BASES OF ASSESSMENT

Basis of assessment describes a systematic procedure, approach or manner in the tax laws of assessing tax
payers to tax under different situations and at a given basis period. E.g how to assess a new business to
tax, how to assess an existing business to tax.
TAX YEAR OR YEAR OF ASSESSMENT
This can be referred to as the government or national fiscal year, usually a period of one year, during which
all income earners must be pay tax. Before 1980 the national fiscal year started from 1st April of year 1 and
ended on 31st March of year 2. In 1980, it started from 1st April and ended 31st Dec 1980. This is referred
to as the transitional tax year and it is the only tax year in the history of Nigeria with nine months period.
From 1981 to date, it starts from 1st Jan to 31st December annually.
BASIS PERIOD
Basis period can be described as the basis of determining assessment and tax liability of a tax payer. It is a
defined period in the life of a tax payer whereby any taxable income falling within this period shall be
introduced for tax purpose. There are two types of basis period namely: Actual Year Basis (AYB) and
Preceding Year Basis (PYB)
Actual Year Basis (AYB): This is the basis period that starts and ends within the government tax year. It
means that the basis period must start and end within the tax year or year of assessment e.g.

Tax Year : Basis Period

1991 : 1/7/91 - 31/12/91
1992 : 1/1/92 - 31/12/92
1993 : 1/1/93 - 31/12/93
1994 : 1/1/94 - 30/06/94
Preceding Year Basis (PYB): This means that the basis period of a relevant tax year ends in the year
before the tax year, it is always for 12months.
Tax Year : Basis Period
2011: 1/1/10 - 31/12/10
2015: 1/4/13 - 31/03/14
2013: 1/1/11 - 30/09/12
CLASSES OF BASIS PERIOD
In addition to the basis period, there are also two classes of basis period- Normal Basis Period and
Abnormal Basis Period
Normal Basis Period: This is a basis period that has three features
1. It is not more than or less than 12months
2. It must have started immediately the previous one ends i.e there must be no gap between the basis
period
3. It must be the only basis period of the tax payer that ends in the year before the tax year.
Abnormal Basis Period: This is the basis period that is not having any or all of the features of a normal
basis period.
In the Income Tax Acts (PITA&CITA), there are three situations where abnormal basis period can occur
namely:
a) Commencement of Trade or Business
b) Cessation of Trade or Business
c) Change of accounting date
The Finance Acts 2019 and 2020 amended various provisions of the tax laws. Specifically, amendments
were made to relevant tax laws with respect to commencement and cessation of business.
Commencement of Trade or Business
Section 29(3) of CITA was amended to eliminate the occurrence of overlap of basis period upon
commencement of trade thereby ensuring that the profits of a particular year are only assessed to tax
once. Section 29 of CITA, as amended, clearly provides that the basis of taxation is the Preceding Year
Basis (PYB). As such, the income of a given year is assessed to tax in the immediate following year of
assessment.
First Year of Assessment
Section 29(3)(a) of CITA provides thus: “for the first year, the assessable profits shall be the profits from
the date in which it commenced to carry on such trade or business in Nigeria to the end of its first
accounting period”. This provision indicates that a company shall not be assessed to tax (on the basis of
the actual profit) in the year in which it commenced business. The profits of the first accounting period are
assessed to tax in the year of assessment immediately following the year in which it commenced business.
Second Year of Assessment
The Act stipulates that “for the second year, the assessable profits shall be the profits from the first day
after its first accounting period to the end of its second accounting period”. Consequently, the profits
assessable to tax in the second year of assessment shall be the profits arising in the second accounting
period only, that is, the accounting period immediately following that of the year of commencement.
Third Year of assessment
The Act provides that “for the third year and for each subsequent year, the assessable profits shall be the
profits from the day after the accounting period just ended.” That is, the profits of the accounting year
immediately preceding the year of assessment.
Determination of the End of First Accounting Period
The determination of the first year of assessment and the relevant basis period shall be based on the
company's accounting year-end. Therefore, the first accounting period of a company is the date of
commencement to the end of its first accounting year-end. Where a company submits financial statement
for a period shorter or longer than the first accounting period , the assessable profits for the first
accounting period shall be ascertained (on pro-rata basis) up to the indicated accounting year-end.
There will not be gap of basis period where the profits of all the relevant years are computed in line with
the new provisions. There may be a gap (of YOA) between the first and second years of assessment due to
transitional issues.
CHANGE OF ACCOUNTING DATE
Accounting date is the date of profitability judgment of an entity where the accruals and matching
concepts are applied to the financial transaction of a business to determine whether a profit or loss is
made.
A change of accounting date occurs when a business that usually prepares account to a given and known
date suddenly prepares account to another date.

Why companies may change accounting date

1. To implement a new tax policy
2. To ease the consolidation of financial statements of companies within the same group
3. When there is acquisition, the acquired company may change its accounting date to that of the
new owner.
4. When there is merger of companies, there may be need for change of accounting date.
5. Government directive/ legislature

Tax authority’s consideration

a) The request must be in writing from the taxpayer to the relevant tax authority.
b) The request must not be an attempt to evade tax by the taxpayer.
 c) The ultimate tax year of the taxpayer must not be included in the three statutory fiscal year of the
taxpayer required for the computation of assessable profit.
Section 29(4) of CITA 2004 provides that when a company fails to make up its accounts to the usual
accounting date, the assessable profits of that company for the year of assessment in which the failure
occurs and the following two years of assessment should be computed on such basis as the FIRS in its
discretion may decide.
In exercising the power given to it in CITA 2004, the FIRS usually adopts the following procedures to
determine the assessments for the three relevant years:

In exercising the power given to it in CITA 2004, the FIRS usually adopts the following procedures to
determine the assessments for the three relevant years:
i. Identify the year of assessment in which the company fails to make up the accounts of its trade or
business to the usual accounting date.
ii. Identify the two years of assessment following that in which the failure occurred.
iii. Compute assessable profits on Preceding Year Basis (PYB) for the three years of assessment stated in
(I) based on the old accounting date.
iv. Compute assessable profits on Preceding Year Basis (PYB) for the three years of assessment stated in
(I) based on the new accounting date.
v. Add up separately the assessable profits for the three years in (III) and (IV) above.
vi. Select the basis resulting in higher assessable profits as this will increase the revenue of the tax
authority.

Note: The first tax year is the year that the taxpayer fails or refuses to prepare account to an existing
accounting.
CESSATION OF BUSINESS
Contrary to the “going concern” assumption of the Accountants and “living to perpetuity” of the Lawyers
in relation to companies, some things happen that might force companies to go into liquidation just as
individuals and their enterprises may be declared bankrupt.

Cessation of trade or business occurs when a business ceases permanently and not a temporary stoppage.
In a situation where a business goes into liquidation and is run in a way that may be beneficial to the
shareholders, such may not be regarded as permanent cessation.
Factors that may lead to cessation of business
a) Loss of sources of raw materials leading to stock-out and its related costs initially and finally leading
to abrupt stoppage to production and failing of business objectives.
b) Loss of product market to competitors, leading to loss of revenue
c) Government legislation may put an end to the life/continuity of any business
d) Continuous liquidity and working capital problems may lead to the folding up of a once verile
business organisation.
e) Management problems and high staff turnover rate at management level may lead to cessation of
a trade or business.
The Finance Act 2019 amended CITA provision on cessation of business.
Section 29(4) of CITA provides that: “Where a company permanently ceases to carry on a trade or business
(or in the case of a company other than a Nigerian company, permanently ceases to carry on a trade or
business in Nigeria) in an accounting period, its assessable profits therefrom shall be the amount of the
profits from the beginning of the accounting period to the date of cessation and the tax thereof shall be
payable within six months from the date of cessation.”
Basis of Assessment
Based on the above provision, a company that permanently ceases operation must file tax returns for the
year of cessation within six months. The due date of filing may fall in the year of cessation or in the year
following the year of cessation depending on the date on which the company ceased operation in the year.
If the Company ceased operations between January and June, returns would be filed and payment made
in that year of cessation. However, if it ceased operations between July and December, filing of tax returns
and payment of tax due would fall into the following year.
There is the possibility of filing tax returns of two years of assessment in the year of cessation. Where this
occurs, the company must file the outstanding tax returns in addition to those arising upon cessation of
business.
Post cessation receipts and payments
Where after the date on which a company has permanently ceased to carry on trade or business, the
company, its receivers or liquidators receive or pay any sum which could have been included in or deducted
from the profits of the trade or business, if it had been received or paid prior to that day, such sum shall be
deemed to have been received or paid by the company on the last day before such cessation occurred. i.e
it shall be treated as terminal result of the tax payer. The income is added and expense deducted.
These adjustments must be made in line with accounting concepts and conventions before allocation to
basis period.
 Revision Questions
Question One
Babatunde Nigeria Limited was incorporated on January 2, 2019 and commenced business operation on
February 1, same year. Babatunde Nigeria Limited prepares account to March 31 annually.
Required
Determine the tax year and basis period for the first three years of doing business.
Question Two
Prisca Nigeria Limited was incorporated on March 31, 2019 but started business operations on April 1,
2019. The company accounting year end is September 30 annually.
The following are the adjusted profit for the relevant years:
Details Adjusted Profit.
N
Period to 30/9/2019 2,000,000.00
Year ended 30/9/2020 5,000,000.00
Year ended 30/9/2021 7,000,000.00
You are required to compute the assessable profits for the relevant years of assessment.
Question Three
Fripet Plc commenced business operations on October 2, 2019 after it was incorporated on July 3, 2019.
The company prepares account to March 31 annually.
The following are the reported profits for the period:
Details Adjusted Profit.
N
Period to 31/3/2021 36,000,000.00
Year ended 31/3/2022 18,000,000.00
Year ended 31/3/2023 12,000,000.00
You are required to compute the assessable profit for the relevant years of assessment.
Question Four
Riskfree Nigeria Limited was incorporated on January 23, 2019 and started business operations on the
February 1, 2019.
The following are the adjusted profit:
Details Adjusted Profit.
N
Period to 30/4/20 36,000,000.00
Year ended 30/4/2021 24,000,000.00
Year ended 30/4/22 27,000,000.00
You are required to compute the assessable profit for the relevant years.
Question Five
ABC Limited furnished you with the following details in respect of its accounting year end:
Year ended 30/6/04
Year ended 30/6/05
Period to 31/12/06
Year ended 31/12/07
Year ended 31/12/08
Required:
i. Identify the year that ABC Limited changed its accounting year end and the next years after the
change.
ii. Identify the old accounting year end and the new accounting year end.

Question Six
XYZ Limited has availed you the following information in respect of its accounting year ends.
Year ended 31/3/02
Year ended 31/3/03
Period to 30/9/03
Period to 31/12/04
Year ended 31/12/05
Year ended 31/12/06
Required:
i. Identify the year that XYZ Limited changed its accounting year end and the next years after the
change.
ii. Identify the old accounting year end and the new accounting year end.
Question Eight
Penny Limited, which had previously made up its accounts to March 31, changed its accounting date to June
30 in order that its year-end may coincide with that of the other members of the group.
The adjusted profits are as follows:
Details Adjusted Profit.
N
Year ended 31/3/94 412,650
Period ended 30/6/94 120,520
Year ended 30/6/95 482,080
Year ended 30/6/96 750,000
Year ended 30/6/97 840,000
Required:
Compute the assessable profits for the relevant years of assessment.
Question Nine
Sweet Boom Nigeria Limited is a company incorporated in Nigeria with its head office located in Victoria
Island, Lagos. The company specializes in the importation of green stone and handwood for
manufacturing its products. The company makes up its financial statements to 30 September annually.
The financial results from its operations are as follows:

Details Adjusted Profit.

N
Year ended 30/9/07 1,000,000
Year ended 30/9/08 1,500,000
Year to 31/12/09 (15 Months) 2,750,000
Year ended 31/12/10 3,250,000
Year ended 31/12/11 3,500,000
You are the newly employed Senior Inspector of Taxes and the file of the company has been forwarded to
your office with the above details.
You are required to compute the assessable profits and tax payable for the relevant tax years.
Question Ten
Oshodi-Oke Limited has been in operation for several years. In 2005, it submitted 18 months accounts to
31 December 2005. The following are the results of its previous performance before the change of
accounting date and the subsequent two years.
Details Adjusted Profit (N)
Year ended 30/6/2004 400,000
18 Months ended 31/12/2005 525,000
Year ended 31/12/2006 450,000
Year ended 31/12/2007 600,000
Required:
Compute assessable profits for the relevant years of assessment from the point of view of the tax
authority.
Question Twelve
XYZ Nigeria makes up its account to 31st December and permanently ceased operation on 30th April 2020.
Determine the relevant years of assessment and the due date for payment of tax due for filling returns
Question Thirteen
XYZ Ltd makes up its account to 31st December and permanently ceased operation on 31st July 2020.
Determine relevant years of assessment and the due date for payment of tax due are
Question Fourteen
Hopeful Limited, a manufacturing company, has been having declining profits and liquidity problems since
2020. The company changed its accounting year end in 2020 from 31 May to 31 December.
The shareholders injected N10 million into the company in January 2011, which boosted its profits in 2021
and 2022. Even with the increase in profits in 2021 and 2022, the Managing Director was of the opinion
that it is better to cut the company’s losses once and for all by winding-up the company. However, the
Finance Director disagreed and argued that since the company’s performance was now improving, it
should continue to operate.
The company’s accountant has prepared the financial statements and the following are the extracts:
Details Adjusted Profit (N)
Year ended 31/5/19 540,000
Year ended 31/5/20 300,000
Seven months to 31/12/20 645,000
Year ended 31/12/22 1,575,000
Year ended 31/12/22 1,876,500
The Chairman of Hopeful Limited invited you to his office on 12 January, 2021 to educate him on the two
concepts of change in accounting date and cessation of business as well as their tax implications.
Required:
I. Identify the steps involved in the event that Hopeful Limited adopts the change of accounting date.
II. Compute the assessable profits for 2021-2023 if the option to change accounting date is accepted.
III. Compute the assessable profits for 2021 and 2022 if the cessation option is accepted.