CIT – NBC Institute

TAX – May 2017 – L2 – SC – Q6 – Companies Income Tax

Compute capital allowances and determine total profits, CIT, and TET for a manufacturing company.

Question

Campbell Limited, located in Arama Town, has been in business since 1994 and manufactures plastic containers. The company’s accounts for the year ended December 31, 2014, showed the following results:

Additional Information:

Unutilised Capital Allowance brought forward: N70,000
Tax Written Down Values of assets purchased in 2011:
- Motor vehicles: N40,000
- Furniture and Fittings: N60,000
- Plant: N70,000
In 2014, the company purchased the following assets:
- 2 Motor vehicles: N840,000
- 4 Furniture and Fittings: N160,000
- 1 Generating set: N300,000

Required:

a. Compute Capital Allowances assuming assets purchased in 2011 have been used for two years. (7 Marks)
b. Compute the Total Profits, Companies Income Tax (CIT), and Tertiary Education Tax (TET) for the relevant year of assessment. (8 Marks)

Answer

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Tags: Capital allowances, CIT, Corporate Tax, Tertiary Education Tax
Level: Level 2

Topic: Companies Income Tax (CIT)
Series: MAY 2017

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

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

Question

Johnson, Seyi, and Bernard, based in Kaduna State, have run the firm Johnson, Seyi & Bernard (Estate Managers) for several years. The partnership agreement provides the following:

(i) Salary paid to partners:

Johnson: N288,000
Seyi: N576,000
Bernard: N1,152,000

(ii) Profit-sharing ratio:

Johnson: 2
Seyi: 3
Bernard: 5

In April 2015, there was a decision to review the partnership agreement. Messrs Johnson, Seyi, and Bernard were unable to find worthy successors to take over as partners. Rather than review the partnership agreement, they agreed to convert the partnership into a limited liability company.

A firm of legal practitioners was contacted to incorporate a new company, JSB Consultants Limited. The Authorised Share Capital was agreed at N50,000,000, made up of 50,000,000 Ordinary Shares of N1.00 each. The shareholding structure is as follows:

Johnson: 20%
Seyi: 30%
Bernard: 50%

The Certificate of Incorporation was dated July 15, 2015, and the company commenced business on September 1, 2015. The cost of incorporation includes:

Payment for Stamp Duty: N400,000
Professional fee for incorporation: N250,000
Corporate Affairs Commission (CAC) registration fee: N500,000
Miscellaneous costs: N200,000
Total: N1,350,000

The financial results for the year ended December 31, 2015, are as follows:

Revenue: N20,000,000
Expenses:
- Cost of incorporation: N1,350,000
- Transport and travelling: N675,000
- Medical: N600,000
- Hotel and accommodation: N625,000
- Audit and accountancy: N550,000
- Postages and telephone: N750,000
- Salaries:
  - Johnson: N1,440,000
  - Seyi: N2,880,000
  - Bernard: N5,760,000
    Total expenses: N14,630,000
Net Profit: N5,370,000

Required:
As the Tax Consultant, you are required to write a report to Messrs Johnson, Seyi, and Bernard highlighting:
a. Tax implications of the decision to convert to a limited liability company, limiting yourself to the details provided. (11 Marks)
b. Your comment on the breakdown of the cost of incorporation of N1,350,000 and the tax implication of each item. (9 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: CIT, Incorporation, Partnership Conversion, Partnership Taxation, Tax implications
Level: Level 2

Topic: Companies Income Tax (CIT), Taxation of Partnerships and Sole Proprietorships
Series: NOV 2016

TAX – May 2017 – L2 – SC – Q6 – Companies Income Tax

Compute capital allowances and determine total profits, CIT, and TET for a manufacturing company.

Question

Additional Information:

Unutilised Capital Allowance brought forward: N70,000
Tax Written Down Values of assets purchased in 2011:
- Motor vehicles: N40,000
- Furniture and Fittings: N60,000
- Plant: N70,000
In 2014, the company purchased the following assets:
- 2 Motor vehicles: N840,000
- 4 Furniture and Fittings: N160,000
- 1 Generating set: N300,000

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital allowances, CIT, Corporate Tax, Tertiary Education Tax
Level: Level 2

Topic: Companies Income Tax (CIT)
Series: MAY 2017

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

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

Question

Johnson, Seyi, and Bernard, based in Kaduna State, have run the firm Johnson, Seyi & Bernard (Estate Managers) for several years. The partnership agreement provides the following:

(i) Salary paid to partners:

Johnson: N288,000
Seyi: N576,000
Bernard: N1,152,000

(ii) Profit-sharing ratio:

Johnson: 2
Seyi: 3
Bernard: 5

Johnson: 20%
Seyi: 30%
Bernard: 50%

The Certificate of Incorporation was dated July 15, 2015, and the company commenced business on September 1, 2015. The cost of incorporation includes:

Payment for Stamp Duty: N400,000
Professional fee for incorporation: N250,000
Corporate Affairs Commission (CAC) registration fee: N500,000
Miscellaneous costs: N200,000
Total: N1,350,000

The financial results for the year ended December 31, 2015, are as follows:

Revenue: N20,000,000
Expenses:
- Cost of incorporation: N1,350,000
- Transport and travelling: N675,000
- Medical: N600,000
- Hotel and accommodation: N625,000
- Audit and accountancy: N550,000
- Postages and telephone: N750,000
- Salaries:
  - Johnson: N1,440,000
  - Seyi: N2,880,000
  - Bernard: N5,760,000
    Total expenses: N14,630,000
Net Profit: N5,370,000

Answer

Find Related Questions by Tags, levels, etc.

Tags: CIT, Incorporation, Partnership Conversion, Partnership Taxation, Tax implications
Level: Level 2

Topic: Companies Income Tax (CIT), Taxation of Partnerships and Sole Proprietorships
Series: NOV 2016

Question Tag: CIT

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TAX – May 2017 – L2 – SC – Q6 – Companies Income Tax

Compute capital allowances and determine total profits, CIT, and TET for a manufacturing company.

Additional Information:

Required:

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

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

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

TAX – May 2017 – L2 – SC – Q6 – Companies Income Tax

Compute capital allowances and determine total profits, CIT, and TET for a manufacturing company.

Additional Information:

Required:

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

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

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

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TAX – May 2017 – L2 – SC – Q6 – Companies Income Tax

Compute capital allowances and determine total profits, CIT, and TET for a manufacturing company.

Additional Information:

Required:

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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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AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

You're reporting an error for "AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships"

TAX – May 2017 – L2 – SC – Q6 – Companies Income Tax

Compute capital allowances and determine total profits, CIT, and TET for a manufacturing company.

Additional Information:

Required:

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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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AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

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