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AT – Nov 2022 – Q1 – Taxation of Companies

Compute adjusted profit for 2021 and tax liabilities for 2021-2022 for a post-pioneer company, including reliefs and allowances.

As a result of the developing nature of Nigeria’s economy, there are some industries and products that are not well developed on a scale that can adequately cater for the needs of the populace. One of the investment incentives available to industries and products in this category, is contained in the Industrial Development (Income Tax Relief) Act 1971. Application has to be made to the Federal Government in order to enjoy any of these numerous investment incentives.

Owoeye Machine Tools Nigeria Limited was incorporated on January 20, 2016, and was initially granted a pioneer certificate on April 1, 2016. At the end of the pioneer period, the company, as a result of negligence, failed to follow due process in applying for extension of the pioneer certificate. The company, however, retained March 31 as its financial year end.

The following records and information were obtained from the company:

(i) Qualifying capital expenditure on property, plant and equipment (certified by the Federal Inland Revenue Service) incurred during the pioneer period:

N’000 Industrial building 23,800

Building (non-industrial) 11,600 Motor vehicles 6,200 Plant 10,400 Furniture and fittings 5,800

(ii) Statement of adjusted profits/(losses) during the pioneer period:

Period under review Total profits/(losses)

N’000 Year ended March 31, 2017 (44,450) Year ended March 31, 2018 (23,140) Year ended March 31, 2019, 8,700

(iii) Both the qualifying capital expenditure on property, plant and equipment and adjusted profits/(losses) were certified by the Federal Inland Revenue Service.

(iv) The company made a gross turnover of N312,450,000 and adjusted profit of

N52,250,000 during the year ended March 31, 2020.

(v) Extract from the statement of profit or loss for the year ended March 31, 2021, revealed the following:

N’000 Gross turnover

320,220 Less: Cost of sales

(176,550) Gross profit

143,670 Less: Expenses:

Salaries and wages 48,430

Transport and traveling 2,360

Motor running expenses 1,580

Postage and telephone 1,150

Bank charges 870

Repairs and maintenance 3,660

Auditors‟ remuneration 1,500

Legal and professional fees (see note i) 2,000

Depreciation 15,770

Donations 1,600

Allowance for doubtful debts (see note ii) 7,000

Administrative expenses (note iii) 10,070 95,990 Net profit

47,680

Notes:

Legal and professional fees included N1,400,000 paid to the company’s lawyer in respect of acquisition of land for the purposes of the business.

 Allowance for doubtful debts comprised: N1,350,000 for specific provision; N4,150,000 for general provision; and N1,500,000 for bad debts written off.

 Administrative expenses included N850,000 paid to a financial consultant who helped in preparing feasibility study on viability of a proposed product line.

 The schedule of qualifying capital expenditure on property, plant and equipment purchased during the year ended March 31, 2021, is as follows:

Type Date of acquisition Amount

N’000 Motor vehicles (2) April 15, 2020, 3,200 Plant (1) July 1, 2020, 5,000 Furniture and fittings (4) February 13, 2021, 1,200

Required:

As the company’s Tax Manager, you are to prepare a report for the attention of the Managing Director showing the companies:

  a. Adjusted profit for the year ended March 31, 2021,                                                                                                                                            b. Tax liabilities for 2021 and 2022 assessment years

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TX – May 2025 – SKILLS – Q1 – Companies Income Tax and Ethical Issues

Compute tax liabilities for XYZ Nigeria Limited, explain alternative assessment bases for companies, and outline IESBA's five fundamental ethical principles.

XYZ Nigeria Limited was incorporated in Nigeria on November 1, 2016. The company has an authorised and fully paid ordinary share capital of five million shares at N1 each.

The company is an entity that started trading on January 1, 2023, retailing engineering equipment. Its first statement of profit or loss was for the year ended December 31, 2023, and revealed the following results

N’000 N’000
Gross profit 140,800
Investment income 3,850
Profit on sales of equipment 4,950
149,600
Less expenses:
Depreciation 17,875
Directors’ emoluments 2,200
Debenture interest 4,000
Audit and accounting fees 4,125
Legal costs 5,775
Salaries 72,000
Miscellaneous expenses 12,600 (118,575)
Net profit for the year 31,025

The following additional information was provided by the company’s Financial Director:

(i) Legal costs comprise the following:

N’000
– Retainership 1,725
– Cost of issuing directors service agreement 1,550
– Cost of issuing ordinary shares 2,500
5,775

(ii) The breakdown of miscellaneous expenses comprises:

N’000
– Cost of installation of a new machine 3,750
– Extension and partitioning of office apartment 1,500
– Staff party 2,500
– Cost of entertaining suppliers 4,850
12,600

(iii) Investment income comprises the following:

N’000
– Dividend from Nigerian companies (net) 2,100
– Loan interest from Nigerian company (gross; non-trading investment) 1,750
3,850

(iv) On December 31, 2023, the directors of the company agreed to pay a dividend of 5% on its ordinary shares

(v) Balancing charge agreed with the Revenue was N2,740,000

(vi) The agreed capital allowance with the Revenue was N10,325,000

Required:
a. Compute the total tax liabilities of XYZ Nigeria Limited for the relevant year of assessment. (20 Marks)
b. Explain the other bases of assessing companies to income tax in Nigeria apart from the normal basis.

(5 Marks)
c. The company is under pressure to fund some of the projects that are likely to be executed the following year. In order to be proactive, the management is of the view that additional loans can be obtained within a very short time, if the management is ready to cooperate with the creditors. If they do that, more funds will be available to execute all these projects.
The Accountant was present at the management meeting and was not comfortable with this proposed line of action. He feels that it will constitute a breach of the ethics of his profession to engage in shady dealings in the course of his employment. He explained to the management that there are ethical issues a professional accountant should be wary of. He maintained that those ethical issues as noted by ICAN and International Ethics Standard Board for Accountants (IESBA) code are the guiding principles of every accountant.

You have been appointed by the company as the Tax Consultant to handle its tax matters and they have sought clarifications on the statement of the accountant.

Explain the FIVE fundamental principles of ethics as specified by the International Ethics Standards Board for Accountants (IESBA). (5 Marks)

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AT – Nov 2014 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Explain penalties for non-compliance, compute profit and tax liabilities, and detail exemptions from minimum tax liability.

The Tax Consultants, ABFR Consult, received an e-mail from Mrs. Deboh Komo, Managing Director of Deboko Nigeria Limited. Extracts of her e-mail are as follows:

  1. The company was incorporated on 1 February 2007.
  2. It commenced business as importers of new engines for tricycles on 1 May 2009.
  3. The Directors chose 30 June as the year-end and made the first financial statements up to 30 June 2010.
  4. The company did not file any tax returns to date due to a general lull in business activities.
  5. The tax monitoring section of the Federal Inland Revenue Service (FIRS) visited the company on 2 September 2014, uncovering non-compliance.
  6. No tax registration was done, and no returns were filed.
  7. The Accounts Officer advised the company to register for all statutory payments, including Value Added Tax (VAT) and Companies Income Tax, but the management delayed.
  8. The company pleaded for leniency, but the FIRS insisted on full compliance with tax laws.

Additional Information:

  1. Statement of Profit or Loss and Other Comprehensive Income:
Period Ended 30/06/13 (₦’000) 30/06/12 (₦’000) 30/06/11 (₦’000) 30/06/10 (₦’000)
Operating Profit/(Loss) 1,060 960 720 (504)
Depreciation 380 120 120 153
Staff Loans Written Off 40
Stamp Duties on Incorporation 16
Sales Tax 120 80 44 40
Donations to Christian Association 60 10
Specific Bad Debts Written Off 28 14
  1. Statement of Financial Position:
Item 30/06/13 (₦’000) 30/06/12 (₦’000) 30/06/11 (₦’000) 30/06/10 (₦’000)
Paid-Up Capital 30,000 15,000 15,000 15,000
Deposit for Shares 25,000 10,000 5,000
Net Assets 101,500 84,110 76,700 66,000
Revenue 210,500 180,400 162,000 104,000
Gross Profit 16,400 14,200 12,800 10,200
  1. Capital Allowances Agreed:
Year of Assessment 2014 2013 2012 2011 2010 2009
Capital Allowances 140 150 150 250 200 300

Requirement:

(a) Explain the penalties for late submission of annual returns to the FIRS. (4 Marks)

(b) Compute the Total Profit and Tax Liabilities of the company for the relevant years of assessment. (24 Marks)

(c) Explain the conditions for exemption from minimum tax liability under the Companies Income Tax Act CAP C21 LFN 2004 (as amended). (2 Marks)

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TAX – May 2022 – L2 – SA – Q6 – Tax Administration and Enforcement

Identify the badges of trade and compute the minimum tax payable for a given year of assessment.

a. The difficulty in determining what constitutes a trade has led to many litigations and the huge number of tax cases that exist on the issue. The problem from the decided cases is that of finding an absolute test for identifying a trade.

The conclusion had always been that there are no fixed rules but that each case could be examined on its own facts.
Required:
State FOUR considerations that influence the identification of badges of trade. (8 Marks)

b. Ndakogi Nigeria Limited commenced business in 2007. The extract of the statement of profit or loss of the company for the year ended December 31, 2021, has revealed the following:

Required:
Compute the minimum tax payable

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TAX – May 2021 – L1 – SA – Q20 – Tax Administration and Enforcement

Objective question on the minimum tax payable by air or sea transport businesses in Nigeria.

The minimum tax payable by a company engaged in air or sea transport business shall not be less than……………… of the full sum receivable in respect of carriage of passengers, mails, livestock, or goods shipped or loaded into an aircraft in Nigeria.
A. 20%
B. 10%
C. 5%
D. 2%
E. 1%

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TAX – Nov 2018 – L2 – SC – Q5b – Companies Income Tax (CIT)

State the categories of companies exempted from minimum tax liability.

State the categories of companies that are exempted from minimum tax liability.

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TAX – Nov 2018 – L2 – SC – Q5a – Companies Income Tax (CIT)

Compute the companies' income tax payable for Mandy Construction Nigeria Limited for the 2017 assessment year.

Mandy Construction Nigeria Limited is an engineering company incorporated on January 1, 2009, and commenced business the same day. The company makes up its accounts to June 30 each year. The company had prepared its tax returns for the 2017 assessment year and was of the opinion that it had no total profit and therefore was not subject to companies income tax.

As a tax consultant, the chief executive officer has requested you to review the tax returns to ascertain if any provision of the tax laws stipulates procedures to determine the tax payable in situations where there is no taxable profit or the total profit results in no tax payable.

The following information relates to the company’s records for the year ended June 30, 2016:

Statement of Profit or Loss for the year ended June 30, 2016:

Particulars N’000
Revenue 5,656,000
Cost of Sales (4,404,211)
Gross Profit 1,251,789
Other Income 152,240
Administrative Expenses (907,906)
Operating Profit 496,123
Investment Income 50,934
Finance Costs (890,657)
Loss Before Tax (343,600)
Income Tax
Loss for the Year (343,600)

Additional Information:
(i) Included in administrative expenses are the following:

  • Loss on disposal of property, plant, and equipment: N4,352,400
  • Depreciation: N5,184,700

(ii) Capital allowances agreed with the tax office: N1,065,000

The company’s authorized, issued, and fully paid-up share capital of N1 each is provided as follows:

The net assets of the company extracted from the statement of financial position as at June 30, 2016, was N3,441,041,000.

Required:
From the available information, compute the companies income tax payable by Mandy Construction Nigeria Limited for the relevant assessment year.

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AT – Nov 2022 – Q1 – Taxation of Companies

Compute adjusted profit for 2021 and tax liabilities for 2021-2022 for a post-pioneer company, including reliefs and allowances.

As a result of the developing nature of Nigeria’s economy, there are some industries and products that are not well developed on a scale that can adequately cater for the needs of the populace. One of the investment incentives available to industries and products in this category, is contained in the Industrial Development (Income Tax Relief) Act 1971. Application has to be made to the Federal Government in order to enjoy any of these numerous investment incentives.

Owoeye Machine Tools Nigeria Limited was incorporated on January 20, 2016, and was initially granted a pioneer certificate on April 1, 2016. At the end of the pioneer period, the company, as a result of negligence, failed to follow due process in applying for extension of the pioneer certificate. The company, however, retained March 31 as its financial year end.

The following records and information were obtained from the company:

(i) Qualifying capital expenditure on property, plant and equipment (certified by the Federal Inland Revenue Service) incurred during the pioneer period:

N’000 Industrial building 23,800

Building (non-industrial) 11,600 Motor vehicles 6,200 Plant 10,400 Furniture and fittings 5,800

(ii) Statement of adjusted profits/(losses) during the pioneer period:

Period under review Total profits/(losses)

N’000 Year ended March 31, 2017 (44,450) Year ended March 31, 2018 (23,140) Year ended March 31, 2019, 8,700

(iii) Both the qualifying capital expenditure on property, plant and equipment and adjusted profits/(losses) were certified by the Federal Inland Revenue Service.

(iv) The company made a gross turnover of N312,450,000 and adjusted profit of

N52,250,000 during the year ended March 31, 2020.

(v) Extract from the statement of profit or loss for the year ended March 31, 2021, revealed the following:

N’000 Gross turnover

320,220 Less: Cost of sales

(176,550) Gross profit

143,670 Less: Expenses:

Salaries and wages 48,430

Transport and traveling 2,360

Motor running expenses 1,580

Postage and telephone 1,150

Bank charges 870

Repairs and maintenance 3,660

Auditors‟ remuneration 1,500

Legal and professional fees (see note i) 2,000

Depreciation 15,770

Donations 1,600

Allowance for doubtful debts (see note ii) 7,000

Administrative expenses (note iii) 10,070 95,990 Net profit

47,680

Notes:

Legal and professional fees included N1,400,000 paid to the company’s lawyer in respect of acquisition of land for the purposes of the business.

 Allowance for doubtful debts comprised: N1,350,000 for specific provision; N4,150,000 for general provision; and N1,500,000 for bad debts written off.

 Administrative expenses included N850,000 paid to a financial consultant who helped in preparing feasibility study on viability of a proposed product line.

 The schedule of qualifying capital expenditure on property, plant and equipment purchased during the year ended March 31, 2021, is as follows:

Type Date of acquisition Amount

N’000 Motor vehicles (2) April 15, 2020, 3,200 Plant (1) July 1, 2020, 5,000 Furniture and fittings (4) February 13, 2021, 1,200

Required:

As the company’s Tax Manager, you are to prepare a report for the attention of the Managing Director showing the companies:

  a. Adjusted profit for the year ended March 31, 2021,                                                                                                                                            b. Tax liabilities for 2021 and 2022 assessment years

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TX – May 2025 – SKILLS – Q1 – Companies Income Tax and Ethical Issues

Compute tax liabilities for XYZ Nigeria Limited, explain alternative assessment bases for companies, and outline IESBA's five fundamental ethical principles.

XYZ Nigeria Limited was incorporated in Nigeria on November 1, 2016. The company has an authorised and fully paid ordinary share capital of five million shares at N1 each.

The company is an entity that started trading on January 1, 2023, retailing engineering equipment. Its first statement of profit or loss was for the year ended December 31, 2023, and revealed the following results

N’000 N’000
Gross profit 140,800
Investment income 3,850
Profit on sales of equipment 4,950
149,600
Less expenses:
Depreciation 17,875
Directors’ emoluments 2,200
Debenture interest 4,000
Audit and accounting fees 4,125
Legal costs 5,775
Salaries 72,000
Miscellaneous expenses 12,600 (118,575)
Net profit for the year 31,025

The following additional information was provided by the company’s Financial Director:

(i) Legal costs comprise the following:

N’000
– Retainership 1,725
– Cost of issuing directors service agreement 1,550
– Cost of issuing ordinary shares 2,500
5,775

(ii) The breakdown of miscellaneous expenses comprises:

N’000
– Cost of installation of a new machine 3,750
– Extension and partitioning of office apartment 1,500
– Staff party 2,500
– Cost of entertaining suppliers 4,850
12,600

(iii) Investment income comprises the following:

N’000
– Dividend from Nigerian companies (net) 2,100
– Loan interest from Nigerian company (gross; non-trading investment) 1,750
3,850

(iv) On December 31, 2023, the directors of the company agreed to pay a dividend of 5% on its ordinary shares

(v) Balancing charge agreed with the Revenue was N2,740,000

(vi) The agreed capital allowance with the Revenue was N10,325,000

Required:
a. Compute the total tax liabilities of XYZ Nigeria Limited for the relevant year of assessment. (20 Marks)
b. Explain the other bases of assessing companies to income tax in Nigeria apart from the normal basis.

(5 Marks)
c. The company is under pressure to fund some of the projects that are likely to be executed the following year. In order to be proactive, the management is of the view that additional loans can be obtained within a very short time, if the management is ready to cooperate with the creditors. If they do that, more funds will be available to execute all these projects.
The Accountant was present at the management meeting and was not comfortable with this proposed line of action. He feels that it will constitute a breach of the ethics of his profession to engage in shady dealings in the course of his employment. He explained to the management that there are ethical issues a professional accountant should be wary of. He maintained that those ethical issues as noted by ICAN and International Ethics Standard Board for Accountants (IESBA) code are the guiding principles of every accountant.

You have been appointed by the company as the Tax Consultant to handle its tax matters and they have sought clarifications on the statement of the accountant.

Explain the FIVE fundamental principles of ethics as specified by the International Ethics Standards Board for Accountants (IESBA). (5 Marks)

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AT – Nov 2014 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Explain penalties for non-compliance, compute profit and tax liabilities, and detail exemptions from minimum tax liability.

The Tax Consultants, ABFR Consult, received an e-mail from Mrs. Deboh Komo, Managing Director of Deboko Nigeria Limited. Extracts of her e-mail are as follows:

  1. The company was incorporated on 1 February 2007.
  2. It commenced business as importers of new engines for tricycles on 1 May 2009.
  3. The Directors chose 30 June as the year-end and made the first financial statements up to 30 June 2010.
  4. The company did not file any tax returns to date due to a general lull in business activities.
  5. The tax monitoring section of the Federal Inland Revenue Service (FIRS) visited the company on 2 September 2014, uncovering non-compliance.
  6. No tax registration was done, and no returns were filed.
  7. The Accounts Officer advised the company to register for all statutory payments, including Value Added Tax (VAT) and Companies Income Tax, but the management delayed.
  8. The company pleaded for leniency, but the FIRS insisted on full compliance with tax laws.

Additional Information:

  1. Statement of Profit or Loss and Other Comprehensive Income:
Period Ended 30/06/13 (₦’000) 30/06/12 (₦’000) 30/06/11 (₦’000) 30/06/10 (₦’000)
Operating Profit/(Loss) 1,060 960 720 (504)
Depreciation 380 120 120 153
Staff Loans Written Off 40
Stamp Duties on Incorporation 16
Sales Tax 120 80 44 40
Donations to Christian Association 60 10
Specific Bad Debts Written Off 28 14
  1. Statement of Financial Position:
Item 30/06/13 (₦’000) 30/06/12 (₦’000) 30/06/11 (₦’000) 30/06/10 (₦’000)
Paid-Up Capital 30,000 15,000 15,000 15,000
Deposit for Shares 25,000 10,000 5,000
Net Assets 101,500 84,110 76,700 66,000
Revenue 210,500 180,400 162,000 104,000
Gross Profit 16,400 14,200 12,800 10,200
  1. Capital Allowances Agreed:
Year of Assessment 2014 2013 2012 2011 2010 2009
Capital Allowances 140 150 150 250 200 300

Requirement:

(a) Explain the penalties for late submission of annual returns to the FIRS. (4 Marks)

(b) Compute the Total Profit and Tax Liabilities of the company for the relevant years of assessment. (24 Marks)

(c) Explain the conditions for exemption from minimum tax liability under the Companies Income Tax Act CAP C21 LFN 2004 (as amended). (2 Marks)

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TAX – May 2022 – L2 – SA – Q6 – Tax Administration and Enforcement

Identify the badges of trade and compute the minimum tax payable for a given year of assessment.

a. The difficulty in determining what constitutes a trade has led to many litigations and the huge number of tax cases that exist on the issue. The problem from the decided cases is that of finding an absolute test for identifying a trade.

The conclusion had always been that there are no fixed rules but that each case could be examined on its own facts.
Required:
State FOUR considerations that influence the identification of badges of trade. (8 Marks)

b. Ndakogi Nigeria Limited commenced business in 2007. The extract of the statement of profit or loss of the company for the year ended December 31, 2021, has revealed the following:

Required:
Compute the minimum tax payable

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TAX – May 2021 – L1 – SA – Q20 – Tax Administration and Enforcement

Objective question on the minimum tax payable by air or sea transport businesses in Nigeria.

The minimum tax payable by a company engaged in air or sea transport business shall not be less than……………… of the full sum receivable in respect of carriage of passengers, mails, livestock, or goods shipped or loaded into an aircraft in Nigeria.
A. 20%
B. 10%
C. 5%
D. 2%
E. 1%

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TAX – Nov 2018 – L2 – SC – Q5b – Companies Income Tax (CIT)

State the categories of companies exempted from minimum tax liability.

State the categories of companies that are exempted from minimum tax liability.

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TAX – Nov 2018 – L2 – SC – Q5a – Companies Income Tax (CIT)

Compute the companies' income tax payable for Mandy Construction Nigeria Limited for the 2017 assessment year.

Mandy Construction Nigeria Limited is an engineering company incorporated on January 1, 2009, and commenced business the same day. The company makes up its accounts to June 30 each year. The company had prepared its tax returns for the 2017 assessment year and was of the opinion that it had no total profit and therefore was not subject to companies income tax.

As a tax consultant, the chief executive officer has requested you to review the tax returns to ascertain if any provision of the tax laws stipulates procedures to determine the tax payable in situations where there is no taxable profit or the total profit results in no tax payable.

The following information relates to the company’s records for the year ended June 30, 2016:

Statement of Profit or Loss for the year ended June 30, 2016:

Particulars N’000
Revenue 5,656,000
Cost of Sales (4,404,211)
Gross Profit 1,251,789
Other Income 152,240
Administrative Expenses (907,906)
Operating Profit 496,123
Investment Income 50,934
Finance Costs (890,657)
Loss Before Tax (343,600)
Income Tax
Loss for the Year (343,600)

Additional Information:
(i) Included in administrative expenses are the following:

  • Loss on disposal of property, plant, and equipment: N4,352,400
  • Depreciation: N5,184,700

(ii) Capital allowances agreed with the tax office: N1,065,000

The company’s authorized, issued, and fully paid-up share capital of N1 each is provided as follows:

The net assets of the company extracted from the statement of financial position as at June 30, 2016, was N3,441,041,000.

Required:
From the available information, compute the companies income tax payable by Mandy Construction Nigeria Limited for the relevant assessment year.

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