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  • 20 Marks

CR – Nov 2018 – L3 – SB – Q4 – Statement of Cash Flows (IAS 7)

Preparation of Happy Plc’s statement of cash flows and analysis of revaluation and financing adjustments.

Happy is a publicly listed company. Its financial statements for the year ended July 31, 2017, including comparatives, are shown below:

Notes:

  1. On November 1, 2016, Happy acquired an additional plant under a finance lease with a fair value of ₦3 million. The property was also revalued upward by ₦4 million, with ₦1.3 million of the revaluation reserve transferred to deferred tax. No disposals occurred during the period.
  2. Depreciation on property, plant, and equipment amounted to ₦1.8 million, and amortization of deferred development expenditure was ₦0.4 million.

Required:

Prepare the statement of cash flows of Happy Plc for the year ended July 31, 2017, in accordance with IAS 7, using the indirect method. (20 Marks)

 

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  • 30 Marks

CR – Nov 2018 – L3 – SA – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Adegaga Laboratories Plc., including the effects of an acquisition and goodwill impairment.

Adegaga Laboratories Plc (“AdeLabs”) is one of the largest companies in Nigeria engaged in cosmetic development and manufacturing. Its largest customer base is in the healthcare sector for post-surgery patients and the Nigeria movie industry (aka Nollywood). In the prior financial period, AdeLabs’ expansion strategy has been largely focused on growth by acquisition and joint ventures.

Additional Information:

  1. As part of this, AdeLabs acquired 80% of the equity share capital of Bodegas Limited (“Bodegas”) on January 1, 2015, when the retained earnings of Bodegas was N93.75 million. Following the share acquisition, AdeLabs had control over Bodegas – no shares have been issued by Bodegas following the acquisition. The non-controlling interest in Bodegas was measured at its fair value of N20 million at the date of acquisition.
  2. On January 1, 2016, AdeLabs acquired 50% of the equity share capital of ChidePlastics Limited (“ChidePlast”) when the retained earnings of ChidePlast was N41.25 million. This acquisition was classified as a joint venture in accordance with IFRS 11 Joint Arrangements. ChidePlast has not issued any shares since the acquisition date.
  3. The balance on “other reserves” relates to movements in the values of investments in Bodegas and ChidePlast in the books of AdeLabs. N18.75 million relates to Bodegas, and the remainder to ChidePlast.
  4. AdeLabs’ non-current liabilities relate to a borrowing (long-term) taken out on January 1, 2017. This borrowing has an agreed coupon rate of 4% p.a., and the interest expense due in respect of 2017 has been paid and accounted for in profit for the year. The effective interest rate estimated with this financial liability is 8% p.a.
  5. As part of its annual impairment review, AdeLabs concluded that the goodwill on the acquisition of Bodegas was impaired by 20% at December 31, 2017. No other impairments of goodwill have arisen.
  6. AdeLabs sold goods to ChidePlast with a value of N75 million and a selling margin of 40% in November 2017. As at year-end December 31, 2017, 75% of these items are unsold.

Accounts for all companies are made up to December 31 annually.

Required:

Prepare for Adegaga Laboratories Plc:

  1. A consolidated statement of financial position as at December 31, 2017. (20 Marks)
  2. On January 1, 2018, AdeLabs acquired an additional 10% of the equity shares of Bodegas. The purchase consideration for this additional acquisition was N52,500,000.

    i. Briefly explain how this additional acquisition will impact the preparation of AdeLabs’ consolidated financial statements for the year ended December 31, 2017. (4 Marks)

    ii. Calculate the adjustment that will be required to be made to AdeLabs’ statement of financial position as a result of this acquisition. (6 Marks)

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  • 15 Marks

TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

Raposa Nigeria Limited, a company located in Sambisa Forest, Kutunwegi State of Nigeria, commenced operations on November 1, 2017. The accounting year-end was September 30. Due to government policy restricting rice importation, the business’s going concern was threatened, leading the Board of Directors to decide to cease operations on December 31, 2022.

The adjusted profits for the relevant periods are as follows:

Period Adjusted Profit (N)
Period to September 30, 2019 2,100,000
Year ended September 30, 2020 2,400,000
Year ended September 30, 2021 3,640,000
Year ended September 30, 2022 6,300,000
Period to December 31, 2022 500,000

Additional Information:

  1. A bad debt of N120,000, written off in the 2020 assessment year, was recovered in October 2021.
  2. N20,000 was spent to recover this debt.
  3. An expenditure of N350,000 incurred in the 2020 assessment year was accounted for in the profit or loss but was not paid until August 2022.

Upon cessation, the revenue authority planned a back-duty investigation and informed the taxpayer accordingly. As a tax consultant, you are invited to determine the assessable profits for the relevant periods from the commencement of trade to business cessation.

Required: a. State THREE reasons why a business may cease trading. (3 Marks)
b. Compute net terminal adjusted profit. (6 Marks)
c. Compute assessable profits for all the relevant years of assessment. (6 Marks)

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  • 15 Marks

TAX – Nov 2023 – L2 – Q6b – Tax Administration and Enforcement

Explain five key contents required in a Withholding Tax returns/payment schedule.

It is expected that a schedule of Withholding Tax (WHT) payable should be prepared by applying the correct WHT rate on each transaction/payment made during the month. Thereafter, a cheque for the amount due to the Federal Inland Revenue Service is raised and forwarded together with the WHT schedule to one of the approved collecting banks for processing.

Required:
Explain FIVE contents of a WHT returns/payment schedule. (10 Marks)

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  • 15 Marks

TAX – Nov 2023 – L2 – Q6a – Tax Administration and Enforcement

Explain the functions and powers of the Nigerian Customs Service Board.

The Nigeria Customs Service (NCS) is one of the major revenue-generating agencies for the Federal Government of Nigeria. The establishment of the Nigerian Customs Service Board, which is under the control of the Federal Ministry of Finance, is contained in section 1 of the Nigerian Customs Service Board Act Cap.C45 LFN 2004 (as amended). The Board is responsible for the administration of the Customs and Excise Management Act.

Required:
Explain the functions and powers of the Board. (5 Marks)

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  • 15 Marks

TAX – Nov 2023 – L2 – Q5 – Tax Administration and Enforcement

Explain stamp duty exemptions, electronic document receipt, duties on contracts, and electronic money transfer levies.

Stamp duties are duties basically on instruments (defined to include written document). Stamp duties are governed by Stamp Duties Act Cap. S8 LFN 2004 (as amended), which provides for the levying of duties on certain matters specified in the Act, effective April 1, 1993.

a. Explain THREE instruments exempted from stamp duties. (3 Marks)
b. Describe when electronic documents are considered received in Nigeria. (3 Marks)
c. Discuss duty on contracts. (3 Marks)
d. Explain the electronic money transfer levy. (6 Marks)

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  • 20 Marks

TAX – Nov 2023 – L2 – Q4 – Taxation of Trusts and Estates

Compute the net income assessable in the hands of trustees and assessable income of each beneficiary.

The records of the two trustees of Olalomi Children Settlement created in favor of the three children—Olami, Olambe, and Olaide—revealed the following as of December 31, 2020:

Income Type Amount (N)
Rental income (gross) 398,900
Trading income 210,000
Dividend (gross) 196,000
Profit on sale of non-current assets 600,000

Additional Information:

  1. The interest received was from Gbogbo-Ero Commercial Bank Limited.
  2. Other allowable expenses amounted to N23,000.
  3. Each beneficiary was entitled to a quarter of the net distributable income.
  4. Fixed annuity to the beneficiaries was N42,000 (gross) to be shared equally.
  5. Trustee’s remuneration per trust deed was fixed at N25,000 each, plus 2.5% of the total computed income.
  6. Discretionary payments were made to Olami (N10,000), Olambe (N34,000), and Olaide (N29,000).
  7. Agreed capital allowance was N87,600.
  8. Administrative and other expenses amounted to N106,000.

Required: a. Compute the net income assessable in the hands of the trustees. (14 Marks)
b. Compute the assessable income in the hands of each beneficiary. (6 Marks)

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  • 9 Marks

TAX – Nov 2023 – L2 – Q3b – Tax Administration and Enforcement

Explain the roles and responsibilities of government, taxpayers, and revenue agencies in Nigeria’s National Tax Policy.

In line with the provisions of the revised National Tax Policy (NTP) in 2017, explain the roles and responsibilities of the following stakeholders:

i. The government (3 Marks)
ii. The taxpayers (3 Marks)
iii. Revenue agencies (3 Marks)

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  • 11 Marks

TAX – Nov 2023 – L2 – Q3a – Tax Administration and Enforcement

Describe the composition and functions of Nigeria’s tax administration bodies, including the Joint Tax Board and State Board of Internal Revenue.

a. Tax administration in Nigeria involves the practical interpretations and application of the tax laws. The bodies charged with the administration of tax in Nigeria are the Federal, State, and Local Governments. The tax authorities of these tiers of government derive their power from Federal laws.

i. State the composition of the Joint Tax Board. (3 Marks)

ii. Outline FOUR functions of the State Board of Internal Revenue. (3 Marks)

iii. State FIVE levies and taxes collectible by the Local Government Revenue Committee. (5 Marks)

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  • 20 Marks

TAX – Nov 2023 – L2 – Q2 – Tax Administration and Enforcement

Discuss the tax law provisions for a change in accounting year end, revenue practice, and compute assessable profits.

Forward Nigeria Limited, a Nigerian manufacturing company, has been operating for several years with an accounting year-end on June 30. The company recently decided to change its year-end to September 30. The adjusted profits for the relevant periods are as follows:

Period Adjusted Profit (N)
Year ended June 30, 2014 2,700,000
Year ended June 30, 2015 3,300,000
Period ended September 30, 2015 1,500,000
Year ended September 30, 2016 4,200,000
Year ended September 30, 2017 3,600,000

Additional Information:

  1. Income overstated:
    • June 30, 2015: N250,000
    • September 30, 2016: N280,000
  2. Expenditure understated:
    • June 30, 2014: N160,000
    • September 30, 2017: N150,000

Required: a. Explain the tax law provisions for a business changing its accounting year-end. (5 Marks)

b. Describe the Revenue practice related to these provisions. (3 Marks)

c. Compute the assessable profits for all affected years of assessment, considering the tax law and Revenue practice. (12 Marks)

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  • 20 Marks

AA – May 2016 – L2 – Q4 – Internal Control Systems

Identification and improvement of control weaknesses in the sales system of Sofa Ltd.

You are carrying out the audit of the sales system of Sofa Limited, a company that manufactures office furniture. The company has annual sales revenue of N150 million. All the shares are owned by Sofi and her husband Andy. Neither is involved in the running of the business. The chairman is responsible for running the business, but does not own any of the company’s shares.

The bookkeeper maintains all the accounting records and prepares the annual financial statements.

A stand-alone computer is used to maintain the accounting records, including those of the sales system. Standard accounting software is used, which was purchased from an independent supplier. For the sales system, a sales ledger is maintained to which sales invoices, credit notes, cash, and discounts are posted. When sales invoices are posted and credit notes are input into the computer, the value is updated in both the sales ledger and the nominal ledger.

You have determined that the documents and personnel involved in the sales ledger are as follows:

  • When order is received by telephone, it is recorded by the sales clerk in the sales department. This is usually done on a notepad.
  • The sales clerk will then pass the sales order to the stores, to the goods outwards department where the office furniture is kept.
  • If the goods ordered are in inventory, then the goods will be loaded onto one of the delivery trucks. A two-part dispatch note will be prepared to accompany the sales order. This is usually done before the stores have received the sales order from the sales department.
  • The goods are delivered to the customer together with the top copy of the goods dispatch note.
  • The driver on his return will inform the sales department that the delivery has been successful and will maintain the last copy of the goods dispatch note in the stores.
  • At the end of the week, the sales department prepares a sales invoice for the customer.
  • When the post is received, it is opened by a staff of the sales department.
    The person opening the post will both make a list of all the cheques
    received and that same person will then go to the bank and bank the
    cheques. Upon return, the remittances and cheque paying-in book are
    passed to the book keeper for updating the receivables ledger.
  • The receivables ledger is reviewed by the book keeper on a monthly basis
    to see which customers are above their credit terms and will inform the
    sales staff who to telephone and chase their debt.

Required:

a. Identify and describe eight weaknesses in the sales system of Sofa Limited. (8 marks)

b. Provide recommendations to rectify each of the weaknesses identified. (8 marks)

c. Explain why segregation of duties is important in an internal control system. (4 marks)

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  • 20 Marks

AA – May 2016 – L2 – Q3 – Ethical Issues in Auditing

Examination of ethical issues in client engagement, fundamental ethical principles, and lawful disclosure obligations for auditors.

You have recently been appointed the auditors of Spicer Plc, a company whose shares are traded on a stock exchange. The directors of Spicer Plc have recommended that you perform the following services:

  • The statutory audit of the annual accounts
  • Taxation services
  • Consultancy services in respect of the implementation of a new information technology system

Your firm has not acted for Spicer Plc before but does act as auditors to one of its major competitors.

Required:
a. Identify and explain the professional and ethical issues that should have been identified by your firm in relation to the provision of the services outlined above to Spicer Plc and describe the safeguards that should be in place in order to address these issues. (11 marks)

b. What are the five fundamental principles of ethics? Briefly explain their meaning. (5 marks)

c. A client’s affairs should not be disclosed to third parties. However, where a client has been guilty of an unlawful act, to whom should the auditor disclose this information, and in what order? (4 marks)

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  • 20 Marks

AA – May 2016 – L2 – Q2 – Planning an Audit

Planning and identifying audit risks for a new client with an increased demand for products, using a standard costing system for inventory valuation.

Sweet Dreams, a limited liability company, is a new audit client and you are at the
planning meeting for the forthcoming audit. The company has grown rapidly and has
May 31 as year-end. The financial statements have not been audited in previous years
since the organization has only just converted from a partnership to a company.
The company’s bankers have requested that an audit be undertaken on the financial
statements for the year ending May 31, 2016. Higher levels of inventory required to
meet the increasing demand for its products have necessitated a request for an increase
in the bank’s overdraft facility.
The company makes beds, buying its materials directly. At the year-end, inventory
comprises raw materials, work-in-progress and finished goods. It does not undertake
continuous inventory counting but does intend to perform a full inventory count on
May 31, 2016. It uses standard costing system to value finished products and work-inprogress.

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  • 30 Marks

AA – May 2016 – L2 – Q1 – The Role and Responsibilities of Auditors

Examines responsibilities in fraud prevention, asset ownership verification, depreciation rates, asset register contents, and revaluation effects.

You are an employee of Ben, Tai & Co., a firm of Chartered Accountants. One of the firm’s clients is Keke Limited, a car rental company whose shares are not traded on a stock exchange. The company has a large fleet of vehicles which it hires out on a contract basis.

The duration of a contract varies from one day to three months. Anybody wishing to hire a car must possess a valid driver’s license. In addition, they must take out insurance with Keke Limited.

You are involved in the audit of non-current assets for the year ended December 31, 2015.

The company’s main non-current assets are:

  • Freehold land and buildings
  • Office equipment (mainly computers)
  • Motor vehicles

The company was formed ten years ago, and all non-current assets (except for land and buildings) are maintained in a non-current assets register. The company depreciates non-current assets at the following rates:

  • Freehold land and buildings: 2% on cost
  • Office equipment: 20% on cost
  • Motor vehicles: 50% on cost

The company has recently revalued its buildings upwards by N200 million. The directors believe that they have fallen victim to a fraudster who has disappeared with a number of the company’s vehicles.

Required:

a. What is the difference between the responsibilities of management and the auditor for the prevention and the detection of fraud? Explain how these responsibilities are carried out. (6 marks)

b. Describe how you would verify the ownership of:
i. Freehold land and buildings
ii. Computers
iii. Motor vehicles
(6 marks)

c. Comment on the appropriateness of the depreciation rates of the non-current assets and their respective effect on the income statement. (6 marks)

d. List the contents of a non-current asset register and describe its usefulness for Keke Limited. (6 marks)

e. Explain the accounting effect of the revaluation of the buildings to the financial statements and the audit work you would perform in this matter. (6 marks)

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  • 9 Marks

FR – May 2016 – L2 – Q7b – Financial Instruments (IAS 32, IFRS 9)

Calculate amortised cost and fair value of a financial liability issued by Anifowose Plc.

Anifowose Plc issued a debt instrument at its fair value of N100 million on January 1, 2013. The debt instrument is to mature in 2017. It has a principal amount of N125 million and carries a fixed interest rate of 4.72%, which is paid annually. The effective interest rate is 10%, and on December 31, 2015, it had a fair value of 105 for every N10 nominal value. The company makes up its accounts to December 31 every year.

Required:

i. Show your computation schedule for the amortised cost of the financial liability up to December 31, 2015, on the assumption that the financial liability is valued at amortised cost.

ii. What is the value of the financial liability as of December 31, 2015, if the fair value option is adopted by Anifowose Plc?

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  • 6 Marks

FR – May 2016 – L2 – Q7a – Financial Instruments (IAS 32, IFRS 9)

Explain fair value and amortised cost measurement of financial assets under IAS 39 with examples of applicable asset classes.

After initial recognition in the Financial Statements, Financial Assets are measured either at fair value or amortised cost according to the provisions of IAS 39 – Financial Instruments: Recognition & Measurement.

Required:

Briefly explain how fair value and amortised costs of financial assets are determined and give one example each of the class of financial assets that can be measured using the methods.

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

Chief Zeta created a Trust many years ago for the benefit of his four children, Alpha, Beta, Cepha, and Delphi. A lawyer was appointed as the Trustee to his Estate.

For the year ended 30 September 2014, the Trust income amounted to ₦3,120,000. Each of the beneficiaries receives an annuity of ₦150,000 every year while the expenses incurred on the administration of the Trust was ₦57,500 per annum. The trustee is on a remuneration of 2% of the Computed Income.

Chief Zeta instructed that discretionary payments of ₦22,500, ₦17,500, ₦15,000, and ₦12,500 respectively should be made to Alpha, Beta, Cepha, and Delphi respectively. In addition, nine of the ten portions of the remainder of the Computed Income should be shared equally among the four children.

Chief Zeta has requested you to supervise the administration of the above Trust.

You are requested to:

a. State the basis of assessment of Estates, Trusts or Settlements. (1 Mark)

b. Identify the persons chargeable to Income Tax under the Trust or Settlement created by Chief Zeta. (3 Marks)

c. Compute the income of the Trust. (3 Marks)

d. Determine the amount due to each beneficiary. (6 Marks)

e. Explain how the Computed Income should be apportioned and how the Income Tax burden will be shared by all the parties. (Ignore Withholding tax). (2 Marks)

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q6 – Value-Added Tax (VAT)

Analyze VAT compliance, loss carry forward, and compute tax liabilities for Hidden Treasures Limited based on provided financial data.

HIDDEN TREASURES Limited is an agro-allied and trading organisation which specialises in Crop and Grain production, Animal husbandry, Sale and distribution of Grains (i.e. cowpeas, guinea corn, millet, rice, beans and groundnuts).

The company has been in business for many years and it has been filing annual Income Tax returns regularly except VAT returns. On 16 March 2015, the Federal Inland Revenue Service (FIRS) served a notice of Tax Audit covering 2010 – 2014 financial years.

The management believed erroneously that since it deals in VAT exempt goods, it did not need to file VAT returns on a monthly basis.

In preparation for the visit of the FIRS, the company’s management invited you on 23 March 2015, to their office and gave you the following extracts from the company’s Statement of Comprehensive Income and agreed Capital Allowances:

Year ended Agric Production (₦) Grain Distribution (₦)
Year ended 30/09/2010 Loss (770,000) (225,000)
Year ended 30/09/2011 Profit 630,000 280,000
Year ended 30/09/2012 Loss (600,000) (150,000)
Year ended 30/09/2013 Profit 990,000 140,000
Year ended 30/09/2014 Profit 30,000 120,000

Agreed Capital Allowances are as follows:

Tax Year Capital Allowance (₦)
2011 70,000
2012 65,000
2013 125,000
2014 115,750
2015 85,000

You are required to:

a. State the provisions of the VAT law with regard to rendition of returns by Vatable persons. (2 Marks)

b. Show by analysis the amount of losses carried forward under each income head shown above. (8 Marks)

c. Compute the tax liabilities for each year. (5 Marks)

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  • 15 Marks

FR – May 2016 – L2 – Q6 – Inventory Accounting (IAS 2)

Calculate the working capital cycle and assess liquidity using specific ratios for Apapta Limited.

The statement of financial position extract of Apapta Limited is given as follows:

2015 (N’000) 2016 (N’000)
Inventories 3,950 3,250
Receivables 2,151 2,675
Investments (Marketable Securities) 430 375
Cash 565 –
7,460 6,300
Payables amounts due within one year (3,865) (3,755)
3,595 2,545

Payables are analysed as follows:

2015 (N’000) 2016 (N’000)
Trade payables 2,600 2,215
Company Income Tax 695 820
Dividend payable 570 540
Bank overdraft – 180
3,865 3,755

Its profit or loss account extract is as follows:

Item 2015 (N’000) 2016 (N’000)
Sales 17,795 16,715
Cost of sales (12,100) (11,200)
Gross profit 5,695 5,515

Cost of sales is analysed as follows:

2015 (N’000) 2016 (N’000)
Opening inventory 3,250 3,150
Add: Purchase 12,800 11,300
Less: Closing inventory (3,950) (3,250)
Cost of sales 12,100 11,200

In 2014 and 2015, credit sales were 83% of total sales.

Required:

a. Calculate the working capital cycle for 2015 and 2014. (9 Marks)

b. Compute the ratios listed below and comment on the company’s liquidity over the two years.

i. Cash ratio
ii. Current ratio
iii. Quick ratio (6 Marks)

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)

Schedule of capital expenditure allocation for Covenant Construction Limited with assessment basis and treatment of capital expenditure.

Covenant Construction Limited commenced business on 3 August 2011, making up accounts to 31 July annually. The schedule of assets acquired prior to commencement of the business is as shown below:

Description ₦
Tractors and Grader 7,500,000
Motor vehicles for field operations 13,500,000
Construction site (Factory building) 11,250,000
Furniture, Fixtures and Fittings 778,250

Covenant Construction Limited won another contract and additional assets were purchased as stated below:

Date of Purchase Description Number of Items Cost (₦)
Nov. 2011 Plant & Machinery 3 580,000
April 2012 Motor vehicle 1 1,375,000
Aug. 2012 Building 1 1,350,000
Jan. 2013 Generator 1 450,000
June 2013 Factory extension 1 575,000
Nov. 2013 Pick-up van 2 1,050,000

At the last Board meeting, the Directors argued on what benefits will accrue to Covenant Construction Limited on Capital Expenditure incurred before and after commencement of business.

They were also interested in knowing the years that will be affected and the impact it will have on the company’s Total Profit.

You have been invited by the Finance Director of the company who asked you to look into these matters. The Finance Director has asked you to specifically address the following:

Required:

a. Prepare the schedule of Capital Expenditure Allocation and identify the Qualifying Expenditure based on which Capital Allowances are claimable: i. Normal basis of assessment (5 Marks)
ii. Revised basis of assessment (based on taxpayer’s right of election) (5 Marks)

b. Explain the treatment of Capital Expenditure acquired by Covenant Construction Limited before it commenced business on 3 August 2011. (2 Marks)

c. State the relevant tax years and corresponding basis period covered by the data above. (3 Marks)

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