Case Stimulus
As investors and policy makers adapt to the global energy transition in a bid to offer an effective hedge against swings in oil prices, the Federal Government has recognised that it is beneficial for the country to diversify its economy. The attention of the country is now towards the development of the solid minerals sector. The Nigeria Minerals and Mining Act 2007 (as amended) was enacted to regulate the industry. Incentives for operators in the sector are as provided for in section 5 of the Act. One of the earliest investors in the mining sector, Dutse Mines (Nigeria) Limited, was granted a mining title by the Mining Cadastre Office (MCO) for exploitation of limestone in Nkalagu in the south-eastern zone of Nigeria in 2008. In spite of so many challenges the company is facing, it has managed to remain afloat in business. The company has, of recent, been having tax disputes with the relevant tax authority, and your firm of chartered accountants has been engaged to help resolve them. In the 2022 tax returns filed by the company, the major area of dispute between the company and the tax authority was disparity in the treatment of certified exploration and processing expenditure of N60,000,000 incurred during the course of the year. Your firm is provided with the following extracts (and supporting documents) from the books of the company for the year ended December 31, 2021: Turnover: - Export 1,125,000 - Local 705,000 Sundry income 28,500 1,858,500 Expenses: Excavating expenses 260,000 Salaries and wages 307,200 Directors’ remuneration 22,300 Electricity and telephone 8,630 Transport and traveling 13,300 Allowance for doubtful debts 26,000 Auditors and professional fees 10,000 Donations 9,500 Repairs and maintenance 24,900 Depreciation 70,000 General/miscellaneous expenses 15,200 Legal expenses 12,000 Bank charges 7,200 Insurance premium 75,000 Exploration and processing expenditure 60,000 Income tax provision 180,000 Education tax provision 5,000 1,106,230 Net profit 752,270 The following additional information was provided: (i) The figure for sundry income included an amount of N8,500,000 realised as profit from disposal of the old excavating machine. (ii) Allowance for doubtful debts were made up of: Bad debts written off 2,500,000 General allowance for doubtful debts 10,500,000 Specific allowance for doubtful debts 8,000,000 Loan to customer written off 5,000,000 (iii) Included in donation was N5,000,000 given to victims of environmental degradation, as part of the company’s social responsibility to the host community. (iv) Legal fees included an amount of N750,000, which was paid as penalty for late filing of tax returns. (v) The tax written down values of qualifying capital expenditure at the end of 2021 tax year revealed that: Motor vehicles (2 years remaining) 25,000,000 Furniture and fittings (utilised for 2 years) 22,500,000 Mining expenditure (6 years remaining) 40,000,000