THE CHARTERED INSTITUTE OF TAXATION OF … 2 - OLD...salary increment (12 marks) b The basic steps...
Transcript of THE CHARTERED INSTITUTE OF TAXATION OF … 2 - OLD...salary increment (12 marks) b The basic steps...
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THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
(Chartered Institute by Act No. 76 of 1992)
STUDENTS’ DELIGHT APRIL 2013 TAXATION
TECHNICIAN SCHEME EXAMINATION TTS II
OLD SYLLABUS
QUESTION AND SUGGESTED SOLUTIONS
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THE CHARTERED INSTITUTE OF TAXATION OF
NIGERIA APRIL 2013: TAXATION TECHNICIAN
SCHEME
PART 2: BUSINESS MANAGEMENT
ATTEMPT ALL QUESTIONS. TIME: 3
HOURS
TAXATION TECHNICIAN’S SCHEME (TTS 2) – OLD SYLLABUS
TTS 2 BUSINESS MANAGEMENT
1 Business communication is one of the dynamic processes that enable the organization to
remain an open system as opposed to the closed system.
Required:
a. List the most common external information which a business organization requires.
(10 marks)
b. What are the steps needed towards the designing of an effective communication
system? (5 marks)
c. What are the effects of a breakdown in communication? (5 marks)
(Total: 20 marks)
SOLUTION
1 a The following are the most common external information required by a business
organization.
(i) Sources and prices of plants and machinery
(ii) Sources and prices of raw materials
(iii) Sources and pricing of fund (Information on Capital and Money Market).
(iv) Customers’ needs, wants and specifications
(v) Competitors’ activities with respect to price, product, promotion, distribution,
internal operation, remuneration to staff etc.
(vi) Sources of and remuneration for skilled, semi-skilled and unskilled labour.
(vii) Government legislation is likely to affect the business e. g. environmental
pollution Act, price control, foreign exchange control, embargo on importation
on specific commodities, taxation rate, minimum wage laws etc.
(viii) General economic, political and social situation in the firm’s immediate
environment.
(ix) Global economic, political and social conditions e.g. global recession, changes in
price of petroleum, raw materials, foreign exchange fluctuations, etc.
(x) Dealer specifications relating to product size, etc. (10 marks)
b The steps required towards the designing of an effective communication systems are:-
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(i) Analysis of the decision making system.
(ii) Analysis of information required
(iii) Designing appropriate organization structure
(iv) Designing information processing
(v) Design of control system
c Effects of poor or breakdown in communication are:
Poor decision making by management
It precipitates conflict in organization
Poor communication can lead to organizational unhealthiness symptomized by
poor sales, poor activity level, absenteeism, poor profit and overall
performance.
Complete breakdown in communication will result in the collapse of the
business organization. (5 marks)
2. a. As a Manager in your organization, what motivational incentives would you give in
order to retain your staff? (12 marks)
b. List the basic procedures in a recruitment exercise. (8 marks)
(Total: 20 marks)
SOLUTION
2 a As a manager, the following incentives will be put in place in order to retain staff:-
(i) Review remuneration packages upwards to industry standard or slightly above standard.
(ii) Establish good training policy to improve employees’ skills
(iii) Establish good medical welfare incentives to staff.
(iv) Grant generous fringe benefits to staff e. g. transport allowance, Christmas bonus, leave allowance, retirement benefit schemes
(v) Staff should be given opportunities to attend seminars, workshops, conferences
(vi) Devise measures aimed at rewarding employees performance e.g. promotion
salary increment (12 marks)
b The basic steps in a recruitment exercise are:-
Screening of applicants (1 mark)
Selection of applicants (1 mark)
Testing (1mark)
Interview (1 mark)
Background verification (1 mark)
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Decision to hire (1 mark)
Offer letter and medical examination (1 mark)
Induction (1 mark)
(8 marks)
(20 marks)
3. a. List the importance of organizational objectives. (5 marks)
b. Well-defined and integrated organizational objectives or goals have numerous
advantages.
Discuss, at least, three of the advantages of a well-defined and integrated objective in
the management of organization. (15 marks)
(Total: 20 marks)
SOLUTION
3 a The importance of organizational objectives are:-
i. Objectives serve as reference points for the efforts of the organization
ii. Objectives are necessary for coordinating the efforts of the organization. In
coordinating the effort of the organization, the first step is to state the
objectives the organization desires to achieve.
iii. It is important that the organization renews its objectives so as to compete
effectively and grow in the face of stiff competition in the global environment.
iv. Organizational objectives are also the end towards which all organizational
action is directed.
v. Objectives are prerequisite to determine effective policy procedures, methods,
strategies and rules.
vi. Organizational objectives define the destination of the organization; they move
forwards as rapidly as they are approached or attained.
vii. Clearly defined objective is a good navigation aid comparable to a star which
can be used for navigation by ships and airplanes. (5 marks)
b The advantages of a well-defined objectives or goals include:-
Effective objectives encourage all members to work toward the same
organizational objectives. In contrast, there will likely be many different ideas
among members as to what the objectives of the organization are or should be.
Each person under such circumstances work toward his own ideas of the
organizational objectives.
Much of such work will apparently be in conflicting direction or may be
otherwise ineffective. This good objective make behavior in organization more
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rational, more coordinated, and thus more effective, because everyone knows
the accepted goals to work towards.
A person can justify doing anything if any objective is as good as the other-
Effective goals give objective yardsticks for measuring, comparing, and
evaluating performance. They provide objective, rational basis for settling
dispute in organization.
Effective objective also can be good motivators because they make it easier for
a member to relate the accomplishment of his personal goals to the work of the
organization. He knows what is expected of him and is thereby more secure in
what he needs to do to be successful in the organization. In setting effective
objectives, managers help members at all levels of the organization to
understand how they can “best achieve their own goals by directing their
behavior towards the goals of the organization. (15 marks)
4. Training and development are key functions of personnel management. The Personnel
Manager is therefore expected to apply his/her technical skills in dealing with conflicts that
arise in these areas among other personnel management functions.
Required:
a Briefly list and explain the training/development process. (10 marks)
b In the design of training programmes, what specific method will you consider in the
training of junior employees? (5 marks)
c Will there be any differences when designing training programmes for managers?
(5 marks)
(Total: 20 marks)
SOLUTION
4 a The training and development process embraces the following steps:-
Identification of training needs
Design of training programmes
Implementation of training programme
Evaluation of training programme (4 marks)
The training and development process can be explained as illustrated here
under.
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1½ mark
1½ mark
1½ mark
1½ mark
b The following are the methods for the training of Junior employees.
On -the –job training
Vestibule training:- Where training takes place under classroom conditions for a
large number of staff who must learn the same kind of work techniques at the
same time. An attempt is also made to use as nearly as possible the actual
materials, equipment and work conditions that will actually be found in the real
work place.
Classroom Method:- This is similar to vestibule training except that here
concepts and attitudes are taught to employees rather than specific work
techniques.
This may be in form of lectures, conferences, case studies, role playing and
programmed instruction.
Identification of training / Development needs a. Organization Analysis b. b. Job Analysis c. Individual Analysis
Design of Training / Development Program a. Establishing Training and Development Objectives b. Determine Content of Training and Development
Process c. Choosing Training / Development Methods d. Choosing Location and Instructions.
Implementation of Training / Development a. Releasing of staff, facilities and locations b. Ensuring that Training / Development, meets
Training / Development objectives
Evaluation of Training / Development Program. A general assessment of the training program on the basis of:- a. Objective Criteria e.g. costs, turnover rates, absentism,
productivity, etc. b. Behavioural Criteria – e. g. training reaction, changes
in morales, attitudes, behaviours, etc.
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Training through demonstration. A demonstration is one in which an expert or
an instructor show employees how to do certain things. An example is how to
assemble a machine. Demonstration is widely used in the Army in the training of
soldiers. It is particularly effective because it depends upon the visual display of
the method or techniques that is been taught to employees. (5 marks)
c Some of the methods mentioned above particularly those of classroom and
demonstration are also used in the development of managers. The additional methods
used in the development of managers are:-
Job rotation
Coaching
Understudy
Multiple management
Management games (5 marks)
5 a. What are the basic tasks that the marketing manager must perform in order to manage
his operations effectively? (15 marks)
b. Mention five objectives of business organizations. (5 marks)
(Total: 20 marks)
SOLUTION
5 a The following tasks must be performed by the marketing manager to enhance maximum
efficiency.
i MARKET ANALYSIS
This involves the marketing manager to gain an understanding about the
market. This involves obtaining quantitative and behavioural data on buyers and
competitors. (2 marks)
ii SETTING GOALS
This involves the setting of goals and objectives to be pursued from the outset.
Marketing goals are naturally derived from the overall or the ultimate goal of
the organization. The goals set should be challenging and yet attainable and
should be clearly communicated down the organization. (2 marks)
iii PLANNING THE MARKETING EFFORT
To develop a marketing strategy and specific decision regarding the product, the
price, the distribution and the promotion in order to satisfy the needs of the
target market and provide the best channels of achieving the goals
(3 marks)
iv ORGANISATION
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This involves designing and establishing position and lines of authority, assigning
personnel and motivating them to do their best. (2 marks)
v EXECUTION
This involves implementing marketing plan. Task must be assigned to individuals
and groups, resources provided and time schedule set for accomplishing
specified objectives or results. (2 marks)
vi CO -ORDINATION
Marketing activities must be coordinated with advertising agencies,
transportation companies and other outside company facilitating the marketer’s
effort. (2 marks)
vii CONTROL
This involves monitoring results in order to identify deviation from planned
objective and to take corrective measures. (2 marks)
(Total 15 marks)
b THE OBJECTIVE OF BUSINESS ORGANIZATIONS ARE:-
i. Maximization of profit (1 mark)
ii. Maximization of revenue (1 mark)
iii. Maximization of shareholders’ wealth (1 mark)
iv. Cost minimization (1 mark)
v. Increase market share (1 mark)
(5 marks)
TTS2 BUSINESS TAXATION
1 a Mention ten (10) bodies to which donation made are allowable in accordance to
the 5th
Schedule of CITA. (10 marks)
b State the steps you will take to register a company with the Federal Inland Revenue
Service (FIRS), and list what you will need to complete the registration. (10 marks)
(Total: 20 marks)
SOLUTION
1 a Bodies to who donation may be made to according to the 5TH schedule of CITA.
1. The Boys Brigade of Nigeria
2. The Boys Scout of Nigeria
3. The Christian Council of Nigeria
4. The Cocoa Research Institute of Nigeria
5. The Girls Guide Of Nigeria
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6. The National Library
7. The National Council Of Medical Research
8. The Nigeria Museum
9. The Nigeria Red Cross
10. The National Youth of Nigeria
11. The Society for the Blind
12. The Nigeria Institute of International for the Affairs
13. The National Commission For Rehabilitation
14. The Nigeria Youth Trust
15. Islamic Education Trust
16. Nigeria Accounting Standard Board
17. Nigeria Conservation Foundation
18. National Science Technology Fund
19. The Nigeria Society For The Deaf And Dumb
20. The Nigeria National Advisory Council for the Blind
21. The Chartered Institute of Taxation of Nigeria
22. The Institute Of Charted Accountants of Nigeria
b In oder to register a company as a corporate tax payer with the Federal Inland Revenue
Service (FIRS), the following steps must be taken.
1. A formal letter on the company letter headed paper would be written to FIRS
informing her of his intention to register.
The letter will provide the following information:-
i. The date of incorporation of the company.
ii. The registered address of the company
iii. Date of commencement of business (If it has commenced business)
iv. Names and addresses of shareholders and their shareholding structure.
v. Names and addresses of Bankers.
vi. Names and addresses of tax representative.
vii. Names and addresses of auditors.
viii. Date to which the account of the company will be made i.e. The
accounting year end.
ix. The principal activity of the company.
x. Whether the company is starting a new trade or it is taking over another
business.
xi. Any other directorship/shareholders of the directorship
- The company will need to register as VAT able person.
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- A copy of the certificate of incorporation and memorandum and
Articles of Association of the company will be taken along for
sighting at the time of submission.
2 Surulere Limited commenced business on 1st October, 2008 as a manufacturer of baby
wears. You are required to determine the basis on which the company would be subjected
to taxation for the first three tax years given the following results:
Year ended 30th
September, 2009 N480,000
Year ended 30th
September, 2010 N670,000
Year ended 30th
September, 2011 N550,000
(20 marks)
SOLUTION
2 SURULERE LIMITED
DETERMINATION OF THE BASIS PERIOD FOR ASSESSABLE PROFIT FOR THE RELEVANT TAX YEARS.
NORMAL RIGHT
Tax Year Basis Period Assessable Profit Basis Period Assessable Profit
N’000 N’000
2008 1/10/08-31/12/08 120,000
2009 1/10/08-30/09/09 480,000 1/1/09-31/12/09 527,500
2010 1/10/08-30/09/09 480,000 1/1/10-31/12/10 640,000
Conclusion: Surulere limited should not exercise the right of election.
Workings
Normal
2008 = 1/10/08 – 31/12/08
3/12 x 480,000 = N120,000
Right
N
2009 1/1/09 – 30/09/09 = 9/12 x 480,000 = 360,000
1/10/09 – 31/12/09 = 3/12 x 670,000 = 167,500
527,500
2010 1/1/10 – 30/09/10 = 9/12 x 670,000 = 502,500
1/10/10 – 31/12/10 = 3/12 x 550,000 = 137,500
640,000
3 Premier Limited is a company incorporated with a nominal capital of N8.5 million.
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The paid up capital of the company is N6,250,000 divided into shares of N1.00 each. The
company which has been trading for many years makes up its account to 31 May every
year. The following is an extract of the company‟s Profit and Loss Account for the year
ended 31st May, 2010. N N
Gross Profit 12,200,000
Directors salaries 650,000
Erection of new sign post 65,000
Depreciation 4,250,000
Income Tax – 2008 1,450,000
Plant replacement reserve 720,000
Other expenses 1,630,000 8,765,000
Net Profit 3,435,000
The capital allowances were agreed to be N4,104,800. It was also agreed that there were no
disallowable expenses included in “other expenses”.
You are required to :
a. Compute the total assessable profit for the relevant year of assessment. (5 marks)
b. Compute the income tax payable for the year of assessment (5 marks)
c. Compute the total tax liability for the relevant year of assessment. (5 marks)
d Under the companies income Tax Act, mention the types of dividends that are
exempted from Tax. (5 marks)
(Total: 20 marks)
SOLUTION
3 PREMIER LIMITED
a COMPUTATION OF TOTAL ASSESSABLE PROFIT FOR 2011 TAX YEAR
N N
Net profit per amount 3,435,000
Add:
Erection of new Sign Post 65,000
Depreciation 4,250,000
Income Tax – 2008 1,450,000
Plant Replacement Reserve 720,000 6,485,000
Adjusted Profit 9,920,000
Capital Allowance (4,104,800)
Total assessable Profit 5,815,200
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b Income Tax payable @ 30% 1,744,560
Add
Education Tax @ 2% (2% x 5,815,200) 116,304
c Total Tax Liability 1,860,864
d i Dividends distributed by Unit Trust in Nigeria
ii Dividends derived by a company from a country outside Nigeria and brought
into Nigeria through government approved channels.
Iii Dividends received from investment in wholly export oriented business
Iv Dividends paid by a pioneer company to the extent that they are paid out of
income exempted from tax under CAP179 LFN 1990
v Dividends received from small companies in the manufacturing sector in the
first five years of their operations.
vi Dividends received from a foreign investment provided such dividend are
received through a domiciliary account.
4 a Outline the practice of Revenue where changes in accounting dates are made.
(5 marks)
b Explain the conditions available for granting Capital Allowance (5 marks)
c List and explain five types of relief available to Corporate Tax Payers. (5 marks)
d Explain what you understand by Original Assessment and Additional Assessment.
(5 marks)
(Total: 20 marks)
SOLUTION
4 a The practice of revenue for change in accounting date
i. The date when the business first failed to prepare accounts to the old
accounting year end is identified. This becomes the first tax year.
ii. Two subsequent tax years are identified and chosen
iii. The basis period for asessable profit is determined on the preceeding year basis
for three tax years using the old date.
iv. Step (iii) is repeated using the new date.
v. The sums of the assessable profit in step (iii) and (iv) are determined and
compared.
vi. The assessment for the three tax years is based on the higher of the two.
b The conditions available for capital allowance are:-
i. The qualifying capital expenditures must be owned by the tax payer making the
claim as at the end of the basis period.
ii. The tax payer must be making use of the capital expenditure for the purpose of
its trade or business.
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iii. The qualifying capital expenditure must be “in-use” as at the end the basis
period.
iv. Where the value of the qualifying capital expenditure is not less than N500,000
(Five Hundred Thousand Naira), an acceptance certificate must be obtained
from the Inspectorate Division of the Federal Ministry of Industry.
Note that (iv) is not strictly a condition for granting CA but for additional CA.
v A claim must be made by a tax payer before allowances can be granted.
vi For land and buildings, capital allowances are not claimable on the cost of the
land. The cost of the land must be separated from the total cost of land and
buildings and the allowances should be granted only on the cost of a building.
vii Not all assets qualify for capital allowances. e. g. Assets which do not qualify for
allowances include company formation costs, goodwill, patents, stock and
shares.
c Reliefs available to a corporate tax payer.
i. Capital allowance may be claimed on qualifying capital expenditure with the aim
of reducing tax liability.
ii. Investment allowance may be claimed on plant and machinery, in addition to
the normal annual and initial allowance.
iii. Losses may be carried forward for a maximum period of four years after which it
lapses. The exception to this rule is the agricultural business where losses might
be carried forward indefinitely.
iv. Company operating in the export – processing zone are to enjoy tax free period
of up to five years.
v. For pioneer business, pioneer certificate may be issued with the implication
that such a business will enjoy a tax holiday period of between three to five
years.
Others reliefs available to corporate tax payers include:-
vi Small Companies Relief
vii Roll Over Relief
viii Rural Investment Relief
ix Investment Allowance
x Pioneer Companies Relief
xi Reconstruction Investment Relief
xii The profit of the company established within an export processing zone or free
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trade zone are exempted provided that 100% production of such company is for
export otherwise tax shall accrue proportionately on the profit of the company
(as amended by CITA 2007)
d Original Assessment . This is the first assessment raised on a tax payer in a particular
year of assessment. An Original assessment may be the subject of an objection and
appeal procedures.
Additional Assessment. An additional assessment will usually arise from a back duty
assessment. The additional assessment is cover a short fall in tax that was previously
paid.
5 a What are the rules governing cessation of business? (5 marks)
b Chief Lamidi Limited has been in business for many years. As a result of
economic meltdown, he ceased trading permanently on 30th
September 2010. The
adjusted profits were as follows:
Year ended 30th
June 2007 N160,500
Year ended 30th
June 2008 N96,000
Year ended 30th
June 2009 N125,000
Year ended 30th
June 2010 N95,000
3 months to 30th
September 2010 N25,000
i Compute the assessable profit of Chief Lamidi Limited for the last three
years of assessment. (9 marks)
ii Justify the option open to the Federal Inland Revenue Service and
comment. (6 marks)
(Total: 20 marks) SOLUTION
5 a Under the cessation rule, it is required that the basis period for assessable profit for the
last two years of assessment should be determined. The assessable profit determined
for this two tax years form the basis of final assessment.
In the penultimate tax year, the basis of assessment shall be on the preceeding tax year.
In the ultimate tax year, the basis of assessment shall be from the beginning of the
government tax year i.e. 1ST January of the year up to date of cessation. It must however
be noted that under this cessation rule, the tax authority has the right to exercise an
option. This is to determine whether the basis of assessing the tax payer in the pen
ultimate tax year should be on actual year basis. This right is exercised if it will increase
the tax payable by the tax payer.
Finally, in the event that a tax payer whose business has ceased derives or receives
income after the date of cessation, such income would be deemed to have been made
on the last day of business. Consequently, such an income will be subjected to tax.
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b (i) CHIEF LAMIDI LIMITED
COMPUTATIONS OF ASSESSABLE PROFIT FOR THE LAST THREE TAX YEARS
Tax year Basis Year Assessable Profit
2008 1/7/2006-30/6/2007 N160,500
2009 1/7/2007-30/6/2008 N96,000
2010 1/1/2010-30/9/2010 N72,500
2010 Computation
1/1/2010-30/6/2010 6/12 x 95,000 = 47,500
1/7/2010-30/09/2010 = 25,000 72,500
(ii) CHIEF LAMIDI LIMITED
COMPUTATIONS OF OPTION OPEN TO THE FEDERAL INLAND REVENUE SERVICE
Tax year Basis Year Assessable Profit
2008 1/7/2006-30/6/2007 N160,500
2009 1/1/2009-31/12/2009 N110,000
2010 1/1/2010-30/9/2010 N72,500
2009 OPTION COMPUTATION
1/1/2009-30/06/2009 = 6/12 x 125,000 = 62,500
1/7/2009-31/12/2009 = 6/12 x 95,000 = 47,500
110,000
Note:
The option open to the Federal Inland Revenue Service is the penultimate tax
year where it can be decided to assess the tax payer on actual year basis. It is
apparent from the above that this option would be exercised because the
associate profit of N110,000 is higher than N96,000 on the original basis.
TTS 2 PERSONAL TAXATION SOLUTION
1 a i Distinguish between Tax Avoidance and Tax Evasion. (5 marks)
ii Give four examples of Tax Avoidance (4 marks)
iii Give four instances where tax can be said to have been evaded
(4 marks)
b Mention clearly the penalties payable by a person or company that is
required by law to deduct withholding Tax in a situation where the person or
company:
i Fails to deduct the withholding tax. (2 marks)
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ii Fails to pay the tax to the relevant tax authority within the stipulated 30
days. (2 marks)
c State the income exempted from withholding tax under the relevant tax laws.
(3 marks)
(Total: 20 marks)
SOLUTION
1 a Distinguish between Tax Avoidance and Tax Evasion
i. Tax Avoidance is a device by which a tax-payer legally reduces tax payable while
tax evasion on the other hand, is a deliberate act on the part of the tax payer
not to pay the tax due.
In the case of tax avoidance, the tax payer identifies loop-holes in the tax law
and takes advantage of them to reduce tax liability. Tax Evasion is a
contravention of the tax laws whereby a taxpayer reduces the tax liability or
pays no tax by deliberate omission of revenue, concealment of materials fact
etc.
ii. Examples of Tax Avoidance
Incurring capital expenditure with the purpose of claiming capital
allowance;
Where foreign investment is made with the aim that income therefrom
will be exempted from tax;
Investments in certain sectors of the economy which enjoy special
reliefs e.g. agriculture, mining and manufacturing. These sectors are
also amenable to specific tax incentives; and
Another example of tax avoidance is where some expenses, which are
allowable expenses are incurred – which have the tendency of reducing
profit computed for tax purposes.
iii. Four instances of tax evasion are as follows:
Understatement of incomes;
Inclusion of personal expenses in company’s accounts;
Overstatement of expenses/ Fraudulent claiming of expenses or
allowances
Manipulation of figures in the manufacturing or trading accounts/
Dishonest tax reporting;
Deliberate omission of incomes from some sources;
Concealment of profits from illegal or other sources;
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Fictitious claim of capital or tax incentive and allowances.
b. For a person or company who is required by law to deduct withholding tax but fails to
do so and also fails to remit it to a tax authority
i) Prior to the amendment of the Personal Income Tax Act in 2011, the penalty
was the higher of 10% of the tax due or N5,000 while interest was at the
prevailing commercial rate.
However, the amendment to PITA prescribes new penalties as follows:-
10% of tax not deducted or remitted;
Addition to tax not deducted or remitted;
Plus interest at the prevailing monetary policy rate of the CBN; and
Power of the Accountant General of the Federation to deduct at source.
ii) Failure to deduct and pay the tax to the Relevant Tax Authority within the
stipulated 30days, the penalty under the Companies Income Tax Act- is 10% of
the tax due plus the interest at the prevailing commercial interest rate, in
addition to the principal tax due (old section 74 of PITA).
c. Under the Personal Income Tax Law, the following incomes shall be exempted from
Withholding Tax:-
i) Interest on deposit accounts of a foreign non-resident company; is exempted
provided the deposits in the accounts are transfers wholly of foreign currencies
to Nigeria or after 1st January, 1990 through Government approved channels
(see section 23, CITA).
ii) Dividends received from small companies in the manufacturing sector in the
first 5years of their operations (see section 23, CITA).
iii) Dividends received from investments in wholly export oriented businesses (see
section 23, CITA).
iv) Any interest received on a passbook saving account of less than N50,000.00;
v) Any dividend, interest, rent and royalty received from outside Nigeria and
brought into Nigeria through a Government approved channel.
2 Wazobia Motors PLC is a leader in the luxurious bus business. It has, altogether 50
luxurious buses in its fleets which as a matter of company policy, must be disposed off
after four years of use. On 1st January,2008, it enters into a hire - purchase agreement
with Qua – Iboe International Merchant Bank Limited for the purchase of six buses. An
initial deposit was paid on 1st of August,2008 in the sum of N3,000,000. This was to be
followed by ten (10) equal quarterly installments of N500,000 each. The financial
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director had reported that N6,900,000 would have been needed to purchase the buses
for cash.
The first installment was paid on 30th
November,2008. Wasobia Motors Plc adopts 31st
December as its accounting year end. There would be no change in accounting date in
the next four (4) years.
You are required to:
a Compute the Capital Allowances claimable for all the years. (10 marks)
b Compute relevant tax payable. (10 marks)
(Total: 20 marks)
SOLUTION
2 WAZOBIA MOTOR INCORPORATED PLC.
COMPUTATION OF CAPITAL ALLOWANCE FOR 2009 – 2012 TAX YEARS
TAX YEAR I II III IV CAPITAL ALLOWANCE 2009 N N N N N
COST 3,390,000
IA (1,695,000) 1,695,000
AA (423,750) 423,750
2,118,750
2010 TWDV 1,271,250
COST - 1,560,000
IA - (780,000) 780,000
AA - (260,000) 683,750
1,463,750
2011 TWDV 847,500 520,000
COST - - 1,560,000
IA - - (780,000) 780,000
AA (423,750 (260,000) (390,000) 1,073,750
1,853,750
2012 TWDV 423,750 260,000 390,000
COST - - - 390,000
IA - - - (195,000) 195,000
AA 423,750 (200,000) (390,000) (194,940) 1,268,690
1,463,690
Working Notes.
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a) Principal portions of the Purchase
Deposit 3,000,000
Installment (N500, 000*10) 5,000,000
Hire Purchase Price 8,000,000
Less: Cash Price (6,900,000)
Hire Purchase Interest 1,100,000
HP Interest per Instalment 1,100,000 10 = 110,000
b) Payment chart for the instalment
Date Tax Year Date Amount
N
1/1/98- 31/12/98
1999 Deposit 3,000,000
November 1998 390,000
3,390,000
1/1/99 – 31/12/99
2000 March, 1999 390,000
June, 1999 390,000
September, 1999 390,000
December, 1999 390,000
1,560,000
1/1/00 – 31/12/00
2001 March, 2000 390,000
June, 2000 390,000
September, 2000 390,000
December, 2000 390,000
1,560,000
1/1/01 – 31/12/01
2002 March 2001 390,000
c Annual Allowance Computation
1999 Tax Year N3,390,000 – N1,695,000 = 423,750
4
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2000 Tax Year N1,560,000 – N780,000 = 260,000
4-1
2001 Tax Year N1, 560,000 – N780,000 = 390,000
4-2
2002 Tax Year N390,000 – 195,000 = 195,000
4-3
Less: Residual Value (N10 x 6) = 60
194,940
40 ticks x ½ = (20 marks)
3 a Explain the meaning of the following teams under the Personal Income Taxation:
i Place of Residence (2 marks)
ii Principal place of Residence (2 marks)
iii Itinerant Worker (2 marks)
b Discuss the Relevant Tax Authorities in relation to the following:
i An Individual (1 mark)
ii An officer of the Nigerian Foreign Service (1 mark)
iii A trustee of a trust or settlement (1 mark)
iv A partnership (1 mark)
c i What is „Earned Income‟? (2 marks)
ii Provide a list of six incomes that are chargeable to tax under the Personal
Income Tax Act. (6 marks)
iii Give two examples of Unearned Income. (2 marks)
(Total: 20 marks)
SOLUTION
3 a. i. Place of Residence in relation to an individual means a place available for his
domestic use in Nigeria on a relevant day, and does not include any hotel rest-
house or other place at which he is temporally lodging unless no more
permanent place is available for his use on that day.
ii. Principal Place of Residence in relation to an individual with two or more places
of residence on a relevant day not being within any one territory means:
In the case of an individual with source of income other than a person in
Nigeria, that place of those places in which he usually resides
In the case of an individual who has a source of earned income other
than pension in Nigeria that place of those places which on a relevant
day is nearest to his usual place of work.
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For an individual who has a source(s) of unearned income in Nigeria,
that place of those places in which he usually resides
iii. Itinerant Worker – Prior to the amendment to PITA in 2011, an individual who
works at any time during a year of assessment ( other than as a member of the
Armed Forces) for a daily wage or customarily earns a livelihood in more than
one place in Nigeria and whose total income does not exceed N600. (Section
108 of PITA).
“Itinerant worker”, according to the PITA 2011 Amendment includes an
individual irrespective of his status who works at any time in any State during a
year of assessment (other than as a member of the Armed Forces) for wages,
salaries or livelihood by working in more than one State and work for a
minimum of twenty (20) days in at least three (3) months of every assessment
year.
b. Relevant Tax Authority in respect of the following :
For individual – for a year of assessment , the tax authority of the territory in
which the individual is deemed to be resident that year;
An officer of the Nigeria Foreign Service has the Federal Inland Revenue Service
as his relevant tax authority;
For a trustee of a trust or settlement- where all incomes of the settlement or a
trust for a year of an assessment arises in one territory, is the tax authority of
that territory.
But where the income of the settlement or trust for a year of assessment arises in more
than one territory,, or in any other case where the relevant tax authority cannot be
determined, the tax authority would be the Federal Board of inland Revenue.
Relevant tax authority for a partnership, for a year of assessment, in which the
principal office or place of business of the partnership in Nigeria, is situated on
the first day of that year or where it is first established that year.
c. i) Earned Income is income from personal services that you earn by work or effort
as distinguished from incomes generated by property or other investment
incomes. Earned incomes include all amounts received as wages, tips, bonuses,
salaries, professional fees, gains or profit of a trade, business, vocation,
compensation, bonuses, premiums, pension, benefits and other perquisites.
ii) Various sources of income on which tax is payable are:
Gains or profit of any trade, business, profession or vocation;
Remuneration of an employment excluding sums paid to the employee
as reimbursements;
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Gains or profit including premiums arising from the grant of the right of
use or occupation of property;
Dividends;
Interest;
Discounts;
Pension, charge or annuity;
Employment incomes such as salaries, wages, fees, allowance or other
gains or profit from employment including compensations, bonuses,
premiums, benefits or other perquisites allowed.
iii) Unearned incomes under the Personal Income Tax Act are mostly limited to
investment incomes such as dividends, rents, Royalties and interest. They are
received net of withholding tax.
4 Mr. Owoori retired from Federal government employment on 31st January, 2008. He took
up an employment with a private company on 1st April, 2008. The following information
related to Mr. Owoori:
N
i. Salary per annum (2007) 60,000
January salary (2008) 5,000
Salary for new employment per month 12,000
ii. Pension payable from February, 2008 45,000
iii Dividend received (Gross)
Paid 3/4/07 10,000
“ 3/12/07 3,000
“ 30/06/08 4,500
“ 31/12/08 8,000
iv Christmas bonus (December 2008) 8,500
v Rent collected (1/9/07 to 30/4/09) 84,000
vi Transport Allowance (new employment) 9,600
vii Housing Allowance “ “ 12,000
viii Expenses on property:
Water rate - 50% paid in 2007 2,250
„‟ „‟ „‟ paid in 2008 2,250
Insurance per annum 3,500
ix Mr. Owoori is married with five (5) children whose profiles are:
Child Date of Birth Employment
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Bonus 5/7/97 Attending School
Sunday 29/3/04 Out of School but
unemployed
Ekunwo 4/2/03
Idanwo 21/8/00
Adura 21/1/09
x Mr. Owoori settles an alimony of N13,000 per annum to a legally-
divorced wife
xi Capital Allowances on the building amount to N5,000
xii He has two life assurance policies on:
-- Self - Capital Sum N200,000
-- Annual Premium N22,000
-- Bonus, his eldest - Capital Sum N100,000
Annual Premium N3,000
xiii Mr. Owoori pays monthly N1,000, as settlement of loan which he took to
build the house yielding the rent.
xiv. He has an aged Uncle on whom he spends only N5,000 per annum.
The Uncle has a rental income of N6,100 per annum
You are required to compute the income tax payable by Mr. Owoori for
the 2008 year of assessment. (20 marks)
SOLUTION
4. MR. OWOORI
COMPUTATION OF TAX LIABILITY FOR 2008 TAX YEAR
Earned Income N N
Salary (1) 137,000
Housing (2)
Transport (3)
Gratuity (4)
Christmas Bonus 8,500
Pension (5) 41,250 186,750
Unearned Income
Dividend (Gross) (6) 13,000
Rent 9,100 22,100
208,500
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Less: Personal Allowance (8) 42,350
Children Allowance 10,000
Dependent Allowance (9)
Life Policy Allowance (7) 22,000 (74,350)
134,500
Tax Payable
1st N30,000 @ 5% 1,500
Next N30,000 @ 10% 3,000
Next N50,000 @ 15% 7,500
Next N24,500 @ 20% 4,900
Tax Borne 16,900
Deduct:
Withholding Tax deducted at source:
Dividend (N13,000 x 10%) (1,300)
Net Tax Payable 15,600
Notes:
1) Salary
Federal Ministry (1/1/08 – 31/1/08) 5,000
New employment (1/2/08 – 31/12/08) (12,000 x 11) 132,000
137,000
2) Housing Allowance
Since the housing allowance does not exceed N100,000 it will be exempted from tax.
3) Transport Allowance
The transport allowance received of N9,600 per annum is less than N20, 000 which is
exempted from tax.
4) Pension (5) (1/2/08 – 31/12/08) = N45,000 x 11/12 N41,250
5) Rental Income 1/09/07 – 31/12/07 N N
Income received (4/20 x N840,000) 16,800
Deduct:
Water rate (4/12 x N4,500) 1,500
Insurance (4/12 x N3,600) 1,200 2,700
Net Income 14,100
Capital Allowance (5,000)
Chargeable Income 9,100
6) Dividend
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Since Dividend is charged to tax on the proceeding year basis, the relevant data for 2008
year of assessment are the 2007 receipts.
Received 3/04/07 N10,000
Received 3/12/07 N 3,000
N13,000
7) Life Assurance Policy Allowance
Actual premium N22,000
8) Personal Allowance is N5,000 + 20% of Earned Income
=5,000 + (20% of N186,750)
=5,000 + N37,350 N42,350
9) No dependant relative allowance is available to Mr. Owoori as the dependant earns an
income that exceeds N600 per annum
10) The N1,000 paid by him for the settlement of loan is not available for him as an
allowance. Only the interest is available
5 Mrs. Emulewu is the Chief Accountant of Ogogoro Holdings. She is married with six
children, all of school age. She also maintains her aged parents both of whom earn no
income. She indeed shares their maintenance equally with her junior brother.
The following is the summary of her remuneration:
Basic Salary: N150,000 per annum up to July, 2009 and N180,000 per annum from
August,2009
House Allowance of N90,000 per annum up to July, 2009
Transport Allowance of N60,000 per annum up to July, 2009 Perquisite from August,
2009
- Company‟s house which was completed with N350,000 in 2004
- Company‟s car costing N450,000
- Furniture, air conditioner and others costing N300,000
- Bonus: one month basic pay as at the end of the year.
- Leave Allowance: One month basic pay as at the time of the leave. She normally
takes her leave in July. She has a personal house which was completed in 2002.
She collected a total sum of N350,000 being a seven years rent in 2002. She also
regularly receives dividend from 2000 ordinary shares in Nestle Plc and during
2006, 2007, 2008, dividend
She receives 30 kobo, 30 kobo and 50 kobo per share respectively.
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You are required to compute her income tax liability for 2009 year of assessment.
(20 marks)
SOLUTION
5 a. The term “place of residence” in relation to an individual means a place that is available
for domestic use of the individual in Nigeria on the day in a relevant tax year except an
hotel, rest house or other place which is a temporary residence unless no permanent
place is available.
b. Working of Employment Income of Mrs. Emulewu
Jan – July Aug – Dec Total
N N N
Salary 87,500 75,000 162,500
Allowances:
Housing 52,500 - 52,500
Trans port 35,000 35,000
Leave allowance 12,500 12,500
Perquisites
Accommodation 7,292 7,292
Car 9,375 9,375
Furniture 6,250 6,250
Bonus 15,000 15,000
300,417
Less: Restrictions
Housing (52,500)
Transport (20,000)
Leave (12,500)
215,417
MRS. EMULEWU
COMPUTATION OF INCOME TAX LIABILITY FOR 2009 TAX YEAR
N N
Earned Income
Employment Income 215,417
Unearned Income
a - Dividend 10,000
b - Rent 5,000
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Total Statutory Income 230,417
Less: Relief
Personal Allowance (5,000 + (20% x N215, 417) 48,083
Children Allowance (N2,500 x 4) 10,000
Dependant Relative (N2,000 x 1) 2,000
Taxable Income 206,334
Tax Liability
1st N30,000 @ 5% 1,500
Next N30,000 @ 10% 3,000
Next N50,000 @ 15% 7,500
Next N50,000 @ 20% 10,000
Above N46,334 @ 25% 11,584
33,584
TTS 2 MANAGEMENT INFORMATION SYSTEM
1 Explain the following terms:
a. Object Program (4 marks)
b. Multi-Programming (4 marks)
c. LAN (4 marks)
d. E-Commerce (4 marks)
e. Data Security (4 marks)
(Total: 20 marks)
SOLUTION
1 a OBJECT PROGRAM
These are programmes that have been converted to machine codes from the source
Programme. The programmer writes in his language that the computer did not
understand. This programme has to be converted to the language of the computer
which is machine codes.
b MULTIPROGRAMMING
This is a data processing technique that permits multiple or more than one programme
to share a computer system’s resources at the same time. The CPU is used concurrently.
Many users can access different application programme at the same time.
c LAN
This means “Local Area Network”. This is network that is confined into small area. i. e.
geographic are such as office, building e.t.c. One system will be designated as a server
while others system (workstations) is connected to it by cables.
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d E-COMMERCE
Electronic commerce is an act of carrying out business over the internet with the aid of
computers. This is buying and selling of goods and services electronically. It allows
business to be carried out without barriers of time and distance.
e DATA SECURITY
This is the act of protecting data from corruption, destruction and removal. It shields
data from unauthorized access and damage.
2 a. What is flowchart? (2 marks)
b. List 5 characteristics of a good program. (10 marks)
c. Mention any 5 areas where computer can be used. (5 marks)
d Mention 3 features/characteristics of computer that makes it better than manual
operations. (3 Marks)
(Total: 20 marks)
SOLUTION
2 a FLOW CHART
This is a diagrammatical representation of the processing of information system. It
shows the sequence of events with use of symbols.
b CHARACTERISTICS OF A GOOD PROGRAMME
(i) Accuracy:- it must be precise and produce correct result always.
(ii) Reliability:- it must be reliable
(iii) Maintainability:- it must be easy to modify
(iv) Portability:- ability to transfer the programme to other system.
(v) Readability:- ability to read and understand the programme
(vi) Performance:- ability to achieve required task effectively
(vii) Optimal Storage:- The programme should not occupy much storage space.
c APPLICATION AREA OF COMPUTER
(i) Offices
(ii) Hospitals
(iii) Schools
(iv) Hotels
(v) Telecommunication Industries
(vi) Airport
(vii) Banks
d FEATURES OF COMPUTER THAT MAKES IT BETTER THAN MANUAL OPERATION
(i) Fast:- faster than manual method
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(ii) Accuracy:- data supply to computer is always accurate and correctly processed
(iii) Improved output
(iv) Easy retrieval of information
(v) Ability to solve complex operation
(vi) Ability to process large volume of data
(vii) Versatility
3 Computer can process data into information with 99% accuracy and reliance.
a. Identify errors inherent in data processed through computer. (7 marks)
b. What are control measures required to eliminate errors associated with the computer
processes? (8 marks)
c. What are the advantages and limitations of human processes over computer processes
in generating information? (5 marks)
(Total: 20 marks)
SOLUTION
3 a IDENTIFY ERRORS INHERENT IN DATA PROCESSED THROUGH COMPUTER
(i) Software/Programme errors/Semantic and syntax software being set of
programme used in executing application, if wrong or faulty, outcome will also
be faulty.
(ii) Garbage in- garbage out/ input error. If wrong data is inputted into the
computer output will be wrong
(iii) Technical/ Hardware Errors: If the hardwire is having factory fault. It will affect
the efficiency.
(iv) Human error
(v) Power failure can cause error in computer
b WHAT ARE THE CONTROL MEASURES REQUIRED TO ELIMINATE ERRORS
ASSOCIATED WITH THE COMPUTER PROCESSES.
(i) Softwares / Programs must be well tested on debugged by programmer before
being put to use.
(ii) Data must be properly checked before being inputted to computer – data
validation
(iii) Hardware: Manufacturer’s, standards regulations must be followed
(iv) Regular power supply e. g. generating set or Uninterrupted power supply (ups)
(v) Adequate training for users and administrators.
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c WHAT ARE THE ADVANTAGES AND LIMITATION OF HUMAN PROCESSES OVER
COMPUTER PROCESSES IN GENERATING INFORMATION
Advantages:-
(i) It is cost effective i.e. does not involve the purchase of computer
(ii) Processing an output is not dependent on electricity
(iii) It does not required technical skill
(iv) It is simple to process
LIMITATIONS
(i) The input might not be accurate
(ii) Processing is slow
(iii) It kills workers morale and reduces job satisfaction
(iv) Security:- This might be difficult to effect
(v) Human process might not be able to process complex operations
(vi) Large volume of operation might be difficult handle
4 a. Describe e-Taxation. (2 marks)
b. State 3 advantages and 2 disadvantages of e-Tax system. (10 marks)
c. List 3 members of a Steering Committee. (6 marks)
d. State 2 functions of a Steering Committee . (2 marks)
(Total: 20 marks)
SOLUTION
4 a E- TAXATION
This means electronic taxation which allows all tax related issues to be carried out with
the aid of internet
b ADVANTAGES
(i) Tax payers have assess to tax information faster
(ii) Accuracy in tax matters
(iii) It reduce touting or intermediaries
(iv) It prevent queuing in tax office
(v) It saves filling effort.
DISADVANTAGES
(i) There might be delay in accessing tax information due to system breakdown
(ii) There is high cost of getting connected to the soft wares
(iii) There is need for tax payers to have skill in operating tax programme
c STEERING COMMITTEE
(i) A senior manager has chairman
(ii) Managers of user department
(iv) Senior officers of data processing department
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(v) External representative e.g. consultant
(vi) A certified Accountant
d FUNCTION OF STEERING COMMITTEE
(i) They decide to allocate it resources of the organization
(ii) They plan for the future system development of the organization
(iii) They ensure that all it activities is in in line with the strategic plan of the
organization
(iv) They create terms of reference for the project teams
(v) They monitor the progress of the projects
(vi) They make recommendation to Board and Management
(vii) To evaluate feasibility reports
5 Information technology through the use of computer is taking the place of human resources
astronomically and could soon render human (physical labour) valueless. Discuss.
(Total: 20 marks)
SOLUTION
5 The use of computer cannot take the place of human resources in an organization. Computer is
meant to be a tool that aids the accurate and fast processing of data to provide management
with information necessary for decision making process. It adds value to human labour in the
following ways:-
(i) Information technology reduces paper work
(ii) Cost effectiveness
(iii) Accuracy of processing
(iv) Minimizes errors
(v) Saves time
(vi) Availability of information at any required time
(vii) Create employment for IT professionals
(viii) Reliability and accuracy of information
(ix) Accessibility to global information
(x) Enhances good record keeping
(xi) Real time information for management decisions
Hence, the use of computer will not render human valueless.
This is expected with technology development for improve work efficiency.
Computer and other IT equipment were designed to improve data processing efficiency. Only
routine manual job capable of been programmed can be handled by computer.
Most logical job requiring high level personnel skill like managerial skill may not be handled by
computer.