Ican 2025 Taxation Question 2

Engineer Sanni Abudukar and Chief Caleb Ariwaya are partners in a consultancy firm based in Abakaliki. The firm renders engineering and geological services to all companies at various oil fields in the country. An extract from the statement of profit or loss of the firm - Abubakar Ariwaya & Associates, for the year ended December 31, 2024, revealed the following: Gross fees N’000 236,500 Sundry income N’000 7,975 244,475 Subscriptions and donations N’000 2,475 Administrative expenses N’000 48,000 Rent N’000 8,250 Depreciation N’000 41,250 Sundry expenses N’000 33,000 Interest on loan and overdraft N’000 8,250 Repairs and maintenance N’000 30,800 (172,025) Net profit N’000 72,450. Other information provided by the firm includes: (i) Engineer Abubakar is married with six children. All the children are studying in various higher institutions across the country. He has an aged father of about 85 years old who received an annual pension of N1.2 million from the Nigerian Railway Corporation. He spends about N800,000 per annum to maintain him. (ii) Chief Ariwaya has no dependent relative but he is married with two children both of whom are schooling abroad. He has an insurance policy for his family on which he pays a premium of N250,000 per annum on a sum of N30 million at the end of 25 years. (iii) Engineer Abubakar and Chief Ariwaya did not have any partnership agreement in writing but they opted for sharing the firm’s profit or losses equally. (iv) Sundry income included the profit on sales of motor vehicle amounting to N5,330,000. (v) Administrative expenses is made up of: N’000 - Office stationery 4,650 - Telephone and internet 1,850 Upkeep of partners: - Rent paid for residential house – Engr. Abubakar 5,450 - Medical expenses of Chief Ariwaya’s social acquaintance 1,250 - Maintenance of the firm’s office 4,800 - Other allowable expenses 30,000 48,000 (vi) Subscriptions and donations comprise: N’000 - Journal, newspapers and magazines 575 - Subscription of partners and senior staff professional institutions 638 - Trade associations 762 - Donation to Ebonyi Social Club 500 2,475 (vii) The sum of N1,980,000 included in the interest charged by banks on loans and overdraft related to loan obtained by the partners from the banks to finance their domestic residences which were still under construction. Chief Ariwaya took a loan of N10 million while Engr. Abubakar’s loan was N8 million. The accruing interests are shared according to loan obtained. (viii) Withholding tax deducted on fees income was at the rate of 5%. (ix) Computed capital allowances claimable for the relevant year of assessment are as follows: N - Initial allowance 7,715,000 - Annual allowance 14,080,000 - Balancing charge 1,795,000.