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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  • 1 Marks

FA – Nov 2021 – L1 – SA – Q3 – Correction of errors

This question asks about correcting errors in ledger accounts.

A cheque of N5,000,000 paid to Alhaji Daleko was correctly entered in the cash book but omitted in Alhaji Daleko’s account. To correct this error, debit Alhaji Daleko’s account and credit:
A. Cash account
B. Bank account
C. Suspense account
D. Purchases account
E. Control account

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  • 1 Marks

FA – Nov 2021 – L1 – SA – Q1 – Accounting Concepts

This question tests knowledge of business cash inflow from disposal of assets.

Which of the following will result in an increase in cash of the business?
A. Drawings from the business
B. Payments for a new asset
C. Proceeds from disposal of non-current assets
D. Payments to suppliers
E. Goods sold on credit to customers

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  • 10 Marks

AA – Nov 2021 – L2 – Q5b – Completion Procedures and Reporting

Describes the purpose of a management letter and outlines its contents as per ISA 260.

The partner in your firm has requested you to train the newly recruited junior audit staff on ISA 260: Communication with those charged with governance.

Required:
Draft a training material for the new junior recruits on the provisions set out in ISA 260 in relation to:

i) The purpose of issuing a Management Letter to a client after an audit.
(5 marks)

ii) The contents of a Management Letter.

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  • 10 Marks

AA – Nov 2021 – L2 – Q5a – Professional and Ethical Considerations, Engagement Letters

Explains four key terms to be included in an engagement letter in accordance with ISA 210.

SA 210: Agreeing to the terms of an engagement states that Engagement Letters are issued to serve as contracts between clients and auditors.

Required:
Justify FOUR (4) terms that could be included in an Engagement Letter in accordance with ISA 210.

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  • 10 Marks

AA – Nov 2021 – L2 – Q4b – Public Sector Auditing

Identifies corporate governance weaknesses in Formation Bank Ltd and provides recommendations for improvement.

Mr. William Kofi Ansah is the Founder, Chief Executive Officer, and Major Shareholder of Formation Bank Ltd. He single-handedly appointed his father-in-law as board chair and three related parties as Non-Executive Directors, in addition to the existing five (5) Executive Directors. Rewards such as first-class tickets and large consulting contracts were granted to Directors, and compensation for the Directors was excessive and not commensurate with the Bank’s performance.

There is no formal credit management policy for the Bank, and regular Board review meetings were not carried out. Large non-performing loans were granted to the related parties, which resulted in the Bank being heavily exposed. The Bank sent false monthly credit reports to the regulator, and the regulator failed to assess the report and provide prompt feedback.

The External Auditors and Regulator were treated to a high-end reception during audits and given large brown envelopes at the end of the audit. The internal audit unit is ill-resourced and reports directly to the Chief Executive Officer.

Required:
Explain FIVE (5) corporate governance weaknesses faced by Formation Bank Ltd in relation to corporate governance principles and for each weakness identified, recommend a solution to overcome it.

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  • 10 Marks

AA – Nov 2021 – L2 – Q4a – Completion Procedures and Reporting

Discusses audit procedures for non-depreciation of buildings and the impact on the audit report if unresolved.

ou are an audit intern in Transparency & Associates, a firm of Chartered Accountants. This year, one of your new clients is Obuse Ltd, a company having net assets of GH¢20,000,000. The audit work has been completed, but there is one outstanding matter you are currently investigating; the directors have decided not to provide depreciation on buildings in the financial statements, although International Financial Reporting Standards suggest that depreciation should be provided. The estimated depreciation is GH¢500,000.

Required:
i) State FOUR (4) additional audit procedures and actions you should take in respect of the above matter.
(6 marks)

ii) What should be the impact on the audit report if the issue remains unresolved at the reporting stage of the audit?

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  • 4 Marks

AA – Nov 2021 – L2 – Q3c – Professional and Ethical Considerations

Discusses threats to audit independence due to personal relationships and financial incentives during audit engagements and suggests safeguards.

Kom & Associates, an audit firm, has regularly been auditing Ake Ltd. At the beginning of the current financial year, the wife of Koffie, the engagement partner of Kom & Associates, was appointed the personal assistant to the Chief Executive of Ake Ltd. In the course of the fieldwork, the audit team was given lunch and money for transport by Ake Ltd.

Required:
Discuss the threats and safeguards for the audit.

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  • 6 Marks

AA – Nov 2021 – L2 – Q3b – Professional and Ethical Considerations

Discusses the threats and safeguards related to a former Finance Director reviewing audit work for their former company.

Ackah Senzu had been the Finance Director of Keke Ltd for the immediate past eight years, influencing all the major financial policies of the company. Last year, he moved to Plus Associates, an audit firm, as a Partner. The Directors of Keke Ltd then appointed Plus Associates as their auditors because of the strong relationship with Ackah Senzu. The Senior Partner assumed the engagement responsibility of the audit of Keke Ltd but asked Ackah Senzu to review the audit work.

Required:
Discuss the threats and safeguards of this decision.

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  • 10 Marks

AA – Nov 2021 – L2 – Q3a – Professional and Ethical Considerations

Lists areas of non-compliance by clients and explains actions auditors can take when they become aware of non-compliance situations.

The International Ethics Standards Board for Accountants (IESBA) code guides all Professional Accountants on how to respond when their clients are not complying with the laws and regulations of a country or a state.

Required:
i) State FIVE (5) areas where auditees can be non-compliant.
ii) When an auditor becomes aware of non-compliant situations, what FIVE (5) actions can the auditor take?

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  • 15 Marks

AA – Nov 2021 – L2 – Q2b – Audit and Assurance Evidence

Describes the substantive procedures auditors should adopt to verify valuation, completeness, and rights and obligations of property, plant, and equipment (PPE).

Describe FOUR (4) substantive procedures the external auditor of HMH should adopt to verify each of the following assertions in relation to an entity’s property, plant and equipment (PPE):

i) Valuation
ii) Completeness
iii) Rights and obligations

(Note: Assume that the hospital prepares Financial Statements in accordance with International Financial Reporting Standards)

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