Qualifying Expenditure – NBC Institute

TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)

Schedule of capital expenditure allocation for Covenant Construction Limited with assessment basis and treatment of capital expenditure.

Question

Covenant Construction Limited commenced business on 3 August 2011, making up accounts to 31 July annually. The schedule of assets acquired prior to commencement of the business is as shown below:

Description	₦
Tractors and Grader	7,500,000
Motor vehicles for field operations	13,500,000
Construction site (Factory building)	11,250,000
Furniture, Fixtures and Fittings	778,250

Covenant Construction Limited won another contract and additional assets were purchased as stated below:

Date of Purchase	Description	Number of Items	Cost (₦)
Nov. 2011	Plant & Machinery	3	580,000
April 2012	Motor vehicle	1	1,375,000
Aug. 2012	Building	1	1,350,000
Jan. 2013	Generator	1	450,000
June 2013	Factory extension	1	575,000
Nov. 2013	Pick-up van	2	1,050,000

At the last Board meeting, the Directors argued on what benefits will accrue to Covenant Construction Limited on Capital Expenditure incurred before and after commencement of business.

They were also interested in knowing the years that will be affected and the impact it will have on the company’s Total Profit.

You have been invited by the Finance Director of the company who asked you to look into these matters. The Finance Director has asked you to specifically address the following:

Required:

a. Prepare the schedule of Capital Expenditure Allocation and identify the Qualifying Expenditure based on which Capital Allowances are claimable: i. Normal basis of assessment (5 Marks)
ii. Revised basis of assessment (based on taxpayer’s right of election) (5 Marks)

b. Explain the treatment of Capital Expenditure acquired by Covenant Construction Limited before it commenced business on 3 August 2011. (2 Marks)

c. State the relevant tax years and corresponding basis period covered by the data above. (3 Marks)

Answer

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Tags: Asset Schedule, Capital Allowance, Capital Expenditure, Normal Basis, Qualifying Expenditure, Revised Basis
Level: Level 2

Topic: Companies Income Tax (CIT)
Series: MAY 2015

TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management

Compute the capital allowances for John Bull Nigeria Limited over the first five years of assessment and allocate initial allowances.

Question

John Bull Nigeria Limited, a manufacturing company, commenced business on August 1, 2011, and prepared accounts to July 31 each year. The company incurred the following qualifying capital expenditure:

July 1, 2011: Plant and Equipment (N500,000)
October 31, 2011: Motor Vehicle (N300,000)
December 13, 2011: Factory Building (N400,000)
January 15, 2012: Motor Vehicle (N1,000,000)
June 1, 2012: Plant and Equipment (N200,000)

The following disposals were made:

Part of equipment bought for N200,000 on July 1, 2010 was sold for N50,000 on December 31, 2013.
Motor vehicle bought for N300,000 on October 31, 2011, was sold for N400,000 on December 31, 2012.

Required:
a. Compute Capital Allowances for the first FIVE Years of Assessment. (11 Marks)
b. Place the assets in the relevant Years of Assessment for the purpose of initial allowance. (2 Marks)
c. Compute the Balancing Charge or Allowance in relation to the assets disposed. (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Disposals, Balancing Allowance, Balancing Charge, Capital Allowance, Fixed Assets, Qualifying Expenditure
Level: Level 2

Topic: Tax Planning and Management
Series: NOV 2016

TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)

Schedule of capital expenditure allocation for Covenant Construction Limited with assessment basis and treatment of capital expenditure.

Question

Covenant Construction Limited commenced business on 3 August 2011, making up accounts to 31 July annually. The schedule of assets acquired prior to commencement of the business is as shown below:

Description	₦
Tractors and Grader	7,500,000
Motor vehicles for field operations	13,500,000
Construction site (Factory building)	11,250,000
Furniture, Fixtures and Fittings	778,250

Covenant Construction Limited won another contract and additional assets were purchased as stated below:

Date of Purchase	Description	Number of Items	Cost (₦)
Nov. 2011	Plant & Machinery	3	580,000
April 2012	Motor vehicle	1	1,375,000
Aug. 2012	Building	1	1,350,000
Jan. 2013	Generator	1	450,000
June 2013	Factory extension	1	575,000
Nov. 2013	Pick-up van	2	1,050,000

At the last Board meeting, the Directors argued on what benefits will accrue to Covenant Construction Limited on Capital Expenditure incurred before and after commencement of business.

They were also interested in knowing the years that will be affected and the impact it will have on the company’s Total Profit.

You have been invited by the Finance Director of the company who asked you to look into these matters. The Finance Director has asked you to specifically address the following:

Required:

b. Explain the treatment of Capital Expenditure acquired by Covenant Construction Limited before it commenced business on 3 August 2011. (2 Marks)

c. State the relevant tax years and corresponding basis period covered by the data above. (3 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Schedule, Capital Allowance, Capital Expenditure, Normal Basis, Qualifying Expenditure, Revised Basis
Level: Level 2

Topic: Companies Income Tax (CIT)
Series: MAY 2015

TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management

Compute the capital allowances for John Bull Nigeria Limited over the first five years of assessment and allocate initial allowances.

Question

July 1, 2011: Plant and Equipment (N500,000)
October 31, 2011: Motor Vehicle (N300,000)
December 13, 2011: Factory Building (N400,000)
January 15, 2012: Motor Vehicle (N1,000,000)
June 1, 2012: Plant and Equipment (N200,000)

The following disposals were made:

Part of equipment bought for N200,000 on July 1, 2010 was sold for N50,000 on December 31, 2013.
Motor vehicle bought for N300,000 on October 31, 2011, was sold for N400,000 on December 31, 2012.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Disposals, Balancing Allowance, Balancing Charge, Capital Allowance, Fixed Assets, Qualifying Expenditure
Level: Level 2

Topic: Tax Planning and Management
Series: NOV 2016

Question Tag: Qualifying Expenditure

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TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)

Schedule of capital expenditure allocation for Covenant Construction Limited with assessment basis and treatment of capital expenditure.

TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management

Compute the capital allowances for John Bull Nigeria Limited over the first five years of assessment and allocate initial allowances.

TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)

Schedule of capital expenditure allocation for Covenant Construction Limited with assessment basis and treatment of capital expenditure.

TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management

Compute the capital allowances for John Bull Nigeria Limited over the first five years of assessment and allocate initial allowances.

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TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)

Schedule of capital expenditure allocation for Covenant Construction Limited with assessment basis and treatment of capital expenditure.

You're reporting an error for "TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)"

TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management

Compute the capital allowances for John Bull Nigeria Limited over the first five years of assessment and allocate initial allowances.

You're reporting an error for "TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management"

TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)

Schedule of capital expenditure allocation for Covenant Construction Limited with assessment basis and treatment of capital expenditure.

You're reporting an error for "TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)"

TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management

Compute the capital allowances for John Bull Nigeria Limited over the first five years of assessment and allocate initial allowances.

You're reporting an error for "TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management"

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