Tax Liability Computation

ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses

Compute tax liabilities and discuss incentives for Dutse Mines in mining solid minerals

Question

———————————————————————
Question:

As investors and policymakers adapt to the global energy transition in a bid to offer an effective hedge against swings in oil prices, the Federal Government has recognised that it is beneficial for the country to diversify its economy. The attention of the country is now towards the development of the solid minerals sector. The Nigeria Minerals and Mining Act 2007 (as amended) was enacted to regulate the industry. Incentives for operators in the sector are as provided for in Section 5 of the Act.

One of the earliest investors in the mining sector, Dutse Mines (Nigeria) Limited, was granted a mining title by the Mining Cadastre Office (MCO) for exploitation of limestone in Nkalagu in the south-eastern zone of Nigeria in 2008. In spite of so many challenges the company is facing, it has managed to remain afloat in business.

The company has, of recent, been having tax disputes with the relevant tax authority, and your firm of chartered accountants has been engaged to help resolve them. In the 2022 tax returns filed by the company, the major area of dispute between the company and the tax authority was disparity in the treatment of certified exploration and processing expenditure of ₦60,000,000 incurred during the course of the year.

Your firm is provided with the following extracts (and supporting documents) from the books of the company for the year ended December 31, 2021:

Additional Information:

Sundry income included ₦8,500,000 realised as profit from disposal of the old excavating machine.
Allowance for doubtful debts consisted of:
- Bad debts written off: ₦2,500,000
- General allowance for doubtful debts: ₦10,500,000
- Specific allowance for doubtful debts: ₦8,000,000
- Loan to customer written off: ₦5,000,000
Donation included ₦5,000,000 given to victims of environmental degradation, as part of the company’s social responsibility to the host community.
Legal fees included ₦750,000 paid as a penalty for late filing of tax returns.
The tax written down values of qualifying capital expenditure at the end of 2021 tax year were:
- Motor vehicles (2 years remaining): ₦25,000,000
- Furniture and fittings (utilised for 2 years): ₦22,500,000
- Mining expenditure (6 years remaining): ₦40,000,000

Required:

As the Manager (Tax Matters) assigned to handle this matter, you are to forward the report to your Senior Partner (Tax Matters) showing:

a. Computation of tax liabilities of the company for the relevant assessment year (14 Marks).
b. Comments on tax incentives available to a company in the mining of solid minerals in Nigeria (6 Marks).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Allowable and Disallowable Expenses, Mining Taxation, Tax Incentives, Tax Liability Computation
Level: Level 3

Topic: Taxation of Specialized Businesses

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

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

Question

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:

Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
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.
650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
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.
Operating expenses included ₦9 million for short lease renewal.
Pension fund contributions were approved by the State Internal Revenue Service.
Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
Transfer to general reserves was board-approved.
Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
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).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Adjusted Profit, Assessable Profit, Capital allowances, Petroleum Profits Tax, Tax Liability Computation
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses

Compute tax liabilities and discuss incentives for Dutse Mines in mining solid minerals

Question

———————————————————————
Question:

Your firm is provided with the following extracts (and supporting documents) from the books of the company for the year ended December 31, 2021:

Additional Information:

Sundry income included ₦8,500,000 realised as profit from disposal of the old excavating machine.
Allowance for doubtful debts consisted of:
- Bad debts written off: ₦2,500,000
- General allowance for doubtful debts: ₦10,500,000
- Specific allowance for doubtful debts: ₦8,000,000
- Loan to customer written off: ₦5,000,000
Donation included ₦5,000,000 given to victims of environmental degradation, as part of the company’s social responsibility to the host community.
Legal fees included ₦750,000 paid as a penalty for late filing of tax returns.
The tax written down values of qualifying capital expenditure at the end of 2021 tax year were:
- Motor vehicles (2 years remaining): ₦25,000,000
- Furniture and fittings (utilised for 2 years): ₦22,500,000
- Mining expenditure (6 years remaining): ₦40,000,000

Required:

As the Manager (Tax Matters) assigned to handle this matter, you are to forward the report to your Senior Partner (Tax Matters) showing:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Allowable and Disallowable Expenses, Mining Taxation, Tax Incentives, Tax Liability Computation
Level: Level 3

Topic: Taxation of Specialized Businesses

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

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

Question

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 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:

Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
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.
650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
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.
Operating expenses included ₦9 million for short lease renewal.
Pension fund contributions were approved by the State Internal Revenue Service.
Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
Transfer to general reserves was board-approved.
Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
Assume USD 1 is equivalent to ₦420.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Adjusted Profit, Assessable Profit, Capital allowances, Petroleum Profits Tax, Tax Liability Computation
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

Question Tag: Tax Liability Computation

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses

Compute tax liabilities and discuss incentives for Dutse Mines in mining solid minerals

Required:

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

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

ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses

Compute tax liabilities and discuss incentives for Dutse Mines in mining solid minerals

Required:

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

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

Our offerings

Contact Info

Customer

Get In Touch

Question Tag: Tax Liability Computation

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses

Compute tax liabilities and discuss incentives for Dutse Mines in mining solid minerals

Required:

You're reporting an error for "ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses"

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

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

You're reporting an error for "ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)"

ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses

Compute tax liabilities and discuss incentives for Dutse Mines in mining solid minerals

Required:

You're reporting an error for "ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses"

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

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

You're reporting an error for "ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)"

Our offerings

Contact Info

Customer

Get In Touch

admin