THE INSTITUTE OF CHARTERED ACCOUNTANTS

OF NIGERIA

MAY 2014 INTERMEDIATE

Question Papers

Suggested Solutions

Plus

Examiners’ Reports
 PATHFINDER

FOREWORD
This issue of the PATHFINDER is published principally, in response to a growing
demand for an aid to:

(i) Candidates preparing to write future examinations of the Institute of

Chartered Accountants of Nigeria (ICAN);

(ii) Unsuccessful candidates in the identification of those areas in which they

lost marks and need to improve their knowledge and presentation;

(iii) Lecturers and students interested in acquisition of knowledge in the relevant

subjects contained herein; and

(iv) The profession; in improving pre-examinations and screening processes, and

thus the professional performance of candidates.

The answers provided in this publication do not exhaust all possible alternative
approaches to solving these questions. Efforts had been made to use the methods,
which will save much of the scarce examination time. Also, in order to facilitate
teaching, questions may be edited so that some principles or their application may
be more clearly demonstrated.

It is hoped that the suggested answers will prove to be of tremendous assistance to

students and those who assist them in their preparations for the Institute’s
Examinations.

NOTES

Although these suggested solutions have been published

under the Institute’s name, they do not represent the views of
the Council of the Institute. The suggested solutions are
entirely the responsibility of their authors and the Institute
will not enter into any correspondence on them.

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TABLE OF CONTENTS

SUBJECT PAGES

COSTING AND QUANTITATIVE TECHNIQUES 3 – 36

AUDIT AND ASSURANCE 37 – 59

TXATION 60 – 86

BUSINESS COMMUNICATION & RESEARCH METHODOLOGY 87 – 108

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

INTERMEDIATE EXAMINATION – MAY 2014

COSTING AND QUANTITATIVE TECHNIQUES

Time Allowed: 3 hours

SECTION A: PART I MULTIPLE - CHOICE QUESTIONS (20 Marks)

ATTEMPT ALL QUESTIONS IN THIS SECTION

Write ONLY the alphabet (A, B, C, D or E) that corresponds to the correct option in
each of the following questions/statements:

1. Prediction of cost behaviour is the basis for

A. Marginal costing
B. Stock recording and control
C. Functional budget
D. Capital investment appraisal
E. Total costing
2. Information about a hospital in Lagos in the previous year is as follows:

Number of beds … … … 1,500

Number of in-patients … … … 24,000
Number of out-patient visits … … 78,500
Bed occupation percentage … … 75%

You are required to calculate the average stay in the hospital.

A. 20 days
B. 19 days
C. 18 days
D. 17 days
E. 16 days

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3. In year 2013, 400 units of Large brand were produced and sold at N70 per
unit. Total production cost was N48,600. From the main production process,
50kg of Little brand were produced and sold at N5 per kg. Distribution costs of
N1.50 per kg were incurred for Little brand. What is the net production cost?

A. N45,425
B. N46,755
C. N47,325
D. N48,425
E. N49,425

4. The budgeting process is

A. Purely a marketing function

B. Purely a production function to forestall product deficiency
C. Purely a purchasing function
D. An overall company function moderated by the Accountant
E. Purely an accounting function
5. An ideal standard is

A. Attainable only under the most favourable condition

B. Easily attainable
C. Attainable if all concerned can be dedicated
D. Not attainable
E. Meant for statistical process only

6. The point of focus for all costs relating to a particular activity in an activity-
based costing system is known as
A. Activity
B. Production
C. Cost driver
D. Cost pools
E. Cost apportionment

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7. Costs of quality products are those costs incurred to prevent poor quality from
occurring. Which ONE of the following is included?
A. Prevention costs
B. Appraisal costs
C. Internal failure costs
D. External failure costs
E. Expected failure costs

8. Which of the following is NOT a fixed cost?

A. Machinery depreciation
B. Factory rental
C. Advertising
D. Factory Manager’s salary
E. Supplies and other indirect materials

9. The main reason for providing for notional charges is to

A. Be kept in a bank account for future use
B. Reward the capital provider and the landlord
C. Bring out a more realistic profit figure
D. Reduce distributable profit
E. Differentiate the cost accounts from the financial accounts

10. Break-even point is the point where

A. Return on investment is low

B. Contribution is achieved
C. Variable costs are highest
D. Fixed cost is at optimum
E. Contribution equals fixed cost

11. In a cake manufacturing company, the most appropriate cost unit is

A. Cake
B. Flour
C. Batch produced
D. Kilogram produced
E. Production run

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12. In a process costing system, scrap in an accounting period is charged to

A. Job or product
B. Cost centre
C. Scrap account
D. Profit and loss account
E. Production control

13. If matrices
A = and B = ,
then C = B x A is

A.

B.

C.

D.

E.

14. The conditional probability of event E2 on event E1 is the probability that

A. E2 will not occur
B. E1 will not occur
C. E2 occurs given that E1 has occurred
D. E1 occurs given that E2has occurred
E. Neither E1 nor E2 will occur

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15. The following table shows the various transportation costs, the demand and
supply quantities. Use the North-West Corner method to obtain the
transportation cost.

A B C D

X 1 2 1 250
6 0 4
Y 1 1 2 450
5 7 1

Z 1 1 1 500
9 2 8

D 300 500 400 1,200

A. N17,150
B. N19,650
C. N19,850
D. N19,950
E. N19,990

16. If P= and
Q= , then nP  Q  is
A. 1
B. 2
C. 3
D. 4
E. 5

17. The prices of a commodity x for years 2000 and 2001 are N200 and N250
respectively. If year 2001 is taken as the base year, then the price index of x is
A. 80%
B. 70%
C. 60%
D. 50%
E. 40%

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18. The best replacement point in the replacement of items that deteriorate is the
year with the minimum

A. Average annual cost

B. Maintenance cost
C. Total cost
D. Repair cost
E. Operating cost

19. When the marginal revenue equals the marginal cost, then the

A. Profit is minimised
B. Profit is equal to zero
C. Profit is maximised
D. Loss is minimised
E. Loss is maximized

20. Which of the following is a linear constraint of a standard maximised linear

programming problem?

A. 2x + 3y = 5
B. 2x + 3y < 5
C. 2x + 3y ≤ 5
D. 2x + 3y > 5
E. 2x + 3y ≥ 5

SECTION A: PART II SHORT-ANSWER QUESTIONS (20 Marks)

ATTEMPT ALL QUESTIONS IN THIS SECTION

Write the answer that best completes each of the following questions/statements:

1. In analysing costs, it is necessary to separate total cost into

its.....................and ................................elements.
2. Operating cost is related to the unit of ................................
3. When two or more products arise from a process, the product with a relative
small value is termed ......................................

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4. The aggregate budget which incorporates all other functional budgets is

referred to as .......................................
5. The difference between the actual hours worked and the actual hours paid for
is ...............................................
6. The latest approach as opposed to traditional absorption costing in absorbing
overhead is............................................
7. The process of establishing the time for a qualified worker to carry out a
specified job at a specified level of performance is......................................
8. Costs which could be avoided by a decision are called ..................................
9. The principal ledger in cost accounting is also referred to as .............................
10. Total contribution required for a target profit is the addition of......................
and.............................................
11. A company’s breakeven point is 6,000 units per annum. The selling price is
N90 per unit and the variable cost is N40 per unit. What is the annual fixed
cost?
12. The method of inventory pricing which assumes that material is charged out
at the price of the most recent batch until a new batch is received
is.................................
13. The relationship that states the goal that needs to be optimised in a Linear
Programming problem is known as..........................................
14. In the interpretation of elasticity of demand ( e d ), the demand is elastic when

e d is ............................ and inelastic when it is............................................

15. An event whose probability is one (1) is said to be a .......................event while

any event whose probability is zero (0) is called an .....................................
event.
16. In a typical Euler - Venn diagram, the circle represents a ............... while the
rectangle represents a..................................

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17. The two types of replacement policies in items that fail suddenly are
........................... and.....................................
18. Use the information in the table below to determine the quantity index for the
year 1997 if 1996 is taken as the base year:
Year 1995 1996 1997
Quantity 12 20 27

19. The activities on the critical path are referred to as _________________

activities
20. If matrices A and B are defined by

A= and B = , then

(A x B)t is _____________________

SECTION B: ATTEMPT ANY FOUR QUESTIONS (60 Marks)

SUB-SECTION I: COSTING – ATTEMPT TWO QUESTIONS FROM THIS SUB-SECTION

QUESTION 1

a. State TWO advantages and ONE disadvantage of a group incentive scheme

in labour remuneration. (3 Marks)

b. A company based in Lagos produces iron rods. The company engages

employees divided into three groups of ten each to carry out the production.
To motivate staff, it was decided to implement the Halsey (50%) bonus
scheme for each employee in a group. Basic pay for each employee was
N1.50 per hour. The table below shows the results for two weeks:

Week 1 Week 2

Group Time allowed Time taken Time allowed Time taken

(hrs) (hrs) (hrs) (hrs)

1 70 62 68 62

2 65 62 67 62

3 63 62 65 62

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You are required to

(i) Calculate the total wages for each week. (6 Marks)

(ii) The bonus paid. (3 Marks)
(iii) The amount earned by each employee in each group. (3 Marks)
(Total 15 Marks)

QUESTION 2

a. State THREE possible reasons for process losses. (3 Marks)

b. YEYEOBA Limited manufactures bathroom slippers known as “footware”. The

product is required to pass through TWO processes to completion. The costs
of production in year 2013 were as follows:
Process Total

Cost elements 1 2
N N N
Direct material 215,000 305,000 520,000

Direct labour 492,000 655,000 1,147,000

Direct expenses 205,000 120,000 325,000

Production overhead 850,000

1,500 units of materials were issued to Process 1 at N2,500 each.

Output of each Process was as follows:

Process 1 960 units

Process 2 910 units

Normal losses per Process which could be sold to end-users are as follows:

Process loss Sales value

Process 1 15% N720 per unit

Process 2 12% N850 per unit

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Production overhead is absorbed by each process on a basis of 40% of the

cost of direct labour

You are required to

Prepare Process Account showing calculations. (12 Marks)

(Total 15 Marks)

QUESTION 3

a. Adewunmi Nigeria Limited has a machine with which it produces item A.

Ten (10) machine hours are required to produce the item. This product’s
selling price is N150 with a variable cost of N60. The company has just
received an order for the supply of item B. Each unit of item B will require
four (4) machine hours. The annual quantity of item B required is 12,000
units and the cost estimates for the quantity is given below:
N

Direct material 125,000

Direct wages 52,000

Variable overheads 58,000

Floor space occupancy 11,500

Depreciation 7,500

Salary of Inspector for item B alone 10,000

Total Cost 264,000

It was noted that item B could be outsourced from a supplier at a cost of N28
per unit.

You are required to

Assist management to decide whether to produce item B internally or to buy

from an outside supplier if the following conditions exist:

(i) Production of item B will not in any way disturb the production of
item A.

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(ii) The machine producing item A is already fully engaged.

(10 Marks)

b. List any FIVE steps in management decision making process. (5 Marks)

(Total 15 Marks)

QUESTION 4

a. Define and explain briefly the following:

(i) Backflush Accounting (3 Marks)

(ii) Materials requirement planning (3 Marks)
(iii) Merit rating (3 Marks)

b. Explain ONE difference between Standard Costing and Budgetary Control.

(3Marks)

c. Describe briefly what you know about Job Evaluation. (3 Marks)

(Total 15 Marks)

SUB-SECTION II: QUANTITATIVE TECHNIQUES – ATTEMPT TWO QUESTIONS FROM

THIS SUB-SECTION

QUESTION 5

a. The following table gives the annual financial results (income) of XYZ
Nigeria Limited between the years 2008 and 2012:
Year 2008 2009 2010 2011 2012

Income (in N billion) 10.2 10.5 12.1 15.4 14.2

You are required to

Compute the average income index using year 2010 as the base year.
(5 Marks)
b. Three different types of blocks L, M and Q were purchased by ABC Building
Company. The following table shows the quantity and the corresponding
price of each type of block in the years 2007 and 2008:

Year 2007 Year 2008

Block Price(N) Quantity Price(N) Quantity
L 120 3 310 8
M 252 2 640 5
Q 620 6 860 4
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You are required to

Construct an Aggregate Index using Marshall and Edgeworth’s method with

2007 as the base year. (10 Marks)
(Total 15 Marks)
QUESTION 6

a. An Auditing firm has 110 chartered accountants in its employment. An

investigation carried out on the firm revealed that a reasonable number of
these chartered accountants participated in two types of sports at their
leisure time: football and basketball. It further revealed that the number of
chartered accountants that participated in football only is twice the number
that participated in both sports, while the number of chartered accountants
that participated in basketball only is thrice the number that participated in
both sports; 20 chartered accountants did not participate in any of the two
sports.

You are required to

(i) Draw Euler-Venn diagram to illustrate the above information.

(4 Marks)

(ii) Determine the number of Auditors that participated in both sports.

(2 Marks)

(iii) Determine the number of Auditors that participated in either football

or basketball . (2 Marks)

b. A veterinary doctor purchased animal food of two types A and B. Each food
comes in the same bag size and the number of grains of each of the two
nutrients in each bag is summarised in the following table:
Food

Nutrients A B

N1 2 1

N2 2 5

For a particular animal, it is necessary to combine the bags to get 2,000g of

N1 and 3,000g of N2.

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You are required to

(i) Formulate the problem as a system of two linear equations. (1 Mark)

(ii) Use Cramer’s rule to determine the number of bags of each type of
food to be combined. (6 Marks)
(Total 15 Marks)
QUESTION 7

The table below gives all necessary information for a transportation problem:

X Y Z Source
A 4 6 8 300

B 5 8 1 500
2
Destination 200 250 350

You are required to

a. Use the North-West Corner method for the allocation and calculate the total
transportation cost. (2 Marks)

b. Use the Stepping Stone method to obtain the optimal solution. (13 Marks)
(Total 15 Marks)

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SOLUTIONS TO SECTION A

PART 1 - MULTIPLE-CHOICE QUESTIONS

1. A
2. D
3. D
4. D
5. A
6. C
7. E
8. E
9. C
10. E
11. A
12. C
13. B
14. C
15. D
16. D
17. A
18. A
19. C
20. C
Workings for Q2
Average stay in the hospital
Potential in-patient days in a year = 1,500 x 365 days
= 547,500
75% occupancy = 547,500 x 0.75
= 410625 in-patient days
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 Average stay = 410625
24000
= 17 days
Workings for Q3
Net Production Cost
Production cost 48,600
Less net realisable value of little:
Value of little 250
Distribution cost 75 175
 Net production cost 48,425

Workings for Q13

C = BxA
= x

Working for Q15

Supply

16 20 14
250 250 0

15 17 21
50 400 450 400 0

19 12 18
100 400 500 400 0
Demand 300 500 400 1200

50 100 0
0 0
Total transportation cost is 16 x 250 + 15 x 50 + 17 x 400 + 12 x 100 + 18 x
400 = 19950

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Working for Q16

P = 11,13,17,21,32,34

Q = 10,12,13,20,21

P – Q = 11,17,32,34

 n (P – Q) = 4
Working for Q17
P2000
Price index of x = x100
P2001

200
= x100
250
= 80%
EXAMINERS’ REPORT

The questions cover a sizeable proportion of the syllabus.

All the candidates attempted this part of the paper. Performance was good as
about half of the candidates scored 50% and above of the marks.

Major pitfall was the inability of some of the candidates to identify the most
appropriate options. In addition, some of the candidates left some numbers
unattempted.

For improved performance in future, it is recommended that candidates should

 Vary as much as possible the number and quality of texts they use for this
paper

 Practise with a good number of past question papers

 In addition candidates should use the ICAN Pathfinder for future

examinations.

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PART II - SHORT-ANSWER QUESTIONS

1. Fixed and variable

2. Product or Service
3. By - product
4. Master budget
5. Idle time
6. Activity – Based Costing (ABC)
7. Work Measurement
8. Controllable Costs
9. Cost Ledger
10. Total fixed cost plus desired profit
11. N300,000
12. Last-In-First-Out (LIFO)
13. Objective function
14. Greater than 1, Less than 1 (in that order)
15. Certain, impossible (in that order) (uncertain not acceptable in place of
impossible)
16. Set, Universal set (in that order)
17. Individual and Group
18. 135%
19. Critical

20. (AB)t =

Workings
11. Contribution/Unit = N90 - N40 = N50
 Annual fixed cost = 6,000 x N50 = N300,000
Qn
18. Quantity index = x100
Qo
27
= x100
20
= 135%
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20. A= , B=

AxB= x

 t

EXAMINERS’ REPORT

Questions test a wide range of the syllabus.

All the candidates attempted this part of the paper and performance was good.

The candidates who did not do well had some common pitfalls including the
following:

 Display of inadequate knowledge of Costing Terminologies

 Misinterpretation of the requirements of questions

It is recommended for improved performance in future that candidates should

 Devote more time to their studies

 Acquaint themselves with good and appropriate texts

 Identify and attend good quality tuition houses

 Expand the scope of their preparation for future examinations

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SOLUTIONS TO SECTION B

QUESTION 1

1a. Advantages of group incentive scheme

i. It reduces absenteeism and increases output

ii. It ensures loyalty and cooperation within the group

iii. It can be applied to all levels of workers

iv. It encourages more flexible working arrangement within the group

Disadvantages

i. It may discourage use of initiative

ii. It is capable of de-motivating efficient employees as efficient and

inefficient employees are paid the same bonus.

iii. It may not be easy to agree on the basis of bonus sharing.

b(i) TOTAL WAGES FOR EACH WEEK

WEEK I

GROUP TIME SAVED BASIC PAY BONUS TOTAL

(HOURS) (N) (N) PAY
(N)
1. 70 – 62 62 x 1.50 X 10 8 X 1.50 X 50% X
10
=8 = 930 = 60 990
2. 65 – 62 62 X 1.50 X 10 3 X 1.50 X 50% X
10
=3 = 930 = 22. 50 952.50
3. 63 – 62 62 X 1.50 X 10 1 X 1.50 X 50% X
10
=1 = 930 = 7.50 957.50
2,880.000

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WEEK 2

GROUP TIME SAVED BASIC PAY BONUS TOTAL

(HOURS) (N) (N) PAY
(N)
1. 68 – 62 62 x 1.50 X 10 6 X 1.50 X 50% X
10
=6 = 930 = 45 975.00
2. 67 – 62 62 X 1.50 X 10 5 X 1.50 X 50% X
10
=5 = 930 = 37. 5 967.50
3. 65 – 62 62 X 1.50 X 10 3 X 1.50 X 50% X
10
=3 = 930 = 22.50 952.50
2,895.00

(ii) BONUS PAID

GROUP WEEK 1 WEEK 2 TOTAL

1 60 45 105
2 22.50 37.5 60
3 7.50 22.5 30
195

(iii) AMOUNT EARNED BY EACH EMPLOYEE IN EACH GROUP

GROUP 1 GROUP 2 GROUP 3

Week 1 990/10 = 99.00 952.50/10 = 95.25 937.50/10 = 93.75
Week 2 975/10 = 97.50 967.50/10 = 96.75 952.50/10 = 95.25
Total 196.50 192.00 189.00

EXAMINERS’ REPORT

The question tests candidates’ knowledge and understanding of the different

methods of labour remuneration and computation of bonus payments.

The question was popular among candidates as about 90% of them attempted it.
Performance was very poor as only about 30% of those who attempted the question
scored 50% and above of the marks allocated.

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Common pitfalls exhibited by candidates include the following:

 Wrong interpretation of question

 Display of insufficient knowledge of the subject matter

 Poor arithmetic leading to wrong answers

 Illegible handwriting

For improved performance in future, it is recommended that candidates should

 Cover the syllabus thoroughly and desist from permutation and selective
reading

 Attend good quality tuition centres

 Use good quality texts including the ICAN Pathfinder

 Study and work more on past question papers

 Adhere strictly to the requirements of the question being answered

QUESTION 2

(a) i. Spoilage
ii. Evaporation
iii. Breakages
iv. Withdrawals for testing and inspection
v. Residuals
vi. Material wastage during processing
vii. Low quality materials
viii. Wrong handling of materials

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(b) YEYEOBA LIMITED

Process 1 Account

Description Unit Cost per Amount Description Unit Cost per Amount
Unit N N Unit N N
Unit 1,500 2,500 3,750,000Normal 225 720 162,000
introduced loss
Direct Mat 215,000 Abnormal 3,683.76 1,160,386
Loss 315
Direct Lab 492,000
Direct 205,000 Output to
Expenses process 2 960 3,683 3,536,414
Production
Overhead _____ 196,800 _____ ________
1,500 4,858,800 1,500 4,858,800

Process 2 Account

Description Unit Cost Amount Description Unit Cost per Amount

per N Unit N N
Unit N
Process 1 960 3,536,414 Normal 115 850 97,750
loss
Direct Mat 305,000 Finished
goods
transferred
to stock 910 5,657 5,148,407
Direct Labour 655,000
Dir Expenses 120,000
Production
Overhead 262,000
Abnormal gain 65 5,657 367,743 _____ ________

1,025 5,246,157 1,025 5,246,157

Workings

Process 1

15
Normal loss = x1500 = 225units
100
Scrap = N720 x 225 = N162,000

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Abnormal loss
Normal cost N4,858,800 – N162,000 = N4,696,800
Normal production unit = 1500 – 225 = 1275
N4,696,800 = N3,683.76 per unit
1275

Process 2

Normal loss 12% x 960 = 115 units

Scrap value N850 x 115 = N97,750

Normal cost N4,878,414 – N97,750 = N4,780,664

Normal production unit 960 – 115 = 845 units
N4,780,664 = N5,657.59 per unit
845

EXAMINERS’ REPORT

The question tests candidates’ understanding of the causes of process losses and
ability to draw up process accounts and post into them.
About 75% of the entire candidates attempted the question.

Performance was poor as about 35% of them who attempted the question scored
50% and above.

Common pitfalls among candidates include

 Lack of understanding of the technicalities involved in the preparation of
Process Accounts

 Exhibition of inadequate theoretical grounding in Process Costing

 Poor arithmetic and handwriting

For improved performance in future it is recommended that candidates should

 Spend more time on their studies

 Identify and enrol with good tuition houses

 Acquaint themselves with varied study materials including ICAN study packs
and Pathfinders

 Practise with past question papers

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QUESTION 3

INCREMENTAL COST OF PRODUCING ITEM B

TOTAL PER UNIT

N N
Direct Material 125,000 10.42
Direct labour 52,000 4.33
Variable Overhead 58,000 4.83
Salary of Inspector 10,000 0.83
TOTAL 245,000 20.41

Cost of buying from outside = N28 X 12,000 UNITS = N336,000

(i) If the production of item B will not affect item A, it is advisable to produce
internally as the production cost is less than the cost of buying/purchasing
from outside supplier i.e. N336,000 – N245,000 = N91,000.

(ii) If the production of item B will affect production of item A, we need to

consider the contribution of item A not produced as well as the incremental
costs of item B.

Contribution per unit of item A = N150 – N60 = N90. Contribution per

machine hour of item A is therefore N90  10 hrs = N9/hr
Total contribution lost by not using the machine for item A
= 12,000 units x 4hrs x N9/hr = N432,000

Computation of savings or loss for producing item B if capacity is full is as

follows:

TOTAL PER UNIT

N N
Incremental cost of producing item B 245,000 20.42
Opportunity cost of failing to produce item A 432,000 36.00
677,000 56.42

Price offered by outside supplier 336,000 28.00

Loss from internal production 341,000 28.42

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DECISION

We advise the company to buy and not to produce internally since it is

currently working at full capacity.

(b)
(i) Determine the specific objectives as desired by management

(ii) Understand the scope and validity of factual knowledge

(iii) Determine relevant costs

(iv) Ascertain alternative courses of action

(v) Select an alternative or choice making

(vi) Implement best solution discovered

(vii) Appraise results

EXAMINERS’ REPORT

The question tests candidates’ ability to appraise properly management decision

scenario with particular reference to a make or buy decision.

The question was fairly unpopular among candidates as only about 45% of them
attempted it.

Performance was very poor as only 30% of the candidates who attempted it scored
40% and above of the marks.

Common pitfalls among candidates include the following:

 Exhibition of inadequate coverage of the syllabus

 Poor presentation, poor arithmetic and poor handwriting

 Display of poor knowledge of the process required in management decision

making

 Exhibition of lack of understanding of the requirements of the question.

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It is recommended that candidates should

 Learn to do a more intelligent presentation of their answers

 Improve on their handwriting and arithmetic

 Identify and attend good quality tuition houses

QUESTION 4

a(i) Backflush Accounting

Traditionally, material items for stock are traced from purchases through
work in progress (WIP) to finished goods and collated costs through the
progress. With the development of Backflush Accounting, costs are allocated
between cost of sales and inventory by working back. It can be used where
inventory valuation is not so important.

(ii) Materials Requirement Planning

This is a system that lists materials and components required to meet

production schedule in order to ensure that adequate stock level is
maintained and the required items are available when needed.

(iii) Merit Rating

Merit rating is concerned with individual employee to determine his

performance for merit award, promotion or demotion. It will consider
various factors like initiative, attendance, accuracy, willingness and
allocated points. The summation of these points will now be used for staff
appraisal scheme.

(b) Differences between standard costing and budgetary control

(i) Budgets are stated in monetary or financial terms whereas standards

need not be.

(ii) Budgets are usually focused on cost centres while standards are
usually for the various activities of an entity.

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(c) Job Evaluation

This is a technique that seeks to show, in an objective manner, the relative

worth of jobs. Contents of jobs under various categories are analysed for
training required, working condition, and responsibility. Each factor is
scored and the total score for a job is compared with another job to
determine pay scale and the normal salary for the job.

EXAMINERS’ REPORT

The question tests candidates’ understanding of some developmental areas in Cost

Accounting and Terminologies.
About 60% of the candidates attempted the question.

Performance was below average as only about 40% of the candidates scored 50%
and above.

Major pitfalls include the following:

 Some terminologies appeared strange to many of the candidates

 Examination techniques were lacking

 Performance showed that the syllabus was not properly covered

 Handwriting was poor

Candidates will do well in future if they

 Vary the texts used for their preparation which should include the ICAN
Study Packs and Pathfinders

 Study the syllabus more extensively for effective coverage in their

preparation

 Practise with past question papers

 Attend good quality tuition houses

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QUESTION 5

(a) Given the base year to be 2010, the simple income indexes are computed as
follows:

For year 2008,

I2008 = 10.2 x 100 = 84.30%
12.1 1
For year 2009,
I2009 = 10.5 x 100 = 86.78%
12.1 1

For year 2010,

I2010 = 12.1 x 100 = 100.00%
12.1 1
For year 2011,
I2011 = 15.4 x 100 = 127.27%
12.1 1

For year 2012,

I2012 = 14.2 x 100 = 117.36%
2.1 1
12008 + 12009 + 12010 + 12011 + 12012
Average income index =
5
= 84.30 + 86.78 + 100.00 + 127.27 + 117.36
5
= 515.69
5
= 103.14%

(b)
Block Year 2007 Year 2008
Type Po q0 P1 q1 P1q0 P1q1 P0q0 P0q1
L 120 3 310 8 930 2480 360 960
M 252 2 640 5 1280 3200 504 1260
Q 620 6 860 4 5160 3440 3720 2480
 p1q0  p1q1  p0 q0  p0 q1
 7370  9120  4584  4700

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 Marshall and Egdeworth’s aggregate index

=
p q p q
1 0 1 1
x
100
p q p q
0 0 0 1 1

7370  9120 100

= x
4584  4700 1

16490 100
= x
9284 1

= 177.617% = 177.62%

ALITER

Block Year 2007 Year 2008

Type Po q0 P1 q1 q0+q1 P1(q0 + q1) P0 (q0 + q1)
L 120 3 310 8 11 3410 1320
M 252 2 640 5 7 4480 1764
Q 620 6 860 4 10 8600 6200
 p1 (q0  q1 )  p0 (q0  q1 )
 16490  9284
Marshall - Egdeworth’s aggregate price index

=
 p (q
1  q1 ) 100
0
x
 p (q
0 0  q1 ) 1
16490 100
= x
9284 1

= 177.62%

EXAMINERS’ REPORT

The question tests the candidates’ understanding and their ability to construct the
Price Indices with reference to Marshal-Edgeworth Price Index.

The question was very popular among the candidates with about 95% of them
attempting it.

Performance was good as about 75% of the candidates who attempted it scoring
50% and above of the marks allocated.
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There were no noticeable common pitfalls.

Although, performance was good, this can be better in future, if candidates vary
their texts and improve on their appreciation of examination techniques.

QUESTION 6

(a)i Let F represent football

B represent basketball
n(U) = 110

F B

3x
2x 3x 20
x
n(U) = 110
(ii) Let n( f  B)  x
n( f  B)  2 x
n( f  B)  3x
2 x + x + 3 x + 20 = 110
6 x + 20 = 110
x = 15
(iii) n( f  B)  2 x + x +3 x = 6 x = 6 x 15 = 90

ALITER
(III) n( f  B)  n( f )  n( B)  n( f  B)
= 3x + 4 x – x
= 6x
= 6 x 15
= 90

(b) Let the required number of bags to be combined be x and y respectively

(a) 2 x + y = 2000 ............... (i)
2 x + 5y = 3000 ............... (ii)

(b) From equations (i) and (ii) we can write

=
 Using Cramer’s rule, we have

 2 1
2 5

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= 2 x 5 – 2 x 1 = 10 – 2 = 8
1  2000 1
3000 5
= 2000 x 5 – 3000 x 1 = 10000 – 3000 = 7000

2  2 2000
2 3000
= 2 x 3000 – 2 x 2000 = 6000 – 4000 = 2000

x  1

= 7000 = 875 units
8
2
y=

= 2000 = 250units
8

EXAMINERS’ REPORT

The question tests candidates’ knowledge and understanding of the components of

the Set Theory with respect to the construction of Euler-Venn Diagram. The second
part of the question is on the use of matrices to solve a system of equations based
on Cramer’s Rule.

The topic was very familiar to candidates as about 90% of them attempted the
question.

Performance was fairly good as about 60% of the candidates who attempted it
scored 50% and above.

Common pitfalls among candidates include the following:

 Inability to correctly construct Euler-Venn Diagram

 Cramer’s Rule appeared strange to some of the candidates

 Many candidates interpreted the question as a Linear Programming

problem.

Improvement will be achieved in future if candidates

 Widen their scope of preparation by covering the syllabus more extensively

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 Spend more quality time on preparation for future examinations

 Practise with past question papers

 Attend good quality tuition houses

 Read and digest ICAN Pathfinders and Study Packs

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QUESTION 7

(a)
X Y Z Source

A 6 8
200 4 100 300 100 0
B 8 1
5 150 350 500 350 0
Destination 200 250 350 800

0 150 0 0

Transportation cost = 4 x 200 + 6 x 100 + 8 x 150 + 1 x 350 = 2,950

(b) Non- basic cells are AZ and BX

CAZ = 8 – 1 + 8 – 6 = (i.e. (1 x 8) – (1 x 1) + (1 x 8) – (1 x 6)
CBX = 5 – 4 + 6 – 8 = -1 (i.e. (1 x 5) – (1 x 4) + (1 x 6) – (1 x 8)

 Cell BX is Considered

X Y Z

A 6 8
200 - 0 4
100 + 0
B 8 1
5
0 150 - 0 350

 0 = 150

X Y Z

A 6 8
50 4
250
B 8 1
5
150 350

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Transportation cost = 4 x 50 + 6 x 250 + 150 x 5 + 350 x 1 = 2800

Non-basic cells are AZ and BY

CAZ = 9 as before
CBY = 8 – 6 + 4 – 5 = 1 (i.e. (1 x 8) - (1 x 6) - (1 x 5) )
Since both values are positive, the optimal solution has been
reached with transportation cost of 2,800.

EXAMINERS’ REPORT

The question tests candidates’ understanding of a Transportation problem with

respect to cost minimization.

The question did not appear to be popular among candidates as only 40% of them
attempted it.

Performance was very poor as only about 5% of the candidates who attempted the
question scored 50% and above.

Notable pitfalls among candidates include the following:

 Lack of familiarity with the use of stepping stone method to obtain the
optimal solution as required by the question.

 Poor understanding of Non-Basic Cells

It is recommended that candidates should

 Improve on their preparation

 Attend good quality tuition houses

 Use good quality texts including the ICAN Pathfinders and Study Packs

 Spend more quality time for preparation

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

INTERMEDIATE EXAMINATION – MAY 2014

AUDIT AND ASSURANCE

Time Allowed: 3 hours

SECTION A: PART I MULTIPLE-CHOICE QUESTIONS (20 Marks)

ATTEMPT ALL QUESTIONS IN THIS SECTION

Write ONLY the alphabet (A, B, C, D or E) that corresponds to the correct option in
each of the following questions/statements.

1. Statutory duties of an independent auditor are determined by

A. Companies and Allied Matters Act CAP C20 LFN 2004

B. Memorandum of Association
C. Articles of Association
D. Agreement between the company and the auditor
E. Agreement between the board of directors, audit committee and the
external auditor.

2. The objectives of Pension Reform Act 2004 include the following EXCEPT to:

A. Ensure that every person who worked in either the public service of the
Federation or private sector receives his retirement benefits as at when
due
B. Assist improvident individuals by ensuring that they save in order to
cater for their livelihood during old age
C. Establish a uniform set of pension rules
D. Establish pension regulations and standards for the administration and
payments of retirement benefits for public servants of the Federation
E. Lay down the procedures for paying pension to the armed forces in a
distinct manner from that of the civilians

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3. Which of the following is NOT a legal right of a statutory auditor?

A. The right of access to the books, accounts and vouchers
B. The right to obtain information and explanation
C. The right to receive notices and attend general meetings
D. The right to require the directors to convene a general meeting on their
resignation and to attend and be heard at that and any other meetings
which concern them
E. The right to withhold the auditors’ report until the professional fees are
paid.

4. A good management letter should contain the following EXCEPT

A. A note of the purpose of the letter

B. A recommendation for improvement
C. Note of the purpose of internal control investigation
D. A recommendation for auditors’ remuneration
E. A list of the weaknesses

5. Management audit can best be described as the

A. Examination of books and audit of accounts done by the management

B. Periodic assessment of company’s activities by the statutory auditor
C. Periodic assessment of company’s managerial planning, organising
actuating and controlling compared to norm of successful operation
D. Auditors’ assessment of the financial statements of the entity
E. Audit reviews of an organisation’s policies procedures and practices
concerning human resources

6. Which of the following is NOT correct about an Internal Auditor?

A. The internal auditor is appointed by the management

B. The internal auditor may not necessarily be a person with accounting
background
C. The internal auditor is responsible to and reports to the management
D. Management decides the scope of duties of the internal auditor
E. Professional qualification is required of an internal auditor

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7. An audit approach which considers the effectiveness of internal control in

preventing or detecting and correcting mis-statements is

A. Statement of financial position approach

B. Statement of comprehensive income approach
C. Systems-based approach
D. Effectiveness approach
E. Continuous approach

8. The external auditor can evaluate the internal auditor’s work through the
following criteria EXCEPT

A. The extent to which the internal auditor is functioning independently

B. The professional qualification and experience of the internal auditor
C. The competence and skill of the internal auditor
D. Whether the internal auditor is well remunerated and receives higher
pay than the other line managers
E. Whether the internal auditor reports to the highest level of management

9. Which of the following is NOT part of auditors’ duties during stocktaking?

A. Carrying out test count and recording his sample for subsequent check
against the final stock sheets
B. Carrying out cut-off tests
C. Obtaining information to be used in cut-off tests
D. Taking note of special items like damaged stocks, obsolete stocks and
slow-moving items
E. Obtaining photocopies of sheets or extract items from rough stock sheets
for comparison with the final stock records

10. The objectives of verification of assets are as follows EXCEPT to

A. Establish the existence of actual items of assets

B. Examine the title or ownership of assets
C. Examine the possession of assets
D. Establish proper classification of assets
E. Verify reasonableness of cost of assets

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11. A Letter of Engagement serves the following purposes EXCEPT to

A. Define clearly the extent of the auditor’s responsibilities

B. Minimise misunderstanding between the auditor and the client
C. Inform and educate the client
D. Facilitate due process of audit
E. Confirm acceptance by the auditor of his engagement

12. Which of the following is NOT part of a permanent audit file?

A. Previous years’ accounts

B. Internal control system documentation
C. Letter of Representation
D. Accounting policies
E. Letter of Engagement

13. Which of the following is NOT true of circularisation letters?

A. It is prepared by the auditor

B. It is despatched by the client
C. It is addressed to third parties
D. It is to be returned to the auditor
E. It is written on clients letterhead

14. The following are the problems faced by the Public Accounts Committee
EXCEPT
A. Political instability, leading to continuous changes in the composition of
the Committee
B. The financial statements to be examined are often in arrears
C. Members of the Committee may not be knowledgeable in accounting and
financial reporting
D. Resolutions are not always implemented
E. The changes from the adoption of the International Public Sector
Accounting Standards

15. Which of the following is NOT a general control widely recognised in an

electronic data processing environment?
A. Organisational and operational controls
B. Systems development and documentation controls

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C. Hardware and systems software controls

D. Access controls
E. Verification controls

16. Which of the following is NOT an example of audit packages?

A. Audit Command Language (ACL)

B. Purpose Written Computer Programs (PWCP)
C. Interactive Data Extraction and Analysis (IDEA)
D. Statistical Analysis software (SAS)
E. Structured Query Language (SQL)

17. The system whereby “data is input via a terminal and immediately checked by
the computer, processed and the relevant files updated” relates to
A. On-line system
B. Real-time system
C. Processing system
D. Control system
E. Batch system

18. Which of the following is NOT an advantage of the Audit Committee?

A. The Committee could lead to the perception of a two-tier board

B. The Committee provides assistance to directors in carrying out their
responsibilities
C. The Committee strengthens the objectivity and credibility of the financial
statements
D. The Committee promotes the auditors’ independence by acting as
intermediary between the management and the auditors
E. The Committee can lead to improvement in the communication between
the external auditor, management and internal auditor of an enterprise

19. Forensic audit can be applied in the following areas EXCEPT

A. Computation of damages
B. Matrimonial divorce
C. Claims analysis
D. Attest function
E. Expert witness testimony

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20. Which of the following is considered an assurance service?

A. Agreed upon procedures

B. Management consulting
C. Value for money
D. Tax consulting
E. Compilation of financial information

SECTION A: PART II SHORT-ANSWER QUESTIONS (20 Marks)

ATTEMPT ALL QUESTIONS IN THIS SECTION

Write the answer that best completes each of the following questions/statements:

1. The erroneous belief by members of the public that the primary duty of
auditors is to detect fraud is referred to as .......................................

2. An audit which assesses the impact of an organisation’s non-financial

objectives on the society is referred to as ...................................

3. The Central Bank of Nigeria Act CAP C4 LFN 2004 provides that the Bank
transmits to the President, a copy of its annual accounts certified by the
auditor within ........................ months after the close of each financial year.

4. A review which takes place after an audit work has been completed to
ensure that the firm’s policies and procedures are being complied with is
known as ..............................

5. Threats which may occur as a result of the financial interests of a

professional accountant in an organisation is known as ...............................

6. The risk of an auditor expressing an inappropriate audit opinion when the

financial statements are materially misstated is known as ...........................

7. An audit which involves audit staff being present in a large client’s office
all year round is ...............................

8. The risk of material errors escaping the substantive audit procedure is

referred to as ......................................

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9. The information used to trace the status and contents of an individual

transaction forward or backward between source documents, processing
and output is known as ...........................

10. A software system which constructs, expands and maintains the data in a
computerised environment is known as ................................

11. The overall attitude, awareness and actions of directors and management
regarding internal controls and their importance to the entity is known as
...................................

12. A test which involves taking a sample of few transactions and following
them through every stage of the system is .................................

13. The procedure that involves computation of ratios, studying of trends and
the use of statistical models to obtain audit evidence is ...............................

14. An information technology technique which models the clients system on

the auditors’ hardware and compares the results obtained using the same
set of data is ...................................

15. Procedures designed to restrict access to on-line terminal devices,

programmes and data are known as ......................................

16. A matter whose outcome depends on future actions or events not under the
direct control of the entity but that may affect the financial statements is
known as ..................................

17. An expression of independent opinion by the auditor about the truth and
fairness of financial information examined by him is the ......................
objective of an independent statutory audit.

18. The body that reviews the report of the Auditor-General for the Federation
and invites any person indicted in the report to come for public hearing is
known as ......................................

19. A type of audit which is learnt more from experience than from textbooks is
known as .......................................

20. A professional service provided by Chartered Accountants that reduces the

risk of incorrect information is ...............................

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SECTION B: ATTEMPT ANY FOUR QUESTIONS (60 Marks)

QUESTION 1

Silverbul is a small company engaged in import and export business. The company
has requested you, as its auditor, to assist in writing up the accounting books and
records and to prepare the financial statements since they could not afford to
employ a qualified accountant.

Required:

a. State with reasons, if you would accept this offer to assist Silverbul Limited
to write up the accounting books and records. (2 Marks)

b. Outline FOUR steps that you would take to ensure that your role as the
company’s auditor is properly exercised, if the offer is accepted. (4 Marks)

c. List FIVE factors that may compromise the independence of an auditor.

(5 Marks)

d. Highlight FOUR reasons why an audit firm may decline to accept an

appointment as independent auditors. (4 Marks)
(Total 15 Marks)

QUESTION 2

An audit plan helps an auditor not only to understand the scope of audit but also
facilitate smooth conduct of the audit.

Required:

a. Define audit plan. (2 Marks)

b. State TEN matters that the auditor should consider while developing the
overall audit plan. (10 Marks)

c. Highlight THREE benefits of audit planning. (3 Marks)

(Total 15 Marks)
QUESTION 3

Before an auditor proceeds on the examination of the accounting records and other
evidence that form the basis of the financial statements, he assesses the adequacy
of the internal control system of the organisation.

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Required:

a. Define “Internal Control” as stated in the Nigerian Standards on Auditing

(2 Marks)

b. State FIVE purposes of internal control (5 Marks)

c. State EIGHT items that you would expect to be contained in an internal

control questionnaire on fixed assets (8 Marks)
(Total 15 Marks)
QUESTION 4

An Auditor is not expected to disclose any information about his client to a third
party without the client’s consent in writing.

Required:

a. Identify any SIX situations when such information can be given to a third
party without the client’s consent. (6 Marks)

b. Enumerate any FOUR of the obligations imposed by the ethical principle of

professional competence and due care on Chartered Accountants. (4 Marks)

c. Write briefly on the ethical rules that auditors should observe in handling
clients’ monies. (5 Marks)
(Total 15 Marks)

QUESTION 5

Complexities in business and changes in social and legal expectations have

enhanced the need for forensic auditing.

Required:

a. What is forensic auditing? (2 Marks)

b. State FIVE differences between financial auditing and forensic auditing.

(5 Marks)
c. Highlight FIVE qualities of a forensic auditor. (5 Marks)

d. Identify any THREE areas where forensic audit may be applied. (3 Marks)
(Total 15 Marks)

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QUESTION 6

Computer security is a major source of concern to the auditor in a computer-based

accounting system.

Required:

a. Explain THREE aspects of computer security which may be of major concern

to an auditor. (6 Marks)

b. Describe SIX major security threats in a computerised environment, giving

an example of each. (9 Marks)
(Total 15 Marks)

SOLUTIONS TO SECTION A

PART I MULTIPLE-CHOICE QUESTIONS

1. A
2. E
3. E
4. D
5. C
6. E
7. C
8. D
9. B
10. E
11. D
12. C
13. B
14. E
15. E
16. B

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17. B
18. A
19. D
20. C

EXAMINERS’ REPORT

The questions cover a wide area of the syllabus. All the candidates attempted the
questions. Performance was average. There was generally a low understanding of
the examiners’ requirements. Candidates are advised to cover the syllabus and
read widely.

PART II SHORT ANSWER QUESTIONS

1. Expectation Gap
2. Social Audit
3. 2
4. Cold Review
5. Self-Interest Threats
6. Audit Risk
7. Continuous Audit
8. Detection Risk
9. Audit Trail
10. Data Base Management System
11. Control Environment
12. Walk Through Test
13. Analytical Review
14. Parallel Simulation
15. Access Controls
16. Uncertainty

17. Primary

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18. Public Accounts Committee of the National Assembly
19. Forensic Audit
20. Assurance Service

EXAMINERS’ REPORT

The questions cover a wide spectrum of the syllabus. Performance was average.
Candidates should prepare well for professional examinations.

SOLUTIONS TO SECTION B

QUESTION 1

(a) There is no law that disallows an auditor from accepting the offer to write up
the accounting books and records of a company.

Before accepting the offer of assistance to write up the accounting books and
records, consideration must be given to whether the provision of such service
would create a threat to the auditors’ independence. In situations where a
threat created is clearly significant, the offer would be declined unless
appropriate safeguards can be applied to eliminate the threat or reduce it to
an acceptable level.

(b) Steps to be taken to ensure that the role of the company’s auditor is properly
exercised if the offer is accepted, include:

i. Ensure as far as possible that the auditors’ independence is not

compromised by assigning different members of staff to the
accounting and audit work.
ii. Assign responsibility for the accounting services to a partner other
than the one responsible for the supervision of the audit work or the
engagement partner.
iii. Ensure that audit staff are aware of the special need for an
independent attitude of mind.
iv. Ensure that audit work and accountancy work are cost and billed to
the client separately.
v. The engagement letter must have clearly distinguished between the
two roles and emphasised that the ultimate responsibilities for the
preparation of the financial statements rest with management.

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(c) Factors that may compromise the independence of an auditor include:

(i) Where the fee on a job is material in relation to total income

(ii) Where the auditor provides other services to the client which may
lead to conflict of interest.
(iii) If the auditor owns shares in the client’s company
(iv) If the auditor receives loans from the company
(v) If the auditor is in partnership with an officer of the company
(vi) If the auditor is related to management staff of the company (by
blood or marriage)
(vii) If the auditor is employed by the company or employs an
employee of the company
(viii) If the auditor receives material gifts or gratification from the
company
(ix) If there is a threat of replacement over a disagreement on the
application of an accounting principle

(d) The reasons why an audit firm may not accept appointment as auditors
include the following:

(i) If permission is refused by the client for communication with the

existing auditor
(ii) If the existing auditor informs the prospective firm that he is not
authorised to discuss the client’s affair with him
(iii) If the reasons for the change as highlighted by the client are not in
accordance with facts
(iv) If the proposal to replace the existing auditor arose because he has
carried out his duties in the face of opposition or the existence of
important difference of principle or practice between him and the
client.
(v) if the client, its directors or employees might have been guilty of
some unlawful act or default, or that any aspect of their conduct
which is relevant to the carrying out of the audit assignment
ought, in the opinion of the existing auditor, to be investigated
further by an appropriate authority.
(vi) if the prospective auditor has serious doubts regarding the
integrity of the directors and/or senior managers of the company.

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(vii) if the client’s directors or staff had deliberately hindered the
performance of the existing auditor or limited or attempted to limit
the scope of the audit.
(viii) if any partner, staff or close relation of the new firm has financial
and/or any beneficial interest in the prospective client.
(ix) if the client’s directors and staff had defrauded or attempted to
defraud government departments e.g. FIRS, Customs Service, etc.
and wanted to cover up by changing the existing auditor.
(x) If the audit firm believes that they do not have the capacity and
technical ability to handle the assignment.

EXAMINERS’ REPORT

The question tests candidates’ understanding of professional ethics and their

application to appointment of accountants and auditors. Almost 90% of the
candidates attempted the question. Performance in (a) and (b) parts was poor.

Performance in parts (c) and (d) was average. The commonest pitfall of the
candidates was their inability to recognise the requirements of the question.

Candidates should read questions very well before attempting them.

SOLUTION 2

(a) Audit plan is a:

“work plan that reflects the design and performance of all audit procedures.
It entails the general strategy and detailed approach for the expected nature,
timing and extent of the audit.”

(b) The matters to be considered by the auditor while developing the overall audit
plan include:

(i) The terms of audit engagement, scope of work, reporting requirements

and the deadline.
(ii) The nature and timing of reports and other communications.
(iii) The nature, size, complexity and history of client’s business.
(iv) The relevant statutory and regulatory requirements
(v) The accounting policies adopted by the client
(vi) The effect of new accounting and/or auditing standards on the audit.
(vii) The nature and significance of items in the financial statements.
(viii) The size and quality of audit staff required.
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(ix) The allocation of work between joint auditors, where applicable.
(x) The consideration for the involvement of experts.
(xi) The work of the internal auditor and the extent of the reliance to be
placed on his work.
(xii) The nature and extent of audit evidence to be obtained.
(xiii) The consideration for audit risk and specific audit areas.
(xiv) The degree of reliance that the auditor should place on the client’s
accounting and internal control systems.
(xv) Matters from previous years’ audit which are relevant for the current
year audit.
(xvi) The legal environment and the industry’s economic climate in which the
client operates.
(xvii) The involvement of other auditors within the group, where applicable.
(xviii) Updating knowledge for succeeding periods.
(xix) Changes in government’s policies and regulations affecting the client’s
business.
(xx) The audit and visit arrangements to branches and divisions.
(xxi) Existence, quality and size of audit committee and scope of its activities.
(xxii) Changes in the client’s professional advisors e.g. lawyers, bankers etc.
(xxiii) Supervision, direction and review of staff work
(xxiv) Other matters requiring auditors’ special attention

(c) The benefits of audit planning include the following:

(i) It ensures that the audit is properly controlled and adequately directed at
all stages.
(ii) It ensures that the audit objective is established and achieved.
(ii) It ensures that the audit work is efficiently and effectively completed at
minimum cost.
(iii) It ensures that adequate attention is focused on high risk and critical
areas of the engagement.
(iv) It facilitates review of audit work papers.
(v) It helps the auditor to obtain sufficient and appropriate evidence needed
for the audit.
(vi) It provides a record of the audit plan for future reference.
(vii) It provides an evidence of the circumstances resulting in the auditors
audit approach division.
(viii) It provides a disciplined framework for ensuring that all relevant matters
are considered during the audit planning.

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EXAMINERS’ REPORT

The question tests candidates’ knowledge on Audit Planning. About 80% of the
candidates attempted the question and performance was generally above average.

The commonest pitfall was that candidates’ comprehension was poor. Candidates
should strive to perform better by studying harder.

QUESTION 3

(a) Internal control is defined as:

“The process designed, implemented and maintained by those charged with

governance, management and other personnel to provide reasonable
assurance about the achievement of an entity’s objectives with regard to
reliability of financial reporting, effectiveness and efficiency of operations
and compliance with applicable laws and regulations.”

(b) The purposes of internal control are to ensure that:

(i) Transactions are executed in accordance with proper specific

authorization.
(ii) Access to assets is permitted only in accordance with laid down policy.
(iii) Errors and irregularities are avoided or otherwise made apparent.
(iv) All transactions are promptly recorded correctly as to amounts and
period in order to permit preparation of financial statements in
accordance with relevant legislations, regulations and standards.
(v) Recorded assets are compared with the existing assets at reasonable
intervals and appropriate action is taken with regards to
discrepancies.
(vi) Transactions are complete.
(vii) Assets are safeguarded.
(viii) Assets are stated at their current and fair values.

(c) Items expected to be contained in an Internal Control Questionnaire (ICQ) on

Fixed Assets include whether or not:

(i) Fixed assets register is maintained for each group item of fixed assets
(ii) Detailed ledger accounts are maintained for each item of fixed assets
(iii) Such records are balanced at least annually with general ledger
control accounts and reconciled with the fixed assets register
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(iv) There is a periodic physical verification of fixed assets
(v) The client has periodic appraisals for insurance and other reasons
(vi) There is a system of accounting for small tools
(vii) There are policies to account for capital expenditure, research and
development, and major repairs
(viii) The board authorises capital expenditure
(ix) There is a policy to differentiate between fixed assets additions and
repairs and maintenance
(x) There is a policy guiding disposal of replaced assets
(xi) There are procedures for accounting for disposals.
(xii) There is a procedure for accounting for the sales proceeds on disposal
(xiii) The records are kept in the computer system
(xiv) Documentation is adequate to record costs in the case of internally
built fixed assets
(xv) Gains or losses on disposals of fixed assets are properly recognised
and presented in the accounts
(xvi) The carrying costs in the financial statements are reasonably stated

EXAMINERS’ REPORT

The question tests “Internal Control”. About 90% of the candidates attempted the
question and the general performance was above average.

QUESTION 4

(a) An auditor can disclose information about his client without the client’s
consent when:
(i) Disclosure is permitted by law,
(ii) Disclosure is required by law,
(iii) Public duty demands it,
(iv) He has a professional or legal duty to disclose,
(v) He is compelled by a competent court of law to do so,
(vi) He has to comply with enquiries relating to the quality review of a
member,
(vii) He has to respond to an inquiry or investigation by a member’s
professional or regulatory body,

(viii) There is need to protect the professional interests of a Chartered

Accountant in legal proceedings.
(ix) He has to comply with technical standards and ethical requirements

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(b) The principle of professional competence and due care imposes the following
obligations on the Chartered Accountant:

(i) He is expected to maintain professional knowledge and skill at the

level required to ensure that clients or employers receive competent
professional services.
(ii) He is to act diligently in accordance with applicable technical and
professional standards when providing professional services.
(iii) He should exercise sound judgement in applying professional
knowledge and skill in the provision of services.
(iv) He is expected to continuously maintain high professional competence
by having a deep knowledge of the relevant professional and business
developments. He must develop himself by attending Mandatory
Continuing Professional Education (MCPE) programmes.
(v) He must be diligent and act in accordance with the requirements of
the assignment which he is expected to handle carefully, thoroughly
and on timely basis.
(vi) He must take every step to ensure that all those working under his
authority in a professional capacity have appropriate training and
supervision.

(c) The following are the ethical rules to be observed by auditors in handling
clients’ monies:

(i) The auditor is required to separate clients’ monies from his own. A
separate bank account should be opened where clients’ monies will
be lodged into without any delay.

(ii) Where many clients are involved, a single bank account should be
used for all of them but a ledger account should be maintained
showing what belongs to each client.
(iii) The bank must be informed as to the nature of the clients’ account
held and the bank cannot exercise the right of set-off against the
balance in the account of the firm.
(iv) The auditor cannot set-off disputed fees against the monies received
on behalf of the client.
(v) The auditor should use clients’ monies for their intended purposes
only.

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EXAMINERS’ REPORT

The question tests Code of Conduct “imposed” by the Institute of Chartered

Accountants of Nigeria. About 40% of the candidates attempted the question.
The performance of the candidates was below average.

The commonest pitfall was the inability of the candidates to understand the
requirements of the questions.

Candidates should study hard for the professional examinations.

QUESTION 5

(a) Forensic auditing is the application of accounting methods to the tracking

and collection of forensic evidence usually for investigation and prosecution
of criminal acts such as embezzlement or fraud. It is a type of professional
service which results from actual or anticipated disputes or litigation.

(b) Differences between financial audit and forensic audit include:

(i) Financial audit detects material misstatements while forensic audit

detects material fraud.
(ii) Financial audit depends on samples and rely on examination of audit
trail while forensic audit depends on examination of events and
activities behind the documents.
(iii) Forensic audit is learnt more from experience than from textbooks.
(iv) Financial audit is based on deduction while forensic audit is based on
intuition.
(v) The primary duty of the financial audit is to give audit opinion on true
and fair view on financial statements whereas the forensic audit
obtains evidence to be used for litigation proceedings.
(vi) Financial audit is statutorily required while forensic audit is not
required by any specific statue.
(vii) The responsibility of the financial audit is to the members of an entity
whereas that of the forensic audit is to the person who commissioned
it.
(c) Qualities of a Forensic Auditor

(i) He must have an investigative mind.

(ii) He must have a sound knowledge of investigation techniques and
investigative skills.
(iii) He must have a sound knowledge of law of evidence.

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(iv) He must be able to identify fraud with minimal initial information.
(v) He must possess the ability to communicate his findings in a language
that is understandable to a layperson.
(vi) He must have a good understanding of analysis and interpretation of
financial statements.

(d) Application of Forensic Audit

(i) Corporate Investigations

The forensic auditor assists in investigating allegations ranging from

kickbacks, wrongful dismissals and allegations of management or
employee wrongdoing.

(ii) Litigation Support

Forensic auditors assist in investigating and assessing the integrity

and amount relating to issues of loss of profit, construction claims,
product liability, breach of contracts and matrimonial disputes.

(iii) Criminal Matters

Forensic auditors serve as expert witnesses in cases of arson, fraud,

investment scams, and stock market manipulations.

(iv) Insurance Claims

Forensic auditors assess the integrity and quantum of insurance

claims under dispute.

(v) Government

Forensic auditors assist government to achieve regulatory compliance

by ensuring that organisations follow the appropriate legislations and
regulations.

EXAMINERS’ REPORT

The question tests candidates’ knowledge of forensic auditing. About 80% of the
candidates attempted the question and the general performance was good.

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QUESTION 6

(a) The three main aspect of computer security are:

i. Integrity

Data need to be processed completely and accurately. The auditor is

particularly concerned with controls which protect data from fraud
and error. A strong internal control system contributes to preserving
the integrity of data.

Factors which may compromise integrity of data include:

 poor custodial control of assets

 Unauthorised access to a system through terminals
 weak IT controls
 failure to check up reference when recruiting personnel
 personal financial pressure

ii. Confidentiality

Access to the computer needs to be restricted to authorised personnels

only so that the information stored inside the computer is not used for
personal or unauthorised purpose to the detriment of the company.

iii. Availability

Availability concerns the following:

 responsive time, that is, the delay between entering the data
and the computer response time.
 Back-up procedures in the event of loss or damage
 Fall back arrangements if the system becomes inoperatable.

(b) Major security threats in a computerised environment are:-

i. Hardware Damage
Hardware may be damaged or destroyed due to:
 Fire
 Flood incident
 Failure of power supply

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 Malfunctioning
 Unsupervised access by operators and other staff
 Dust, humidity
 Sabotage

ii. Computer Fraud

Computer fraud encompasses:

 The unauthorised gaining of access for the purposes of
defalcation and misappropriation.
 The production of financial information which is not derived
from authorised transactions i.e. misrepresentation.
 Unauthorised access to programs and data and use of computer
facilities i.e. misuse of resources.

iii. Hacking

Hacking is the practice of illegitimate modifying of computer

hardware and software. It involves the following:
 Obtaining confidential information in an unauthorised manner
 Committing fraud
 Causing disruption

iv. Viruses And Worms

Viruses are “hostile” or “malware” programs. They infect systems by

propagating themselves onto disks and through networks. Examples
are:” Acid, Alabama, Ada, Bomber Jerusalem, Shanker’s virus, Stoned.

v. Theft
Terminals, PCs, Laptops etc may be easily stolen for resale. Software
may be pirated for sale to a competitor or private use for financial
gain.

vi. Misuse of Information

Misuse of information obtained through unauthorised use of a
terminal, waste output or, unauthorised handling of printed output.

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vii. Sabotage

Sabotage means malicious destruction of hardware or programs and

data

viii. Programming Errors

The effect of programming errors which results in systematic

(repeated) errors may be highly damaging.

ix. Personnel Problems

High rate of labour turnover of computer staff, lack of motivation and

inadequate training.

x. Masquerading/Impersonation

This is where a person uses the identity of an authorised computer

user to gain access to a computer environment.

xi. Piggybacking

This is a method of gaining unauthorised access to electronically or

mechanically controlled/locked doors or sites by attaching to
authorised persons.

xii. Data Diddling/False Data Entry

This involves changing data before or during their input into the
computers. Anybody associated with or having access to creating,
recording, transporting, encoding, examining, checking, converting
and transforming data that ultimately enter the computer can change
these data.

EXAMINERS’ REPORT

The question test candidates’ understanding of computer security. About 30% of

the candidates attempted the question and performance was poor.

The commonest pitfall was that they showed shallow understanding of the
requirements of the question as outlined above.

Candidates are advised to pay more attention to this aspect of the syllabus.
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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

INTERMEDIATE EXAMINATION - MAY 2014

TAXATION
Time Allowed: 3 hours
SECTION A: PART I MULTIPLE-CHOICE QUESTIONS (20 Marks)

ATTEMPT ALL QUESTIONS IN THIS SECTION

Write ONLY the alphabet (A, B, C, D or E) that corresponds to the correct option in
each of the following questions/statements:

1. Which of the following statements best describes the main difference between
“taxes” and “levies”?

A. Levies are generic while taxes are computed on standard table

B. Levies are voluntary while taxes are compulsory
C. Taxes are restrictive and specific while levies are penalties and fines on
tax due but not paid
D. Taxes are contestable while levies are not contestable
E. Levies are fixed while taxes are calculated on specified rates

2. The following taxes and levies are imposed and collectible by the State
Government EXCEPT
A. Withholding Tax on individuals
B. Capital Gains Tax on individuals
C. Road Taxes
D. Business premises registration
E. Petroleum Profits Tax

3. The Annual Employers Returns and Tax Declaration are required by the
Personal Income Tax Act CAP P8 LFN 2004 (as amended) to be filed with the
relevant tax authority not later than

A. 31 March after the end of the year

B. 30 April after the end of the year
C. 31 January after the end of the year
D. 28 February after the end of the year
E. 31 May after the end of the year

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4. The following are the functions of the Technical Committee of the State Board
of Internal Revenue EXCEPT
A. Harmonise tax administration in the state
B. Attend to other matters that, from time to time, may be referred to it by
the Board
C. Have powers to co-opt additional staff from within the State Service in
the discharge of its duties
D. Advise the State Board on all its powers and duties
E. Consider all matters that require professional and technical expertise
and make recommendations to the State Board

5. The Personal Income Tax (Amendment) Act, 2011, states that Consolidated
Relief Allowance shall be

A. N200,000 or 1% of the gross income whichever is higher

B. N200,000 or 1% of the gross income whichever is lower
C. N200,000 or 1% of the gross income whichever is higher plus 20% of the
gross income
D. N200,000 or 1% of the gross income whichever is higher plus 30% of the
gross income
E. N200,000 or 1% of the gross income whichever is higher plus 10% of the
gross income

6. When a person dies and leaves no valid will, he is said to have died
A. Intestament
B. Intestate
C. Intrust
D. Intestator
E. Intrustee

7. The following are tax exempt items under the Personal Income Tax
(Amendment) Act 2011, EXCEPT
A. Consolidated Relief Allowance
B. National Housing Fund contribution
C. National Health Insurance Scheme
D. Life Assurance Premium
E. Gratuities

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8. The assessment raised at the discretion of the tax authority where no tax
returns have been filed after the due date is
A. Provisional assessment
B. Additional assessment
C. Administrative assessment
D. Special assessment
E. Self assessment

9. In June 2013, goods were sold (VAT exclusive) to its final consumers for
N800,000 by ASEYE Enterprises. ASEYE Enterprises had in May 2013 paid
N620,000 to the supplier of its major inputs, who is also a registered vatable
person.

What is the amount of VAT payable to the relevant tax authority by ASEYE
Enterprises?

A. N7,095
B. N8,571
C. N10,476
D. N31,000
E. N180,000

10. The unrelieved loss that cannot be carried forward upon cessation of business
is known as
A. Carried forward loss
B. Final loss
C. Cessation loss
D. Back duty loss
E. Terminal loss

11. For how many years can unrelieved capital allowances in the year of cessation
be carried back and set off against profits of preceding years under the
Companies Income Tax Act CAP C21 LFN 2004?
A. 2 years
B. 3 years
C. 4 years
D. 5 years
E. 6 years

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12. The difference between the total income and the allowable expenses of an
Estate, Trust or Settlement is known as
A. Computed income
B. Trust income
C. Gross income
D. Net income
E. Reserved income

13. The abridged Statement of Comprehensive Income of Alhaji Adamu, proprietor

of Solomon Adamu Trading Enterprises for the year ended 31 December, 2013
was as shown below:

N N
Gross Profit for the year 520,000

Less Expenses:
Deprecation 28,000
Legal expenses (income tax appeal) 5,000
Donation to XYZ political party 3,000
Other allowable expenses 300,000
336,000
Net profit 184,000

What is the adjusted profit?

A. N184,000
B. N212,000
C. N215,000
D. N217,000
E. N220,000

14. Minimum tax is NOT applicable to a company where

A. It is carrying on agricultural business

B. At least 25% of its equity is imported
C. The company has not been in operation for more than four years from its
commencement of business
D. At most 25% of its equity is imported
E. (A), (B) and (C) above

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15. Stamp duties are administered by the

A. Commissioner of Stamp Duties

B. Minister of Stamp Duties
C. Director of Stamp Duties
D. Governor General of Stamp Duties
E. Controller General of Stamp Duties

16. Tertiary Education Tax currently applicable to companies, under the Tertiary
Education Trust Fund Act, 2011 is 2% of

A. Total Profit
B. Gross Profit
C. Assessable Profit
D. Adjusted Profit
E. Net Profit After Tax

17. Under the Companies Income Tax Act CAP C21 LFN 2004, penultimate year of
assessment is peculiar to

A. Commencement of business
B. Change in accounting date
C. Dissolution of partnership
D. Loss relief
E. Cessation of business

18. What is the rural investment allowance rate where a company provides only
water for its own use?

A. 100%
B. 50%
C. 30%
D. 15%
E. 5%

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19. Mark Limited purchased a machine in July 2009 for N1,580,000 and the
machine was sold on 28 September, 2012 for N850,000 while the tax written
down value as at the time of the disposal was N97,500.
What is the balancing adjustment?

A. Balancing allowance of N653,000

B. Balancing charge of N752,500
C. Balancing allowance of N1,383,000
D. Balancing charge of N1,383,000
E. Balancing charge of N197,000

20. Within how many days will any excess withholding tax be refunded by the
Federal Inland Revenue Service (FIRS) in accordance with the provisions of
the Companies Income Tax Act CAP C21 LFN 2004?

A. 20 days
B. 15 days
C. 10 days
D. 90 days
E. 30 days

SECTION A: PART II SHORT-ANSWER QUESTIONS (20 Marks)

ATTEMPT ALL QUESTIONS IN THIS SECTION

Write the answer that best completes each of the following questions/statements:

1. Any company which incurs qualifying capital expenditure costing N500,000 or

more should obtain a certificate known as ......................... from the
Inspectorate Division of the Federal Ministry of Industries.

2. An employment, the duties of which are wholly performed outside Nigeria

save during any temporary visit of the employee to Nigeria is ........................

3. Which formula must precede an Excel calculation in an electronic spreadsheet

presentation?

4. What is the statutory time limit stipulated by the Companies Income Tax Act
CAP C21 LFN 2004 for filing the names and addresses of new customers by
Banks?

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5. How many members of the Joint Tax Board or their representatives must be
present to constitute a quorum for a meeting?

6. State any TWO conditions that make a tax assessment final and conclusive.

7. A tax estimate based on the tax paid by the taxpayer in the preceding year of
assessment is ...........................

8. A person who receives an Annuity which may be charged on income of an

Estate, Settlement or Trust is referred to as..........................

9. The TWO types of loss reliefs available to a taxpayer who incurs a loss in the
course of normal trading activities are .................... and .........................

10. What is the treatment of stamp duties on an increase in share capital in the
determination of adjusted profit of a business enterprise?

11. When there is a gap between basis periods in a change of accounting date
scenario, which year is the gap deemed to belong to, for purpose of capital
allowances calculation?

12. Adeola Enterprise is registered for VAT purposes. Goods worth N100,000 were
sold in March 2014. The organisation also granted discount of 2½% to its
customers. What is the invoice amount?

13. Under the Pay As You Earn (PAYE) scheme, an employer shall within
........................ of commencement of business deduct tax from emoluments of
his employees and remit same to the relevant tax authority.

14. Dividend received by a Nigerian company from another Nigerian company

after deduction of withholding tax is referred to as .......................

15. What is the time limit within which the right of election previously exercised
can be revoked?

16. Given that Capital Allowance is N824,000, total profit is N17,176,000 and
Assessable Profit is N18,000,000, what is the Tertiary Education Tax payable?

17. Assuming that Egoli Nigeria Limited paid a dividend of N60 million while its
total profit for 2013 assessment year (based on the accounts to 31 December,
2012) was N46 million.
What is the tax liability of the company in 2013 assessment year?

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18. A backduty assessment can be carried out by the relevant tax authority on a
taxpayer within ....................... years before the year of examination.

19. Under the Stamp Duties Act, with reference to instruments not under seal,
another meaning of the words “Executed” and “Execution” are ...................
and ........................

20. The Tax Written Down Value on disposal of plant amounted to N950,000,
while sales proceeds amounted to N1,450,000. The difference of N500,000
resulting from this transaction is a ...........................

SECTION B: ATTEMPT ANY FOUR QUESTIONS IN THIS SECTION (60 Marks)

QUESTION 1

“A corporate tax payer carrying on an existing business is required by Companies

Income Tax Act CAP C21 LFN 2004 to file its self-assessed income tax return and
pay, in one lump sum, on the due date of filing the return”.

When a company fails to perform its statutory obligations as spelt out above within
the statutory time allowed, the Companies Income Tax Act empowers the Federal
Inland Revenue Service to enforce payment and/or recover the tax due.

You are required to:

Enumerate and discuss any FOUR steps/measures the relevant tax authority is
allowed by law to adopt in recovering the unpaid tax. (15 Marks)

QUESTION 2

a. Bibilari Nigeria Limited commenced business on April 1, 2008 and has made
available the following adjusted profits for the respective years:
N
Seven months ended 31/10/2008 70,000
Year ended 31/10/2009 240,000
Year ended 31/10/2010 180,000
Year ended 31/10/2011 135,000
Period ended 31/12/2012 260,000
Year ended 31/12/2013 240,000

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You are required to:

Compute the assessable profits for all the relevant tax years assuming that
the company takes advantage of any option available to it to minimise its tax
liability. (10 Marks)

b. In the context of withholding taxes, not all dividends paid by a Nigerian

company suffer withholding taxes.

You are required to:

List any FIVE dividends that are exempt from tax in Nigeria. (5 Marks)
(Total 15 Marks)

QUESTION 3

a. State any THREE conditions that must be met before donations can be
allowed as an expense. (3 Marks)

b. Mrs. Eloho Ola, who resides in Lagos, has been trading for several years.
The Statement of Comprehensive Income of her business for the year ended
31 December, 2012 is as shown below:
N N
Gross Profit 1,040,100
Profit on sale of vehicle 36,030
1,076,130
Less: Expenses
General administration 56,250
Staff salaries 198,600
Stationery and printing 29,370
Postage and telephone 23,640
Electricity 74,540
Entertainment 41,640
Vehicle repairs and maintenance 55,200
Bank charges 8,440
Donations 12,540
Periodical and technical journals 3,000
Audit and accountancy fee 36,300
Defalcation and embezzlement 20,000
Repairs and renewals 38,820
Depreciation 12,210
VAT paid on equipment 2,020
Bad and doubtful debts – Specific 17,533
(630,103)
Net Profit 446,027
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You are provided with the following additional information:

(i) Legal expenses of N36,300, which was included in staff salary but
related to capital items
(ii) Donations were to a local charity. None of her employees benefited
from it
(iii) She agreed with the Inspector of Taxes that one quarter of vehicle
repair and maintenance related to private use
(iv) Further examination of accounts revealed that salary of N36,360 was
paid to an unknown person
(v) The Manager (Finance) perpetrated 75% of the defalcation
(vi) Allowable expenses of N23,000 have been omitted from the accounts
(vii) Repairs and renewals comprised of:

Partitioning of new office 13,520

Repairs to plant and machinery 17,635

Repairs of the roof of the old office 7,665

38,820

(viii) Agreed capital allowance on qualifying capital expenditure was

N13,500.

You are required to:

Compute the income tax payable for the relevant tax year. Ignore capital gains tax
computation. (12 Marks)
(Total 15 Marks)

QUESTION 4

Mr. Jonathan Ekpudu retired from the Public Service of Edo State Government on 31
March, 2012. He subsequently secured employment with a public limited company
based in Abeokuta, Ogun State, on 1 July, 2012 as Human Resources Manager.

The following information has been provided by Mr Ekpudu:

(i) Salary - 1 January to 31 March, 2012: N180,000 per month.

(ii) Salary - new employment: N1,320,000 per annum

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(iii) Pension income effectively from 1 April, 2012: N360,000 per annum
(iv) Transport allowance-new employment: N40,000 per annum
(v) Rent allowance - new employment: N120,000 per annum
(vi) Contributions to the National Housing Fund and National Pension Scheme:
2½% and 7½% of consolidated gross income respectively.
(vii) Rental income received (Gross)
N
- 3/3/2011 12,235
- 9/8/2011 24,226
- 20/7/2010 15,200
- 2/12/2010 7,800

(viii) Mr. Ekpudu is married and has four children, aged between 10 months and
19 years. All except one, named Junior aged 19 years are still in school.
Junior is however unemployed.

(ix) Mr. Ekpudu has a life assurance policy on his eldest son, Junior, with sum
assured of N500,000 and annual premium of N35,000.

(x) His aged parents live with him. They have no income of their own.

You are required to:

Compute the personal Income tax payable by Mr. Ekpudu for 2012 year of
assessment. (Total 15 Marks)

QUESTION 5

a. The global income statement of Safety First Airways Limited, a foreign airline
operating into Nigeria for the year ended 31 December, 2013.

N’000 N’000
Transportation Income:

Income from passengers, cargo and

mails:
Income derived outside Nigeria 62,000,000
Income derived in Nigeria 2,000,000 64,000,000

Less: Transportation Expenses:

Salaries and other expenses 46,000,000
Depreciation 6,400,000
Other expenses not allowed 3,600,000 (56,000,000)

Net Transportation Profit 8,000,000

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Other Income:

Income from properties (Net) 500,000

Income from maintenance (Net) 1,000,000
Income from duty free shops (Net) 1,000,000
Income from catering (Net) 1,500,00 (4,000,000)
Net profit 12,000,000

You are required to:

Determine the tax payable in Nigeria by Safety First Airways Limited

(9 Marks)
b. In relation to Companies Income Tax Act, explain briefly the following:

(i) Back Duty Assessment (2 Marks)

(ii) Service of Notice of Assessment (2 Marks)
(iii) Final and Conclusive Assessment (2 Marks)
(Total 15 Marks)

QUESTION 6

a. Stamp duty is levied on most legal instruments. You are required to list any
THREE instruments that are required by law to be stamped and any TWO
instruments that are specifically exempted. (5 Marks)

b. (i) Explain briefly any TWO benefits of the system of Value Added Tax (VAT).
(2 Marks)
(ii) State any THREE goods and services exempted from VAT. (3 Marks)

c. List any FIVE offences prescribed by the provisions of Part V of the Value
Added Tax Act 2007 (as amended) and state the respective penalties
applicable to liable taxable persons. (5 Marks)
(Total 15 Marks)

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SOLUTIONS TO SECTION A

PART I MULTIPLE-CHOICE QUESTIONS

1. C
2. E
3. C
4. A
5. C
6. B
7. A
8. C
9. C
10. E
11. D
12. A
13. E
14. D
15. A
16. C
17. E
18. C
19. B
20. D
Workings N

9. VAT output 40,000

(5% of N800,000)
Less: VAT input 29,524
(5/105 x 620,000)
VAT payable 10,476

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N N

13. Net profit per accounts 184,000

Add: Disallowable expenses:
Depreciation 28,000
Legal expenses 5,000
(income & appeal)
Donation to XYZ political party 3,000 36,000
Adjusted Profit 220,000
19. N
Sales proceeds 850,000
Tax written down value (97,500)
Balancing charge 752,500

NOTE: Balancing charge restricted to the total

capital allowance previously claimed of (N1,580,000 – N97,500)
= N1,482,500
EXAMINERS’ REPORT

The questions test the candidates’ understanding of the various areas of the
syllabus.

Candidates demonstrated fair understanding of the questions and performance was

average. The commonest pitfall was the inability of the candidates to understand
the basic principles of taxation.

It is recommended that candidates should read widely.

PART II SHORT-ANSWER QUESTIONS

1. Acceptance Certificate
2. Foreign employment
3. = (Equal to)
4. 7 days
5. Seven members or their representatives
6. (i) No valid objection or appeal has been lodged
(ii) Total profit has been agreed with the tax payer
(iii) Total profit has been determined by the Tax Appeal Tribunal
7. Provisional Assessment

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8. An Annuitant
9. Current year loss relief and Carry forward loss relief
10. Disallowed as an expense
11. The gap is deemed to form part of the latter year of assessment
12. N102,375

13. 6 months

14. Franked Investment Income

15. Twelve (12) months after the end of third year of assessment

16. N360,000

17. N18 million (i.e. 30% of N60 million)

18. Six (6)

19. Signed and Signature

20. Balancing charge

Workings

Q12 N

Sales proceeds 100,000

Less: Discount (2½%) 2,500
97,500
Add: 5% VAT 4,875
Invoice amount 102,375

Q16

2% of assessable profit = 2% x N18,000,000

= N360,000

Q17

30% x 60,000,000 = N18,000,000

EXAMINERS’ REPORT

The short-answer questions test candidates’ understanding of basic principles of

taxation.
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Candidates demonstrated fair understanding of the questions and performance was

average. The commonest pitfall was the inability of the candidates to understand
the basic principles of taxation.

It is recommended that candidates should read widely in order to perform well.

SOLUTIONS TO SECTION B

QUESTION 1

If payment of any tax due is not made within the time limit as specified by the
demand notice, the relevant tax authority may for the purpose of enforcing
payment of tax due:

a. Raise final demand notice;

b. Issue second notice reminding the tax payer of the power to distrain;
c. Exercise power of distrain on the tax payer’s properties; and
d. Approach the Court to enforce payment.

Demand Notice

This is a notice from the relevant tax authority requesting the tax payer to pay the
amount outstanding. This notice addresses the fact that non payment by the tax
payer would leave the tax authority with no choice than to take further measures in
ensuring the recoverability of such tax.

Notice of Power to Distrain

The law allows the relevant tax authority to take further steps in ensuring the
recoverability of its tax by informing the tax payer of its power by the relevant Act
to distrain on such tax payer’s properties, should the failure to pay persists.

Distrain on taxpayer’s properties

Subject to the provisions of S.96, the tax authority will recover the amount of tax
due by sale of anything distrained. The authority to distrain under this section
shall be in such form as the relevant tax authority may direct, and that authority
shall be sufficient warrant and authority to levy by distress the amount of tax due.

Things distrained under this section may, at the cost of the taxable person, be kept
for fourteen days and at the end of that time, if the amount due in respect of the tax
and the cost and charges of and incidental to the distress are not paid, they may be
sold at any time thereafter.
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Approach the Court

If the sale of distrained properties is not enough to recover in full the liability of a
tax payer, the relevant tax authority can further approach the court for enforcement
of the outstanding balance.

EXAMINERS’ REPORT

The question tests candidates’ understanding of the measures that can be adopted
in recovering unpaid taxes.

Most of the candidates do not understand those measures that can be adopted and
performance was below average. The commonest pitfall was measures proffered
by the candidates which were contrary to the provisions of the Act.

Candidates are advised to cover the syllabus adequately and pay attention to the
various provisions of tax laws.

QUESTION 2

a. Bibilari Nigeria Limited

Computation of Assesable Profits
for all Relevant Years of Assessment

Tax payer’s right of election

Assessable
profits
1/4/08 - 31/12/08 N N
2008
1/4/08 - 31/10/08 70,000
1/11/08 - 31/12/08 = 2/12 x 240,000 40,000 110,000
1
2009 PYB (1/4/08 - 30/3/09)
1/4/08 - 31/10/08 70,000
1/11/08 - 30/3/09 = /12 x 240,000
5

1 100,000
(a) 170,000
2010 PYB (1/11/08 - 31/10/09) (b) 240,000
(a) + (b) 410,000

2009 Actual (1/01/09 - 31/12/09)

1/1/09- 31/12/09 =10/12x N240,000 = 200,000
1
1/1/09- 31/12/09=2/12 x N180,000 = 30,000
1 (a) 230,000 230,000

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Actual (1/1/10 - 31/12/10)

2010
1/1/10 - 31/10/10 = 10/12 x 180,000 = 150,000
1
1/11/10 - 31/12/10 =2/12 x 135,000 = 22,500
1 (b) 72,500
172,500
(a) + (b)
402,500
Bibilari Nigeria Limited will prefer to be assessed to tax in 2009 and 2010
years of assessment based on the actual year basis because doing that will
minimise its tax liabilities for those years.

Old Date
2011 1/11/09 - 31/10/10 180,000
2012 1/11/10 - 31/10/11 135,000
2013 1/11/11 - 31/10/12 = 12/14 x 260,000 222,857
1
2014 1/11/12 - 31/10/13
1/11/12 - 31/12/12 =2/14 x 260,000 37,142.85
1
1/1/13 - 31/10/13 = 10/12 x 240,000 200,000
1
237,142.85
Total 595,000.85

New Date
2012 1/1/11 - 31/12/11
1/1/11 - 31/10/11 = 10/12 x 135,000 112,500
1
1/11/11 - 31/12/11 = 2/14 x 260,000 37,143
1 149,643

2013 1/1/12 - 31/12/12 = 12/14 x 260,000 222,857

1
2014 1/1/13 – 31/12/13 240,000
612,500
Bibilari Nigeria Limited will be assessed to tax in 2012, 2013 and 2014 years
of assessment based on the new date because that will generate higher tax
returns to the Revenue for those years.

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Summary
Year of Assessment Assessable Profits
N
2008 110,000
2009 230,000
2010 172,500
2011 180,000
2012 149,643
2013 222,857
2014 240,000

b. The following dividends are tax exempt:

(i) Dividends distributed by unit trusts

(ii) Dividends distributed by companies subject to petroleum profit tax
(iii) Dividends distributed by small manufacturing companies
(iv) Dividends distributed by export oriented companies
(v) Dividends distributed by pioneer companies
(vi) Dividends distributed by gas utilization companies
(vii) Bonus shares
(viii) Capital distributions made by a liquidator of a company in the process
of winding up

EXAMINERS’ REPORT

The question tests candidates’ understanding of the provisions of the law and the
practices of the Revenue relating to commencement and change of accounting
date.

Candidates demonstrated a better understanding of part (a) of the question than

part(b). Performance was average. The commonest pitfall was the inability of the
candidates to apply the provisions of the law on commencement of business and
change of accounting date.

Candidates are advised to pay attention to areas regarding the treatment of

abnormal basis period situations.

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QUESTION 3

The conditions for a donation to be allowed as an expense are as follows:

(a) (i) It must be made to a body or institution approved by the Joint Tax
Board
(ii) It must not be of capital in nature.
(iii) It must be made out of profit.
(iv) It must not exceed 10% of the chargeable profit.
(v) It is not for a valuable consideration.

(b) Mrs Eloho Ola

Computation of Adjusted Profit
For the year ended 31 December 2012

N N
Net Profit as per accounts 446,027
Add Back: Disallowable items
Legal expenses 36,300
Vehicle repairs and maintenance (1/4 x N55,200) 13,800
Salary paid to unknown person 36,360
Defalcation (75% of N20,000) 15,000
Donation to unapproved body 12,540
Repairs and renewals 13,520
Depreciation 12,210
VAT paid on equipment 2,020 141,750
587,777
Deduct: Non-taxable items:
Profit on disposal of vehicles 36,030
551,747
Deduct: Allowable expenses omitted in the accounts 23,000
Adjusted profit 528,747

Mrs Eloho Ola

Computation of Income Tax payable
For 2012 Tax Year
N
Adjusted Profit 528,747
Less: Capital allowances 13,500
Gross Income 515,247
Less: Reliefs and allowances:
Consolidated relief allowance
N200,000 or 1% of gross income,
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whichever is higher, plus 20% of gross income,

= N200,000 + N103,049.40 = (303,049)

212,198
Income tax payable
7% of N212,198 = N14,854
Minimum tax liability (1% of gross income) = N5,152.47

EXAMINERS’ REPORT

The questions test candidates’ understanding of the adjustment of profit or loss

account submitted by taxpayer for assessment.

Candidates demonstrated poor understanding of the question. The commonest

pitfall was the inability of the candidates to differentiate between taxation of
individuals and that of companies.

Students are advised to ensure adequate coverage of the syllabus.

QUESTION 4

Mr. Jonathan Ekpudu

Computation of Personal Income Tax Payable
For 2012 Tax Year
N N
Consolidated Gross Income:
Salary (old employment) 540,000
Salary (new employment) 6/12 x N1,320,000 660,000
Transport Allowance (6/12 x N40,000) 20,000
Rent Allowance ((6/12 x N120,000) 60,000
Rental Income (N12,235 + N24,226) 36,461
Gross Income 1,316,461
Deduct: Reliefs and allowances
Consolidated Relief Allowance 463,292
(N200,000 + 20% of N1,316,461)
National Housing Fund Contribution 32,912
(2½% of N1,316,461)
Pension Scheme Contribution 98,735
(7½% of N1,316,461) 594,939
Chargeable Income 721,522

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Income tax payable

N
1 300,000 @ 7% =
st
21,000
Next 300,000 @ 11% = 33,000
18,228 Note:
Pension
Next N121,522 @ 15% =
income is tax
721,522 72,228
(3,646) exempt (See
Less WHT on Rental Income (10% of N36,461) section 14(1)
Personal Income Tax payable by Mr. Okpudu is 68,582 of Personal
Income Tax
(Amendment) Act, 2011.

EXAMINERS’ REPORT

The question tests candidates’ understanding of the taxation of employment

incomes.

Most candidates attempted this question and performance was just average. Many
candidates did not understand the provisions of the Personal Income Tax
Amendment Act of 2011 which were examined in this question.

Candidates are advised to be familiar with the provisions of the new law.

QUESTION 5

Safety First Airways Limited

Determination of the Tax Payable for 2014 Year of Assessment
N
Nigerian Income 2,000,000,000
Total Assessable Profit
28.125% x N2,000,000,000 562,500,000
Less: Depreciation Allowance
10% x 2,000,000,000 200,000,000
Total profit 362,500,000

Tax liability @ 30% 108,750,000

Minimum tax liability (2% of Nigerian income) = N40,000,000

Note: Income tax payable by the company is N108,750,000, since this amount is
higher than the minimum tax.

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Workings

i. Calculation of the Adjusted profit on transportation business.

N’000
Net transportation profit per accounts 8,000,000
Add back: Depreciation 6,400,000
Other disallowed expenses 3,600,000
18,000,000

ii. Computation of statutory ratios.

(a) Adjusted profit ratio:
= 18,000,000 x 100 = 28.125%
64,000,000 1
(b) Depreciation ratio:
= 6,400,000 x 100 = 10%
64,000,000 1

(b)(i) Back Duty Assessment

Back duty assessment becomes applicable where a tax payer or its

representative has committed fraud, wilful default or neglect in connection
with the tax assessed on it. In this instance, the Federal Inland Revenue
Service is empowered to assess such a company to additional tax in order to
make good any loss attributable to the fraud, wilful default or neglect.

(ii) Service of Notice of Assessment

Notice of Assessment shall be served by Federal Inland Revenue Service

through registered post to any company or person by whose name a
company is chargeable and such notice of assessment must show:
- amount of total profits
- the tax payable
- the place at which such tax should be paid

(iii)Final and Conclusive Assessment

An assessment shall be final and conclusive where:

- No valid objection has been raised or lodged against the total profits
assessed within the statutory time allowed.
- Total profits have been agreed by the tax payer and the Revenue
- Total profits have been determined on appeal.

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EXAMINERS’ REPORT

The questions test candidates’ knowledge of the provisions of the law relating to
the taxation of airline businesses and other provisions of the Companies Income Tax
Act.

Candidates demonstrated poor understanding of the questions and performance

was below average.

The commonest pitfall was the inability of the candidates in understanding the
provisions relating to special businesses.

Candidates are advised to cover the area of special businesses for future
examinations.

QUESTION 6

Instruments that are required by law to be stamped include the following:

a. i. Agreements
ii. Awards
iii. Bonds
iv. Leases
v. Receipts
vi. Contract notes
vii. Bill of lading
viii. Duplicates and counterparts
ix. Marketable securities
x. Mortgages
xi. Notarial acts
xii. Policies of insurance
xiii. Settlements
xiv. Shares certificates
xv. Appraisement
xvi. Warrants for goods
xvii. Conveyances of sale
xviii. Capital of companies
xix. Exchange partition
xx. Instrument of apprenticeship
xxi. Bank notes, bills of exchange and promissory notes

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The following are also specifically exempted from stamp duty:

i. Instruments relating to reconstruction and amalgamation.

ii. Instruments relating to agreements between the federal government
and other foreign governments.
iii. Transactions and sales of properties of a company under liquidation
arising from a compulsory winding up by a court or a creditors
voluntary winding up.

b.(i) Benefits of Value Added Tax

 VAT is a tax on spending and it is very easy to collect.

 VAT base is broader and includes most professional services and
banking transaction which were earlier not covered by the former
sales tax
 Sources of additional revenue to the government.
 A considerable portion of tax realised on VAT is from imported goods.
This means that locally manufactured goods will not be placed at a
disadvantage.
 Fairness is achieved, since one will pay in accordance with the level of
consumption.

ii. Goods exempted from VAT

 Medical pharmaceutical products

 Basic food items
 Books and educational materials
 Newspaper and magazines
 Baby products
 Commercial vehicles and their spare parts
 Agricultural equipments and products, fertilizer and vetenary
medicine.
 Plant, machinery and goods imported for use in the Export Processing
Zone or Free Trade Zone.
 Plant, machinery and equipment purchased for utilization of gas in
downstream petroleum operations
 Tractors, ploughs and agricultural purposes
 Oil exports

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iii. Services Exempt

 Medical services
 Services rendered by micro-finance and mortgage institutions
 Plays and performances conducted by educational institutions as part
of leaving
 All exported services

c. Offences and Penalties

OFFENCES PENALTY
(i) Failure to register Payment of N10,000 for 1st month and
N5,000 for each subsequent month the
failure continues
(ii) Failure to make attribution or Payment of N5,000
having done so, failure to
notify FIRS
(iii) Failure to notify change of Payment of N5,000
address within one month of
such change.
(iv) Failure to keep records and Payment of N2,000 every month the failure
accounts continues.
(v) Failure to collect tax Payment of 150% of tax not collected plus
interest of 20% flat in practice
(vi) Failure to submit returns Payment of N5,000 for every month failure
continues
(vii) Furnishing of false statement On conviction, fine of twice amount falsely
and document declared
(viii) Evasion of VAT On conviction, a fine of N30,000 or twice
the amount of tax evaded whichever is
greater or imprisonment for a term not
exceeding three years.
(ix) Failure to issue tax invoice for On conviction, a fine of 50% of cost of goods
goods sold or services for which no invoice was issued.
(x) Resisting, hindering and On conviction, a fine of N10,000 or
obstructing officer from imprisonment for a term of six months or
performing their duty or both
inspection
(xi) Unauthorized/registered On conviction, a fine of N10,000 or
person issuing tax invoice imprisonment for a term of six months
(xii) Aiding and abetting the On conviction, a fine of N50,000 or
commission of any of the imprisonment for a term of five years
above offences
(xiii) Joint commission of an offence The officers will be punished as if he
by principal officers of a committed the offence by him/herself unless
company proved that it was without him/her
knowledge
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EXAMINERS’ REPORT

The question tests candidates’ knowledge of the provisions relating to Value Added
Tax (VAT) and stamp duties.

Candidates demonstrated a fair understanding of the question and performance

was average.

The commonest pitfall was their inability to relate penalties to offences in these
areas.

Candidates are advised to undertake a comprehensive study of VAT and stamp

duties.

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

INTERMEDIATE EXAMINATION - MAY 2014

BUSINESS COMMUNICATION & RESEARCH METHODOLOGY

Time Allowed: 3 hours

SECTION A: PART I MULTIPLE-CHOICE QUESTIONS (20 Marks)

ATTEMPT ALL QUESTIONS IN THIS SECTION

Write ONLY the alphabet (A, B, C, D or E) that corresponds to the correct option in
each of the following questions/statements:

1. The following are features of ‘grapevine communication’ EXCEPT

A. Speedy transmission of information

B. Transmission of unconfirmed information
C. Evidence-based transmission of information
D. Transmission of rumour with basis in fact
E. Serving as source of feedback to management

2. When a person who does not stammer starts stammering while delivering a
speech, he is said to be affected by ONE of the following

A. Non-verbal communication
B. Overwhelming emotions
C. Stage fright
D. Hostile audience
E. Lack of preparation

3. Which of the following is NOT appropriate for a person delivering a speech on

a stage to use?

A. Podium
B. Examples in vernacular
C. Code switching
D. Glowing jewellery
E. Code mixing

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4. A factory worker sought clarification from his supervisor on a given job

description. What type of communication is involved in this encounter?

A. Upward
B. Downward
C. Horizontal
D. Informal
E. Grapevine

5. To which of the following do organizations transmit information?

A. Audience
B. The environment
C. Upward, downward and horizontal receivers
D. Internal and external publics
E. All channels and networks

6. Which of the following is suitable for information exchange on the vertical

channel?

A. Microsoft works
B. Microsoft work
C. Database
D. The internet
E. The intranet

7. Which of the following will NOT make an effective electronic presentation of a

report?
A. Knowledge of power point presentation
B. Use of illustrations
C. Extemporaneous delivery
D. Ability to surf the internet
E. Speaking to your prepared material

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8. Mr. Okaka is testing a hypothesis on the number of years spent by an

employee and the sales generated. The test statistic values obtained are
r=0.8325, r2=0.6931, tcritical=2.228 and tcal = 4.752. Mr. Okaka’s decision is

A. Reject the null hypothesis

B. Accept the null hypothesis
C. Accept the alternate hypothesis
D. Reject alternate hypothesis
E. Reject at significance level

9. In the linear regression equation of the form Y = 0 + X + .

0
1
The value of

o +  X is
1

A. Linear regression
B. Linear component
C. Linear correlation
D. Linear error
E. Random error

10. Ajagbe Ejo & Company applied regression to the profit and sales (measured in
N’m) of the company for one year to obtain y = 2.5 + 0.0048x. This implies
that

A. The average profit is increased by 0.0048 million

B. The average profit is less by 0,0048 million
C. The average profit is more than 0.0048 million
D. The average profit is exactly 0.0048 million
E. The average profit forfeited is 0.0048 million

11. A random sample of size 16 was selected from the audit books which gives
mean value of 510 and standard deviation 45. Compute the t-test variate
given that  = 540.

A. - 1.67
B. 2.67
C. - 3.67
D. 0.67
E. 3.67

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12. A standardized method of acknowledging relevant sources of information and

ideas some of which may not have been cited in a report is

A. Reference
B. Appendix
C. Bibliography
D. Acknowledgment
E. Citation

13. Which of the following is NOT a part of a bibliography?

A. Author’s name
B. Title of work
C. Place of publication
D. Pagination
E. Author’s title

14. Which of the following is a major feature of referencing?

A. Details are sectionalized and arranged in sequence

B. Appears only once in the entire work and at the end of the report
C. Cites work for background and further readings
D. Citations are listed in alphabetical order by the surname of the first
named author
E. All works in each section are arranged alphabetically and numbered
serially

15. The following are reasons for referencing a research work EXCEPT

A. Verification of quotations
B. Avoidance of plagiarism
C. For follow-up
D. Acknowledgment of relevant sources
E. Emphasizing author’s style

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16. Which of the following elements is NOT contained in the APA referencing
format of a journal article?
A. Author of article
B. Year of publication
C. Volume number
D. Issue number
E. Place of publication

17. Which of the following is NOT an attribute of a good report?

A. Clarity and conciseness

B. Factual and objective
C. Based on controvertible facts
D. Provides direction for decision making
E. Contains statement of findings in non-technical language

18. Reports are often referred to as the following EXCEPT

A. Internal written communication
B. Specialized professional writings
C. Account of an allegation investigated
D. Materials gathered during an interview
E. Formal statements of results of proposals

19. Which of the following is a method of presenting the outcome of a research?

A. Visual presentation
B. Correlation coefficient
C. Coefficient of determination
D. Descriptive analysis
E. Random sampling

20. Which of the following is NOT included in the preliminary section of a research
report?

A. List of figures
B. Dedication
C. Table of contents
D. Bibliography
E. Abstract

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SECTION A: PART II SHORT-ANSWER QUESTIONS (20 Marks)

ATTEMPT ALL QUESTIONS IN THIS SECTION

Write the answer that best completes each of the following questions/statements:

1. A portable device whose hard drive is a repository of books which can be

accessed in electronic format for report writing is known as ….......................

2. The sending of identical messages to a vast audience, a large number of

people in varying distances is known as..........................

3. In an organisation in which departments are deeply divided and built into

personal empires, cooperation becomes difficult and communication in the
........................ channel is hindered.

4. Hoarding of information and crisis are factors that stimulate communication

in the ...................... channel.

5. The situation in which an occurrence gives rise to the idea to be

communicated and sensitizes the sender to the need to communicate is known
as ...........................

6. The project manager at the site of a refinery construction project who plans to
travel in six months time but wants to show the extent of work done at the
moment would write a ....................... report to the financiers of the project.

7. The type of noise that results from acute toothache that disorients the receiver
is ..................... noise.

8. A statistical test that is used to determine the goodness of fit and test of
independence is known as ….........................

9. The aggregate dispersion of the individual data values across the various
factor levels is known as ..........................

10. The dispersion among the factor sample means is known as …......................

11. The degree of freedom for F (critical) is .........................

12. The measurement scale that involves categorizing cases into distinct
categories is known as …............................

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13. The validity of a test established by judging how adequately the test samples
behaviour represents the universe behaviours from which sample was taken is
...........................

14. A tentative statement, subject to empirical test, about the expected

relationship between variables is known as ……….......................

15. A measure of whether a questionnaire produces the same or similar responses

with multiple administration of the same or similar instrument is known as
..............................

16. The type of data that is collected directly from the source is known as
.............................

17. A set of questions that is used to elicit respondents’ opinions on a subject of

interest is known as ……….......................

18. The extent to which a study evaluates the intended hypothesis is known as
.........................

19. The type of information that has occurred or has been collected in the past is
known as .........................

20. The avenue through which electronic libraries can be accessed is known as
........................

SECTION B: ATTEMPT ANY FOUR QUESTIONS (60 Marks)

QUESTION 1

The e-mail has become prominent as a means of exchanging information in the

workplace. This tool of communication has a number of advantages and
disadvantages.

Discuss any FIVE disadvantages of the e-mail for information exchange.

(15 Marks)
QUESTION 2

You have been directed by the Chief Executive Officer of your company to
investigate the complaint of the ICT Manager about the deteriorating condition of
the computer in his department.

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Write a short report, using the memo format, detailing your discovery and
recommendations. (15 Marks)

QUESTION 3

PQR Pension Fund Administrator stated that young people would plan to retire
earlier than the old people. A random sample of size 8 was selected from both the
current age (X) and the planned retirement age (Y). The data is given below:
Current age (X) Retirement age (Y)
19 7
13 9
11 8
9 11
12 9
25 6
20 7
17 8
You are required to:

a. Draw a scatter plot for the two variables. (2 Marks)

b. Describe the type of relationship between age and retirement plan. (2 Marks)

c. Compute the correlation coefficient (5 Marks)

d. Use  = 0.01 to test the hypothesis whether there is any relationship between
an individual age and his retirement plan. (6 Marks)
(Total 15 Marks)

QUESTION 4

Reference and bibliography are two ways of acknowledging sources of information

in research.

a. State any THREE differences between reference and bibliography. (6 Marks)

b. Using APA format, list in a sequential order all the elements contained in book
referencing. (6 Marks)

c. List any THREE features of an Appendix. (3 Marks)

(Total 15 Marks)
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QUESTION 5

Research designs aim at identifying variables and their relationship with a view to
obtaining relevant data in a research study.

Write short notes on each of the following types of research designs.

a. Survey design (5 Marks)

b. Experimental design (5 Marks)
c. Ex-post-facto design (5 Marks)
(Total 15 Marks)
QUESTION 6

Explain the following concepts in relation to hypothesis testing:

(i) Research hypothesis

(ii) Null hypothesis
(iii) Alternate hypothesis
(iv) Level of significance
(v) Test statistic
(vi) Critical value
(vii) Two-tail test
(viii) One-tail test
(ix) Type I error
(x) Type II error (15 Marks)

SOLUTIONS TO SECTION A

PART I MULTIPLE-CHOICE QUESTIONS

1. C
2. C
3. D

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4. A
5. D
6. E
7. D
8. A
9. B
10. A
11. B
12. C
13. E
14. D
15. E
16. E
17. C
18. D
19. A
20. D

Tutorial
No. 11 The t – variate is given by

t = x- µ

s/ n

Substituting the values, we get

t = 510 – 540 = - 30
45/ 16 45/4
30
=  2.67
11.25

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EXAMINERS’ REPORT

The questions test candidates’ understanding of concepts and principles in

Business Communication and Research Methodology. The questions cover all the
three parts of the paper. About 80% of the candidates scored 50% and above of the
allocated mark. Candidates should endeavour to extend this level of performance
to other areas of the subject for better performance in future.

PART II SHORT-ANSWER QUESTIONS

1. e-reader
2. Mass communication
3. Horizontal
4. Grapevine
5. Stimulus/ideation/conception stage
6. Progress
7. Physiological
8. Chi-square
9. Total variation
10. ANOVA/Analysis of variance
11. F(K-1, V-K) = K-1
N-K
12. Nominal Scale
13. Content validity
14. Hypothesis
15. Reliability

16. Primary data

17. Questionnaire

18. Hypothesis testing

19. Historical data/secondary data

20. Internet

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EXAMINERS’ REPORT

The questions test candidates’ understanding of concepts and principles in

Business Communication and Research Methodology.
The questions cover all the three parts of the syllabus. About 15% of the candidates
scored 50% and above of the allotted marks.

The major pitfall of the candidates was their inability to understand the concepts
and principles tested.

Candidates should familiarise themselves with concepts and principles in the

subject by studying ICAN Study Pack and relevant books on the syllabus. They
should also make use of past editions of the ICAN Pathfinders.

SOLUTIONS TO SECTION B

QUESTION 1

(i) Delivery Problems: An e-mail may not be delivered. This is because the
sending and delivery of mails rest on technology which sometimes fails.
The e-mail may sometimes not get to the intended receiver. Also, an e-
mail may be routed to the spam folder on delivery. This means the
receiver who would normally check his/her inbox would not find the mail
and would not know that the mail has been delivered. In this scenario,
the aim of the sender remains unaccomplished.

(ii) Junk mail: With the increasing popularity of e-mail as a means of

information exchange, a level of abuse has crept into its use. This is
because high volumes of junk and unsolicited e-mails peddling products
and services in which the receiver has no interest flood his/her inbox.
Also, some of these unsolicited mails seek to defraud the receiver or draw
him/her into a scam one way or another.

Where a receiver ignores mails because of these junk e-mails, he ends up

missing out on accessing valuable mails. On the other hand, reading
every mail that comes your way in the course of the work day is a waste
of time.

(iii) Formality Dilemma: e-mails come from all sources; some are written as
letters, others are not. There is then a formality and style dilemma. Are
e-mails formal or informal? They are both. Are e-mails letters or just
messages? They could be both. Also, are they always formal? No, they
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could be formal or informal. Many times, however, the receiver of an e-
mail reacts as he/she would to most e-mails because most e-mails are
informal. This may then make him/her respond in an informal style or
tone to a formal e-mail.

(iv) Illusion of Real Time Delivery: Many users of the e-mail have the illusion
that it is delivered and read real time. While the e-mail has improved
tremendously the time in which messages are sent and received, it does
not always facilitate real time communication. It cannot, in this regard,
be compared to the telephone which assures real time communication.

(v) Unintended errors: The facilitation of speedy exchange of information,

despite not occurring in real-time, has its own way of triggering certain
unintended and highly damaging mistakes. While attempting to forward
parts of an e-message to another recipient, e-mail users mistakenly
forward other contents that could have been left out. Also, incomplete
messages are sometimes sent because of the ease of sending e-mails by
just clicking ‘send’.

(vi) Virus Attacks: e-mails and particularly e-mail attachments broadcast

viruses. Some virus broadcasters even use e-mail primarily as the means
of conveyance of viruses. e-mails then endanger computers and devices
that open them.

(vii) Non-confidentiality: e-mails are not absolutely confidential. For a

workplace e-mail, the system administrator has access to all traffic,
including e-mails and can as such read whatever is sent.

(viii) Dependence on Access to the Internet: Access to one’s e-mail is

dependent on internet access. Where there is no internet access, one has
no access to e-mail. In the Third World, and even in advanced societies,
there are places where access to the internet is problematic or only
available on some devices that can connect to a wired access or other
access types.

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EXAMINERS’ REPORT

The question tests candidates’ understanding of the disadvantages of e-mail in the

work place.

About 75% of them attempted the question. Out of this number, 45% of them scored
50% and above of the allocated mark.

The major pitfalls are:

i. lack of adequate technical understanding of the question’s demand

ii. discussion of the general problems of the country relating to the social
question’s millieu.

Candidates should study electronic communication in the work-place for better

performance in future.

QUESTION 2

OGBULOGO OIL & GAS LTD.

Internal Memorandum
From: Internal Auditor To: C.E.O
Ref No: OG/ICT/175 Date: 27th May, 2014
Subject: THE STATE OF THE COMPUTER IN ICT DEPARTMENT

As directed, I have investigated the condition of the computer in

INTRODUCTION: the ICT Department. I, therefore, report as follows:

PROCEDURE: I visited the computer room of ICT Department and saw things
myself. I went round the environment and inspected the storage
facilities of the department. I asked the manager and the staff
pertinent questions. I saw the old requisition notes which
indicated the dates of delivery of the computers.
FINDINGS: a. The computer is ten years old and obsolete
b. The life span of a computer is five years at the most
c. The computer is completely unserviceable
d. The computer is no longer being used for processing data or
producing documents
e. The department relies on other departments to process data and
documents
CONCLUSIONS: a. The computer needs to be replaced

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b. The state of the computer is affecting the department’s

productivity negatively
c. The ICT Department wastes man-hours unnecessarily on getting
its job done on computer
RECOMMENDATION: a. The computer should be replaced
b. Competitive quotations should be obtained from three dealers
and order placed on the basis of best selling prices together with
the best trade-in prices for the old computer.
EXAMINERS’ REPORT

The question tests candidates’ understanding of writing report using the

memorandum format.

About 70% of the candidates attempted the question. About 40% of this number
scored 50% and above of the allocated mark.

The commonest pitfalls were lack of understanding of:

i. the memo format as a form of communication

ii. the format of report writing

In addition, their organization ability and expression were poor.

Candidates should endeavour to learn how to write reports and the various forms of
business communication.

QUESTION 3
(a) y

Planned 12
Retirement
Age 10
.
8

6 .

0 5 10 15 20 25 30 X
Current Age

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b. The relationship that exists between the current age and retirement plan age
is negative correlation. This is because the scatter plots exhibit a downward
(negative) sloping nature depicting that as the current age (x) increases, the
planned retirement age (y) decreases, hence, the plot shows a negative
relationship.
c.
X Y XY X2 Y2
19 7 133 361 49
13 9 117 169 81
11 8 88 121 64
9 11 99 81 121
12 9 108 144 81
Using the 25 6 150 625 36 product moment correlation
20 7 140 400 49 coefficient (r)
17 8 136 289 64
126 65 971 2190 545
 
 ( X  X )(Y  Y ) n  XY  (  X )(  y )
r= =
 
2 n X 2  ( X ) 2  n Y 2  ( Y ) 2 
) 2 


 ( X  x )   (Y  Y
        
 

Substituting values into the formula

8(971)  (126)(65)
r=
 
8(2190)  (126) 2 8(545)  (65) 2 
7768  8190
=
17520  158764360  4225
 422
=
(1644)(135)
 422  422
= 
221940 471.105
r = -0.896
d. To test the required hypothesis, we use the following steps:
Step I
Ho : There is no relationship between an individual’s age and his retirement plan
Ho:  = O
H1 : There is relationship between an individual’s age and his retirement plan
H1:   O

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Step 2: The test statistic is

r

1 r
t=
n2

Where r = correlation coefficient = 0.896

 0.896  0.896
t= 
1  (0.896) 2 1  (0.803)
82 6

 0.896  0.896  0.896

t=  
0.197 0.033 0.182
6
tcal = -4.923
Step 3:

Df = n - 2
= 8 -2 =6
At  = 0.01,
ttab = 3.71,

Step 4 : if tcal < ttab, we do not reject the null hypothesis, otherwise reject the null
hypothesis.

Therefore, since tcal >tcal (i.e. 4.923 >3.71), we reject the null hypothesis and
conclude that there is a relationship between the individuals age and their
retirement plans.

EXAMINERS’ REPORT

The question tests candidates’ understanding of relationship and degree of

relationship. About 75% of the candidates attempted the question. About 65% of
those who attempted the question scored 50% and above of the allocated mark.
The candidates’ commonest pitfall was lack of adequate understanding of test
statistic.

Candidates should familiarize themselves with hypothesis testing for improved

performance in future.

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QUESTION 4

a. Differences between reference and bibliography

i. Reference consists of all documents that are cited in the text of the
work, while bibliography contains everything that would appear in
the reference section including other publications that are useful but
not cited in the work.

ii. Reference is listed in alphabetical order by the surname of the first-

named author. When no author is listed, the entry is stated with the
word of the title of the article or the sponsoring organization, but
bibliography details are sectionalized and arranged in sequence.

iii. A bibliography cites work for background and further reading while
reference list contains all the references cited in the work.

iv. A bibliography appears only once in the entire work, and it appears at
the end of the work, but end-of-chapter references appear at the end
of every chapter.

b. The following elements are contained in book referencing using APA format.

i. Author’s name or Editor’s name

ii. Year of publication
iii. Title of book
iv. Place of publication
v. Publisher

An example of a book reference using APA format.

Cozby, P. C. (2000). Methods in Behavioural Research. California: Mayfield
Publishing Company
Note: The title of the book must be italicised

c. The following are the features of an appendix:

i. It should begin on a new page.

ii. It should carry a label in the upper case arranged sequentially. For
example, Appendix A, Appendix B, or Appendix I, Appendix II.
iii. It should have a title reflecting the information on the appendix.
iv. The information on the appendix is then presented.

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EXAMINERS’ REPORT

The question tests candidates’ understanding of differences between Reference and

Bibliography, and features of an Appendix. About 80% of the candidates attempted
the question and about 50% of them scored 50% and above of the allotted mark.

Candidates’ pitfalls were:

i. lack of adequate understanding of the APA referencing format

ii. confusing the functions of an appendix with its features.

Candidates are to make use of ICAN’s publications for better performance in future.

QUESTION 5

Survey Design

a. The main characteristic of this design is its lack of control. In this design,
the researcher is interested in observing what is happening to the sample
subjects without manipulating them. Survey design is divided into two,
namely, cross-sectional and longitudinal designs.
In cross-sectional design, observations are made at one or more points in
time while longitudinal design’s observations are made at different points in
time. Examples of studies that make use of longitudinal design include
motivation of workers, productivity of employees and profitability levels of
organisation over time.

b. Experimental Design

This is a design that enables the researcher to test his/her hypothesis by

reaching a valid conclusion about the relationship between the variables
being tested.

The selection of this type of design depends on certain factors such as the
purpose of the experiment, types of variables to be manipulated and the
conditions under which the experiment is conducted.
The major problems of experimental design are those of assigning subject to
control group, ways of controlling the variables, how the observations are
made and the types of statistical analysis to be used.

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c. Ex-post-facto Design

This is a type of descriptive research that is undertaken after the events had
taken place and the data are already available. In this kind of research, it is
always difficult to manipulate variables because of the existence of data. As
a result of this, the data should provide sufficient or adequate information.
A researcher only needs to look at the existing data for causes of a problem.
This research design seeks to find out the factors that are/were associated
with certain results, occurrences, outcomes or types of behavior by analyzing
past events or already existing conditions. It is otherwise called
retrospective research, i.e. after the event. This type of research method is
used when a study is aimed at reporting what had happened.

EXAMINERS’ REPORT

The question tests candidates’ understanding of types of research designs. About

70% of the candidates attempted the question. The performance was average as
about 50% of them scored 50% and above of the allocated mark.

Candidates’ pitfall was lack of adequate understanding of the concept tested. They
should ensure the coverage of the syllabus in order to understand the various
concepts and principles in the paper. They should also make use of ICAN’s Study
Packs and Pathfinders, and other relevant materials.

QUESTION 6

i. Research Hypothesis: This is a statement of testable relationship between

two or more variables. A researcher works to accept or reject a hypothesis
before he reaches an effective decision concerning the problem identified.

ii. Null Hypothesis: This is also called hypothesis of indifference which starts by
denying the existence of any relationship between sets of variables. This
accounts for why a researcher works to reject the null hypothesis. The
symbol for null hypothesis is Ho.

iii. Alternate Hypothesis: This is a directional hypothesis that states in a specific

or categorical manner, the type of relationship that exists between sets of
variables. This accounts for why a researcher works to accept the alternate
hypothesis. The symbol for alternate hypothesis is Hi or HA.

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iv. Level of significance: This reflects the magnitude of error allowable to make
a research outcome a true one. There are different levels of significance
such as .01, .05, .025 etc The .01 level of significance means that a research
outcome is 99% correct while there is only 1% error. The .05 means that the
research outcome is 95% correct while it contains only 5% error margin.

v. Test Statistic: This a statistical tool used in analysing statistical data

collected concerning an identified problem. There are different statistical
tools available for use depending on the nature of the problem, the
hypothesis and the data collected. Some examples of test statistic include t-
test, chi-square, z-test, etc.

vi. Critical value: This is the value extracted from a statistical table which
enables a researcher to determine the significance of a relationship between
sets of variables. It is usually compared with a statistically calculated value.
The calculated value must be greater than the critical value for a
relationship between variables to be declared significant.

vii. Two-tail Test: This is also known as non-directional hypothesis which does
not indicate a particular direction. A relationship between variables is
expected to be either positive or negative. Therefore, it becomes a two-tail
test when the hypothesis points to both directions at the same time. eg:-

H0: a = b
HA: a = b

It can be illustrated diagrammatically as shown below:

A normal Distribution Curve indicating
a
two-tail hypothesis

viii. One-tail test: This is a hypothesis stated in a specific and directional way. It
could be a positive direction only or negative direction only. It is the
opposite of a two-tail test. H0: a = b, HA : a = b It is shown in the diagram
below:
H0: a = b,

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HA : a < b or HA : a > b

+ve -ve

 

ix. Type I error: This is an error committed when a researcher rejects a true null
hypothesis instead of accepting it. For example, a null hypothesis states
“Men do not exhibit more fraudulent behaviour than women.” The result at
the end shows that men actually exhibit more fraudulent behaviour than
women – a true null hypothesis is rejected, the researcher has committed
Type 1 error.

x. Type II error: This is the opposite of Type I error and it occurs when a
researcher accepts a non-true hypothesis for example, if result actually
confirms that women indeed exhibit more fraudulent behaviour than men,
then the hypothesis that men are not more fraudulent should be accepted
and not rejected. When this happens, Type II error has been committed.

EXAMINERS’ REPORT

The question tests candidates’ understanding of theoretical aspects of basic

statistical terms applicable in business research. About 85% of the candidates
attempted the question. The performance was above average as about 65% of them
scored 50% and above of the allotted marks.
Candidates’ major pitfalls were:

i. they muddled up the explanations of some of the concepts

ii. the expressions used in the presentation were poor.

For better performance in future examinations, candidates should familiarise

themselves with basic statistical concepts in research.

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