Case Stimulus
Dadinkowa Nigeria Limited has been in business since 2009 as a manufacturer of sugar cubes. The company sources its sugar cane from the Northern part of the country. However, due to activities of some miscreants which prevented some of the local farmers to go about their farming activities, the company has been facing a lot of issues in getting the needed raw materials for its operations since 2016. The company has issues with tax authorities on the treatment of some items (such as allowing/disallowing donation and dividend received at will) in the financial statements submitted and annual returns filed. The high overhead cost, particularly energy cost, make the operating environment not encouraging. In order to address this unpleasant business situation, the board of directors of the company, at its special meeting held recently, decided to “close business operations” temporarily or in the long-run, relocate to a neighbouring country, if the situation does not improve in the coming financial year. As the company’s tax consultant, you were informed of the decision of the Board by the General Manager when you visited the company to obtain documents that you intend to use to conduct tax audit and file statutory tax returns in respect of the just concluded year. He was of the opinion that your professional advice will be highly needed as he did not want the organisation to go on temporary closure next year or relocate to another country. In the course of your discussion, you suggested ways by which issues raised by the Board could be addressed. The General Manager was pleased with your informal submissions and decided to inform the Managing Director. A meeting has been scheduled between the Managing Director and your firm next week.
Additional Information
{
"label": "Statement of profit or loss for the year ended December 31, 2021",
"content": "N’000 N’000\nTurnover 382,500\nOpening inventory 23,200\nPurchases 117,400\nCarriage inwards 5,900\nClosing inventory (31,100)\nLess: Cost of goods sold 115,400\nGross profit 267,100\nMiscellaneous income 11,060\n 278,160\nDeduct: Expenses\nSalaries and wages 89,500\nRent and rates 12,300\nElectricity and lighting 26,650\nTransport and travelling 10,820\nStamp duties for increase in share capital 1,500\nAuditor’s remuneration 2,000\nLegal and professional fees 5,000\nRepairs and maintenance 2,100\nAllowance for doubtful debts 28,000\nDepreciation 35,600\nInterest on loan 6,000\nGeneral and administrative expenses 48,470\nDonations and subscriptions 15,000\nLoss on disposal of foreign equity shares 1,750\n284,690\nLoss for the year (6,530)"
}
{
"label": "Extract from the company’s statement of financial position as at December 31, 2021",
"content": "N’000\nNon-current assets 600,400\nCurrent assets 312,200\nTotal assets 912,600\n\nShare capital 600,000\nReserves 87,600\nLong-term borrowing 50,000\nLiabilities due within 1 year 175,000\n 912,600"
}
{
"label": "Additional Information",
"content": "(i) Miscellaneous income was made up of: Excess on revaluation of investment 770\nDividend received (net) 3,460\nOther income 6,830\n 11,060\n\n(ii) Legal and professional fees included: Debt collection expenses 1,200\nTax consultant’s professional fee 600\nRenewal of short lease 1,900\nRetainer fee 1,300\n 5,000\n\n(iii) Repairs and maintenance included: Improvement to industrial building 700\nRepairs of industrial plant 300\nRenewals of tools and implements 200\nConstruction of company’s building gate 900\n 2,100\n\n(iv) Allowance for doubtful debts consisted of: General provision 17,400\nSpecific provision 12,900\nBad debt written off 10,200\nBad debt recovered (12,500)\n 28,000\n\n(v) Interest on loan was paid on a facility obtained from a licensed Nigerian deposit money bank at commercial interest rate.\n\n(vi) General and administrative expenses were made up of: Vehicle running expenses 10,700\nInsurance premium 12,200\nFine for driving offences 470\nOther administrative expenses 25,100\n 48,470\n\n(vii) Donations and subscriptions included in donations was N12,000,000 paid to a fund created by the Federal Government for victims of communal crisis that took place where the company is situated.\n\n(viii) The tax written down values of the qualifying capital expenditure (QCE) items as at December 31, 2020 were: QCE Year of Acquisition Number of items Amount N ‘000\nIndustrial building 2016 1 84,000\nManufacturing industrial plants 2018 2 28,000\nMotor vehicles 2019 2 14,000\nFurniture and fittings 2019 10 2,700\n\n(ix) Additions to QCEs during the year ended December 31, 2021 were: QCE Number of items Amount N’000\nMotor vehicles 1 4,500\nFurniture and fittings 3 1,200\n\n(x) Unrelieved capital allowances brought forward were N15,200,000.\n\n(xi) Unabsorbed losses from previous years were: Tax year Amount N ‘000\n2017 8,290\n2018 4,380\n2019 9,800\n2020 13,600"
}