Colamrud Petroleum (Nigeria) Limited is a subsidiary company of a foreign oil and gas company. The company has been involved in petroleum prospecting and exploration (upstream) for both local and foreign sales for over ten years.

As a corporate board policy, the management meets and considers the report in respect of its operations on quarterly basis. The results for the first quarter (January – March) 2022 of the company, as prepared by the Finance Controller, revealed the following:

N’000 Income:

Value of oil sold (export)

900,380 Value of oil sold (local)

223,300 Value of gas sold

430,100 Other income

7,200 Gross revenue

1,560,980

Expenses:

Production cost 210,730

Tangible drilling cost for the first appraisal well 18,800

Intangible drilling cost for the first appraisal well 17,600

Cost of gas reinjection wells 4,000

Cost of drilling 3 appraisal wells 24,000

Rent 13,000

Royalties on export sales 69,300

Royalties on local sales 9,800

Salaries and wages 170,500

Head office shared costs 62,000

Repairs and maintenance 8,930

Customs duty on essentials 2,900

Depreciation 66,000

Interest on loans 4,400

Allowance for doubtful debts 34,000

Administrative expenses 79,200

Stamp duties on increase in share capital 1,000

Bank charges 900

Miscellaneous expenses 22,500

Income tax provision 90,000

Tertiary education tax provision 6,000 915,560 Net profit

645,420

The following additional information was provided:

(i) The monthly fiscal oil and gas prices at each measurement point have been

approved on an export parity basis by the Nigerian Upstream Petroleum

Regulatory Commission.

(ii) Head office shared costs included:

N’000 Research and development costs 12,000 Indirect production costs 50,000

62,000

(iii) Repairs and maintenance expenses were made up of:

N’000 Repairs of oil pipelines and storage tanks 6,000 Repairs of plant 1,500 Improvement to the company’s building 1,430

8,930

(iv) Allowance for doubtful debts included:

N’000 Specific provision 10,000 General provision 20,000 Bad debt written off 4,000

34,000                                                                                                                                                                                                                               ( v) Administrative expenses consisted of:

N’000 Natural gas flare fees 10,000 Transport cost 13,200 Cost of obtaining information on existence of oil 7,300 Expenditure for acquisition of geological information 14,900 Other allowable expenses 33,800

79,200

(vi) Miscellaneous expenses included:

N’000 Tenement levy paid to the local government 2,000 Contribution to Niger Delta Development fund 5,500 Contribution to Host Community Development fund 12,000 Donation made to widows and orphans’ association 3,000

22,500

(vii) Unabsorbed losses brought forward from previous years were N35,000.

Required:

As the company’s Assistant Tax Manager, you have been asked by the Tax Manager to submit a report to him for review in the next three days as the Management Committee meeting is slated for next week. The report should specify a. The adjusted profit and assessable profit of the company for the first quarter of 2022 in line with the provisions of Petroleum Industry Act 2021.

b. Comments on the cost-price ratio of the company in view of the provisions of

the Sixth Schedule to Petroleum Industry Act 2021.