Question Tag: Capital allowances

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AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

Question

Zezee Nigeria Limited was incorporated on September 7, 2012, but it did not commence business until July 1, 2013. Based on the Memorandum and Articles of Association, the company was incorporated to carry on the business of distributorship and general contracting.

Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:

Period	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Revenue	5,430,000	12,600,000	18,400,000
Direct Cost	(890,000)	(1,345,000)	(1,910,000)
Gross Profit	4,540,000	11,255,000	16,490,000
Other Income	45,000	458,150	201,000
Distribution Cost	(386,000)	(820,000)	(1,060,500)
Administrative Expenses	(4,810,550)	(6,510,440)	(8,240,600)
Other Expenses	(41,000)	(113,240)	(145,100)
Net (Loss)/Profit	(652,550)	4,269,470	7,244,800

Additional Information:

Other Income Comprises:

Details	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Sale of Scraps	–	57,000	–
Interest Received on Treasury Bills	–	325,000	120,000
Interest on Domiciliary Account	45,000	76,150	81,000
Total Other Income	45,000	458,150	201,000

Administrative Expenses Include:

Details	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Depreciation	160,000	320,000	440,000
Preliminary and Formation Expenses	216,000	–	–
Penalties and Fines	–	–	65,000
General Provision for Bad Debts	110,000	180,000	240,000
Staff Salaries	2,060,000	4,230,000	4,230,000
Office Rent	600,000	1,200,000	1,800,000

Details of Property, Plant, and Equipment are as follows:

Asset	Date of Purchase	Cost (N)
Furniture and Fittings	June 7, 2013	980,000
Motor Vehicles	June 30, 2013	2,400,000
Office Equipment	July 1, 2013	1,200,000

On January 2, 2015, the company bought another motor vehicle for N1,800,000.
Extracts of the Statements of Financial Position:

Period	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Net Assets	1,360,000	2,870,500	3,260,700
Paid-up Share Capital	5,000,000	5,000,000	5,000,000

Required:

For all the relevant years of assessment, you are required to:

a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)

(Total 30 Marks)

Answer

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Tags: Adjusted Profits, Capital allowances, Tax liabilities, Tax Rights, Taxable Income
Level: Level 3

Topic: Tax Administration and Dispute Resolution
Series: NOV 2016

ATAX – May 2019 – L3 – Q7b – Corporate Tax Compliance and Reporting

Compute the total tax liabilities for Alaba Trading Limited for the 2018 assessment year, considering its assessable profit, capital allowances, and dividend payable.

Question

For the assessment year 2018, below are the extracts from the tax computations of Alaba Trading Limited:

Item	Amount (₦)
Assessable profit	8,200,000
Capital allowances	5,400,000
Dividend payable	6,000,000

Required:
Determine the total tax liabilities of Alaba Trading Limited for the assessment year.

Answer

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Tags: Capital allowances, Corporate Tax, Dividend tax, Tax computation, Tax liabilities
Level: Level 3

Topic: Corporate Tax Compliance and Reporting

ATAX – May 2022 – L3 – Q1 – Taxation of Companies

Determination of tax liabilities, treatment of donations, and exemptions of dividends based on CIT Act provisions.

Question

Dadinkowa Nigeria Limited has been in business since 2009 as a manufacturer of sugar cubes. The company sources its raw materials, sugar cane, from the Northern part of the country. However, due to local security challenges, the company has faced supply disruptions since 2016.

Additionally, the company has disagreements with tax authorities regarding the treatment of certain items (e.g., donations and dividend income) in their financial statements and returns. High overhead costs, especially energy expenses, have worsened operational challenges.

At a recent board meeting, the directors proposed either a temporary closure or relocating to a neighboring country if conditions do not improve in the next fiscal year. The General Manager shared this with you during your visit as the company’s tax consultant, seeking your advice to address these issues.

A scheduled meeting with the Managing Director requires you to prepare a comprehensive tax report addressing:

Determination of the company’s tax liabilities for the relevant tax year.
Analysis of the treatment of donations and exemptions of dividend income under the Companies Income Tax Act (CITA).

The profit or loss account for the year ended December 31, 2021, is as follows:

Profit or Loss Account:

Extract from the company’s statement of financial position as at December 31, 2021 revealed:

The following additional information was made available:

(v) Interest on loan was paid on a facility obtained from a licensed Nigerian deposit money bank at commercial interest rate.
(vi) General and administrative expenses were made up of:

(vii) Donations and subscriptions
Included in donations was N12,000,000 paid to a fund created by the Federal Government for victims of communal crisis that took place where the company is situated.
(viii) The tax written down values of the qualifying capital expenditure (QCE) items as at December 31, 2020 were:

(ix) Additions to QCEs during the year ended December 31, 2021 were:

(x) Unrelieved capital allowances brought forward were N15,200,000.
(xi) Unabsorbed losses from previous years were:

Required:

As the company’s Tax Consultant, you are to draft a report to the Managing Director for the scheduled meeting expected to hold next week. This is expected to address the following:
a. Determination of the company’s tax liabilities for the relevant tax year. (20 Marks)
b. Comment, in line with the provisions of Companies Income Tax Act Cap C21 LFN 2004 (as amended) on:
i. The treatment of donations made by the company during the year under review (5 Marks)
ii. Exemption of dividends from taxation (5 Marks)

Answer

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Tags: Allowable and Disallowable Expenses, Capital allowances, Dividend Exemptions, Donations, Tax Incentives, Taxation of Companies
Level: Level 3

Topic: Taxation of Companies

ATAX – Nov 2016 – L3 – Q6b – Petroleum Profits Tax (PPT)

Determines assessable profit, chargeable profit, assessable tax, and chargeable tax for Bivenette Petroleum Company Limited.

Question

Bivenette Petroleum Company Limited has been in the oil prospecting business for some years. Extracts from its financial statements for the year ended December 31, 2013 show the following information:

Additional Information:

Petroleum Profits Tax rate: 85%
Interest paid includes N12,000,000 paid to an affiliated company.
Capital allowances agreed at N253,750,000.
Operating costs include N302,000,000 paid to a company for information on oil prospect in Adamawa State.
The company is entitled to an Investment Allowance of N173,000,000.

You are required to:

Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

Answer

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Tags: Assessable Profit, Capital allowances, Chargeable Tax, Investment Allowance, Oil and gas, Petroleum Profits Tax
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)

Tax computation for Debby Oil Limited, including adjustments, capital allowances, and tertiary education tax.

Question

Debby Oil Limited is an oil prospecting company that has been operating in the deep ocean of the Niger Delta since 1990. The company makes up its accounts to December 31 each year.

The company is in discussion with a consortium of five deposit money banks in Nigeria for the purposes of taking a medium-term (5 years) loan facility of USD 5 million to finance further expansion of its facilities and acquisition of a marginal field. As part of the documents required by the banks for processing the loan facility are the audited financial statements and tax computations for the last five financial years. The company is yet to submit the documents for the year ended December 31, 2020, to the consortium.

The extract from its activities for the year ended December 31, 2020, is as presented below:

Item	Amount (₦’000)
Oil inventory (Jan 1, 2020)	1,220,000
Oil inventory (Dec 31, 2020)	1,380,000
Sales – Export	9,524,000
Sales – Local	2,900,500
Other income	1,235,300
Production cost	3,440,000
Operating expenses	1,789,600
Intangible drilling cost	1,425,200
Tangible drilling cost	532,000
Traveling expenses	54,000
Salaries and wages	1,860,000
Pension fund contribution	175,000
Loan interest	150,000
General expenses	800,500
Depreciation	170,000
Royalties and production rentals	810,000
Donation	20,000
Bank charges	25,300
Harbour dues	15,000
Non-productive rent	350,000
Audit and accountancy fees	28,000
Customs duty on essentials	7,300
Income tax provision	865,860
Transfer to general reserves	900,000

Additional Information:

Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
Actual realised price is adjusted for deviation from the standard API gravity. Each degree change in API results in a price adjustment of USD 0.20.
650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
Other income of ₦735 million was generated from the company’s ocean tanker business. Associated expenses of ₦580.5 million were included in general expenses.
Operating expenses included ₦9 million for short lease renewal.
Pension fund contributions were approved by the State Internal Revenue Service.
Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
Transfer to general reserves was board-approved.
Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
Assume USD 1 is equivalent to ₦420.

Required:
As the company’s Assistant Tax Manager, draft a report to the Tax Manager showing the company’s tax liability for the relevant assessment year according to the Petroleum Profits Tax Act, Cap P.13, Laws of the Federation of Nigeria 2004 (as amended).

Answer

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Tags: Adjusted Profit, Assessable Profit, Capital allowances, Petroleum Profits Tax, Tax Liability Computation
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

ATAX – Nov 2020 – Q2 – Petroleum Profits Tax

Discuss the tax implications and appeals process for Sunny Oil Producing Nigeria Limited regarding its tax computation discrepancies.

Question

Sunny Oil Producing Nigeria Limited is engaged in petroleum exploration in the deep sea off the coast of Bight of Benin in the Niger delta region since 2005. It is involved in a production sharing contract with the Nigerian National Petroleum Corporation. In order to consolidate its position in the Nigerian oil and gas sector, the company intends to diversify its operations into the ocean-going oil tanker transportation business in the next few months.

The company submitted its annual returns and statement of tax computation in respect of the year ended December 31, 2018, to the Federal Inland Revenue Service office in April 2019, but there was a disagreement between the amount raised by the tax office and that of the company. A check by the financial accountant of the company revealed that capital allowances on plant and equipment acquired for N120.5 million during the year, as well as a donation of N50 million made to an institution of higher learning, were not taken into consideration in the determination of assessable profit. A letter explaining this discrepancy was written by the Managing Director to the FIRS, but instead of the issue being resolved, a notice, giving the company date and time for hearing before the Tax Appeal Tribunal was received.

In order for the company to be properly guided in the pursuit of the case before the tribunal, it was resolved that a competent firm of Chartered Accountants with a bias in oil and gas accounting and taxation should be engaged.

Your firm has been appointed as the company‘s tax consultants with the mandate of representing the company at the sittings of the Tax Appeal Tribunal. Relevant documents in respect of the acquisition of the plant and equipment and donation were made available to you.

The extract from the books of accounts of the company for the year ended December 31, 2018 revealed the following:
(i) Export sales:

Bonny light 150,000 barrels exported at 37° API
Forcados 100,000 barrels exported at 36° API
Bonny medium 90,000 barrels exported at 35° API

Price per barrel at 36° API:

Bonny Light: $63.03
Forcados: $65.00
Bonny medium: $64.53

(ii) Actual realised price is arrived at after adjusting for the variance in API. For every API, $0.03 is the variance in price at 36°.

(iii) Domestic sales: 80,000 barrels at N720 per barrel.

(iv) Expenses incurred include:

Description	Amount (N’000)
Operating expenses	255,000
Production and exploration	1,100,600
Intangible drilling cost	420,800
Administrative expenses	225,500
Non-productive rent	80,700
Bad debts written off	20,150
Repairs and renewals	92,600
Transportation and traveling	73,200
Royalties	222,900
Miscellaneous expenses	63,800
Salaries and wages	830,700
Pension fund contribution	74,450
Customs duty (non-essentials)	10,400
Harbour dues	3,300
Stamp duties on debenture	2,500
Interest on loan	52,350
Cost of 3 appraisal wells	120,000
Income tax provision	750,000
Transfer to special reserves	255,000

Additional Information:
(i) Production and exploration include N80 million incurred on tangible drilling operation and depreciation of N200.2 million.
(ii) Royalties include an amount of N22.5 million in respect of royalties on domestic sales.
(iii) Miscellaneous expenses include, among others, N12.75 million spent on obtaining information on the existence of oil in the Middle-Belt and N50 million donation to a public university in one of the states in the Niger delta region.
(iv) The Joint Tax Board gave approval for the operation of the pension fund contribution in the company.
(v) Interest on the loan includes N12.3 million paid to a subsidiary company. The transaction was made at the prevailing market rate.
(vi) The company entered into a gas contract with the following:

Company	Load factor	Amount (N’000)
Akin Gas Limited	66	220,000
Bollah Limited	71	350,000

(vii) Schedule of qualifying capital expenditure:

(viii) Unutilised capital allowance and loss brought forward from the previous year were N12.5 million and N750 million, respectively.
(ix) Capital allowance as agreed with the relevant tax authority was N130.25 million.
(x) The amount stated in respect of transfer to special reserves was approved by the company’s Board of Directors to be utilised for future investment opportunities.
(xi) Assume N305 is equivalent to US $1.
(xii) Profits from petroleum exported or sold domestically are taxable at 85%.

Required:
a. As the company‘s tax consultant, you are to draft a report to the Managing Director explaining the following:
i. The preparation which you and the company should make before the commencement of the proceedings at the tribunal. (2 Marks)
ii. Steps to be taken by the company if the decision of the tribunal is not acceptable to it. (2 Marks)
iii. The tax implication of the company‘s proposed transportation business. (1 Mark)

b. Re-computing the following:
i. Assessable profit (8 Marks)
ii. Chargeable profit (3 Marks)
iii. Assessable tax (1 Mark)
iv. Chargeable tax (1 Mark)
v. Total tax payable (2 Marks)

Answer

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Tags: Capital allowances, Petroleum taxation, Tax Dispute
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

AT – May – 2018 – L3 – SC – Q5b – Petroleum Profits Tax (PPT)

Tax computation for Ayokunle Oil Nigeria Ltd., a petroleum company, including assessable and chargeable profit based on expenses and sales.

Question

Ayokunle Oil Nigeria Limited engages in petroleum operations. The company was incorporated in 2005 but commenced business in January 2010. It operates in the continental shelf at a water depth of 155 metres. The company makes up its accounts to December 31 each year.

The company has presented the following statement of activities for the year ended December 31, 2016:

Sales of crude oil:
- Exported at $52 per barrel: 120,500 barrels
- Domestic at N12,250 per barrel: 70,000 barrels
Chargeable natural gas sold: N300,800,000
Income from other sources: N6,770,000

Expenses incurred:

Expense Type	Amount (₦)
Operating costs	523,750
Non-productive rent	110,420
Intangible drilling cost	439,000
Custom duty	53,200
Salaries and other personnel costs	280,500
Interest paid	50,410
Royalty on oil exported	110,600
Royalty on local sales	41,200
Stamp duty	1,050
Donations	22,000
Transportation	72,070
Administration and general expenses	340,200
Bad debts	66,000
Pension contribution	21,000
Miscellaneous expenses	32,170

Additional Information:

Capital allowances were agreed at ₦133,000,000.
Plant and storage tank acquired and used during the year amounted to ₦80,000,000.
Depreciation of ₦105,000,000 was included in operating costs.
Custom duty on plant and storage tank, ₦2,250,000, was included in miscellaneous expenses.
70% of custom duty was on essential items.
The average exchange rate during the period was ₦365 to $1 (USA).

Required:

Determine for the relevant assessment year the following:

a. Assessable Profit (7 Marks)
b. Chargeable Profit (3 Marks)
c. Chargeable Tax (1 Mark)

(Total 15 Marks)

Answer

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Tags: Assessable Profit, Capital allowances, Chargeable Natural Gas, Depreciation Adjustments, Petroleum Profits Tax
Level: Level 3

Topic: Petroleum Profits Tax (PPT)
Series: MAY 2018

AT – May 2018 – L3 – SB – Q2b – Petroleum Profits Tax (PPT)

Calculate assessable profit, chargeable profit, chargeable tax, and total tax liability for Ibrahim Oil Nigeria Ltd.

Question

Ibrahim Oil Nigeria Limited is an oil prospecting company which commenced production in commercial quantity in 2008. Its accounting year end is December 31. The company has provided the following Statement of Profit or Loss for the year ended December 31, 2016:

Description	Amount (N’000)
Revenue (value of oil produced)	2,455,200
Operating costs	(952,500)
Non-productive rent	(63,200)
Royalty on export sales	(14,775)
Depreciation of Property Plant and Equipment	(65,400)
Tangible drilling cost	(53,800)
Donation	(2,500)
Stamp duties	(1,250)
Repairs and renewal of machinery	(2,000)
Exploration and drilling costs	(100,300)
Custom duties on Plant and Machinery	(1,130)
Bad and doubtful debts	(26,500)
Pension and provident funds	(30,600)
Interest paid	(26,200)
General expenses	(11,050)
Income tax provision	(120,000)
Net Profit	983,995

Additional Information:

Exploration and drilling costs are itemized for various wells totaling 100,300 N’000.
A breakdown of bad debts shows 16,500 N’000 as specific provision.
Capital allowances are agreed at N88,100,000.

Required: Determine for the relevant assessment year, the following:

(i) Assessable Profit (9 Marks)
(ii) Chargeable Profit (3 Marks)
(iii) Chargeable Tax (2 Marks)
(iv) Total Tax Liability (1 Mark)

Answer

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Tags: Assessable Profit, Capital allowances, Chargeable Profit, Chargeable Tax, Export Sales, Petroleum Profits Tax Act
Level: Level 3

Topic: Petroleum Profits Tax (PPT)
Series: MAY 2018

FM – Nov 2018 – L3 – Q2 – Financing Decisions and Capital Markets

Evaluate financing options for machine acquisition using present value and compare traditional financing with Islamic finance.

Question

Tamilore Limited (TL) is an agro-based firm, specializing in yam and rice production in Benue State of Nigeria. One of the harvesters is due to be replaced on November 30, 2018, the last day of TL’s current financial year. An investment appraisal exercise has recently been completed which confirmed that it is financially beneficial to replace the machine at this point. TL is now considering how best to finance the acquisition of the harvester to be replaced. TL is already highly geared.

A government development agency has offered the following two alternative methods of financing the machine:

Alternative 1
A loan of N49,200,000 at 6% interest rate to buy the machine on November 30, 2018. If this option is selected, the machine will be depreciated on a straight-line basis over its estimated useful life of 5 years.

Alternative 2
Enter into a finance lease. This will involve payment of annual rental of N12 million with the first payment due on November 30, 2019. The lease payments will be for the entire estimated useful life of the machine, which is 5 years, after which ownership will pass to TL without further payment.

Other information

(i) Whether leased or purchased outright, maintenance would remain the responsibility of TL and would be N450,000 payable annually in advance.
(ii) TL is liable to tax at a rate of 25%, payable annually at the end of the year in which the tax charge or tax saving arises.
(iii) TL is able to claim capital allowances on the full capital cost of the machine in equal installments over the first four years of the machine.
(iv) Assume that TL has sufficient taxable profits to benefit from any savings arising therefrom.
(v) All workings in N’000.

Required:

a. Show that the implied interest rate in the lease agreement is 7%. (3 Marks)

b. Advise, using present value method, whether Tamilore Limited should borrow to buy the machine or lease it. (12 Marks)

c. Instead of lease financing, one director has suggested an equivalent Islamic finance.

i. Explain briefly the principles of Islamic finance. (2 Marks)

ii. Explain three main advantages of Islamic finance. (3 Marks)

Answer

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Tags: Capital allowances, Financing decisions, Investment Appraisal, Islamic Finance, Lease vs Buy, Present Value Analysis, Tax implications
Level: Level 3

Topic: Financing Decisions and Capital Markets

AT – Nov 2023 – L3 – SC – Q7 – Taxation of Specialized Businesses

Calculation of tax liabilities under the Mining Act and an explanation of tax neutralities with applications to policy issues.

Question

Udi Nigeria Limited is a mining company which was established ten years ago. The company makes up its accounts to December 31 of every year. The Managing Director, who is an engineer, while having a chat with his former colleagues in the university during the week, heard for the first time, the concept of tax neutralities. He wondered how tax could be neutral.

On getting to the office the following week, he requested further information on tax neutralities from the accountant, but based on his personal opinion, the accountant’s response was not convincing enough.

The company is in the process of filing its annual returns for the year ended December 31, 2021, to the tax authorities. The Managing Director has directed the Financial Accountant to forward the following reports to you (being the company’s Tax Consultant) in respect of the company’s operational activities for the year:

Operational Results:

Description	N’000
Gross Turnover	125,490
Salaries and Wages	25,900
Depreciation of Mining Equipment	15,400
Transport and Traveling	2,100
Repairs and Maintenance	3,700
Allowance for Bad Debts	6,200
Electricity and Other Utilities	4,660
Legal and Professional Fees	4,850
Certified Exploration Expenditure	4,500
Administrative Expenses	1,450
Development and Processing Expenditure	2,500
Miscellaneous Expenses	3,420
Total Deductibles	74,680
Net Profit	50,810

Additional Information:

Repairs and maintenance included an amount of N1,500,000, being cost of fittings incurred at the operational site.
Capital allowances computed:
- Brought forward: N750,000
- Current year (excluding current year capital expenditure): N12,200,000
- Total: N12,950,000

Required:

As the company’s Tax Consultant, you are to prepare a report to the Managing Director of Udi Nigeria Limited, which will:

a. Show the tax liabilities payable by the company for the relevant assessment year in line with the provisions of Nigerian Minerals and Mining Act 2007 (as amended). (9 Marks)

b. Explain the concept of tax neutralities and its applications to specific policy issues. (6 Marks)

Answer

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Tags: Capital allowances, Corporate Taxation, Mineral Resources, Mining Taxation, Nigerian Tax System, Policy Implications, Tax Compliance, Tax Neutrality
Level: Level 3

Topic: Taxation of Specialized Businesses
Series: NOV 2023

AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

Question

Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:

Period	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Revenue	5,430,000	12,600,000	18,400,000
Direct Cost	(890,000)	(1,345,000)	(1,910,000)
Gross Profit	4,540,000	11,255,000	16,490,000
Other Income	45,000	458,150	201,000
Distribution Cost	(386,000)	(820,000)	(1,060,500)
Administrative Expenses	(4,810,550)	(6,510,440)	(8,240,600)
Other Expenses	(41,000)	(113,240)	(145,100)
Net (Loss)/Profit	(652,550)	4,269,470	7,244,800

Additional Information:

Other Income Comprises:

Details	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Sale of Scraps	–	57,000	–
Interest Received on Treasury Bills	–	325,000	120,000
Interest on Domiciliary Account	45,000	76,150	81,000
Total Other Income	45,000	458,150	201,000

Administrative Expenses Include:

Details	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Depreciation	160,000	320,000	440,000
Preliminary and Formation Expenses	216,000	–	–
Penalties and Fines	–	–	65,000
General Provision for Bad Debts	110,000	180,000	240,000
Staff Salaries	2,060,000	4,230,000	4,230,000
Office Rent	600,000	1,200,000	1,800,000

Details of Property, Plant, and Equipment are as follows:

Asset	Date of Purchase	Cost (N)
Furniture and Fittings	June 7, 2013	980,000
Motor Vehicles	June 30, 2013	2,400,000
Office Equipment	July 1, 2013	1,200,000

On January 2, 2015, the company bought another motor vehicle for N1,800,000.
Extracts of the Statements of Financial Position:

Period	6 Months Ended Dec 31, 2013	Year Ended Dec 31, 2014	Year Ended Dec 31, 2015
Net Assets	1,360,000	2,870,500	3,260,700
Paid-up Share Capital	5,000,000	5,000,000	5,000,000

Required:

For all the relevant years of assessment, you are required to:

(Total 30 Marks)

Answer

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Tags: Adjusted Profits, Capital allowances, Tax liabilities, Tax Rights, Taxable Income
Level: Level 3

Topic: Tax Administration and Dispute Resolution
Series: NOV 2016

ATAX – May 2019 – L3 – Q7b – Corporate Tax Compliance and Reporting

Compute the total tax liabilities for Alaba Trading Limited for the 2018 assessment year, considering its assessable profit, capital allowances, and dividend payable.

Question

For the assessment year 2018, below are the extracts from the tax computations of Alaba Trading Limited:

Item	Amount (₦)
Assessable profit	8,200,000
Capital allowances	5,400,000
Dividend payable	6,000,000

Required:
Determine the total tax liabilities of Alaba Trading Limited for the assessment year.

Answer

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Tags: Capital allowances, Corporate Tax, Dividend tax, Tax computation, Tax liabilities
Level: Level 3

Topic: Corporate Tax Compliance and Reporting

ATAX – May 2022 – L3 – Q1 – Taxation of Companies

Determination of tax liabilities, treatment of donations, and exemptions of dividends based on CIT Act provisions.

Question

A scheduled meeting with the Managing Director requires you to prepare a comprehensive tax report addressing:

Determination of the company’s tax liabilities for the relevant tax year.
Analysis of the treatment of donations and exemptions of dividend income under the Companies Income Tax Act (CITA).

The profit or loss account for the year ended December 31, 2021, is as follows:

Profit or Loss Account:

Extract from the company’s statement of financial position as at December 31, 2021 revealed:

The following additional information was made available:

(v) Interest on loan was paid on a facility obtained from a licensed Nigerian deposit money bank at commercial interest rate.
(vi) General and administrative expenses were made up of:

(ix) Additions to QCEs during the year ended December 31, 2021 were:

(x) Unrelieved capital allowances brought forward were N15,200,000.
(xi) Unabsorbed losses from previous years were:

Required:

Answer

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Tags: Allowable and Disallowable Expenses, Capital allowances, Dividend Exemptions, Donations, Tax Incentives, Taxation of Companies
Level: Level 3

Topic: Taxation of Companies

ATAX – Nov 2016 – L3 – Q6b – Petroleum Profits Tax (PPT)

Determines assessable profit, chargeable profit, assessable tax, and chargeable tax for Bivenette Petroleum Company Limited.

Question

Additional Information:

Petroleum Profits Tax rate: 85%
Interest paid includes N12,000,000 paid to an affiliated company.
Capital allowances agreed at N253,750,000.
Operating costs include N302,000,000 paid to a company for information on oil prospect in Adamawa State.
The company is entitled to an Investment Allowance of N173,000,000.

You are required to:

Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

Answer

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Tags: Assessable Profit, Capital allowances, Chargeable Tax, Investment Allowance, Oil and gas, Petroleum Profits Tax
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

ATAX – Nov 2021 – L3 – Q2 – Petroleum Profits Tax (PPT)

Tax computation for Debby Oil Limited, including adjustments, capital allowances, and tertiary education tax.

Question

Debby Oil Limited is an oil prospecting company that has been operating in the deep ocean of the Niger Delta since 1990. The company makes up its accounts to December 31 each year.

The extract from its activities for the year ended December 31, 2020, is as presented below:

Item	Amount (₦’000)
Oil inventory (Jan 1, 2020)	1,220,000
Oil inventory (Dec 31, 2020)	1,380,000
Sales – Export	9,524,000
Sales – Local	2,900,500
Other income	1,235,300
Production cost	3,440,000
Operating expenses	1,789,600
Intangible drilling cost	1,425,200
Tangible drilling cost	532,000
Traveling expenses	54,000
Salaries and wages	1,860,000
Pension fund contribution	175,000
Loan interest	150,000
General expenses	800,500
Depreciation	170,000
Royalties and production rentals	810,000
Donation	20,000
Bank charges	25,300
Harbour dues	15,000
Non-productive rent	350,000
Audit and accountancy fees	28,000
Customs duty on essentials	7,300
Income tax provision	865,860
Transfer to general reserves	900,000

Additional Information:

Posted prices of crude oil exported is USD 35 per barrel at the standard API gravity of 32°.
Actual realised price is adjusted for deviation from the standard API gravity. Each degree change in API results in a price adjustment of USD 0.20.
650,000 barrels of crude oil were exported during the year with an API gravity of 34°.
Other income of ₦735 million was generated from the company’s ocean tanker business. Associated expenses of ₦580.5 million were included in general expenses.
Operating expenses included ₦9 million for short lease renewal.
Pension fund contributions were approved by the State Internal Revenue Service.
Loan interest included ₦78 million paid to a subsidiary company, approved by the board.
A new pipeline and storage tank costing ₦150 million was acquired for offshore operations in a 180-meter deep area.
Transfer to general reserves was board-approved.
Capital allowances agreed with the tax authorities include an annual allowance of ₦120 million and a balancing charge of ₦8 million.
Assume USD 1 is equivalent to ₦420.

Answer

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Tags: Adjusted Profit, Assessable Profit, Capital allowances, Petroleum Profits Tax, Tax Liability Computation
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

ATAX – Nov 2020 – Q2 – Petroleum Profits Tax

Discuss the tax implications and appeals process for Sunny Oil Producing Nigeria Limited regarding its tax computation discrepancies.

Question

The extract from the books of accounts of the company for the year ended December 31, 2018 revealed the following:
(i) Export sales:

Bonny light 150,000 barrels exported at 37° API
Forcados 100,000 barrels exported at 36° API
Bonny medium 90,000 barrels exported at 35° API

Price per barrel at 36° API:

Bonny Light: $63.03
Forcados: $65.00
Bonny medium: $64.53

(ii) Actual realised price is arrived at after adjusting for the variance in API. For every API, $0.03 is the variance in price at 36°.

(iii) Domestic sales: 80,000 barrels at N720 per barrel.

(iv) Expenses incurred include:

Description	Amount (N’000)
Operating expenses	255,000
Production and exploration	1,100,600
Intangible drilling cost	420,800
Administrative expenses	225,500
Non-productive rent	80,700
Bad debts written off	20,150
Repairs and renewals	92,600
Transportation and traveling	73,200
Royalties	222,900
Miscellaneous expenses	63,800
Salaries and wages	830,700
Pension fund contribution	74,450
Customs duty (non-essentials)	10,400
Harbour dues	3,300
Stamp duties on debenture	2,500
Interest on loan	52,350
Cost of 3 appraisal wells	120,000
Income tax provision	750,000
Transfer to special reserves	255,000

Company	Load factor	Amount (N’000)
Akin Gas Limited	66	220,000
Bollah Limited	71	350,000

(vii) Schedule of qualifying capital expenditure:

b. Re-computing the following:
i. Assessable profit (8 Marks)
ii. Chargeable profit (3 Marks)
iii. Assessable tax (1 Mark)
iv. Chargeable tax (1 Mark)
v. Total tax payable (2 Marks)

Answer

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Tags: Capital allowances, Petroleum taxation, Tax Dispute
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

AT – May – 2018 – L3 – SC – Q5b – Petroleum Profits Tax (PPT)

Tax computation for Ayokunle Oil Nigeria Ltd., a petroleum company, including assessable and chargeable profit based on expenses and sales.

Question

The company has presented the following statement of activities for the year ended December 31, 2016:

Sales of crude oil:
- Exported at $52 per barrel: 120,500 barrels
- Domestic at N12,250 per barrel: 70,000 barrels
Chargeable natural gas sold: N300,800,000
Income from other sources: N6,770,000

Expenses incurred:

Expense Type	Amount (₦)
Operating costs	523,750
Non-productive rent	110,420
Intangible drilling cost	439,000
Custom duty	53,200
Salaries and other personnel costs	280,500
Interest paid	50,410
Royalty on oil exported	110,600
Royalty on local sales	41,200
Stamp duty	1,050
Donations	22,000
Transportation	72,070
Administration and general expenses	340,200
Bad debts	66,000
Pension contribution	21,000
Miscellaneous expenses	32,170

Additional Information:

Capital allowances were agreed at ₦133,000,000.
Plant and storage tank acquired and used during the year amounted to ₦80,000,000.
Depreciation of ₦105,000,000 was included in operating costs.
Custom duty on plant and storage tank, ₦2,250,000, was included in miscellaneous expenses.
70% of custom duty was on essential items.
The average exchange rate during the period was ₦365 to $1 (USA).

Required:

Determine for the relevant assessment year the following:

a. Assessable Profit (7 Marks)
b. Chargeable Profit (3 Marks)
c. Chargeable Tax (1 Mark)

(Total 15 Marks)

Answer

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Tags: Assessable Profit, Capital allowances, Chargeable Natural Gas, Depreciation Adjustments, Petroleum Profits Tax
Level: Level 3

Topic: Petroleum Profits Tax (PPT)
Series: MAY 2018

AT – May 2018 – L3 – SB – Q2b – Petroleum Profits Tax (PPT)

Calculate assessable profit, chargeable profit, chargeable tax, and total tax liability for Ibrahim Oil Nigeria Ltd.

Question

Description	Amount (N’000)
Revenue (value of oil produced)	2,455,200
Operating costs	(952,500)
Non-productive rent	(63,200)
Royalty on export sales	(14,775)
Depreciation of Property Plant and Equipment	(65,400)
Tangible drilling cost	(53,800)
Donation	(2,500)
Stamp duties	(1,250)
Repairs and renewal of machinery	(2,000)
Exploration and drilling costs	(100,300)
Custom duties on Plant and Machinery	(1,130)
Bad and doubtful debts	(26,500)
Pension and provident funds	(30,600)
Interest paid	(26,200)
General expenses	(11,050)
Income tax provision	(120,000)
Net Profit	983,995

Additional Information:

Exploration and drilling costs are itemized for various wells totaling 100,300 N’000.
A breakdown of bad debts shows 16,500 N’000 as specific provision.
Capital allowances are agreed at N88,100,000.

Required: Determine for the relevant assessment year, the following:

(i) Assessable Profit (9 Marks)
(ii) Chargeable Profit (3 Marks)
(iii) Chargeable Tax (2 Marks)
(iv) Total Tax Liability (1 Mark)

Answer

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Tags: Assessable Profit, Capital allowances, Chargeable Profit, Chargeable Tax, Export Sales, Petroleum Profits Tax Act
Level: Level 3

Topic: Petroleum Profits Tax (PPT)
Series: MAY 2018

FM – Nov 2018 – L3 – Q2 – Financing Decisions and Capital Markets

Evaluate financing options for machine acquisition using present value and compare traditional financing with Islamic finance.

Question

A government development agency has offered the following two alternative methods of financing the machine:

Other information

Required:

a. Show that the implied interest rate in the lease agreement is 7%. (3 Marks)

b. Advise, using present value method, whether Tamilore Limited should borrow to buy the machine or lease it. (12 Marks)

c. Instead of lease financing, one director has suggested an equivalent Islamic finance.

i. Explain briefly the principles of Islamic finance. (2 Marks)

ii. Explain three main advantages of Islamic finance. (3 Marks)

Answer

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Tags: Capital allowances, Financing decisions, Investment Appraisal, Islamic Finance, Lease vs Buy, Present Value Analysis, Tax implications
Level: Level 3

Topic: Financing Decisions and Capital Markets

AT – Nov 2023 – L3 – SC – Q7 – Taxation of Specialized Businesses

Calculation of tax liabilities under the Mining Act and an explanation of tax neutralities with applications to policy issues.

Question

Operational Results:

Description	N’000
Gross Turnover	125,490
Salaries and Wages	25,900
Depreciation of Mining Equipment	15,400
Transport and Traveling	2,100
Repairs and Maintenance	3,700
Allowance for Bad Debts	6,200
Electricity and Other Utilities	4,660
Legal and Professional Fees	4,850
Certified Exploration Expenditure	4,500
Administrative Expenses	1,450
Development and Processing Expenditure	2,500
Miscellaneous Expenses	3,420
Total Deductibles	74,680
Net Profit	50,810

Additional Information:

Repairs and maintenance included an amount of N1,500,000, being cost of fittings incurred at the operational site.
Capital allowances computed:
- Brought forward: N750,000
- Current year (excluding current year capital expenditure): N12,200,000
- Total: N12,950,000

Required:

As the company’s Tax Consultant, you are to prepare a report to the Managing Director of Udi Nigeria Limited, which will:

a. Show the tax liabilities payable by the company for the relevant assessment year in line with the provisions of Nigerian Minerals and Mining Act 2007 (as amended). (9 Marks)

b. Explain the concept of tax neutralities and its applications to specific policy issues. (6 Marks)

Answer

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Tags: Capital allowances, Corporate Taxation, Mineral Resources, Mining Taxation, Nigerian Tax System, Policy Implications, Tax Compliance, Tax Neutrality
Level: Level 3

Topic: Taxation of Specialized Businesses
Series: NOV 2023

Question Tag: Capital allowances

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