Question Tag: Deferred Tax

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  • 20 Marks

AAA – Nov 2020 – L3 – Q5 – Advanced Audit Planning and Strategy

Identification of financial statement risks in planning the final audit for Maideline Nigeria Limited’s winding-up.

Maideline Nigeria Limited manufactures tyres for use by cars, trucks, and trailers. The company is owner-managed, meaning the shareholders are also the directors. On June 1, 2020, the directors decided to wind up the company due to the high cost of operations, the Naira’s depreciation against the US dollar, and the economic impact of COVID-19, which have severely impacted the company’s ability to continue business.

Management notified employees, suppliers, and customers that Maideline would cease all manufacturing activities by September 30. Consequently, all factory workers and most employees in accounts and administration were terminated effective September 30. Remaining employees will face redundancy by November 30. A minimal head office team, including the Company Secretary and some support staff, will remain operational for a few more years until the company winds down completely.

Maideline operated 20 branches and a head office. Of these, 12 branches are located in company-owned buildings, while the remaining 8 operate from leased buildings with lease terms of three to five years. Lease agreements prohibit sub-letting and sale. On adopting IFRS 16, the entity assumed lease renewals at term end, recording lease liabilities and right-of-use assets. A small head office building will remain in use until its lease expires in three years. Maideline accounts for its tangible non-current assets at cost, less depreciation, and has recognized deferred tax assets due to past tax losses and unutilized capital allowances.

All products sold carry a one-year warranty. Until May 31, 2020, the company offered two- and three-year extended warranties, but these were discontinued from March 1, 2020. Maideline distributes products nationally and internationally under three-year agreements and maintains annual supplier contracts. While no distributors or suppliers have pursued legal actions, some are withholding payments, awaiting penalty settlements they claim are due.

Required:
Using the information provided, identify and explain the financial statement risks to be taken into account in planning the final audit of Maideline in respect of the year ended December 31, 2020. (20 Marks)

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  • 20 Marks

CR – Nov 2020 – L3 – Q3 – Impairment of Assets (IAS 36)

Discuss the accounting treatment of Tupe Print's investment in Adowa plc, advise on deferred tax assets, and determine the recoverable amount of equipment.

Tupe Print plc has just recently acquired 18% of the shareholding in Adowa plc, making it the second largest single shareholder. The majority shareholder has 58% voting shares, while the remainder of the shares are held by ten other shareholders, with none holding more than 5% voting shares. The board of directors of Adowa is made up of 12 members, with Tupe Print having 3 members and the majority shareholder having 7 members. Tupe Print was able to negotiate its representation on the board due to its strategic importance in Adowa‘s operations and expansion plans. The directors of Tupe Print have accounted for its investment in Adowa as an equity instrument investment. The directors feel Adowa should not be accounted for as an associate because Tupe Print does not have 20% of the voting interest and thus does not exercise significant influence over Adowa.

Adowa has been making losses for the past three years and has only returned a taxable profit once in the last five years. The projection is that Adowa will return to making taxable profits in another five years. As part of the acquisition of shares in Adowa, deferred tax assets for deductible temporary differences arose. The directors of Tupe Print are unsure of how to account for this deferred tax asset.

Tupe Print has an item of equipment which costs N56 million. This item of plant and equipment currently has a carrying value in the financial statements of N39.2 million. Tupe Print expects the operation of the equipment to generate undiscounted cash flows of N7 million per year for the next five years. Tupe Print could generate immediate cash flow of N40 million if the equipment is disposed of today. However, if the disposal is carried out, it will have to pay a sales commission of 8.5%. The directors of Tupe Print are performing an annual impairment review and understand that determining the recoverable amount is an important part of this exercise.

Required:

a. Discuss how the investment in Adowa plc should be accounted for in the financial statements of Tupe Print plc. (7 Marks)

b. Advise the directors of Tupe Print on how the deferred tax asset that has arisen should be accounted for. (7 Marks)

c. Assist the directors of Tupe Print in determining the recoverable amount of the equipment. You may assume a discount rate of 10% or a five-year annuity rate of 3.791 (if relevant). (6 Marks)

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  • 20 Marks

CR – May 2024 – L3 – SB – Q3 – Income Taxes (IAS 12)

Deferred tax impact analysis for asset purchase, fair value adjustments, and subsidiary profit

Below is the statement of financial position (extract) of Bamboo PLC, a company with several subsidiaries across various regions, including one foreign subsidiary, Pako Limited, based in the USA:

Draft Statement of Financial Position
As at October 31, 2023

Assets N’m
Deferred tax 77
Other non-current assets 2,329
Inventories and other current assets 1,150
Cash and cash equivalents 422
Total assets 3,978
Liabilities and Equity
Other non-current liabilities 1,671
Deferred tax liabilities 186
Payables and accruals 1,131
Total liabilities 2,988
Equity
Share capital 250
Share premium 120
Retained earnings 620
Total equity 990
Total liabilities and equity 3,978

During the preparation of the final draft of the financial statements, the following issues regarding deferred tax implications were raised:

  1. Property, Plant, and Equipment
    • On November 1, 2022, Bamboo PLC acquired an asset for N120 million, which qualified for a government capital grant of N20 million. The asset has a five-year useful life with straight-line depreciation. Capital allowances are restricted by the grant amount, and tax laws allow a 25% annual capital allowance rate.
  2. Fair Value Adjustments
    • Bamboo PLC acquired Iroko Limited for N100 million, with net assets fair valued at N80 million against a tax base of N70 million. The difference relates to property, plant, and equipment that Iroko Limited intends to hold long-term.
  3. Profit from Foreign Subsidiary
    • Bamboo PLC’s foreign subsidiary, Pako Limited, has $5,000 in undistributed post-acquisition profit, which would incur a N4 million tax if remitted to Nigeria. Bamboo PLC plans to retain these earnings for Pako Limited’s reinvestment.

Required:

a. Briefly explain and calculate, where applicable, the deferred tax implications for each transaction. (15 Marks)

b. Show the deferred tax effects on the draft statement of financial position for Bamboo PLC. (5 Marks)

Note: Use a 30% tax rate for calculations.

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  • 15 Marks

CR – May 2018 – L3 – SC – Q5b – Consolidated Financial Statements (IFRS 10)

Compute deferred tax provision and charge for Tola Plc. as of December 31, 2017.

The following information relates to Tola Plc. as at December 31, 2017:

Description Carrying Amount (N) Tax Base (N)
Plant and equipment 250,000 218,750
Receivables:
Trade receivables 62,500 68,750
Interest receivable 1,250 0
Payables:
Fine 12,500 0
Interest payable 2,500 0

Further information:

  1. The trade receivables balance includes balances of N68,750 less a specific doubtful debt provision of N6,250.
  2. Deferred tax balance as of January 1, 2017, was N1,500.
  3. Interest is taxed on a cash basis.
  4. Doubtful debt allowances are not tax-deductible; receivables are only deductible upon a court order.
  5. Fines are non-deductible for tax purposes.
  6. The tax rate for 2017 is 30%, with an anticipated rise to 36% in 2018.

Required:

Compute the deferred tax provision required as of December 31, 2017, and the charge to profit or loss for the period in accordance with IAS 12 – Income Taxes.
(11 Marks)

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  • 4 Marks

CR – May 2018 – L3 – SC – Q5a – Regulatory Environment for Corporate Reporting

Distinguishes deferred tax perspectives in financial statements.

Deferred tax can be determined by adopting two perspectives that may result in different numbers in the financial statements and tax computations. These are statement of comprehensive income and statement of financial position perspectives.

Required:

Distinguish between the TWO perspectives of identifying deferred tax balances in the financial statements.
(4 Marks)

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  • 15 Marks

AT – Nov 2022 – L3 – Q7 -Taxation and Corporate Governance

Calculate the tax liabilities and deferred tax provisions for ICTREC Mining Company Limited, ensuring compliance with Nigerian tax law and addressing FIRS requirements for accurate financial reporting. The report will guide the company in meeting its tax obligations and preparing financial statements free of queries.

The Managing Director of ICTREC Mining Company Limited is concerned about the correct computation and presentation of deferred taxes in the company’s financial statements. Last year, the Federal Inland Revenue Service raised a query on the company’s financial statements and the annual tax returns filed for tax assessment purposes.

To avoid any future tax queries on the financial statements, the Managing Director has approached your firm of chartered accountants to assist in preparing financial statements suitable for presentation at the company’s annual general meeting and submission to the tax authorities for determining tax liabilities.

All relevant books of accounts for ICTREC Mining Company Limited’s financial transactions have been made available to you. The following is an extract from the accounts for the year ended December 31, 2021:

Income and Expenses (N’000):

  • Turnover: 125,400
  • Rent and Rates: 12,200
  • Direct Mining Transportation Cost: 1,190
  • Direct Mining Cost: 47,400
  • Gross Profit: 64,610
  • Dividends Income (net): 3,900
  • Interest on Foreign Deposit: 2,750
  • Total: 71,260
  • Salaries and Wages: 25,340
  • Depreciation of Mining Plant: 2,500
  • Depreciation (Other Non-Current Assets): 7,840
  • Other Administrative and General Expenses: 4,210
  • Loan Interest: 850
  • Loss on Sale of Old Mining Plant: 200
  • Net Profit: 30,320

Additional Information:

  1. Interest on foreign deposit was repatriated through the company’s domiciliary account in a Nigerian deposit money bank.
  2. Unrelieved losses amount to N2,800,000.
  3. Capital allowance agreed with tax authorities for the year was N7,250,000.
  4. Tax written down value of qualifying capital expenditure as of December 31, 2021, was N35,110,000, while net book value was N23,700,000.
  5. Opening tax written down values and net book values were N42,620,000 and N33,900,000, respectively.
  6. Unpaid tax at the beginning of the year was N15,620,000, with payments made during the year totaling N18,860,000.
  7. Depreciation rate of 10% per annum applies to the mining plant.
  8. The mining plant was revalued in 2017, with a revaluation surplus of N5 million included in the financial statements that year.

Required:

You have been directed by your Principal Partner to work on this assignment and prepare a draft report for his review. The report should show the computation of the following:

  1. Tax liabilities for the relevant year of assessment
    (7 Marks)
  2. Deferred tax provisions for 2021 and 2022
    (8 Marks)

Total: 15 Marks

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  • 12 Marks

FR – Nov 2023 – L2 – Q5b – Accounting for Income Taxes (IAS 12)

Calculate Shakara Limited's income tax liability, deferred tax balance, and movement of deferred tax.

Shakara Limited was incorporated on January 1, 2022. During the year ended December 31, 2022, the company made a profit before taxation of N18,150,000.

The following capital expenditure were made during the year:

Expenditure N’000
Plant and machinery 7,200
Motor vehicles 1,800

The depreciation charged for the year amounted to N1,650,000, and capital allowance granted by the Federal Inland Revenue Services (FIRS) for the same period amounted to N2,250,000.

Company income tax rate is 30%, and deferred tax liability brought forward was N1,200,000.

Required:
i. Calculate the company income tax liability for the year ended December 31, 2022. (3 Marks)

ii. Calculate the deferred tax balance that should be disclosed in the statement of financial position of Shakara Limited as at December 31, 2022. (3 Marks)

iii. Prepare notes showing the movement of deferred tax charged to profit or loss for the year ended December 31, 2022. (3 Marks)

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  • 3 Marks

FR – Nov 2023 – L2 – Q5a – Accounting for Income Taxes (IAS 12)

Define deferred tax, permanent differences, and temporary differences per IAS 12.

Explain the following terms in accordance with IAS 12 – Income tax.
i. Deferred tax
ii. Permanent differences
iii. Temporary differences

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  • 30 Marks

TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations

Required to prepare tax documentation and compute liabilities for BICCI Nigeria Limited in response to FIRS tax audit report.

You have been invited to make a presentation to the Board of Directors of BICCI Nigeria Limited. Your performance at the presentation will determine your appointment as the Tax Consultant to the company.

BICCI Nigeria Limited, a trading company, was incorporated on 2 March 2009. It commenced business on 2 October of the same year, making accounts up to 30 September annually. The shareholders invested N18 million in non-current assets before the company commenced business in 2009.

Other information provided:

  1. Authorized, Issued, and Fully Paid-Up Capital – N10 million.
  2. Value Added Tax (VAT) and Withholding Tax (WHT) returns filed for 2010–2013 were carried out 2 months after each transaction month.
  3. Companies Income Tax (CIT) and Tertiary Education Tax (TET) returns were filed on 30 June for the 2011 to 2014 Assessment Years.

Extracts from the accounts (2010–2013):

On 15 July 2014, FIRS inspectors visited BICCI, informing management of an upcoming tax audit on 25 August 2014. They requested the following documents:

  1. Audited Accounts (2010–2013)
  2. Bank Statements (2010–2013)
  3. Trial Balance for each year
  4. Evidence of Tax Returns filed (CIT, VAT, WHT, TET)
  5. General Ledger printouts
  6. Proof of tax payments
  7. Tax registration evidence
  8. Tax Clearance Certificates
  9. WHT Credit Notes, if any

FIRS Interim Tax Audit Report (summarized):

Item 2013 2012 2011 2010
Revenue (N’000) 25,320 21,522 13,989 7,694
VAT on Revenue 8,862 7,533 4,896 3,462
Undisclosed Revenue 16,458 13,989 9,093 4,232
Directors’ Current Account 19,578 21,228 19,250 18,000
Payments under WHT:
– Directors’ Fees 1,625 2,125 1,145 960
– Rent 3,500 3,500 2,625 2,625
– Professional Fees 1,200 1,200 950 950
– Commission 2,825 1,875 970 376

Additional Adjustments:

  1. Cost of Sales written back: 60%
  2. Selling & Distribution expenses written back: 60%
  3. Admin expenses written back: 60%

Requirements:

a. List the documents required by FIRS for the Interim Tax Audit. (3 Marks)
b. Calculate BICCI Nigeria Limited’s potential tax liabilities per the Interim Tax Audit. (12 Marks)
c. Prepare a schedule for VAT and WHT receipts collected by BICCI. (7 Marks)
d. Advise management on possible tax consequences if they do not respond to the audit. (8 Marks)

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  • 20 Marks

AAA – Nov 2020 – L3 – Q5 – Advanced Audit Planning and Strategy

Identification of financial statement risks in planning the final audit for Maideline Nigeria Limited’s winding-up.

Maideline Nigeria Limited manufactures tyres for use by cars, trucks, and trailers. The company is owner-managed, meaning the shareholders are also the directors. On June 1, 2020, the directors decided to wind up the company due to the high cost of operations, the Naira’s depreciation against the US dollar, and the economic impact of COVID-19, which have severely impacted the company’s ability to continue business.

Management notified employees, suppliers, and customers that Maideline would cease all manufacturing activities by September 30. Consequently, all factory workers and most employees in accounts and administration were terminated effective September 30. Remaining employees will face redundancy by November 30. A minimal head office team, including the Company Secretary and some support staff, will remain operational for a few more years until the company winds down completely.

Maideline operated 20 branches and a head office. Of these, 12 branches are located in company-owned buildings, while the remaining 8 operate from leased buildings with lease terms of three to five years. Lease agreements prohibit sub-letting and sale. On adopting IFRS 16, the entity assumed lease renewals at term end, recording lease liabilities and right-of-use assets. A small head office building will remain in use until its lease expires in three years. Maideline accounts for its tangible non-current assets at cost, less depreciation, and has recognized deferred tax assets due to past tax losses and unutilized capital allowances.

All products sold carry a one-year warranty. Until May 31, 2020, the company offered two- and three-year extended warranties, but these were discontinued from March 1, 2020. Maideline distributes products nationally and internationally under three-year agreements and maintains annual supplier contracts. While no distributors or suppliers have pursued legal actions, some are withholding payments, awaiting penalty settlements they claim are due.

Required:
Using the information provided, identify and explain the financial statement risks to be taken into account in planning the final audit of Maideline in respect of the year ended December 31, 2020. (20 Marks)

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  • 20 Marks

CR – Nov 2020 – L3 – Q3 – Impairment of Assets (IAS 36)

Discuss the accounting treatment of Tupe Print's investment in Adowa plc, advise on deferred tax assets, and determine the recoverable amount of equipment.

Tupe Print plc has just recently acquired 18% of the shareholding in Adowa plc, making it the second largest single shareholder. The majority shareholder has 58% voting shares, while the remainder of the shares are held by ten other shareholders, with none holding more than 5% voting shares. The board of directors of Adowa is made up of 12 members, with Tupe Print having 3 members and the majority shareholder having 7 members. Tupe Print was able to negotiate its representation on the board due to its strategic importance in Adowa‘s operations and expansion plans. The directors of Tupe Print have accounted for its investment in Adowa as an equity instrument investment. The directors feel Adowa should not be accounted for as an associate because Tupe Print does not have 20% of the voting interest and thus does not exercise significant influence over Adowa.

Adowa has been making losses for the past three years and has only returned a taxable profit once in the last five years. The projection is that Adowa will return to making taxable profits in another five years. As part of the acquisition of shares in Adowa, deferred tax assets for deductible temporary differences arose. The directors of Tupe Print are unsure of how to account for this deferred tax asset.

Tupe Print has an item of equipment which costs N56 million. This item of plant and equipment currently has a carrying value in the financial statements of N39.2 million. Tupe Print expects the operation of the equipment to generate undiscounted cash flows of N7 million per year for the next five years. Tupe Print could generate immediate cash flow of N40 million if the equipment is disposed of today. However, if the disposal is carried out, it will have to pay a sales commission of 8.5%. The directors of Tupe Print are performing an annual impairment review and understand that determining the recoverable amount is an important part of this exercise.

Required:

a. Discuss how the investment in Adowa plc should be accounted for in the financial statements of Tupe Print plc. (7 Marks)

b. Advise the directors of Tupe Print on how the deferred tax asset that has arisen should be accounted for. (7 Marks)

c. Assist the directors of Tupe Print in determining the recoverable amount of the equipment. You may assume a discount rate of 10% or a five-year annuity rate of 3.791 (if relevant). (6 Marks)

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  • 20 Marks

CR – May 2024 – L3 – SB – Q3 – Income Taxes (IAS 12)

Deferred tax impact analysis for asset purchase, fair value adjustments, and subsidiary profit

Below is the statement of financial position (extract) of Bamboo PLC, a company with several subsidiaries across various regions, including one foreign subsidiary, Pako Limited, based in the USA:

Draft Statement of Financial Position
As at October 31, 2023

Assets N’m
Deferred tax 77
Other non-current assets 2,329
Inventories and other current assets 1,150
Cash and cash equivalents 422
Total assets 3,978
Liabilities and Equity
Other non-current liabilities 1,671
Deferred tax liabilities 186
Payables and accruals 1,131
Total liabilities 2,988
Equity
Share capital 250
Share premium 120
Retained earnings 620
Total equity 990
Total liabilities and equity 3,978

During the preparation of the final draft of the financial statements, the following issues regarding deferred tax implications were raised:

  1. Property, Plant, and Equipment
    • On November 1, 2022, Bamboo PLC acquired an asset for N120 million, which qualified for a government capital grant of N20 million. The asset has a five-year useful life with straight-line depreciation. Capital allowances are restricted by the grant amount, and tax laws allow a 25% annual capital allowance rate.
  2. Fair Value Adjustments
    • Bamboo PLC acquired Iroko Limited for N100 million, with net assets fair valued at N80 million against a tax base of N70 million. The difference relates to property, plant, and equipment that Iroko Limited intends to hold long-term.
  3. Profit from Foreign Subsidiary
    • Bamboo PLC’s foreign subsidiary, Pako Limited, has $5,000 in undistributed post-acquisition profit, which would incur a N4 million tax if remitted to Nigeria. Bamboo PLC plans to retain these earnings for Pako Limited’s reinvestment.

Required:

a. Briefly explain and calculate, where applicable, the deferred tax implications for each transaction. (15 Marks)

b. Show the deferred tax effects on the draft statement of financial position for Bamboo PLC. (5 Marks)

Note: Use a 30% tax rate for calculations.

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  • 15 Marks

CR – May 2018 – L3 – SC – Q5b – Consolidated Financial Statements (IFRS 10)

Compute deferred tax provision and charge for Tola Plc. as of December 31, 2017.

The following information relates to Tola Plc. as at December 31, 2017:

Description Carrying Amount (N) Tax Base (N)
Plant and equipment 250,000 218,750
Receivables:
Trade receivables 62,500 68,750
Interest receivable 1,250 0
Payables:
Fine 12,500 0
Interest payable 2,500 0

Further information:

  1. The trade receivables balance includes balances of N68,750 less a specific doubtful debt provision of N6,250.
  2. Deferred tax balance as of January 1, 2017, was N1,500.
  3. Interest is taxed on a cash basis.
  4. Doubtful debt allowances are not tax-deductible; receivables are only deductible upon a court order.
  5. Fines are non-deductible for tax purposes.
  6. The tax rate for 2017 is 30%, with an anticipated rise to 36% in 2018.

Required:

Compute the deferred tax provision required as of December 31, 2017, and the charge to profit or loss for the period in accordance with IAS 12 – Income Taxes.
(11 Marks)

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  • 4 Marks

CR – May 2018 – L3 – SC – Q5a – Regulatory Environment for Corporate Reporting

Distinguishes deferred tax perspectives in financial statements.

Deferred tax can be determined by adopting two perspectives that may result in different numbers in the financial statements and tax computations. These are statement of comprehensive income and statement of financial position perspectives.

Required:

Distinguish between the TWO perspectives of identifying deferred tax balances in the financial statements.
(4 Marks)

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  • 15 Marks

AT – Nov 2022 – L3 – Q7 -Taxation and Corporate Governance

Calculate the tax liabilities and deferred tax provisions for ICTREC Mining Company Limited, ensuring compliance with Nigerian tax law and addressing FIRS requirements for accurate financial reporting. The report will guide the company in meeting its tax obligations and preparing financial statements free of queries.

The Managing Director of ICTREC Mining Company Limited is concerned about the correct computation and presentation of deferred taxes in the company’s financial statements. Last year, the Federal Inland Revenue Service raised a query on the company’s financial statements and the annual tax returns filed for tax assessment purposes.

To avoid any future tax queries on the financial statements, the Managing Director has approached your firm of chartered accountants to assist in preparing financial statements suitable for presentation at the company’s annual general meeting and submission to the tax authorities for determining tax liabilities.

All relevant books of accounts for ICTREC Mining Company Limited’s financial transactions have been made available to you. The following is an extract from the accounts for the year ended December 31, 2021:

Income and Expenses (N’000):

  • Turnover: 125,400
  • Rent and Rates: 12,200
  • Direct Mining Transportation Cost: 1,190
  • Direct Mining Cost: 47,400
  • Gross Profit: 64,610
  • Dividends Income (net): 3,900
  • Interest on Foreign Deposit: 2,750
  • Total: 71,260
  • Salaries and Wages: 25,340
  • Depreciation of Mining Plant: 2,500
  • Depreciation (Other Non-Current Assets): 7,840
  • Other Administrative and General Expenses: 4,210
  • Loan Interest: 850
  • Loss on Sale of Old Mining Plant: 200
  • Net Profit: 30,320

Additional Information:

  1. Interest on foreign deposit was repatriated through the company’s domiciliary account in a Nigerian deposit money bank.
  2. Unrelieved losses amount to N2,800,000.
  3. Capital allowance agreed with tax authorities for the year was N7,250,000.
  4. Tax written down value of qualifying capital expenditure as of December 31, 2021, was N35,110,000, while net book value was N23,700,000.
  5. Opening tax written down values and net book values were N42,620,000 and N33,900,000, respectively.
  6. Unpaid tax at the beginning of the year was N15,620,000, with payments made during the year totaling N18,860,000.
  7. Depreciation rate of 10% per annum applies to the mining plant.
  8. The mining plant was revalued in 2017, with a revaluation surplus of N5 million included in the financial statements that year.

Required:

You have been directed by your Principal Partner to work on this assignment and prepare a draft report for his review. The report should show the computation of the following:

  1. Tax liabilities for the relevant year of assessment
    (7 Marks)
  2. Deferred tax provisions for 2021 and 2022
    (8 Marks)

Total: 15 Marks

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  • 12 Marks

FR – Nov 2023 – L2 – Q5b – Accounting for Income Taxes (IAS 12)

Calculate Shakara Limited's income tax liability, deferred tax balance, and movement of deferred tax.

Shakara Limited was incorporated on January 1, 2022. During the year ended December 31, 2022, the company made a profit before taxation of N18,150,000.

The following capital expenditure were made during the year:

Expenditure N’000
Plant and machinery 7,200
Motor vehicles 1,800

The depreciation charged for the year amounted to N1,650,000, and capital allowance granted by the Federal Inland Revenue Services (FIRS) for the same period amounted to N2,250,000.

Company income tax rate is 30%, and deferred tax liability brought forward was N1,200,000.

Required:
i. Calculate the company income tax liability for the year ended December 31, 2022. (3 Marks)

ii. Calculate the deferred tax balance that should be disclosed in the statement of financial position of Shakara Limited as at December 31, 2022. (3 Marks)

iii. Prepare notes showing the movement of deferred tax charged to profit or loss for the year ended December 31, 2022. (3 Marks)

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  • 3 Marks

FR – Nov 2023 – L2 – Q5a – Accounting for Income Taxes (IAS 12)

Define deferred tax, permanent differences, and temporary differences per IAS 12.

Explain the following terms in accordance with IAS 12 – Income tax.
i. Deferred tax
ii. Permanent differences
iii. Temporary differences

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  • 30 Marks

TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations

Required to prepare tax documentation and compute liabilities for BICCI Nigeria Limited in response to FIRS tax audit report.

You have been invited to make a presentation to the Board of Directors of BICCI Nigeria Limited. Your performance at the presentation will determine your appointment as the Tax Consultant to the company.

BICCI Nigeria Limited, a trading company, was incorporated on 2 March 2009. It commenced business on 2 October of the same year, making accounts up to 30 September annually. The shareholders invested N18 million in non-current assets before the company commenced business in 2009.

Other information provided:

  1. Authorized, Issued, and Fully Paid-Up Capital – N10 million.
  2. Value Added Tax (VAT) and Withholding Tax (WHT) returns filed for 2010–2013 were carried out 2 months after each transaction month.
  3. Companies Income Tax (CIT) and Tertiary Education Tax (TET) returns were filed on 30 June for the 2011 to 2014 Assessment Years.

Extracts from the accounts (2010–2013):

On 15 July 2014, FIRS inspectors visited BICCI, informing management of an upcoming tax audit on 25 August 2014. They requested the following documents:

  1. Audited Accounts (2010–2013)
  2. Bank Statements (2010–2013)
  3. Trial Balance for each year
  4. Evidence of Tax Returns filed (CIT, VAT, WHT, TET)
  5. General Ledger printouts
  6. Proof of tax payments
  7. Tax registration evidence
  8. Tax Clearance Certificates
  9. WHT Credit Notes, if any

FIRS Interim Tax Audit Report (summarized):

Item 2013 2012 2011 2010
Revenue (N’000) 25,320 21,522 13,989 7,694
VAT on Revenue 8,862 7,533 4,896 3,462
Undisclosed Revenue 16,458 13,989 9,093 4,232
Directors’ Current Account 19,578 21,228 19,250 18,000
Payments under WHT:
– Directors’ Fees 1,625 2,125 1,145 960
– Rent 3,500 3,500 2,625 2,625
– Professional Fees 1,200 1,200 950 950
– Commission 2,825 1,875 970 376

Additional Adjustments:

  1. Cost of Sales written back: 60%
  2. Selling & Distribution expenses written back: 60%
  3. Admin expenses written back: 60%

Requirements:

a. List the documents required by FIRS for the Interim Tax Audit. (3 Marks)
b. Calculate BICCI Nigeria Limited’s potential tax liabilities per the Interim Tax Audit. (12 Marks)
c. Prepare a schedule for VAT and WHT receipts collected by BICCI. (7 Marks)
d. Advise management on possible tax consequences if they do not respond to the audit. (8 Marks)

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