- 30 Marks
AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution
Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.
Question
Zezee Nigeria Limited was incorporated on September 7, 2012, but it did not commence business until July 1, 2013. Based on the Memorandum and Articles of Association, the company was incorporated to carry on the business of distributorship and general contracting.
Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:
| Period | 6 Months Ended Dec 31, 2013 | Year Ended Dec 31, 2014 | Year Ended Dec 31, 2015 |
|---|---|---|---|
| Revenue | 5,430,000 | 12,600,000 | 18,400,000 |
| Direct Cost | (890,000) | (1,345,000) | (1,910,000) |
| Gross Profit | 4,540,000 | 11,255,000 | 16,490,000 |
| Other Income | 45,000 | 458,150 | 201,000 |
| Distribution Cost | (386,000) | (820,000) | (1,060,500) |
| Administrative Expenses | (4,810,550) | (6,510,440) | (8,240,600) |
| Other Expenses | (41,000) | (113,240) | (145,100) |
| Net (Loss)/Profit | (652,550) | 4,269,470 | 7,244,800 |
Additional Information:
- Other Income Comprises:
| Details | 6 Months Ended Dec 31, 2013 | Year Ended Dec 31, 2014 | Year Ended Dec 31, 2015 |
|---|---|---|---|
| Sale of Scraps | – | 57,000 | – |
| Interest Received on Treasury Bills | – | 325,000 | 120,000 |
| Interest on Domiciliary Account | 45,000 | 76,150 | 81,000 |
| Total Other Income | 45,000 | 458,150 | 201,000 |
- Administrative Expenses Include:
| Details | 6 Months Ended Dec 31, 2013 | Year Ended Dec 31, 2014 | Year Ended Dec 31, 2015 |
|---|---|---|---|
| Depreciation | 160,000 | 320,000 | 440,000 |
| Preliminary and Formation Expenses | 216,000 | – | – |
| Penalties and Fines | – | – | 65,000 |
| General Provision for Bad Debts | 110,000 | 180,000 | 240,000 |
| Staff Salaries | 2,060,000 | 4,230,000 | 4,230,000 |
| Office Rent | 600,000 | 1,200,000 | 1,800,000 |
- Details of Property, Plant, and Equipment are as follows:
| Asset | Date of Purchase | Cost (N) |
|---|---|---|
| Furniture and Fittings | June 7, 2013 | 980,000 |
| Motor Vehicles | June 30, 2013 | 2,400,000 |
| Office Equipment | July 1, 2013 | 1,200,000 |
- On January 2, 2015, the company bought another motor vehicle for N1,800,000.
- Extracts of the Statements of Financial Position:
| Period | 6 Months Ended Dec 31, 2013 | Year Ended Dec 31, 2014 | Year Ended Dec 31, 2015 |
|---|---|---|---|
| Net Assets | 1,360,000 | 2,870,500 | 3,260,700 |
| Paid-up Share Capital | 5,000,000 | 5,000,000 | 5,000,000 |
Required:
For all the relevant years of assessment, you are required to:
a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)
(Total 30 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Adjusted Profits, Capital allowances, Tax liabilities, Tax Rights, Taxable Income
- Level: Level 3
- Topic: Tax Administration and Dispute Resolution
- Series: NOV 2016