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"If my account balance is low, why am I still paying so much tax?"Relating to the concept of Cashflow and taxable profit...
03/03/2026

"If my account balance is low, why am I still paying so much tax?"

Relating to the concept of Cashflow and taxable profit, one of the biggest misconceptions many business owners have is assuming cash in the bank equals profit — and profit equals tax.

In reality, cash flow and taxable profit are two very different financial stories, and misunderstanding this difference is why many profitable businesses still struggle when tax obligations fall due.

Cash flow simply reflects money moving in and out of the business. It answers the question:

Do I have cash available right now?
Taxable profit, on the other hand, is an accounting figure calculated using established reporting principles, guided by standards such as IAS 7 Statement of Cash Flows and tax regulations. It measures performance.

A business may receive large customer payments and feel financially strong because cash is flowing. But tax authorities do not assess tax based on bank balances; they assess it based on profit after allowable adjustments.

Expenses like loan repayments, asset purchases, or owner withdrawals may reduce cash significantly but may not fully reduce taxable profit. So while cash decreases, tax liability may remain high.

On the flip side, a company can report healthy profits yet experience cash shortages. This happens when sales are made on credit, inventory absorbs working capital, or significant funds go into servicing loans. The business looks profitable on paper, but there isn’t enough liquid cash available when obligations such as Company Income Tax, VAT remittances, or withholding taxes become due.

The point is, Profit drives taxation, but cash flow determines survival. Both can be monitored simultaneously for a proper tax planing.



IFRS 16 - Leases has reshaped lease accounting by ensuring lease obligations are no longer hidden off the statement of f...
25/02/2026

IFRS 16 - Leases has reshaped lease accounting by ensuring lease obligations are no longer hidden off the statement of financial position. Businesses will recognize a Right-of-Use (ROU) asset alongside a lease liability, to show the true financing nature of lease arrangements and improving transparency.

Under the Lessee Accounting (Single Model) it Recognizes a ROU asset (right to use the asset) and a lease liability (representing the obligation to make payments).

Straight-line operating lease expense is being replaced with depreciation of the ROU asset and interest expense on the lease liability.

Exceptions are short-term leases (12 months or less) and low-value assets can be recognized as expenses on a straight-line basis.

IFRS 16 is highly tactical. One very common misconception is that IFRS 16 increases expenses — it doesn’t. Instead, it changes how expenses are presented, replacing rent expense with depreciation and interest, which are typically higher in the early years of a lease.

Practical Example:
A company leases office space for 3 years, paying $5 million annually at year-end. The incremental borrowing rate is 10%.

Measure Lease Liability (Present Value of Payments)
PV factor at 10% for 3 years = 2.487

Lease liability = $5m × 2.487
= $12.44 million

Initial Recognition:
Right-of-Use Asset = 12.44m
Lease Liability = 12.44m

Subsequent Accounting (Year 1)

Interest expense = 10% × $12.44m = $1.24m
Lease payment = $5m
Liability reduction = $5m − $1.24m = $3.76m
Closing liability = $8.68m

Depreciation of ROU Asset:
$12.44m ÷ 3 years = $4.15m per year



The new tax reform comes with strategic transformation to business operations and the ability to understand it is expedi...
18/12/2025

The new tax reform comes with strategic transformation to business operations and the ability to understand it is expedient. Addressing a real-life scenario under the new tax reform system;

Example; A woman has an inflow of ₦300,000 monthly from her baking business but uses her personal account for both inflow and outflows, what will happen to her tax status in 2026?

Under the new Personal Income Tax law, anyone earning above ₦800,000 yearly is taxable which is;

15% for ₦800,000 - ₦3,000,000

18% for ₦3,000,001 - ₦12,000,000

21% for ₦12,000,001 - ₦25,000,000

23% for ₦25,000,001 - ₦50,000,000

25% for ₦50,000,000 above.

So, a company operating with a personal account will be disadvantaged as this income will be categorised under Personal income tax instead of a company income tax.

However, under the new law, companies with annual turnover below ₦100m will not be taxable, while those with turnover above ₦100m will have to pay 30% CIT.

In a nutshell, every business owner needs to align it's operations with the new tax law, so as to benefit from the necessary exemptions and compliance. The following steps helps for clarity, transparency and traceability in the new tax regime;

- A proper business registration

- Open a dedicated business bank account, ensuring that all inflows and outflows are traceable and aligned with tax guidelines.

- Register for a Tax Identification Number (TIN) as this will be mandatory for all tax filings.

- Understand tax obligations, including Personal Income Tax (PIT), Withholding Tax (WHT) and VAT.

- Keep simple financial records, either manually or digitally.

IAS 2 – Inventories is one of the simplest yet most misunderstood standards because many businesses struggle with what s...
15/12/2025

IAS 2 – Inventories is one of the simplest yet most misunderstood standards because many businesses struggle with what should or should not be included in the cost of inventory. IAS 2 provides rules for accounting for inventories, defining them as assets held for sale, in production, or as materials for production.

The standard requires inventory to be measured at the cost of purchase, cost of conversion, and any expense needed to bring the items to their current location and condition.

However, values like administrative expenses, selling costs, or abnormal waste, etc that do not contribute to production are strictly prohibited in the inventory value under IAS 2 framework.

Inventory must always be valued at the Lower of Cost or Net Realisable Value (NRV) using methods like FIFO or weighted average for cost, and recognizing write-downs or reversals in the profit or loss.

Another area where IAS 2 is often misinterpreted is the treatment of overheads. Fixed production overheads must be allocated using normal capacity, not actual output. When production is unusually low, businesses cannot push more overhead cost into inventory; the excess must be expensed.

For Instance, A small manufacturing company produced 1000 wooden chairs In one month.

1. Cost of Purchase

Wood purchased: $2,000,000

Transportation cost $150,000

Trade discount received: $50,000

Cost of purchase = $2,000,000 + $150,000 – $50,000 = $2,100,000

2. Cost of Conversion

Direct labour: $800,000

Variable production overhead: $300,000

Fixed production overhead: $600,000

Normal production capacity is 1,200 chairs, but this month production was only 1,000 chairs due to power interruptions.

IAS 2 requires allocation using normal capacity, not the lower actual output.

So fixed overhead allocated per unit = $600,000 / 1,200 chairs = $500 per chair

Total allocated fixed overhead = 1,000 chairs × $500 = $500,000

The unallocated $100,000 ($600,000 – $500,000) must be expensed.

It’s no longer news that the new tax reform comes with a worthwhile transformation to the Development Levy and Withholdi...
12/11/2025

It’s no longer news that the new tax reform comes with a worthwhile transformation to the Development Levy and Withholding Tax (WHT) system in Nigeria.

One of the major changes is the full exemption of small companies from the payment of the development levy, a statutory charge that had previously added to their operational costs. This exemption recognises that smaller enterprises often struggle with limited capital and high startup expenses, making it difficult to sustain compliance with multiple tax obligations.

Equally significant are the adjustments made to the Withholding Tax (WHT) framework. Under the new reform, small companies, manufacturers, and agricultural businesses are now exempted from WHT deductions on income earned from their major business operations.

In addition, the reform provides that payments made by small companies to their suppliers will no longer attract withholding tax deductions. This measure prevents the repetitive cycle of tax-on-tax within the small business network and promotes smoother business transactions.

For manufacturers and agricultural operators, the exemptions provide much-needed stability to reinvest in production, and scale up operations to meet domestic and export demands.


The Accounting World is Buzzing with IFRS 18! The International Accounting Standards Board (IASB) has officially introdu...
21/10/2025

The Accounting World is Buzzing with IFRS 18!

The International Accounting Standards Board (IASB) has officially introduced IFRS 18 – Presentation and Disclosure in Financial Statements, set to replace IAS 1 from January 1, 2027. This marks a new era in global financial reporting—one built on structure, transparency, and comparability.

For years, IAS 1 guided how companies presented their financial statements, but it gave too much flexibility. Businesses could classify income and expenses differently, making cross-company comparison difficult and confusing for investors. IFRS 18 changes that completely. It provides a modernized framework that transforms how financial information is communicated, ensuring that all entities now “speak the same reporting language.”

Under IFRS 18, companies must structure their statement of profit or loss into three clearly defined categories — Operating, Investing, and Financing activities. The standard introduces mandatory subtotals — Operating Profit, Profit Before Financing and Income Tax, and Profit for the year to be clearly stated— making reports more consistent and useful for decision-making.

Another major innovation is the introduction of Management-Defined Performance Measures (MPMs). Many organizations already use internal metrics like Adjusted Profit or Core EBITDA to explain performance. IFRS 18 now allows these measures to be presented—but under strict rules. Companies must clearly label, reconcile, and explain each measure, ensuring full transparency and preventing misuse of performance indicators.

For example: A manufacturing company with $500 million in revenue, $350 million in cost of sales, $20m investment cost, and $30 million in finance costs will now report;

$150 million as Operating Profit, (500m-350m)
$170 million as Profit Before Tax,(150m+20m) and
$98 million as Profit for the Year after income tax(140×30%) and discontinued operations. (When profit before tax is $140 million (170m- 30m)

It’s clear that leases are no longer just backroom agreements hidden in the notes to financial statements. From vehicles...
28/08/2025

It’s clear that leases are no longer just backroom agreements hidden in the notes to financial statements. From vehicles and office buildings to equipment and machinery, leases are central to how businesses access the resources they need. With the introduction of IFRS 16 – Leases, the world of financial reporting took a decisive turn, replacing IAS 17 and ensuring that virtually all leases now find a place on the balance sheet.

Under IFRS 16, if a contract grants a company the right to control the use of an asset for a period in exchange for payment, it qualifies as a lease.

At initial recognition, the lease liability is measured at the present value of future lease payments, discounted typically at the lessee’s incremental borrowing rate. The corresponding right-of-use asset includes the lease liability plus any initial direct costs, prepaid lease payments, and restoration obligations.

Subsequent measurement involves Depreciating the right-of-use asset (usually on a straight-line basis), and accumulating interest on the lease liability over time. For lessees, this means recognizing both a right-of-use asset and a lease liability.

For instance,
A company leasing office equipment for ₦10 million annually over five years, discounted at 10%, would record both a right-of-use asset and a liability of about ₦38 million, depreciating the asset over time while unwinding the liability with interest.

The introduction of IFRS 16 has helped companies to
better understand their financing, asset utilization, and long-term commitments.

Walking through the financial reporting landscape, IAS 16 – Property, Plant and Equipment (PPE) stands out for businesse...
18/08/2025

Walking through the financial reporting landscape, IAS 16 – Property, Plant and Equipment (PPE) stands out for businesses, shaping how tangible assets are reported and understood.

Its ensures that companies do not just record their buildings, machinery, or equipment as just figures, but instead reflect their true economic value. By providing clarity on how PPE is recognized, measured, and presented, IAS 16 creates transparency and comparability across financial statements.

The scope of IAS 16 covers all tangible items of PPE that are held for use in the production or supply of goods and services, for rental to others, or for administrative purposes, and are expected to be used over more than one accounting period.

Recognition is based on two criteria: the asset must provide future economic benefits and its cost can be measured reliably.

When it comes to measurement, IAS 16 requires that assets be initially recorded at cost—comprising purchase price, directly attributable expenses, and any necessary costs to bring the asset to its intended use.

Subsequently, companies have two choices: the cost model, where assets are carried at cost less accumulated depreciation and impairment, or the revaluation model, where assets are periodically adjusted to fair value with changes recognized in equity. Depreciation—whether straight-line or reducing balance—systematically allocates the cost of an asset over its useful life, ensuring expenses align with the asset’s actual consumption.

Example:
Assuming Company A purchases delivery trucks worth ₦50 million in January 2025. Additional costs of ₦2 million is incurred for registration and customization, bringing the initial recognition cost to ₦52 million. The trucks have an estimated useful life of 10 years and a residual value of ₦2 million.

Under the straight-line method, annual depreciation = (₦52m – ₦2m) ÷ 10 = ₦5 million per year.


As far as taxation and corporate finance is concerned, one often-overlooked yet critical concept in business valuation i...
28/07/2025

As far as taxation and corporate finance is concerned, one often-overlooked yet critical concept in business valuation is "Goodwill".

While businesses are accustomed to valuing physical assets like buildings, machinery, and inventory, goodwill represents something less tangible—but no less valuable. From a tax professional’s lens, goodwill is the excess of the purchase price over the fair value of net identifiable assets when a business is acquired. It reflects intangible strengths such as brand equity, customer loyalty, skilled workforce, and strong market reputation.

Example; Company A acquires Company B for ₦120 million. Upon valuation, Company B’s tangible and identifiable intangible assets—like equipment, receivables, intellectual property—are worth ₦90 million, and its liabilities stand at ₦10 million. The net identifiable assets total ₦80 million (₦90m – ₦10m).
The extra ₦40 million paid (₦120m – ₦80m) is recorded as goodwill.

This premium reflects Company B’s loyal customer base, consistent cash flows, and strong brand—none of which are easily quantifiable but are critical to future profits.

A common misconception in business valuation is the belief that goodwill can be internally generated and recognized as an asset on the balance sheet. However, under IFRS 3 – Business Combinations, goodwill is only recognized when it arises from the acquisition of another entity—not from internal growth, brand development, or customer loyalty built over time.

This means that no matter how strong a company’s internal reputation or relationships are, these do not qualify for recognition as goodwill unless there has been a business combination.

The rationale is to maintain objectivity and avoid subjective valuation of internally developed intangibles. Therefore, only purchased goodwill—measured as the excess of consideration transferred over the fair value of net identifiable assets—is permitted under IFRS, and must subsequently be tested for impairment under IAS

A common misconception under IAS 21 is the assumption that a company can freely choose its functional currency based on ...
23/07/2025

A common misconception under IAS 21 is the assumption that a company can freely choose its functional currency based on preference or convenience.

In reality, IAS 21 strictly requires that the functional currency be determined based on the primary economic environment in which the entity operates. This means it must reflect the currency that most significantly influences the company’s revenue generation, operating costs, and financing activities—not simply the currency in which management wishes to present its financials.

Misidentifying the functional currency can lead to material misstatements in financial reporting and raise compliance issues during audits or regulatory reviews.

In today’s globalised business landscape—where cross-border transactions and multi-currency dealings are common—the proper identification of both functional and presentation currencies has become a foundational aspect of accurate financial reporting. For instance, a Nigerian-based exporter that earns most of its revenue in U.S. dollars but incurs operating costs in naira may need to assess which currency has a greater economic influence. If its pricing, revenues, and financing are primarily dollar-driven, then USD may be its functional currency—even though its headquarters and books are based in Nigeria.

While functional currency reflects the underlying economics of the business, the presentation currency is used for reporting purposes. A company may present its financial statements in a different currency to meet the expectations of international investors or group consolidation requirements.

However, this choice comes with added responsibility: IAS 21 mandates proper translation procedures, with resulting exchange differences recognised in Other Comprehensive Income (OCI) to ensure consistency and transparency.

For companies with foreign operations, this isn’t just a technical decision—it’s a strategic compliance requirement that reinforces trust, comparability, and faithful re

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