Ican 2023 Advanced Taxation Question 5

Fashion Stitches Limited, Lagos, is a private limited liability company that deals in sewing and sales of clothes, and allied materials for medium and upper class clients in highbrow areas of the country. Apart from its core staff in the sewing unit, there are others who are usually “on the move” traveling to major cities, such as Abuja, Kaduna, Ibadan and Port Harcourt, to receive orders from clients. While reviewing their activities in the first quarter ended March 31, 2022, the Operating Officer stated that the recent increase in cost of traveling and staff salaries, which had jumped up by over 150% compared to the corresponding period of 2021, had impacted negatively on the financial performance of the company. The management took a decision to relocate the business to the Federal Capital Territory (FCT), Abuja, where over 75% of their clients’ reside on or before November 15, 2022. Implementation of the decision will however involve the disposal and re-acquisition of some assets needed for the purpose of the business. The underlisted transactions took place between April and October 2022: (i) The property (land and building) in Lagos which was acquired in 2008 for N18,220,000 was sold for N65,100,000. Incidental cost of disposal included estate valuers’ fee of N1,627,500; renovation expenses of N1,800,000 and advertisement cost of N250,000. A new property was bought in the FCT for N80,000,000. (ii) Sewing machines and other tailoring equipment bought between 2015 and 2019 (which are now considered to be outdated), for N3,300,000 were disposed for N2,800,000. New set of machines and equipment were acquired for N7,130,000. (iii) A 10 KVA generating set which cost N1,500,000 in 2017 was disposed for N1,900,000 and another one was acquired for N2,450,000.