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Different and sometimes arduous business decisions can force companies to change their accounting dates. Sometimes authoritative pronouncements such as that issued to banks column alliance to accept a compatible year end was an accident which saw all banks in one fell dive change their altered accounting dates to December. While some companies accept adopted agenda years, some others use budgetary years, whichever adjustment is adopted is accountable to tax implications. Whereas in the United States the Internal Acquirement Service (IRS) charge accord permission for companies to change their accounting dates, abnormally to accouterment tax avoidance, and may booty as abundant as 10 years to aftereffect addition change in some cases, it is not yet so in Nigeria, an breadth which should be addressed.



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However, a lot of companies still do not apperceive that there are tax implications to change of dates in their accounting aeon aloft the approval they get from their shareholders to do so. The FIRS actuality acquainted of altered methods activated by tax consultants and tax admiral in the analysis of changes in accounting dates, with anniversary adjustment acquiescent altered after-effects in under-assessment or incorrect assessments levied on taxpayers issued a annular in February 2006 as a adviser to admiral who accept albatross for filing and appraisal duties, and those who may be required, as a amount of appointment to backpack out basic reviews on tax allotment submitted by companies as able-bodied as admiral vested with analysis responsibiliq`ties, who from time to time will appear beyond cases of change in accounting dates in the advance of their analysis assignment.

Changes in accounting dates

There are a cardinal of affidavit why a business may ambition to change its accounting date and these affidavit may include:



i) The charge to accord the accounting date of a accessory with that of the captivation company.

ii) The accessibility of banal demography at a accurate aeon of the year.

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iii) A business may booty over the operation of addition and as a aftereffect ambition to change the accounting date of the aggregation taken over to that of its own.

Where a change in accounting date takes place, be it a sole trader, affiliation or a bound accountability company, the accoutrement of area 29(4) of the CAP 21 LFN of 2004 will apply. The Act provides that the Tax Authorities accept the ability to adjudge the abject of accretion the tax accountability for the year in which the change occurs and the two afterward years of assessment.

As should be expected, the tax official will abject his accommodation on the best advantage to the tax authority. It is important to agenda that the three accordant years to be advised are:

i) The appraisal year in which the accounting date becomes altered from the date of the beforehand years.  This is accepted as the year back the change occurred.

ii) The abutting two years of appraisal afterward that in which the change occurred.

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In practice, calculations are fabricated on both the old and new dates. The greater of these two aggregates will be the acceptable best of the acquirement authority.

Years complex in the tax computations

Whenever a appeal for a change of accounting date has been approved, the aggregation authoritative the change shall be adjourned to tax through a appropriate action of free the abject of assessment.  This action requires computations for three accordant years. Area the year of abeyance is complex (ultimate year) in these three accordant years, the appeal for a change shall not be approved.  However, area the year anon afore the year of abeyance (penultimate year) is complex in these three accordant years, the appeal may be accustomed by the FIRS, depending on added evidences afore it.

 Assessment action on change of accounting date

For an on-going business, appraisal is based on above-mentioned year.  But whenever there is a change of accounting date, a accustomed accounting aeon may not accept concluded in the year of change.  This is so because back there is a change of accounting date, it is either that an anniversary is able for added than twelve months to the new accounting date or alike beneath than twelve months to the new accounting year end. The FIRS will generally accept the afterward procedures to actuate the assessments for the three accordant years:

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i) Identifying the aboriginal year in which the business has bootless to accomplish up the accounts to its accepted accounting date.

ii) Identifying the two years anon afterward the year of failure.

iii) Accretion assessable accumulation for the three accordant years based on the old accounting date (on above-mentioned year basis).

iv) Accretion assessable accumulation for the three accordant years based on the new accounting date (on above-mentioned year basis).

v) Adding up the assessable profits for the three years in (iii) and (iv) aloft separately.

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vi) Selecting the college of the two profits added up in (v) above.

Illustrations

Example 1

Julius Blake Nigeria Bound has been in business for abounding years. It has for a continued time able its anniversary accounts up to 30th April.  In 1996, it absitively to change its accounting date to 31st October.  Available abstracts showed its adapted profits as follows:

                N                            (No. of Months)

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Year ended                       30/4/1995                          450,000                 12

Period ended                   31/10/1996                        830,000                 18

Year ended                       31/10/1997                        590,000                 12

Year ended                       31/10/1998                        600,000                 12

You are appropriate to compute the actual assessments for all the accordant years in the ablaze of the change in accounting date.

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 Solution

Julius Blake Nigeria Limited

Computation of Assessment

Note: The aftermost anniversary submitted afore the change was 30th April 1995.  Therefore, the year of change is 1996.  The three accordant years are accordingly 1996, 1997 and 1998.

a) Original Assessments (Based on old Accounting date of 30th April)

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Year of Assessment. Abject Aeon Assessment

1996 P:Y.B(1/5/94-30/4/95)     N450,000

1997    1/5/95 – 30/4/95 12/18 x 830,000 N553,333

1998 1/5/96 – 30/4/97 (6/18 x 830,000) (6/12 x 590,000) N571,667

b)         Appraisal Based on 31st October

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Year of Assessment. Abject Aeon Assessment

1996 1/11/94 – 31/10/95 (1/11/94-30/4/95) (1/5/95-31/10/95)  (6/12 x 450,000) 6/18 x 830,000) N501,667

1997 P.Y.B. to 31/10/96 1/11/95 – 31/10/96 12/18 x 830,000 N553,333

1998 P.Y.B. to 31/10/97 N590,000

c)          Summary of Assessments

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Year                        Old date of                            new date of

                                     30th April                             31st October

N                                            N

1996                       450,000                                501,667

1997                       553,333                 553,333

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1998                       571,667                 590,000

1,575,000                              1,645,000

Conclusion:

The Acquirement Service will accept to accession assessments on the abject of the new accounting date as it after-effects in greater assessment.

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