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

FR – Nov 2021 – L2 – Q4 – Presentation of Financial Statements (IAS 1)

Calculate and analyze financial ratios for Onye Nigeria Plc for the years 2019 and 2020.

Below are the statements of financial position of Onye Nigeria Plc as at October 31, 2020, and an extract from the statement of profit or loss for the year ended on that date.

Onye Nigeria Plc
Statement of Financial Position as at October 31, 2020

Item 2020 (N’000) 2019 (N’000)
Non-current assets
Property, plant and equipment 8,325 6,435
Current assets
Inventories 2,880 2,205
Trade receivables 5,535 4,860
Cash and bank 360 540
Total Assets 17,100 14,040
Equity and Liabilities
Equity
Ordinary share capital 3,600 3,600
Retained earnings 5,603 3,938
Non-current liabilities
10% loan notes 3,600 2,700
Current liabilities
Trade payables 3,375 3,105
Bank overdraft 495 360
Taxation 135 90
Accrued expenses 292 247
Total Equity and Liabilities 17,100 14,040

Onye Nigeria Plc
Extracts from Statement of Profit or Loss for the Year Ended October 31

Item 2020 (N’000) 2019 (N’000)
Revenue 50,400 43,875
Cost of sales (38,070) (30,713)
Profit before taxation 2,093 1,440

Additional information:

  1. The profit before tax is after charging:
    Item 2020 (N’000) 2019 (N’000)
    Depreciation 1,620 1,620
    Interest on loan note 360 270
    Interest on bank overdraft 68 41
    Audit fees 54 45
  2. The latest industry average ratios are as follows:
    Ratio Industry Average
    ROCE 18.50%
    Net profit margin 4.73%
    Gross profit margin 35.23%
    Assets turnover 3.91 times
    Current ratio 1.90:1
    Quick ratio 1.27:1
    Trade receivables period 52 days
    Trade payables period 49 days
    Inventory turnover 18.30 times
    Gearing ratio 32.71%

Required:
a. Calculate the above ratios of Onye Nigeria Plc for the years 2019 and 2020. (10 Marks)
b. Analyze the performance and liquidity of Onye Nigeria Plc for the year 2020. (5 Marks)
c. Comment on the limitations of using accounting ratios in financial statement analysis. (5 Marks)

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  • 7 Marks

FR – Nov 2021 – L2 – Q3c – Inventory Accounting (IAS 2)

Enumerate the disclosure requirements for inventories under IAS 2 in financial statements.

IAS 2 – Inventories sets out the requirements to be followed when accounting for inventories.

Required:
Enumerate seven disclosure requirements for inventories to be shown in the notes to the financial statements.

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  • 7 Marks

FR – Nov 2021 – L2 – Q3b – Revenue from Contracts with Customers (IFRS 15)

Explain the core principles of IFRS 15 for recognizing revenue from contracts with customers.

IFRS 15 – Revenue from Contracts with Customers sets out principles to be applied in order to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer.

Required:
(i) Explain the core principles upon which IFRS 15 is based. (2 Marks)
(ii) Briefly explain the five-step model involved in the application of the core principles. (5 Marks)

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  • 6 Marks

FR – Nov 2021 – L2 – Q3a – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Discuss the three bases of accounting on which transactions are recognized and measured.

There are three bases of accounting on which transactions are recognized and measured.

Required:
Discuss these three bases of accounting.

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  • 20 Marks

FR – Nov 2021 – L2 – Q2 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of profit or loss and other comprehensive income for Okechukwu Group for the year ended December 31, 2019.

The statements of profit or loss and other comprehensive income of Okechukwu and its subsidiary, Ogenta Limited, for the year ended December 31, 2019, are presented below:

Item Okechukwu Plc (N’000) Ogenta Ltd (N’000)
Revenue 487,500 330,800
Cost of sales (304,500) (258,300)
Gross profit 183,000 72,500
Investment income 26,300 10,200
Distribution cost (24,050) (13,370)
Administrative expenses (40,625) (21,120)
Finance costs (10,500) (9,860)
Profit before tax 134,125 38,350
Income tax expense (33,800) (13,000)
Profit for the year 100,325 25,350
Other comprehensive income 23,880 10,440
Total comprehensive income 124,205 35,790

Additional information:

  1. Okechukwu Plc acquired 300 million of the ordinary shares issued by Ogenta Limited for N428 million.
  2. During the year ended December 31, 2019, Okechukwu Plc invoiced goods worth N80 million to Ogenta Limited. It is the policy of Okechukwu Plc to invoice goods at cost plus 33⅓%. Three-quarters of these goods are yet to be sold by Ogenta Limited at the year-end.
  3. Extracts from the books of Ogenta Limited at the date of acquisition reveal the following capital structure:
    • Issued ordinary shares of 50 kobo each: N200 million
    • General reserves: N80 million
    • Retained earnings: N52.5 million
  4. The fair value of the non-controlling interests at the acquisition date amounted to N92.5 million.
  5. An impairment test on the goodwill of Ogenta Limited conducted on December 31, 2019, indicated that the goodwill should be written down by N3.2 million.
  6. On the acquisition date, the fair value of net assets of Ogenta Limited was equal to their carrying amount, except for land and building and office equipment, which had fair values of N5 million and N1.5 million, respectively, in excess of their carrying amounts. The group non-current assets are depreciated at the rate of 10% per annum on a straight-line basis and charged to administrative expenses.
  7. Ogenta Limited paid a total of N20 million as dividends to all its shareholders for the year ended December 31, 2019. Okechukwu Plc has accounted for the dividend received.
  8. The finance cost of Ogenta Limited includes N2 million paid to Okechukwu Plc as interest on a loan. Okechukwu Plc has recognized the amount as interest received.

Required:
Prepare the consolidated statement of profit or loss and other comprehensive income for Okechukwu Group for the year ended December 31, 2019.

 

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  • 5 Marks

FR – Nov 2021 – L2 – Q1b – Impairment of Assets (IAS 36)

Explain how an entity should identify and account for impairment of assets under IAS 36.

Under IAS 36 – Impairments of Assets:

Required:

To briefly explain how an entity should identify and account for the impairment of assets.

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  • 25 Marks

FR – Nov 2021 – L2 – Q1a – Presentation of Financial Statements (IAS 1)

Prepare the financial statements of United Nigeria PLC including comprehensive income, changes in equity, and financial position as of December 31, 2020.

The trial balance for United Nigeria Plc as at December 31, 2020 is given below:

Additional information:

  1. Inventories at the end of the year were N120,000,000. Included in the closing inventories was a damaged item with a cost of N30,000,000, which has a net realizable value of N18,000,000.
  2. Additional ordinary shares of 50,000,000 were issued and fully paid for at 80 kobo per share, which is yet to be recorded.
  3. Interest on 10% loan notes is outstanding and dividend on 12% preference shares were paid on December 31, 2020. Ordinary shareholders were also paid a dividend of 5 kobo per share.
  4. Allowances for trade receivables are to be increased to 15% per annum. Depreciation is charged on plant and equipment at 15% on reducing balance.
  5. N5,000,000 administrative expenses were outstanding, and N25,000,000 company income tax is estimated for the year. Depreciation is charged to administrative expenses.

You are required to prepare the following:

a. (i) Statement of Comprehensive Income for United Nigeria Plc for the year ended December 31, 2020. (10 Marks)
(ii) Statement of Changes in Equity for the year ended December 31, 2020. (5 Marks)
(iii) Statement of Financial Position as at December 31, 2020. (10 Marks)

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  • 10 Marks

SCS – Nov 2021 – L3 – Q8 – Professional practice and codes of ethics

Discuss the merits and demerits of the rules-based approach versus the principles-based approach to setting ethical standards.

COM has not had any serious corporate governance issues that have raised concerns as to potential ethical conflicts. However, the Board of Directors has raised concerns about the fact that the Finance department does not have a separate code of conduct in view of the risks associated with their work. Some are proposing a rules-based approach instead of a principles-based approach.

 

Required:
The CEO has approached you as a Finance professional and a friend to assist him in guiding the Board since the issue was not discussed exhaustively and there is the likelihood that the matter would be part of the next Board meeting. Write a report discussing the merits and demerits of both rules-based approach and a principles-based approach to setting ethical standards.

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  • 15 Marks

SCS – Nov 2021 – L3 – Q7a – Sources of Finance

Analyze and recommend the most cost-effective financing option for acquiring 5G equipment: lease or borrow to buy.

The management of COM requires a detailed analysis of the two financing options (borrow to buy or lease) under consideration to determine the cheaper alternative to be used to acquire the 5G equipment. The CFO has been requested to do a presentation at the next Executive Committee (EXCO) meeting.

Required:
You are the CFO, and you are to prepare a presentation to advise EXCO of the cheaper financing option. Your presentation must include detailed computations supporting your advice.
Marks: 15 marks

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  • 10 Marks

SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk

Identify and assess four key business risks that COM faces and their impact on the company’s objectives.

The board has recognized that the company faces several business risks which, individually or together, could affect COM and its objectives and/or prospects. The board needs a briefing paper from the CEO on the current significant business risks that the company may be exposed to.

Required:
You are an Advisor to the CEO and he has asked you to prepare a briefing paper to be added to the board pack identifying and assessing the impact of FOUR (4) key business risks that COM must address in order to achieve its strategic objectives. Clearly identify the specific conditions giving rise to each key risk.

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