Question Tag: Allowable expenses

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ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)

Identify allowable expenses under the PIA and explain implications of mergers in upstream petroleum operations.

Question

In the last three years, some major oil producing companies have decided to divest their investments from the Nigerian oil and gas sector. One of the reasons for this might be the new global energy order, which seems to favour the evolution of a “green environment” as against the present use of hydrocarbons with its inherent environmental degradation and pollution.

Similarly, in response to the yearnings of various stakeholders in the oil and gas sector, the Federal Government enacted the Petroleum Industry Act (PIA) 2021. Generally, the Act provides the legal, governance, regulatory, and fiscal framework for the Nigerian petroleum industry, the development of host communities, and for related matters.

Notable commentators and professionals in the sector suggest that the divestment of major oil and gas operators in Nigeria could be beneficial to local investors if funds are sourced and deployed to businesses in the sector. Mergers and acquisitions of indigenously owned oil-producing companies have been noted as one valuable option in this regard.

Required:

a. In respect of the Petroleum Industry Act 2021, identify the expenses allowable in the computation of adjusted profit of a company in upstream petroleum operations. (6 Marks)
b. Identify and explain SIX implications of mergers and acquisitions in respect of a situation where a new company takes over an existing company. (9 Marks)

Answer

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Tags: Acquisitions, Allowable expenses, Mergers, Petroleum Industry Act, Tax implications, Upstream Operations
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

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.

Question

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:

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

Answer

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Tags: Allowable expenses, Beneficiaries Income, Settlement Trust, Tax computation, Trustees Income
Level: Level 2

Topic: Taxation of Trusts and Estates

AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

Question

Colamrud Petroleum (Nigeria) Limited, a subsidiary of a foreign oil and gas company, has been engaged in petroleum prospecting and exploration (upstream) operations for both local and foreign markets for over a decade. As part of corporate policy, the management reviews the quarterly performance reports in board meetings. Below is the financial summary for the first quarter (January – March) 2022, prepared by the Finance Controller:

Income (N’000):

Value of oil sold (export): 900,380
Value of oil sold (local): 223,300
Value of gas sold: 430,100
Other income: 7,200
Gross revenue: 1,560,980

Expenses (N’000):

Production cost: 210,730
Tangible drilling cost (first appraisal well): 18,800
Intangible drilling cost (first appraisal well): 17,600
Cost of gas reinjection wells: 4,000
Cost of drilling 3 appraisal wells: 24,000
Rent: 13,000
Royalties on export sales: 69,300
Royalties on local sales: 9,800
Salaries and wages: 170,500
Head office shared costs: 62,000
Repairs and maintenance: 8,930
Customs duty on essentials: 2,900
Depreciation: 66,000
Interest on loans: 4,400
Allowance for doubtful debts: 34,000
Administrative expenses: 79,200
Stamp duties on increase in share capital: 1,000
Bank charges: 900
Miscellaneous expenses: 22,500
Income tax provision: 90,000
Tertiary education tax provision: 6,000
Total expenses: 915,560
Net profit: 645,420

Additional Information:

Fiscal oil and gas prices were approved on an export parity basis by the Nigerian Upstream Petroleum Regulatory Commission.
Head office shared costs:
- Research and development costs: 12,000
- Indirect production costs: 50,000
Repairs and maintenance:
- Repairs of oil pipelines and storage tanks: 6,000
- Repairs of plant: 1,500
- Improvement to building: 1,430
Allowance for doubtful debts:
- Specific provision: 10,000
- General provision: 20,000
- Bad debt written off: 4,000
Administrative expenses:
- Natural gas flare fees: 10,000
- Transport cost: 13,200
- Cost of obtaining information on oil existence: 7,300
- Expenditure for acquisition of geological information: 14,900
- Other allowable expenses: 33,800
Miscellaneous expenses:
- Tenement levy paid to local government: 2,000
- Contribution to Niger Delta Development fund: 5,500
- Contribution to Host Community Development fund: 12,000
- Donation to widows and orphans association: 3,000
Unabsorbed losses brought forward: 35,000

Required:

As the company’s Assistant Tax Manager, prepare a report for the Tax Manager that includes:

Adjusted Profit and Assessable Profit: Calculate the adjusted profit and assessable profit for the first quarter of 2022 in line with the Petroleum Industry Act 2021.
(18 Marks)
Cost-Price Ratio Commentary: Provide comments on the cost-price ratio of the company, referencing the Sixth Schedule of the Petroleum Industry Act 2021.
(2 Marks)

Total: 20 Marks

Answer

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Topic: Petroleum Profits Tax (PPT)
Series: NOV 2022

TAX – May 2024 – L2 – SA – Q7 – The Nigerian Tax System

Describe professional tax-related issues your firm can handle, sources of Nigerian tax law, and allowable expenses in calculating assessable profits.

Question

Kanbus Nigeria Plc is a company incorporated to manufacture and distribute food products that are widely accepted in many homes in Nigeria. It has operated for over 15 years since taking over the business of JHN Nigeria Limited. The main business of JHN Nigeria Limited was distribution of food items and other agricultural produce in the South-West geographical zone of Nigeria.
The Chief Executive Officer (CEO) of Kanbus Nigeria Plc, Mr. Babadada, was a former staff of Collinson India Limited for several years and thus brought into Kanbus Nigeria Plc a wealth of experience. Earlier in his working career, Mr. Babadada, had worked with Kong Manufacturing Limited, a Chinese company, where he imbibed the culture of collaboration with staff in the decision making process. Mr. Babadada, is
assisted by a formidable team of managers recruited from major food and beverage companies in the country.
The management of Kanbus Nigeria Plc. engaged different consultants to handle professional issues, including consultancy matters in respect of law, medical, finance, tax, accounting, etc. which were outsourced to different, well-known and competent hands.
Your firm, Kassman and Co. (Chartered Accountants), were engaged to handle both corporate and personal income tax matters

Required:
As the consultant, you have been requested by the Managing Partner, Kassman and Associate, to explain to the Chief Executive Officer of Kanbus Nigeria Plc., the following:

a. Professional issues that can be handled by your firm. (5 Marks)
b. Five main sources of Nigerian tax laws. (5 Marks)
c. Five allowable expenses in the ascertainment of assessable profits of companies. (5 Marks)

Answer

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Tags: Allowable expenses, Nigerian Tax Practice, Professional Issues, Tax law
Level: Level 2

Topic: The Nigerian Tax System
Series: MAY 2024

PT – Mar 2024 – L2 – Q4a – Income Tax Liabilities

State the general and residual deduction rules governing the ascertainment of a person’s income from business and investment.

Question

With reference to the Income Tax Act, 2015 (Act 896):

i) State the general and residual deduction rules governing the ascertainment of a person’s income from business and investment. (5 marks)

Answer

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Tags: Allowable expenses, Deduction Rules, Income from Business, Income Tax Act, Investment income
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2024

AT – Dec 2023 – L3 – Q3c – Tax administration in Ghana

Explaining what constitutes domestic expenditure and the conditions under which such expenditure becomes allowable for tax purposes.

Question

Expenditures that are considered domestic in character may be converted or treated as allowable deductions under certain conditions in line with Section 130 of the Income Tax Act, 2015 (Act 896).

Required:
What constitutes domestic expenditure, and how does such expenditure become allowable for tax purposes?

Answer

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Tags: Allowable expenses, Domestic expenditure, Tax deductions
Level: Level 3

Topic: Tax administration in Ghana
Series: DEC 2023

AT – May 2017 – L3 – Q3b – Business income – Corporate income tax

Compute allowable financial cost on hedged transactions and provide management advice on the tax implications.

Question

b) XYZ Ltd runs a business with a basis period from January to December each year. The following information is relevant to its business operations for 2016 year of assessment:

Item	Amount (GH¢)
Chargeable Income from business operations	40,000
Financial cost incurred on hedged transactions	150,000
Financial gain from hedged transactions	60,000

Required:

i) Compute the financial cost to be allowed in 2016 year of assessment. (6 marks)

ii) Advise management on the above results. (4 marks)
(Total: 10 marks)

Answer

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Tags: Allowable expenses, chargeable income, Corporate Tax, Financial cost, Hedging, Tax advice
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2017

ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)

Identify allowable expenses under the PIA and explain implications of mergers in upstream petroleum operations.

Question

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisitions, Allowable expenses, Mergers, Petroleum Industry Act, Tax implications, Upstream Operations
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

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.

Question

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:

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

Answer

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Tags: Allowable expenses, Beneficiaries Income, Settlement Trust, Tax computation, Trustees Income
Level: Level 2

Topic: Taxation of Trusts and Estates

AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

Question

Income (N’000):

Value of oil sold (export): 900,380
Value of oil sold (local): 223,300
Value of gas sold: 430,100
Other income: 7,200
Gross revenue: 1,560,980

Expenses (N’000):

Production cost: 210,730
Tangible drilling cost (first appraisal well): 18,800
Intangible drilling cost (first appraisal well): 17,600
Cost of gas reinjection wells: 4,000
Cost of drilling 3 appraisal wells: 24,000
Rent: 13,000
Royalties on export sales: 69,300
Royalties on local sales: 9,800
Salaries and wages: 170,500
Head office shared costs: 62,000
Repairs and maintenance: 8,930
Customs duty on essentials: 2,900
Depreciation: 66,000
Interest on loans: 4,400
Allowance for doubtful debts: 34,000
Administrative expenses: 79,200
Stamp duties on increase in share capital: 1,000
Bank charges: 900
Miscellaneous expenses: 22,500
Income tax provision: 90,000
Tertiary education tax provision: 6,000
Total expenses: 915,560
Net profit: 645,420

Additional Information:

Fiscal oil and gas prices were approved on an export parity basis by the Nigerian Upstream Petroleum Regulatory Commission.
Head office shared costs:
- Research and development costs: 12,000
- Indirect production costs: 50,000
Repairs and maintenance:
- Repairs of oil pipelines and storage tanks: 6,000
- Repairs of plant: 1,500
- Improvement to building: 1,430
Allowance for doubtful debts:
- Specific provision: 10,000
- General provision: 20,000
- Bad debt written off: 4,000
Administrative expenses:
- Natural gas flare fees: 10,000
- Transport cost: 13,200
- Cost of obtaining information on oil existence: 7,300
- Expenditure for acquisition of geological information: 14,900
- Other allowable expenses: 33,800
Miscellaneous expenses:
- Tenement levy paid to local government: 2,000
- Contribution to Niger Delta Development fund: 5,500
- Contribution to Host Community Development fund: 12,000
- Donation to widows and orphans association: 3,000
Unabsorbed losses brought forward: 35,000

Required:

As the company’s Assistant Tax Manager, prepare a report for the Tax Manager that includes:

Adjusted Profit and Assessable Profit: Calculate the adjusted profit and assessable profit for the first quarter of 2022 in line with the Petroleum Industry Act 2021.
(18 Marks)
Cost-Price Ratio Commentary: Provide comments on the cost-price ratio of the company, referencing the Sixth Schedule of the Petroleum Industry Act 2021.
(2 Marks)

Total: 20 Marks

Answer

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Topic: Petroleum Profits Tax (PPT)
Series: NOV 2022

TAX – May 2024 – L2 – SA – Q7 – The Nigerian Tax System

Describe professional tax-related issues your firm can handle, sources of Nigerian tax law, and allowable expenses in calculating assessable profits.

Question

Required:
As the consultant, you have been requested by the Managing Partner, Kassman and Associate, to explain to the Chief Executive Officer of Kanbus Nigeria Plc., the following:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Allowable expenses, Nigerian Tax Practice, Professional Issues, Tax law
Level: Level 2

Topic: The Nigerian Tax System
Series: MAY 2024

PT – Mar 2024 – L2 – Q4a – Income Tax Liabilities

State the general and residual deduction rules governing the ascertainment of a person’s income from business and investment.

Question

With reference to the Income Tax Act, 2015 (Act 896):

i) State the general and residual deduction rules governing the ascertainment of a person’s income from business and investment. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Allowable expenses, Deduction Rules, Income from Business, Income Tax Act, Investment income
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2024

AT – Dec 2023 – L3 – Q3c – Tax administration in Ghana

Explaining what constitutes domestic expenditure and the conditions under which such expenditure becomes allowable for tax purposes.

Question

Expenditures that are considered domestic in character may be converted or treated as allowable deductions under certain conditions in line with Section 130 of the Income Tax Act, 2015 (Act 896).

Required:
What constitutes domestic expenditure, and how does such expenditure become allowable for tax purposes?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Allowable expenses, Domestic expenditure, Tax deductions
Level: Level 3

Topic: Tax administration in Ghana
Series: DEC 2023

AT – May 2017 – L3 – Q3b – Business income – Corporate income tax

Compute allowable financial cost on hedged transactions and provide management advice on the tax implications.

Question

b) XYZ Ltd runs a business with a basis period from January to December each year. The following information is relevant to its business operations for 2016 year of assessment:

Item	Amount (GH¢)
Chargeable Income from business operations	40,000
Financial cost incurred on hedged transactions	150,000
Financial gain from hedged transactions	60,000

Required:

i) Compute the financial cost to be allowed in 2016 year of assessment. (6 marks)

ii) Advise management on the above results. (4 marks)
(Total: 10 marks)

Answer

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Tags: Allowable expenses, chargeable income, Corporate Tax, Financial cost, Hedging, Tax advice
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2017

Question Tag: Allowable expenses

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ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)

Identify allowable expenses under the PIA and explain implications of mergers in upstream petroleum operations.

Required:

You're reporting an error for "ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)"

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.

You're reporting an error for "TAX – Nov 2023 – L2 – Q4 – Taxation of Trusts and Estates"

AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

You're reporting an error for "AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)"

TAX – May 2024 – L2 – SA – Q7 – The Nigerian Tax System

Describe professional tax-related issues your firm can handle, sources of Nigerian tax law, and allowable expenses in calculating assessable profits.

You're reporting an error for "TAX – May 2024 – L2 – SA – Q7 – The Nigerian Tax System"

PT – Mar 2024 – L2 – Q4a – Income Tax Liabilities

State the general and residual deduction rules governing the ascertainment of a person’s income from business and investment.

You're reporting an error for "PT – Mar 2024 – L2 – Q4a – Income Tax Liabilities"

AT – Dec 2023 – L3 – Q3c – Tax administration in Ghana

Explaining what constitutes domestic expenditure and the conditions under which such expenditure becomes allowable for tax purposes.

You're reporting an error for "AT – Dec 2023 – L3 – Q3c – Tax administration in Ghana"

AT – May 2017 – L3 – Q3b – Business income – Corporate income tax

Compute allowable financial cost on hedged transactions and provide management advice on the tax implications.

You're reporting an error for "AT – May 2017 – L3 – Q3b – Business income – Corporate income tax"

ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)

Identify allowable expenses under the PIA and explain implications of mergers in upstream petroleum operations.

Required:

You're reporting an error for "ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)"

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.

You're reporting an error for "TAX – Nov 2023 – L2 – Q4 – Taxation of Trusts and Estates"

AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

You're reporting an error for "AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)"

TAX – May 2024 – L2 – SA – Q7 – The Nigerian Tax System

Describe professional tax-related issues your firm can handle, sources of Nigerian tax law, and allowable expenses in calculating assessable profits.

You're reporting an error for "TAX – May 2024 – L2 – SA – Q7 – The Nigerian Tax System"

PT – Mar 2024 – L2 – Q4a – Income Tax Liabilities

State the general and residual deduction rules governing the ascertainment of a person’s income from business and investment.

You're reporting an error for "PT – Mar 2024 – L2 – Q4a – Income Tax Liabilities"

AT – Dec 2023 – L3 – Q3c – Tax administration in Ghana

Explaining what constitutes domestic expenditure and the conditions under which such expenditure becomes allowable for tax purposes.

You're reporting an error for "AT – Dec 2023 – L3 – Q3c – Tax administration in Ghana"

AT – May 2017 – L3 – Q3b – Business income – Corporate income tax

Compute allowable financial cost on hedged transactions and provide management advice on the tax implications.

You're reporting an error for "AT – May 2017 – L3 – Q3b – Business income – Corporate income tax"

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