2.doc · Web view(d). Mr. Olowo Osu, a private school teacher, in a rural area of Lagos State was employed on July 1,2011 with an annual salary of N240,000.00. Mr. Olowo Osu is

THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA .././OCTOBER 2012 TAXATION TECHNICIANS SCHEME

PART 2: TAX PRACTISE & BUSINESS MANAGEMENT

ATTEMPT ALL QUESTIONS. TIME: 3 HOURS

1. You have just been appointed as the personnel manager of ABC Ltd, a service

organisation in the Advertising Industry.

What are those issues you will be concerned about in your role as a personnel manager?

(20 marks)

Assessor’s Comment

Performance of the candidates was poor as only 23% of the candidates passed the question while others showed lack of understanding of the question (menus available in word Processing). Part (b) of the question was not well answered by the candidates. Lack of understanding of the question. (File arrangements).SOLUTION

1 As a Personnel Manager of ABC Limited, I will be concerned with the following issues:

i. Recruitment and Selection.This involves how to find employees with the appropriate skills and capacities to work in ABC Limited.

ii. Retention of workers recruited.There is a need to devise ways of retaining the workers recruited into the organization so as not to lose them to competitors in the industry.

iii. Remuneration Remuneration issue involves how to reward employees for their performance and contribution towards the achievement of objectives of an organization. Closely associated with the issue of remuneration is motivation of the workers.The needs of workers may occasionally be at variance with that of management. While management may be striving towards profit maximization, the concern of the employees may be welfare maximization.

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As the Personnel Manager of ABC Limited, I will be concerned with how to merge or reconcile the needs of the organization with that of the employees, though it is difficult to strike a perfect balance.

iv Performance AppraisalI will also be concerned with the disparity between a worker’s expected level of performance and his or her actual performance.The employee may lack adequate training and skill and it is also possible that he is placed in a unit where he does not fit in. Redeployment or re-training may be appropriate in order to increase his performance.

v. How to accommodate conflicting interests.There is a need to accommodate the divergent and conflicting interests of both management and employees.

vi. Introduction of change in ABC LimitedAs a Personnel Manager, I will also be concerned about how to introduce change into both strategic and operational policies of ABC Limited without much resistance.

5 Marks each for four points. Total 20 Marks.

2. One of the common forms of organisation structure is functional- based. Explain with

appropriate graphical illustration, the functional organisational structure.

(20 marks)


Candidates performance in part (a) of the question is woeful as they did not know various types of reput in a computer environment. However, candidates did well in PART B. Candidates are advised to prepare well for subsequent level of the examination

SOLUTION

2. Functional organizational structure is one of the common forms of structure. It is based on groupings of all the major business functions like production, finance and marketing. All finance related activities for example, are grouped together in a single function and they are coined out by the Finance department.

A graphical illustration of a Functional Organizational Structure is as shown below:

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Managing Director

Finance Manager

Human Resource Manager

Production Manager

Marketing Manager

Employee Services

Financial Accountant

Production Control Sales

Cost AccountingTraining and Development

Quality Control Marketing Research

Industrial Relation

Management Accounting

PurchasingAdvertisin

g

As indicated in the chart above, people with the same technical expertise are grouped together in the same unit or department. This means that this form of organizational structure encourages specialization. It also promotes efficiency and career development.

On the other hand, there is a possibility of growth of sectional or departmental interests which may be at variance with organizational interest as a whole.

3. Adequate planning is a prerequisite to business success, yet some managers find it

difficult to plan.

List and discuss 5 factors that may account for their inability to plan (20 marks)


Candidates performance was poor and could be traced to lack of preparation in the part of the candidates. Candidates are advised to follow to letter, the CITN Curriculum

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SOLUTION

3. Planning is a comprehensive and systematic process of ascertaining the medium and long range objectives of an organization and the steps required to bring it to reality. Operationally, planning is a decision making process which is primary to all the managerial functions because it bridges the gap between the present and future of an organization to minimize the risk of uncertainties while exploiting opportunities and threats in the business environment. A well-organized plan is a prerequisite to the success of business because it will provide a coherent, logical and coordinated attainment of the principal corporate objective.

Despite the many benefits of planning to managers which include a judicious use of resources, provision of series of direction, acting as a control device etc., some managers are still unable to plan for the following reasons:

i. AMBIGUOUS GOALS: Inability to define clear corporate goals by top management, which is communicated to line managers often lead to a distorted mission statement. Most managers therefore don’t understand the aspirations of top management to enable them formulate departmental goals that are not in conflict with each other.If there is a precise corporate goal communicated to all managers, followed by agreement of departmental goals between managers and top management, the managers will have a sense of direction to device realistic plans.

ii. LACK OF PLANNING INFORMATION: Absence of efficient management information system to provide adequate, up to date and reliable data is a major factor that restricts manager’s ability to plan. A well-articulated plan should be based on comprehensive data base of economic indicators to reduce risk and uncertainties associated with the future.

iii. FEAR OF FAILURE: Where a plan exists, standards will be available for measuring manager’s performance. The desire to hide area of weaknesses by avoiding performance evaluation also makes the potentially insecure managers to avoid planning.

iv. INABILITY TO FORECAST: The future is grossly associated with unknown. Where the economic and technological factors cannot be predicted with reasonable degree of certainty. It will be difficult to formulate realistic plans especially where there is also political instability as we have had in Nigeria.

v. LACK OF COMMITMENT TO ORGANIZATIONAL GOALS: Some managers are simply not committed to management’s aspiration hence they are unwilling and unable to plan. This mostly originates from the attitude of not involving lower

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managers in formulating corporate goals. Departmental goals are therefore imposed on managers to generate resentment and alienation.

vi. RESISTANCE TO CHANGE: Planning often leads to innovation and creativity. These require sound ingenious imaginative ideas to be tested for generating ways of improving works methodology. Most managers are simply lazy and can’t be bothered to try new ideas, introduce new systems, and acquire new skills. They fear investing extra effort to go the extra mile hence the inability to design and implement laborious plans.

vii. POOR COORDINATION OF ACTIVITIES: Inability to coordinate his departmental activities will complicate the work of a manager. Thus, he cannot define a clear goal for himself upon which to base a plan.

viii. POOR MOTIVATION: Some managers are simply not motivated to go extra mile. This may be due to poor remuneration; lack of opportunity for advancement or lack of recognition of special strengths by supervisors. Thus the feeling is that there is no incentive to plan.

ix. LACK OF TRAINING: Some organizations do not bother about training managers on how to design and implement successful benefits of planning. They feel it is an unnecessary paper work which is better avoided.

Any 5 attracts 4 marks each = 20 marks

4. Management Information System serves the different levels of management by

providing managers with reports and on-line access to organisation`s current

performance and historical records.

a. Identify these levels of management (6 marks)

b. State three attributes of a good management information system (9 marks)

c. Briefly explain the importance of timely provision of information to management

(5

marks)

(Total 20 marks)


This question was poorly answered. Candidates showed in their performance non familiarity with common terminologies in Information Technology.

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SOLUTION

4. (a) The Strategic Level;

- The Tactical Level; and- The Operational Level.

(b) The attributes of a good management information system are:- A good Management Information System will report on existing

operations and provide day to day control of operations.- They must be very useful for planning purposes of Senior Management

Staff.- They must help in decision making by using present and past data.

(c) Good information is the one which is communicated in time to be used.The timely provision of information to management helps in making prompt management decisions that will benefit an organization and add value.The lack of timely provision of information to management may lead to loss of profits and goodwill which are not good for corporate image.

5. The need for co-ordination in organisations has become necessary as a result of division

of work along departmental lines

a. Briefly explain what you understand by coordination (6 marks)

b. Suggest ways by which the process of coordination can be improved upon in an

organisation (14 marks)

(Total 20 marks)


Candidates did not understand the question; this explains the reason why performance in the question was very poor. Candidates are advised to prepare well enough for their examination

SOLUTION

5 (a) Coordination is the process of attempting to effect a reasonable reconciliation of the objectives of the individual units of an organization in order to achieve the set goals effectively and efficiently. The need for coordination has become necessary

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nowadays because work is divided into specialized functions for greater productivity and efficiency.

(b) The process of coordination can be improved upon in an organization through the following ways:Planning and Goal Setting: Organizational goals must be clearly set and all necessary efforts put in place to achieve those goals.

Regular Meetings and Committees:There should be regular meetings by all concerned to improve the process of coordination.Clear Organizational Structure:The lines of authority and responsibility must be clear to all as to who takes charge of coordination in an organization. For example, the head of marketing department coordinates the activities in that department.Procedures for Rules and Operations:There will be improvement in coordination process where there are procedures for operations. This will also facilitate a quick and consistent action by employees.

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THE CHARTERED INSTITUTE OF TAXATION OF NIGERIAOCTOBER 2012 TAXATION TECHNICIANS SCHEME

PART 2: BUSINESS TAXATION


1. a. In recent times, Government has noted with concern the increase in the incidence of “tax

avoidance” and “tax evasion” especially amongst wealthy businessmen,

businesswomen, contractors and self-employed professionals. Accordingly,

Government has spelt out certain transactions in respect of which Tax Clearance

certificate must be produced. In the light of the above assertion.

You are required to:

i. Distinguish between “tax avoidance” and “tax evasion” (6 marks)

ii. List five transactions in respect of which Tax Clearance Certificate must be

produced. (5 marks)

b. You have recently been appointed as tax consultant to Mohammed Limited, a

tradingcompany incorporated on 21st July, 2009 and which commenced operations on

2nd October, 2011.

You are required to state what steps you would take to register the company with the

Federal Inland Revenue Service and to list the various documents you will need to

complete the registration. (9 marks)

(Total 20 marks)


Performance of candidates in this question is above average. However, some candidates could not differentiate between Tax avoidance and Tax evasion. This is not good at this stage.

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SOLUTION

1 a. (i) Tax avoidance is a deliberate act of tax payer to pay less than he ought to pay legally. It is an “art of winning game without actually cheating”. It is permissible under the law. However in recent times some tax avoidance schemes have been declared null and void on their real intention were declared to be tax evasion.Those various devices which have been adopted with the aim of saving tax and thus sheltering the tax payers’ income from greater liability which would have been incurred but for such devicesTax evasion is an illegal method of reducing one’s tax liability such as incorrect return by omitting or under estimating one’s income or non-declaration of income and incorrect information. It is punishable with fines, payment of double the amount, which has been undercharged.

(ii) Transaction for which tax certificate must be produced include the following:- Application for government loan for Industry of Business- Registration of motor vehicles.- Application for fire arms license.- Application for foreign exchange or exchange control permission to remit funds

outside Nigeria.- Application for certificate of occupancy.- Application for award of contracts by government, its agencies and registered

companies.- Application for approval of building plans.

1 b. In order to register the company with the Federal Inland Revenue Service the following steps should be taken.(i) A formal letter would be needed to be written to the Federal Inland Revenue

Services informing the board of the appointment.(ii) The letter should be accompanied by:

- A photocopy of the letter of appointment- A photocopy of the Company Certificate of Incorporation- A copy of the Company Memorandum and Article of Association.

(iii) The following additional information would be needed to be supplied:- The date of commencement of operation- The registered office of the company- The names and addresses of the directors.- The addresses of the company’s bankers- The principal activity of the company- The date of which the company’s account would be prepared annually.- The shareholdings of the company.

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2. a. Write short notes on the following:i. Initial Allowance (3 marks)

ii. Investment allowance (3 marks)

iii. Annual Allowance (3 marks)

iv. Balancing allowance (3 marks)

v. Balancing charge (3 marks)

b. What is “plant” in relation to claims for capital allowance? (5 marks)(Total 20 marks)


The performance was fair. But candidates should read and understand every little range in the syllabus to avoid being confused in examinations. For example, when distinguishing between closely related itemsSOLUTION2 a. (i) Initial Allowance: This is an allowance granted in the assessment of the year of

assessment in the period for which the justifying expenditure wholly, exclusively, necessarily and reasonable incurred for the purpose of trade and business. This allowance is grated only in the first year of purchase except in the case of building expenditure on which the initial allowance can be claimed. If purchase second hands, provided the building is acquired without been used by a previous owner.

(ii) Investment allowance: This is an allowance given to companies engaged in agricultural production at the rate of 10% of the expenditure incurred on the capital expenditure with effect from first April, 1978. This is one of the incentives given by the Federal government to boost agricultural production. This allowance is usually given in full in the first year ranking for the relief and is not deducted from the capital cost of the new asset when calculating the initial and annual allowance. The allowance is only granted to Limited Liability Companies.

(iii) Annual Allowance: This allowance is given from year to year in respect of assessment of the basis period for which the qualifying assets is in use for purpose of trade, business, profession or vocation. The allowance is given as a percentage of the reducing balance and in this way; the first year of assessment on both the initial and the annual allowances will be given based on the original expenditure. These allowances are then less from the expenditure and the balance is carried forward to form the basis of the following years; allowance.

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(iv) Balancing Allowance: may be made in addition to the Initial and Annual Allowances when a qualifying expenditure is disposed of in the basis period for year of assessment. The purpose of this adjustment is to ensure period for year of assessment. The purpose of this adjustment is to ensure that only the value up in generating the Taxation Income has been given as capital allowance over the period the asset was in use. When an asset which was a subject of capital allowance is disposed of, a balancing allowance will be given as the excess of the residue over the value of asset on the date of disposal.

(v) Balancing Charge: This is the excess of the value of an asset at the date of its disposal over its residue at that date. The balancing charge will be made on tax payer for the year of assessment if during his basis period for that year, he disposes of any asset used for the purpose of his trade and the value of the asset to dispose of exceeds the residue of the asset as that date.

b. ‘Plant’ in relation to Capital Allowance has no statutory definition. It is therefore given its ordinary meaning and may be said to include:

- Statutory plant used for storage or processing.- Motive power and engine- Electrical, atomic and radiation devices used for industrial and professional

purposes- Shifting, pulleys and banding conveying the power to the business.

3. a. Idi Eno Enterprises commenced business on 1st September 2007 and makes accounts to 30th November annually. You are required to determine the basis period for allocating qualifying capital expenditure for the first four (4) years of trading. (10 marks)

b. What are the conditions for granting capital allowances? (4 marks)

c. Define “qualifying expenditure” and state the different classes on which such

expenditure is statutorily allowed. (6 marks)


The candidates demonstrated lack of knowledge of ascertainment of basis period for capital allowances during commencement of a new business. The (b) and (c) part of the question was well answered to a good extent on the average.

SOLUTION3 a. Idi Eno Enterprises

Determination of Basis Period for Assets Allocation for 2003 – 2005 Tax YearsYear of Assessment Basis Period for Basis Period for

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Assessable Profit QCE Allocation2003 (1/9/2003 – 31/12/2003) (1/9/2003 – 31/12/22003)2004 (1/9/2003 – 31/8/2004) (1/1/2004 – 31/8/2004)2005 (1/12/2003 – 30/11/2004) (1/9/2004 – 30/11/2004)2006 (1/12/2004 – 30/11/2005) (1/12/2004 – 30/11/2005)

b. The conditions for granting capital allowance are as follows:(i) The assets must be owned by the tax payer claiming it.(ii) It must be in use at the end of basis period(iii) The assets must be use for the purpose of the business.(iv) A claim must be made to the files by the taxpayer.

c. (i) Qualifying expenditure can be define as the capital expenditure incurred in basis period to produce income in a business or trade, but must not be allowable expenditure as defined by S.17 of the 1961 Act. The assets acquired with such disbursement must be owned and use by the business making the claim.

(ii) Classes of Assets:- Buildings, structure, works of a permanent nature- Industrial Building and non- Industrial Building- Motor Vehicles- Mines Oil, wells and other mineral sources of a wasting nature- Plant and machinery- PlantationsPlant: Includes, ships, vehicles, books, scientific apparatus and surgical instruments

used for the purpose of business and profession.Lindley L. J. described plant to include any apparatus used for carrying on business, all goods and chattels, fixed or movable, live or dead which a tax payer keep for permanent employment in his business.

Plant and Machinery: Ordinary meaning is assigned. Plants and Machinery refers to equipment machine or apparatus, for use in industrial activity or factory use.a. Power unit driven by steam, as oil, water or electricity.b. Conveyor of power attached to generators, e.g., cables, bands, shafts and

pulleys.c. machines operated by power or hands, e.g., lathes pump, drills shuttles, rollers,

sewing machines, and typewriters.d. Holders use for storage for treatment, e.g. tanks, vats, pipes, refrigerators, and

containers.e. Transporter driving by steam, oil petrol or electricity, e.g. locomotives, ships,

railways coaches, wagons, cars, vans, lorries, trucks, trolleys, and cranes.f. Carts, canoe and bicycles hauled by animals or propelled by men.

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g. Electric, atomic and radioactive devices used for industrial or professional purposes.

4. Dansaki Engineering Co. ltd has been in business for so many years. During the year ended

31 December, 2009, the following transactions took place:

i. Bought a moulding machine which cost N600,000. Transport to site was N50,000 and

installation costs was N70,000. Interest on loan in respect of the machine was N

15,000

ii. The company owned a freehold land which cost N500,000. Cost of building a factory

on it in the year was N600,000. On April 1, 2009, the company granted a 40 years

lease to Allover Limited which immediately erected an addition to the building for

N600,000. Allover maintained the property as an industrial building.

iii. In July 2009, Dansaki bought a Mercedes Benz truck on hire purchase for

N3,600,000. It paid a cash deposit of N1,600,000 immediately, and a monthly

instalmental payment of N100,000 commenced in August 2009 for 20 months which

was acceptable to the hirer, at a rate of 32% interest.

Required

a) Show the expenditure eligible for Capital Allowance in 2010.

b) Compute the total Capital Allowance claimable by Dansaki for 2010 year of assessment.

(20 marks)


The question tested students’ knowledge on the computation of capital allowance. The performance of students was below average. This shows that the preparation of candidates was not enough before coming to examination hall. Students need to prepare well, and this will improve their performance.It also tests students’ knowledge on expenditure eligible for capital allowance, in which the performance was also poor

SOLUTION

4 a. DANSAKI ENGINEERING COMPANY LIMITEDEXPENDITURE ELIGIBLE FOR CAPITAL ALLOWANCE MOLDING MACHINECost 600,000

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Transport to site 50,000Installation 70,000

N 720,000

Factory BuildingCost N 600,000

MERCEDES BENZN N

Hire purchase price 3,600,000Less Deposit 1,600,000 1,600,000

2,000,000Less interest element

@ 32% 640,0001,360,000

Interest per installment640,000 ÷ 20 = 32,000

Capital portion per Installment = 100,000 – 32,000 = 68,000

Capital payment (Aug – Dec)68,000 x 5 = 340,000

Qualifying capital Exp. 1,940,000

b. SOSOLISO ENG CO LTDCapital Allowance Computation2010 Assessment Year

Cost 1.A AA TOTALPlant 50/25 720,000 360,000 90,000 450,000Factory Building 15/10 600,000 90,000 51,000 141,000Motor Vehicles 50/25 1,940,000 970,000 242,500 1,212,500

N1,803,500

5. Magomago enterprises Limited have been in business and making up its accounts to

June 30th each year. The company resolved in August 2006 to start making up its accounts

to December 31. The results of its operations from 2004 to 2009 are as follows:

Year ended June 30, 2004 - N2,450,000Year ended June 30, 2005 - N2,800,000Year ended June 30, 2006 - N3,000,00018 months ended Dec 31, 2007 - N4,860,000

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Year ended Dec 31, 2008 - N3,600,000Year ended Dec 31, 2009 - N4,000,000

Required:

Compute the assessable profits for the relevant years of assessment and advise the FIRS

accordingly. (20 marks)


The performance of the candidates is on the average. It is a well attempted question

SOLUTION5. Magomago Enterprises Limited

Computation of Assessable Profits2007 – 2009 Year of Assessment

Year of Assessment Basis Period N N2007 1/7/2005 – 30/6/2006: 3,000,000

2008 1/7/2006 – 30/6/2007:= 4,860,000 x 12/18 3,240,000

2009 1/7/2007 – 30/6/2008:1/7/2007 - 31/12/2007 N4,860,000 x 6/18 1,620,0001/1/2007 – 30/6/2008 N3,600,000 x 6/12 1,800,000 3,420,000

N 9,660,000 OR2007 1/1/2006 – 31/12/2006:

1/1/2006 – 30/6/2006 – N3,000,000 x 6/12 1,500,0001/7/2006 – 30/12/2006 - N4,860,000 x 6/18 1,620,000 3,120,000

2008 1/1/2007 – 31/12/2007:= 4,860,000 x 12/18 3,240,000

2009 1/1/2008 – 31/12/2008 3,600,000For 2007 to 2009 N 9,960,000

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The assessable profits should be computed based on the current accounting date since it produces the higher figure of 9,960,000 as against 9,660,000 computed based on the old accounting date.

THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA

OCTOBER 2012 TAXATION TECHNICIANS SCHEME

PART 2: MANAGEMENT INFORMATION SYSTEM

Page 16 of 33


1. a. List five menus available in a word processing software (10 marks)

b. Differentiate between random access file and sequential access file. (10 marks)

(Total 20 marks)


Performance of the candidates was poor as only 23% of the candidates passed the question while others showed lack of understanding of the question (menus available in word Processing). Part (b) of the question was not well answered by the candidates. Lack of understanding of the question. (File arrangements)SOLUTION

SOLUTION

1. a. The following are the menus available in word processing software; i. Fileii. EditIii. Viewiii. Insertiv. Formatv. ToolsVii. Tables

Viii. Window

Ix. Help

(10 Marks for any five points)

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b. Random Access files versus sequential access file:-

A random access file is a method of storing records in a way to be accessed in any sequence without recourse to their physical order in the storage media while sequential access is a structured and orderly arrangement of data for retrieval following a sequence.

(4Marks)

The following features differentiate random access from sequential access file.i. Random Access is good for large file with lower volume

of transactions but sequential access is for large volume of transactions

ii. Random access is used to identify and update individual records on real time processing basis while sequential access adopt batch processing basis

iii. Retrieval is faster and spontaneous in random access than sequential access

iv. Random Access uses a mathematical formula to generate the address of the record required while sequential access searches the record from the beginning manually

(6 Marks for any 3points)

2. a. Briefly explain four types of reports in a computer environment (8 marks)

b. What is MIS, explain four benefits of MIS? (12 marks)

(Total 20 marks)


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Candidates performance in part (a) of the question is woeful as they did not know various types of reput in a computer environment. However, candidates did well in PART B. Candidates are advised to prepare well for subsequent level of the examination

SOLUTION

2 a. Four types of reports in a computer environment.

i. Exception reportsii. Ad-hoc reportsiii. Detailed reportsiv. Summary reportsv. Schedule reportsvi. On demand reportsVii Comparative reports

(8 Marks for any 4)

b. MIS i. e. Management Information System is an organised method of providing managers with information required for decision making, when needed and in an understandable form.

OR

A computer based system that provides information on a need basis.

(4 Marks)

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c. Benefits of MIS include:

i. Provides guide for performance evaluationii. Aids decision makingiii. Helps develop communication systemiv. Eliminates unnecessary paper workv. Provides the basis for sound internal controlvi. Enables efficiency and effectiveness in planning and

controlVii Assists management in re-evaluating needs, resources

and challenges. (8 Marks for any four)

3. a. Describe high level language and give six examples (10 marks)b. Differentiate between a compiler and assembler as language translators (10 marks)

(Total 20 marks)


Candidates performance was poor and could be traced to lack of preparation in the part of the candidates. Candidates are advised to follow to letter, the CITN CurriculumSOLUTION

3 a. High level languages are generally problem oriented. Theyare source program written in statements almost closer to English language but requires compiler for translation into computer readable form and use huge amount of memory space.

(4 Marks for definition)

Examples of high level languages include the following:

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i. BASICii. FORTRANiii. COBOLiv. Pascalv. Javavi. 4 GLVII SQL

VIII HTML

(6 Marks for any six points)

b. A Compiler is a program that converts or translates highlevel languages into machine languages. It converts a source code into an object code in a single process

(2Marks)

An Assembler is however a program that translates assembly language or low level language into a machine language.

(2Marks)

S/N COMPILER ASSEMBLER1 Works with high level languages Works with low level

language2 Close to English statement Use symbols and

mnemonics3 Machine independent Machine dependent4 Not portable on computer Portable on computer

(6 Marks for any 3 points)

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4. Write short notes on the following:

a. Video Conferencing (4 marks)

b. SMS (4 marks)

c. WWW (4

marks)

d. Utility software (4 marks)

e. E- Tax system (4 marks)

(Total 20 marks)

4 a. Video Conferencing: allows a person in different places to link up to see and hear each other. Pictures of the people can be displayed alongside graphs and tables using separate windows.

(4 Marks)b. SMS: stands for short message service which allows mobile

telephone users to send text messages from one phone to another. A maximum of 160 characters can be sent in one message

(4 Marks)

c. WWW: or world wide web is the multimedia part of the internet which can be read using internet or web browser. It allows the user to move from page to page called browsing or surfing the net.

(4 Marks)

d. Utility Software: is also called housekeeping or maintenance or service program that performs services, editing text, sorting, merging, debugging, etc.

(4Marks)

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e. E-Tax System or electronic tax system is a computer based system for the management of tax record. It allows for efficiency in input, storage, retrieval and access.

(4Marks)


This question was poorly answered. Candidates showed in their performance non familiarity with common terminologies in Information Technology.

5. a. Briefly explain five processes that can be used to transform data into information.

(10

marks)

b. Describe the basic data flow process using appropriate diagram. (10 marks)

(Total 20 marks)

5 a. The following processes can be used to transform data into information.

i. Sortingii. Encodingiii. Decodingiv. Calculatingv. Updatingvi. Tabulatingvii. Collatingviii. Charting

(10Marks for any 5 point)

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b. Data flow: This shows the process of data conversion from input stage through processing stage to output or results as well as storage/retrieval. (2Marks)

This can be explained from the diagram below:

Input stage: This involves data capture validation and verification before they are passed to the process of stage

- Processing stage involves manipulation of the captured data for processing into output form like sorting, charting calculating, etc

- Output stage displays the results of the processing in either hard or soft form

- Storage provides access into the output data for future use. (4 Marks for any 4pts as stated)

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INPUT STAGE

PROCESSING STAGE

OUTPUT STAGE

STORAGE RETRIEVAL

THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA

OCTOBER 2012: TAXATION TECHNICIANS SCHEME

PART 2: PERSONAL TAXATION


1. (a). State three conditions that an accounting date must fulfill before it can be accepted bytax authority, as the basis period for a year of assessment in the normal preceeding year basis of assessment. (3 Marks)

(b). In what situation can these three conditions stated above cannot be met by an accounting date? (1 Mark)

(c). Smith Jones has for several years prepared his accounts up to 31st March. He failed to make up his accounts to 31stMarch,2007 in which year the accounts were made up to 30th September. Adjusted profits for the relevant accounting date are as follows:-

N12 months ended 31/3/2007 360,000

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18 months ended 30/9/2008 450,00012 months ended 30/9/2009 480,00012 months ended 30/9/2010 720,000

Required:(i). Calculate the assessments which will be raised by the tax authority for relevant years.

(14 Marks)(ii). Comment briefly on the computation in (i) above as to the action to be taking by the tax

authority. (2 Marks)


This part of the question tested the candidates of accounting date and basis of assessment. 70% of the candidates got the (b) part right. The (c) part of the question tested changes of accounting date computation and 60% of the candidates got it right.Candidates are required to study all the subjects in the professional examination stage to prepare adequately for this paper in future.

SOLUTION

(a) An accounting date has to fulfill three conditions before it can be accepted as thebasis period for a year of assessment in the normal preceding year basis of assessment. These are:

(i) It must be for a period of twelve months.(ii) It must run from the commencement of the trade or from the end of the

accounting period on which the previous assessment was based.

(iii) It must be the only accounting period ending in the previous year of assessment. (1Mark each).

(b) These three conditions may not be met when there is a change in accounting date. (1 mark).

(c) Old Accounting date New Accounting date

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(28 ticks of ½ mark)

(d) The tax authority will opt for the new accounting date, because it produced higher assessable total profit of ₦1,185,000 than the ₦1,050,000 produced by the old accounting date for all the three years of assessment. (2 marks)

2 New Personal Income Tax (Amendments) Act,2011 was signed into law mid-2011.(a). Who is an itinerant worker? (3 Marks)(b). Enumerate five (5) deductions that are tax exempt in accordance with the sixth schedule

of the new act. (5 Marks)(c). Enumerate new graduated tax rate table applicable to an individual. (6 Marks)(d). Mr. Olowo Osu, a private school teacher, in a rural area of Lagos State was employed on

July 1,2011 with an annual salary of N240,000.00. Mr. Olowo Osu is not married but has an aged mother who earns rental income of N100,000.00 annually. Compute his personal income tax payable to the relevant tax authority for the year 2011. (6 Marks)


About 99% of the candidates attempted the question. The performance was above average, but their major pitfall was in ‘b’ part of the question which tested deductions that are tax exempted under PITA. The question was misconstrued to be deductions that are tax exempted under CITA. Candidates are advised to read question properly before answering them. Candidates should also update themselves on the recent Tax amendments.

SOLUTION

2. (a) An itinerant worker includes an individual irrespective of his status who works at

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YOA Basis Period Assessable Profit ₦

Basis Period Assessable Profit ₦

2008 1/4/2006 – 31/3/2007 360,000

1/10/2006 – 30/9/2007(6/12 x ₦360,000) + (6/12 x ₦450,000)

405,000

2009 1/4/2007 – 31/3/200812/18 x ₦450,000

300,000

1/10/2007 - 30/9/200812/18 x ₦450,000

300,000

2010 1/4/2008 – 31/3/2009(6/18 x ₦450,000) + (6/12 x ₦480,000

390,000

1/10/2008 – 30/9/2009 480,000

1,050,000 1,185,000

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 working for a minimum of twenty (20) days in at least three (3) months of every assessment year.

(b) (i) National Housing Fund Contribution(ii) National Health Insurance Scheme.(iii) Life Assurance Premium.(iv) National Pension Scheme.(v) Gratuities.

(c) (i) First ₦300,000 @ 7 percent

(ii) Next ₦300,000 @ 11 percent

(iii) Next ₦500,000 @ 15 percent

(iv) Next ₦500,000 @ 19 percent

(v) Next ₦1,600,000 @ 21 percent

(vi) Above ₦3,200,000 @ 24 percent

(d) Mr. Olowu OSU

Personal Income Tax Payable for July – Dec, 2011 (6 months)

₦ ₦

Salary for 6 months (₦240,000/2) 120,000

Less Consolidated Relief (₦200,000/2) 100,000

Add: 20% of ₦120,000 24,000

124,000

Taxable Income (4,000)

Minimum Tax Payable of 10%

(i.e. 1/100 x ₦120,000) ₦1,200

Relevant Tax Authority

Lagos State Internal Revenue Service.

3. Explain the following concepts briefly:

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(a). Automatic fiscal stabilizers (4 Marks)(b). Discretionary fiscal policy (4 Marks)(c). Direct taxes (4 Marks)(d). Indirect taxes (4 Marks)(e). Tax Rates (4 Marks)


The ‘a’ and ‘b’ part of the question tested one of the measures that the CBN use to control the economy in time of depression.

Automatic fiscal stabilizers, the question is well attempted by majority of the candidates and about 40% of the candidates got the aspect right.

The ‘c’ part and ‘d’ aspect of the question were well attempted by all the candidates. The aspect is on direct and indirect taxes.

SOLUTION

3. (i) Automatic Fiscal Stabilizers

As the term implies, automatic fiscal stabilizers are built-in fiscal instruments in the fiscal system, which help to regulate economic activity on their own during periods of instability (inflation/unemployment) in the economy. For example, the progressive income tax helps to reduce demand and thus economic activity during periods of inflation, while the reverse is the case during a depression.

(ii) Discretionary Fiscal Policy

This is the deliberate action on the part of the government to manipulate fiscal policy instruments in order to regulate economic activity as the need arises. Thus, in a boom, when inflationary pressures are in force, the government can either increase tax rates or reduce its expenditure or both, so as to bring down the inflation. On the other hand, in periods of economic slack or depression, government can reduce tax rates, while increasing the level of its expenditure so as to boost economic activity.

(iii) Direct Taxes

Direct taxes are those whose incidence cannot be shifted. They are collected directly from the person expected to bear the burden of the tax. The major taxes that make up this category include the individual income tax and the corporation or company’s income tax, both of which are employed in all countries of the world.

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(vi)Indirect TaxesIndirect taxes are, by and large, those that are levied on consumption spending, being collected from importers, vendors and manufacturers. The presumption about such taxes is that they are usually shifted forward in higher prices to the consumer, hence their indirect nature.

The burden of such taxes is distributed in relation to consumer spending. Indirect taxes are usually easy to administer because of the limited and relatively easy identification of the units (vendors, importers and manufacturers) from where the taxes are collected. The more important Indirect taxes include customs duties, Excise and all varieties of Sales taxes.

(vii) The Tax RateThe tax rate is the proportion of the tax base payable to the government. The base of a tax is the subject to which the rate is applied. There are many tax bases, with a particular tax deriving its name from its base. The base could be income, consumption spending, value of wealth and property.

The tax rate as applied to the base can take one of three forms. If the tax rate increases as the tax base expands, the rate is said to be progressive. On the other hand, if the tax rate decreases as the size of the tax base increases, the rate is said to be regressive. But if the rate remains constant as the size of the base expands, the tax rate is said to be proportional.


The question tests candidates’ understanding of corporate governance and the use of computer. The candidates’ performance was average. Candidates are required to study widely for this paper in the future. They should be aware that all the subjects of the professional stage will be examined in this paper

4. (a). To what extent are non-resident Individuals liable to Nigerian Income Tax? (5 Marks)(b). Explain briefly:(i). Resident Corporation (3 Marks)(ii). Non- Resident Corporation (6 Marks)(c). A tax payer has right of objection in respect of an assessment raised on his income.

What are the requirements to be met when an objection is made in disagreement with a notice of assessment? (6 Marks)

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Nearly all the candidates attempted this question. The question tested candidates’ knowledge on Tax Administration. Candidates are advised to read widely.

SOLUTION

4 (a) Non-resident individuals are liable to Nigerian Income Tax to the extent of their income derived from accruing in, brought into or received in Nigeria.Personal Income Tax Decree of 1993 provides that where an individual ……. Outside Nigeria carries on a trade or business of which only part of the operations are carried out in Nigeria, the gains or profits of the trade or business shall be deemed to be derived from Nigeria to the extent to which such gains or profits are not attributable to that part of the operations carried on outside Nigeria.Simply interpreted, the trading profits of a non-resident individual liable to Nigerian Income Tax are the part derived from a trade or business carried on in Nigeria.In summary therefore, the income from trade or business or employment liable to Nigerian Income Tax are those derived from Nigeria, whilst investment income notably dividends assessable are those brought into or received in Nigeria.

(b) (i) Resident Corporation

A company is resident in Nigeria if it is registered or incorporated in Nigeria. Under the old law, the determining factor was the “place of management”.

(ii) Non Resident Corporation

This is a company or corporation that is not registered or incorporated in Nigeria but which derives income or profits from Nigeria.

Exemption from incorporation does not confer exemption from payment of tax on any company. Every company, resident and non-resident, is liable to tax in Nigeria under the provisions of the Companies Income Tax Act.

It is also to be pointed out that the Nigerian tax laws do not exempt the income of a branch from tax.

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(c) The requirements to be complied with when an objection is raised are:

(i) A notice of objection in writing.

(ii) The precise grounds of appeal.

(iii) The objection must be made within thirty (30) days from the date of the notice of assessment.

5. James commenced business on 1 April, 2006 as Hypopo Ventures. His trading results were as follows:

N6 months to 30/9/2006 4,800,000.0012 months to 30/9/2007 7,200,000.0012 months to 30/9/2008 11,300,000.0012 months to 30/9/2009 13,440,000.00

Required: (a). Compute the assessable income for the relevant five years taking into consideration any

option which Hypopo Ventures may exercise to his advantage. (16 Marks)(b). Prepare summary of options and briefly comment on the summary (4 Marks)


This question tested candidates’ knowledge on commencement rules and the right of election and options available to the tax payer to exercise with their comments.

The candidates performed averagely on the question.SOLUTION

5. HYPOPO VENTURESComputation of Assessable Income

Year Basis Period Assessable Income ₦

2006 1/4/2006 – 31/12/2006 ₦4,800,000.00+ (3/12 x₦7,200,000.00

6,600,000.00

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2007 1/4/2006 – 31/3/2007 ₦4,800,000.00 + (6/12 x₦7,200,000.00

8,400,000.00

2008 1/10/2006 – 30/9/2007 7,200,000.002009 1/10/2007 – 30/9/2008 11,300,000.002010 1/10/2008 – 30/9/2009 13,440,000.00

Available Option2006 1/4/2006 – 31/12/2006 ₦4,800,000 + (3/12 x

₦7,200,000 6,600,000.00

2007 1/1/2007 – 31/12/2007 (9/12 x ₦7200,000) + (3/12 x ₦11,300,000)

8,225,000.00

2008 1/1/2008 – 31/12/2008 (9/12 x ₦11,300,000) + (3/12 x ₦13,440,000)

11,835,000.00

Summary of Options

Original Revised

₦ ₦

2006 6, 600,000 6,600,000

2007 8,400,000 8,225,000

2008 7,200,000 11,835,000

22,200,000 26,660,000

36 ticks of ½ mark each = 18 marks.

Comment: It is not advisable for Jumble Mark to exercise any option, because the total assessable income under actual basis (revised) is ₦2,666,000 while that of the normal basis (original) is ₦2,220,000. (2marks)

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Documents

2.doc · Web view(d). Mr. Olowo Osu, a private school teacher, in a rural area of Lagos State was employed on July 1,2011 with an annual salary of N240,000.00. Mr. Olowo Osu is