Question Tag: Factory Equipment

Microfin Garment Nigeria Plc has been in business for many years as a textile manufacturer. At a recent annual general meeting, shareholders noted a decline in profitability, market share price, and dividends. They observed a particular product line was underperforming due to competition, and a reorganization was agreed upon to be completed within quarter 3 of the new financial year.

The Board of Directors complied with the shareholders’ resolution, deciding to:

1. Relieve the General Manager (Mr. Chukwu Bala) and Operations Manager (Mr. Ojo Ekaite) of their jobs due to the underperforming segment. They were compensated N12 million and N7.5 million, respectively.
2. Redeploy production and administrative staff to other branches.
3. Dispose of qualifying property, plant, and equipment with details as follows:
   

   Asset	Cost (N’000)	Tax Written Down Value (N’000)	Sales Proceeds (N’000)
   Industrial building	85,000	36,125	123,900
   Plant and machinery	128,500	16,062.5	80,000 and 60,000
   Factory equipment	150,600	37,650	160,000

Additional Notes:

• Industrial building: Acquired in 2014, with renovation costs of N288,000 and incidental expenses of N150,000 prior to disposal in February 2021. N100.2 million of the proceeds were used in July 2021 to acquire a new building for the head office.
• Plant and machinery: Acquired in 2017, partially sold in April 2021 for N80 million. The undisposed part had a market value of N65.3 million and was sold in August 2021 for N60 million, with N30,000 in incidental expenses.
• Factory equipment: Acquired in 2018, sold in September 2021 at a market value of N162.5 million after incurring N250,000 refurbishment costs.

Required:

As the company’s Tax Consultant, you are to submit a report to the Managing Director showing:

a. The capital gains (if any) and the capital gains tax payable on:

1. Disposal and subsequent acquisition of the industrial building (7 Marks)
2. Disposal of plant and machinery (6 Marks)
3. Disposal of factory equipment (3 Marks)

b. State the due dates for filing of self-assessment returns and payment of tax computed on each asset disposed of. (2 Marks)

c. Comment on the provisions of the Finance Act 2020 regarding compensation for loss of office for the two staff members disengaged by the company. (2 Marks)

(Total 20 Marks)