- 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.
Question
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:
- 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
- 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
- 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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