Question Tag: Tax Audits

XYZ Nigeria Limited is a manufacturing company that produces ice cream. It was incorporated on January 7, 2009, with an authorized share capital of N12,000,000 consisting of 12,000,000 ordinary shares of N1.00 each. All shares were fully allotted and paid for.

The company commenced business on January 2, 2012. The statement of profit or loss for the year ending December 31, 2017, is as follows:

You are provided with the following information:

The breakdown is as follows:

The auditors submitted the audited financial statements to the tax office on June29, 2018. This was evidenced by the stamped copy of the covering letter in the auditors‟ file. The tax inspector raised a Best of Judgement (BOJ) assessment of N10,000,000 and late returns penalty of N75,000 on September 7, 2018. The managing director was concerned that despite efforts by the management to comply with tax regulations, the tax office still raised the B.O.J assessment and the late returns penalty. During discussions at the management meeting of the company, the blame was attributed to the auditors.

You are required to:
a. Compute the tax liabilities of XYZ Nigeria Limited for the relevant assessment years. Show all workings. (25 Marks)
b. Based on the result in (a) above, advise the managing director of XYZ Nigeria Limited on the validity or otherwise of the best of judgement assessment and the penalty raised by the tax office. (5 Marks)