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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

AAA – May 2025 – Professional – SA – Q1 – Audit Reporting, Communication with Those Charged with Governance, Review of Subsequent Events and Going Concern Assumptions

Evaluate circumstances, factors, form and contents for modified audit opinion, and reasons for communication with governance in Night Insurance Company's case involving going concern and liquidity issues.

Question

The audit of the financial statements of Night Insurance Company Limited for the year 2024 was yet to be completed due to certain issues relating to going concern and liquidity considerations. A review of the draft financial statements revealed a negative shareholders‟ fund of N18.7billion (Audited 2023: negative N14.5billion). From the recent regulatory examination conducted on the company, the shareholders‟ fund is below the minimum regulatory capital required for insurance businesses, an indication that the entity had consistently not met the regulatory threshold for quite some time. To return the entity to a solvent position, the following action plans have been designed by the Board of Directors:

(i) a rights issue with expected inflow of N2billion. The company has assurance from certain shareholders that they will take up their rights which would be concluded before the audit of the year ended December 31, 2024 is completed;

(ii) transfer of certain properties of the company in closed branches to investment

property to generate rental income in order to improve the liquidity position and also enhance its admissibility in calculating solvency margin. The company had the transfer of the properties in plan but this was not completed due to challenges such as the economic recession, unemployment, and inflation rate; and

(iii) the company also has some subsidiaries in aviation and restaurant businesses

which it hopes to dispose and realise the assets to boost liquidity.

It was further discovered that cashflow projections of the company on how to address the going concern situation have not been reliable from previous years‟ experience.

Although the company has negative operating cash flow and has been making persistent operational losses, the financial statements have been prepared on the going concern basis of accounting, which assumes that the company will continue in operation for at least the next 12 months and discharge its liabilities and commitments in the normal course of business. During the course of the audit, the audit team noted non- accrual of some claims, which were yet to be paid amounting to N3.2 billion, which they believe were material to the financial statements, but not pervasive. They were not pervasive because it did not affect all the elements of the financial statements.

It was also observed from the examination of the records that due to the poor cashflow situation of the company, the following were outstanding:

(i) withholding tax deducted not remitted to relevant tax authority and payment of the company‟s income taxes;

(ii) pension contributions to respective pension administrators;

(iii) an amount of N500 million relating to supply of goods and services for over nine

months; and

(iv) three months salaries.

Some bank account balances have not been reconciled as at the time of the audit.

The auditors are preparing for a discussion with management and those charged with governance as the Engagement Partner indicated that the firm is likely to express a modified opinion on the financial statements. As a member of the audit team, you are expected to be part of the meeting.

Required:

a. Evaluate the circumstances under which an auditor is expected to issue a modified audit opinion.

(2 Marks)

b. Discuss the factors that will determine each of the modified audit opinions that

the firm might likely express.

(11 Marks)

c. Describe the expected form and contents of the Auditors‟ Report when the

opinion is modified. (15 Marks)

d. Discuss the reasons why communication with those charged with governance is

necessary.

(2 Marks)

Answer

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PSAF – May 2025 – Skills – Q3 – Public Sector Financial Statements and IPSAS

Explain fair presentation of financial statements; treat research costs for project 3 and revenue from grants per IPSAS for University of Wazobia

Question

a. Explain what is meant by fair presentation of financial statements for public entities. (2 Marks)

b. University of Wazobia is a public funded entity established by an Act of parliament in 2019. In its recent trial balance for the year ended December 31, 2024, two items which are listed below have caught the attention of the new Vice Chancellor.

Item 1: The research and development costs of N61,295,000 included in the trial balance are made up of the following elements:

Project 1: N13,325,000 was spent on applied research. It is hoped that this will ultimately lead to the development of a new vaccine.

Project 2: N21,320,000 was spent on research into how renewable energy can be used to support technology for economic development.

Project 3: N26,650,000 was spent on the development of a new scanner. Subsequently, the University considers this project no longer a priority of national government and by December 31, 2024 no funding had been identified to continue with the project in 2025. However, on February 15, 2025, a loan was obtained from a commercial organisation which means that the project can be completed and the scanner sold commercially.

The costs to complete all three projects have been estimated by the University.

Item 2: The research grant contracts of N67,957,500 included in the trial balance are to fund the three projects referred to in item 1 above. It is the policy of the University to recognise revenue on the basis of percentage completion of the project.

Project	Revenue included in the Trial Balance N	% complete
1	15,990,000	80%
2	22,386,000	96%
3	29,581,500	90%
Total	67,957,500

Required:

(i) With reference to relevant IPSAS, explain your treatment of the costs of N26,650,000 which relate to project 3. (10 Marks)

(ii) With reference to the relevant IPSAS explain your treatment of the revenue of N67,957,500 from research grants contracts. (8 Marks)

Answer

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Tags: Fair Presentation, Financial Statements, IPSAS, Percentage Completion, Public Entities, Research and Development Costs, Research Grants, Revenue Recognition
Level: Level 2

Topic: International public sector accounting standards, Public Sector Financial Statements
Series: MAY 2025

AA – May 2025 – Q7 – Audit Procedures for Evidence

Explain appropriate audit procedures for obtaining evidence on various review points in Real Favour Limited's audit file.

Question

Real Favour Limited is a client of Adodo Lafe & Co (Chartered Accountants). The Audit Manager has just completed his review of the audit file. His review points include:

(i) confirming ownership of motor vehicles used for distribution of goods;

(ii) confirming the amounts owed by customers;

(iii) testing the procedure of payment of wages to daily paid and casual workers;

(iv) testing the correctness of salary amounts credited to staff bank accounts;

(v) confirming the authorisation for the purchase of plant and machinery;

(vi) ascertaining that inventories belonging to the relevant periods have been accounted for during the inventory stock count;

(vii) checking the periodic trend in the performance of the company as reflected in the financial statements; (viii) confirming the existence of land and building at the branch office;

(ix) understanding the nature of one-off and unusual payments recorded in the financial records; and

(x) confirming from management that all liabilities have been provided for.

Required:

Explain which audit procedures you would deem most appropriate for obtaining audit evidence in each circumstance, as the senior in charge of the assignment.

Answer

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Tags: Audit Procedures, Financial Statements, Inventories, Land and Building, Liabilities, Motor Vehicles, Plant and Machinery, Trade receivables, Unusual Payments, Wages
Level: Level 2

Topic: Audit evidence
Series: MAY 2025

FR – May 2025 – L2 – Q1 – Statement of Cash Flows

Prepare cash flow statement for Chukwuka Nigeria Limited using indirect method; explain cash equivalents per IAS 7; list IAS 1 offsetting exceptions.

Question

The financial statements of Chukwuka Nigeria Limited are drafted below:

Statement of profit or loss for the year ended April 30, 2025

	N’million	N’million
Revenue		164,985
Cost of sales		(118,095)
Gross profit		46,890
Interest received		1,670
Administrative expenses		(25,025)
Finance costs		(5,220)
Profit before taxation		18,315
Income tax expense	6,642
Deferred tax	2,208	(8,850)
Profit for the year		N9,465

Statement of financial position as at April 30,

	2025	2024
Assets	N‟million	N‟million
Non-current assets:
Property, plant and equipment	29,235	23,475
Intangible assets	18,775	16,300
Trade Investments	1,835	2,860
Current assets
Inventories	11,550	7,875
Trade and other receivables	31,440	25,335
Short-term investments	3,810	2,790
Cash in hand	930	360
	97,575	78,995
Equity and Liabilities
Ordinary share capital of N1 each	15,000	11,250
Share premium account	10,500	9,300
Revaluation reserve	11,280	9,195
Retained earnings	17,925	13,860
Non-Current liabilities
10% Loan notes	12,780	6,500
Deferred tax	1,500	3,750
Current liabilities
Trade and other payables	12,810	9,150
Bank overdraft	6,540	7,530
Current tax payable	9,240	8,460
	97,575	78,995

Additional Information:

(i) A financial asset included in the trade investment with a carrying amount of N1,500 million was sold for N1,885 million during the year while a replacement was also acquired.

(ii) There was an issue of three billion, seven hundred and fifty million (3.7 billion) ordinary shares during the year at a premium of thirty two kobo per share.

(iii) The short-term investment is highly marketable with one to three months maturity profile.

(iv) During the financial year, the company paid dividend of N5,400 million to equity holders and this had been accounted for during the year.

(v) Delivery vans with original costs of N6,600 million and a carrying amount of N3,750 billion was sold for N2,520 million during the year.

(vi) The company is planning to take a long-term syndicated loan of N2,000 million from a healthy Nigerian bank. The company‟s financial statements and loan application had already been submitted to the bank and is awaiting approval.

(vii) Extract from property, plant and equipment schedule revealed:

	2025	2024
	N‟million	N‟million
Cost	55,395	45,795
Accumulated depreciation	26,160	22,320
	29,235	23,475

(viii) A cash payment of N58 million made in respect of insurance premium for the financial year ended April 30, 2025 was totally omitted in the books.

Required: a. Prepare a statement of cashflow for Chukwuka Nigeria Limited for the year ended April 30, 2025 using the indirect method. (20 Marks)

b. In the context of IAS 7 – Statement of Cash flows, explain the term “cash and cash equivalents” and give two examples (4 Marks)

c. In accordance with IAS 1 – Presentation of Financial Statements, assets and liabilities must not be offset except when the offset is required by another standard.

Required: Give the exceptions to the rule regarding off setting provided by IAS 1 (6 Marks)

Answer

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Tags: Adjustments, Cash Equivalents, Cashflows, Financial Statements, IAS 1, IAS 7, Indirect Method, Offsetting
Level: Level 2

Topic: Statement of Cash Flows (IAS 7)
Series: MAY 2025

FA – May 2025 – L1 – Q5 – IAS 2 Inventories Valuation & Write-down

Apply IAS 2 to inventory valuation, compute NRV, and account for write-down.

Question

a. IAS 2 provides guidance on how to determine the costs of inventories, the subsequent recognition of the costs and the formulae that are used to assign costs to inventories.

Required:
i. Explain the term inventories, giving examples, in accordance with IAS 2. (5 Marks)
ii. State the elements of costs that should be included in the measurement of inventories. (3 Marks)

b. The following information relates to the three different products P, Q and R of Oba Limited as at the year ended September 30, 2023.

Product P was made according to the specification of a customer at a cost of ₦128,400 but the customer went bankrupt. The product was delivered to an agent for sale at a delivery cost of ₦13,320. The agent is expected to sell it for ₦180,000 and will receive 5% commission on the selling price.
The cost of Product Q is ₦79,200. The product has been damaged but it can be repaired at a cost of ₦12,600 after which it is expected to be sold for ₦82,500.
Product R cost ₦112,500. The product normally sells for ₦144,400 but it has been badly damaged due to flood. A customer has agreed to buy the product for ₦58,600.

Required:
i. Calculate the amount at which the inventories should be included in the statement of financial position as at September 30, 2023. (8 Marks)
ii. Determine the total amount written down on the inventories. (2 Marks)
iii. Explain how the total amount written down on the inventories will be accounted for in the financial statements. (2 Marks)

Answer

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Tags: Financial Statements, IAS 2, Inventories, NRV, Valuation, Write-down
Level: Level 1

Topic: Write-down of Inventory
Series: MAY 2025

FA – May 2025 – L1 – Q1 – Recognition & Derecognition, Blockchain

Recognition and derecognition of financial statement elements and blockchain application.

Question

a. The IASB Conceptual Framework for Financial Reporting gives guidance on the criteria that an item must meet to be recognised or derecognised in the financial statements. Within the context of the Conceptual Framework for Financial Reporting, you are required to:

i. Define recognition and derecognition. (2 Marks)

ii. Explain the criteria the elements of financial statements must meet to be recognised. (6Marks)

iii. Outline the processes for the recognition of the elements of financial statements. (4 Marks)

b. Discuss the type of records that a company can maintain in a blockchain and state TWO benefits of making use of the blockchain technology. (8 Marks)

Answer

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Tags: Blockchain, Derecognition, Financial Statements, IASB Framework, Recognition
Level: Level 1

Topic: Virtual Accounting - Blockchain Technology
Series: MAY 2025

STP – Aug 2013 – L2 – Q4 – Taxation of Specialized Business Sectors

Advise on tax liabilities for TecAxxes Bank Ltd for 2011 and 2012.

Question

You have been recently employed as the Tax Accountant for TecAxxes Bank Ltd. You have agreed with management to consult the Bank’s Tax Advisers on the 2012 financial statements with a view to submitting the tax returns by end of August 2013. The Bank’s auditors have put together TecAxxes draft financial statement from which you have made extracts as below: TecAxxes Bank Ltd Income Statement for the year ended December 2012 and 2011

	Notes	2012 GH $\phi$	2011 GH $\phi$
Interest Income	1	1,522,000	1,834,000
Interest expense		(866,000)	(1,204,000)
Net Interest Income		656,000	630,000
Fee and Commission Income		342,000	282,000
Other Operating Income	2	69,520	59,630
Operating Income		1,067,520	971,630
Operating expenses	3	(514,200)	(482,420)
Charge for bad and doubtful debts	4	(29,000)	(41,000)
Operating Profit		524,320	448,210
Other Income	5	54,800	42,300
Profit before tax		579,120	490,510
Tax Paid	6	(202,420)	(280,520)
Transfer to Income Surplus		376,700	209,990

Notes

Interest Income includes income earned from: Loans granted fishermen Loans granted to pineapple growers
Other Operating Income Dividend income (Net) Govt. Bond Int. income (net) Bad Debts recovered
Operating Expenses includes Depreciation
Charge for Bad and doubtful debts Specific credit risk provision General Provision for credit risk
Other Income Disposal of used tires and depreciated Vehicles Profit on sale of shares
Tax paid is made up as follows: Deferred tax liability Corporate tax paid for year Total

	GH $\phi$	GH $\phi$
Loans granted fishermen	28,000	24,050
Loans granted to pineapple growers	32,000	15,000
Dividend income (Net)	20,120	17,000
Govt. Bond Int. income (net)	17,000	28,500
Bad Debts recovered	32,400	14,130
	69,520	59,630
Depreciation	80,200	65,600
Specific credit risk provision	9,010	20,600
General Provision for credit risk	19,990	20,400
	29,000	41,000
Disposal of used tires and depreciated Vehicles	39,000	17,100
Profit on sale of shares	15,800	25,200
	54,800	42,300
Deferred tax liability	102,200	121,000
Corporate tax paid for year	100,220	159,520
	202,420	280,520

Agreed capital allowance for the year is GH $62,500 (2010: GH $75,000).

Required Please, as the newly appointed Tax Accountant for TecAxxes Bank Ltd, advice the Managing Director on the tax liabilities arising from this position statement presented to you for the two years.

Answer

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Tags: Banking, Capital Gains, Financial Statements, Tax Liability
Level: Level 2

Topic: Taxation of Specialized Business Sectors
Series: AUG 2013

FR – Mar 2025 – L2 – Q3 – Preparation of Financial Statements

Prepare Halidu LTD's financial statements for 2024, including comprehensive income, changes in equity, and financial position per IFRS.

Question

The following trial balance relates to Halidu LTD (Halidu) at 30 June 2024:

	GH¢’000	GH¢’000
Revenue		3,120,000
Cost of sales	1,757,400
Distribution costs	45,600
Administration expenses	118,800
Loan interest paid	28,800
Property – cost	1,200,000
Property – depreciation at 1 July 2023		225,000
Plant and equipment – cost	1,011,600
Plant and equipment – depreciation at 1 July 2023		291,600
Licence – cost	240,000
Licence – amortisation at 1 July 2023		96,000
Trade receivables	259,200
Inventory – 30 June 2024	112,800
Bank	78,000
Trade payables		211,200
Share capital (GH¢0.25 each)		420,000
Revaluation surplus		78,000
12% loan note (issued 1 July 2023)		240,000
Taxation	12,000
Retained earnings at 1 July 2023		68,700
	4,774,200	4,774,200

The following notes are relevant:
i) Halidu made credit sales for GH¢196 million on a sale or return basis and this is currently included in revenue in the trial balance. At 30 June 2024 customers who had not paid for the goods, had the right to return GH¢62.4 million of them. Halidu applied a mark-up on cost of 30% on all these sales. In the past Halidu’s customers have sometimes returned goods under this type of agreement.
ii) On 1 July 2023, Halidu revalued its property to GH¢1,440 million, of which GH¢360 million relates to the land. This property was acquired 10 years ago at a cost of GH¢1,200 million which included GH¢300 million for the land. The building had an estimated life of 40 years when it was acquired and this has not changed as a result of the revaluation. Depreciation is charged on a straight line basis. The revaluation has not yet been recorded in the books. Halidu has a policy of transferring any excess depreciation to retained earnings.
iii) During the year, Halidu sold some plant that cost GH¢120 million on 1 December 2020. The proceeds of this sale were GH¢72 million and these have been credited to cost of sales. No other entries have been made relating to the disposal. Plant and equipment is to be depreciated on the reducing balance basis at a rate of 20% per annum. Halidu charges a full year’s depreciation in the year of acquisition and none in the year of disposal.
iv) The licence is being amortised on the straight line basis at a rate of 20% per annum. All depreciation and amortisation is to be charged to cost of sales.
v) The directors have estimated the provision for income tax for the year ended 30 June 2024 at GH¢76.2 million. The balance of taxation in the trial balance relates to over/under provision of tax in the previous year. The only deferred tax consequence relates to those mentioned in note (ii) above. The company pays tax on profit at the rate of 25%.
vi) Halidu intends to dispose of a major line of its business operations in the course of the year. At the date the held for sale criteria were met, the carrying amount of the assets and liabilities comprising the line of business were:

	GH¢’000
Plant and equipment	138,000
Trade receivables	9,000
Trade payables	7,000

It is anticipated that Halidu will realise GH¢135 million for the business. No entries have yet been made in respect of this information.

Required:
Prepare and present a statement of comprehensive income, a statement of changes in equity and a statement of financial position at 30 June 2024 in a form suitable for presentation to the shareholders and in accordance with the requirements of International Financial Reporting Standards (IFRS).

Answer

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Tags: Depreciation, Financial Statements, Held for Sale, IFRS, Revaluation, Statement of Changes in Equity, Statement of Comprehensive Income, Statement of Financial Position, Taxation
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAR 2025

PSAF – Mar 2025 – L2 – Q1- Preparation and presentation of financial statements for covered entities

Prepare the Statement of Financial Performance for Hamile Teaching Hospital for 2023 per IPSAS and related regulations.

Question

The Trial Balance below relates to Hamile Teaching Hospital, a public hospital.

Trial Balance for the year ended 31 December 2023
	Debit	Credit
	GHc’000	GHc’000
Government subvention		100,750
Out-patient services fees		35,000
In-patient services fees		40,000
Development Partner grants (ii)		16,000
Established position salaries	62,000
Casual Labour	5,600
Contract appointment (local and foreign)	1,400
Limited engagements	200
Rent (iii)	500	150
Insurance	340
Consultancy services	120
Conferences, workshops and training	4,500
Purchase of drugs	60,000
Purchase of medical consumables	80,000
Office expenses	20,000
Repairs and maintenance	6,000
Interest on loan	10,000
Pharmacy sales		180,000
Diagnostic		85,000
Mortuary Services		9,400
Cafeteria and Canteen		4,650
Extension services		14,500
Furniture and office equipment (iv)	200,000	40,000
Medical equipment & accessories (iv & v)	420,000	120,000
Motor vehicles (iv)	120,000	20,000
Land and buildings (iv)	300,000	70,000
Bank and Cash	30,000
Receivable from National Health Insurance Scheme (vi)	65,000
Receivable from patients	15,000
Payables		26,000
Loan from foreign Institution (2028) (vii)		350,000
Inventory of drugs	22,000
Inventory of medical consumables	12,000
Accumulated Fund		336,210
Other expenses	13,000
	1,447,660	1,447,660

Additional Information:
i) The hospital prepares its financial statements in accordance with the International Public Sector Accounting Standards (IPSAS), the Public Financial Management Act 2016, (Act 921), the Public Financial Management Regulation 2019, L.I 2378, and the current Chart of Accounts of the Government of Ghana.
ii) The Development Partner grants received from the Health Care Fund, an international organization that provides free medical care to the rural poor and vulnerable individuals, are typically unconditional. However, 40% of this year’s grant is subject to certain conditions, which had not been met as of December 31, 2023.
iii) Rent received in advance during the year amounted to GH¢20,000 while rent owed by the hospital for the year amounts to GH¢300,000.
iv) The hospital charges consumption of fixed assets on straight line basis as follows

Non-current Assets	Estimated Useful Life
Furniture and office equipment	5 years
Medical equipment and accessories	4 years
Motor vehicles	5 years
Buildings	10 years

Land constitutes 30% of the amount of land and building shown in the trial balance.
v) A medical equipment valued at GH¢20,000,000 which is included in the medical equipment and accessories listed on the trial balance, was completely damaged due to consistent power fluctuations. The value of this equipment should be written off.
vi) The hospital submitted a claim of GH¢11,000,000 to the National Health Insurance Scheme for services provided to patients in the last quarter of 2023, but the payment has not yet been received. This transaction has not yet been reflected in the trial balance.
vii) The hospital took a loan of $100,000,000 from Health World Bank on January 1, 2023, when the exchange rate was $1 to GH¢3.50. The exchange rate on 31 December 2023 is $1 to GH¢5.
viii) The inventories on 31 December 2023 were as follows:

Inventory type	Cost	Net Realizable Value	Current Replacement
	GHc’000	GHc’000	GHc’000
Drugs	15,000	16,000	14,000
Medical consumables	10,000	11,000	9,000

Required:
Prepare for Hamile Teaching Hospital:
a) Statement of Financial Performance for the year ended 31 December 2023.

b) Statement of Financial Position as of 31 December 2023.

c) Disclosure notes to the financial statements.

Answer

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Topic: Preparation and presentation of financial statements for covered entities
Series: MARCH 2025

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