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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  • 5 Marks

AA – Nov 2021 – L2 – Q2a – Audit and Assurance Risk Environment

Explains audit risks auditors should consider when gathering evidence in the healthcare sector.

Hamosa Manu Hospital (HMH) is one of the government hospitals in Ghana where healthcare is free due to the National Health Insurance Scheme, as taxpayers fund healthcare by contributing an indirect tax of 2.5% on consumption.

All purchase requisition forms for medical supplies are forwarded to a centralized procurement department. Upon receipt, the procurement team will research the lowest price from suppliers and raise a purchase order. This is then passed to the Procurement Manager, who authorizes all orders. The small procurement team receives in excess of 300 forms a day.

Due to the government’s announcement of free Covid-19 testing in public hospitals, the hospital has invested heavily in new equipment, which, although very expensive, has meant that more testing could be performed and patient recovery rates would be faster. Currently, there is a shortage of appropriately trained medical staff. As a result, a capital expenditure committee has been established, made up of senior managers, and they plan and authorize any significant capital expenditure items.

Required:
Explain audit risks that auditors of HMH should consider during evidence gathering.

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  • 3 Marks

AA – Nov 2021 – L2 – Q1c – Audit and Assurance Evidence

Explains three purposes of audit documentation in line with ISA 230.

Audit evidence may come in many forms. For instance, enquiries may be verbal, while confirmations may be in written form. Regardless of the form of audit evidence they obtain, auditors need to document their procedures. The process of documenting audit evidence is known as audit documentation.

Required:
Explain THREE (3) purposes of audit documentation in line with ISA 230: Audit Documentation.
(3 marks)

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  • 12 Marks

AA – Nov 2021 – L2 – Q1b – Audit and Assurance Risk Environment

Discusses six business risks faced by an audit firm when auditing a technology retailer.

Mogya Bi Accounting Firm is the Auditors of Abronyeh Enterprise (Abronyeh), a retailer selling computers, phones, and other high-technology equipment. Abronyeh was set up just a year ago by its sole owner Adam Joseph. Adam Joseph has employed several bookkeepers to help him with accounting records and the preparation of financial statements, and the most recent one has just left. In order to start the business, Adam Joseph re-mortgaged his house and, in addition, took out a business loan. As part of the loan agreement, Adam Joseph is obliged to provide a copy of the annual financial statement.

Required:
Explain SIX (6) business risks that Mogya Bi Accounting Firm faces when conducting the audit of Abronyeh and explain why they could be identified as risks.

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  • 5 Marks

AA – Nov 2021 – L2 – Q1a – Internal Audit and its Relationship with External Audit

Explains two advantages and three disadvantages of outsourcing an internal audit function to an external company.

Traditionally, internal audit work is undertaken mainly by in-house teams. However, in recent times many organizations outsource either completely or partially their internal audit function. Kofi Krakye, the Financial Controller of BHB Ltd, has advised management to consider outsourcing their internal audit function to FPP Ltd.

Required:
Explain TWO (2) advantages and THREE (3) disadvantages of outsourcing the internal audit function to FPP Ltd.
(5 marks)

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  • 5 Marks

FR – Nov 2021 – L2 – Q5d – Group Financial Statements and Consolidation

Discuss the factors that determine whether an investment in another company constitutes an associate status.

Discuss the matters to consider in determining whether an investment in another company constitutes an associate status.

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  • 5 Marks

FR – Nov 2021 – L2 – Q5c – Financial Reporting Standards and Their Applications

Distinguishing between government grants and government assistance with examples of each in accordance with IAS 20.

In accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance, distinguish between government grants and government assistance, giving two examples each. (5 marks)

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  • 5 Marks

FR – Nov 2021 – L2 – Q5b – Professional and Ethical Issues in Financial Reporting

Advising a Chartered Accountant on how to handle an ethical dilemma in relation to confidentiality and fraudulent acts in compliance with IFAC’s code of ethics.

Ata Kwaku, a Chartered Accountant, signed a confidentiality agreement with his employer, Therry Ltd, before accepting the offer of employment. Unfortunately, Ata Kwaku inadvertently came across a fraudulent act perpetrated by the shareholders of Therry Ltd. The shareholders also managed the business, and before Ata Kwaku’s appointment, one of the shareholders managed the accounts. The auditors of the Ghana Revenue Authority’s tax compliance unit are asking for documents that might expose the fraudulent act.

Required:

In accordance with IFAC’s Code of Ethics, advise Ata Kwaku on how to respond appropriately in relation to the ethical principles that apply. (5 marks)

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  • 5 Marks

FR – Nov 2021 – L2 – Q5a – Conceptual Framework for Financial Reporting

Explanation of how the fundamental qualitative characteristics of financial statements apply to intangible assets.

The IASB’s Conceptual Framework identifies the fundamental qualitative characteristics of Financial Statements.

Required:

Explain how these fundamental qualitative characteristics apply to the treatment of intangible assets. (5 marks)

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  • 20 Marks

FR – Nov 2021 – L2 – Q4 -Financial Statement Analysis

Analysis of financial ratios and performance of Bebebe Ltd for 2019 and 2020.

The following are the accounts of Bebebe Ltd (Bebebe), a company that manufactures playground equipment for the year ended 30 November 2020.

Statement of Comprehensive Income for the year ended 30 November:

Required:

a) Calculate, for both years, the return on equity and the return on capital employed. (4 marks)

b) Calculate, for both years, TWO (2) investment ratios to a potential investor. (4 marks)

c) Calculate, for both years, TWO (2) ratios of interest to a potential long-term lender. (4 marks)

d) Comment on the performance of Bebebe to a potential shareholder and lender using the ratios calculated above. (5 marks)

e) Explain THREE (3) weaknesses in these ratios.

(3 marks)

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  • 20 Marks

FR – Nov 2021 – L2 – Q3 – Preparation of Financial Statements

This question focuses on the preparation of a Statement of Profit or Loss and Other Comprehensive Income and a Statement of Financial Position for Neeta Ltd, incorporating revaluations, deferred tax, and lease accounting.

Neeta Ltd is a manufacturing company located in the Western Region. The trial balance of Neeta Ltd as at 31 March 2020 is as follows:

Trial Balance GH¢’000 GH¢’000
Revenue (Note i) 164,000
Production costs 90,000
Distribution costs 8,000
Administrative expenses 26,000
Inventory at 31 March 2019 19,710
Interest paid on interest-bearing borrowings 3,000
Income tax (Note iii) 100
Dividends paid on equity shares 5,000
Property, Plant and Equipment (PPE) (Note iv) 77,000
Provision for depreciation on PPE at 31 March 2019 22,610
Trade receivables 53,000
Cash and cash equivalents 33,000
Trade payables 12,000
Long term interest-bearing borrowings 50,000
Lease rentals (Note v) 20,000
Deferred tax (Note iii) 7,000
Share capital 50,000
Retained earnings at 31 March 2019 29,000
Totals 334,710 334,710

Additional information:

i) On 1 April 2019, Neeta Ltd sold goods to a customer for a price of GH¢12.1 million. The terms of the sale allowed the customer extended credit, and the price was payable by the customer in cash on 31 March 2021. Neeta Ltd included the GH¢12.1 million in revenue for the current year and the corresponding entry in trade receivables. A discount rate that is appropriate for the risks in this transaction is 10%.

ii) The carrying value of inventory at 31 March 2020 was GH¢25 million.

iii) The estimated income tax on the profits for the year to 31 March 2020 is GH¢1.5 million. During the year, GH¢1.3 million was paid in full as the final settlement of income tax on the profits for the year ended 31 March 2019. The statement of financial position as at 31 March 2019 had included GH¢1.4 million in respect of this liability.

As at 31 March 2020, the carrying amounts of the net assets of Neeta Ltd exceeded their tax base by GH¢28 million. This information is before taking account of the Property revaluation (see Note iv below). The rate of income tax is 30%.

iv) Details of Property, Plant and Equipment are as follows:

Component of PPE Cost (GH¢’000) Accumulated depreciation at 31 March 2019 (GH¢’000) Carrying Amount at 31 March 2019 (GH¢’000)
Land 22,000 0 22,000
Buildings 28,000 5,600 22,400
Plant and Equipment 27,000 17,010 9,990
Total 77,000 22,610 54,390

The estimated useful economic life (at the date of purchase) of PPE components are:

  • Land: Infinite life
  • Building: 50 years
  • Plant and Equipment: 4 years

On 1 April 2019, the property’s open market value was GH¢60 million, including GH¢32 million relating to the building. The directors wish to reflect this revaluation in the financial statements, but no entries regarding the revaluation have been made. The directors do not want to make an annual transfer of excess depreciation to retained earnings. The original estimate of the useful economic life of the building is still considered valid. No assets were fully depreciated at 31 March 2020. All the depreciation is to be charged to the cost of sales.

v) On 1 April 2019, Neeta Ltd leased a large group of machines used in the production process. The lease was for 4 years, and the annual rental (payable in advance) was GH¢20 million. The lessee has not elected to apply the recognition exemption under IFRS 16 leases. The interest rate implicit in the lease can be taken as 9% per year.

Required:

a) Prepare the Statement of Profit or Loss and Other Comprehensive Income for Neeta Ltd for the year ended 31 March 2020.
(10 marks)

b) Prepare the Statement of Financial Position for Neeta Ltd as at 31 March 2020.
(10 marks)

(Total: 20 marks)

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