Series: MAY 2023

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q7 – Tax Incentives and Reliefs

Explain tax incentives and penalties for enterprises in export processing zones.

The Federal Government in a bid to further boost the growth in foreign exchange earnings, create new jobs, facilitate economic diversification, industrialization, and provide access to foreign technology, came up with its export processing zones (EPZs) policy.

EPZ is regarded as a customs area where an enterprise is allowed to import plant, machinery, equipment, and raw materials, process them, and then export them to the world market, under security and without paying duty.

To facilitate a better understanding of the above assertions, the Managing Director of a would-be client approached you for explanations of the relevant provisions of the Nigerian Export Processing Zones Act Cap. N107 LFN 2004 (as amended) and Companies Income Tax Act Cap. C21 LFN 2004 (as amended).

Required:

a. Discuss SIX special tax incentives for enterprises operating in an export processing zone. (12 Marks)

b. Explain the penalties for non-compliance with section 55(1) of CITA (as amended). (3 Marks)

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q6 – Value-Added Tax (VAT)

Compute VAT remittance for Fountain Hotels' July 2022 transactions and explain VAT concepts.

Fountain Hotels Limited is a group of hotels located in many parts of North Central Nigeria, providing accommodation and other hospitality services. It renders its returns at the end of each month in accordance with the Value Added Tax Act 2004 (as amended).

The following are the details of the transactions for the month of July 2022:

  • VAT on outdoor catering services: N600,000
  • VAT on food: N360,000
  • VAT on drinks: N240,000
  • VAT on other vatable hotel services: N270,000
  • VAT on drinks purchased: N150,000
  • VAT on foodstuff purchased: N210,000
  • VAT on kitchen equipment: N480,000
  • VAT on professional services: N240,000

Additional Information:

  1. 30% of outdoor catering services were on credit.
  2. 20% of food and drinks were on credit.
  3. Other vatable hotel services were paid in full.
  4. 25% of VAT on drinks and foodstuff purchased were on credit.
  5. VAT on kitchen equipment and professional services were paid in full.

Required:

a. Compute the VAT remittable to the Federal Inland Revenue Service in respect of July 2022 transactions. (9 Marks)

b. Write short notes on the following:
i. Revenue VAT (2 Marks)
ii. Zero-rated supplies and services (2 Marks)
iii. VAT on exports (2 Marks)

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q5 – Taxation of Specialized Businesses

Explain solutions to multiple taxation and list causes.

Multiple taxation is a tax regime under which various and similar taxes are imposed on taxpayers by different tiers of government. This has become a national problem discouraging taxpayers from performing their civic responsibilities. The 1999 Constitution of the Federal Republic of Nigeria seeks to eliminate multiple taxation at all levels of government as provided for in Part II, Paragraphs 7 to 10.

Required:

a. Explain FOUR Constitutional and other possible solutions provided on how to eliminate multiple taxes. (10 Marks)

b. State FIVE possible causes of multiple taxation. (5 Marks)

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q4 – Companies Income Tax

Calculate assessable profit basis periods and capital allowances for Wizzy-Baddo Ltd.

As part of the induction program for the newly recruited staff of your firm of tax consultants, you have been tasked with a presentation on companies’ income tax computation for beginners during the firm’s training session.

You are provided with the following information relating to Wizzy-Baddo Limited, which commenced business on September 1, 2020:

  • Adjusted Profit:
    • Period to December 31, 2020: N6,937,500
    • Year ended December 31, 2021: N9,300,500

The following assets were acquired as follows:

Date Asset Cost (N)
June 5, 2020 Land and building 5,467,500
July 1, 2020 Motor vehicle 10,000,000
October 15, 2020 Machinery 4,375,000
February 28, 2021 Furniture 3,458,000
May 1, 2021 Delivery van 4,750,000

Required:

a. State the basis periods for assessable profits and qualifying capital expenditure. (5 Marks)

b. Compute the capital allowances.

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q3 – Tax Dispute Resolution

Explain conditions for final assessment and discuss objection and appeal procedures for tax assessments.

Taxation has been defined as the imposition of compulsory levies on individuals and entities by governments in most countries in the world. The primary objective of taxation is essentially to generate revenue or raise money for government expenditure on social welfare.

You were appointed as the accountant of Specks Nigeria Limited on August 31, 2022. Based on self-assessment, the company filed the audited financial statements for the year ended December 31, 2021, together with its tax computations on June 7, 2022, and the relevant tax liabilities were fully paid on the same date.

On August 31, 2022, the Federal Inland Revenue Service raised an assessment that was not in line with the tax returns. At the meeting of the directors held in September 2022, this issue was discussed, and you were mandated to quickly address it so that the assessment would not become final and conclusive.

Required:
a. When will an assessment become final and conclusive? (5 Marks)
b. Discuss the following in relation to objection and appeal procedures:
(i) Time limit for objection and appeal (4 Marks)
(ii) Contents of a notice of objection (4 Marks)
(iii) Amendment of assessment and notice of refusal to amend (NORA) (7 Marks)

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q2 – Personal Income Tax (PIT)

Differentiate employment contract types and explain tax residency rules for individuals.

The Personal Income Tax Act Cap.P8 LFN, 2004 (as amended) defines “employment,” whilst the Labour Act Cap.L1 LFN, 2004 (as amended), defines “contract of employment.”

An individual’s liability to income tax is often determined by their residence status within a state during a particular assessment year. A taxpayer is liable to the tax authority in the territory where they are deemed resident for that assessment year.

Required:
a. Differentiate between “contract of employment” and “contract for employment.” (8 Marks)
b. Explain the rules guiding the determination of residence for SIX categories of individuals for tax purposes. (12 Marks)

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  • 30 Marks

TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)

Compute partnership income and individual partner tax liabilities.

Fadeke, Femi, Kola, and Gbenga have been in partnership as medical practitioners for eight years. The statement of profit or loss for the year ended December 31, 2021, is as follows:

  1. Capital allowances agreed with the revenue: N980,000
  2. Profits are to be shared equally among the partners.
  3. Fadeke and Femi are married with three and two children, respectively.
  4. Fadeke has a life assurance policy of N960,000 on which she pays N96,000 annually as a premium.
  5. Fadeke maintains her aged father who is over 68 years.

Required:

a. Compute the income of the partnership. (5 Marks)
b. Compute the income tax liability of each of the partners. (25 Marks)
(Total: 30 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q7 – Risk Management and Corporate Strategy

Analysis of enterprise and operational risks for Gbam Telecoms in launching 5G services.

Gbam Telecoms Plc, a leading mobile phone and internet communications company, is planning to roll out its 5th Generation (5G) spectrum. As a new product, the 5G spectrum promises customers high-speed internet with immense possibilities in computing, big data management, robotics, and other numerous benefits. While a section of the populace believes that the roll-out is a welcome development, others express reservations about the 5G technology. Within Gbam Telecoms Plc, some employees believe that the erratic nature of the country’s power supply could damage the 5G transponders. Also, the high cost of diesel would increase the company’s operating costs, thus making the product largely unaffordable to prospective consumers. There are also security threats to the company’s facilities due to heightened insecurity in the country. The umbrella trade union for the company’s employees is also agitating for a pay rise and hazard allowance should the company go ahead with the 5G roll-out. Some experts believe that the market for 5G spectrum in the country today is negligible because most telecommunication and internet devices used by consumers in the market are not 5G-compliant. There are also reports that the competitors of Gbam Telecoms Plc are studying how the market will respond to Gbam Telecoms’ 5G spectrum before deciding to enter the market. In addition, a study carried out in Europe concluded that 5G spectrum may be hazardous to the health of people living close to 5G transponders. There is also news about the development of new and better technologies called 6G and 7G, which may make 5G obsolete within a short period of time.

Required:

  1. (a) Advise the management of Gbam Telecoms Plc on the enterprise and operational risks that could be associated with the roll-out of 5G spectrum using information contained in the given scenario. (11 Marks)
  2. (b) Suggest to Gbam Telecoms Plc the key elements that should be contained in the company’s Risk Management System. (4 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q6 – Ethics in Business

Application of Kohlberg's moral development stages in ethical decisions and critiques of the theory.

Using Kohlberg’s stages of moral development, identify and explain the reasons why individuals make their decisions when faced with moral dilemmas.

(a) Identify and explain the reasons why individuals make their decisions when faced with a moral dilemma using Kohlberg’s stages of moral development. (12 Marks)

(b) Explain the criticisms of Kohlberg’s stages of moral development. (3 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q5 – Ethics in Business

Differences between creative and critical thinking and their impact on employer benefits.

Creative and critical thinking are essential skills that chartered accountants should possess for optimal performance.

(a) Differentiate between creative and critical thinking. (4 Marks)

(b) Explain the modes through which creative thinking is expressed. (8 Marks)

(c) Explain how the creative thinking of employees benefits their employers. (3 Marks)

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  • 1 Marks

MI – May 2023 – L1 – SA – Q2 – Cost Classifications

This question asks for the identification of another name for mixed cost.

Which of the following is another name for mixed cost?
A. Double cost
B. Semi-Variable cost
C. Fluctuating cost
D. High and Low cost
E. Triple cost

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  • 1 Marks

MI – May 2023 – L1 – SA – Q1 – Introduction to Cost Accounting

This question asks for the identification of a cost that cannot be easily or conveniently traced to a cost object.

A cost that is not easily or conveniently traceable to a cost object is known as:
A. Collective cost
B. Untraceable cost
C. Objective cost
D. Indirect cost
E. Direct cost

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  • 12 Marks

FA – May 2023 – L1 – SB – Q6b – Accounting for Property, Plant, and Equipment (IAS 16)

Calculation of gain or loss on disposal and recording the acquisition and disposal of cars in ledger accounts.

The carrying amount of ten cars used by Bayo Limited on January 1, 2017, was N12,000,000 and the accumulated depreciation was N3,200,000. On January 2, 2017, the entity bought a new car costing N2,000,000. The dealer accepted a car owned by the entity in part exchange at a value of N160,000. The car originally cost N1,200,000 and its accumulated depreciation was N1,080,000.

i. Calculate the gain or loss on disposal of the old car. (4 Marks)

ii. Show how the purchase of the new car and the disposal of the old car will be recorded in the ledger accounts of Bayo Limited. (8 Marks)

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  • 8 Marks

FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying the elements of the cost of Property, Plant, and Equipment (PPE) under IAS 16, with examples of directly attributable costs.

In the context of IAS 16, identify the elements of the cost of an item of “Property, Plant, and Equipment,” giving FOUR examples of directly attributable costs. (8 Marks

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  • 20 Marks

FA – May 2023 – L1 – SB – Q5 – Recording Financial Transactions

Preparation of a two-column cash book from given transactions and balancing off at month-end.

a. Write up a two-column cash book from the following details and balance off as at the end of the month.

  • January 1: Started business with capital N1,000,000 cash
  • January 2: Paid rent of N100,000 cash
  • January 3: I.K. Opara lent N5,000,000 by cheque
  • January 4: Ebenezer was paid by cheque N650,000
  • January 5: Cash sales N980,000
  • January 7: Ileri paid us cheque, N620,000
    Cash sales, N530,000
    Received cash of N650,000 from Robert
  • January 9: Paid George N220,000 cash
  • January 16: Took N500 out of the cash till and paid into the bank account.
  • January 19: I.K. Opara was repaid N1,000,000 by cheque
  • January 22: Cash sales paid directly to the bank N600,000
  • January 26: Motor expenses of N120,000 was paid by cheque
  • January 30: N1,000,000 cash was withdrawn from bank for business use
  • January 31: Paid wages of N970,000 by cash

    (10 Marks)

b. i. Explain the uses of the Journal. (4 Marks)
ii. The following transactions took place in the books of Olson Limited in June 2019:

  • A machine is bought on credit from Sylva Enterprises for N186,000 on June 1.
  • A motor vehicle is sold to Adefela on credit for N360,000 on June 8.
  • Wonu, a customer, owed N160,000. She offers a motor in full settlement of the debt on June 16 and the offer was accepted.

Required:
Journalize the transactions. (6 Marks)

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  • 20 Marks

FA – May 2023 – L1 – SB – Q4 – Partnership Accounts

Preparation of profit or loss appropriation accounts, partners’ current accounts, and statement of financial position for the partnership of Lag and Kase.

Lag and Kase were in partnership. Their first year of operation ended on December 31, 2018. On January 01, 2018, Lag made a cash contribution of N96,000,000 and a motor car valued at N28,000,000. The car cost N45,000,000 few years ago when it was purchased. Kase contributed N84,000,000 cash. The partnership constitution spelt out the following:

  1. Profit or loss sharing ratio shall be Lag 3, Kase 2.
  2. Interest on capital shall be 8% per annum.
  3. Interest on drawings shall be 6% per annum.
  4. A salary of N16,000,000 per annum shall be paid to Kase, who is an active partner.

During the year ended December 31, 2018, the business made a net profit of N58,000,000 before any appropriation and interest on a 10% N40,000,000 loan advanced by Lag to the business.

Drawings during the year were Lag N15,000,000 and Kase N18,000,000.

Required:

a. Prepare the profit or loss appropriation accounts for the year ended December 31, 2018. (8 Marks)

b. The partners’ current accounts for the year ended December 31, 2018. (5 Marks)

c. The partners’ capital accounts for the year ended December 31, 2018. (4 Marks)

d. The statement of financial position (extract) as at December 31, 2018. (3 Marks)

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  • 8 Marks

FA – May 2023 – L1 – SB – Q3b – Regulatory Environment of Accounting, IAS 8

Defining accounting policies and changes in accounting estimates with examples, and outlining the required accounting treatment.

IAS 8 deals with the measurement, recognition, and disclosure of accounting policies, changes in accounting estimates, and correction of prior period errors.

i. Define an accounting policy and change in accounting estimates, with TWO examples each. (6 Marks)

ii. Outline the accounting treatments required to record a change in accounting estimates. (2 Marks)

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  • 12 Marks

FA – May 2023 – L1 – SB – Q3a – Financial Statements Preparation

Identification and discussion of four measurement bases for elements of financial statements according to IASB's Conceptual Framework.

Identify and discuss the FOUR measurement bases for elements of financial statements, as contained in the International Accounting Standards Board’s (IASB’s) Conceptual Framework for Financial Reporting. (12 Marks)

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  • 20 Marks

FA – May 2023 – L1 – SB – Q2 – Financial Statements Preparation

Preparation of a statement of cash flows for Samu PLC using the indirect method.

Samu PLC is a listed company. The following financial statements of the company are available:

Statement of Profit or Loss for the Year Ended December 31, 2018:

N’m
Revenue 6,740
Cost of Sales (4,840)
Gross Profit 1,900
Income from Investment Property 60
Distribution Costs (120)
Administrative Expenses (350)
Finance Costs (50)
Profit Before Tax 1,440
Income Tax Expense (160)
Profit After Tax for the Year 1,280

Statement of Financial Position as at December 31:

2018 (N’m) 2017 (N’m)
Non-Current Assets:
Plant and Equipment 2,880 1,860
Investment Property 420 400
Current Assets:
Inventory 1,210 810
Trade Receivables 480 590
Bank 1,010 –
Total Assets 6,000 3,660
Equity:
Equity Share Capital of N0.50 each 2,000 600
Share Premium 750 50
Retained Earnings 1,440 1,310
Non-Current Liabilities:
8% Loan Notes 250 430
Current Liabilities:
Trade Payables 1,410 1,050
Bank Overdraft – 120
Income Tax Payable 150 100
Total Liabilities and Equity 6,000 3,660

Additional Information:

  1. An item of plant with a carrying amount of N240 million was sold at a loss of N90 million during the year. Depreciation of N280 million was charged on property, plant, and equipment in the year ended December 31, 2018. There were no sales of investment property during the year.
  2. Part of the 8% loan notes was redeemed during the year.
  3. There was an issue of shares for cash on June 1, 2018.
  4. Dividend was paid on September 1, 2018.

Required:

Prepare a statement of cash flows for Samu PLC for the year ended December 31, 2018, in accordance with IAS 7 Statement of Cash Flows, using the indirect method. (Total 20 Marks)

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  • 20 Marks

FA – May 2023 – L1 – SB – Q1 – Recording Financial Transactions, Bad and Doubtful Debts

Preparation and balancing of Trade Receivables, Bad Debts, and Allowances for Doubtful Debts accounts.

It was discovered on December 31, 2016, Baruwa Limited had a receivables balance of N15,000,000. It was discovered, before the preparation of the final accounts, that a customer owing N3,000,000 would not be able to settle such debts. It is the policy of Baruwa Limited to make allowances for doubtful receivables of 5% of all outstanding receivables at the end of each accounting period.

During the accounting year of 2017, the company made total credit sales of N19,600,000, out of which an amount of N11,000,000 was collected from customers. A court declared a customer who owes the company an amount of N1,700,000 bankrupt in August 2017. The company recorded some cheques amounting to N3,500,000 that were dishonoured.

The company recorded N30,000,000 and N17,000,000 in connection with cash and credit sales, respectively, in the year 2018. The company received N25,000,000 from trade receivables and also showed N13,400,000 as the outstanding balance on the sales ledger account. A cheque was received from the customer whose debt was written off in 2016 in full settlement of his debt.

Required:

Prepare and balance the following accounts:

a. Trade Receivables Account (8 Marks)

b. Bad Debts Account (3 Marks)

c. Allowances for Doubtful Receivables Account (3 Marks)

d. Prepare an extract of the Statement of Financial Position as at December 31, 2018, showing the relevant balances. (6 Marks)

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