Business Cessation – NBC Institute

TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

Question

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:

A bad debt of N120,000, written off in the 2020 assessment year, was recovered in October 2021.
N20,000 was spent to recover this debt.
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)

Answer

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Tags: Assessable Profits, Back-Duty Investigation, Business Cessation, Tax adjustment, Terminal Profit
Level: Level 2

Topic: Tax Administration and Enforcement

AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

Analyze the tax implications for Yemmysea Beverages Limited’s proposed merger and acquisition arrangements, covering scenarios where a company absorbs another, a merger results in business cessation, and a business is sold or transferred. Additionally, explain the regulatory powers of the FIRS in mergers and acquisitions.

Question

In its bid to increase market power, growth, and enhance operating economies, the Board of Directors of a medium-sized beverage company, Yemmysea Beverages Limited, located in Abeokuta, is considering proposals for a merger or acquisition with another business entity in the same industry. The Chairman of the Board found all the proposals attractive.

However, the Financial Accountant advised that the Board should consider the tax implications associated with each proposed merger or acquisition arrangement. To address this, a reputable tax consulting firm, experienced in mergers, acquisitions, and reorganizations, was recommended to provide expert analysis.

Your firm has now been approached to offer professional advice on the tax implications of each of the following merger or acquisition arrangements:

Proposal 1: When an existing company absorbs another existing company.
Proposal 2: When a merger results in the cessation of business.
Proposal 3: When a business is sold or transferred.

Required:

As the company’s Tax Consultant, submit a report to the Managing Director explaining the following:

Tax implications when an existing company absorbs another existing company.
(5 Marks)
Tax implications when a merger results in the cessation of business.
(3 Marks)
Tax implications when a business is sold or transferred.
(3 Marks)
The powers of the Federal Inland Revenue Service (FIRS) on issues concerning mergers and acquisitions of companies.
(4 Marks)

Total: 15 Marks

Answer

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Tags: Asset Transfer, Business Cessation, Capital Gains Tax (CGT), Compliance, Corporate Restructuring, FIRS Authority, Merger and Acquisition Tax Implications, Stamp Duty, Tax Reliefs, VAT
Level: Level 3

Topic: Taxation and Corporate Governance
Series: NOV 2022

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.

Question

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.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessable Profits, Business Cessation, Taxation of Construction Companies
Level: Level 2

Topic: Taxation of Specialized Businesses
Series: NOV 2018

PT – Mar 2024 – L2 – Q3c – Income Tax Liabilities

Compute the assessable income for all relevant years for Hajia Bintu after ceasing operations.

Question

Hajia Bintu has been in business from 1 September 2018, preparing accounts to 31 August each year. She ceased to operate the business on 31 May 2023. The agreed profits for the past years of operations are as follows:

Year	Agreed Profits (GH¢)
Year to 30/8/2019	18,000,000
Year to 30/8/2020	23,000,000
Year to 30/8/2021	28,000,000
Year to 30/8/2022	33,000,000
Period to 31/5/2023	50,000,000

Required:
Calculate the assessable income for all relevant years.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessable Income, Basis Period, Business Cessation, Tax computation
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2024

TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

Question

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:

A bad debt of N120,000, written off in the 2020 assessment year, was recovered in October 2021.
N20,000 was spent to recover this debt.
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.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessable Profits, Back-Duty Investigation, Business Cessation, Tax adjustment, Terminal Profit
Level: Level 2

Topic: Tax Administration and Enforcement

AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

Analyze the tax implications for Yemmysea Beverages Limited’s proposed merger and acquisition arrangements, covering scenarios where a company absorbs another, a merger results in business cessation, and a business is sold or transferred. Additionally, explain the regulatory powers of the FIRS in mergers and acquisitions.

Question

Your firm has now been approached to offer professional advice on the tax implications of each of the following merger or acquisition arrangements:

Proposal 1: When an existing company absorbs another existing company.
Proposal 2: When a merger results in the cessation of business.
Proposal 3: When a business is sold or transferred.

Required:

As the company’s Tax Consultant, submit a report to the Managing Director explaining the following:

Tax implications when an existing company absorbs another existing company.
(5 Marks)
Tax implications when a merger results in the cessation of business.
(3 Marks)
Tax implications when a business is sold or transferred.
(3 Marks)
The powers of the Federal Inland Revenue Service (FIRS) on issues concerning mergers and acquisitions of companies.
(4 Marks)

Total: 15 Marks

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Transfer, Business Cessation, Capital Gains Tax (CGT), Compliance, Corporate Restructuring, FIRS Authority, Merger and Acquisition Tax Implications, Stamp Duty, Tax Reliefs, VAT
Level: Level 3

Topic: Taxation and Corporate Governance
Series: NOV 2022

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.

Question

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.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessable Profits, Business Cessation, Taxation of Construction Companies
Level: Level 2

Topic: Taxation of Specialized Businesses
Series: NOV 2018

PT – Mar 2024 – L2 – Q3c – Income Tax Liabilities

Compute the assessable income for all relevant years for Hajia Bintu after ceasing operations.

Question

Year	Agreed Profits (GH¢)
Year to 30/8/2019	18,000,000
Year to 30/8/2020	23,000,000
Year to 30/8/2021	28,000,000
Year to 30/8/2022	33,000,000
Period to 31/5/2023	50,000,000

Required:
Calculate the assessable income for all relevant years.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessable Income, Basis Period, Business Cessation, Tax computation
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2024

Question Tag: Business Cessation

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TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

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.

PT – Mar 2024 – L2 – Q3c – Income Tax Liabilities

Compute the assessable income for all relevant years for Hajia Bintu after ceasing operations.

TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

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.

PT – Mar 2024 – L2 – Q3c – Income Tax Liabilities

Compute the assessable income for all relevant years for Hajia Bintu after ceasing operations.

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TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

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AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

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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.

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PT – Mar 2024 – L2 – Q3c – Income Tax Liabilities

Compute the assessable income for all relevant years for Hajia Bintu after ceasing operations.

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TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

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AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

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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.

You're reporting an error for "TAX – Nov 2018 – L2 – SB – Q3 – Taxation of Specialized Businesses"

PT – Mar 2024 – L2 – Q3c – Income Tax Liabilities

Compute the assessable income for all relevant years for Hajia Bintu after ceasing operations.

You're reporting an error for "PT – Mar 2024 – L2 – Q3c – Income Tax Liabilities"

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