- 5 Marks
TAX – Nov 2020 – L1 – SA – Q4a – Companies Income Tax (CIT)
Compute the assessable profit for Oxygen Nigeria Limited for the relevant period based on given profit or loss statements.
Question
Oxygen Nigeria Limited was incorporated on October 2, 2015, but it did not commence business until July 1, 2016. At the meeting of directors held on June 17, 2016, it was decided that the nature of the business of the company should be influenced by the main object clause of the Memorandum of Association of the company, which is, “to carry on business of importers, exporters, distributors, agents, and general contractors”.
Extracts of the company’s statements of profit or loss for the relevant period:
| Description | Year ended Dec. 31, 2018 (N) | Year ended Dec. 31, 2017 (N) | 6 months ended Dec. 31, 2016 (N) |
|---|---|---|---|
| Revenue | 19,500,000 | 17,200,000 | 8,210,000 |
| Direct cost | (2,900,000) | (2,800,000) | (1,200,000) |
| Gross profit | 16,600,000 | 14,400,000 | 7,010,000 |
| Other income | 36,000 | 18,000 | 9,000 |
| Distribution cost | (3,710,300) | (3,200,000) | (1,700,000) |
| Administrative expenses | (7,700,000) | (7,400,000) | (2,900,500) |
| Other expenses | (1,300,300) | (1,201,000) | (48,000) |
| Finance cost | (970,000) | (890,000) | (420,000) |
| Operating profit | 2,955,400 | 1,727,000 | 1,950,500 |
Additional information:
(i) Administrative expenses include:
| Expense Description | Year ended Dec. 31, 2018 (N) | Year ended Dec. 31, 2017 (N) | 6 months ended Dec. 31, 2016 (N) |
|---|---|---|---|
| Penalties and fines | 700,000 | 0 | 0 |
| Allowance for doubtful debts | 197,000 | 400,000 | 130,000 |
| Depreciation | 210,000 | 250,000 | 290,000 |
| Preliminary and formation expenses | 0 | 0 | 200,000 |
| Staff salaries | 2,600,000 | 2,150,000 | 1,960,000 |
| Office rent | 970,000 | 750,000 | 750,000 |
| Donation (Boys Brigade) | 30,000 | 0 | 9,000 |
Required:
Compute the assessable profit for the relevant assessment year.
(15 Marks)
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