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NATIONAL OPEN UNIVERSITY OF NIGERIA
UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
NOVEMBER 2018 EXAMINATION
COURSE CODE: ACC 318
CREDIT UNIT: 3
COURSE TITLE: TAXATION II
TIME ALLOWED: 2 1/2 HOURS
INSTRUCTIONS: 1. Attempt question Number one (1) and any other three (3).
2. Question number 1 is compulsory and carries 25 marks, while the other questions carry 15 marks each
3. Present all your points in coherent and orderly manner
Question One
1a) Sky Trading Company Limited has been in business for many years as a dealer in textiles. The following details of its transactions were extracted from its accounting records for the year ended 31st December 2017.
₦ ₦
Gross Profit 12,859,284
Sundry Income 499,602
13,358,886
Less Expenses:
Salaries and Wages 2,958,572
Electricity and Water 196,092
Depreciation 749,840
Rent and rates 498,920
Repairs and maintenance 960,536
Fuel and oil 520,984
Bank charges 660,884
Bad and doubtful debt 192,132
Legal and professional fees 593,488
Sundry losses 849,934
Company pension contribution 292,540
Audit Fees 400,000
Donation and Subscription 300,000
Director’s emolument 372,000
Miscellaneous expenses 256,120 9,802,042
Net Profit 3,556,844
The following additional information is also made available:
i) Bad and doubtful debts consist of:
₦
50% provision 40,000
Debts under litigation 100,000
Debts written off 100,000
Bad debts recovered (47,868)
192,132
ii) Sundry Losses include:
₦
Goods lost in transit and uninsured 220,400
Misappropriation by Financial Controller 400,000
Embezzlement by Cashier 229,534
849,934
- Legal and professional fees include:
₦
Debt collection effort commission 80,000
Renewal of lease 160,000
Registration of mortgages fees 100,000
Legal retainership 253,488
593,488
- Miscellaneous expenses consist :
₦
Penalty for late payment PAYE 24,000
Penalty for drivers’ traffic offense 2,000
Loss on exchange for import payment 180,000
Office beverages 50,120
256,120
- Capital allowances for the period agreed with revenue is ₦409,172
You are required to compute:
- Adjusted profit of the company for the relevant tax year (10 Marks)
- The company’s tax liabilities for the relevant tax year (5 Marks)
- Give three (3) features of Small business tax ( 3 Marks)
- Give three (3) exemptions from minimum tax (3 Marks)
- Mention four (4) expenses that are not allowed for tax purposes (4 Marks)
(Total 25 Marks)
Question Two
2a. what is capital allowance? (2 marks)
b. State four (4) conditions for granting capital allowance (4 marks)
c. Explain 3 types of capital allowance (9 marks)
(Total 15 marks)
Questions Three
Abuja, Lagos and Kaduna have been in business partnership for many years, they share profits and losses in the ratio of 2:2:1. The partnership firm submitted the following profit and loss statement for the year ended 31st December 2017, for the purpose of tax assessment:
₦ ₦
Gross profit 2,450,000
Less: Partnership Salaries
Abuja 250,000
Lagos 200,000
Kaduna 150,000
Interest on Capital
Abuja 80,000
Lagos 60,000
Kaduna 50,000
Depreciation 150,000
Electricity 60,000
Repairs 20,000
Rate 30,000
Motor Expenses 40,000
Refuse Disposal expenses 20,000
Legal retainership 40,000
Miscellaneous expenses 10,000
Audit and Accountancy 50,000
Provision for bad debts 80,000
Bad debts 10,000
Stationery 40,000
Postages and Stamps 30,000
Entertainment 60,000
Telephone 20,000 1,450,000
Net Profit 1,000,000
Additional information:
- Legal expenses were incurred on the admission of Kaduna
- Capital Allowance amounted to ₦300,000
- Entertainment expenses were incurred on the birthday celebration of Lagos
Required: Calculate:
- Partnership firm’s adjusted profit (8 Marks)
- Assessable income of each of the partners (7 Marks) (Total 15 Marks)
Question Four
Buba Limited has been in business for many years. As a result of declining fortune the company ceased trading permanently on 30th September 2018. The adjusted profits were as follows:
Year ended 30th June, 2015 1,290,000
Year ended 30th June, 2016 520,000
Year ended 30th June, 2017 1,960,000
Year ended 30th June, 2018 1,300,000
3 months to 30th September, 2018 300,000
Required:
- Compute the assessable profits of Buba Limited for the last three years of assessment (10 Marks)
- What is the option open to Federal Inland Revenue Service? (3 Marks)
- What are the rules governing the assessable profits for the Ultimate and Penultimate years in cessation of business? (2 Marks)
( Total 15 Marks)
Question Five
The records of White settlement created in favour of the four children, Black, Green, Purple and Red show the following as at 31st December, 2017:
₦
