- 20 Marks
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.
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