- 30 Marks
Question
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:
- Posted price for exported crude oil averaged $52/barrel (at an exchange rate of ₦306 to $1).
- Included in other income: ₦38,000,000 from crude transportation (cost: ₦16,250,000).
- Natural gas contract with Tommy Limited: value ₦655,000,000, load factor 54%.
- Depreciation of ₦120,250,000 was included in production costs.
- 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 |
- Capital allowances brought forward: ₦33,700,000; for the year: ₦88,500,000.
- Admin expenses include ₦3,500,000 stamp duties for debentures.
- Specific bad debts written off: ₦39,500,000.
- Donations were wholly expended for petroleum operations.
- ₦12,250,000 was paid to retrieve petroleum-related data (included in miscellaneous expenses).
- ₦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)
Answer
PQR & CO (CHARTERED ACCOUNTANTS)
INTERNAL MEMO
Date: ……………
From: Desk Officer, PPT Matters
To: Principal Partner
Subject: Report on Tax Matters for Priceless Oil Limited
With respect to the above subject matter, this is to formally inform you of the conclusion of the assignment. I have considered the financial report in respect of the operations of the company for the accounting year ended December 31, 2018.
Please find below the extract from the computations of the tax liability for the 2018 year of assessment in line with the provisions of the Petroleum Profits Tax Act Cap P13 LFN 2004 (as amended).
| Details | ₦’000 |
|---|---|
| (i) Assessable profit | 1,498,630 |
| (ii) Chargeable profit | 1,364,005 |
| (iii) Chargeable tax | 1,159,404 |
| (iv) Total tax payable | 1,196,337 |
This is for your review and necessary action.
Regards, sir.
O.O.O,
Desk Officer
Appendix I: Assessable Profit
Priceless Oil Limited
Computation of Assessable Profit
For 2018 Assessment Year
Appendix II: Chargeable Profit
Priceless Oil Limited
Computation of Chargeable Profit for 2018 Assessment Year
Appendix III: Chargeable Tax
Priceless Oil Limited
Computation of Chargeable Tax for 2018 Assessment Year
Appendix IV: Total Tax Payable
Priceless Oil Limited
Computation of Total Tax Payable for 2018 Assessment Year
Workings
- Topic: Petroleum Profits Tax (PPT)
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