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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
SEPTEMBER 2016 EXAMINATION
COURSE CODE: ACC318
CREDIT UNIT: 3
COURSE TITLE: ADVANCED TAXATION
TIME ALLOWED: 2 ½ HOURS
INSTRUCTIONS: 1. Attempt question number one (1) and any other (3) questions.
2. Question number 1 carries 25 marks, while the other three (3) questions carry 15 marks each.
3. Present all your points in coherent and orderly manner
QUESTION 1
Amos, Lola and Binitie were in partnership in the Law firm of A,L,B & Co. The company has the following Profit & Loss account for the year ended 31st December, 20X8.
N N N
Gross earnings 2,100,000
Less: Staff salaries 500,000
Utility bills 35,000
Office rentals 50,000
Office expenses 25,000
Bad debts 55,000
Interest on Loan – Amos 10,000
Lola 15,000 25,000
Interest on capital – Amos 10,000
Lola 7,500
Binitie 5,000 22,500
Depreciation 7,500
Consultancy costs 345,000 1,065,000
Net profit for the period 1,035,000
Additional Information:
- Capital allowances agreed for the period was N7,500
- From the staff salaries, an equal amount of N72,000 per annum was paid to each of the partners.
- Binitie owned the building that housed the chambers
- Only N30,000 of the Bad Debts was determined to be bad. The remaining N25,000 is just a provision at 5% of Debtors.
- The ratio of interest on capital paid to the partners reflects their contributions and their share of profits.
Required:
- Compute the adjusted income of the partnership for the year.
- Calculate the profit shared by each partners and
- Calculate the income of each partner for tax purposes. (25 marks)
QUESTION 2
The records of BASEL settlement created in favour of AUDU, BIMBO and UZOAMAKA as at 31/12/20X8 are as follows:
N
Rental Income (gross) 24,000
Trade income 10,000
Dividend (gross) 18,000
Sundry income 12,000
The following additional information is available:
- Each beneficiary is entitled to 1/5 share of the net distribution income.
- Interest on debt repayable by the settlement is N2,000
- Fixed annuity to beneficiary is N3,000
Trustee remuneration per trust deed:
i. fixed N1,000 each (2 Trustee)
ii. 2% of total income
Administrative and other expenses – N3,800
Under the terms of the trust deed, the trustee made discretionary payment to AUDU, BIMBO & UZOAMAKA as follows:
N
AUDU - 3,000
BIMBO - 2,800
UZOAMAKA - 1,500
Capital allowances – N8,024
The children have no other income.
AUDU, BIMBO and UZOAMAKA are only entitled to personal allowances.
Required:
Compute aggregate income due to the Estate and Tax Payable by AUDU, BIMBO and UZOAMAKA. (15 marks)
QUESTION 3
- Explain the two types of tax audit (8 marks)
- Differentiate between direct and indirect tax. (7 marks)
QUESTION 4
Tax avoidance arises in a situation where the taxpayer arranges his financial affairs in a form that would make him pay the least possible amount of tax. Explain the two possible forms of anti-avoidance legislation, stating their advantages and disadvantages. (15 marks)
QUESTION 5
With reference to the Petroleum Profit Tax Act, explain the following:
- Persons chargeable
- Qualifying expenditure (15 marks)
QUESTION 6:
DANIEL & DANIELLE Associates commenced a retail business on 1 October 20X6 and make up accounts to 30TH September of every year. The following qualifying capital expenditure on plant and machinery were incurred.
Date Amount (N)
1/10/X6 520,000
1/11/X6 535,000
15/4/X7 725,000
Required:
Compute capital allowances for the relevant years of assessment. (15 marks)
