Question Tag: Roll-Over Relief

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  • 20 Marks

AT – Nov 2016 – L3 – SB – Q3 – Capital Gains Tax

Compute chargeable gains, capital gains tax, and new cost of remaining plant and machinery after a sale.

since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013, for ₦24,600,000.

The Finance Director convinced the Board to dispose of part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for ₦37,925,000 and spent ₦5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was ₦15,375,000 as of December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

You are required to:
a. State any FOUR Chargeable Assets. (2 Marks)
b. State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c. Compute the Chargeable Gains on the asset sold. (4 Marks)
d. Compute the Capital Gains Tax. (2 Marks)
e. Compute the new cost of the remaining asset. (4 Marks)

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  • 18 Marks

ATAX – May 2019 – L3 – Q4b – Capital Gains Tax (CGT)

Advise on capital gains arising from various business transactions, deemed disposal, and roll-over relief for Smaposu Nigeria Limited.

Smaposu Nigeria Limited is based in Ibadan, Oyo State, and is involved in the manufacturing of computer accessories. The company undertook the following transactions during the year ended December 31, 2018:

(i) Plant and machinery: Part of the plant and machinery was purchased in the year 2014 at an all-inclusive price of ₦12,500,000. A machinery was sold for ₦8,100,000, and the value of the undisposed part was ₦5,740,000. Selling expenses incurred amounted to ₦150,000.

(ii) Motor vehicle: A motor vehicle, which was acquired in 2016 for ₦3,000,000 for the purpose of the business, was sold to the company’s general manager for ₦2,900,000. The market value of the car as at the point of disposal was ₦3,500,000. The company re-acquired a similar car for ₦3,500,000.

(iii) As a result of an unfavorable business climate in Ibadan, the company relocated to Ikeja, Lagos State. The land and buildings acquired in Ibadan in 2009 for ₦30,000,000 were sold for ₦65,500,000. The cost of valuation and professional fees incurred on disposal was ₦2,000,000. A reinvestment was made in Ikeja through the acquisition of another landed property valued at ₦50,000,000.

Smaposu Nigeria Limited has just appointed your firm as the company’s tax consultant.

You are required to advise the management on:

i. “Deemed” disposal of an asset. (5 Marks)
ii. The capital gains (if any) arising from these transactions. (6 Marks)
iii. The roll-over relief (if any) on re-investment made on the acquisition of new assets by the company. (4 Marks)
iv. Capital gains tax payable. (3 Marks)

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  • 20 Marks

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

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  • 20 Marks

ATAX – Nov 2021 – L3 – Q4 – Capital Gains Tax (CGT)

Explanation of tax implications for transactions considered artificial involving connected persons.

Colends Nigeria Limited, Abeokuta, is a manufacturer of plastic materials. The company is well known for prompt payment of taxes as at when due. The cordial relationship between the company and the Federal tax authorities is about to be breached as a result of disagreement in the classification of some transactions made by the company. The tax authorities considered those transactions to be artificial or fictitious, while the Managing Director, who is not an accountant, felt otherwise.

The company is in the process of re-organising its operations so as to compete favorably with its contemporaries, particularly with the implementation of the Africa Continental Free Trade Area Agreement (ACFTA) by some African countries.

The following transactions were concluded by the company during the financial year ended December 31, 2020:

  1. Land and building acquired for ₦70 million on March 6, 2015, were sold for ₦125 million. Advertisement cost was ₦500,000, while the estate agent received a 5% commission of the sale proceeds.
  2. Plant and machinery, which originally cost ₦28 million, were sold for ₦32 million to one of its subsidiaries, Colmas Limited. The market value of the assets sold was ₦40 million.
  3. A saloon motor vehicle acquired for ₦5 million in 2017 was sold to the General Manager of the company for ₦3.5 million. The market value of the car was put at ₦5.5 million.
  4. A giant generator that was acquired in 2018 for ₦12 million was disposed of for ₦15 million. The cost of disposal amounted to ₦200,000.

At a recent meeting of the board, the following transactions were approved and implemented in December 2020:

  • Acquisition of a large acreage of land and a building in the outskirts of the city-center for the business at ₦100 million.
  • Purchase of a modern plant and machinery for ₦50 million.
  • A saloon motor vehicle was purchased for ₦10 million.
  • A brand new generator costing ₦20 million was acquired.

Colends Nigeria Limited has recently appointed you as its tax consultant.

Required:

Draft a report to the Managing Director of the company explaining:

a. The concept of connected persons and artificial transactions. (4 Marks)
b. The tax implications, if any, on transactions executed by the company in accordance with the provisions of the Capital Gains Tax Act Cap C1 LFN 2004 (as amended). (16 Marks)

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  • 15 Marks

AT – May 2024 – L3 – SC – Q6 – Capital Gains Tax

Prepare a report calculating Kanadu Nigeria Limited’s capital gains tax, undisposed property cost, roll-over relief, and tax payment due dates.

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)

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  • 20 Marks

AT – Nov 2016 – L3 – SB – Q3 – Capital Gains Tax

Compute chargeable gains, capital gains tax, and new cost of remaining plant and machinery after a sale.

since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013, for ₦24,600,000.

The Finance Director convinced the Board to dispose of part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for ₦37,925,000 and spent ₦5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was ₦15,375,000 as of December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

You are required to:
a. State any FOUR Chargeable Assets. (2 Marks)
b. State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c. Compute the Chargeable Gains on the asset sold. (4 Marks)
d. Compute the Capital Gains Tax. (2 Marks)
e. Compute the new cost of the remaining asset. (4 Marks)

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  • 18 Marks

ATAX – May 2019 – L3 – Q4b – Capital Gains Tax (CGT)

Advise on capital gains arising from various business transactions, deemed disposal, and roll-over relief for Smaposu Nigeria Limited.

Smaposu Nigeria Limited is based in Ibadan, Oyo State, and is involved in the manufacturing of computer accessories. The company undertook the following transactions during the year ended December 31, 2018:

(i) Plant and machinery: Part of the plant and machinery was purchased in the year 2014 at an all-inclusive price of ₦12,500,000. A machinery was sold for ₦8,100,000, and the value of the undisposed part was ₦5,740,000. Selling expenses incurred amounted to ₦150,000.

(ii) Motor vehicle: A motor vehicle, which was acquired in 2016 for ₦3,000,000 for the purpose of the business, was sold to the company’s general manager for ₦2,900,000. The market value of the car as at the point of disposal was ₦3,500,000. The company re-acquired a similar car for ₦3,500,000.

(iii) As a result of an unfavorable business climate in Ibadan, the company relocated to Ikeja, Lagos State. The land and buildings acquired in Ibadan in 2009 for ₦30,000,000 were sold for ₦65,500,000. The cost of valuation and professional fees incurred on disposal was ₦2,000,000. A reinvestment was made in Ikeja through the acquisition of another landed property valued at ₦50,000,000.

Smaposu Nigeria Limited has just appointed your firm as the company’s tax consultant.

You are required to advise the management on:

i. “Deemed” disposal of an asset. (5 Marks)
ii. The capital gains (if any) arising from these transactions. (6 Marks)
iii. The roll-over relief (if any) on re-investment made on the acquisition of new assets by the company. (4 Marks)
iv. Capital gains tax payable. (3 Marks)

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  • 20 Marks

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

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  • 20 Marks

ATAX – Nov 2021 – L3 – Q4 – Capital Gains Tax (CGT)

Explanation of tax implications for transactions considered artificial involving connected persons.

Colends Nigeria Limited, Abeokuta, is a manufacturer of plastic materials. The company is well known for prompt payment of taxes as at when due. The cordial relationship between the company and the Federal tax authorities is about to be breached as a result of disagreement in the classification of some transactions made by the company. The tax authorities considered those transactions to be artificial or fictitious, while the Managing Director, who is not an accountant, felt otherwise.

The company is in the process of re-organising its operations so as to compete favorably with its contemporaries, particularly with the implementation of the Africa Continental Free Trade Area Agreement (ACFTA) by some African countries.

The following transactions were concluded by the company during the financial year ended December 31, 2020:

  1. Land and building acquired for ₦70 million on March 6, 2015, were sold for ₦125 million. Advertisement cost was ₦500,000, while the estate agent received a 5% commission of the sale proceeds.
  2. Plant and machinery, which originally cost ₦28 million, were sold for ₦32 million to one of its subsidiaries, Colmas Limited. The market value of the assets sold was ₦40 million.
  3. A saloon motor vehicle acquired for ₦5 million in 2017 was sold to the General Manager of the company for ₦3.5 million. The market value of the car was put at ₦5.5 million.
  4. A giant generator that was acquired in 2018 for ₦12 million was disposed of for ₦15 million. The cost of disposal amounted to ₦200,000.

At a recent meeting of the board, the following transactions were approved and implemented in December 2020:

  • Acquisition of a large acreage of land and a building in the outskirts of the city-center for the business at ₦100 million.
  • Purchase of a modern plant and machinery for ₦50 million.
  • A saloon motor vehicle was purchased for ₦10 million.
  • A brand new generator costing ₦20 million was acquired.

Colends Nigeria Limited has recently appointed you as its tax consultant.

Required:

Draft a report to the Managing Director of the company explaining:

a. The concept of connected persons and artificial transactions. (4 Marks)
b. The tax implications, if any, on transactions executed by the company in accordance with the provisions of the Capital Gains Tax Act Cap C1 LFN 2004 (as amended). (16 Marks)

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  • 15 Marks

AT – May 2024 – L3 – SC – Q6 – Capital Gains Tax

Prepare a report calculating Kanadu Nigeria Limited’s capital gains tax, undisposed property cost, roll-over relief, and tax payment due dates.

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)

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