Question Tag: Tax computation

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  • 7 Marks

ATAX – May 2017 – L3 – Q7b – Petroleum Profits Tax (PPT)

Explain "Memorandum of Understanding" in PPT computation and highlight the Year 2000 MOU details.

i. Describe briefly your understanding of the term “Memorandum of Understanding” as it applies to Petroleum Profits Tax computation. (3 Marks)

ii. State FOUR highlights of the Year 2000 Memorandum of Understanding. (4 Marks)

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  • 8 Marks

ATAX – May 2017 – L3 – Q6b – Corporate Tax Compliance and Reporting

Compute the Companies Income Tax liability for small businesses using the small business rate and explain the computations.

You have been provided with the following information in respect of THREE small businesses:

You are required to:
i. Compute the Companies Income Tax liability for each of the companies for the relevant assessment year, using the small business rate. (3 Marks)
ii. Give reasons for your computations. (5 Marks)

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  • 16 Marks

ATAX – May 2017 – L3 – Q3a – Capital Gains Tax (CGT)

Compute Capital Gains Tax for hire purchase transactions and explain the implications of hire purchase interest on CGT.

Global Company Nigeria Limited, a construction company based in Abuja, commenced business on January 7, 2009. The company has struggled to acquire necessary equipment due to poor financial results.

At a directors’ meeting on November 6, 2012, the company decided to approach a finance house for assistance. They provided the following information:

  • The company purchased an excavator on hire purchase on March 1, 2013, and paid a deposit of N32,000,000.
  • The excavator’s cost price was N55,000,000, with the balance payable in 25 monthly installments of N1,200,000 starting April 1, 2013.

The excavator was sold as follows:

  1. For N65,000,000 after installment payments on January 1, 2014.
  2. For N69,000,000 after installment payments on November 1, 2014.

You are required to:

i. Calculate the Capital Gains Tax (CGT) for the relevant Assessment Year, assuming the sales values above. (14 Marks)
ii. Explain the implications of hire purchase interest on Capital Gains Tax computations. (2 Marks)

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  • 5 Marks

ATAX – May 2019 – L3 – Q7b – Corporate Tax Compliance and Reporting

Compute the total tax liabilities for Alaba Trading Limited for the 2018 assessment year, considering its assessable profit, capital allowances, and dividend payable.

For the assessment year 2018, below are the extracts from the tax computations of Alaba Trading Limited:

Item Amount (₦)
Assessable profit 8,200,000
Capital allowances 5,400,000
Dividend payable 6,000,000

Required:
Determine the total tax liabilities of Alaba Trading Limited for the assessment year.

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  • 30 Marks

ATAX – May 2019 – L3 – Q1b – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

b. Priceless Oil Limited commenced crude oil production in Nigeria in 2006. The company has provided the following financial report for the year ended December 31, 2018:

Additional Information:

  1. Posted price for exported crude oil averaged $52/barrel (at an exchange rate of ₦306 to $1).
  2. Included in other income: ₦38,000,000 from crude transportation (cost: ₦16,250,000).
  3. Natural gas contract with Tommy Limited: value ₦655,000,000, load factor 54%.
  4. Depreciation of ₦120,250,000 was included in production costs.
  5. Qualifying capital expenditures:
Type Date Location Amount (₦)
Storage tank March 12, 2018 On-shore 23,500,000
Plant and equipment November 15, 2018 Continental Shelf of 130
metres of water depth		 75,000,000
  1. Capital allowances brought forward: ₦33,700,000; for the year: ₦88,500,000.
  2. Admin expenses include ₦3,500,000 stamp duties for debentures.
  3. Specific bad debts written off: ₦39,500,000.
  4. Donations were wholly expended for petroleum operations.
  5. ₦12,250,000 was paid to retrieve petroleum-related data (included in miscellaneous expenses).
  6. ₦20,500,000 interest was paid to an associate company at market rate.

Prepare and submit a report on the following computations:
i. Assessable profit (12 Marks)
ii. Chargeable profit (6 Marks)
iii. Chargeable tax (6 Marks)
iv. Total tax payable (6 Marks)

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  • 2 Marks

ATAX – May 2019 – L3 – Q1a – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

In line with provisions of the Petroleum Profits Tax Act Cap P13 LFN 2004 (as amended), explain “accounting period” of a petroleum exploration company. (2 Marks)

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q7 – Capital Gains Tax (CGT)

Compute total income for 2011 tax assessment and capital gains tax for relevant year.

Mr. James Zonto lived in Canada for thirty years and decided to settle down permanently in Nigeria with effect from January 2007.

Based on advice from his secondary school classmate, Mr. James Zonto repatriated a huge amount of money to Nigeria. He took advantage of the better investment climate in Nigeria and acquired the following properties:

  1. Uyo Duplex: Bought on 2 March 2008 for N25,320,000. Rental income: N855,000 per annum (net of withholding tax).
  2. Fixed Deposit Account: Invested N14,000,000 on 4 January 2008 with Doronine Bank Plc, yielding interest (net of withholding tax) of N180,000 per month.
  3. Onitsha Property: Acquired on 6 October 2008 for N31,500,000 with incidental expenses of N2,400,000. Annual rent: N1,800,000.
  4. Okija House: Bought for N10,000,000 as a personal residence; not rented out.

In 2012, he decided to resettle in Toronto and took the following actions:

  • Uyo House: Sold for N47,450,000 after incurring the following expenses:
    • Advertising: N650,000
    • Valuation fees: N2,000,000
    • Estate Agent’s Commission: N2,372,500
    • Legal fees: N1,500,000
  • Fixed Deposit: Matured on 31 December 2011; not rolled over.
  • Onitsha Property: Sold one of the four duplexes for N14,175,000. Remaining duplexes valued at N40,500,000.
  • Okija House: Sold for N36,500,000 after incurring incidental expenses of N3,650,000.

Required:
(a) Compute the Total Income for Income Tax purposes for 2011 year of assessment.
(b) Compute the Capital Gains Tax payable for the relevant year of assessment.

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  • 20 Marks

ATAX – May 2021 – L3 – Q2 – Tax Incentives and Reliefs

Computation of adjusted profit and tax liabilities for Nature Agricultural Products Limited under pioneer status.

The quest for economic development in every sector of the country has enabled the Federal Government to come up with various tax incentives, especially for pioneer companies.

Nature Agricultural Products Limited, a medium-sized company, was incorporated on January 10, 2015, as a manufacturer of animal feeds. The company thereafter applied for a pioneer status and was granted a pioneer certificate with a production day of March 1, 2015.

The following details were provided in respect of the business operations of the company:

(i)

(ii.) Capital expenditure incurred on or before February 28, 2018:

(iii) Accumulated profit as at February 28, 2018= N3,968,000
The management of the company did not apply for extension of the pioneer period.

Required:

a. Compute the adjusted profit for the relevant years. (3 Marks)

b. Compute the tax liabilities for the relevant assessment years. (17 Marks)

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  • 5 Marks

ATAX – Nov 2018 – L3 – Q4b – Capital Gains Tax (CGT)

Computation of capital gains tax for jewelry sold on installment with multiple assessment years.

(b) Fidelis Agom recently decided to relocate to Sweden as a result of a new appointment offered to him by a multinational company. His wife, Chioma, decided to sell all her jewelry, which she acquired for a sum of N6.3 million. The buyer, Chief Mrs. Ngozi Danladi, was unable to pay immediately the sum of N8.4 million. She therefore decided to enter into a sale agreement with Chioma Agom to pay in four installments within an interval of three months as follows:

  • N3.5 million
  • N2.1 million
  • N2.1 million
  • N0.7 million

The first installment was paid on November 10, 2013, which was the day of the sale.

You are required to:
Compute the capital gains tax for the relevant years of assessment.
(5 Marks)

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  • 20 Marks

ATAX – Nov 2018 – L3 – Q2 – Taxation of Specialized Businesses

Calculation of petroleum profits tax for Olu Oil Limited considering local and export crude oil sales, gas contracts, and various expenses.

Olu Oil Limited has been in the oil prospecting business in one of the major oil fields in the Niger Delta region of Nigeria since 2009. The company has provided the following operational results for the year ended December 31, 2015:

(i) Type of crude oil and sales statistics:

  • Bonny Light: 35,000 barrels exported at 39º API
  • Bonny Medium: 25,200 barrels exported at 35º API
  • Forcados: 16,300 barrels exported at 32º API

Price per barrel:

  • Bonny Light: $52.03 at 35º API
  • Bonny Medium: $49.04 at 35º API
  • Forcados: $48.29 at 35º API

Adjustment for API variance: Actual realized price was arrived at after adjusting for the variance in API. Thus, for every API, $0.03 was the variance in price at 35º API.

(ii) Local sales of crude oil: 32,750 barrels of crude oil was produced and sold in the domestic market at the rate of N345 per barrel.

(iii) Natural gas sales from two contracts:

Contract Value (N) Load Factor
Obi Ltd 42,285,000 62
Oba Ltd 27,775,000 74

(iv) Miscellaneous income: N125,800,300, including N105,500,000 from the sale of refined petroleum products. Attributable expenses of N88,240,000 were included in management and administrative expenses.

(vi) Miscellaneous income included N105,500,000, from the sale of refined petroleum products. An equivalent attributable expenses of N88,240,000 was included in management and administrative expenses.
(vii) Interest paid included N5,350,000, which was paid to Prince Limited, an associated company.
(viii) Donations included:

(ix) The pension scheme was approved by the Joint Tax Board.

(x) Exchange loss on remittance amounting to N3,200,000 was included in management and administrative expenses.
(xi) The schedule of qualifying capital expenditure includes:

(xii) Capital allowances brought forward was N12,700,000.
(xiii) The rate of exchange was N360 to a US Dollar.
(xiv) NNPC provides the relevant schedule as follows:

Required:
Evaluate the transactions and advise the management on:
(a.) Assessable profit (14 Marks)
(b.) Chargeable profit (2 Marks)
(c.) Chargeable tax (2 Marks)
(d.) Total tax liability payable (2 Marks)

 

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  • 20 Marks

FR – May 2024 – L2 – SA – Q4 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explains temporary differences, components of tax expense, and deferred tax calculations for Buga Nigeria Limited.

a. Accounting for deferred tax is based on the identification of temporary differences.

Required:
Explain the term “Temporary difference” and discuss the TWO different types. (3 Marks)

b. State and briefly explain FIVE components of tax expense or income. (5 Marks)

c. Buga Nigeria Limited had an accounting profit before taxation of N196,800,000 for the year ended September 30, 2022. The following balances were extracted from the company’s books as at September 30, 2022.

Other information:

  1. Interest income is taxed while interest expense is allowable on a cash basis. There were no opening balances on interest receivable and interest payable.
  2. The trade receivables above are shown net of an allowance for doubtful balances of N16,750,000. This is the first year that such an allowance has been recognized. A deduction for debts is only allowed for tax purposes when the debtor is in the process of winding-up.
  3. The balances in respect of office equipment are after charging accounting depreciation of N28,250,000 and tax allowable depreciation of N22,500,000 respectively.
  4. The freehold property was purchased on October 1, 2021, for N263,000,000 and is being depreciated for accounting purposes on a 10% per annum basis. Buga Nigeria Limited is in a position to claim N94,600,000 as accelerated depreciation on cost as a taxable expense in this year’s tax computation.

Required:

i. Prepare a tax computation and calculate the current tax expense. (4 Marks)

ii. Calculate the deferred tax liability as at September 30, 2022. (6 Marks)

iii. Show the movement on the deferred tax account for the year ended September 30, 2022, given that the opening balance was N8,100,000. (2 Marks)

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  • 20 Marks

FR – May 2024 – L2 – SA – Q2 – Conceptual Framework for Financial Reporting

Discusses the information needs of financial statement users, CAMA director report requirements, and deferred tax calculations.

a. The Conceptual Framework for Financial Reporting sets out the concepts that underlie the preparation and presentation of financial statements and considers the various users of these financial statements.

Required:
Identify and discuss the information needs of the different users of financial statements. (10 Marks)

b. The Companies and Allied Matters Act (CAMA) 2020 is the primary source of company law that establishes the requirements for financial reporting by all companies in Nigeria.

Required:
Briefly explain FIVE issues that must be contained in a directors’ report in accordance with CAMA 2020. (5 Marks)

c. Babanriga Nigeria Limited acquired a factory machine for N10 million on January 1, 2019. The machine had an estimated life and residual value of 10 years and N2 million, respectively, and is depreciated on a straight-line basis. In lieu of depreciation, the tax authority allows a tax expense of 40% of the cost of this type of machine to be claimed against income tax in the year of purchase, with 25% per annum of its tax base subsequently on a reducing balance basis. The prevailing company income tax rate is 30%.

Required:
Calculate the deferred tax charge or credit which will be recorded in Babanriga Nigeria Limited’s Statement of Profit or Loss and Other Comprehensive Income for the year ended December 31, 2021, and the deferred tax balance in the Statement of Financial Position at that date. (5 Marks)

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  • 15 Marks

TAX – Nov 2015 – L2 – Q6 – Companies Income Tax (CIT)

This question involves the computation of total capital allowances for JohnGab Ltd's first five years and capital allowances for the first three years of assessment.

As part of the induction programme for the newly recruited staff of your firm of Tax Consultants, you have been saddled with the responsibility of making a presentation on companies tax computation for beginners during the firm’s training session.

The following data were submitted for the purpose of the training:

JohnGab Limited, a training company, was incorporated on 1 June 2008 but commenced business on 1 September 2008. The following information is made available to you:

Period Assessable Profit (₦’000)
Four month-period ended 31 December 2008 37,500
Year ended 31 December 2009 60,000
Year ended 31 December 2010 90,000

The following assets were purchased during the period:

Date Asset Cost (₦’000)
5 June 2008 Land and building 17,500
1 July 2008 Motor car 6,000
15 October 2008 Machinery 14,000
28 February 2009 Furniture 3,750
1 May 2009 Delivery van 5,000

In order to clearly explain the extant rules on computation of capital allowances by
companies, you are required to:
a. State the basis periods of assessment and compute the total capital allowances for the first five years of assessment. (5 Marks)
b. Calculate the capital allowances due to be utilized for the first three years of assessment in respect of the qualifying capital expenditure incurred by the company. (5 Marks)

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  • 9 Marks

TAX – Nov 2020 – L1 – SA – Q2b – Taxation of Trusts and Estates

Compute the assessable profit for XYZ Unit Trust Scheme for the year ended December 31, 2018.

In 2004, Chief Kris Uzodime applied to the Securities and Exchange Commission (SEC) for an approval to float XYZ Unit Trust Scheme. In 2005, XYZ Unit Trust Scheme secured an approval to deal in the business of a unit trust scheme.

Its statement of profit or loss for the year ended December 31, 2018, revealed the following:

Description Amount (N)
Investment income
Rental income (gross) 12,650,000
Interest on bank deposit (gross) 5,140,000
Dividend received (gross) 16,300,000
Total Investment Income 34,090,000
Less:
Staff salaries and wages 9,300,000
Manager’s remuneration (20% of gross income) 6,818,000
Other expenses 1,020,000
Bank charges and commission 170,500
Depreciation 321,600
Total Expenses 17,630,100
Net profit 16,459,900

Additional information:
(i) Other expenses include:

  • Loss on disposal of property, plant and equipment: N121,000
  • Preliminary expenses: N210,000
  • Office furniture acquired: N300,500

(ii) All the incomes were subjected to deductions of withholding tax.

Required:
Compute the assessable profit for the relevant assessment year.
(9 Marks)

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  • 11 Marks

TAX – Nov 2020 – L1 – SA – Q2a – Companies Income Tax (CIT)

Compute the income tax liability for three companies based on their total profits and provide reasons.

Alhaji Jimoh Abdulahi retired from public service in 2010 and went into business. His friend advised him to incorporate some companies.

The following information in respect of the companies is provided:

Name of Company Apex Manufacturing Co. Limited Zenith Foods Limited Base Nigeria Limited
Date of Commencement of Business January 2, 2010 January 2, 2017 January 2, 2017
Nature of Business Manufacturing Agriculture Trading
Date of Accounts Year ended December 31, 2018 Year ended December 31, 2018 Year ended December 31, 2018
Revenue (N) 990,400 896,400 900,500
Total Profit (N) 384,000 421,000 396,000

Required:
Compute the income tax liability of each of the companies for the relevant assessment year. Give reasons for your computations.
(11 Marks)

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  • 12 Marks

TAX – Nov 2020 – L1 – SA – Q1a – Taxation of Partnerships and Sole Proprietorships

Compute the assessable profit or loss for Kayode Oluwa Enterprises for the relevant years.

a. Mr. Kayode Oluwa, a civil engineer, worked for XYZ Nigeria Limited for many years. He retired as the Chief Civil Engineer in 2010. He registered his enterprise under the name of Kayode Oluwa Enterprises and commenced business in 2011.

He appointed you as his tax consultant and submitted his financial records showing the following results:

Year Ended December 31 Amount (N)
2015 1,360,000
2016 (1,900,000)
2017 2,300,000
2018 2,700,000

Required:
Compute the assessable profit/(loss) for the relevant years of assessment. (12 Marks)

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  • 15 Marks

TAX – May 2022 – L2 – SA – Q6 – Tax Administration and Enforcement

Identify the badges of trade and compute the minimum tax payable for a given year of assessment.

a. The difficulty in determining what constitutes a trade has led to many litigations and the huge number of tax cases that exist on the issue. The problem from the decided cases is that of finding an absolute test for identifying a trade.

The conclusion had always been that there are no fixed rules but that each case could be examined on its own facts.
Required:
State FOUR considerations that influence the identification of badges of trade. (8 Marks)

b. Ndakogi Nigeria Limited commenced business in 2007. The extract of the statement of profit or loss of the company for the year ended December 31, 2021, has revealed the following:

Required:
Compute the minimum tax payable

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  • 5 Marks

TAX – Nov 2016 – L2 – Q5b – Value Added Tax (VAT)

Compute the total VAT payable to the Federal Inland Revenue Service (FIRS) for a series of transactions involving a textile company, wholesaler, and retailer.

Olamide Limited is a textile company based in Abuja. The company sold its vatable products to a wholesaler, Qudus Enterprises, for N1,800,000. The wholesaler in turn sold the products to a retailer, Mr. Lekan, for N2,500,000, who finally sold to consumers for N5,000,000. Assume there was no closing inventory at each stage of the transactions.

Required:
Compute the total VAT payable to the Federal Inland Revenue Service.

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  • 12 Marks

TAX – May 2021 – L1 – SB – Q5b – Tax Administration and Enforcement

Calculate the land use charge payable by Mr. James Ado based on given parameters.

Mr. James Ado who is a successful businessman built a house for commercial purposes at Surulere, Lagos, in 2018.
You are given the following information:
(i) The area of the land parcel is 3,600 square metres.
(ii) The average market value of a land parcel in the neighbourhood, on a per square metre basis is N17,000 as determined by the professional valuers appointed by the Commissioner.
(iii) The total developed floor area of the building on the plot of land is 2,000 square metres.
(iv) The average construction value of medium quality buildings and improvements in the neighbourhood, on a square metre basis, is put at N200, based on the market value of the property as determined by professional valuers.
(v) The depreciation rate for the buildings and improvements of land based on the age of the building is put at 1%.
(vi) The annual relief rate is 40%.
(vii) The annual charge rate expressed as a percentage of the assessed market value of the property is 0.76% of the assessed value.
Required:
Compute the land use charge payable by Mr. James Ado.

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  • 16 Marks

TAX – May 2021 – L1 – SB – Q2a – Tax Administration and Enforcement

Calculation of taxes payable in Nigeria by Atlat Airline Limited for the relevant assessment year.

Atlat Airline Limited was incorporated in New York, USA, on June 6, 1993. It is engaged in the carriage of mails, passengers, and livestock into and out of Nigeria. The company’s worldwide statement of profit or loss as at December 31, 2018, has revealed the following:

Description Amount (N)
Income from passengers flown from New York to Nigeria 510,720,000
Income from passengers loaded and flown out of Nigeria 241,305,000
Income from cargo loaded into aircraft to Nigeria from other routes 181,300,100
Income from cargo freight from Nigeria to New York 102,960,000
Total Income 1,036,285,100

Additional information:
(i) The Federal Inland Revenue Service is satisfied that the tax authority in New York computes and assesses a company which operates an aircraft on a basis not materially different from that prescribed by Companies and Allied Matters Act Cap C21 LFN 2004 (as amended).
(ii) The tax authority in New York has certified the adjusted profit and depreciation allowance ratios.
(iii) Out of the overhead expenses, N2,194,500 relates to disallowable expenses.

Required:
Compute the taxes payable in Nigeria by Atlat Airline Limited for the relevant assessment year. (16 Marks)

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