Ican 2022 Taxation Question 1

Mr. Danko Chinyere who has worked in a neighbouring African country for many years, returned to Nigeria in August 2018. He incorporated a private limited liability company known as ChiDan Limited located in Lagos on October 30, 2018. The company deals in processing and packaging of plantain chips for local consumption. The directors of the company opened a business bank account with one of the leading commercial banks in November 2018. The company commenced full operations on January 2, 2019. Your firm, Adama & Co. was appointed as the tax consultant to ChiDan Limited in January 2021. At the first engagement meeting with the company, you discovered that the company was yet to register with the Federal Inland Revenue Service (FIRS). Relevant taxes, including value added tax were not remitted to FIRS. An extract of the company’s first set of financial statements made up to December 31, 2020 are as follows: N’000 N’000 Gross turnover 860,250 Gross profit 307,734 Profit on disposal of plant, property and equipment 7,860 315,594 Administrative and other expenses: Salaries and wages 62,810 Directors’ remuneration 9,000 Electricity and generator running expenses 4,815 Rents and rates 36,270 Repairs and renewal 10,230 Motor vehicle expenses 32,535 Donations and subscriptions 9,300 Interest and bank charges 6,780 Bad and doubtful debts 8,870 Miscellaneous expenses 20,770 Loss of fund 12,800 Audit fees 8,600 Legal and professional charges 7,725 Depreciation 42,825 (273,330) Net profit 42,264 The following additional information is provided: (i) Donations and subscriptions include: N’000 Lagos Chamber of Commerce 750 Motor Boat Club 300 Polo Club 250 Political parties 7,500 Approved National Relief Fund 500 9,300 (ii) Bad and doubtful debts consist of : N’000 Allowance for doubtful debts 3,000 Specific provision 4,245 Bad debts written off 1,625 8,870 (iii) Miscellaneous expenses include: N’000 Court fine 600 Exchange loss on remittances and balances 7,910 Allowable office expenses 12,260 20,770 (iv) Loss of fund A director defrauded the company to the tune of N9,800,000. (v) Legal and professional charges include: N’000 Debt collection and retainership fees 3,975 Land acquisition 3,750 7,725 (vi) Capital allowances as agreed with the Revenue amounted to N30,380,000.