following information relating to Wizzy-Baddo Limited, which commenced business on September 1, 2020:
The following assets were acquired as follows:
| Date | Asset | Cost (N) |
|---|---|---|
| June 5, 2020 | Land and building | 5,467,500 |
| July 1, 2020 | Motor vehicle | 10,000,000 |
| October 15, 2020 | Machinery | 4,375,000 |
| February 28, 2021 | Furniture | 3,458,000 |
| May 1, 2021 | Delivery van | 4,750,000 |
Required:
a. State the basis periods for assessable profits and qualifying capital expenditure. (5 Marks)
b. Compute the capital allowances.
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USMAN Plc.
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2013
USMAN Plc.
Comparative Statements of Financial Position as at:
Additional information extracted from the company’s records are:
(i) Plant which had a carrying amount of N20,000,000 was sold for N28,000,000
cash and new equipment was purchased for N100million.
(ii) Intangibles valued at N30,000,000 were acquired for cash.
(iii) Borrowings of N20,000,000 were made during the year and received in cash.
(iv) Dividends paid in cash amounted to N100,000,000.
Required:
Prepare Statement of Cash Flows for USMAN Plc for the year ended 31 December 2013
in accordance with IAS7 using direct method.
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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
The following additional information is provided:
Required:
For the relevant assessment years,
a. Compute the assessable profits. (14 Marks)
b. Compute the company’s income tax liabilities. Ignore minimum tax computation. (6 Marks)
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Chief Sarki Oliver died peacefully in his sleep on 31 December 2009. He is survived by three children – Jimmy, Ngozi, and Charles. Two Trustees were appointed for the Settlement created in favor of the children to ensure that they were not badly affected by the demise of their father. Details presented by the two Trustees for the year ended 31 December 2010 are as follows:
| Income | N’000 |
|---|---|
| Rental income (gross) | 225,000 |
| Trading income | 250,000 |
| Dividends (gross) | 170,000 |
| Interest on bank deposit | 107,500 |
| Sundry income | 105,000 |
| Total Income | 857,500 |
Additional Information: (i) The Interest income is from Super Bank plc
(ii) Administrative and other expenses amounted to N32,000
(iii) Interest on debt repayment by the Settlement was N25,000
(iv) Fixed annuity to a beneficiary was N41,000 (Gross)
(v) Each beneficiary is entitled to 1/5 share of the net distributable income
(vi) Under the terms of the Trust Deed, the Trustees made discretionary payments to:
In view of the recent agitation by the extended family members, you were contracted as
a consultant to compute the following:
Required:
a. Compute the income tax payable by the Trustees on the Trust income. (8 Marks)
b. Calculate the amount due to each beneficiary of the Settlement. (7 Marks)
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(ii) Capital allowances as agreed with the Federal Inland Revenue are as follows:
| Year of Assessment | Amount (N) |
|---|---|
| 2016 | 600,000 |
| 2017 | 490,000 |
| 2018 | 420,000 |
| 2019 | 385,000 |
Required:
Compute the tax liabilities of the company for the relevant years of assessment, taking into consideration the options available to the company.
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