Question Tag: Deemed Disposal

Smaposu Nigeria Limited is based in Ibadan, Oyo State, and is involved in the manufacturing of computer accessories. The company undertook the following transactions during the year ended December 31, 2018:

(i) Plant and machinery: Part of the plant and machinery was purchased in the year 2014 at an all-inclusive price of ₦12,500,000. A machinery was sold for ₦8,100,000, and the value of the undisposed part was ₦5,740,000. Selling expenses incurred amounted to ₦150,000.

(ii) Motor vehicle: A motor vehicle, which was acquired in 2016 for ₦3,000,000 for the purpose of the business, was sold to the company’s general manager for ₦2,900,000. The market value of the car as at the point of disposal was ₦3,500,000. The company re-acquired a similar car for ₦3,500,000.

(iii) As a result of an unfavorable business climate in Ibadan, the company relocated to Ikeja, Lagos State. The land and buildings acquired in Ibadan in 2009 for ₦30,000,000 were sold for ₦65,500,000. The cost of valuation and professional fees incurred on disposal was ₦2,000,000. A reinvestment was made in Ikeja through the acquisition of another landed property valued at ₦50,000,000.

Smaposu Nigeria Limited has just appointed your firm as the company’s tax consultant.

You are required to advise the management on:

i. “Deemed” disposal of an asset. (5 Marks)
ii. The capital gains (if any) arising from these transactions. (6 Marks)
iii. The roll-over relief (if any) on re-investment made on the acquisition of new assets by the company. (4 Marks)
iv. Capital gains tax payable. (3 Marks)