Question Tag: Land Valuation

Kanadu Nigeria Limited is a manufacturer of leather shoes, bags, and allied accessories since 2017. The recent changes in the taste of customers, particularly the quest for imported, cheaper leather shoes and bags, have had a negative impact on the company’s profits. The management has decided to re-organize the business in a way to better satisfy the customers.

The following transactions were extracted from the books of the company:

(i) June 2017: Acquisition of an acre of land at the outskirts of the State capital for N8,500,000. The company spent an additional amount of N1,500,000 to sand-fill the land;

(ii) August 2017: A factory was built on the acquired land for the purpose of the business at a cost of N65,000,000;

(iii) May 2022: Sold part of the factory’s land for N25,500,000;

(iv) The market value of the remaining property unsold, as valued by a professional valuer, at the time of disposal in May 2022, was N99,500,000;

(v) July 2023: Acquisition of a new acre of land in the town for N45,000,000 (utilized all the proceeds from the disposal of the land). This is expected to be used for the construction of another factory in the same line of business.

The company’s General Manager, who is an engineer, has just engaged your professional accounting firm as its tax consultants.

Required:

As the Principal Partner, you are to prepare a report to the General Manager, stating the:

a. Capital gains tax payable in line with the provisions of Capital Gains Tax Cap C1 LFN 2004 (as amended) (10 Marks)

b. New cost of undisposed property (2 Marks)

c. The roll-over relief (if any) the company is entitled to (2 Marks)

d. Due date(s) for the payment of tax liabilities (1 Mark)

(Total 15 Marks)