Question Tag: Asset Disposal

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  • 4 Marks

ATAX – May 2017 – L3 – Q3b – Capital Gains Tax (CGT)

List allowable deductions under the Capital Gains Tax Act for chargeable gains computations.

Capital Gains Tax is imposed on gains arising from the ownership of a capital asset changing hands, either by exchange, transfer, sale, or gift.

The tax is chargeable on the total amount of the chargeable gains arising after deducting allowable expenses on the disposal of chargeable assets in any year of assessment.

Required:
State the allowable deductions under the Capital Gains Tax Act CAP C1 LFN 2004 as amended. (4 Marks)

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  • 18 Marks

ATAX – May 2019 – L3 – Q4b – Capital Gains Tax (CGT)

Advise on capital gains arising from various business transactions, deemed disposal, and roll-over relief for Smaposu Nigeria Limited.

Smaposu Nigeria Limited is based in Ibadan, Oyo State, and is involved in the manufacturing of computer accessories. The company undertook the following transactions during the year ended December 31, 2018:

(i) Plant and machinery: Part of the plant and machinery was purchased in the year 2014 at an all-inclusive price of ₦12,500,000. A machinery was sold for ₦8,100,000, and the value of the undisposed part was ₦5,740,000. Selling expenses incurred amounted to ₦150,000.

(ii) Motor vehicle: A motor vehicle, which was acquired in 2016 for ₦3,000,000 for the purpose of the business, was sold to the company’s general manager for ₦2,900,000. The market value of the car as at the point of disposal was ₦3,500,000. The company re-acquired a similar car for ₦3,500,000.

(iii) As a result of an unfavorable business climate in Ibadan, the company relocated to Ikeja, Lagos State. The land and buildings acquired in Ibadan in 2009 for ₦30,000,000 were sold for ₦65,500,000. The cost of valuation and professional fees incurred on disposal was ₦2,000,000. A reinvestment was made in Ikeja through the acquisition of another landed property valued at ₦50,000,000.

Smaposu Nigeria Limited has just appointed your firm as the company’s tax consultant.

You are required to advise the management on:

i. “Deemed” disposal of an asset. (5 Marks)
ii. The capital gains (if any) arising from these transactions. (6 Marks)
iii. The roll-over relief (if any) on re-investment made on the acquisition of new assets by the company. (4 Marks)
iv. Capital gains tax payable. (3 Marks)

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  • 20 Marks

ATAX – May 2019 – L3 – Q3 – Taxation of Companies

Prepare capital allowance computations and tax liabilities for Pardo Nigeria Limited based on its financial data and asset acquisitions.

Pardo Nigeria Limited is a manufacturer of polythene bags. It was incorporated on January 1, 2013, but commenced business operations on March 1, 2013. The following is the summary of its adjusted profits for the respective years:

Period Ended Adjusted Profit (₦’000)
December 31, 2013 7,200
December 31, 2014 10,700
December 31, 2015 12,650
December 31, 2016 15,220
December 31, 2017 19,850

The company acquired the following assets:

Date Asset Type Amount (₦’000)
April 5, 2013 Factory building 5,400
January 17, 2014 Office furniture 2,750
December 1, 2014 Motor vehicle 4,500
January 3, 2015 Production plant 1,820

The company sold some of its assets on December 31, 2017 as follows:

Asset Type Cost (₦’000) Proceeds (₦’000)
Office furniture 250,000 35
Production plant 650,000 60

As the newly appointed tax consultant to the company, the managing director sought your advice on both capital allowances available to the company and the tax liabilities resulting from them for the relevant years. He, however, informed you during the finalization of the engagement that the factory building was purchased second-hand from a company that had ceased operation six months earlier.

Required:
Prepare a report addressed to the managing director of the company showing, for all the relevant years:

a. Capital allowance computations (9 Marks)
b. Tax liabilities payable (11 Marks)

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  • 20 Marks

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

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  • 6 Marks

AT – May 2018 – L3 – SB – Q3a – Capital Gains Tax

Explain disposal under Capital Gains Tax Act, define incidental costs, and describe delayed remittance relief conditions.

Capital gains may be defined as gains arising from increases in the market value of capital assets, to a corporate body or person who does not habitually offer them for sale, and in whose hands they do not constitute inventory-in-trade.

With respect to the Capital Gains Tax Act, you are required to explain:

(i) When a “disposal” is said to have taken place. (2 Marks)

(ii) What constitutes “incidental costs”? (2 Marks)

(iii) Under what circumstances can a “delayed remittance” relief be granted? (2 Marks)

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  • 1 Marks

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

Which of the following is NOT a source of financing?
A. Bank overdrafts
B. Short-term bank loans
C. Suppliers
D. Proceeds of disposal of fixed assets
E. Operating leases

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  • 1 Marks

FA – May 2013 – L1 – SA – Q26 – Depreciation Methods and Accounting for Disposals

This question involves calculating the profit or loss on the disposal of a non-current asset.

A non-current asset with an original cost of N500,000 and accumulated depreciation of N400,000 was disposed of for N80,000. Calculate the profit or loss on disposal.

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  • 1 Marks

FA – May 2014 – L1 – SA – Q18 – Accounting Concepts

This question tests knowledge of the accounting entries for recording scrapped containers in container trading accounts.

In accounting for Containers using container trading account method, the necessary accounting entries to record scrapped containers are ………………….

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  • 1 Marks

FA – May 2018 – L1 – SA – Q19 – Accounting for Property, Plant, and Equipment (IAS 16)

Determines the profit or loss on the disposal of a vehicle after depreciation.

A vehicle was purchased on January 1, 2011, at a cost of N2,000,000 and was depreciated at 25% on cost. It was sold on December 31, 2013, for N1,400,000. Full-year depreciation was charged in the years of purchase and disposal. Determine the profit or loss on the disposal:
A. N900,000 loss
B. N500,000 loss
C. N500,000 profit
D. N900,000 profit
E. N1,150,000 profit

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  • 4 Marks

ATAX – May 2017 – L3 – Q3b – Capital Gains Tax (CGT)

List allowable deductions under the Capital Gains Tax Act for chargeable gains computations.

Capital Gains Tax is imposed on gains arising from the ownership of a capital asset changing hands, either by exchange, transfer, sale, or gift.

The tax is chargeable on the total amount of the chargeable gains arising after deducting allowable expenses on the disposal of chargeable assets in any year of assessment.

Required:
State the allowable deductions under the Capital Gains Tax Act CAP C1 LFN 2004 as amended. (4 Marks)

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  • 18 Marks

ATAX – May 2019 – L3 – Q4b – Capital Gains Tax (CGT)

Advise on capital gains arising from various business transactions, deemed disposal, and roll-over relief for Smaposu Nigeria Limited.

Smaposu Nigeria Limited is based in Ibadan, Oyo State, and is involved in the manufacturing of computer accessories. The company undertook the following transactions during the year ended December 31, 2018:

(i) Plant and machinery: Part of the plant and machinery was purchased in the year 2014 at an all-inclusive price of ₦12,500,000. A machinery was sold for ₦8,100,000, and the value of the undisposed part was ₦5,740,000. Selling expenses incurred amounted to ₦150,000.

(ii) Motor vehicle: A motor vehicle, which was acquired in 2016 for ₦3,000,000 for the purpose of the business, was sold to the company’s general manager for ₦2,900,000. The market value of the car as at the point of disposal was ₦3,500,000. The company re-acquired a similar car for ₦3,500,000.

(iii) As a result of an unfavorable business climate in Ibadan, the company relocated to Ikeja, Lagos State. The land and buildings acquired in Ibadan in 2009 for ₦30,000,000 were sold for ₦65,500,000. The cost of valuation and professional fees incurred on disposal was ₦2,000,000. A reinvestment was made in Ikeja through the acquisition of another landed property valued at ₦50,000,000.

Smaposu Nigeria Limited has just appointed your firm as the company’s tax consultant.

You are required to advise the management on:

i. “Deemed” disposal of an asset. (5 Marks)
ii. The capital gains (if any) arising from these transactions. (6 Marks)
iii. The roll-over relief (if any) on re-investment made on the acquisition of new assets by the company. (4 Marks)
iv. Capital gains tax payable. (3 Marks)

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  • 20 Marks

ATAX – May 2019 – L3 – Q3 – Taxation of Companies

Prepare capital allowance computations and tax liabilities for Pardo Nigeria Limited based on its financial data and asset acquisitions.

Pardo Nigeria Limited is a manufacturer of polythene bags. It was incorporated on January 1, 2013, but commenced business operations on March 1, 2013. The following is the summary of its adjusted profits for the respective years:

Period Ended Adjusted Profit (₦’000)
December 31, 2013 7,200
December 31, 2014 10,700
December 31, 2015 12,650
December 31, 2016 15,220
December 31, 2017 19,850

The company acquired the following assets:

Date Asset Type Amount (₦’000)
April 5, 2013 Factory building 5,400
January 17, 2014 Office furniture 2,750
December 1, 2014 Motor vehicle 4,500
January 3, 2015 Production plant 1,820

The company sold some of its assets on December 31, 2017 as follows:

Asset Type Cost (₦’000) Proceeds (₦’000)
Office furniture 250,000 35
Production plant 650,000 60

As the newly appointed tax consultant to the company, the managing director sought your advice on both capital allowances available to the company and the tax liabilities resulting from them for the relevant years. He, however, informed you during the finalization of the engagement that the factory building was purchased second-hand from a company that had ceased operation six months earlier.

Required:
Prepare a report addressed to the managing director of the company showing, for all the relevant years:

a. Capital allowance computations (9 Marks)
b. Tax liabilities payable (11 Marks)

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  • 20 Marks

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

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  • 6 Marks

AT – May 2018 – L3 – SB – Q3a – Capital Gains Tax

Explain disposal under Capital Gains Tax Act, define incidental costs, and describe delayed remittance relief conditions.

Capital gains may be defined as gains arising from increases in the market value of capital assets, to a corporate body or person who does not habitually offer them for sale, and in whose hands they do not constitute inventory-in-trade.

With respect to the Capital Gains Tax Act, you are required to explain:

(i) When a “disposal” is said to have taken place. (2 Marks)

(ii) What constitutes “incidental costs”? (2 Marks)

(iii) Under what circumstances can a “delayed remittance” relief be granted? (2 Marks)

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  • 1 Marks

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

Which of the following is NOT a source of financing?
A. Bank overdrafts
B. Short-term bank loans
C. Suppliers
D. Proceeds of disposal of fixed assets
E. Operating leases

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  • 1 Marks

FA – May 2013 – L1 – SA – Q26 – Depreciation Methods and Accounting for Disposals

This question involves calculating the profit or loss on the disposal of a non-current asset.

A non-current asset with an original cost of N500,000 and accumulated depreciation of N400,000 was disposed of for N80,000. Calculate the profit or loss on disposal.

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  • 1 Marks

FA – May 2014 – L1 – SA – Q18 – Accounting Concepts

This question tests knowledge of the accounting entries for recording scrapped containers in container trading accounts.

In accounting for Containers using container trading account method, the necessary accounting entries to record scrapped containers are ………………….

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  • 1 Marks

FA – May 2018 – L1 – SA – Q19 – Accounting for Property, Plant, and Equipment (IAS 16)

Determines the profit or loss on the disposal of a vehicle after depreciation.

A vehicle was purchased on January 1, 2011, at a cost of N2,000,000 and was depreciated at 25% on cost. It was sold on December 31, 2013, for N1,400,000. Full-year depreciation was charged in the years of purchase and disposal. Determine the profit or loss on the disposal:
A. N900,000 loss
B. N500,000 loss
C. N500,000 profit
D. N900,000 profit
E. N1,150,000 profit

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