Question Tag: Legal Fees

Search 500 + past questions and counting.
[searchandfilter slug="question-bank-archive-pages"]

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

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

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

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

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

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

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

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

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

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

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

The following additional information was made available:

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

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

(ii) Other operating income:

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

(iii) Repairs and maintenance:

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

(iv) Allowance for doubtful debts:

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

(v) Donations and subscriptions:

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

(vi) Legal and professional fees:

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

(vii) Other operating expenses:

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

(viii) Schedule of qualifying capital expenditure:

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

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

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

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

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

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

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "AT – May 2025 – PL – SA – Q1 – Taxation of Companies"

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

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

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

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

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

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

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

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

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

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

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

The following additional information was made available:

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

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

(ii) Other operating income:

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

(iii) Repairs and maintenance:

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

(iv) Allowance for doubtful debts:

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

(v) Donations and subscriptions:

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

(vi) Legal and professional fees:

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

(vii) Other operating expenses:

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

(viii) Schedule of qualifying capital expenditure:

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

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

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

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

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

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

Login or create a free account to see answers

Find Related Questions by Tags, levels, etc.

Report an error

You're reporting an error for "AT – May 2025 – PL – SA – Q1 – Taxation of Companies"

Oops!

This feature is only available in selected plans.

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

If you’re not subscribed to a plan, click on the button below to choose a plan