Tax Expense – NBC Institute

FR – May 2021 – L2 – Q1 – Presentation of Financial Statements (IAS 1)

Prepare financial statements from a trial balance, including adjustments for provisions, tax, asset disposals, depreciation, and development costs.

Question

The following is the trial balance of Almajiri Nigeria Limited as at September 30, 2018:

Account	Debit (₦’m)	Credit (₦’m)
Revenue		60,000
Cost of sales	40,800
Distribution costs	2,900
Administrative expenses	4,440
Interest on bank borrowings	40
Research and development costs	1,720
Leasehold property (at valuation Oct 1, 2017)	10,000
Plant and equipment (at cost)	15,320
Plant and equipment (accum. depr. at Oct 1, 2017)		4,920
Capitalised development expenditure (Oct 1, 2017)	4,000
Development expenditure (accum. amortiz. at Oct 1, 2017)		1,200
Closing inventory (30 Sept 2018)	4,000
Trade receivables	8,620
Bank	260
Trade payables & provisions		4,760
Preference dividend paid	160
Dividend paid on ordinary shares	1,200
Ordinary shares at 25k each		10,000
8% Redeemable preference shares at N1 each (year 2020)		4,000
Retained earnings brought forward		4,900
Deferred tax		1,160
Leasehold property revaluation reserve		2,000
Total	93,200	93,200

Additional information:
(i)
One of the reputable customers of Almajiri Nigeria Limited sued the company for
N
400 million for breach of contract over a cancelled order. Almajiri Nigeria
Limited obtained a legal opinion that there is 20% chance that Almajiri will lose the
case.
Accordingly, it has provided for N
80 million (N
400 million x 20%) included in
administrative expenses in respect of the claim. The unrecoverable legal cost of
defending the action was estimated at N20 million and these have not been
provided for as the legal action will not go to court until next year.
(ii)
The directors of the Company have estimated the provision for income tax for the
year ended September 30, 2018 at N2,280 million. The required deferred tax
provision at September 30, is N
1,200 million.
(iii) The redeemable preference shares were issued on April 1, 2018 at par. They are
redeemable at a large premium which gives them an effective finance cost of 12%
per annum.
(iv) The leasehold property had a remaining life of 20 years at October 1, 2017. The
company‟s policy is to revalue its property at each year end and as at September
30, 2018 it was revalued at N
8,600 million.
(v) On October 1, 2017 an item of plant and equipment was disposed of for N500
million cash. The proceeds have been treated as revenue by the company. The
plant is still included in the company‟s trial balance figure at the cost of N
million and accumulated depreciation of N
1,600
800 million (to date of disposal). All
plants and equipment are depreciated at 20% per annum using reducing balance
method. Depreciation and amortisation of all non-current assets are charged to
cost of sales.
(vi) In addition to capitalised development expenditure of N
4,000 million further
research and development cost were incurred on a new project which commenced
on October 1, 2017. The research stage of the new project lasted until December
31, 2017 and incurred N
280 million costs, from that date the project incurred
development cost of N160 million per month. On April 1, 2018 the directors
became confident that the project would be successful and yield a profit well in
excess of its costs. The project is still in development as at September 30, 2018.

Capitalised development expenditure is amortised at 20% per annum using straight
line method. All expensed research and development expenditure is charged to
cost of sales.

You are required to prepare:
a. Statement of profit or loss and other comprehensive income for the year ended
September 30, 2018.

b. Statement of changes in equity for the year ended September 30, 2018.

c. Statement of movement in property, plant and equipment to be included in
published financial statements.

d. Statement of financial position as at September 30, 2018.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Adjustments, Depreciation, Development Costs, Finance Cost, Financial Statements, Provisions, Tax Expense, Trial Balance
Level: Level 2

Topic: Presentation of Financial Statements (IAS 1)
Series: MAY 2021

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

Question

a. The Conceptual Framework for Financial Reporting states the qualitative characteristics of financial information.

Required:
Identify and explain FIVE qualitative characteristics of general-purpose financial statements. (10 Marks)

b. IAS 16 prescribes the principles and the valuation methods in recognizing items of property, plant, and equipment in the financial statements of an entity.

Required:
Describe the TWO methods of valuation recognized in IAS 16 on property, plant, and equipment. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Current Tax, Deferred Tax, IAS 12, Income Taxes, Tax Expense, Tax liabilities
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: MAY 2023

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.

Question

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:

Interest income is taxed while interest expense is allowable on a cash basis. There were no opening balances on interest receivable and interest payable.
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.
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.
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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Deferred Tax, IAS 12, Tax computation, Tax Expense, Temporary Differences
Level: Level 2

Topic: Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)
Series: MAY 2023

FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)

Calculate the current tax expense, deferred tax liability, and tax expense components for Yemnike Nigeria Ltd.

Question

Yemnike Nigeria Limited has an accounting profit before taxation of N225 million for the year ended December 31, 2017.

The following are extracts of the financial position of Yemnike Nigeria Limited as at December 31, 2017:

Non-Current Assets:

Item	N’000
Building	157,500
Plant and machinery	250,000
Assets held under finance lease	200,000

Receivables:

Item	N’000
Trade receivables	182,500
Interest receivable	2,500

Payables:

Item	N’000
Fines	25,000
Finance lease obligation	216,000
Interest payable	8,250

The following information is relevant:

The building was acquired by the company at a cost of N175 million at the start of the year, and it is depreciated at 10% per annum on a straight-line basis. The company’s tax consultants have stated that the company can claim N105 million capital allowance this year on the building.
The balance of plant and machinery is after providing for depreciation of N30 million, and the capital allowance claimable on it is N25 million.
The asset held under finance lease was acquired during the year. Rental expense for the lease is tax deductible. The annual lease rental is N72 million and was paid on December 31, 2017. The depreciation policy for leased assets is 20% per annum on a straight-line basis. The annual finance charge is N36.667 million.
The receivables figure is shown net of an allowance for doubtful balances of N17.5 million. A deduction for debt is only allowed for tax purposes when the debtor enters liquidation.
Interest income is taxed, and interest expense is allowable both on a cash basis. There were no opening balances for interest receivable and payable.
Provisions for fines and penalties are not allowable deductions for tax purposes.

Required:
(a) Calculate the current tax expense for the period.
(b) Calculate the deferred tax liability as at December 31, 2017.
(c) Prepare notes showing the component of the tax expense for the year.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Current Tax, Deferred Tax, Tax Expense
Level: Level 1

Topic: Accounting for Income Taxes (IAS 12)
Series: NOV 2018

FR – May 2021 – L2 – Q1 – Presentation of Financial Statements (IAS 1)

Prepare financial statements from a trial balance, including adjustments for provisions, tax, asset disposals, depreciation, and development costs.

Question

The following is the trial balance of Almajiri Nigeria Limited as at September 30, 2018:

Account	Debit (₦’m)	Credit (₦’m)
Revenue		60,000
Cost of sales	40,800
Distribution costs	2,900
Administrative expenses	4,440
Interest on bank borrowings	40
Research and development costs	1,720
Leasehold property (at valuation Oct 1, 2017)	10,000
Plant and equipment (at cost)	15,320
Plant and equipment (accum. depr. at Oct 1, 2017)		4,920
Capitalised development expenditure (Oct 1, 2017)	4,000
Development expenditure (accum. amortiz. at Oct 1, 2017)		1,200
Closing inventory (30 Sept 2018)	4,000
Trade receivables	8,620
Bank	260
Trade payables & provisions		4,760
Preference dividend paid	160
Dividend paid on ordinary shares	1,200
Ordinary shares at 25k each		10,000
8% Redeemable preference shares at N1 each (year 2020)		4,000
Retained earnings brought forward		4,900
Deferred tax		1,160
Leasehold property revaluation reserve		2,000
Total	93,200	93,200

Capitalised development expenditure is amortised at 20% per annum using straight
line method. All expensed research and development expenditure is charged to
cost of sales.

You are required to prepare:
a. Statement of profit or loss and other comprehensive income for the year ended
September 30, 2018.

b. Statement of changes in equity for the year ended September 30, 2018.

c. Statement of movement in property, plant and equipment to be included in
published financial statements.

d. Statement of financial position as at September 30, 2018.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Adjustments, Depreciation, Development Costs, Finance Cost, Financial Statements, Provisions, Tax Expense, Trial Balance
Level: Level 2

Topic: Presentation of Financial Statements (IAS 1)
Series: MAY 2021

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

Question

a. The Conceptual Framework for Financial Reporting states the qualitative characteristics of financial information.

Required:
Identify and explain FIVE qualitative characteristics of general-purpose financial statements. (10 Marks)

b. IAS 16 prescribes the principles and the valuation methods in recognizing items of property, plant, and equipment in the financial statements of an entity.

Required:
Describe the TWO methods of valuation recognized in IAS 16 on property, plant, and equipment. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Current Tax, Deferred Tax, IAS 12, Income Taxes, Tax Expense, Tax liabilities
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: MAY 2023

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.

Question

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)

Other information:

Interest income is taxed while interest expense is allowable on a cash basis. There were no opening balances on interest receivable and interest payable.
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.
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.
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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Deferred Tax, IAS 12, Tax computation, Tax Expense, Temporary Differences
Level: Level 2

Topic: Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)
Series: MAY 2023

FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)

Calculate the current tax expense, deferred tax liability, and tax expense components for Yemnike Nigeria Ltd.

Question

Yemnike Nigeria Limited has an accounting profit before taxation of N225 million for the year ended December 31, 2017.

The following are extracts of the financial position of Yemnike Nigeria Limited as at December 31, 2017:

Non-Current Assets:

Item	N’000
Building	157,500
Plant and machinery	250,000
Assets held under finance lease	200,000

Receivables:

Item	N’000
Trade receivables	182,500
Interest receivable	2,500

Payables:

Item	N’000
Fines	25,000
Finance lease obligation	216,000
Interest payable	8,250

The following information is relevant:

The building was acquired by the company at a cost of N175 million at the start of the year, and it is depreciated at 10% per annum on a straight-line basis. The company’s tax consultants have stated that the company can claim N105 million capital allowance this year on the building.
The balance of plant and machinery is after providing for depreciation of N30 million, and the capital allowance claimable on it is N25 million.
The asset held under finance lease was acquired during the year. Rental expense for the lease is tax deductible. The annual lease rental is N72 million and was paid on December 31, 2017. The depreciation policy for leased assets is 20% per annum on a straight-line basis. The annual finance charge is N36.667 million.
The receivables figure is shown net of an allowance for doubtful balances of N17.5 million. A deduction for debt is only allowed for tax purposes when the debtor enters liquidation.
Interest income is taxed, and interest expense is allowable both on a cash basis. There were no opening balances for interest receivable and payable.
Provisions for fines and penalties are not allowable deductions for tax purposes.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Current Tax, Deferred Tax, Tax Expense
Level: Level 1

Topic: Accounting for Income Taxes (IAS 12)
Series: NOV 2018

Question Tag: Tax Expense

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

FR – May 2021 – L2 – Q1 – Presentation of Financial Statements (IAS 1)

Prepare financial statements from a trial balance, including adjustments for provisions, tax, asset disposals, depreciation, and development costs.

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

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.

FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)

Calculate the current tax expense, deferred tax liability, and tax expense components for Yemnike Nigeria Ltd.

FR – May 2021 – L2 – Q1 – Presentation of Financial Statements (IAS 1)

Prepare financial statements from a trial balance, including adjustments for provisions, tax, asset disposals, depreciation, and development costs.

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

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.

FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)

Calculate the current tax expense, deferred tax liability, and tax expense components for Yemnike Nigeria Ltd.

Our offerings

Contact Info

Customer

Get In Touch

NBC Institute

Question Tag: Tax Expense

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

FR – May 2021 – L2 – Q1 – Presentation of Financial Statements (IAS 1)

Prepare financial statements from a trial balance, including adjustments for provisions, tax, asset disposals, depreciation, and development costs.

You're reporting an error for "FR – May 2021 – L2 – Q1 – Presentation of Financial Statements (IAS 1)"

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

You're reporting an error for "FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes"

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.

You're reporting an error for "FR – May 2024 – L2 – SA – Q4 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)"

FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)

Calculate the current tax expense, deferred tax liability, and tax expense components for Yemnike Nigeria Ltd.

You're reporting an error for "FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)"

FR – May 2021 – L2 – Q1 – Presentation of Financial Statements (IAS 1)

Prepare financial statements from a trial balance, including adjustments for provisions, tax, asset disposals, depreciation, and development costs.

You're reporting an error for "FR – May 2021 – L2 – Q1 – Presentation of Financial Statements (IAS 1)"

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

You're reporting an error for "FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes"

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.

You're reporting an error for "FR – May 2024 – L2 – SA – Q4 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)"

FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)

Calculate the current tax expense, deferred tax liability, and tax expense components for Yemnike Nigeria Ltd.

You're reporting an error for "FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)"

Our offerings

Contact Info

Customer

Get In Touch

NBC Institute

admin