Adjusted Profits – NBC Institute

ATAX – May 2016 – L3 – Q5 – Taxation of Companies

Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.

Question

Atlas Nigeria Limited is into the sale of Mobile Phones, and the company’s year-end is December 31 of each year. The company’s Annual Tax Returns for the year ended December 31, 2012, were submitted in January 2014. Tax officials found a number of irregularities during a routine examination of the Tax Returns. They discovered that trade payables included N940,000 representing VAT for the two months to December 31, 2012. All sales attract VAT. There was no Input VAT during 2012. Tax officials were, however, of the opinion that the income of the company accrued uniformly throughout the 12 months of the year.

The accounts showed Adjusted Profits of N44,062,500, and Capital Allowances totaled N33,025,000. The tax liability arrived at was N4,406,250. The tax officials were not satisfied with the explanations received in connection with the Withholding Tax on the Director’s fee of N1,562,500, as well as Consultancy fee of N812,500. They also decided to write back 2/3 of the following expenses:

Printing and Stationery N168,750
Donations and Subscription N1,320,620
Losses claimed, amounting to N128,025 was disallowed. Included in the adjusted profit figure is N6,962,500 for Depreciation.

REQUIRED:

i. Show the computations resulting in the Original Tax Liability of N4,406,250 (5 marks)

ii. Compute a revised Tax liability based on the findings of the Tax Officials (10 marks)

Answer

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Tags: Adjusted Profits, Depreciation, Donations, Tax liabilities, Withholding Tax
Level: Level 3

Topic: Taxation of Companies

AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

Question

Zezee Nigeria Limited was incorporated on September 7, 2012, but it did not commence business until July 1, 2013. Based on the Memorandum and Articles of Association, the company was incorporated to carry on the business of distributorship and general contracting.

Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:

Period	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Revenue	5,430,000	12,600,000	18,400,000
Direct Cost	(890,000)	(1,345,000)	(1,910,000)
Gross Profit	4,540,000	11,255,000	16,490,000
Other Income	45,000	458,150	201,000
Distribution Cost	(386,000)	(820,000)	(1,060,500)
Administrative Expenses	(4,810,550)	(6,510,440)	(8,240,600)
Other Expenses	(41,000)	(113,240)	(145,100)
Net (Loss)/Profit	(652,550)	4,269,470	7,244,800

Additional Information:

Other Income Comprises:

Details	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Sale of Scraps	–	57,000	–
Interest Received on Treasury Bills	–	325,000	120,000
Interest on Domiciliary Account	45,000	76,150	81,000
Total Other Income	45,000	458,150	201,000

Administrative Expenses Include:

Details	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Depreciation	160,000	320,000	440,000
Preliminary and Formation Expenses	216,000	–	–
Penalties and Fines	–	–	65,000
General Provision for Bad Debts	110,000	180,000	240,000
Staff Salaries	2,060,000	4,230,000	4,230,000
Office Rent	600,000	1,200,000	1,800,000

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

Asset	Date of Purchase	Cost (N)
Furniture and Fittings	June 7, 2013	980,000
Motor Vehicles	June 30, 2013	2,400,000
Office Equipment	July 1, 2013	1,200,000

On January 2, 2015, the company bought another motor vehicle for N1,800,000.
Extracts of the Statements of Financial Position:

Period	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Net Assets	1,360,000	2,870,500	3,260,700
Paid-up Share Capital	5,000,000	5,000,000	5,000,000

Required:

For all the relevant years of assessment, you are required to:

a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)

(Total 30 Marks)

Answer

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Tags: Adjusted Profits, Capital allowances, Tax liabilities, Tax Rights, Taxable Income
Level: Level 3

Topic: Tax Administration and Dispute Resolution
Series: NOV 2016

AT – Nov 2023 – L3 – SA – Q1 – Taxation of Specialized Businesses

Compute adjusted profits, tax liabilities, and analyze Industrial Development (Income Tax Relief) Act provisions for a pioneer company.

Question

Paper World Nigeria Limited, Ibadan, a manufacturer of paper pulp, paper, and paperboard, was granted a pioneer certificate by the Federal Government on May 1, 2017, for an initial period of three years. Due to unfavorable business conditions and interference by the Ministry of Industry on dividend policy, loss treatment, and capital allowances, the company did not apply for an extension to the pioneer status.

The company’s financial statements for the first three years are as follows:

(i) Financial Data for the Years Ended

Year End	April 30, 2018	April 30, 2019	April 30, 2020
N’000	N’000	N’000
Net loss	(28,700)	(25,500)	(20,200)
After charging:
Salaries and wages	15,300	16,100	17,360
Transport and traveling	1,100	1,700	1,820
Depreciation	6,800	7,530	8,600
Rent and rates	1,200	1,400	1,500
Donations to social clubs	100	0	250
Allowance for doubtful debts:
Specific	1,400	1,200	1,500
General	1,850	1,750	1,800
General expenses	1,650	1,820	1,900

(ii) Qualifying Capital Expenditure (QCE) Certified by FIRS at Pioneer Period End

(iii) Additional QCE Acquired:

QCE	Number of Items	Amount (N’000)	Date of Acquisition
Furniture and fittings	2	500	June 12, 2020
Motor vehicles	1	2,200	March 7, 2021

(iv) Operational Result (April 30, 2021)

Description	N’000
Turnover	102,500
Dividend income (grossed up)	1,200
Other operating income	800
Total	104,500
Deductions:
Salaries and wages	39,600
Repairs and maintenance	3,500
Depreciation	15,300
Rents and rates	6,800
General and administrative expenses	9,970
Legal fees	2,500
Audit and accountancy fees	3,200
Allowance for doubtful debts	6,600
Bank charges	2,100
Net profits	14,930

Additional Information:

Dividend Income: From equity shares in a Nigerian listed company.
QCE Acquisitions:
- Non-industrial building: N10,000
- Industrial building: N25,600
- Manufacturing industrial plants: N12,600
- Furniture and fittings: N3,400
- Motor vehicles: N4,000

(vi) Repairs and Maintenance Breakdown:

Category	Amount (N’000)
Manufacturing plant repairs	1,500
Motor vehicle maintenance	800
Non-industrial building improvement	1,200

(vii) General and Administrative Expenses:

Category	Amount (N’000)
Transport and traveling	3,750
Advertisement	4,920
Transfer to revenue reserve	1,300

(viii) Legal Fees Breakdown:

Category	Amount (N’000)
Collection of trade debts	1,100
Fine for late tax filing	50
Legal expenses on new share issue	1,350

(ix) Doubtful Debts Allowance Breakdown:

Category	Amount (N’000)
Bad debts written off	2,800
Specific provision	2,500
General provision	3,700
Bad debts recovered	(2,400)

Required: As the company’s newly appointed Tax Consultant, prepare a report to the Managing Director stating the:

Adjusted Profits for the Relevant Periods (13 Marks)
Tax Liabilities Payable for the Relevant Assessment Year (11 Marks)
Provisions of the Industrial Development (Income Tax Relief) Act 2007 (as amended) in respect of a Pioneer Company’s:
- i. Dividend Payment (2 Marks)
- ii. Losses Made During the Pioneer Period (2 Marks)
- iii. Capital Allowances for Qualifying Capital Expenditure Acquired During the Pioneer Period (2 Marks)

Answer

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Tags: Adjusted Profits, Capital allowances, Dividend Policy, Pioneer Company Provisions, Tax liabilities
Level: Level 3

Topic: Taxation of Specialized Businesses
Series: NOV 2023

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.

Question

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:

Income overstated:
- June 30, 2015: N250,000
- September 30, 2016: N280,000
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)

Answer

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Tags: Accounting Year-End, Adjusted Profits, Assessable Profits, Revenue Practice, Tax law
Level: Level 2

Topic: Tax Administration and Enforcement

ATAX – May 2016 – L3 – Q5 – Taxation of Companies

Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.

Question

Printing and Stationery N168,750
Donations and Subscription N1,320,620
Losses claimed, amounting to N128,025 was disallowed. Included in the adjusted profit figure is N6,962,500 for Depreciation.

REQUIRED:

i. Show the computations resulting in the Original Tax Liability of N4,406,250 (5 marks)

ii. Compute a revised Tax liability based on the findings of the Tax Officials (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Adjusted Profits, Depreciation, Donations, Tax liabilities, Withholding Tax
Level: Level 3

Topic: Taxation of Companies

AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

Question

Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:

Period	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Revenue	5,430,000	12,600,000	18,400,000
Direct Cost	(890,000)	(1,345,000)	(1,910,000)
Gross Profit	4,540,000	11,255,000	16,490,000
Other Income	45,000	458,150	201,000
Distribution Cost	(386,000)	(820,000)	(1,060,500)
Administrative Expenses	(4,810,550)	(6,510,440)	(8,240,600)
Other Expenses	(41,000)	(113,240)	(145,100)
Net (Loss)/Profit	(652,550)	4,269,470	7,244,800

Additional Information:

Other Income Comprises:

Details	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Sale of Scraps	–	57,000	–
Interest Received on Treasury Bills	–	325,000	120,000
Interest on Domiciliary Account	45,000	76,150	81,000
Total Other Income	45,000	458,150	201,000

Administrative Expenses Include:

Details	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Depreciation	160,000	320,000	440,000
Preliminary and Formation Expenses	216,000	–	–
Penalties and Fines	–	–	65,000
General Provision for Bad Debts	110,000	180,000	240,000
Staff Salaries	2,060,000	4,230,000	4,230,000
Office Rent	600,000	1,200,000	1,800,000

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

Asset	Date of Purchase	Cost (N)
Furniture and Fittings	June 7, 2013	980,000
Motor Vehicles	June 30, 2013	2,400,000
Office Equipment	July 1, 2013	1,200,000

On January 2, 2015, the company bought another motor vehicle for N1,800,000.
Extracts of the Statements of Financial Position:

Period	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Net Assets	1,360,000	2,870,500	3,260,700
Paid-up Share Capital	5,000,000	5,000,000	5,000,000

Required:

For all the relevant years of assessment, you are required to:

(Total 30 Marks)

Answer

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Tags: Adjusted Profits, Capital allowances, Tax liabilities, Tax Rights, Taxable Income
Level: Level 3

Topic: Tax Administration and Dispute Resolution
Series: NOV 2016

AT – Nov 2023 – L3 – SA – Q1 – Taxation of Specialized Businesses

Compute adjusted profits, tax liabilities, and analyze Industrial Development (Income Tax Relief) Act provisions for a pioneer company.

Question

The company’s financial statements for the first three years are as follows:

(i) Financial Data for the Years Ended

Year End	April 30, 2018	April 30, 2019	April 30, 2020
N’000	N’000	N’000
Net loss	(28,700)	(25,500)	(20,200)
After charging:
Salaries and wages	15,300	16,100	17,360
Transport and traveling	1,100	1,700	1,820
Depreciation	6,800	7,530	8,600
Rent and rates	1,200	1,400	1,500
Donations to social clubs	100	0	250
Allowance for doubtful debts:
Specific	1,400	1,200	1,500
General	1,850	1,750	1,800
General expenses	1,650	1,820	1,900

(ii) Qualifying Capital Expenditure (QCE) Certified by FIRS at Pioneer Period End

(iii) Additional QCE Acquired:

QCE	Number of Items	Amount (N’000)	Date of Acquisition
Furniture and fittings	2	500	June 12, 2020
Motor vehicles	1	2,200	March 7, 2021

(iv) Operational Result (April 30, 2021)

Description	N’000
Turnover	102,500
Dividend income (grossed up)	1,200
Other operating income	800
Total	104,500
Deductions:
Salaries and wages	39,600
Repairs and maintenance	3,500
Depreciation	15,300
Rents and rates	6,800
General and administrative expenses	9,970
Legal fees	2,500
Audit and accountancy fees	3,200
Allowance for doubtful debts	6,600
Bank charges	2,100
Net profits	14,930

Additional Information:

Dividend Income: From equity shares in a Nigerian listed company.
QCE Acquisitions:
- Non-industrial building: N10,000
- Industrial building: N25,600
- Manufacturing industrial plants: N12,600
- Furniture and fittings: N3,400
- Motor vehicles: N4,000

(vi) Repairs and Maintenance Breakdown:

Category	Amount (N’000)
Manufacturing plant repairs	1,500
Motor vehicle maintenance	800
Non-industrial building improvement	1,200

(vii) General and Administrative Expenses:

Category	Amount (N’000)
Transport and traveling	3,750
Advertisement	4,920
Transfer to revenue reserve	1,300

(viii) Legal Fees Breakdown:

Category	Amount (N’000)
Collection of trade debts	1,100
Fine for late tax filing	50
Legal expenses on new share issue	1,350

(ix) Doubtful Debts Allowance Breakdown:

Category	Amount (N’000)
Bad debts written off	2,800
Specific provision	2,500
General provision	3,700
Bad debts recovered	(2,400)

Required: As the company’s newly appointed Tax Consultant, prepare a report to the Managing Director stating the:

Adjusted Profits for the Relevant Periods (13 Marks)
Tax Liabilities Payable for the Relevant Assessment Year (11 Marks)
Provisions of the Industrial Development (Income Tax Relief) Act 2007 (as amended) in respect of a Pioneer Company’s:
- i. Dividend Payment (2 Marks)
- ii. Losses Made During the Pioneer Period (2 Marks)
- iii. Capital Allowances for Qualifying Capital Expenditure Acquired During the Pioneer Period (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Adjusted Profits, Capital allowances, Dividend Policy, Pioneer Company Provisions, Tax liabilities
Level: Level 3

Topic: Taxation of Specialized Businesses
Series: NOV 2023

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.

Question

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:

Income overstated:
- June 30, 2015: N250,000
- September 30, 2016: N280,000
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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accounting Year-End, Adjusted Profits, Assessable Profits, Revenue Practice, Tax law
Level: Level 2

Topic: Tax Administration and Enforcement

Question Tag: Adjusted Profits

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ATAX – May 2016 – L3 – Q5 – Taxation of Companies

Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.

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AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

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AT – Nov 2023 – L3 – SA – Q1 – Taxation of Specialized Businesses

Compute adjusted profits, tax liabilities, and analyze Industrial Development (Income Tax Relief) Act provisions for a pioneer company.

(i) Financial Data for the Years Ended

(ii) Qualifying Capital Expenditure (QCE) Certified by FIRS at Pioneer Period End

(iii) Additional QCE Acquired:

(iv) Operational Result (April 30, 2021)

Additional Information:

(vi) Repairs and Maintenance Breakdown:

(vii) General and Administrative Expenses:

(viii) Legal Fees Breakdown:

(ix) Doubtful Debts Allowance Breakdown:

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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.

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ATAX – May 2016 – L3 – Q5 – Taxation of Companies

Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.

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AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

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AT – Nov 2023 – L3 – SA – Q1 – Taxation of Specialized Businesses

Compute adjusted profits, tax liabilities, and analyze Industrial Development (Income Tax Relief) Act provisions for a pioneer company.

(i) Financial Data for the Years Ended

(ii) Qualifying Capital Expenditure (QCE) Certified by FIRS at Pioneer Period End

(iii) Additional QCE Acquired:

(iv) Operational Result (April 30, 2021)

Additional Information:

(vi) Repairs and Maintenance Breakdown:

(vii) General and Administrative Expenses:

(viii) Legal Fees Breakdown:

(ix) Doubtful Debts Allowance Breakdown:

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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.

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