Revenue Analysis

AT – Nov 2023 – L1 – SB – Q2 – Petroleum Profits Tax

Calculation of hydrocarbon and companies income tax for Brass Petroleum Producing Company Ltd under Petroleum Industry Act and Companies Income Tax Act.

Question

Brass Petroleum Producing Company Limited has been operating as an oil prospecting company in Nigeria for fifteen years. The company operates in both onshore and shallow water in the Koko area of the Niger Delta region.

Following the provisions of the Petroleum Industry Act 2021, the company applied for, and was granted a petroleum prospecting license (PPL) on January 1, 2021.

Extracts from the company’s financial records for the year ended December 31, 2021, revealed the following:

Description	N’million
Revenue:
Value of crude oil sold	184,450
Value of condensate from associated gas sold	47,175
Value of natural gas liquid from associated gas sold	41,650
Gross revenue	273,275
Balancing charge	32
Total Gross Revenue	273,307
Deduct:
Production cost	106,470
Cost of gas reinjection wells	600
Drilling cost incurred	4,360
Depreciation of plant, machinery, and fixtures	1,500
Decommissioning and abandonment	1,900
Repairs and maintenance	5,750
Royalty cost paid	40,990
Niger Delta Development Commission charge	250
Finance costs	510
Terminaling cost	1,380
Donations to recognised charity home	130
Concession rentals	20,470
Host community fund	1,000
Local government municipal levy	100
Environmental remediation fund	1,420
Cost incurred in seeking information for oil deposits	370
Total Deductible Expenses	187,200
Net Profit	86,107

Additional Information:

Value of crude oil sold:
- Type: Forcados
- Quantity (barrels): 6,200,000
- Actual Price ($): 70
- Fiscal Price ($): 72
Value of condensate from associated gas sold:
- Type: OSO condensate
- Quantity (barrels): 3,700,000
- Actual Price ($): 30
- Fiscal Price ($): 30
Value of gas liquid from associated gas sold:
- Type: Pennington
- Quantity (barrels): 2,800,000
- Actual Price ($): 35
- Fiscal Price ($): 34
Drilling cost incurred:
- Tangible drilling cost for first exploration well: N2,800 million
- Drilling the first two appraisal wells: N1,560 million
- Total: N4,360 million
Repairs and maintenance:
- Repairs of plant, machinery, and fixtures: N2,750 million
- Repairs or alteration of production implement utensils: N3,000 million
- Total: N5,750 million
Losses brought forward from last year: N655 million
Capital allowances computed:
- Brought forward: N320 million
- For the current year: N1,400 million
- Total: N1,720 million
Production allowances after commencement of the Petroleum Industry Act: N3,300 million
Exchange Rate: Assume N425 is equivalent to US$1.

Required:

As the company’s Tax Manager, you are to prepare a report to the Managing Director, showing in line with the provisions of Petroleum Industry Act 2021 and Companies Income Tax Act 2004 (as amended), the:

a. Hydrocarbon tax (14 Marks)

b. Companies income tax payable (6 Marks)

(Total: 20 Marks)

Answer

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Tags: Allowances, Companies Income Tax, Hydrocarbon Tax, Oil and Gas Taxation, Petroleum Industry Act, Revenue Analysis, Tax Compliance, Tax deductions
Level: Level 3

Topic: Petroleum Profits Tax (PPT)
Series: NOV 2023

PM – NOV 2016 – L2 – Q4 – Decision-Making Techniques

Question requires analysis of airline operations to determine profitability of different pricing and charter decisions through contribution analysis.

Question

Aghobe Air owns a single aircraft which operates between Lagos and Kano. The normal flight schedule is that flights leave Lagos on Mondays and Thursdays and depart from Kano on Wednesdays and Saturdays. Aghobe Air cannot offer any more flights between Lagos and Kano. The only seat available on the aircraft is economy class.

The following information is available: Seating capacity of the aircraft is 360 passengers. Weekly average number of passengers per flight is as follows:

Additional information:

(i) Food and beverages service cost N1,000 per passenger but at no charge to the passengers;

(ii) Commission to travel agents paid by Aghobe Air (All tickets are booked by travel agents) is 8% of fare;

(iii) Fixed annual leased costs allocated to each flight is N2,650,000 per flight;

(iv) Fixed ground services (maintenance, check in baggage handling, etc.) cost allocated to each flight N350,000 per flight;

(v) Fixed flight crew salaries allocated to each flight is N200,000 per flight; and

(vi) Fuel cost is unaffected by the actual number of passengers on the flight.

Required:

a. Determine the net operating income made by Aghobe Air on each one way flight between Lagos and Kano. (5 Marks)

b. The market research unit of Aghobe Air indicates that lowering the average one way fare to N24,000 will increase the average number of passengers per flight to 212. Should Aghobe Air lower its fare? (5 Marks)

c. A tourist group known as Sea Bird Tour Operator approaches Aghobe Air on the possibility of chartering the aircraft twice each month from Lagos to Kano and back from Kano to Lagos. If Aghobe Air accepts the offer, it will only offer 184 flights in each year. Other terms of the offer include:

For each one way flight, Sea Bird Tour Operator will pay Aghobe Air N3,750,000 which covers cost of charter for one way, use of flight crew and ground service staff. Sea Bird Tour operator will pay for fuel costs, food and beverages.

Should Aghobe Air accept the offer from Sea Bird Tour Operator? (5 Marks)

d. What factors should be taken into consideration in taking the decision in (c) above? (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Airline Operations, Capacity Planning, Cost Analysis, Decision Making, Financial Analysis, Revenue Analysis
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2016

AT – Nov 2023 – L1 – SB – Q2 – Petroleum Profits Tax

Calculation of hydrocarbon and companies income tax for Brass Petroleum Producing Company Ltd under Petroleum Industry Act and Companies Income Tax Act.

Question

Following the provisions of the Petroleum Industry Act 2021, the company applied for, and was granted a petroleum prospecting license (PPL) on January 1, 2021.

Extracts from the company’s financial records for the year ended December 31, 2021, revealed the following:

Description	N’million
Revenue:
Value of crude oil sold	184,450
Value of condensate from associated gas sold	47,175
Value of natural gas liquid from associated gas sold	41,650
Gross revenue	273,275
Balancing charge	32
Total Gross Revenue	273,307
Deduct:
Production cost	106,470
Cost of gas reinjection wells	600
Drilling cost incurred	4,360
Depreciation of plant, machinery, and fixtures	1,500
Decommissioning and abandonment	1,900
Repairs and maintenance	5,750
Royalty cost paid	40,990
Niger Delta Development Commission charge	250
Finance costs	510
Terminaling cost	1,380
Donations to recognised charity home	130
Concession rentals	20,470
Host community fund	1,000
Local government municipal levy	100
Environmental remediation fund	1,420
Cost incurred in seeking information for oil deposits	370
Total Deductible Expenses	187,200
Net Profit	86,107

Additional Information:

Value of crude oil sold:
- Type: Forcados
- Quantity (barrels): 6,200,000
- Actual Price ($): 70
- Fiscal Price ($): 72
Value of condensate from associated gas sold:
- Type: OSO condensate
- Quantity (barrels): 3,700,000
- Actual Price ($): 30
- Fiscal Price ($): 30
Value of gas liquid from associated gas sold:
- Type: Pennington
- Quantity (barrels): 2,800,000
- Actual Price ($): 35
- Fiscal Price ($): 34
Drilling cost incurred:
- Tangible drilling cost for first exploration well: N2,800 million
- Drilling the first two appraisal wells: N1,560 million
- Total: N4,360 million
Repairs and maintenance:
- Repairs of plant, machinery, and fixtures: N2,750 million
- Repairs or alteration of production implement utensils: N3,000 million
- Total: N5,750 million
Losses brought forward from last year: N655 million
Capital allowances computed:
- Brought forward: N320 million
- For the current year: N1,400 million
- Total: N1,720 million
Production allowances after commencement of the Petroleum Industry Act: N3,300 million
Exchange Rate: Assume N425 is equivalent to US$1.

Required:

a. Hydrocarbon tax (14 Marks)

b. Companies income tax payable (6 Marks)

(Total: 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Allowances, Companies Income Tax, Hydrocarbon Tax, Oil and Gas Taxation, Petroleum Industry Act, Revenue Analysis, Tax Compliance, Tax deductions
Level: Level 3

Topic: Petroleum Profits Tax (PPT)
Series: NOV 2023

PM – NOV 2016 – L2 – Q4 – Decision-Making Techniques

Question requires analysis of airline operations to determine profitability of different pricing and charter decisions through contribution analysis.

Question

The following information is available: Seating capacity of the aircraft is 360 passengers. Weekly average number of passengers per flight is as follows:

Additional information:

(i) Food and beverages service cost N1,000 per passenger but at no charge to the passengers;

(ii) Commission to travel agents paid by Aghobe Air (All tickets are booked by travel agents) is 8% of fare;

(iii) Fixed annual leased costs allocated to each flight is N2,650,000 per flight;

(iv) Fixed ground services (maintenance, check in baggage handling, etc.) cost allocated to each flight N350,000 per flight;

(v) Fixed flight crew salaries allocated to each flight is N200,000 per flight; and

(vi) Fuel cost is unaffected by the actual number of passengers on the flight.

Required:

a. Determine the net operating income made by Aghobe Air on each one way flight between Lagos and Kano. (5 Marks)

For each one way flight, Sea Bird Tour Operator will pay Aghobe Air N3,750,000 which covers cost of charter for one way, use of flight crew and ground service staff. Sea Bird Tour operator will pay for fuel costs, food and beverages.

Should Aghobe Air accept the offer from Sea Bird Tour Operator? (5 Marks)

d. What factors should be taken into consideration in taking the decision in (c) above? (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Airline Operations, Capacity Planning, Cost Analysis, Decision Making, Financial Analysis, Revenue Analysis
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2016

Question Tag: Revenue Analysis

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AT – Nov 2023 – L1 – SB – Q2 – Petroleum Profits Tax

Calculation of hydrocarbon and companies income tax for Brass Petroleum Producing Company Ltd under Petroleum Industry Act and Companies Income Tax Act.

PM – NOV 2016 – L2 – Q4 – Decision-Making Techniques

Question requires analysis of airline operations to determine profitability of different pricing and charter decisions through contribution analysis.

AT – Nov 2023 – L1 – SB – Q2 – Petroleum Profits Tax

Calculation of hydrocarbon and companies income tax for Brass Petroleum Producing Company Ltd under Petroleum Industry Act and Companies Income Tax Act.

PM – NOV 2016 – L2 – Q4 – Decision-Making Techniques

Question requires analysis of airline operations to determine profitability of different pricing and charter decisions through contribution analysis.

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AT – Nov 2023 – L1 – SB – Q2 – Petroleum Profits Tax

Calculation of hydrocarbon and companies income tax for Brass Petroleum Producing Company Ltd under Petroleum Industry Act and Companies Income Tax Act.

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PM – NOV 2016 – L2 – Q4 – Decision-Making Techniques

Question requires analysis of airline operations to determine profitability of different pricing and charter decisions through contribution analysis.

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AT – Nov 2023 – L1 – SB – Q2 – Petroleum Profits Tax

Calculation of hydrocarbon and companies income tax for Brass Petroleum Producing Company Ltd under Petroleum Industry Act and Companies Income Tax Act.

You're reporting an error for "AT – Nov 2023 – L1 – SB – Q2 – Petroleum Profits Tax"

PM – NOV 2016 – L2 – Q4 – Decision-Making Techniques

Question requires analysis of airline operations to determine profitability of different pricing and charter decisions through contribution analysis.

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