- 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.
Question
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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