Ican 2025 Advanced Taxation Question 5

LIS Limited is engaged in the manufacture of leather bags and shoes. The company commenced business in 2010. Due to downturn in the economy, which has significant effect on the purchasing power of customers, there has been a remarkable fall in the demand for its products. The shareholders of the company, at its Annual General Meeting in December 2022, approved the request made by the management to relocate the factory from Bauchi State to Ibadan, Oyo State. The following activities/transactions took place immediately after the Annual General Meeting: (i) the company’s warehouse in Azare town, Bauchi, which cost N11 million in 2018 was sold for N16.5 million in June 2023. The amount formed part of the cost of the new factory in Ibadan, which was completed in December 2023 at N22 million; (ii) in March 2024, the Bauchi factory, which cost N35 million in 2010 was sold to a private company owned by the Managing Director’s old school mate, for the sum of N55 million. The market value of the factory by an independent valuer, was put at N60 million, N50 million of the sales proceeds, was however applied to the construction of the factory in Ibadan, while N5 million was retained in the company’s bank account; and (iii) the retained amount of N5 million is expected to be used in the acquisition of shares in a Nigerian listed company in 2025.