- 30 Marks
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)
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