Series: MAY 2022

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  • 15 Marks

TAX – May 2022 – L2 – SA – Q7 – The Nigerian Tax System

Discuss the aspects of the tax system in Nigeria, focusing on tax policy, key tax laws, and administrative bodies.

The tax system in Nigeria has been reviewed in recent times with a view to ensuring ease of doing business in Nigeria, among other things. With the enactments of Finance Acts 2019 and 2020, many enabling Acts were amended.

The tax system usually involves a tripartite aspect, namely, the tax policy, tax law, and tax administration.

Required:
a. Explain tax policy. (5 Marks)
b. State notable tax legislations. (5 Marks)
c. State the bodies charged with the administration of taxes in Nigeria. (5 Marks)

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  • 15 Marks

TAX – May 2022 – L2 – SA – Q6 – Tax Administration and Enforcement

Identify the badges of trade and compute the minimum tax payable for a given year of assessment.

a. The difficulty in determining what constitutes a trade has led to many litigations and the huge number of tax cases that exist on the issue. The problem from the decided cases is that of finding an absolute test for identifying a trade.

The conclusion had always been that there are no fixed rules but that each case could be examined on its own facts.
Required:
State FOUR considerations that influence the identification of badges of trade. (8 Marks)

b. Ndakogi Nigeria Limited commenced business in 2007. The extract of the statement of profit or loss of the company for the year ended December 31, 2021, has revealed the following:

Required:
Compute the minimum tax payable

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  • 15 Marks

TAX – May 2022 – L2 – SA – Q5 – Withholding Tax (WHT)

Discuss the contents of withholding tax returns, the time frame for compliance, and the merits and demerits of the withholding tax scheme.

Withholding tax is a tax deducted at source from proceeds made to a taxable person for the supply of goods and services. It is not another form of tax, but simply an advance payment of tax, as the withholding tax deducted at source is off-set against any subsequent tax liability that may be due in respect of the income.

Required:
a. State the contents of withholding tax returns/payment schedule. (5 Marks)
b. State the time frame for compliance with withholding tax returns. (5 Marks)
c. Explain the merits and demerits of the withholding tax scheme. (5 Marks)

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  • 20 Marks

TAX – May 2022 – L2 – SA – Q4 – Companies Income Tax (CIT)

Explain the recent changes in taxation introduced by the Finance Acts of 2019 and 2020, specifically related to insurance companies.

Bakosa Insurance Co. Plc. is a company engaged in both life and other insurance businesses. You were appointed as the tax consultant of the company on June 30, 2021. The Managing Director of the company invited you to a meeting of the directors with a view to intimating them of the recent changes introduced by the Finance Acts 2019 and 2020, relating to insurance business.

Required:
Explain the following to the management of the company:
a. Recent changes introduced by Finance Acts 2019 and 2020, that relate to the computation of tax liabilities of insurance companies. (16 Marks)
b. Additional documents/information to be filed by insurance companies. (4 Marks

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  • 20 Marks

TAX – May 2022 – L2 – SA – Q3 – Tax Administration and Enforcement

Identify the taxes and levies collectible by the Federal, State, and Local Governments in Nigeria, in light of a recent court ruling.

The Federal Government of Nigeria expanded the taxes and levies which the tiers of government can impose through the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order, 2015. In this Order made by the Minister of Finance, several new tax/levy heads, such as infrastructure maintenance/development levy, wharf landing charge/fee, consumption tax, the National Information Technology Development levy, etc., were introduced.

However, on May 8, 2020, the Federal High Court sitting in Lagos, delivered judgment in suit number FHC/L/CS/1082/2019, between The Registered Trustees of Hotel Owners and Managers Association of Lagos (suing for itself and on behalf of all its members) vs The Attorney-General of the Federation and others. The court held that the Ministerial Order of 2015 is unconstitutional, null, and void.

The court submitted that the Constitution vests the legislature with the power to make laws. The court further stated that schedules to a law are part and parcel of the law and, as such, only the legislature can amend schedules to a law. The implication of this ruling is that all the taxes and levies that were added to those in the Taxes and Levies (Approved List for Collection) Act Cap. T2 LFN 2004, via the Ministerial Order 2015, are illegal and cannot be enforced.

Since the judgment, your firm has been faced with a series of inquiries from taxpayers on the taxes/levies they are now expected to pay.

Required:
a. State five (5) taxes collectible by the Federal Government.
b. State five (5) taxes/levies collectible by the State Governments.
c. State ten (10) taxes/levies collectible by the Local Governments.

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  • 20 Marks

TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

You attended an interview for employment as Assistant Manager (Tax) in a professional firm. The following were presented to you to proffer solutions:

Mariam, Ola, Jude and Co., a firm of quantity surveyors, makes up its accounts to December 31 of each year. The following details were extracted from the firm’s accounting books in respect of the year ended December 31, 2019:

Item Amount (N)
Net profit for the year 1,540,000
Legal expenses for successfully defending one of the partners for alleged professional misconduct 100,000
Depreciation 360,000
Profit on sale of property, plant and equipment 4,220
Balancing charge 10,400
Balancing allowance 6,900
Capital allowances for the year 300,000

Additional information:

  1. Profit sharing ratio agreed by the partners: Mariam 2, Ola 3, Jude 5
  2. Mariam, Ola, and Jude received N7,400 each per annum as interest on loan to the firm
  3. Salaries paid to each of the partners are:
    • Mariam: N240,000
    • Ola: N200,000
    • Jude: N220,000

Required:
Compute the personal income tax assessable for each partner for the relevant year of assessment.

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  • 30 Marks

TAX – May 2022 – L2 – SA – Q1 – The Nigerian Tax System

Discuss the tax filing obligations and implications of non-compliance for a new company, covering both corporate tax and VAT.

Mr. Danko Chinyere, who has worked in a neighboring African country for many years, returned to Nigeria in August 2018. He incorporated a private limited liability company known as ChiDan Limited located in Lagos on October 30, 2018. The company deals in processing and packaging of plantain chips for local consumption.

The directors of the company opened a business bank account with one of the leading commercial banks in November 2018. The company commenced full operations on January 2, 2019.

Your firm, Adama & Co., was appointed as the tax consultant to ChiDan Limited in January 2021. At the first engagement meeting with the company, you discovered that the company was yet to register with the Federal Inland Revenue Service (FIRS). Relevant taxes, including value-added tax (VAT), were not remitted to FIRS.

An extract of the company’s first set of financial statements made up to December 31, 2020, is as follows:

Required:
Advise management of the company on the following:
a. Due date for submission of audited financial statements to the tax office. (2 Marks)
b. Requirements for filing of VAT returns and remittance of VAT liabilities – Section 16 of VAT Act (as amended). (4 Marks)
c. Basis of assessment on commencement of business – Section 29 (3) of CITA
(as amended) (6 Marks)
d. The income tax liabilities payable for the relevant year of assessment
(18 Marks)

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  • 15 Marks

CSME – May 2022 – L2 – SC – Q7 – Business Ethics and Corporate Governance

Explain personal, business, and professional ethics, and describe Kohlberg’s stages of moral development.

a. All accountants are expected to act ethically in the discharge of their respective duties. In light of this, evaluate the following concepts as they apply to professional accountancy practice:

  • i. Personal Ethics (1 Mark)
  • ii. Business Ethics (1 Mark)
  • iii. Professional Ethics (1 Mark)

b. With the aid of a clear example, explain the term “ethical/moral dilemma.” (2 Marks)

c. Explain Kohlberg’s stages of moral development. (10 Marks)

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  • 15 Marks

CSME – May 2022 – L2 – SC – Q6 – Corporate Governance

Discuss the purpose of board remuneration, the role of the remuneration committee, and the challenges of linking board pay to company performance.

At the Annual General Meeting of TAIMAKO Nigeria Limited, shareholders expressed displeasure about what they considered to be excessively high remuneration paid to members of the company’s board of directors. Some shareholders believed that board remuneration should be tied to the company’s financial performance. Consequently, a group of shareholders has asked you to advise them on the position of the Code of Corporate Governance on remuneration of directors.

Required:

a. The purpose and structure of the remuneration package for board members. (5 Marks)

b. The role of the remuneration committee. (5 Marks)

c. The problems of linking board members’ rewards with the company’s performance. (5 Marks)

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  • 15 Marks

CSME – May 2022 – L2 – SC – Q5 – Risk Management and Corporate Strategy

Advise on investment strategies to minimize risks and explain factors determining risk appetite.

a. A friend of yours who recently lost his job came to you for advice on how to invest his life savings in a way that will minimize the risk of loss of capital.

  • i. Advise him on how risk of losses could be minimized using the following:
    1. Risk Diversification (1 Mark)
    2. Risk Transfer (1 Mark)
    3. Risk Sharing (1 Mark)
    4. Risk Hedging (1 Mark)
    5. Risk Avoidance (1 Mark)
  • ii. Explain to your friend when risk diversification is the best option for him. (4 Marks)

b. What is risk appetite? Explain THREE factors that determine the risk appetite of a company. (6 Marks)

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  • 8 Marks

FA – May 2022 – L1 – SB – Q2b – Accounting for Property, Plant, and Equipment (IAS 16)

Compute the initial cost of a machine using cost elements like purchase price, clearing, installation, and adjustments.

The following cost items are extracted from the books of Ore Limited regarding a machine acquired on June 1, 2020:

Cost Items ₦
Clearing cost 6,000
Installation and testing charge 24,000
Purchase price 600,000
Purchase of spare parts (inclusive of VAT at 7.5%) 6,400

Additional information:

  • Rebate is provided at 5% of maintenance cost of ₦44,600.

Required:
Compute the initial cost of the machine.

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  • 4 Marks

FA – May 2022 – L1 – SB – Q2a – Accounting for Property, Plant, and Equipment (IAS 16)

List general requirements of IAS 16 related to the depreciation of Property, Plant, and Equipment.

List FOUR general requirements of IAS 16 – Property, Plant, and Equipment, as regards depreciation.

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  • 14 Marks

FA – May 2022 – L1 – SB – Q1b – Financial Statements Preparation

Prepare the statement of profit or loss and financial position for Wazobia PLC using the provided trial balance and adjustments.

The following trial balance has been extracted from the books of Wazobia PLC as at December 31, 2020:

Description Dr (₦’000) Cr (₦’000)
Accruals 4,002
Administrative expenses 65,990
24% bank loan repayable 2023 50,000
Cash at bank 4,207
Distribution costs 84,235
Interest 6,000
Inventories at January 1, 2020 73,735
Property, plant and equipment (PPE) at cost 603,950
Accumulated depreciation on PPE 238,932
Purchases 279,168
Retained earnings 207,410
Revenue 531,611
Share capital 100,000
Share premium 46,875
Trade payables 23,253
Trade receivables 84,798
Total 1,202,083 1,202,083

Additional information:
(i) The share capital of the company consists of ordinary shares with a nominal value of ₦1 each.
(ii) The revenue figure in the trial balance includes sales of ₦29,502,000 made on credit on January 1, 2021.
(iii) The inventories at the close of business on December 31, 2020, cost ₦78,815,000. Included in the figure were inventories that cost ₦4,500,000 but could only be sold for ₦1,688,000.
(iv) Electricity bills of ₦1,472,000 relating to December 2020 were not included in the trial balance as the invoice was received after the year-end.
(v) Interest on the bank loan for the last six months of the year was not included in the trial balance.
(vi) The company income tax charge for the year was calculated as ₦12,702,000.

Required:
(i) Prepare the statement of profit or loss and other comprehensive income of Wazobia PLC for the year ended December 31, 2020. (6 Marks)
(ii) Prepare the statement of financial position at December 31, 2020. (8 Marks)

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  • 6 Marks

FA – May 2022 – L1 – SB – Q1a – Financial Statements Preparation

Identify and list the components of financial statements according to IAS 1.

In accordance with IAS 1 – Presentation of Financial Statements, state the components of financial statements.

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  • 1 Marks

FA – May 2022 – L1 – SA – Q20 – Accounts of Not-for-Profit Entities

Interpret what a credit balance on a receipts and payments account indicates for a not-for-profit organization.

A credit balance on a receipts and payments account of a not-for-profit organization indicates that the entity:

A. Has excess cash in the bank
B. Received more cash than it paid out during the period
C. Made more cash payments than received during the period
D. Had more revenue than expenses during the period
E. Did not owe much liabilities during the period

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  • 1 Marks

FA – May 2022 – L1 – SA – Q19 – Control Accounts

Identify the principal function of a sales ledger control account.

The principal function of a sales ledger control account is to:

A. Serve as external check and provide quick information for the preparation of interim financial statements
B. Serve as internal check and provide quick information for the preparation of interim financial statements
C. Check sales fraud
D. Provide quick information for the control of salesmen’s activities
E. Provide quick information for the preparation of customer’s statements

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  • 1 Marks

FA – May 2022 – L1 – SA – Q18 – Depreciation Methods and Accounting for Disposals

Calculate the value of an asset after 3 years using the reducing balance method.

A company bought equipment worth ₦200,000 and the equipment is to be depreciated at 5%, using the reducing balance method. What would be the value of the asset after 3 years?

A. ₦170,000
B. ₦171,475
C. ₦180,505
D. ₦190,000
E. ₦200,000

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  • 1 Marks

FA – May 2022 – L1 – SA – Q17 – Accounting for Inventories in Accordance with IAS 2

Calculate the closing inventory for the period using sales, purchases, and other cost data.

Question:

What is the closing inventory for the period?

A. ₦69,300,000
B. ₦81,200,000
C. ₦81,600,000
D. ₦104,400,000
E. ₦108,000,000

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  • 1 Marks

FA – May 2022 – L1 – SA – Q16 – Financial Statements Preparation

Calculate the gross profit for the period using provided sales and cost of goods sold data.

Calculate the gross profit for the period.

A. ₦535,650,000
B. ₦543,450,000
C. ₦637,950,000
D. ₦647,600,000
E. ₦699,000,000

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  • 1 Marks

FA – May 2022 – L1 – SA – Q15 – Bank Reconciliation

Identify which bank reconciliation item should not be added or subtracted from the cash book balance.

Which of the following bank reconciliation items should NOT be added or subtracted from the cash book balance to determine the adjusted bank balance?

A. Bank service charges
B. Unpresented cheques
C. Direct transfers
D. Cash book errors
E. Value-added tax charges

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