Question Tag: Petroleum Profits Tax

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  • 7 Marks

ATAX – May 2017 – L3 – Q7b – Petroleum Profits Tax (PPT)

Explain "Memorandum of Understanding" in PPT computation and highlight the Year 2000 MOU details.

i. Describe briefly your understanding of the term “Memorandum of Understanding” as it applies to Petroleum Profits Tax computation. (3 Marks)

ii. State FOUR highlights of the Year 2000 Memorandum of Understanding. (4 Marks)

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  • 8 Marks

ATAX – May 2017 – L3 – Q7a – Petroleum Profits Tax (PPT)

List eight items disallowed by the Petroleum Profits Tax Act in ascertaining adjusted profit.

As the newly appointed Tax Consultant to a company, you are required to make a presentation stating EIGHT items specifically disallowed by the Petroleum Profits Tax Act Cap. P13 LFN 2004 as amended, in ascertaining the adjusted profit of an accounting period. (8 Marks)

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  • 5 Marks

ATAX – May 2017 – L3 – Q2b – Tax Incentives and Reliefs

List five tax incentives for companies utilizing associated gas in downstream operations.

State FIVE incentives available to a company engaged in the utilization of associated gas. (5 Marks)

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  • 30 Marks

ATAX – May 2019 – L3 – Q1b – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

b. Priceless Oil Limited commenced crude oil production in Nigeria in 2006. The company has provided the following financial report for the year ended December 31, 2018:

Additional Information:

  1. Posted price for exported crude oil averaged $52/barrel (at an exchange rate of ₦306 to $1).
  2. Included in other income: ₦38,000,000 from crude transportation (cost: ₦16,250,000).
  3. Natural gas contract with Tommy Limited: value ₦655,000,000, load factor 54%.
  4. Depreciation of ₦120,250,000 was included in production costs.
  5. Qualifying capital expenditures:
Type Date Location Amount (₦)
Storage tank March 12, 2018 On-shore 23,500,000
Plant and equipment November 15, 2018 Continental Shelf of 130
metres of water depth		 75,000,000
  1. Capital allowances brought forward: ₦33,700,000; for the year: ₦88,500,000.
  2. Admin expenses include ₦3,500,000 stamp duties for debentures.
  3. Specific bad debts written off: ₦39,500,000.
  4. Donations were wholly expended for petroleum operations.
  5. ₦12,250,000 was paid to retrieve petroleum-related data (included in miscellaneous expenses).
  6. ₦20,500,000 interest was paid to an associate company at market rate.

Prepare and submit a report on the following computations:
i. Assessable profit (12 Marks)
ii. Chargeable profit (6 Marks)
iii. Chargeable tax (6 Marks)
iv. Total tax payable (6 Marks)

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  • 2 Marks

ATAX – May 2019 – L3 – Q1a – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

In line with provisions of the Petroleum Profits Tax Act Cap P13 LFN 2004 (as amended), explain “accounting period” of a petroleum exploration company. (2 Marks)

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  • 20 Marks

AT – Nov 2014 – L3 – SB – Q3 – Petroleum Profits Tax (PPT)

Calculate the total tax liabilities of Jisosi Petroleum Limited to aid in dividend decision-making.

The Independent Auditors of Jisosi Petroleum Limited submitted the draft Audited Financial Statements for the year ended 31 December 2013 for management’s discussion. The executive summary revealed total revenue of N286,650,000 and Profit Before Taxation of N82,642,000.

To arrive at the proposed dividend for the consideration of the Board, there is a need to determine the total tax liabilities for the year. The draft Statement of Profit or Loss includes the following items among others:

Expense Item Amount (N)
Royalty on Crude Oil sold 13,500,000
Cost of Well Drilling 25,000,000
Custom Duties 500,000
Clearing of Oil Spillage 7,500,000
Depreciation 32,000,000
Donations 4,500,000
Community Relations Expenses 10,000,000
Transportation Expenses for 2012 8,500,000

Additionally, the revenue includes:

  1. Profit on Property, Plant, and Equipment sold: N48,000
  2. Income from transportation of crude oil for the year ended 31 December 2012: N16,894,000

The officials of Federal Inland Revenue Service (FIRS) and the Company agreed as follows:

Item Amount (N)
Annual Allowances on exploration 25,500,000
Balancing Charge on exploration 242,000
Capital Allowances on exploration b/f 11,000,000
Petroleum Investment Allowance 18,500,000
Capitalised Intangible Drilling Cost 14,000,000
Losses b/f 10,000,000
Capital Allowances on transportation 750,000

Required:
Determine the total tax liabilities of the company for the consideration of the directors to aid in the proposed dividend decision.

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  • 11 Marks

ATAX – Nov 2016 – L3 – Q6b – Petroleum Profits Tax (PPT)

Determines assessable profit, chargeable profit, assessable tax, and chargeable tax for Bivenette Petroleum Company Limited.

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:

  1. Petroleum Profits Tax rate: 85%
  2. Interest paid includes N12,000,000 paid to an affiliated company.
  3. Capital allowances agreed at N253,750,000.
  4. Operating costs include N302,000,000 paid to a company for information on oil prospect in Adamawa State.
  5. The company is entitled to an Investment Allowance of N173,000,000.

You are required to:

  • Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

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  • 4 Marks

ATAX – Nov 2016 – L3 – Q6a – Petroleum Profits Tax (PPT)

Explains concepts of Associated Gas and Downstream Activities under the Petroleum Profits Tax Act.

The administration of the Petroleum Profits Tax Act is under the charge and management of the Federal Inland Revenue Service with respect to Petroleum Profits Tax Act Cap P13 LFN 2004.

You are required to explain:

i) Associated Gas (2 Marks)
ii) Downstream Activities (2 Marks)

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  • 20 Marks

ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)

Tax computation for Debby Oil Limited, including adjustments, capital allowances, and tertiary education tax.

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:

  1. Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
  2. Actual realised price is adjusted for deviation from the standard API gravity. Each degree change in API results in a price adjustment of USD 0.20.
  3. 650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
  4. Other income of ₦735 million was generated from the company’s ocean tanker business. Associated expenses of ₦580.5 million were included in general expenses.
  5. Operating expenses included ₦9 million for short lease renewal.
  6. Pension fund contributions were approved by the State Internal Revenue Service.
  7. Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
  8. A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
  9. Transfer to general reserves was board-approved.
  10. Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
  11. Assume USD 1 is equivalent to ₦420.

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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  • 15 Marks

AT – May – 2018 – L3 – SC – Q5b – Petroleum Profits Tax (PPT)

Tax computation for Ayokunle Oil Nigeria Ltd., a petroleum company, including assessable and chargeable profit based on expenses and sales.

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:

  • Sales of crude oil:
    • Exported at $52 per barrel: 120,500 barrels
    • Domestic at N12,250 per barrel: 70,000 barrels
  • Chargeable natural gas sold: N300,800,000
  • Income from other sources: N6,770,000

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:

  • Capital allowances were agreed at ₦133,000,000.
  • Plant and storage tank acquired and used during the year amounted to ₦80,000,000.
  • Depreciation of ₦105,000,000 was included in operating costs.
  • Custom duty on plant and storage tank, ₦2,250,000, was included in miscellaneous expenses.
  • 70% of custom duty was on essential items.
  • The average exchange rate during the period was ₦365 to $1 (USA).

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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  • 7 Marks

ATAX – May 2017 – L3 – Q7b – Petroleum Profits Tax (PPT)

Explain "Memorandum of Understanding" in PPT computation and highlight the Year 2000 MOU details.

i. Describe briefly your understanding of the term “Memorandum of Understanding” as it applies to Petroleum Profits Tax computation. (3 Marks)

ii. State FOUR highlights of the Year 2000 Memorandum of Understanding. (4 Marks)

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  • 8 Marks

ATAX – May 2017 – L3 – Q7a – Petroleum Profits Tax (PPT)

List eight items disallowed by the Petroleum Profits Tax Act in ascertaining adjusted profit.

As the newly appointed Tax Consultant to a company, you are required to make a presentation stating EIGHT items specifically disallowed by the Petroleum Profits Tax Act Cap. P13 LFN 2004 as amended, in ascertaining the adjusted profit of an accounting period. (8 Marks)

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  • 5 Marks

ATAX – May 2017 – L3 – Q2b – Tax Incentives and Reliefs

List five tax incentives for companies utilizing associated gas in downstream operations.

State FIVE incentives available to a company engaged in the utilization of associated gas. (5 Marks)

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  • 30 Marks

ATAX – May 2019 – L3 – Q1b – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

b. Priceless Oil Limited commenced crude oil production in Nigeria in 2006. The company has provided the following financial report for the year ended December 31, 2018:

Additional Information:

  1. Posted price for exported crude oil averaged $52/barrel (at an exchange rate of ₦306 to $1).
  2. Included in other income: ₦38,000,000 from crude transportation (cost: ₦16,250,000).
  3. Natural gas contract with Tommy Limited: value ₦655,000,000, load factor 54%.
  4. Depreciation of ₦120,250,000 was included in production costs.
  5. Qualifying capital expenditures:
Type Date Location Amount (₦)
Storage tank March 12, 2018 On-shore 23,500,000
Plant and equipment November 15, 2018 Continental Shelf of 130
metres of water depth		 75,000,000
  1. Capital allowances brought forward: ₦33,700,000; for the year: ₦88,500,000.
  2. Admin expenses include ₦3,500,000 stamp duties for debentures.
  3. Specific bad debts written off: ₦39,500,000.
  4. Donations were wholly expended for petroleum operations.
  5. ₦12,250,000 was paid to retrieve petroleum-related data (included in miscellaneous expenses).
  6. ₦20,500,000 interest was paid to an associate company at market rate.

Prepare and submit a report on the following computations:
i. Assessable profit (12 Marks)
ii. Chargeable profit (6 Marks)
iii. Chargeable tax (6 Marks)
iv. Total tax payable (6 Marks)

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  • 2 Marks

ATAX – May 2019 – L3 – Q1a – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

In line with provisions of the Petroleum Profits Tax Act Cap P13 LFN 2004 (as amended), explain “accounting period” of a petroleum exploration company. (2 Marks)

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  • 20 Marks

AT – Nov 2014 – L3 – SB – Q3 – Petroleum Profits Tax (PPT)

Calculate the total tax liabilities of Jisosi Petroleum Limited to aid in dividend decision-making.

The Independent Auditors of Jisosi Petroleum Limited submitted the draft Audited Financial Statements for the year ended 31 December 2013 for management’s discussion. The executive summary revealed total revenue of N286,650,000 and Profit Before Taxation of N82,642,000.

To arrive at the proposed dividend for the consideration of the Board, there is a need to determine the total tax liabilities for the year. The draft Statement of Profit or Loss includes the following items among others:

Expense Item Amount (N)
Royalty on Crude Oil sold 13,500,000
Cost of Well Drilling 25,000,000
Custom Duties 500,000
Clearing of Oil Spillage 7,500,000
Depreciation 32,000,000
Donations 4,500,000
Community Relations Expenses 10,000,000
Transportation Expenses for 2012 8,500,000

Additionally, the revenue includes:

  1. Profit on Property, Plant, and Equipment sold: N48,000
  2. Income from transportation of crude oil for the year ended 31 December 2012: N16,894,000

The officials of Federal Inland Revenue Service (FIRS) and the Company agreed as follows:

Item Amount (N)
Annual Allowances on exploration 25,500,000
Balancing Charge on exploration 242,000
Capital Allowances on exploration b/f 11,000,000
Petroleum Investment Allowance 18,500,000
Capitalised Intangible Drilling Cost 14,000,000
Losses b/f 10,000,000
Capital Allowances on transportation 750,000

Required:
Determine the total tax liabilities of the company for the consideration of the directors to aid in the proposed dividend decision.

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  • 11 Marks

ATAX – Nov 2016 – L3 – Q6b – Petroleum Profits Tax (PPT)

Determines assessable profit, chargeable profit, assessable tax, and chargeable tax for Bivenette Petroleum Company Limited.

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:

  1. Petroleum Profits Tax rate: 85%
  2. Interest paid includes N12,000,000 paid to an affiliated company.
  3. Capital allowances agreed at N253,750,000.
  4. Operating costs include N302,000,000 paid to a company for information on oil prospect in Adamawa State.
  5. The company is entitled to an Investment Allowance of N173,000,000.

You are required to:

  • Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

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  • 4 Marks

ATAX – Nov 2016 – L3 – Q6a – Petroleum Profits Tax (PPT)

Explains concepts of Associated Gas and Downstream Activities under the Petroleum Profits Tax Act.

The administration of the Petroleum Profits Tax Act is under the charge and management of the Federal Inland Revenue Service with respect to Petroleum Profits Tax Act Cap P13 LFN 2004.

You are required to explain:

i) Associated Gas (2 Marks)
ii) Downstream Activities (2 Marks)

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  • 20 Marks

ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)

Tax computation for Debby Oil Limited, including adjustments, capital allowances, and tertiary education tax.

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:

  1. Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
  2. Actual realised price is adjusted for deviation from the standard API gravity. Each degree change in API results in a price adjustment of USD 0.20.
  3. 650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
  4. Other income of ₦735 million was generated from the company’s ocean tanker business. Associated expenses of ₦580.5 million were included in general expenses.
  5. Operating expenses included ₦9 million for short lease renewal.
  6. Pension fund contributions were approved by the State Internal Revenue Service.
  7. Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
  8. A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
  9. Transfer to general reserves was board-approved.
  10. Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
  11. Assume USD 1 is equivalent to ₦420.

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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  • 15 Marks

AT – May – 2018 – L3 – SC – Q5b – Petroleum Profits Tax (PPT)

Tax computation for Ayokunle Oil Nigeria Ltd., a petroleum company, including assessable and chargeable profit based on expenses and sales.

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:

  • Sales of crude oil:
    • Exported at $52 per barrel: 120,500 barrels
    • Domestic at N12,250 per barrel: 70,000 barrels
  • Chargeable natural gas sold: N300,800,000
  • Income from other sources: N6,770,000

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:

  • Capital allowances were agreed at ₦133,000,000.
  • Plant and storage tank acquired and used during the year amounted to ₦80,000,000.
  • Depreciation of ₦105,000,000 was included in operating costs.
  • Custom duty on plant and storage tank, ₦2,250,000, was included in miscellaneous expenses.
  • 70% of custom duty was on essential items.
  • The average exchange rate during the period was ₦365 to $1 (USA).

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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