Ican 2025 Taxation Question 1

XYZ Nigeria Limited was incorporated in Nigeria on November 1, 2016. The company has an authorised and fully paid ordinary share capital of five million shares at N1 each. The company is an entity that started trading on January 1, 2023, retailing engineering equipment. Its first statement of profit or loss was for the year ended December 31, 2023, and revealed the following results: Gross profit N’000 140,800 Investment income N’000 3,850 Profit on sales of equipment N’000 4,950 Less expenses: Depreciation N’000 17,875 Directors’ emoluments N’000 2,200 Debenture interest N’000 4,000 Audit and accounting fees N’000 4,125 Legal costs N’000 5,775 Salaries N’000 72,000 Miscellaneous expenses N’000 12,600 (118,575) Net profit for the year N’000 31,025. The following additional information was provided by the company’s Financial Director: (i) Legal costs comprise the following: N’000 - Retainership 1,725 - Cost of issuing directors service agreement 1,550 - Cost of issuing ordinary shares 2,500 5,775 (ii) The breakdown of miscellaneous expenses comprises: N’000 - Cost of installation of a new machine 3,750 - Extension and partitioning of office apartment 1,500 - Staff party 2,500 - Cost of entertaining suppliers 4,850 12,600 (iii) Investment income comprises the following: N’000 - Dividend from Nigerian companies (net) 2,100 - Loan interest from Nigerian company (gross; non-trading investment) 1,750 3,850 (iv) On December 31, 2023, the directors of the company agreed to pay a dividend of 5% on its ordinary shares (v) Balancing charge agreed with the Revenue was N2,740,000 (vi) The agreed capital allowance with the Revenue was N10,325,000.