LAW

2018 sample exam

This sample exam is made up of questions from the hard copy question bank for exams in
2018. As such we advise that you look at any errata sheet that has been issued for this
question bank. The weighting of topics in this paper has been designed to show the
weighting that you may experience in your assessment.

The question bank chapter (C) and question (Q) references are noted in the answers for
each question, along with the learning outcome/s (LO) covered.

QUESTIONS
1 In relation to the intention to create legal relations:
The parties to a social or domestic agreement are presumed to have intended the
agreement to be legally enforceable, although this intention is rebuttable
A True
B False
The parties to a commercial agreement are presumed to have intended the
arrangement to be legally enforceable
C True
D False

2 On Monday, Andrew advertised his car for sale for £5,000 in a local newspaper.
Brian saw the advertisement and telephoned Andrew offering him £4,500 for the
car. Andrew eventually offered to sell the car to Brian for £4,800. Brian replied that
he would need to test-drive the car before he could agree such a price. Brian then
agreed a time to meet at Andrew’s house the following weekend for the test-drive.
On Friday, Andrew sold his car to his neighbour Carol for £4,500.
Are the following statements true or false?
Andrew’s advertisement in the newspaper is purely an invitation to treat and as
such is incapable of acceptance and forming a legally binding contract
A True
B False
Brian has no right of action against Andrew because no acceptance took place
C True
D False
© ICAEW 2017
 3 Matt runs a small hotel. One of his friends, Louise, decorated two of the bedrooms
for him, as a surprise, when he was away on holiday. On his return, Matt was
delighted and agreed to give her a laptop in consideration for all her work. As a
separate matter, he also agreed to pay Louise’s brother, Adam, the sum of £300 to
fit new lights and sockets in the bedrooms. Adam performs the work.
When Louise and Adam come to collect the laptop and the money Matt refuses to
give them either.
Which of the following statements is correct?
A The contract with Louise is valid; the contract with Adam is valid
B The contract with Louise is valid; the contract with Adam is invalid
C The contract with Louise is invalid; the contract with Adam is invalid
D The contract with Louise is invalid; the contract with Adam is valid

4 On 1 February, Harry posts a letter to Beth offering to sell his car. On 2 February,
Beth receives Harry’s letter.
On 3 February, Harry changes his mind and posts a letter to Beth telling her that
the car is no longer for sale. On the same day, Beth posts a letter to Harry
accepting the offer contained in his letter of 1 February.
On 4 February, Beth receives Harry’s letter informing her that the car is no longer
for sale.
Is there a valid contract between Beth and Harry regarding the sale of Harry’s car?
A Yes, acceptance took place on 3 February and Harry’s revocation took place
on 4 February
B No, Harry revoked the offer before Beth posted her acceptance
C Yes, Harry cannot revoke the offer once it has been communicated to Beth
D No, Harry’s revocation took place on 3 February so Beth’s acceptance is too
late

© ICAEW 2017
 5 A contractual offer may be terminated by:
Rejection
A Yes
B No
Lapse of time
C Yes
D No

6 Abigail agrees to let her flat to Xavier for one day for the purpose of viewing a carnival.
Xavier pays her a £50 deposit with £80 due to be paid at the end of the carnival. Due
to civil unrest, the government prohibits all street entertainment and the carnival is
cancelled just before Xavier is due to travel to the flat. Neither party has incurred any
costs (save for payment of the deposit) in performance of the contract. Applying the
Law Reform (Frustrated Contracts) Act 1943, which of the following statements is
correct?
A Abigail can keep the deposit but cannot claim the balance
B Abigail can keep the deposit and Xavier is liable to pay the balance
C Abigail must pay back the deposit and Xavier need not pay the balance
D Abigail can keep the deposit and Xavier must pay an additional £15 so that each
party bears an equal loss

© ICAEW 2017
7 Foul Foods Ltd, a company specialising in the production and sale of cream cakes on
an industrial scale, bought a large oven from Ovens & Co intending to extend their
existing business to include the production of pizza bases. The delivery of the oven
was three months later than the contract date. During those three months Foul Foods
Ltd tried unsuccessfully to buy another oven. Foul Foods Ltd has claimed for its lost
profits in the following two ways:
(1) Profits which would have been made from the expected increase in business
following their increased capacity; and
(2) Profits which they would have made from a lucrative contract for the supply of
pizza bases to a nationwide supermarket chain for which they would have been
able to bid
Is Foul Foods Ltd’s claim for its lost profits likely to be successful?
A Yes, but only the lost profits from the expected general increase in trade are
recoverable, not those from the loss of the lucrative supermarket contract
B No, in accordance with the rules governing the award of damages for breach of
contract both losses are too remote
C Yes, the lost profits from the expected general increase in trade and the loss of the
lucrative supermarket contract are recoverable
D No, as Foul Foods Ltd have failed to mitigate their losses

8 The equitable remedy of specific performance can be awarded in cases involving:

The performance of personal services
A True
B False
A contract to build a house
C True
D False

© ICAEW 2017
9 Frank acts as an agent for Marilyn, purchasing silk nightwear from a number of
different suppliers. Sometimes the suppliers pay a commission on orders placed with
them by Frank on behalf of Marilyn. Frank regards the commissions as a perk of the
job and keeps them. Which of the following best describes the legal position?
A The commissions are regarded as bribes and Marilyn should report Frank to the
police
B Marilyn may dismiss Frank and recover the amount of commissions retained by
him
C Commissions are customarily retained by an agent as part of his remuneration and
so Frank has no liability in respect of them
D Marilyn can take action against the suppliers for directing the commissions to
Frank instead of her

10 Brian has just terminated his appointment of Livvi, who has been his agent for the past
six months. The written contract of agency did not mention anything about
remuneration and Brian relies on this when he refuses to pay her in respect of her
services. He does, however, accept that he must reimburse her for £5,000 expenses
that she has paid along the way.
Can Brian rely on the written contract to claim that no remuneration is payable to
Livvi?
A Yes
B No
Is Livvi entitled to retain the goods belonging to Brian that she has in her possession
until he pays her the sums owed to her?
C Yes
D No

© ICAEW 2017
11 Amanda, Sophia and Nadia are in partnership, in the name of InStyle, providing
interior design services to commercial clients. Sophia is a keen gardener and has
advertised garden design and landscaping services, also in the name of InStyle. She
has even carried out some gardening work and always puts up an InStyle sign at the
entrance to the premises where she is working and Amanda and Nadia have not
objected to Sophia putting up the sign and have not tried to stop her. In fact, they have
welcomed the extra income for the partnership. When Sophia damages a valuable
statuette while carrying out some landscaping works, the owner threatens to sue the
partnership. Which of the following best describes the legal position?
A InStyle is not liable because Sophia's implied usual authority relates to the interior
design work only
B InStyle is not liable because Sophia is wrongly using the partnership name for
what is effectively her own business
C InStyle is liable because Sophia has ostensible authority to carry out gardening
services on behalf of InStyle
D InStyle is not liable because ostensible authority cannot arise without active
representation on the principal's part; inactivity is not enough

12 Dennis is a partner in Doolittle Solicitors. He retires from the partnership and the firm’s
existing clients and suppliers are informed of this fact; the firm amends its stationery
so that Dennis’s name no longer appears on it. A short time later, Dennis orders goods
using old stationery which still has his name on it and asked for the bill to be sent to
Doolittle Solicitors.
Which of the following statements is correct?
A There is a binding contract between Dennis and the firm which supplied the goods
B No binding contract has been created between the supplier and Doolittle Solicitors
because Dennis was not authorised to act on behalf of the firm
C There is a binding contract between Doolittle Solicitors and the firm which supplied
the goods
D No binding contract has been created because the partnership shown on the
stationery had ceased to exist

© ICAEW 2017
13 An agent’s authority to act on behalf of their principal can arise:
Where express authority is explicitly granted by the principal to the agent
A Yes
B No
Where a person with actual authority makes a representation to a third party that a
particular person has the authority to act as their agent without actually appointing the
agent
C Yes
D No

14 Alice is a newly qualified accountant employed in an accountancy firm. An old friend,

Bashir, meets her at a party and asks for some tax advice. Alice tells him to make an
appointment to see her in the office which he does. Alice advises him on his tax
affairs. This advice misinterprets certain statutory provisions relating to tax. Bashir
relies on the advice and loses money. A reasonably competent accountant would not
have given the advice which Alice gave.
If Alice is sued for negligence, could she rely on any of the following factors as a
complete or partial defence:
She was newly qualified and could not be expected to reach the same standard of
competence as a more experienced accountant.
A Yes
B No
Bashir would have suffered the loss even if the advice had been correct.
C Yes
D No

15 Susan is a newly qualified accountant employed in an accountancy firm, Calculator

LLP. Susan advised Tariq on his tax affairs and Tariq lost a substantial sum of money.
Tariq wants to bring a claim for this loss. Which of the following is correct?
A He could sue Susan if her advice was incorrect
B He could sue Calculator LLP if Susan's advice was incorrect
C He could sue Susan or Calculator LLP if Susan's advice was negligent
D He could sue neither Susan nor Calculator LLP since his loss was purely financial

© ICAEW 2017
16 Rustom owned shares in Target plc. In January 20X0 he purchased a further 10,000
shares in Target plc after reading the following:
(i) A newspaper column by Tipster which stated that Target plc was a company which
would benefit from the predicted rise in house prices in 20X0
(ii) A post card sent by a friend, Carl, who stated that he had paid for his holiday with
his dividends from Target plc
(iii) The annual accounts of Target plc which had been signed off by Target’s auditors,
Laylem LLP
Within a month of Rustom buying the extra shares Target plc went into insolvent
liquidation and he wants to know if any of Tipster, Carl or Laylem LLP owe him a duty
of care in respect of his purchase of the 10,000 shares.
A Tipster, Carl and Laylem LLP all owe Rustom a duty of care
B None of Tipster, Carl or Laylem LLP owe Rustom a duty of care
C Only Laylem LLP owe Rustom a duty of care
D Both Carl and Tipster owe Rustom a duty of care

17 When an employee commits a tort his employer may be found to be vicariously liable.
Which of the following best describes vicarious liability?
A Vicarious liability arises when the employee’s tort is committed in the course of his
employment. The principal purpose of the imposition of vicarious liability on an
employer is to punish the employer for employing a negligent employee.
B Vicarious liability arises when the employee’s tort is committed in the course of his
employment. The principal purpose of the imposition of vicarious liability on an
employer is to ensure the victim of the tort has a solvent person against whom the
victim can bring a claim.
C Vicarious liability arises when the employee commits a tort irrespective of whether
it is committed in the course of his employment. The principal purpose of the
imposition of vicarious liability on an employer is to punish the employer for
employing a negligent employee.
D Vicarious liability arises when the employee commits a tort irrespective of whether
it is committed in the course of his employment. The principal purpose of the
imposition of vicarious liability on an employer is to ensure the victim of the tort has
a solvent person against whom the victim can bring a claim.

© ICAEW 2017
18 Zebra & Co is a firm of accountants whose audit clients include Widget plc. During the
course of Widget plc’s last audit Zebra & Co sent a new recruit, Oliver, to check
Widget plc’s stock control systems; Oliver failed to notice some irregularities in the
procedures adopted by Widget plc.
Relying on the published accounts which Zebra & Co had approved, Priya, bought
shares in Widget plc. Within a month the shares had dropped in value by £4,000 and
Priya wants to sue Zebra & Co to recover her loss.
Which of the following best represents Priya’s position?
A She can sue Zebra & Co because the firm owes her a duty of care and Oliver
failed to notice the flaws in the stock control system
B Even though Zebra & Co owes her a duty of care she cannot sue Zebra & Co
unless she can prove that Oliver’s failure to spot the flaws caused her loss
C She can sue Zebra & Co because the firm owes her a duty of care and Oliver must
be judged by the standard of a more experienced accountant
D She cannot sue Zebra & Co because the firm does not owe a duty of care to
potential purchasers of shares in Widget plc

19 Mark incorporates his sole trader business, King Kilts, which manufactures high quality
tartan kilts and sporrans, under the name King Kilts Ltd. He lent King Kilts Ltd £20,000
and owns 95% of its shares. He continued to insure the company's assets, including
the factory, in his own name, as he had always done before incorporation. On New
Year's Eve, the factory was destroyed by fire. Which of the following best describes
the legal position?
A Mark can claim on the insurance because King Kilts Ltd is essentially no different
from the original business
B Mark can claim on the insurance because he has an insurable interest as a
creditor of King Kilts Ltd
C Mark can claim on the insurance because he has an insurable interest as a
member of King Kilts Ltd
D Mark cannot claim on the insurance because the insurance is not effected in the
name of King Kilts Ltd and the company has the insurable interest

© ICAEW 2017
20 Albert entered into a pre-incorporation contract on behalf of Stir Ltd. By whom and
against whom may the contract be enforced?
A By and against the company only
B By and against Albert only
C By the company and against Albert
D Against the company and by Albert

21 A properly appointed company secretary usually has the authority to:

Sign contracts connected with the administrative side of a company’s affairs, such as
employing staff and ordering cars
A True
B False
Sign contracts connected with the purchase of property on behalf of a company
C True
D False

22 Cabbit Ltd buys organic vegetables from growers and resells them to retail outlets.
The Companies Act 2006 requires every company to keep adequate accounting
records. In order to comply with this requirement of the Act, Cabbit Ltd’s accounting
records must contain:
(1) a record of its assets and liabilities
(2) a statement of stock held by the company at the end of each financial year
(3) daily entries of income and expenditure
A All of the above
B None of the above
C (1) and (2) only
D (1) and (3) only

© ICAEW 2017
23 A director can be removed from office:
By passing a written resolution
A Yes
B No
Under a provision of a company’s articles of association
C Yes
D No

24 The following conduct by a director constitutes a breach of duty:

Misusing confidential information relating to the company for his personal gain
A Yes
B No
Abusing a corporate opportunity
C Yes
D No

25 Lee is the managing director of ABC Carpets Ltd. Last month he signed a proposal for
insurance against flood damage without reading it. The proposal had been filled in by
his insurance broker and contained inaccurate answers to some questions. The
insurers have now declined liability following a flood, which has destroyed most of the
company’s stock of carpets.
Is Lee in breach of his duty as a director?
A No, he has acted in good faith and exercised his powers as a company director
constitutionally
B No, the insurance company are liable, it was their insurance broker who filled in
the insurance form incorrectly
C Yes, in his capacity as managing director of ABC Carpets Ltd he should have
checked that the insurance form was completed correctly before he signed it
D No, as long as he can show that he has exhibited the degree of skill which may
reasonably be expected from a person of his knowledge and experience

© ICAEW 2017
26 Are the following statements true or false in relation to the exercise of director’s
powers?
A director of a company is required to exercise their powers subject to any directions
given by ordinary resolution.
A True
B False
A director of a company can restrict the exercise of their power by agreeing in advance
to support any resolution proposed by the majority shareholder.
C True
D False

27 Which of the following can be passed by ordinary resolution?

A A change of company name
B The alteration of the articles
C The removal of a company director
D A variation of class rights

28 Which, if any, of the following requirements must be met if an action for unfairly
prejudicial conduct is to be successful?
(1) The company must be a public limited company
(2) There must be unfairly prejudicial conduct which affects all shareholders
(3) The conduct alleged to be unfairly prejudicial must relate to actions which are
continuing at the time the action is brought
A None of the above
B All of the above
C (1) and (2) only
D (2) and (3) only

© ICAEW 2017
29 Widgets Ltd had two classes of ordinary shares, £1 shares and 50p shares, each
share carrying one vote. A resolution was passed to subdivide each £1 share into two
50p shares, thus doubling the votes of that class. Has there been a variation of the
class rights of the 50p shares?
A Yes, because the voting rights attached to the 50p shares have been affected
B Yes, because other shares have been created that have the same nominal value
and voting rights as the 50p shares
C No, because the 50p shares still carry one vote per share
D No, because rights attaching to a class of ordinary shares cannot be varied

30 A characteristic of a floating charge is that:

It is a charge over a class of assets present and future
A Yes
B No
It is a charge over a class of assets, which, in the ordinary course of the business of
the company, will change
C Yes
D No

31 Sarah wants to sell her shareholding in Albatross plc. Which of the following is
correct?
A If Sarah sold her shares to a person of whom Albatross plc disapproved it could,
without providing any reason, refuse to register the share transfer
B Sarah will be able to sell her shares through a recognised stock exchange
provided they have been listed
C Sarah must offer to sell her shares to the company before she can offer to sell
them to any other person
D Sarah will not be able to sell her shares unless she can, within three days of any
agreement to sell being concluded, produce a printed share certificate as evidence
of her title to the shares

© ICAEW 2017
32 Under Schedule B1 of the Insolvency Act 1986 one or more of a set of three objectives
have to be met in order for the application for an administration order to be successful.
Do the following statements represent one of these objectives?
To put a rescue plan into place if it is possible to rescue the company in whole or in
part as a going concern.
A Yes
B No
If corporate rescue is not possible, to maximise returns to creditors over and above
what would be achieved had the company not gone into administration first
C Yes
D No

33 Under the Insolvency Act 1986 a petition to have a company compulsorily wound up is
likely to be successful:
Where there has been a fraud on the minority.
A Yes
B No
Where the court is of the opinion that it is just and equitable that the company should
be wound up.
C Yes
D No

34 In the event of liquidation the liquidator will distribute the assets of the company
concerned to creditors in accordance with the priority determined by the law relating to
insolvency. Assuming there are surplus assets which of the following creditors will the
liquidator repay last?
A Preferential debts
B Fixed chargeholders
C Return of contributed capital to ordinary shareholders
D Floating chargeholders

© ICAEW 2017
35 Do each of the following statements represent a statutory right for a partner of a firm
under the Partnership Act 1890?
To share in the capital, profits and losses of the business in proportion to their initial
capital contribution to the firm
A Yes
B No
To have unfettered access to the firm’s books
C Yes
D No

36 Under the Limited Liability Partnerships Act 2000 certain requirements need to be met
for a limited liability partnership (LLP) to be legitimately formed. Are the following
among those requirements?
One or more persons who are associated for the purposes of carrying on a lawful
business with a view to a profit must have subscribed their names to an incorporation
document.
A Yes
B No
The incorporation document must state the name of the LLP which must end with the
words ‘Limited Liability Partnership’ or the abbreviation ‘LLP’.
C Yes
D No

37 Under the Limited Liability Partnership Regulations 2001, and in the absence of
contrary provision, the rights of members of a limited liability partnership include the
right to:
Remuneration for acting in the business or management of the limited liability
partnership.
A Yes
B No
Share equally in the profits of the limited liability partnership.
C Yes
D No

© ICAEW 2017
38 Under the Public Interest Disclosure Act 1998 a worker would be required to follow
their organisation’s internally or externally mandated whistleblowing procedures where
they have a reasonable belief that:
A criminal offence is being committed eg, fraud
A Yes
B No
The health and safety of their organisation’s workers is being put at risk
C Yes
D No

39 Under the Companies Act 2006 the maximum penalty that can be given where an
officer of a company has been convicted of carrying on their company’s business with
intent to defraud, may include:
An unlimited fine
A True
B False
A period of imprisonment of up to 10 years
C True
D False

40 Are the following statements true or false in relation to the provisions relating to
fraudulent trading contained in the Companies Act 2006?
They do not apply unless the business was carried on with intent to defraud or for any
fraudulent purpose.
A True
B False
A successful conviction for fraudulent trading could be secured against an officer of a
company who had secured further credit for the company, at a time when they
suspected that there was no reasonable prospect of the company being able to repay
the debt.
C True
D False

© ICAEW 2017
41 In relation to the criminal offence of bribery:
Offering a person in public office money or other favours in order to circumvent the
ethical guidelines of their professional body is an offence.
A True
B False
It is punishable by a term of imprisonment or a fine, or in serious cases both
imprisonment and a fine.
C True
D False

42 Nathan works as an accountant with Moneyneeds Ltd, a financial services company.

He is asked to prepare some accounts which he strongly suspects are going to be
used to enable the company to evade some of its tax liability. He makes a report to the
MLRO nominated by his employer but, in fear of losing his job is he does not do as he
is asked, he also prepares the accounts as required.
If he guilty of money laundering under the Proceeds of Crime Act 2002?
A Yes
B No
Is he guilty of tipping off under the Proceeds of Crime Act 2002?
C Yes
D No

43 Legal and economic consequences that would follow a finding that a worker is
employed under a contract of service would include the following:
Potentially they have the right to claim unfair dismissal
A Yes
B No
They should be paid gross and account for income tax to HMRC themselves
C Yes
D No

© ICAEW 2017
44 Andrew has undertaken work as a lorry driver for Hopeless Haulage Ltd for the past
three years under the following terms:
He is responsible for maintaining his own lorry. He pays his own tax and national
insurance and may substitute another lorry driver for himself, but only on receipt of
written permission from the company.
Advise Andrew as to whether he is in fact an employee indicating whether or not each
of the following statements is true or false:
Andrew is under a degree of financial risk. This is inconsistent with a contract of
employment.
A True
B False
The fact that Andrew's ability to delegate his work is limited is consistent with the
existence of a contract of employment.
C True
D False

45 Sources of contractual terms which can come together to form an employment

contract include the following:
Terms implied by the common law
A Yes
B No
Terms contained in a written statement of employment particulars where the employee
has signed the statement itself
C Yes
D No

© ICAEW 2017
46 David is a journalist working for the Daily Libel at their Southampton office.
David has a clause in his contract which states that he can be required to work from
any other office of the company on a temporary basis provided that the office is not
more than 200 miles from the Southampton office. For the past two months, David
who lives in Southampton has been required to work every day at the company’s
Nottingham office, some 170 miles away from Southampton. David has consistently
argued with his employers that the daily travelling to Nottingham is destroying his
health due to exhaustion and stress, and that he presents a serious health and safety
risk to other road users and other employees of the Nottingham office.
Advise the Daily Libel of any potential claims David could make against them by
indicating whether or not each of the following statements is true or false:
David could claim that they are in breach of their common law duty to protect him
against reasonably foreseeable risks to his health, safety and welfare.
A True
B False
The outcome of a successful claim for breach of a common law duty by an employer is
for an employee to be awarded damages.
C True
D False

47 Circumstances under which a wrongful dismissal can occur include where:

A fixed-term contract is terminated by the employer before the date it was due to
expire
A Yes
B No
The employer terminates the employment without notice, or with less notice than the
employee is entitled to receive under the terms of their contract or the Employment
Rights Act 1996
C Yes
D No

© ICAEW 2017
48 When determining the fairness of a dismissal on the grounds of capability or
qualifications:
It is sufficient that the employer honestly believes on reasonable grounds that an
employee is incapable of carrying out the job that they are employed to do.
A True
B False
It is not necessary for there to be a contractual obligation (express or implied) to hold
the relevant qualification in order to be dismissed fairly on the grounds of lack of
‘qualifications’.
C True
D False

49 In relation to claims for a statutory redundancy payment under the Employment Rights
Act 1996 are the following statements true or false?
An employee must have accrued one year’s continuous service with the same or an
associated employer at the relevant date in order to be able to claim.
A True
B False
An employee must have been dismissed, laid off or put on short-time working in order
to be able to claim.
C True
D False

50 The Data Protection Act 1998 provides certain rights for data subjects. Are the
following true or false in relation to the rights of data subjects set out in the Act?

A data subject has a right to access data held about them unless the data is held in
encoded form when access requires a court order
A True
B False
A data subject whose rights have been infringed, in that inaccurate data about them
have been held, can take action to rectify the inaccurate data but cannot obtain
compensation if they have suffered damage by reason of the inaccurate data
C True
D False

© ICAEW 2017
LAW
2018 sample exam

ANSWERS
1 B False. On the contrary, there is a rebuttable presumption that parties to a social or
domestic agreement do not intend to create legal relations.
C True. However, this presumption is rebuttable.
C1 Q35, LO 1a
2 A True. As a general rule, an advertisement in a newspaper is an invitation to treat
which, unlike an offer, cannot be accepted to form a legally binding contract.
C True. No contract is formed without agreement between the parties (usually in the
form of an offer and an acceptance).
C1 Q36, LO 1a
3 D Louise's performance of the works for which Matt promises a laptop, is past
consideration and not valid. However, the contract between Matt and Adam is
binding as there is a promise to pay for services promised in return.
C1 Q37, LO 1a
4 A The postal rule applies, which means that Beth's acceptance is effective on
posting. The postal rule does not apply to revocation, which must be
communicated to the offeree. The purported revocation is ineffective, therefore, as
it does not occur before acceptance on 3 February.
C1 Q38, LO 1a
5 A Yes. Rejection of an offer terminates it. It cannot subsequently be accepted.
C Yes. An offer is deemed to lapse after a reasonable period of time (in the absence
of an express provision or a separate option contract).
C1 Q39 LO 1a
6 C The Act aims to reflect the fact that neither party is to blame for the contract
coming to an end.
C2 Q3, LO 1b
7 A Damages for losses sustained are recoverable to the extent that they are
reasonably foreseeable and not too remote. The losses claimed under the first
head can be described as arising in the ordinary course of business and are likely
to be recoverable. However, those under the second head are too remote. Even if
Foul Foods Ltd had been able to bid for the lucrative contract, there is no certainty
that the company would have been awarded the contract.
C2 Q15, LO 1b

© ICAEW 2017
8 B False. Specific performance is not usually awarded in cases of personal service.
D False. Likewise specific performance is unlikely in such a contract, where
supervision would be required.
C2 Q16, LO 1b
9 B An agent has a duty to account for all monies received as a result of being an
agent.
C3 Q9, LO 1d
10 B No. In the absence of express provision, a reasonable amount of remuneration is
payable.
C Yes. An agent has the right to exercise a lien over property of the principal
pending payment of sums owed.
C3 Q12, LO 1d
11 C Ostensible authority can arise through acquiescence of the other partners. It can
also be wider than implied authority (which must be usual or incidental).
C3 Q14, LO 1d
12 A Dennis is no longer a partner and there is no express or implied agency and no
question of ratification. No agency arises on the basis of Dennis holding himself
out to be a partner.
C3 Q24, LO 1c
13 A Yes. Express authority can be given orally or in writing.
C Yes. An agency by estoppel arises on the basis of a principal's conduct in holding
out another person to be their agent.
C3 Q25, LO 1e
14 B No. Lack of qualification or disability is not generally relevant. The standard
applied will be that of a reasonable (qualified) accountant.
C Yes. In this case, the necessary causal link between Alice's negligent advice and
Bashir's loss cannot be established.
C4 Q25, LO 1f
15 C Tariq could sue Susan in contract or tort for her negligent advice. He could also
sue Calculator LLP which would be vicariously liable for the negligent advice of
Susan in tort.
C4 Q26, LO 1g
16 B There is no duty of care owed to Rustom by any of these parties since the relevant
tests are not satisfied (for example the need for a sufficient degree of proximity or
special relationship). Laylem LLP owes no duty of care to existing shareholders
considering their investments.
C4 Q27, LO 1f

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17 B Vicarious liability only arises for an employee's tortious acts where those acts are
committed in the course of their employment or they are sufficiently connected to
their employment. Vicarious liability is not designed to punish the employer, rather
to protect the victim of the tort.
C4 Q28, LO 1g
18 D There is no duty of care owed to Priya by Zebra & Co. Auditors do not generally
owe a duty to potential investors in a company.
C4 Q29, LO 1f
19 D Following Macaura v Northern Assurance Co Ltd 1925, the company (as a
separate legal entity) has the insurable interest and should insure its own assets.
C5 Q2, LO 2a
20 B A pre-incorporation contract is not enforceable by or against the company (that is
not incorporated at the time).
C5 Q21, LO 2b/2c
21 A True. A company secretary normally has the authority to deal with all
administrative matters. The exact scope of their authority will usually depend on
the size and nature of the company.
D False. A company secretary does not normally have authority to deal with the
purchase of property or borrowing.
C5 Q23, LO 2c
22 A S 386 specifies that all companies must include (1) and (3). But since Cabbit Ltd
deals in goods its accounts must also contain a statement of stock.
C5 Q24, LO 2c
23 B No. A written resolution cannot be used in order to remove a director or auditor
from office.
C Yes. For example, model articles provide for the removal of bankrupt directors.
C6 Q29, LO 2k
24 A Yes. A director must act in good faith for the benefit of the company and must also
avoid any conflict of interest.
C Yes. Exploiting such an opportunity constitutes a breach of duty, regardless of
whether the company could actually take advantage of the opportunity itself.
C6 Q30, LO 2l
25 C These facts are most likely to amount to a breach of the duty of care owed by a
director, particularly since he is a managing director.
C6 Q31, LO 2l

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26 B False. A director is not an agent of the shareholders and is not liable to act as
instructed by them.
D False. A director owes a duty to exercise independent judgment. Such an
agreement would constitute a breach of this duty. He may, however, act in
accordance with an agreement duly entered into by the company restricting the
future exercise of discretion by its directors or in any way authorised by the
company's constitution.
C6 Q32, LO 2m
27 C A company director may be removed by the passing of an ordinary resolution with
special notice.
C6 Q33, LO 2h
28 A Relief for unfairly prejudicial conduct applies to public and private companies
where the company's affairs are being, or have been, conducted in a manner that
is unfairly prejudicial to the interests of members generally or some part of its
members.
C8 Q34. LO 2i
29 C The fact that the value of existing rights may be affected does not constitute a
variation of those rights.
C7 Q6, LO 2d
30 A Yes. A floating charge is typically over a class of assets of a company present
and future with which the company may continue to deal before crystallisation of
the charge.
C Yes. A floating charge typically covers assets that change in the ordinary course
of business and only fixes to those assets at the time of crystallisation.
C7 Q31, LO 2n
31 B Shares of a public company are transferable on a recognised stock exchange if
the company is listed.
C7 Q33, LO 2g
32 A Yes. Rescuing the company as a going concern is the primary objective of
administration.
C Yes. This is also an objective of administration where rescuing the company as a
going concern is not practicable.
C8 Q32, LO 2o
33 B No. Such a situation would not necessarily result in a winding up, which is
generally a drastic remedy of last resort.
C Yes. If the court considers that a winding up is just and equitable, it may order
compulsory liquidation.
C8 Q33, LO 2o
34 C Only once all debts and charges have been paid, will the shareholders be entitled
to a return of their capital and, if applicable, a share in any surplus assets.
C8 Q34, LO 2p
© ICAEW 2017
35 B No. In the absence of an express provision, the Partnership Act 1890 provides for
the right to share in profits and losses equally.
C Yes. There is an implied right of access to all partnership books and accounts.
C9 Q22, LO 1e
36 B No, one would not be sufficient. The requirement is for two or more persons to
subscribe their names to the incorporation document.
C Yes, this is also a requirement.
C9 Q23, LO 2b
37 B No. There is no statutory right to remuneration.
C Yes. In the absence of express provision, there is an implied right to share in the
profits of the LLP equally.
C9 Q24, LO 2j
38 A Yes. Disclosure of such activity would amount to a qualifying disclosure.
C Yes. Likewise, disclosure of endangering the health and safety of employees
would amount to a qualifying disclosure.
C10 Q30, LO 3a
39 A True.
C True. Up to 10 years' imprisonment (and/or an unlimited fine) is the maximum
penalty for fraudulent trading.
C10 Q31, LO 3b
40 A True.
D False. Fraudulent trading is a criminal offence and it is not sufficient to show the
officer ‘suspected’ the company might not be able to pay its debts.
C10 Q32, LO 3b
41 A True. The offence is committed whether or not the offeree accepts the money or
other favour.
C True.
C10 Q33, LO 3c/3e
42 B No. Although he has been concerned in an arrangement suspecting that it will
facilitate use of criminal property (ie the proceeds of tax evasion), he has a
defence, in that he has reported the matter to the MLRO.
D No. The offence of tipping off is committed when a disclosure is made to a third
party that a disclosure or report has been made, where that disclosure is likely to
prejudice any resulting investigation, or when a disclosure if made that an
investigation is being contemplated or carried out and that disclosure is likely to
prejudice the investigation.
C10 Q25, LO 3d

© ICAEW 2017
43 A Yes. Employees have the right not to be unfairly dismissed.
D No. Employees are paid net of income tax and national insurance contributions.
C11 Q40, LO 4c
44 A True. Where the worker undertakes a degree of financial risk, this is generally
regarded as a factor consistent with a contract for services.
C True. This power of limited delegation is consistent with Andrew being an
employee.
C11 Q41, LO 4c
45 A Yes. Terms may be implied into a contract of employment by common law and by
statute where no express provision is made.
D No. The prescribed particulars may provide evidence of the terms of a contract of
employment but the written statement does not actually form part of that contract.
C11 Q42, LO 4d
46 A True. This is a duty implied at common law and owed by employers to their
employees.
C True. Damages is the most likely remedy.
C11 Q43, LO 4d
47 A Yes. Termination of a fixed-term contract before the expiry date constitutes a
dismissal.
C Yes. Termination with no, or insufficient, notice constitutes a dismissal.
C11 Q44, LO 4e
48 A True.
D False. In order to be fairly dismissed on the grounds of lack of qualification, there
must be a contractual obligation to hold that qualification.
C11 Q46, LO 4e
49 B False. An employee must have at least two years' continuous service in order to
claim a statutory redundancy payment.
C True. The employee must have been dismissed, laid off or put on short-time
working in order to succeed in a claim.
C11 Q47, LO 4f
50 B All data pertaining to a data subject is accessible by the data subject whatever the
form in which it is held.
D The data subject can obtain both rectification and compensation.
C11 Q55, LO 4a

© ICAEW 2017