Series: MAY 2023

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q7 – Tax Incentives and Reliefs

Explain tax incentives and penalties for enterprises in export processing zones.

The Federal Government in a bid to further boost the growth in foreign exchange earnings, create new jobs, facilitate economic diversification, industrialization, and provide access to foreign technology, came up with its export processing zones (EPZs) policy.

EPZ is regarded as a customs area where an enterprise is allowed to import plant, machinery, equipment, and raw materials, process them, and then export them to the world market, under security and without paying duty.

To facilitate a better understanding of the above assertions, the Managing Director of a would-be client approached you for explanations of the relevant provisions of the Nigerian Export Processing Zones Act Cap. N107 LFN 2004 (as amended) and Companies Income Tax Act Cap. C21 LFN 2004 (as amended).

Required:

a. Discuss SIX special tax incentives for enterprises operating in an export processing zone. (12 Marks)

b. Explain the penalties for non-compliance with section 55(1) of CITA (as amended). (3 Marks)

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q6 – Value-Added Tax (VAT)

Compute VAT remittance for Fountain Hotels' July 2022 transactions and explain VAT concepts.

Fountain Hotels Limited is a group of hotels located in many parts of North Central Nigeria, providing accommodation and other hospitality services. It renders its returns at the end of each month in accordance with the Value Added Tax Act 2004 (as amended).

The following are the details of the transactions for the month of July 2022:

  • VAT on outdoor catering services: N600,000
  • VAT on food: N360,000
  • VAT on drinks: N240,000
  • VAT on other vatable hotel services: N270,000
  • VAT on drinks purchased: N150,000
  • VAT on foodstuff purchased: N210,000
  • VAT on kitchen equipment: N480,000
  • VAT on professional services: N240,000

Additional Information:

  1. 30% of outdoor catering services were on credit.
  2. 20% of food and drinks were on credit.
  3. Other vatable hotel services were paid in full.
  4. 25% of VAT on drinks and foodstuff purchased were on credit.
  5. VAT on kitchen equipment and professional services were paid in full.

Required:

a. Compute the VAT remittable to the Federal Inland Revenue Service in respect of July 2022 transactions. (9 Marks)

b. Write short notes on the following:
i. Revenue VAT (2 Marks)
ii. Zero-rated supplies and services (2 Marks)
iii. VAT on exports (2 Marks)

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q5 – Taxation of Specialized Businesses

Explain solutions to multiple taxation and list causes.

Multiple taxation is a tax regime under which various and similar taxes are imposed on taxpayers by different tiers of government. This has become a national problem discouraging taxpayers from performing their civic responsibilities. The 1999 Constitution of the Federal Republic of Nigeria seeks to eliminate multiple taxation at all levels of government as provided for in Part II, Paragraphs 7 to 10.

Required:

a. Explain FOUR Constitutional and other possible solutions provided on how to eliminate multiple taxes. (10 Marks)

b. State FIVE possible causes of multiple taxation. (5 Marks)

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q4 – Companies Income Tax

Calculate assessable profit basis periods and capital allowances for Wizzy-Baddo Ltd.

As part of the induction program for the newly recruited staff of your firm of tax consultants, you have been tasked with a presentation on companies’ income tax computation for beginners during the firm’s training session.

You are provided with the following information relating to Wizzy-Baddo Limited, which commenced business on September 1, 2020:

  • Adjusted Profit:
    • Period to December 31, 2020: N6,937,500
    • Year ended December 31, 2021: N9,300,500

The following assets were acquired as follows:

Date Asset Cost (N)
June 5, 2020 Land and building 5,467,500
July 1, 2020 Motor vehicle 10,000,000
October 15, 2020 Machinery 4,375,000
February 28, 2021 Furniture 3,458,000
May 1, 2021 Delivery van 4,750,000

Required:

a. State the basis periods for assessable profits and qualifying capital expenditure. (5 Marks)

b. Compute the capital allowances.

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q3 – Tax Dispute Resolution

Explain conditions for final assessment and discuss objection and appeal procedures for tax assessments.

Taxation has been defined as the imposition of compulsory levies on individuals and entities by governments in most countries in the world. The primary objective of taxation is essentially to generate revenue or raise money for government expenditure on social welfare.

You were appointed as the accountant of Specks Nigeria Limited on August 31, 2022. Based on self-assessment, the company filed the audited financial statements for the year ended December 31, 2021, together with its tax computations on June 7, 2022, and the relevant tax liabilities were fully paid on the same date.

On August 31, 2022, the Federal Inland Revenue Service raised an assessment that was not in line with the tax returns. At the meeting of the directors held in September 2022, this issue was discussed, and you were mandated to quickly address it so that the assessment would not become final and conclusive.

Required:
a. When will an assessment become final and conclusive? (5 Marks)
b. Discuss the following in relation to objection and appeal procedures:
(i) Time limit for objection and appeal (4 Marks)
(ii) Contents of a notice of objection (4 Marks)
(iii) Amendment of assessment and notice of refusal to amend (NORA) (7 Marks)

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q2 – Personal Income Tax (PIT)

Differentiate employment contract types and explain tax residency rules for individuals.

The Personal Income Tax Act Cap.P8 LFN, 2004 (as amended) defines “employment,” whilst the Labour Act Cap.L1 LFN, 2004 (as amended), defines “contract of employment.”

An individual’s liability to income tax is often determined by their residence status within a state during a particular assessment year. A taxpayer is liable to the tax authority in the territory where they are deemed resident for that assessment year.

Required:
a. Differentiate between “contract of employment” and “contract for employment.” (8 Marks)
b. Explain the rules guiding the determination of residence for SIX categories of individuals for tax purposes. (12 Marks)

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  • 30 Marks

TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)

Compute partnership income and individual partner tax liabilities.

Fadeke, Femi, Kola, and Gbenga have been in partnership as medical practitioners for eight years. The statement of profit or loss for the year ended December 31, 2021, is as follows:

  1. Capital allowances agreed with the revenue: N980,000
  2. Profits are to be shared equally among the partners.
  3. Fadeke and Femi are married with three and two children, respectively.
  4. Fadeke has a life assurance policy of N960,000 on which she pays N96,000 annually as a premium.
  5. Fadeke maintains her aged father who is over 68 years.

Required:

a. Compute the income of the partnership. (5 Marks)
b. Compute the income tax liability of each of the partners. (25 Marks)
(Total: 30 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q7 – Risk Management and Corporate Strategy

Analysis of enterprise and operational risks for Gbam Telecoms in launching 5G services.

Gbam Telecoms Plc, a leading mobile phone and internet communications company, is planning to roll out its 5th Generation (5G) spectrum. As a new product, the 5G spectrum promises customers high-speed internet with immense possibilities in computing, big data management, robotics, and other numerous benefits. While a section of the populace believes that the roll-out is a welcome development, others express reservations about the 5G technology. Within Gbam Telecoms Plc, some employees believe that the erratic nature of the country’s power supply could damage the 5G transponders. Also, the high cost of diesel would increase the company’s operating costs, thus making the product largely unaffordable to prospective consumers. There are also security threats to the company’s facilities due to heightened insecurity in the country. The umbrella trade union for the company’s employees is also agitating for a pay rise and hazard allowance should the company go ahead with the 5G roll-out. Some experts believe that the market for 5G spectrum in the country today is negligible because most telecommunication and internet devices used by consumers in the market are not 5G-compliant. There are also reports that the competitors of Gbam Telecoms Plc are studying how the market will respond to Gbam Telecoms’ 5G spectrum before deciding to enter the market. In addition, a study carried out in Europe concluded that 5G spectrum may be hazardous to the health of people living close to 5G transponders. There is also news about the development of new and better technologies called 6G and 7G, which may make 5G obsolete within a short period of time.

Required:

  1. (a) Advise the management of Gbam Telecoms Plc on the enterprise and operational risks that could be associated with the roll-out of 5G spectrum using information contained in the given scenario. (11 Marks)
  2. (b) Suggest to Gbam Telecoms Plc the key elements that should be contained in the company’s Risk Management System. (4 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q6 – Ethics in Business

Application of Kohlberg's moral development stages in ethical decisions and critiques of the theory.

Using Kohlberg’s stages of moral development, identify and explain the reasons why individuals make their decisions when faced with moral dilemmas.

(a) Identify and explain the reasons why individuals make their decisions when faced with a moral dilemma using Kohlberg’s stages of moral development. (12 Marks)

(b) Explain the criticisms of Kohlberg’s stages of moral development. (3 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q5 – Ethics in Business

Differences between creative and critical thinking and their impact on employer benefits.

Creative and critical thinking are essential skills that chartered accountants should possess for optimal performance.

(a) Differentiate between creative and critical thinking. (4 Marks)

(b) Explain the modes through which creative thinking is expressed. (8 Marks)

(c) Explain how the creative thinking of employees benefits their employers. (3 Marks)

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q7 – Tax Incentives and Reliefs

Explain tax incentives and penalties for enterprises in export processing zones.

The Federal Government in a bid to further boost the growth in foreign exchange earnings, create new jobs, facilitate economic diversification, industrialization, and provide access to foreign technology, came up with its export processing zones (EPZs) policy.

EPZ is regarded as a customs area where an enterprise is allowed to import plant, machinery, equipment, and raw materials, process them, and then export them to the world market, under security and without paying duty.

To facilitate a better understanding of the above assertions, the Managing Director of a would-be client approached you for explanations of the relevant provisions of the Nigerian Export Processing Zones Act Cap. N107 LFN 2004 (as amended) and Companies Income Tax Act Cap. C21 LFN 2004 (as amended).

Required:

a. Discuss SIX special tax incentives for enterprises operating in an export processing zone. (12 Marks)

b. Explain the penalties for non-compliance with section 55(1) of CITA (as amended). (3 Marks)

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q6 – Value-Added Tax (VAT)

Compute VAT remittance for Fountain Hotels' July 2022 transactions and explain VAT concepts.

Fountain Hotels Limited is a group of hotels located in many parts of North Central Nigeria, providing accommodation and other hospitality services. It renders its returns at the end of each month in accordance with the Value Added Tax Act 2004 (as amended).

The following are the details of the transactions for the month of July 2022:

  • VAT on outdoor catering services: N600,000
  • VAT on food: N360,000
  • VAT on drinks: N240,000
  • VAT on other vatable hotel services: N270,000
  • VAT on drinks purchased: N150,000
  • VAT on foodstuff purchased: N210,000
  • VAT on kitchen equipment: N480,000
  • VAT on professional services: N240,000

Additional Information:

  1. 30% of outdoor catering services were on credit.
  2. 20% of food and drinks were on credit.
  3. Other vatable hotel services were paid in full.
  4. 25% of VAT on drinks and foodstuff purchased were on credit.
  5. VAT on kitchen equipment and professional services were paid in full.

Required:

a. Compute the VAT remittable to the Federal Inland Revenue Service in respect of July 2022 transactions. (9 Marks)

b. Write short notes on the following:
i. Revenue VAT (2 Marks)
ii. Zero-rated supplies and services (2 Marks)
iii. VAT on exports (2 Marks)

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q5 – Taxation of Specialized Businesses

Explain solutions to multiple taxation and list causes.

Multiple taxation is a tax regime under which various and similar taxes are imposed on taxpayers by different tiers of government. This has become a national problem discouraging taxpayers from performing their civic responsibilities. The 1999 Constitution of the Federal Republic of Nigeria seeks to eliminate multiple taxation at all levels of government as provided for in Part II, Paragraphs 7 to 10.

Required:

a. Explain FOUR Constitutional and other possible solutions provided on how to eliminate multiple taxes. (10 Marks)

b. State FIVE possible causes of multiple taxation. (5 Marks)

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q4 – Companies Income Tax

Calculate assessable profit basis periods and capital allowances for Wizzy-Baddo Ltd.

As part of the induction program for the newly recruited staff of your firm of tax consultants, you have been tasked with a presentation on companies’ income tax computation for beginners during the firm’s training session.

You are provided with the following information relating to Wizzy-Baddo Limited, which commenced business on September 1, 2020:

  • Adjusted Profit:
    • Period to December 31, 2020: N6,937,500
    • Year ended December 31, 2021: N9,300,500

The following assets were acquired as follows:

Date Asset Cost (N)
June 5, 2020 Land and building 5,467,500
July 1, 2020 Motor vehicle 10,000,000
October 15, 2020 Machinery 4,375,000
February 28, 2021 Furniture 3,458,000
May 1, 2021 Delivery van 4,750,000

Required:

a. State the basis periods for assessable profits and qualifying capital expenditure. (5 Marks)

b. Compute the capital allowances.

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q3 – Tax Dispute Resolution

Explain conditions for final assessment and discuss objection and appeal procedures for tax assessments.

Taxation has been defined as the imposition of compulsory levies on individuals and entities by governments in most countries in the world. The primary objective of taxation is essentially to generate revenue or raise money for government expenditure on social welfare.

You were appointed as the accountant of Specks Nigeria Limited on August 31, 2022. Based on self-assessment, the company filed the audited financial statements for the year ended December 31, 2021, together with its tax computations on June 7, 2022, and the relevant tax liabilities were fully paid on the same date.

On August 31, 2022, the Federal Inland Revenue Service raised an assessment that was not in line with the tax returns. At the meeting of the directors held in September 2022, this issue was discussed, and you were mandated to quickly address it so that the assessment would not become final and conclusive.

Required:
a. When will an assessment become final and conclusive? (5 Marks)
b. Discuss the following in relation to objection and appeal procedures:
(i) Time limit for objection and appeal (4 Marks)
(ii) Contents of a notice of objection (4 Marks)
(iii) Amendment of assessment and notice of refusal to amend (NORA) (7 Marks)

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  • 20 Marks

TAX – May 2023 – L2 – SA – Q2 – Personal Income Tax (PIT)

Differentiate employment contract types and explain tax residency rules for individuals.

The Personal Income Tax Act Cap.P8 LFN, 2004 (as amended) defines “employment,” whilst the Labour Act Cap.L1 LFN, 2004 (as amended), defines “contract of employment.”

An individual’s liability to income tax is often determined by their residence status within a state during a particular assessment year. A taxpayer is liable to the tax authority in the territory where they are deemed resident for that assessment year.

Required:
a. Differentiate between “contract of employment” and “contract for employment.” (8 Marks)
b. Explain the rules guiding the determination of residence for SIX categories of individuals for tax purposes. (12 Marks)

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  • 30 Marks

TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)

Compute partnership income and individual partner tax liabilities.

Fadeke, Femi, Kola, and Gbenga have been in partnership as medical practitioners for eight years. The statement of profit or loss for the year ended December 31, 2021, is as follows:

  1. Capital allowances agreed with the revenue: N980,000
  2. Profits are to be shared equally among the partners.
  3. Fadeke and Femi are married with three and two children, respectively.
  4. Fadeke has a life assurance policy of N960,000 on which she pays N96,000 annually as a premium.
  5. Fadeke maintains her aged father who is over 68 years.

Required:

a. Compute the income of the partnership. (5 Marks)
b. Compute the income tax liability of each of the partners. (25 Marks)
(Total: 30 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q7 – Risk Management and Corporate Strategy

Analysis of enterprise and operational risks for Gbam Telecoms in launching 5G services.

Gbam Telecoms Plc, a leading mobile phone and internet communications company, is planning to roll out its 5th Generation (5G) spectrum. As a new product, the 5G spectrum promises customers high-speed internet with immense possibilities in computing, big data management, robotics, and other numerous benefits. While a section of the populace believes that the roll-out is a welcome development, others express reservations about the 5G technology. Within Gbam Telecoms Plc, some employees believe that the erratic nature of the country’s power supply could damage the 5G transponders. Also, the high cost of diesel would increase the company’s operating costs, thus making the product largely unaffordable to prospective consumers. There are also security threats to the company’s facilities due to heightened insecurity in the country. The umbrella trade union for the company’s employees is also agitating for a pay rise and hazard allowance should the company go ahead with the 5G roll-out. Some experts believe that the market for 5G spectrum in the country today is negligible because most telecommunication and internet devices used by consumers in the market are not 5G-compliant. There are also reports that the competitors of Gbam Telecoms Plc are studying how the market will respond to Gbam Telecoms’ 5G spectrum before deciding to enter the market. In addition, a study carried out in Europe concluded that 5G spectrum may be hazardous to the health of people living close to 5G transponders. There is also news about the development of new and better technologies called 6G and 7G, which may make 5G obsolete within a short period of time.

Required:

  1. (a) Advise the management of Gbam Telecoms Plc on the enterprise and operational risks that could be associated with the roll-out of 5G spectrum using information contained in the given scenario. (11 Marks)
  2. (b) Suggest to Gbam Telecoms Plc the key elements that should be contained in the company’s Risk Management System. (4 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q6 – Ethics in Business

Application of Kohlberg's moral development stages in ethical decisions and critiques of the theory.

Using Kohlberg’s stages of moral development, identify and explain the reasons why individuals make their decisions when faced with moral dilemmas.

(a) Identify and explain the reasons why individuals make their decisions when faced with a moral dilemma using Kohlberg’s stages of moral development. (12 Marks)

(b) Explain the criticisms of Kohlberg’s stages of moral development. (3 Marks)

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  • 15 Marks

CSME – May 2023 – L1 – SB – Q5 – Ethics in Business

Differences between creative and critical thinking and their impact on employer benefits.

Creative and critical thinking are essential skills that chartered accountants should possess for optimal performance.

(a) Differentiate between creative and critical thinking. (4 Marks)

(b) Explain the modes through which creative thinking is expressed. (8 Marks)

(c) Explain how the creative thinking of employees benefits their employers. (3 Marks)

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