Question Tag: Assessable Profits

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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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  • 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

TAX – Nov 2014 – L2 – Q2 – Companies Income Tax (CIT)

Calculate assessable profits, capital allowances, and total profits for MESINOY Ltd. upon winding up.

MESINOY Limited has been carrying on business in Nigeria for many years. The company makes up its accounts to 31 December each year. Due to the increasing costs of operating in Nigeria, the board of directors decided to wind up the company’s business in Nigeria and relocate to a more tax-friendly country as of 31 May 2011.

Tax laws specify that a company winding up its business must comply with specific regulations. MESINOY Limited’s unutilized Capital Allowances were agreed upon by the tax authority, amounting to N460,000. The company applied for a claim to carry back this unutilized Capital Allowance, which was granted by the tax authority. Below are the adjusted profits for the relevant periods:

Year Ended Adjusted Profit (₦)
31 December 2009 520,000
31 December 2010 450,000
31 May 2011 300,000

Additionally, a bad debt of N58,000 was recovered on 30 November 2011.

Requirements:

a. Compute the Assessable Profits of the company for the relevant years of assessment. (5 Marks)

b. Calculate the Capital Allowances to be rolled back to the relevant years. (5 Marks)

c. Compute the Total Profits for the relevant years of assessment. (5 Marks)

d. Briefly explain Best of Judgment (BoJ) Assessment. (5 Marks)

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  • 20 Marks

TAX – May 2024 – L2 – SA – Q2 – Companies Income Tax (CIT)

Calculate assessable profits and tax liabilities for Adidas Nigeria Limited following an accounting date change.

Adidas Nigeria Limited has been in business for so many years. The company is into supply of furniture, fixtures and fittings. Since the date of commencement of business to the accounting year ended October 31, 2018, it had posted reasonable profits. In year 2019, a competitor, ABC Limited, was able to introduce a new brand of furniture into the market, which boosted the sales of the company. Unfortunately, this had an adverse effect on the gross turnover of Adidas Nigeria Limited. Despite concerted efforts made by Adidas Nigeria Limited to compete favourably with ABC Limited, its fortunes continued to dwindle.
To allow for capital injection, the directors of Adidas Nigeria Limited, decided on February 1, 2020, to change its accounting date to be in line with one of its foreign partners. The board, therefore, decided that the accounting year-end be changed to December 31, every year

The following additional information is provided:

  1. Adjusted Profits:
    • Year ended October 31, 2019: N24,500,000
    • 14-month period ended December 31, 2020: N38,200,000
    • Year ended December 31, 2021: N44,100,000
  2. Gross Turnover:
    • Year ended October 31, 2019: N49,100,200
    • Period ended December 31, 2020: N75,200,500
    • Year ended December 31, 2021: N101,300,000
  3. Capital Allowances:
    • Assessment year 2020: N850,000
    • Assessment year 2021: N720,000
    • Assessment year 2022: N600,000

Required:
For the relevant assessment years,
a. Compute the assessable profits. (14 Marks)
b. Compute the company’s income tax liabilities. Ignore minimum tax computation. (6 Marks)

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  • 15 Marks

TAX – May 2018 – L2 – Q4a – Tax Administration and Enforcement

Calculate assessable profits due to a change in accounting date for Jobi Nig. Enterprises.

John Obi has been running his business in the name of JOBI NIG Enterprises. He is in the business of manufacturing spare parts for vehicles in Aba. He decided to change his accounting date, which had hitherto been September 30. Some years later, the business was discontinued for lack of raw materials which he could not import from war-torn Syria. The adjusted profits of the enterprise are as follows:

Year Ended Profit (N)
September 30, 2007 840,000
December 31, 2008 (15 months) 840,000
December 31, 2009 630,000
December 31, 2010 540,000
December 31, 2011 480,000

Required:
a. Compute the Assessable Profits for the relevant assessment years using the old basis and new basis. (15 Marks)

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  • 20 Marks

TAX – Nov 2018 – L2 – SB – Q3 – Taxation of Specialized Businesses

Advise on the cessation of operations for J&P Nigeria Limited and compute assessable profits.

J & P (Nigeria) Limited, a construction and civil engineering company, has been in business for many years. The harsh economic climate in the country resulted in a decline in the profits of the company which necessitated the decision of the board of directors to either cease operations on December 31, 2017 or March 31, 2018.

Recent accounts adjusted for tax purposes revealed the following adjusted profits:

Year ended Adjusted Profit (N)
July 31, 2013 5,460,000
July 31, 2014 4,970,000
July 31, 2015 4,320,000
July 31, 2016 3,450,000
July 31, 2017 1,875,000
8 Months ended March 31, 2018 750,000

Required:
Advise the board of directors on whether or not to cease operations on December 31, 2017, or March 31, 2018. Show all workings.

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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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  • 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

TAX – Nov 2014 – L2 – Q2 – Companies Income Tax (CIT)

Calculate assessable profits, capital allowances, and total profits for MESINOY Ltd. upon winding up.

MESINOY Limited has been carrying on business in Nigeria for many years. The company makes up its accounts to 31 December each year. Due to the increasing costs of operating in Nigeria, the board of directors decided to wind up the company’s business in Nigeria and relocate to a more tax-friendly country as of 31 May 2011.

Tax laws specify that a company winding up its business must comply with specific regulations. MESINOY Limited’s unutilized Capital Allowances were agreed upon by the tax authority, amounting to N460,000. The company applied for a claim to carry back this unutilized Capital Allowance, which was granted by the tax authority. Below are the adjusted profits for the relevant periods:

Year Ended Adjusted Profit (₦)
31 December 2009 520,000
31 December 2010 450,000
31 May 2011 300,000

Additionally, a bad debt of N58,000 was recovered on 30 November 2011.

Requirements:

a. Compute the Assessable Profits of the company for the relevant years of assessment. (5 Marks)

b. Calculate the Capital Allowances to be rolled back to the relevant years. (5 Marks)

c. Compute the Total Profits for the relevant years of assessment. (5 Marks)

d. Briefly explain Best of Judgment (BoJ) Assessment. (5 Marks)

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  • 20 Marks

TAX – May 2024 – L2 – SA – Q2 – Companies Income Tax (CIT)

Calculate assessable profits and tax liabilities for Adidas Nigeria Limited following an accounting date change.

Adidas Nigeria Limited has been in business for so many years. The company is into supply of furniture, fixtures and fittings. Since the date of commencement of business to the accounting year ended October 31, 2018, it had posted reasonable profits. In year 2019, a competitor, ABC Limited, was able to introduce a new brand of furniture into the market, which boosted the sales of the company. Unfortunately, this had an adverse effect on the gross turnover of Adidas Nigeria Limited. Despite concerted efforts made by Adidas Nigeria Limited to compete favourably with ABC Limited, its fortunes continued to dwindle.
To allow for capital injection, the directors of Adidas Nigeria Limited, decided on February 1, 2020, to change its accounting date to be in line with one of its foreign partners. The board, therefore, decided that the accounting year-end be changed to December 31, every year

The following additional information is provided:

  1. Adjusted Profits:
    • Year ended October 31, 2019: N24,500,000
    • 14-month period ended December 31, 2020: N38,200,000
    • Year ended December 31, 2021: N44,100,000
  2. Gross Turnover:
    • Year ended October 31, 2019: N49,100,200
    • Period ended December 31, 2020: N75,200,500
    • Year ended December 31, 2021: N101,300,000
  3. Capital Allowances:
    • Assessment year 2020: N850,000
    • Assessment year 2021: N720,000
    • Assessment year 2022: N600,000

Required:
For the relevant assessment years,
a. Compute the assessable profits. (14 Marks)
b. Compute the company’s income tax liabilities. Ignore minimum tax computation. (6 Marks)

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  • 15 Marks

TAX – May 2018 – L2 – Q4a – Tax Administration and Enforcement

Calculate assessable profits due to a change in accounting date for Jobi Nig. Enterprises.

John Obi has been running his business in the name of JOBI NIG Enterprises. He is in the business of manufacturing spare parts for vehicles in Aba. He decided to change his accounting date, which had hitherto been September 30. Some years later, the business was discontinued for lack of raw materials which he could not import from war-torn Syria. The adjusted profits of the enterprise are as follows:

Year Ended Profit (N)
September 30, 2007 840,000
December 31, 2008 (15 months) 840,000
December 31, 2009 630,000
December 31, 2010 540,000
December 31, 2011 480,000

Required:
a. Compute the Assessable Profits for the relevant assessment years using the old basis and new basis. (15 Marks)

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  • 20 Marks

TAX – Nov 2018 – L2 – SB – Q3 – Taxation of Specialized Businesses

Advise on the cessation of operations for J&P Nigeria Limited and compute assessable profits.

J & P (Nigeria) Limited, a construction and civil engineering company, has been in business for many years. The harsh economic climate in the country resulted in a decline in the profits of the company which necessitated the decision of the board of directors to either cease operations on December 31, 2017 or March 31, 2018.

Recent accounts adjusted for tax purposes revealed the following adjusted profits:

Year ended Adjusted Profit (N)
July 31, 2013 5,460,000
July 31, 2014 4,970,000
July 31, 2015 4,320,000
July 31, 2016 3,450,000
July 31, 2017 1,875,000
8 Months ended March 31, 2018 750,000

Required:
Advise the board of directors on whether or not to cease operations on December 31, 2017, or March 31, 2018. Show all workings.

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