Series: NOV 2021

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  • 16 Marks

TAX – Nov 2021 – L2 – Q7 – Tax Administration

Explanation of five different aspects of tax administration that TAXPRO MAX can handle.

Tago Nigeria Limited was incorporated in 2009 as a trading company. It supplies
office furniture, equipment and other office materials to end users.

Due to the favourable business climate in recent years, the company achieved a
gross turnover of N120,000,000 in 2020. The directors were impressed by the profits
posted by the company, hence the decision to computerise the accounting system of
the company.
You were appointed the tax consultant to the company in 2018. You are aware that
in 2006, the Federal Inland Revenue Service (FIRS) deployed the first tax portal
(Webportal) to automate and streamline taxpayer‟s registration and other tax
administration system (ITAS) known as SIGTAS. This was implemented though its
deployment was stalled.

Following the enactment of the Finance Act, 2020, the Federal Inland Revenue
Service is empowered to automate filing of tax returns and payment processes.
You attended a seminar organised by the Federal Inland Revenue Service in June
2021, to inform tax consultants of the adoption of a locally developed tax
management solution known as TAXPRO MAX. The FIRS insisted that manual filings
of tax returns would no longer be allowed.
At a meeting held with the Managing Director of Tago Nigeria Limited, you intimated
him of the tax development. He was worried that there could be a delay in filing of
tax returns for the year ended December 31, 2020, more so when taxpayers are yet to
be fully aware of this new development.

Required

Explain to the management FIVE different aspects of tax administration that the tax management solution known as TAXPRO MAX can handle.

 

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  • 15 Marks

TAX – Nov 2021 – L2 – Q6 – Value Added Tax (VAT)

Explanation of when goods and services are deemed to be supplied in Nigeria according to section 2 of the VAT Act.

Taxable supplies of goods and services are those listed under the First Schedule of
the Value Added Tax Act Cap VI for 2004 (as amended). Essentially, these are goods
and services liable to value added tax at the prescribed rate.
Required:
Explain when goods and services shall be deemed to be supplied in Nigeria in
accordance with section 2 of VAT Act (as amended).

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  • 15 Marks

TAX – Nov 2021 – L2 – Q5 – Companies Income Tax (CIT)

Explanation of documents required for tax registration, time lag for filing tax returns, and penalties for late filing of returns.

QUESTION 5
The Companies Income Tax Act Cap C21 LFN 2004 (as amended) empowers the
Federal Inland Revenue Service to assess the income of corporate organisations.
Corporate organisations are required to file tax returns within a specified period of
time to the relevant tax authority.
Required:
a. Explain the documents/information required to be forwarded to the relevant tax
authority when registering with the nearest integrated tax office. (5 Marks)
b. State the time lag for filing the first set of returns and subsequent ones.
(5 Marks)
c. State the penalty for late filing of tax returns on the due dates. (5 Marks)
(Total 15 Marks)

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  • 5 Marks

TAX – Nov 2021 – L2 – Q4b – Tax Incentives and Reliefs

Explanation of the rules governing loss relief for companies, including carry forward, loss limitation, and cessation rules.

Explain FIVE rules governing loss relief for companies.

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  • 15 Marks

TAX – Nov 2021 – L2 – Q4a – Companies Income Tax (CIT)

Computation of income tax payable for Ajani-Ogun Ventures Limited from 2018 to 2021 years of assessment.

Ajani-Ogun Ventures Limited was incorporated on February 1, 2012, and commenced business on September 1, 2013. The company makes up accounts to August 31, every year. The following additional information is provided:

  1. Adjusted (loss)/profit:
    • Year ended August 31, 2017: (N95,000)
    • Year ended August 31, 2018: N55,000
    • Year ended August 31, 2019: N35,000
    • Year ended August 31, 2020: N65,000
  2. Capital Allowances for each year of assessment:
    • Year ended August 31, 2018: N6,500
    • Year ended August 31, 2019: N5,000
    • Year ended August 31, 2020: N4,200
    • Year ended August 31, 2021: N4,000

The Finance Director was worried that the tax officials would soon conduct a tax
audit of their financial transactions and he wanted to know the tax liabilities
payable to the Federal Inland Revenue Service for the relevant assessment years.
During the year ended August 31, 2020, the company achieved a revenue of
N20,000,000.

Required:
a. Compute the income tax for 2018 to 2021 years of assessment, taking into consideration the provisions of the Finance Act, 2019. Ignore minimum tax computation. (15 Marks)

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  • 5 Marks

TAX – Nov 2021 – L2 – Q3c – Value Added Tax (VAT)

Explanation of the merits and demerits of Value Added Tax (VAT) as a consumption tax.

Explain the merits and demerits of VAT

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  • 6 Marks

TAX – Nov 2021 – L2 – Q3b – Value Added Tax (VAT)

Explanation of penalties associated with VAT non-compliance including failure to register, failure to notify of address changes, and failure to submit returns.

Explain the penalties associated with the following:

i. Failure to register for VAT return (2 Marks)
ii. Failure to notify the FIRS of change of address or cessation of trade or business (2 Marks)
iii. Failure to submit VAT returns (2 Marks)

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  • 9 Marks

TAX – Nov 2021 – L2 – Q3a – Value Added Tax (VAT)

Calculation of total VAT payable by Adegboyega Enterprises to the Federal Inland Revenue Service (FIRS) for product sales.

Adegboyega Enterprise is a manufacturing outfit based in Jankara, Lagos State. In 2020, the company sold its vatable product to a wholesaler, Ikeja Venture, for N3,500,000. The wholesaler sold the products to a retailer, Mrs. Adeosun, for N4,900,000, who finally sold it to consumers for N6,300,000 (VAT inclusive). Assume there was no closing inventory at each stage of the transaction.

Required:
a. Compute the total VAT payable to the Federal Inland Revenue Service by Adegboyega Enterprises on the transactions stated above.

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  • 20 Marks

TAX – Nov 2021 – L2 – Q2 – Companies Income Tax (CIT)

Computation of interest deductible under section 24 of CITA 2004 and treatment of excess interest for XYZ Limited.

XYZ Limited was incorporated on August 31, 2012, and it commenced business on May 31, 2013. Diki (Malaysia) Limited is its subsidiary in Malaysia. An extract of the financial statements of XYZ Limited for the year ended December 31, 2020, revealed the following:

Assessable profit: N2,000,000

Interests and depreciation deducted before arriving at the assessable profit are:

  • Interest on loan paid to Diki (Malaysia) Limited: N1,050,000
  • Interest on loan paid to other creditors: N1,000,000
  • Depreciation: N400,000

It was discovered that N450,000 of the loan paid to other creditors was in respect of a loan obtained to generate tax-exempt profits.

The Managing Director of XYZ Limited has asked you as a tax consultant to explain the provisions of section 24 of CITA 2004 (as amended) and the Seventh Schedule in respect of the interest deductible by a Nigerian company.

Required:
a. Compute the interest deductible in the relevant assessment year. (16 Marks)
b. Explain how the excess interest not deducted in the relevant assessment year would be treated. (4 Marks)

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  • 30 Marks

AX – Nov 2021 – L2 – Q1 – Personal Income Tax (PIT)

Calculation of personal income tax liability for two job offers and providing advice on the offer that yields a higher income after tax.

Miss Opeyemi Olunba is a young engineer who has been working in an oil sector for
over 5 years. She currently earns a gross salary of N10,000,000 per annum. She
recently attended two interviews for a new job at Joke Oil & Gas in Rivers State and
Dabiri Hotels & Suite in Lagos State.
She has been called by the two companies to assume office on April 1, 2021. The
following salaries and allowances were offered by the two companies:

Additional information:

  1. If Miss Opeyemi accepts the offer from Joke Oil & Gas, she will rent out her Lagos apartment for N20,000,000 per annum but will need a loan of N12,000,000 at 20% interest to modify the apartment.
  2. She will pay rent of N5,000,000 in Port Harcourt if she relocates.
  3. She maintains her child, a student at St. John University,
  4. She also supports her parents.
  5. She pays a life assurance premium of N5,000,000 annually.
  6. Her employers will deduct contributions for the National Housing Fund (N5,000,000) and Pension Fund (N3,000,000).
  7. She also pays National Health Insurance Premium (N1,000,000).

Required:

a. Compute Miss Opeyemi’s personal income tax liability for the relevant year of assessment for both offers.
b. Advise her on which employment will give her a higher income after tax.

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  • 20 Marks

FA – Nov 2021 – L1 – SB – Q4 – Accounting Concepts

This question involves explaining different bases of accounting and the operation of a petty cash book.

a. Accounting concepts are the broad principles and general assumptions underlying the preparation of financial statements.

Required:
i. Explain cash, accrual, and break-up bases of accounting. (6 Marks)
ii. State FOUR limitations associated with the cash basis of accounting. (8 Marks)

b. Mallam Isa is considering setting up a petty cash book from which to pay small expenses, however, he is not sure of how a petty cash book operates.
Required:
Explain to Mallam Isa the operation of a petty cash book. (6 Marks)

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  • 20 Marks

FA – Nov 2021 – L1 – SB – Q3 – Trial Balance

This question involves preparing financial statements based on a given trial balance and additional adjustments.

The following balances remained in the books of Chukwu Limited as at December 31, 2020:

Accounts ₦’000
200,000,000 ordinary shares of N1 each 200,000
Cash at bank and in hand 500
Inventory (December 31, 2020) 61,200
Receivables 18,005
Payables 15,009
Gross profit 128,942
General reserves 25,000
Salaries and wages 28,430
Prepayments 600
Bad debts written off 500
Accrued expenses 526
Director’s account (Credit) 2,500
Interest on loan notes (half year) 600
Sundry expenses 4,100
Rates and insurance 1,520
6% loan notes 20,000
Lighting and cooling 1,310
Postage and telephones 800
Motor vehicles (Cost ₦25,000,000) 25,000
Office fittings and equipment (Cost ₦65,500,000) 42,350
Provision for depreciation – Motor vehicles 10,000
Provision for depreciation – Office fittings & equipment 23,150
Profit or loss (January 1, 2020) (Credit) 22,300
Land and buildings (Cost) 239,362

Additional Information:

  1. Office fittings and equipment are to be depreciated at 15% on cost, and motor vehicles at 20% of cost.
  2. Provisions are to be made for:
    • Directors’ fees of N6,000,000
    • Audit fees of N2,500,000
  3. The amount for insurance includes a premium of ₦600,000 paid in September 2020 to cover fire loss for the period September 1, 2020, to August 31, 2021.
  4. A bill for N548,000 in respect of electricity consumed up to December 31, 2020, has not been accounted for.
  5. The directors have recommended:
    • N15,000,000 be transferred to general reserves
    • A 5% dividend on ordinary share capital

You are required to prepare:
a. The trial balance of Chukwu Limited at December 31, 2020. (6 Marks)
b. The statement of profit or loss for the year ended December 31, 2020. (8 Marks)
c. The statement of financial position as at December 31, 2020. (6 Marks)
Note: Ignore taxation.

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  • 20 Marks

FA – Nov 2021 – L1 – SB – Q2 – Partnership Account

This question involves partnership accounting with a new partner's admission, requiring the preparation of the profit or loss appropriation account and partners' current accounts.

Bala and Ade had been together in partnership for several years in plastic manufacturing, sharing profits and losses in the ratio of 3:2 after charging salaries of N3,000,000 p.a. each.

On September 1, 2020, Ngozi was admitted into the partnership on the following terms:

  1. That she paid N2,800,000 to the partnership as her capital contributions; and
  2. She would be entitled to a salary of N2,700,000 per annum and a 20% share of profits after charging all salaries.

Bala and Ade are to continue their old profit sharing ratios and Ngozi’s 20% share of profits is guaranteed at a minimum of N1,500,000 per annum by the old partners.

On December 31, 2020, the following balances were extracted from the partnership books of Bala, Ade, and Ngozi:

Accounts N’000
Capital Accounts:
Bala 28,000
Ade 18,000
Current Accounts:
Bala 4,800
Ade 2,000
Ngozi 2,800
Revenue 272,000
Purchases 190,000
Wages 20,000
Salaries 25,000
General Expenses 10,000
Plant and Machinery 25,000
Motor Vehicles 15,000
Receivables 20,000
Telephone Expenses 3,750
Payables 24,350
Inventory January 1, 2020 15,000
Allowances for Bad Debts 1,500
Bank Balance 17,100
Drawings:
Bala 6,600
Ade 5,000
Ngozi 1,000

Additional information:

  1. Allowances for doubtful debts should be maintained at 5% of receivables.
  2. Inventory at December 31, 2020, was valued at N12,000,000.
  3. Depreciation on plant and machinery is 20% per annum and on motor vehicles is 25% per annum.

You are required to: a. Prepare the statement of profit or loss and appropriation account for the year ended December 31, 2020, accounting for Ngozi on a pro-rata time basis. (12 Marks)
b. Prepare the partners’ current account for the same period. (8 Marks)

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  • 20 Marks

FA – Nov 2021 – L1 – SB – Q1 – Bank Reconciliation

The question asks for the preparation of an adjusted cash book and a bank reconciliation statement and requires an explanation of the need for regular reconciliation.

On April 6, 2020, Alhaji Mogaji received his bank statement for the month ended March 31, 2020. The bank statement showed a balance of N41,740,000 (overdraft) as at March 31, while the cash book showed a balance of N52,599,000 (credit) as at that date. On examination of the cash book and the bank statement the following were discovered:

  1. Bank charges of N201,000 had not been recorded in the cash book.
  2. Alhaji Mogaji exceeded his overdraft limit during the month of March. The bank had therefore charged him a default penalty of N250,000. This was not reflected in the cash book.
  3. A sum of N1,250,000 had been credited to Alhaji Mogaji’s bank account in error.
  4. A cheque for N1,230,000 had been returned by the bank as dishonoured. In effect, the bank charged Alhaji Mogaji N15,000, which was not reflected in the cash book.
  5. Cash receipts of N3,740,000 were posted as cash payments of N4,730,000 in the cash book.
  6. On March 21, Alhaji Mogaji transferred cash of N650,000 to his personal bank account, but this was credited to the business bank account in error by the bank.
  7. Standing orders and direct debits of N1,115,000 had not been posted to the cash book.
  8. Customers had transferred N2,170,000 directly to the bank account. The credit alert was received, but no record had been made in the cash book.
  9. An amount of N5,120,000 lodged to the bank account on March 31, 2020, had not been credited by the bank.
  10. The following cheques drawn on the bank account had not been presented for payment as at March 31, 2020:
  • Cheque No: 4528, March 11, 2020, for N840,000
  • Cheque No: 4535, March 28, 2020, for N1,740,000
  • Cheque No: 4537, March 31, 2020, for N3,670,000

You are required to:
a. Prepare the adjusted cash book for the month of March 2020. (9 Marks)
b. Prepare a statement on March 31, 2020, reconciling the bank statement balance with the adjusted cash book balance. (7 Marks)
c. Explain TWO reasons for preparing a bank reconciliation statement on a regular basis. (4 Marks)

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  • 1 Marks

FA – Nov 2021 – L1 – SA – Q20 – Partnership Accounting

This question addresses when goodwill can be valued in a partnership.

Goodwill can be valued in partnership when:
A. Partners make a profit
B. Large losses are made
C. A partner retires
D. A new branch is opened
E. A partner receives a salary

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  • 1 Marks

FA – Nov 2021 – L1 – SA – Q19 – Financial Statements

This question tests the ability to identify which of the listed items is not a liability.

Which of the following is NOT a liability?
A. Accrued wages
B. Trade Payables
C. Prepayments
D. Insurance due but unpaid
E. Rent arrears

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  • 1 Marks

FA – Nov 2021 – L1 – SA – Q18 – Accruals and prepayments

This question identifies the fundamental accounting concept related to prepaid and accrued expenses.

Adjustments are made for prepaid and accrued expenses in order to comply with which fundamental accounting concept?
A. Matching
B. Prudency
C. Aggregation
D. Materiality
E. Consistency

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  • 1 Marks

FA – Nov 2021 – L1 – SA – Q17 – Accounting Concepts

This question calculates the profit based on capital and drawings during a period.

A business proprietor failed to maintain proper records, but you managed to ascertain that his opening capital, closing capital and drawings during the year were N225,000, N260,000 and N10,000 respectively. Determine the profit for the period:
A. N25,000
B. N45,000
C. N55,000
D. N65,000
E. N75,000

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  • 1 Marks

FA – Nov 2021 – L1 – SA – Q16 – Accounting Concepts

This question identifies basic features of the single-entry system of accounting.

The basic features of the single entry system of accounting are:
A. Books of accounts are not maintained and business relies only on bank statement
B. The journal records are absent and only the main ledger is kept
C. There are incomplete classifications and recording of accounting procedures
D. Only credit sales transactions and credit purchases are recorded
E. Only debit entries are made

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  • 1 Marks

FA – Nov 2021 – L1 – SA – Q15 – Bank Reconciliation

This question focuses on which bank reconciliation items should not be adjusted in the cash book.

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 transfer
D. Cash book error
E. Value added tax charges

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