Non-allowable expenses – NBC Institute

AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

Question

Colamrud Petroleum (Nigeria) Limited, a subsidiary of a foreign oil and gas company, has been engaged in petroleum prospecting and exploration (upstream) operations for both local and foreign markets for over a decade. As part of corporate policy, the management reviews the quarterly performance reports in board meetings. Below is the financial summary for the first quarter (January – March) 2022, prepared by the Finance Controller:

Income (N’000):

Value of oil sold (export): 900,380
Value of oil sold (local): 223,300
Value of gas sold: 430,100
Other income: 7,200
Gross revenue: 1,560,980

Expenses (N’000):

Production cost: 210,730
Tangible drilling cost (first appraisal well): 18,800
Intangible drilling cost (first appraisal well): 17,600
Cost of gas reinjection wells: 4,000
Cost of drilling 3 appraisal wells: 24,000
Rent: 13,000
Royalties on export sales: 69,300
Royalties on local sales: 9,800
Salaries and wages: 170,500
Head office shared costs: 62,000
Repairs and maintenance: 8,930
Customs duty on essentials: 2,900
Depreciation: 66,000
Interest on loans: 4,400
Allowance for doubtful debts: 34,000
Administrative expenses: 79,200
Stamp duties on increase in share capital: 1,000
Bank charges: 900
Miscellaneous expenses: 22,500
Income tax provision: 90,000
Tertiary education tax provision: 6,000
Total expenses: 915,560
Net profit: 645,420

Additional Information:

Fiscal oil and gas prices were approved on an export parity basis by the Nigerian Upstream Petroleum Regulatory Commission.
Head office shared costs:
- Research and development costs: 12,000
- Indirect production costs: 50,000
Repairs and maintenance:
- Repairs of oil pipelines and storage tanks: 6,000
- Repairs of plant: 1,500
- Improvement to building: 1,430
Allowance for doubtful debts:
- Specific provision: 10,000
- General provision: 20,000
- Bad debt written off: 4,000
Administrative expenses:
- Natural gas flare fees: 10,000
- Transport cost: 13,200
- Cost of obtaining information on oil existence: 7,300
- Expenditure for acquisition of geological information: 14,900
- Other allowable expenses: 33,800
Miscellaneous expenses:
- Tenement levy paid to local government: 2,000
- Contribution to Niger Delta Development fund: 5,500
- Contribution to Host Community Development fund: 12,000
- Donation to widows and orphans association: 3,000
Unabsorbed losses brought forward: 35,000

Required:

As the company’s Assistant Tax Manager, prepare a report for the Tax Manager that includes:

Adjusted Profit and Assessable Profit: Calculate the adjusted profit and assessable profit for the first quarter of 2022 in line with the Petroleum Industry Act 2021.
(18 Marks)
Cost-Price Ratio Commentary: Provide comments on the cost-price ratio of the company, referencing the Sixth Schedule of the Petroleum Industry Act 2021.
(2 Marks)

Total: 20 Marks

Answer

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Topic: Petroleum Profits Tax (PPT)
Series: NOV 2022

AT – March 2023 – L3 – Q2b – Business income – Corporate income tax

Discuss the tax implications of expenditures incurred for shareholders, executive directors, and non-executive directors.

Question

Mamba, a company resident in Ghana, has spent the following amounts on its officers for 2020 and 2021 years of assessment:

Expenditure	Shareholders (GH¢)	Executive Directors (GH¢)	Non-Executive Directors (GH¢)
2020	10,000,000	2,000,000	3,000,000
2021	20,000,000	3,000,000	3,000,000

The breakdown of the expenditure is as follows:

Shareholders: The company spent half the amounts for each of the years for its Annual General Meeting (AGM). The rest of the amount was spent on scholarships for shareholders’ children’s educational scholarships.
Executive Directors: The amount spent in 2020 was on providing security arrangements in the private residence of the Managing Director. The 2021 amount was spent on recreational facilities at the Deputy Managing Director’s private home.
Non-Executive Directors: The amounts for both years were spent to provide the directors with employable skills on the international arena when they exit as non-directors.

Required:
Enumerate the tax implication of these expenditures and comment on how the Ghana Revenue Authority would treat each of the expenditures. (6 marks)

Answer

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Tags: Corporate Tax, Executive Compensation, Non-allowable expenses, Shareholder expenses
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAR 2023

AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

Question

Income (N’000):

Value of oil sold (export): 900,380
Value of oil sold (local): 223,300
Value of gas sold: 430,100
Other income: 7,200
Gross revenue: 1,560,980

Expenses (N’000):

Production cost: 210,730
Tangible drilling cost (first appraisal well): 18,800
Intangible drilling cost (first appraisal well): 17,600
Cost of gas reinjection wells: 4,000
Cost of drilling 3 appraisal wells: 24,000
Rent: 13,000
Royalties on export sales: 69,300
Royalties on local sales: 9,800
Salaries and wages: 170,500
Head office shared costs: 62,000
Repairs and maintenance: 8,930
Customs duty on essentials: 2,900
Depreciation: 66,000
Interest on loans: 4,400
Allowance for doubtful debts: 34,000
Administrative expenses: 79,200
Stamp duties on increase in share capital: 1,000
Bank charges: 900
Miscellaneous expenses: 22,500
Income tax provision: 90,000
Tertiary education tax provision: 6,000
Total expenses: 915,560
Net profit: 645,420

Additional Information:

Fiscal oil and gas prices were approved on an export parity basis by the Nigerian Upstream Petroleum Regulatory Commission.
Head office shared costs:
- Research and development costs: 12,000
- Indirect production costs: 50,000
Repairs and maintenance:
- Repairs of oil pipelines and storage tanks: 6,000
- Repairs of plant: 1,500
- Improvement to building: 1,430
Allowance for doubtful debts:
- Specific provision: 10,000
- General provision: 20,000
- Bad debt written off: 4,000
Administrative expenses:
- Natural gas flare fees: 10,000
- Transport cost: 13,200
- Cost of obtaining information on oil existence: 7,300
- Expenditure for acquisition of geological information: 14,900
- Other allowable expenses: 33,800
Miscellaneous expenses:
- Tenement levy paid to local government: 2,000
- Contribution to Niger Delta Development fund: 5,500
- Contribution to Host Community Development fund: 12,000
- Donation to widows and orphans association: 3,000
Unabsorbed losses brought forward: 35,000

Required:

As the company’s Assistant Tax Manager, prepare a report for the Tax Manager that includes:

Adjusted Profit and Assessable Profit: Calculate the adjusted profit and assessable profit for the first quarter of 2022 in line with the Petroleum Industry Act 2021.
(18 Marks)
Cost-Price Ratio Commentary: Provide comments on the cost-price ratio of the company, referencing the Sixth Schedule of the Petroleum Industry Act 2021.
(2 Marks)

Total: 20 Marks

Answer

Find Related Questions by Tags, levels, etc.

Topic: Petroleum Profits Tax (PPT)
Series: NOV 2022

AT – March 2023 – L3 – Q2b – Business income – Corporate income tax

Discuss the tax implications of expenditures incurred for shareholders, executive directors, and non-executive directors.

Question

Mamba, a company resident in Ghana, has spent the following amounts on its officers for 2020 and 2021 years of assessment:

Expenditure	Shareholders (GH¢)	Executive Directors (GH¢)	Non-Executive Directors (GH¢)
2020	10,000,000	2,000,000	3,000,000
2021	20,000,000	3,000,000	3,000,000

The breakdown of the expenditure is as follows:

Shareholders: The company spent half the amounts for each of the years for its Annual General Meeting (AGM). The rest of the amount was spent on scholarships for shareholders’ children’s educational scholarships.
Executive Directors: The amount spent in 2020 was on providing security arrangements in the private residence of the Managing Director. The 2021 amount was spent on recreational facilities at the Deputy Managing Director’s private home.
Non-Executive Directors: The amounts for both years were spent to provide the directors with employable skills on the international arena when they exit as non-directors.

Required:
Enumerate the tax implication of these expenditures and comment on how the Ghana Revenue Authority would treat each of the expenditures. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Tax, Executive Compensation, Non-allowable expenses, Shareholder expenses
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAR 2023

Question Tag: Non-allowable expenses

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AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

AT – March 2023 – L3 – Q2b – Business income – Corporate income tax

Discuss the tax implications of expenditures incurred for shareholders, executive directors, and non-executive directors.

AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

AT – March 2023 – L3 – Q2b – Business income – Corporate income tax

Discuss the tax implications of expenditures incurred for shareholders, executive directors, and non-executive directors.

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AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

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AT – March 2023 – L3 – Q2b – Business income – Corporate income tax

Discuss the tax implications of expenditures incurred for shareholders, executive directors, and non-executive directors.

You're reporting an error for "AT – March 2023 – L3 – Q2b – Business income – Corporate income tax"

AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)

Calculate Colamrud Petroleum’s adjusted and assessable profit for Q1 2022 based on allowable and non-allowable expenses under the Petroleum Industry Act 2021, and comment on the company's cost-price ratio in relation to regulatory standards.

You're reporting an error for "AT – Nov 2022 – L3 – Q2 – Petroleum Profits Tax (PPT)"

AT – March 2023 – L3 – Q2b – Business income – Corporate income tax

Discuss the tax implications of expenditures incurred for shareholders, executive directors, and non-executive directors.

You're reporting an error for "AT – March 2023 – L3 – Q2b – Business income – Corporate income tax"

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