Change of Accounting Date

TAX – May 2015 – L2 – SB – Q3 – Companies Income Tax (CIT)

Steps involved in changing accounting date and computing assessable profits under both old and new dates, and cessation implications.

Question

Hopeful Limited, a manufacturing company, has been having declining profits and liquidity problems since 2010. The company changed its accounting year-end in 2010 from 31 May to 31 December.

The shareholders injected ₦10 million into the company in January 2011, which boosted its profits in 2011 and 2012.

Even with the increase in profits in 2011 and 2012, the Managing Director was of the opinion that it is better to cut the company’s losses, once and for all, by winding-up the company. However, the Finance Director disagreed and argued that since the company’s performance was now improving, it should continue to operate.

The Company’s Accountant has prepared the financial statements and the following are extracts:

Year	Profits (₦)
Year ended 31 May 2009	540,000
Year ended 31 May 2010	300,000
Seven months to 31 December 2010	645,000
Year ended 31 December 2011	1,575,000
Year ended 31 December 2012	1,876,500

The Chairman of Hopeful Limited invited you to his office on 12 June 2013, to educate him on the two concepts of change of accounting date and cessation of business as well as their tax implications.

Required:

a. Identify the steps involved in the event that HOPEFUL Limited adopts the change of accounting date. (6 Marks)
b. Compute the Assessable profits for 2011 – 2013, if the option to change accounting date is accepted, using both the old and the new dates. (7 Marks)
c. Compute the Assessable profits for the relevant years if the cessation option is accepted using the normal basis and the revised basis of assessment. (7 Marks)

Answer

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Tags: Assessable Profit, Change of Accounting Date, Companies Income Tax, Financial Accounting, Tax computation, Tax Planning
Level: Level 2

Topic: Companies Income Tax (CIT)
Series: MAY 2015

TAX – Nov 2014 – L2 – Q1 – The Nigerian Tax System

Compute CIT and Education Tax for Chief Ozone's business based on given financials.

Question

Chief Ozone, a versatile business personality who has been in business for many years, decided to set up a new family business. He commenced the new business of publishing books on 1 July 2008, under the name Seye Ventures Limited. The accounting year-end is 31 December each year.

Extracts from the financial records are as follows:

Period	31/12/08 (6 Months)	Year Ended 31/12/09
Revenue	N1,850,000	N2,320,000
Cost of Sales	(N500,000)	(N900,000)
Gross Profit (A)	N1,350,000	N1,420,000

Deductions:

Item	31/12/08	31/12/09
Newspapers	N75,000	N95,000
Depreciation	N150,000	N200,000
Salaries	N45,000	N55,000
Transport expenses	N85,000	N64,000
General provision for bad debts	N50,000	N46,000
Vehicle repairs	N95,000	N73,000
Formation expenses	N35,000	–
Purchase of equipment	N78,000	N68,000
Donation to political party	N25,000	N42,000
Loss on sale of Non-Current Assets	–	N60,000
Medical expenses	N30,000	N40,000
Total Cost (B)	N668,000	N743,000

Net Profit Calculation: Net Profit (A – B):

For period ending 31/12/08: N682,000
For year ending 31/12/09: N677,000

Additional Information:

Agreed Capital Allowances:
- 2009 Year of Assessment: N240,000
- 2010 Year of Assessment: N120,000

Chief Ozone traveled for a meeting, which led to discussions on compliance with taxation laws regarding change of accounting date.

Chief Ozone travelled from Benin to Abuja for a meeting between a team of
businessmen and the Federal Minister of Trade. During the meeting, the Minister
informed the delegates that for the operations of any business entity to be considered
for approval, it must comply with taxation laws.

Some of the delegates at the meeting gave different interpretations to the provisions of
the tax laws on the Change of Accounting Date. Chief Ozone was of the opinion that
whether a company changes its accounting date or not, normal tax computations
should apply. Mr. Jay, one of those who attended the meeting was of the opinion that
the procedure for determining the Change of Accounting Date was not clear to him.

The meeting was postponed till another date since the issues raised remained
unresolved.

Required:

a. Using the extracts provided, compute the Income and Tertiary Education taxes
for 2009 and 2010 Years of Assessment.
NOTE: Ignore the tax payer’s right of election. (15 Marks)

b. Explain briefly the rules on Change of Accounting Date under the Companies
Income Tax Act (CITA) that may resolve the issues of the pending delegates’
meeting. (10 Marks)

c. State the procedure for determining Companies Income Tax Liability arising
from a Change in Accounting Date. (5 Marks)

Answer

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Tags: Change of Accounting Date, CIT, Income Assessment, Tax computation
Level: Level 2

Topic: The Nigerian Tax System
Series: NOV 2014

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

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

Question

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)

Answer

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Tags: Assessable Profits, Basis Periods, Cessation, Change of Accounting Date
Level: Level 2

Topic: Taxation of Specialized Businesses
Series: MAY 2018

TAX – May 2015 – L2 – SB – Q3 – Companies Income Tax (CIT)

Steps involved in changing accounting date and computing assessable profits under both old and new dates, and cessation implications.

Question

Hopeful Limited, a manufacturing company, has been having declining profits and liquidity problems since 2010. The company changed its accounting year-end in 2010 from 31 May to 31 December.

The shareholders injected ₦10 million into the company in January 2011, which boosted its profits in 2011 and 2012.

The Company’s Accountant has prepared the financial statements and the following are extracts:

Year	Profits (₦)
Year ended 31 May 2009	540,000
Year ended 31 May 2010	300,000
Seven months to 31 December 2010	645,000
Year ended 31 December 2011	1,575,000
Year ended 31 December 2012	1,876,500

The Chairman of Hopeful Limited invited you to his office on 12 June 2013, to educate him on the two concepts of change of accounting date and cessation of business as well as their tax implications.

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessable Profit, Change of Accounting Date, Companies Income Tax, Financial Accounting, Tax computation, Tax Planning
Level: Level 2

Topic: Companies Income Tax (CIT)
Series: MAY 2015

TAX – Nov 2014 – L2 – Q1 – The Nigerian Tax System

Compute CIT and Education Tax for Chief Ozone's business based on given financials.

Question

Extracts from the financial records are as follows:

Period	31/12/08 (6 Months)	Year Ended 31/12/09
Revenue	N1,850,000	N2,320,000
Cost of Sales	(N500,000)	(N900,000)
Gross Profit (A)	N1,350,000	N1,420,000

Deductions:

Item	31/12/08	31/12/09
Newspapers	N75,000	N95,000
Depreciation	N150,000	N200,000
Salaries	N45,000	N55,000
Transport expenses	N85,000	N64,000
General provision for bad debts	N50,000	N46,000
Vehicle repairs	N95,000	N73,000
Formation expenses	N35,000	–
Purchase of equipment	N78,000	N68,000
Donation to political party	N25,000	N42,000
Loss on sale of Non-Current Assets	–	N60,000
Medical expenses	N30,000	N40,000
Total Cost (B)	N668,000	N743,000

Net Profit Calculation: Net Profit (A – B):

For period ending 31/12/08: N682,000
For year ending 31/12/09: N677,000

Additional Information:

Agreed Capital Allowances:
- 2009 Year of Assessment: N240,000
- 2010 Year of Assessment: N120,000

Chief Ozone traveled for a meeting, which led to discussions on compliance with taxation laws regarding change of accounting date.

The meeting was postponed till another date since the issues raised remained
unresolved.

Required:

a. Using the extracts provided, compute the Income and Tertiary Education taxes
for 2009 and 2010 Years of Assessment.
NOTE: Ignore the tax payer’s right of election. (15 Marks)

b. Explain briefly the rules on Change of Accounting Date under the Companies
Income Tax Act (CITA) that may resolve the issues of the pending delegates’
meeting. (10 Marks)

c. State the procedure for determining Companies Income Tax Liability arising
from a Change in Accounting Date. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Change of Accounting Date, CIT, Income Assessment, Tax computation
Level: Level 2

Topic: The Nigerian Tax System
Series: NOV 2014

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

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

Question

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessable Profits, Basis Periods, Cessation, Change of Accounting Date
Level: Level 2

Topic: Taxation of Specialized Businesses
Series: MAY 2018

Question Tag: Change of Accounting Date

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TAX – May 2015 – L2 – SB – Q3 – Companies Income Tax (CIT)

Steps involved in changing accounting date and computing assessable profits under both old and new dates, and cessation implications.

TAX – Nov 2014 – L2 – Q1 – The Nigerian Tax System

Compute CIT and Education Tax for Chief Ozone's business based on given financials.

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

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

TAX – May 2015 – L2 – SB – Q3 – Companies Income Tax (CIT)

Steps involved in changing accounting date and computing assessable profits under both old and new dates, and cessation implications.

TAX – Nov 2014 – L2 – Q1 – The Nigerian Tax System

Compute CIT and Education Tax for Chief Ozone's business based on given financials.

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

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

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TAX – May 2015 – L2 – SB – Q3 – Companies Income Tax (CIT)

Steps involved in changing accounting date and computing assessable profits under both old and new dates, and cessation implications.

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TAX – Nov 2014 – L2 – Q1 – The Nigerian Tax System

Compute CIT and Education Tax for Chief Ozone's business based on given financials.

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

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

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TAX – May 2015 – L2 – SB – Q3 – Companies Income Tax (CIT)

Steps involved in changing accounting date and computing assessable profits under both old and new dates, and cessation implications.

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TAX – Nov 2014 – L2 – Q1 – The Nigerian Tax System

Compute CIT and Education Tax for Chief Ozone's business based on given financials.

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

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

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