THE INSTITUTE OF CHARTERED

ACCOUNTANTS OF NIGERIA

PATHFINDER
NOVEMBER 2019 DIET
FOUNDATION LEVEL EXAMINATIONS

Question Papers

Suggested Solutions

Examiner‟s Reports

Plus

Marking Guides

1
 FOREWARD

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

subject contained herein; and

(iv) The professional; 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.

2
 TABLE OF CONTENTS

PAGE

FORWARD ………………………………………………….

FINANCIAL ACCOUNTING ………………………………….. 4 – 32

MANAGEMENT INFORMATION ……………………………. 33 – 63

TAXATION ……………………………………………….... 64 – 93

BUSINESS AND FINANCE ………………………………….. 94 – 115

BUSINESS LAW ……………………………………………… 116 – 138

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 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2019

FINANCIAL ACCOUNTING

Time Allowed: 31/4 hours (including 15 minutes reading time)

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER 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 documents will a supplier send to a customer whose

invoice was understated?

A. Pro-formal invoice
B. Debit note
C. Credit note
D. Statement of account
E. Cheque stub

2. In which of the following books of prime entry will trade discount be

recorded?

A. Pro-forma note
B. Sales day book
C. Purchases day journal
D. Cash account
E. Petty cash book

3. Which of the following combinations of accounting concepts are the

fundamental assumptions in the preparation of financial statements?

A. Accrual and double entry

B. Going concern and entity
C. Materiality and consistency
D. Accrual and going concern
E. Going concern and offsetting

4
4. In accordance with the requirements of IAS-8 - Accounting Policies, Estimates
and Errors, which of the following change in method does not give rise to
changes in accounting policy?

A. Measurement of PPE from cost to revaluation model

B. Presentation of depreciation from cost of sale to administrative expense
C. Calculation of depreciation from straight line to sum of digit method
D. Recognition of an expense from capitalisation to expensing
E. Reclassification of non-current asset to current asset

5. Which of the following information CANNOT be revealed by a statement of

cash flow?

A. The entity's short-term solvency

B. Operating cash position
C. Financial position of the entity
D. Liquidity position of the entity
E. Investing activities of the entity

6. In accordance with IAS1-Presentation of Financial Statements, which of the

following is not a component of financial statement?

A. Statement of financial position

B. Statement of value added
C. Statement of changes in equity
D. Statement of cash flows
E. Statement of profit or loss

Use the information below to answer questions 7 and 8

The following is an information extract from the books of accounts of Walling

Parking Enterprises, a sole trader:

Trade receivables balance for the period N1,300,000

The chance of collecting 2% of the receivables figure is remote
It is virtually certain that 95% of the balance of the receivables is collectable

7. What is the amount of allowance recognised in the statement of profit or loss?

A. N26,000
B. N63,700
C. N89,300
D. N89,700
E. N98,700

5
8. What is the net amount of trade receivables recognised in the statement of
financial position?

A. N1,110,000
B. N1,201,000
C. N1,210,300
D. N1,274,000
E. N1,300,000

Use the following information to answer questions 9 and 10

The extract from the financial statements of Benchmark Ventures for the year ended
September 30, 2019 is as follows:
N‟000
Capital 84,000
Net profit 15,000
Drawings 9,000
Cash and cash equivalent 3,000
Accounts payables 50,000
Inventory 29,000
Accounts receivables 35,000

9. Determine the amount of the current assets

A. N32,000
B. N37,000
C. N 64,000
D. N67,000
E. N107,000

10. Calculate working capital of the business

A. N17,000
B. N30,000
C. N38,000
D. N50,000
E. N67,000

11. Which of the following is not an element of financial statements?

A. Asset
B. Liability
C. Equity interest
D. Income
E. Profit

6
12. Which of the following is not a book of prime entry?

A. Cash book
B. Purchases journal
C. Trial balance
D. Returns inwards day book
E. Sales day book

13. An Accounts officer extracted a trial balance for the year ended October 31,
2019 and discovered that the debit side exceeded the credit side by N30,000.
Which of the following could explain the reason for the imbalance?

A. Sales of N30,000 was omitted from the sales journal

B. Returns inwards of N15,000 was posted to the debit side of the trial
balance
C. Discounts received of N15,000 were posted to the credit side of the trial
balance
D. The bank ledger account did not agree with the bank statement by a
debit of N30,000
E. N30,000 spent on repairs of office equipment was debited to office
equipment account

14. The following explains the imprest system of operating petty cash, EXCEPT

A. Weekly expenditure cannot exceed a set amount

B. The exact amount of expenditure is reimbursed at intervals to maintain a
fixed float
C. The petty cashier collects revenue on behalf of the organisation
D. A petty cashier receives cash, makes expenses of relatively small
amount and maintains records for the transactions
E. Regular equal amounts of cash are transferred into petty cash at regular
intervals

15. Your company's statement of profit or loss for the year ended October 31,
2019 showed a profit of N836,000. It was later discovered that N180,000 paid
for the purchase of motor van had been debited to motor expenses account. It
is the company's policy to depreciate motor van at 25% per annum on a
straight line basis, with full depreciation charged in the year of purchase.

What will be the net profit after adjusting for this error?

A. N656,100
B. N701,000
C. N791,000
D. N971,000
E. N1,016,100

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16. Which of the following represents members‟ interest in a Society or Club?

A. Recurrent fund
B. General reserve
C. Working capital fund
D. Unwinding fund
E. Accumulated fund

17. In which of the following segments of statement of financial position of

Institute of Professional Accountants is students' subscription received in
advance recognised?
A. Non-current assets
B. Fictitious assets
C. Current assets
D. Current liabilities
E. Intangible assets

18. Which of the following will not affect the agreement of cash book balance and
bank statement bank balance?

A. Dishonoured lodgement
B. Cash payments
C. Bank charges
D. Standing order for the payment of annual subscription
E. Error in the bank statement

Use the following information to answer questions 19 and 20

Obi and Ora are partners, trading under the name, Obiora & Co. and sharing profits
or losses equally.

The extract from the partnership books for the period ended September 30, 2019 is
as follows
Obi Ora
N'000 N'000
Opening capital balances 200 100
Opening current account balances 40 80
Drawings 20 30
Salary 28 24
Interest on capital 10% 10%

Profit for the period amounted to N240,000

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19. What is Obi's share of profit for the year?

A. N20,000
B. N28,000
C. N39,000
D. N79,000
E. N89,000

20. What is the balance in Ora's current account at the end of the reporting
period?
A. N79,000
B. N82,000
C. N101,000
D. N115,000
E. N163,000

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX

QUESTIONS IN THIS SECTION
QUESTION 1

a. Explain the term trial balance (2 Marks)

b. The balancing of a trial balance does not necessarily mean that such trial
balance is error free.
Required:
Using a two-column tabular format, highlight FOUR errors that do not affect
the trial balance and FOUR errors that affect the trial balance. (8 Marks)
c. Using the following list of balances extracted from the ledger accounts of John
Thomas Enterprises, the MD/CEO wants you to confirm if the various double
entries passed by the newly employed accounts officer were arithmetically
correct:
N'000
Revenue 53,000
Purchases 32,200
Property, Plant and equipment: - Cost 59,000
- Accumulated depreciation 25,000
Inventory as at July 1, 2018 7,800
Interest expense 200
Administrative expenses 7,000
Accrued expenses 400
Distribution cost 8,900
Retained earnings 23,500
Bank overdraft 1,000
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 Cash and cash equivalent 200
Accounts receivables 9,000
Finance cost 1,000
5% Loan note 5,000
Share capital 10,000
Other components of equity (OCE) 5,000
Accounts payables 2,400
Required:
Extract a trial balance for the period ended June 30, 2019 (10 Marks)
(Total 20 Marks)

QUESTION 2

The objective of IAS-16 Property, Plant and Equipment (PPE), is to make a clear
distinction between capital and revenue expenditure, formulate accounting policy
for the recognition of PPE and promote consistency in the application of the policy.
Required:
a. Explain the requirements of IAS 16 on the initial recognition of PPE. (3 Marks)

b. After the acquisition of item of PPE, an entity continues to incur

subsequent expenditure on the item.

Required:
Explain briefly the requirements of IAS 16 in relation to subsequent
expenditure and subsequent measurement. (3 Marks)

c. Ahmed Ventures Ltd acquired an item of plant from Judexco Machine Ltd to
facilitate its operations.

The schedule of expenditure for the plant is given below:

% N'000
Purchase price 480,000
Trade discount applicable to the purchase price of
the plant 8
Early settlement discount on the payable amount 5
Straight line depreciation rate 10
Other Costs:
Freight charges 25,000
Pre-production testing cost 15,000
One year maintenance contract 12,000
Staff cost in relation to the use of the machine 8,000
Electrical installation cost 19,000
Concrete reinforcement 9,000
Cost of correcting installation error 17,000
Dismantling and restoration cost 20,000
Staff training in the use of the plant 14,000
10
Required:
Using the format provided below, classify the above plant costs into capital and
revenue expenditure respectively.
Classification of cost into capital and revenue expenditure
Expenditure Capital Revenue
N N

(14 Marks)
(Total 20 Marks)
QUESTION 3

The accounts clerk of Jide Electronics is unsure of the difference between bank
statement and bank reconciliation statement and has asked for your assistance in
this direction

Required:

a. Explain to the accounts clerk, the difference between a bank statement and
bank reconciliation statement (2 Marks)

b. The accounts clerk also needs your assistance in order to ensure that the cash
book balance of her organisation agrees with the bank statement balance for
the month ended September 30, 2019;

She has provided you with the following summary of banking transactions for
the period under review:

1. A cheque amounting to N280,000 received and paid into the bank was
not credited by the bank until after September 30, 2019;

2. The cash book balance of the business showed an overdraft of N200,000,

while the bank statement balance on the same date indicated that the
business had a credit balance of N1,930,000;

3. A customer made a direct credit transfer into the business bank account
amounting to N1,140,000 in settlement of trade debt and this was not
known until after the receipt of bank statement;

4. A cheque amounting to N670,000 for the purchase of goods was posted

into the cash book as N760,000;

5. A cheque of N1,230,000 dishonoured by the bank remained unreversed

in the cash book;

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 6. Cheque amounting to N2,680,000 issued to a supplier was presented to
the bank on October 08, 2019;

7. The bank statement revealed that there was a dividend of N580,000

received as investment income

8. The bank transferred the sum of N200,000 to ICAN, being the payment
on a standing order for annual subscription of staff who were writing
professional examinations;

9. A cash payment of N120,000 was posted to the bank column of the cash
book;

10. The bank statement indicated that there was charges of N140,000, this
being the cost of SMS and other bank charges; and

11. A cheque of N630,000 deposited by Jide was credited to Deji‟s account

By the bank.

Required:

i. Prepare the adjusted cash book. (11 Marks)

ii. Starting with the balance as per bank statement, prepare bank reconciliation
statement for the month ended September 30, 2019.
(7 Marks)
(Total 20 Marks)

QUESTION 4

a. The Chief Executive Officer (CEO) of Favourite Gift Shop buys and sells gift
items to both individuals and organisations. The CEO has close personal
relationship with her business partners and knows the amount owed to her
suppliers.

In a recent meeting held between the CEO and the Auditor, the Auditor
brought up the issue of unavoidable need for the business to maintain the
relevant control accounts. The CEO is seriously considering adhering to the
auditor‟s recommendation, but need further clarification on the issue. The
Auditor was to provide the CEO with all the required information. As the
accounting officer of the company, I would like you to provide me with all the
information.

12
 Required:
i. Differentiate between receivables control account and payables control
account. (2 Marks)

ii. Highlight FOUR uses of control accounts. (4 Marks)

b. The following information are extracted from the books of Favourite Gift Shop:
October 1, 2019: N'000
Sales ledger balance
- Debit 7,200
- Credit 45
Bought ledger balance
- Debit 100
- Credit 2,910
Transactions during the month were:
Sales day book total 105,540
Bad debt 3,200
Customers' cheques return 3,750
Purchases day book total 94,150
Cash sales 180
Returns inwards day book total 4,710
Bank draft received 13,500
Cheque payment to suppliers 82,000
Cash paid by customers x
Cash purchases 285
Discount allowed 1,350
Discount received 2,835
SMS alert for Cheques received from customers 42,500
Draft issued to suppliers 6,450
Debit balance in sales ledger transferred to
purchases ledger 780
Discount disallowed to customers for default in
early settlement 450
Returns outwards day book total X
Discount withdrawn by suppliers 435
Petty cash paid to suppliers 100
October 31, 2019:
Sales ledger control balance:
- Debit 24,765
- Credit 290
Bought ledger balance:
- Debit 114
- Credit
4,260

13
You are required to prepare:

i. Sales ledger control account for the period. (7 Marks)

ii. Purchases ledger control account for the period. (7 Marks)
(Total 20 Marks)

QUESTION 5

Three brothers; Wa, Zo and Bia are in partnership, trading under the name and
style WaZoBia. The partnership agreement provides for:

% N'000
i. Annual commission payable to:
- Wa 4,000
- Bia 8,000

ii. Annual salary payable to:

- Wa 5,000
- Zo 8,000
iii. Interest on partners' fixed capital 5
iv. Interest on partners' drawings 5
v. Equal share of profit or loss (1:1:1)

The extract of the partnership balances for the period under review are as follows:
Wazobia
Trial Balance for the year ended October 31, 2019
Debit Credit
N'000 N'000
Partners' capital as at November 01, 2018:
- Wa 60,000
- Zo 60,000
- Bia 50,000
Partners' drawing
- Wa 5,000
- Zo 4,000
- Bia 2,000
Gross profit for the year 116,000
Trade receivables and payables 55,000 27,560
Irrecoverable debt 1,000
Utility 8,600
Postage and communication 3,200
Allowances for bad debt at November 01, 2018 6,000
Property, plant and machinery 270,400
Staff cost 18,360

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 Distribution cost 5,000
Other Income 4,000
Finance cost 1,000
5% Loan notes 50,000
Inventory at October 31, 2019 6,000

Accumulated depreciation on freehold

properties 16,720
Accumulated amortisation of leasehold
property 2,000
Rent and rates 3,360
Cash and cash equivalent 9,360
392,280 392,280

The following information is also relevant for the preparation of the financial
statements:

i Allowances for doubtful debts should be adjusted to 10% of trade receivables;

ii Accrued expenses for the period were:

- Utility N400,000; and
- Postage and communication N200,000
iii Prepaid expenses were:
- Rent and rates N600,000; and
- Staff cost N300,000

iv PPE includes a leasehold property of N20,000,000 which is amortised over 10

years.
Depreciation charge for the year on freehold PPE has been estimated to be
N5,000,000; and

v Finance cost in the trial balance includes interest paid on 5% loan notes
amounting to N500,000.

You are required to prepare for the partnership firm:

a. Statement of profit or loss for the year ended October 31, 2019. (12 Marks)

b. Statement of financial position as at October 31, 2019. (8 Marks)

(Total 20 Marks)
Note: Show all workings

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QUESTION 6

a. The disposal of property, plant and equipment (PPE) requires the

determination of profit or loss on the asset and the subsequent de-recognition
of affected assets.

Required:
State the double entries required to record the following events:

S/N Description Debit Credit

N N
i Transfer of sold asset to PPE disposal account:
ii Transfer of accumulated depreciation on the asset
sold to PPE disposal account
iii Cheque/cash received on the disposal of the PPE
iv Where the PPE is sold on credit
v Where the PPE is sold to staff for a one-off
deduction from the staff salary at month end
vi Profit or loss arising from the disposal
(7 Marks)

b. Davidsco Ventures Limited prepares its financial statements to December 31,

each reporting year.
The company's policy is to write-off its plants at the rate of 10% per annum
over a ten-year period.
During the year ended December 31, 2018 the company's manufacturing plant
register, in respect of three plants, is made available to you as follows:

Types of plant Acquisition date Amount

N‟000
Plant -DV 001 July 01, 2016 1,200
-DV 002 January 01 2017 1,600
-DV 003 October 01, 2018 900

The payments for the plant were made by cheque on the date of purchase.
The plant purchased in 2016 was sold on September 30, 2018 for N1.1m.
The company charges depreciation on a time apportionment basis.

b. You are required to prepare:

i. Plant account (5 Marks)

ii. Provision for depreciation account (5 Marks)
iii. Plant disposal account (3 Marks)
(Total 20 Marks)

16
SOLUTION

MCQ

1 B

2 B

3 D

4 C

5 D

6 B

7 D

8 C

9 D

10 A

11 E

12 D

13 A

14 C

15 D

16 E

17 D

18 B

19 D

20 E

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Tutorials

QUESTIONS 7 AND 8
N N
Trade receivables balance 1,300,000
Allowance for irrecoverable debt (1,300,000*2%) 26,000
Allowance for bad debt {(1,300,000-26,000)*5%} 63,700
Amount recognised in Profit or Loss 89,700 -89,700
Amount recognised in Statement of Financial position 1,210,300

QUESTIONS 9 AND 10
N
9 Current Assets
Inventory 29,000
Accounts receivables 35,000
Cash and Cash Equivalent 3,000
67,000
10 Less Current Liabilities -50,000
17,000

QUESTION 15

Computation of adjusted net profit

N N
Profit as per account 836,000
Reversal of carrying amount of motor van:
Cost of motor van 180,000
Depreciation thereon (180*25%) -45000
Carrying amount added back to profit 135,000 135,000
Adjusted Profit 971,000

WORKING FOR QUESTION 19 AND 20

TOTAL
N'000
Current account B/F
Profit for the period 240
Interest on capital (30)
Drawing -
Salary (52)
Share of Profit 158

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 Partner‟s Current Account

Obi Ora
N'000 N'000
Opening balance 40 80
Partners‟ salary 28 24
Interest on capital 20 10
Share of profit 158/2 79 79

Drawings (20) (30)

Closing balance 147 163

EXAMINER‟S REPORT
The questions covered the entire areas of the syllabus.
More than 95% of the candidates attempted the question and performance was
above average.

The commonest pitfall was the inability of candidates to correctly answer questions
relating to correction of errors.

Candidates require good understanding of the double entry principle for better
performance in future examinations.

SECTION B

SOLUTION 1

a. TRIAL BALANCE

 A trial balance is a list of all the debit balances and credit balances on the
general ledger accounts. If the double entry principles have been applied
correctly to all the items in the general ledger, then total of the entries on
the debit side should agree with the total on the credit side.

 A trial balance is used to check the arithmetical accuracy of the accounting

system. It also serves as a first step in the preparation of the financial
statements.

19
 (b)
ERRORS THAT DO NOT
S/N AFFECT TRIAL BALANCE ERRORS THAT AFFECT TRIAL BALANCE
i. Error of commission i Error of casting

ii. Error of principle ii Error of transposition of figure

Posting of transaction on the wrong side of

iii. Error of original entry iii ledger

iv. Compensating error iv Omission of transaction from books of

original entry in the ledger
v Error of omission v Omission of transaction or wrong posting of
transactions from ledger to the trial balance.
vi Complete reversal of vi Omission of opening balance either in the
Entries ledger or trial balance.
vii Extraction of wrong balance from the ledger

C JOHN THOMAS ENTERPRISES

TRIAL BALANCE
AS AT 30 JUNE, 2019
Debit Credit
N'000 N'000
Revenue 53,000
Purchases 32,200
Property, Plant and
equipment: - Cost 59,000
- Accumulated depreciation 25,000
Inventory as at July 01, 2018 7,800
Interest expense 200
Administrative expenses 7,000
Accrued expenses 400
Distribution cost 8,900
Retained earnings 23,500
Bank overdraft 1,000
Cash and cash equivalent 200
Accounts receivables 9,000
Finance cost 1,000

5% Loan notes 5,000

Share capital 10,000
Other components of equity (OCE) 5,000
Accounts payables 2,400
125,300 125,300
20
EXAMINER‟S REPORT
The question tests candidates‟ understanding of the meaning of the trial balance,
nature of trial balance errors and the extraction of trial balance.

More than 95% of the candidates attempted the question and performance was
excellent.

Few candidates use the T-format to prepare the trial balance. Candidates should
always remember that financial statements have five elements with asset and
expenses being on the debit side while income, equity and liabilities are on the
credit side.

Marking Guide Marks Total

- Definition of trial balance 1
- Uses 3of trial balance 1 2
Errors that do not affect the trial balance 4
Errors that affect trial balance 4 8
Extraction of trial balance:
- Correct title 1
/2
- Debit and credit entries 9
- One of the total amounts 1
/2 10
Total 20

SOLUTION 2

Property, Plant and Equipment (PPE)

a. Requirements of IAS 16 on initial recognition of Property, Plant

and Equipment

IAS 16 requires that Property, plant and equipment should be initially

measured at cost. Cost of PPE consists of the following.
 The purchase price, excluding trade discount but plus any import taxes or
non-refundable sales taxes; Plus

 Directly attributable cost in bringing the asset to its present location and
condition, by management, for its intended use. Estimated cost of removing
and dismantling the assets and restoring the site.

b. Requirements of IAS 16 on subsequent expenditure and subsequent

measurement
 Subsequent expenditure on PPE should usually be written off to profit or loss
as incurred but subsequent expenditure can only be capitalised if it
enhances the economic benefits to be derived from the asset.
21
  After initial recognition, PPE should be measured at cost or revalued amount
less accumulated depreciation and accumulated impairment losses.

Classification of cost into capital and revenue expenditure

Expenditure Capital Revenue
N N
Purchase price 480,000
Trade discount applicable to the purchase price of the plant (38,400)
Other costs:
Depreciation at 10% (ie, 10% of 529,6700) 52,960
Freight charges 25,000
Pre-production testing cost 15,000
One year maintenance contract 12,000
Staff labour cost in relation to the machine 8,000
Electrical installation cost 19,000
Concrete reinforcement 9,000
Cost of correcting installation error 17,000
Dismantling and restoration cost 20,000
Staff training in the use of the plant 14,000
Total 529,600 86,960

EXAMINER‟S REPORT

The question tests candidates‟ understanding of the nature of capital and revenue
expenditure, measurement of PPE and accounting entries for PPE under IAS 16.

The question was poorly attempted and the candidates‟ overall performance was
below average.
The candidates exhibited lack of knowledge of the requirements of IAS16 on initial
recognition and subsequent measurement of PPE. More than 90% of the candidates
could not differentiate between capital and revenue expenditure.
The candidates should be encouraged to have extensive study of past questions and
good understanding of the relevant accounting standards.

Marking Guide
a - Measure PPE initially at cost 1
- Components of purchase price 1
- Definition of attributable cost 1 3
b - Measurement of subsequent expenditure 11/2
- Measurement of PPT after initial recognition 11/2 3
c - Capital expenditure 7
- Revenue expenditure 5
22
 - Total under capital and revenue expenditure, 2
2 14
Total 20

SOLUTION 3
Difference between Bank Statement and Bank Reconciliation Statement

A bank statement is a statement sent at regular intervals by the bank to its

customers showing the list of all lodgements, withdrawals and charges as recorded
in the account for the entity since the previous period and the balance at the end of
the particular period.
A bank reconciliation statement is a periodic statement prepared by entity‟s
Accounts staff in order to bring the cash book balance (bank column), into
agreement with the bank statement received from the bank. The need for the
preparation of such statement arises whenever there is a discrepancy between the
bank column of the cash book and bank statement balances and this, more often
than not, occurs.

Jide Electronics
Adjusted Cash book as at September 30, 2019
N'000 N'000
Direct credit from customer (iii) 1,140 Balance b/f (ii) 200
Posting/overcasting error (760-670) 90 Dishonoured cheque (vi) 1,230
Direct credit of dividend received (viii) 580 Standing order (ix) 200
Reversal of cash payment (ix) 120 SMS and other bank charges (xi) 140
Balance c/d 160
1,770 1,770
Bal b/d 160

Bank Reconciliation Statement

For the Month Ended September 30, 2019

N'000
Balance as per bank statement 1,930
Add – uncredited cheques 280
Adjusted bank balance 2,210
Presented cheque (vii) (2,680)
(470)
Add bank error 630
Balance as per adjusted cash book 160

23
EXAMINER‟S REPORT
The question tests candidates‟ knowledge of bank reconciliation statement
More than 95% of the candidates attempted the question and the performance was
above average.

Candidates commonest pitfall were their inability to differentiate between adjusted

cash items and bank reconciliation items. The need to correct some errors also
posed problems for some candidates.

Candidates are required to master their double entry principle and learn how to
apply them correctly.

Marking Guide Mark Mark

A - Definition of the bank statement 1
- Definition of bank reconciliation 1 2

bi - Adjusted bank account 9

- Bal b/f on Oct 1, 2019 1
- Total on the debit and credit side 1 11
ii - Balance as per bank statement;
- Title 1
- 6 correct entries under bank reconciliation statement 6 7
20

SOLUTION 4

a.(i) Differences between account receivables control account and account

payables control account

 Receivables control account is the summary amounts in the general

ledgers for customers such as total credit sales, total collections from
customers, total returns on sales and receivables owed by customers.
 Payables control account is the summary amounts in the general ledger
for suppliers such as total purchases, total amount paid to suppliers, total
discount received and amounts owed the suppliers.

(ii) Uses of control accounts

Control accounts enable an entity to:

 Determine the amount owing to suppliers and by the customers;
 Derive any other missing figure in the total accounts such as returns,
payments/receipt etc.;

24
  Detect errors in receivables and payables transactions because the
control accounts act as checks on the entries in the various ledgers;
 Resolve dispute on the account balances;
 Provide receivables and payables ledger balance quickly to produce a
trial balance; and
 Make commission of fraud difficult because their preparation is
separate from the clerk who maintains the individual ledger account.

b. SALES LEDGER CONTROL ACCOUNT

N‟000 N‟000
1/10/2019 Balance b/d 7,200 1/10/2019 Balance b/d 45
Sales daybook 105,540 Bad debt w/o 3,200
Returned Cheques 3,750 Return inwards 4,710
Discount disallowed 450 Draft received 13,500
Balance c/d 290 Cash received 26,380
Discount allowed 1,350
Cheque received 42,500
Purchases ledger-contra 780
Balance c/d 24,765
117,230 117,230
1/11/2019 balance b/d 24,765 1/11/2019 balance b/d 290

PURCHASES LEDGER CONTROL ACCOUNT

N‟000 N‟000
1/10/2019 Balance b/d 100 Balance b/d 2,910
Cash paid to supplier 82,000 Purchases day book 94,150
Discount received 2,835 Discount withdrawn 435
Draft issued to supplier 6,450
Returns outwards 1,864
Petty Cash paid to supplier 100
Balance c/d 4,260 Balance c/d 114
97,609 97,609
1/11/2019 Bal b/d 114 1/11/2019 Bal b/d 4,260

EXAMINER‟S REPORT
The question tests candidates‟ knowledge of the use and preparation of control
accounts.
More than 90% of the candidates attempted the question and the candidates‟
performance was below average.
The following pitfalls were observed:
 Inability to state four clear uses of the control accounts;
25
 Lack of understanding of which sides of the accounts to record balances
carried down and set-off between receivables control and payables control
accounts; and
 Treatment of transactions like discount disallowed to customers and discount
withdrawn by suppliers posed problems to the candidates. Generally, the
problem could still be adduced to lack of the understanding of the double
entry principle.
Candidates are advised to get a good understanding of the double entry principle
and practice examination type questions.

Marking Guide Marks Marks

ai - Receivables control account 1
- Payables control account 1 2
-
ii - Any of four uses of control accounts
4
b i -Receivables ledger control account 7
ii - Payables ledger control account:
- Title /
1
2
- 11 entries 5/
1
2
- Balances at Nov 1, 2019 1 7
Total 20

SOLUTION 5
a. WA, ZO and BIA Partnership Firm
Statement of profit or loss for the year ended October 31,2019
₦‟000 ₦‟000
Gross profit 116,000
Other income 4,000
Bad debt written off (1,000)
Utility 8,600
Less accrued amount 400 (9,000)
Add decrease in allowances 6,000 – 5,500) 500
Depreciation-leasehold 2,000
-Freehold 5,000 (7,000)
Staff cost 18,360
Less prepaid amount 300 (18,060)
(2,760)

Postage and communication-- 3,200

Add accrued amount 200 (3,400)
Distribution cost (5,000)
Finance cost (3,000)
Profit for the period 71,280

26
 b. Statement of financial position as at October 31, 2019
₦‟000 ₦‟000
Non-current assets:
Freehold property 228,680
Leasehold property 16,000
224,000
Current assets:
Inventory 6,000
Trade receivables 49,500
Staff cost prepaid 300
Rent and rates prepaid 600
Cash and cash equivalent 9,360 65,760
Total assets 310,440
Equity and liabilities
Equity:
Capital-Wa 79,527
-Zo 79,577
-Bia 71,176
Non-current liabilities-5% loan notes 50,000
Current liabilities-Trade payables 27,560
-Accrued utility 400
-Accrued postage 200
-Accrued finance cost 2,000 30,160
Total equity and liabilities 310,440

Workings

1. Appropriation Account
N‟000 N‟000
Commission – Wa 4,000 Profit for the period 71,280
- Bia 8,000 Interest on drawing:
Salary - Wa 5,000 - Wa 250
- Zo 8,000 - Zo 200
Interest on capital - Wa 3,000 - Bia 100
- Zo 3,000
- Bia 2,500
Share of profit - Wa 12,777
- Zo 12,777
- Bia 12,776
71,830 71,830

27
 2. Interests on Capital
₦‟000
Interest on capital - Wa 5% x 60m = 3,000
- Z0 5% x 60m = 3,000
-Bia 5% x 50m = 2,500
Share of profits – 38.33m/3 = 12,777

3. Partners‟ Capital Accounts

Wa Zo Bia Wa Zo Bia
₦‟000 ₦‟000 ₦‟000 ₦‟000 ₦‟000 ₦‟000
Balance b/d 60,000 60,000 50,000
Drawings 5,000 4,000 2,000 Commission 4,000 8,000
Interest on 250 200 100 Salary 5,000 8,000
drawings
Balance c/d 79,527 79,577 71,176 Interest on capital 3,000 3,000 2,500
Share of profit 12,777 12,777 12,776
84,777 83,777 73,276 84,777 83,777 73,276

EXAMINER‟S REPORT
The question tests candidates‟ knowledge on the preparation of financial
statements of a partnership firm.

More than 75% of the candidates attempted the question and performance was
average.

The commonest pitfall was candidates‟ lack of knowledge of IAS 1 on the

presentation of financial statement as most of them relied heavily on the
conventional presentation of final accounts. Also some candidates did not
understand the requirement of the question.

Candidates are advised to pay more attention to preparation and presentation of

financial statements.

Marking Guide marks marks

A Statement of profit or loss: (24 entries) 12

B Statement of financial position:

- Statement of financial position entries – 15 entries) 71/2
Total of assets ¼
Total equity and liabilities ¼ 8
Total 20

28
SOLUTION 6

a. Journal Entries on Disposal PPE

S/N Description Debit Credit

₦ ₦
1 Transfer of sold to PPE disposal account:
PPE disposal account XX
PPE account XX

2 Transfer of accumulated on the asset sold to PPE

disposal account:
Provision for depreciation account XX
PPE disposal account XX

3 Bank/cash received on the disposal of the PPE:

Cash account XX
PPE disposal account XX

4 Where the PPE is sold on credit:

Account receivables XX
PPE disposal account XX

5 Where the PPE is sold to staff for a one-off

deduction from the staff salary at month end
The staff salary account XX
PPE disposal account XX

6 (i) Profit arising from the disposal:

PPE disposal account XX
Statement of profit or loss (under other income) XX

(ii) Loss arising from the disposal:

Statement of profit or loss XX
PPE disposal account XX

29
 ALTERNATIVE TO QUESTION 6a

Double entry for disposal of PPE

Dr Cr

i. Transfer of sold PPE to disposal account PPE disposal account PPE

Ii Transfer of accumulated of PPE sold to Allowances for depreciation PPE disposal

disposal account account account

iii Cheque received for disposable of PPE Cash PPE disposal

iv For PPE sold on credit PPE accounts receivables PPE disposal

v PPE sold to staff for deduction from salary Staff salary PPE disposal
account

vi Profit on disposal PPE disposal account Statement of

profit or loss
vii Loss on disposal Statement of Profit or Loss PPE disposal
account

b. i.

Davido
Plant Account
N‟000 N‟000
01/07/2016 Bank DV001 1,200 31/12/2016 Balance c/f 1,200
01/01/2017 Balance b/f 1,200 31/12/2017 Balance c/f 1,200
Bank DV002 1,600
2,800 2,800
Plant
30/09/18 disposal a/c 1,200
01/01/2018 Balance b/f 2,800 31/12/2018 Balance clf 2,500
Bank DV003 900
3,700 3,700
01/01/2019 2,500

30
 Allowance for depreciation account

N‟000 N‟000
31/12/16 Bal. c/f 60 31/12/16 PorL/Depn A/C 60
31/12/17 Bal. c/f 340 01/01/17 Bal. b/f 60
31/12/17 PorL/Depn A/C 280
340 340
Plant 270 01/01/18 Bal. b/f 340
Disposal
30/09/18A/C

31/12/18 Bal. c/f 342.5 31/12/18 PorL/Depn A/C 272.5

612.5 612.5
01/01/19 Bal. b/f 612.5

ii. PPE disposal account

₦'000 ₦'000

30/09/18 Plant a/c DV001 1,200 30/09/18 Plant disposal 270

31/12/18 P or L a/c 170 30/09/18 Bank 1,100

1,370 1,370

Workings

1 Calculation of annual depreciation

2016 2017 2018
Plant ₦ ₦ ₦
DV001 (1,200*10%*6/12) 60 - -

DV001 (1,200*10%) - 120 -

DV002 (1,600*10%) - 160 -

DV001 - Before disposal:(1,200*10%*9/12) - - 90

DV002 (1,600*10%) - - 160
DV003 (900*10%*3/12) - - 22.5
60 280 272.5

31
 2 Accumulated depreciation on plant sold DV001
₦'000
Depreciation :
- 2016 60
- 2017 120
- 2018 90
270
EXAMINER‟S REPORT
The question tests candidates‟ understanding of using the double entry principle to
record acquisition and disposal of property, plant equipment according to IAS 16.
About 50% of the candidates attempted the question and performance was below
average.

Most candidates did not know the account to debit or credit in respect of disposal of
PPE, transfer of accumulated depreciation on the disposed assets and consideration
received.

Candidates are advised to study the relevant standards in-depth for improved
performance in the Institute‟s examinations.

Marking Guide
a Double entry for disposal of PPE
7
b Plant account 5
Allowance for depreciation account 5
Disposal of plant account 3 13
Total 20

32
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2019

MANAGEMENT INFORMATION

Time Allowed: 31/4 hours (including 15 minutes reading time)

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER 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 process of grouping costs according to their common characteristics is
known as
A. Cost divisions
B. Cost Allocation
C. Cost Accumulation
D. Cost Classification
E. Cost Absorption

2. The amount of expenditure (actual or notional) incurred on a particular

activity or venture over a specified period of time is called
A. Cost Accounting
B. Costing
C. Cost
D. Expenditure
E. Cost Accountancy
3. A standard that can be attained under the perfect operating conditions with
no allowance for wastages, idle time and machine breakdown is known as
A. Current Standard
B. Regular Standard
C. Ideal Standard
D. Attainable Standard
E. Basic Standard

33
4. The costing technique used primarily for short term tactical decisions is
called

A. Standard costing technique

B. Absorption costing technique
C. Budgetary control
D. Marginal costing technique
E. Responsibility accounting

Use the information below to answer questions 5 and 6.

XBA Company uses a single material to produce its final product called
COCOAB. The usage for the production ranges between 30,000 units and
60,000 units a day with the delivery period from 3 and 5 days.

5. Calculate the re-order level

A. 90,000 units
B. 150,000 units
C. 180,000 units
D. 240, 000 units
E. 330,000 units

6. What is the minimum inventory level?

A. 360,000 units
B. 240,000 units
C. 180,000 units
D. 160,000 units
E. 120,000 units

7. The system designed to suit the ways goods are manufactured or processed
or the way services are provided is referred to as
A. Job costing
B. Specific order costing
C. Costing methods
D. Process costing
E. Batch costing

34
8. The amount of wages paid to some set of employees who are not directly
engaged in the process of converting raw materials into finished product is
called
A. Labour cost
B. Direct wages cost
C. Variable cost
D. Indirect labour cost
E. Wages and salaries

9. Economic order quantity is a quantity of materials and components to be

ordered which takes into account the optimum combination of all the
following, EXCEPT
A. Stockholding costs
B. Amount of costs tied up in inventory
C. Order delivery time
D. Cost of processing the order
E. Warehouse rent

10. The integrated accounts are generally prepared in line with ……………
requirement
A. Cost accounting
B. Responsibility accounting
C. Control account
D. Management account
E. Financial accounting

11. If the expected sales is 360,000 units and the opening inventory is 40,000
units while the closing inventory is anticipated to be one third of sales units,
what is the quantity to be produced for a given period?
A. 480,000 units
B. 440,000 units
C. 400,000 units
D. 360,000 units
E. 220,000 units

12. In which of the following is the concept of equivalent units of production

relevant?
A. Job costing
B. Batch costing
C. Uniform costing
D. Contract costing
E. Process costing

35
13. Which of the following is NOT an advantage gained from the use of expert
system?
A. Allows non-experts to make expert decision
B. Reduction in staff costs, that is, fewer experts are required.
C. Improved allocation of human resources: experts concentrate on the
more complex issues
D. Possible user resistance for higher level experts
E. Fast, accurate and consistent advice

14. A network communication method that groups all transmitted data,

irrespective of content, type, or structure into suitably - sized blocks is called
A. Web log
B. Clustered
C. Internet hosting
D. Packet switching
E. Website hosting

15. The use of two or more central processing units within a single computer
system is called
A. Multi-tasking
B. Multi-programming
C. Multi-processing
D. Distributed processing
E. Real time processing

16. The physical part of a computer system and all the peripheral equipment
connected to CPU for input, output and storage is known as
A. Mainframe
B. Human ware
C. Hardware
D. Firmware
E. Computer architecture

17. Which of the following is NOT correct?

A. A closed loop system responds to change in the environment
B. The comparator is one of the elements of control system
C. Deterministic system use predetermined rules
D. Cybernetic system adapt to the environment
E. Business systems are probabilistic system

36
18. An input device that recognises text or illustration printed on paper and
translates the information into a format which the computer can use is called
A. MICR
B. OCR
C. OMR
D. Barcodes
E. Trackbacks

19. A convention or standard that controls or enables the connection,

communication and data transfer between computing endpoints is called
A. Internet
B. Computer network
C. Protocol
D. System architectures
E. Packet switching
20. Which of the following is NOT a type of web hosting?
A. Co-location
B. Reseller
C. Bandwidth
D. Dedicated
E. Free

SECTION B: OPEN-ENDED QUESTION (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX
QUESTIONS IN THIS SECTION

QUESTION 1

a. Alobo Limited manufactures three products, X, Y and Z, which have the

following details:
X Y Z
N N N
Materials 230 12 275
Labour 75 55 25
Variable overheads 15 45 135
Fixed overheads 150 75 120
Total cost 470 187 555
Selling price 560 310 510

Calculate the priority ranking under each of the following conditions:

i. Demand in units is limited
ii. Demand in naira value is limited
iii. Supply of material is limited (12 Marks)

37
b. If production capacity (e.g. machine hours) is an effective limiting factor,
identify four actions management can take to meet production target and
indicate one cost implication of each action. (8 Marks)
(Total 20 Marks)

QUESTION 2

Olugbe Pharmaceuticals manufactures malaria drugs using two processes known

as Alpha and Zeta. The output from process Alpha goes directly into process Zeta.
Information about process Alpha
- There is no work in process at the end of period 1 just ended
- There is a normal loss allowance of 10% of input
- In period 1 just ended, 42,000kg of raw materials were input whilst the
output was 40,000kg

Information about process Zeta

- There are no losses
- In period 1 just ended, input of processed materials was 40,000kg after
transfer from process Alpha at a cost of N400,000
Also, 2,000kg of raw materials were added at a cost of N20,000 and were mixed
with the material input from process Alpha.
- Conversion costs totalling N30,000
- There was no opening work in progress, but 5,000kg remained in the process
at the end of the period. The closing work in progress was 100% complete
for all materials and 40% complete for conversion costs.

Required:
For period 1 just ended;
a. Calculate the abnormal gain or loss in kg for process Alpha. (3 Marks)

b. Prepare process Zeta account showing both weights (kg) and values (N).
(12 Marks)
c. LM operates a parcel delivery service. Last year its employees delivered
15,120 parcels and travelled 120,960 kilometres.
Total costs were N194,400.

LM has estimated that 70% of its total costs are variable with activity and
that 60% of these costs vary with the number of parcels and the remainder
vary with the distance travelled.

38
 The company is preparing its budget for the forthcoming year using an
incremental budgeting approach and has produced the following estimates:
• All costs will be 3% higher than the previous year due to inflation;
• Efficiency will remain unchanged; and
• A total of 18,360 parcels will be delivered and 128,800 kilometres will
be travelled.
Required:
Calculate the following costs to be included in the forthcoming year‟s
budget:
i. The total variable costs related to the number of parcels delivered.
(3 Marks)
ii. The total variable costs related to the distance travelled. (2 Marks)
(Total 20 Marks)

QUESTION 3
a. A soap making factory in your town has two production cost centres known
as Departments „A‟ and „B‟. They also have a service cost centre known as
Department „S‟.
Overheads are absorbed in Department „A‟ and „B‟ on the basis of machine
hours.
The budgeted cost allocation and apportionment information are as provided
in the table below:
Dept A Dept B Dept C
Allocated & Apportioned overhead N50,000 N75,000 N14,000
Basis of reapportionment of service
cost centre‟s overhead 50% 50% -
Budgeted machine hours 3,000 - -
Overhead absorption rate - 9

The actual cost allocation and apportionment information are as provided in

the table below:

Dept A Dept B Dept C

Overheads (including share of depart „S‟)
Overheads reapportioned 60,000 - -
Machine hours worked 3,930 4,440 -
Over absorbed overhead - 1,300 -

39
 Required:
a. For department „A‟, calculate:
i. The production overhead absorption rate. (3 Marks)
ii. Any over or under absorption of overhead. (2 Marks)

b. For department „B‟, calculate:

i. The budgeted machine hours (5 Marks)
ii. The actual overhead incurred (5 Marks)

c. A company may depart from quantitative models that provide

estimate of the economic order quantity and the re-order point. List
and briefly explain any THREE qualitative factors that may influence
the choice of the order quantity. (5 Marks)
(Total 20 Marks)

QUESTION 4

Mr. Fresh Limited makes one product, “The Fresh”. Two types of labours are
involved in the preparation of The Fresh – skilled and semi-skilled labour.
- Skilled labour: This is paid at N10 per hour

- Semi-skilled labour: This is paid at N5 per hour

Twice as many skilled labour hours are semi-skilled labour hours needed to
produce The Fresh, while four semi-skilled labour hours is also needed.
„The Fresh‟ is made up of 3 different direct materials as follows:
- Material A - 4kg
- Material B - 5 litres
- Material C - 2 metres
To produce one unit of „The Fresh‟, the above stated materials are needed at the
following costs:
- Material A - N2 per kg
- Material B - N2 per litre
- Material C - N3 per metre

Variable production overheads are incurred at the rate of N2.50 per skilled direct
labour hours.

The system of absorption costing in Mr. Fresh Limited is direct labour (skilled
hours).

40
For the forth coming period, budgeted fixed production overhead cost is N250,000
and budgeted production units is 5,000 units.

Admin, selling and distribution overheads are added to products at the rate of N14
per unit. A mark-up of 25% is made on the job.

Required:

a. Using the above information, draw up a standard cost card for „The Fresh‟,
showing the following:
- Direct materials (1 Mark)
- Direct labour (1 Mark)
- Standard variable production overhead (2 Marks)
- Standard full production overhead (2 Marks)
- Standard cost of sales (2 Marks)
- Standard selling price (2 Marks)

b. Prepare the standard cost card using marginal costing system. (5 Marks)

c. List and briefly explain TWO similarities and THREE differences between
budget and standard. (5 Marks)
(Total 20 Marks)

QUESTION 5

a. List and explain FOUR of input, output or storage devices of a computer.

(15 Marks)
b. Explain the difference between a web browser and a web server in Internet
technologies. (2 Marks)

c. Explain the meaning and utilisation of the following services under cloud
computing;

i. Software-As-A-Service (1 Mark)
ii. Infrastructure-As-A-Service (1 Mark)
iii. Storage-As-A-Service (1 Mark)
(Total 20 Marks)

QUESTION 6
The Managing Director of Lanre Okoro Limited is your personal friend. After
attending a seminar on the importance of business data, he came to you to advice
him further on how to secure his data.

41
He is particularly interested in knowing more about data security, authorisation,
authentication, virus and malware.

Required:
a. Explain the difference between authorisation and authentication. (3 Marks)
b. Explain the term „MALWARE‟ and give TWO examples (3 Marks)
c. What is “Ransom ware”? (1 Mark)
d. What is the best solution to a ransom ware threat? (2 Marks)
e. What is the difference between a Database and a Database Management
System? (3 Marks)
f. Explain each of the following terms:
i. Physical security (2 Marks)
ii. Logical security (2 Marks)
iii. Confidentiality (2 Marks)
iv. Integrity (2 Marks)
(Total 20 Marks)

42
SOLUTION TO MCQ
1. D
2. C
3. C
4. D
5. C
6. E
7. C
8. D
9. E
10. C
11. B
12. E
13. D
14. D
15. C
16. C
17. A
18. B
19. C
20. C

EXAMINER‟S REPORT

This section consists of 20 objective questions covering a large area of the syllabus.
The questions were attempted by all the candidates and individual performances
range from fair to very good.

SECTION B
SOLUTION 1
(a) The first step is to compute the contribution per unit of each product.
X Y Z
N N N
Selling price 560 310 510
43
 Total unit variable costs (320) (112) (435)
Contribution per unit 240 198 75
i. Limiting factor – sales demand in units.
- Rank the products on the basis of contribution per unit
Product X Y Z
Ranking 1st 2nd 3rd

ii. Limiting factor – sales demand in naira value.

- Rank products on the basis of contribution margin ratio (CMR)
Product X Y Z
CMR (= cont. ÷ sales) 42.9% 63.9% 14.7%
Ranking 2nd 1 st
3rd
OR
CMR X Y Z
Contribution
selling price
Ranking 42.9% 63.9% 14.7%
2nd 1st 3rd

iii. Limiting factor – material

- Rank products on the basis of contribution per naira value of
material

Product X Y Z
Material cost/unit (k) N230 N12 N275
Contribution (T) 240 198 75
Contribution per naira (T ÷ k) 1.04 16.50 0.27
Ranking 2nd 1st 3rd

(b) The following actions can be taken to mitigate the effects of capacity
limitations:

Possible actions Possible cost implication

1. Overtime working Payment of overtime premium

2. Working night shift Payment of night premium, over-use

of machine, leading to frequent
breakdown, low productivity etc.
Effective training to improve
3. Training cost
productivity
4. Outsource production Possible additional cost, quality,
reliability, etc

44
 5. Purchase of additional Capital outlay
machine
EXAMINER‟S REPORT

This is a marginal costing question which tests candidates‟ ability to maximise

profits in the face of limited resources. The question was attempted by about 85%
of the candidates but performance was just average.

Many candidates did not realise that the first consideration should be to determine
the contribution per unit.

Candidates are advised to concentrate more on the ICAN Study Texts in their
preparations for the future.

MARKING GUIDE
Marks Marks
(a) Priority Ranking
Contribution per unit
Product X 1
Product Y 1
Product Z 1

(i) Limiting Factor – sales demand in units

Product X Ranking 1
Product Y Ranking 1
Product Z Ranking 1

(ii) Limiting Factor – sales demand in Naira

Product X Ranking 1
Product Y Ranking 1
Product Z Ranking 1

(iii) Limiting Factor - materials

Product X Ranking 1
Product Y Ranking 1
Product Z Ranking 1 12

(b) Possible Actions

4 points @ 1 mark each 4

Possible cost implications 4 8

TOTAL: 20

45
SOLUTION 2
(a) Process Alpha – Calculation of abnormal loss or gain
Kg
Input 42,000
Less normal loss (4,200) (10% x 42,000)
Expected output 37,800
Less actual output 40,000 (input to process Zeta)
Abnormal gain 2,200

(b) Process Zeta accounts

Kg N Kg N
Process Alpha costs 40,000 400,000 Output (w1) 37,000 398,490
Added materials 2,000 20,000 Work in progress 5,000 51,510
Conversion costs ______ 30,000 ______ ______
42,000 450,000 42,000 450,000

W1 Calculation of equivalent unit of output

Materials (kg) Conversion

Output (40,000 + 2,000 – 5,000) 37,000 37,000
Closing work in progress 5,000 2,000 (40% x 5,000)
42,000 39,000

W2 Costs per equivalent unit

Material costs 420,000 = N10 per equivalent
Materials 42,000 Unit

Conversion costs 30,000 = N0.77 per equivalent

unit
Equivalent units of conversion 39,000

Total cost per equivalent unit = 10.00 + 0.77 = N10.77

W3 valuation

Output (37,000 x 10.77) = 398,490

Closing W.I.P (5,000kg x 10 per kg) = 50,000

+ 2,000kg x 0.77 = 1,510
51,510

46
(C)
(i) Calculate the projected total variable cost per number of parcels delivered

Cost that can be varied with no. of parcels

Total cost - 194,400
Variable cost (70%) 136,080 (70% x 194,400)

% of VC that can be varied based on no. of parcels = 60%

= 60% x 136,080 = N81,648
-
Cost per parcel - 81,648 = N5.42
15,120 (no. of parcels)

Next year, cost will increase by 3% = 1.03 x 5.42

= 5.562

Total no. of parcel for next year = 18,360

Therefore, total cost to be spent next year
based on parcel delivery = 5.562 x 18,360 = N102,118.32

(ii) Calculation of projected total variable cost related to the distance travelled.

Total Variable Cost - 136,080

Variable Cost related to distance = 40% x 136,080 = 54,432

Therefore, cost per kilometre (presently) =

Next year cost will increase by 3% = 1.03 x 0.45 = N0.4635

Distance projected for next year = 128,800

Therefore, projected total cost based on

distance travelled will be = 0.4635 x 128,800 =
N59,699

EXAMINER‟S REPORT

This question tested candidates‟ understanding of process costing and budgeting.

The question was attempted by about 50% of candidates and performance was
generally poor. The major pitfall was the determination of abnormal gain,
abnormal loss and work in progress.

47
Candidates are advised to study more on every aspect of process costing when
preparing for future examination.
MARKING GUIDE
Marks Marks
(a) Calculation of abnormal gain

- Input 0.5
- Normal loss 0.5
- Expected output 0.5
- Actual output 0.5
- Abnormal gain 1 3

(b) Preparation of process zeta account

- Input cost for process Alpha in kg 1

- Input cost for process Alpha in N 1
- Output cost for process Zeta in kg 1
- Output valuation for Zeta in N 1 4
Calculation of equivalent units of output

- Output in kg 1
- Output in N (conversion cost) 1
- Cost per equivalent unit (materials) 1
- Cost per equivalent unit (conversion cost) 1 4

Valuation

- Output 1
- Closing w.i.p. (5000kg x 10) 1
- Closing w.i.p. (40% x 5000) 1
- Total cost per equivalent unit 1 4 12

QUESTION 2C
Marks Marks
(i) Calculation of projected total variable cost

- Calculation of variable cost 0.5

- Calculation of % of variable cost based
on percels 0.5
- Calculation of cost per percel 0.5
- Calculation of projected cost per percel 1
- Calculation of total cost for next year
based on percel delivery 0.5 3

48
(i) Calculation of projected total variable cost related to distance

- Calculation of total variable cost on distance 0.5

- Calculation of current cost per kilometre 0.5
- Calculation of next year cost 0.5
- Calculation of projected total cost based
on distance travelled 0.5 2

GRAND TOTAL: 20

SOLUTION 3

a i. Computation of budgeted production O/H absorption ratio

Dept A Budget
N
Allocated & apportioned 50,000
Add reapportionment of service cost centre‟s overhead 7,000 (50% x 14,000)
57,000

ii. Determination of over absorption or under absorption

N
Actual production overhead incurred - 60,000
Production overhead (N19 x 3,930) (74,670)
(14,670)

(b)i. Department „B‟

Calculation of budgeted machine hours

N
Allocated & apportioned cost 75,000
Add reapportionment of service cost centre‟s O/H (50% x 14,000 7,000
Total allocated & apportioned OH 82,000

Budgeted production absorption rate – N9

49
ii. Department „B‟
Calculation of actual O/H
N
Production overhead absorbed (4,440 x 9) 39,960
Less over absorption (1,300)
38,660

FACTORS THAT MAY INFLUENCE CHOICE OF ORDER QUANTITY

(1) Order costs: If cost of ordering stock is high, the company may
increase her order quantity so as not to increase the number of times
she orders and the subsequent cost. This also applies if order cost is
low.

(2) Lead time: If lead time is long, order quantity may be high and vice
versa.

(3) Availability of supplier discount: If a supplier offers discount on

purchase price on the condition that order quantity is increased, this
may make the company to increase her order quantity as long as it is
profitable.

(4) Type of stock: If the product is a perishable one and storage facilities
are not available, order quantity may be low.

(5) Availability of storage facilities: If storage facility is available and

cheap, order quantity may be high.

(6) Price Instability: During the period of fluctuating prices, a decision

may be taken to vary the quantity ordered accordingly.

(7) Demand for product: Where there is a high demand for the output,
there would be a corresponding increase in materials ordered.

(8) Cost of stockholding: Cost of holding stock would affect the quantities
to order.

(9) Product expiration date: The shelf life of the material to be ordered
would be a factor in deciding the quantities to order.

50
EXAMINER‟S REPORT

The question tested candidates‟ knowledge of overhead absorption and allocation.

It was attempted by about 50% of candidates.

Performance was poor as this topic has not always been the favourite of
candidates. The major pitfall was the challenge of determining the absorption rate.

Overhead is a topic which should not be ignored. Candidates should therefore

extend their studies into this very important area in the future.

MARKING GUIDE
Marks Marks
a(i) Calculation of Production overhead
absorption rate – Department „A‟

- Allocated & absorbed overhead 0.5

- Reapportioned overhead 0.5
- Total overhead 0.5
- Machine hours Department „A‟ 0.5
- Calculation of correct overhead
Absorption rate 0.5
- Correct production overhead rate 0.5 3

a(ii) Calculation of over/under absorbed overhead

- Actual overhead incurred 0.5

- Calculation of production overhead absorbed 1
- Calculation of over absorption 0.5 2

QUESTION 3B

Marks Marks
(i) Calculation of budgeted machine hours (B)
- Allocated and apportioned overhead 1
- Reapportionment of Department „C‟ cost 1
- Obtaining correct overhead 1
- Correctly dividing overhead by OAR 2 5

(ii) Calculation of actual overhead incurred (B)

- Obtaining correct overhead absorbed 2
- Deducting over absorbed overhead from
51
 the actual production overhead 2
obtaining correct actual hours 1 5

GRAND TOTAL: 10
QUESTION 3C

List and briefly explain any 3 factors that may influence the choice of the order
quantity
- Listing of the factors 1 Mark (max of 3) = 3
- Explanation of the factors listed 1 Mark per explanation
(max of 2) = 2
5

3a - 5
3b - 10
3c - 5
GRAND TOTAL: 20

SOLUTION 4

(a)
N N
(i) Direct materials
Material A – 4kg x N2 8
Material B – 5 litres x N2 10
Material C – 2 metres x N3 6 24

(ii) Direct labour

Skilled labour = 2 x 10 = 20
Semi Skilled labour = 4 x 5 = 20
= 40

(iii) Standard variable production overhead

= 2 hours x 2.50 = N5

(iv) Standard full production overhead

(v) Standard cost of sales

Direct Materials – 24
Direct Labour – 40
Variable Production Overhead - 5
69
Fixed Production Overhead - 50
Cost of sales (COS) 119
52
(vi) Standard sales selling price
Standard C. O. S - 119
Admin and selling - 14
133
Make up 25% 33.25
Standard selling price 166.25

(b) Standard cost card using marginal costing technique

N
Selling price 166.25
Less: Direct materials 24
Direct labour 40
Variable production overhead 5 69.00
Contribution 97.25
Less: Admin & selling 14
Fixed production overhead 50 64.00
Profit 33.25

(5 Marks)
(c)
Similarities between budgets and standards
(1) Both involve predetermined costs
(2) Both are designed for cost control
(3) Both can be used for comparison purpose
(4) Both can be deployed in any organisation
(5) Both are concerned with setting performance (2 Marks)
Differences between budgets and standards

1. Scope Designed for every aspect of a Scope is only for cost

company‟s business elements
2. Use Budgetary items are calculated in Standard cost items are
total values calculated per units
3. Features A budget must require volumes of A standard does not
production require volumes of
production
4. Revision Budgets are revised on a periodic Standards are revised
basic eg. annually, quarterly whenever found
inappropriate for current
operating conditions
5. Accounting Budgets are memorandum and do Standards form part of the
treatment not form part of double entry double – entry accounts.
(3 Marks)
(any 3 points listed attracts 1 mark each = 3 marks)
53
 (Total: 20 Marks)

EXAMINER‟S REPORT

This question tested candidates‟ knowledge of standard costing. It was attempted

by about 40% of the candidates.

Performance was average. However, many candidates did not follow the
established formats for standard cost cards. Some also stopped midway without
determining the profit and selling price.

Candidates are advised to always pay attention to complete formats in their future
preparation.

MARKING GUIDE
Marks Marks
a(i) Calculation of Direct Materials

- Material A cost ¼
- Material B cost ¼
- Material C cost ¼
- Total cost of direct materials ¼ 1

(ii) Calculation of direct labour

- Semi skilled labour cost ½

- Skilled labour cost ½ 1

(iii) Standard variable production overhead

- Variable production overhead rate ½

- Utilisation of skilled labour hour 1
- Standard variable production overhead ½ 2

(iv) Standard full production overhead

- Budgeted production overhead ½

- Budgeted production units ½
- Correctly dividing overhead by units 1 2

(v) Standard cost of sales

- Direct materials ½
- Direct labour ½
- Variable production overhead ½
54
 - Fixed production overhead ½ 2

(vi) Standard selling price

- Standard cost of sales ½

- Admin and selling costs ½
- Mark up at 25% ½
- Standard selling price ½ 2

Sub Total: 10

QUESTION 4(b)
Marks Marks
(b) Standard cost card using marginal
costing system

- Direct material ½
- Direct labour ½
- Standard Direct Costs (prime cost) ½
- Standard variable production overhead ½
- Variable production cost ½
- Admin and selling cost ½
- Fixed production overhead ½
- Total production cost ½
- Mark up ½
- Selling price ½ 5

QUESTION 4(c)

(i) List and briefly explain 2 similarities and

3 differences between budget and standard

- Similarities (2 x 1 mark each) = 2

- Differences (3 x 1 mark each) = 3 5

GRAND TOTAL: 20

SOLUTION 5
(i) Input devices include:
1. Keyboard;

2. Mouse;

55
 3. Magnetic Ink Character Recognition (MICR);

4. Joystick;

5. Magnetic stripe card;

6. Smart cards;

7. Optical Character Recognition (OCR);

8. Optical Mark Recognition (OMR);

9. Light pen; and

10. Touch screen.

1. Keyboard: a device that contain typewriter-like keys that when depressed,

provide input to the computer system for processing. It is used in
conjunction with a screen as an input device. The keyboard contains
alphabetic keys, numeric keys, punctuation keys, arithmetic operation keys,
12 function keys (F1 – F12), control key and some special symbols keys.

2. Mouse: is a device that contains a rolling metal ball and one or more
buttons that can be pressed to execute command and is used particularly
with computers having windows. Not designed to replace keyboard but to
enhance the user‟s moving ability.

3. Magnetic Ink Character Recognition (MICR): It uses magnetic ink made of

ferromagnetic substance that is used for printing the character, designed in
a special type font. MICR is mainly used in bank and other financial
institutions for processing of cheques.

4. Joystick: It is used for playing any electronic or card games. When attached
to the computer, the joystick is used like mouse but instead of using a rolling
ball, there is a moveable stick used to position the cursor on the screen.
Buttons mounted on the stick or elsewhere on the units are pressed to
execute commands.

5. Magnetic Stripe Card: Rectangular shaped card on which machine sensitive

data are contained on a magnetic stripe which is a thin strip of magnetic
recording tape stuck on the card. The magnetic stripe card converts the
information into directly computer-sensitive form. Used as bank credit or
service cards for Automated Teller Machines (ATM) and bank payment
system.
56
6. Smart Card: It is a plastic card on which is embedded a microprocessor chip,
which utilizes Erasable Programme Read Only Memory (EPROM). Smart card
contains accounting data, memory and processing capability. Used like
magnetic stripe card for memory transmission. It is not easy to duplicate
and therefore, more secured.

7. Optical Character Recognition (OCR): Designed in a special type font capable

of being interpreted by both human and optical scanning equipment. The
optical characters are read by a scanner attached to the computer and
transmitted for processing. OCR equipments are used widely in retail shops
and grocery industries. OCR using optical scanning equipment is used in
“point of Sales” (POS) transactions.

8. Optical Mark Recognition (OMR): Source Document is pre-printed as a

turnaround document with pre-designed column values and a mark in
pencilled (graphite), a ball point pen or typed line or cross is recorded in the
appropriate column. The document will be read by a device (scanner) which
senses the graphite in each column and translates it into machine code for
processing. OMR is used in marking multiple-choice examination.

9. Light pen: Electronic device in the form of a photo-diode on the end of a

cable used in combination with a display device (VDU). It is used to display,
notify or detect images on the screen in Computer Aided Design (CAD)
application.

10. Touch Screen: Some computer screens are touch-sensitive and when a finger
is pointed at a command displayed on the screen, the command is executed.

Use: Bank and stores where untrained or unsophisticated customers,

reluctant to read instructions can interact with the system through the
labelling on the touch screen. Other examples are the Android phones.

NOTE: OUTPUT and STORAGE devices to be considered together.

(ii) Output device: Output device include:

i. Monitor;

ii. Graphic Plotter;

iii. Computer output on microfilm (COM);

57
 iv. Printer; and

v. Speaker.

1. Monitor: a displaying device that work in conjunction with a keyboard.

Monitor or Visual Display Unit (VDU) or screen is output device that
display softcopy output which can be seen.

2. Graphic plotter: is a peripheral output device used for the output of

complicated fine graphical information. It produces hardcopy that can
be multicolour. It is used for engineering and scientific applications as
well as business presentations graphics.

3. Computer Output on Microfilm (COM): Microfilm is a continuous strip

with images formed in frames one at a time, along the strip of the film. A
microfilm converts of separate sheet of film with each containing many
frames or pages of information. A special microfilm reader in used to
read the output. COM is used to store massive data in compact form and
used for archival purposes.

4. Printers: Output device that provides hardcopy (output) on paper which

can be seen, held and touched. There are two categories: Impact printer
(makes noise when printing) e.g line printer and non-impact printer
(does not make noise when printing) e.g. LaserJet printer.

5. Speaker: Speaker as an output device for music and audio.

5a. (iii) Storage Devices:

These include:
i. Magnetic Disk;
ii. Magnetic Floppy Disk;
iii. Magnetic Tape;
iv. Streaming tape;
v. Video tape recorder;
vi. CD-ROM disk;
vii. Video Disk;
viii. Magneto – Optical disk; and
ix. USB Drive (universal storage bus) device.

(5b) Web Server and Web Browser

A Web server is a Server that contains all the data, information, and images
of the company. A company who has a web site will store her information on
the web server.

58
 A web browser on the other hand is the application used to view, retrieve
information from the web server. To see what is available on a company‟s
web site, you must use a web browser like Internet explorer, Google Chrome,
Safari etc
OR
Thus a web browser is a program that helps in showing stuff on the internet
and web server helps in delivering that material from the websites to
the web browser

(5c)(i) Software-As-A-Service

Software as a service is a software licensing and delivery model in which

software is licensed on a subscription basis and is centrally hosted. It is
sometimes referred to as "on-demand software". With software-as-a-service,
you need not pay for the full value of a software, and the software will not be
stored on your computer. When you want to use the software, you connect to
the host from the internet, use the software and pay based on how you use it.

(ii) Infrastructure-As-A-Service

Infrastructure as a service (IAAS) is a service model that deliver computer

infrastructure on an outsourced basis to support enterprise operations. With
(IAAS) you need not buy any hardware to process or store your data.

You only need to connect to the Internet, pay the IAAS service provider and
he will allow you use his processor or storage to process and/or store your
data. You only pay based on what you use.

(iii) Storage-As-A-Service

This is a service model where a provider allows people to store their data on
his server over the internet (also called Cloud storage service). The user pays
based on the size of the data stored e.g Google Drive.

EXAMINER‟S REPORT

This question tested candidates‟ understanding of hardware, software and cloud

computing.

The question was attempted by about 80% of candidates and performance was
good on hardware and software but poor on cloud computing.

Candidates are advised to study more on the topic of cloud computing in the future.

59
MARKING GUIDE

Marks Marks
(a) List and explain four of input, output or
storage devices of a computer

- List of any 4 input devices

or 1 mark per point 4
- List of any 4 output devices
or
- List of any 4 storage device
- Explanation of each devise listed (2 x 4) 2 8
- One example of what the device is
used for (maximum of 3 examples) (1 x 3) 1 3
15

QUESTION 5(b)

Marks Marks
Difference between web server and web browser

- Correct difference for web server 1

- Correct difference for web browser 1 2

QUESTION 5(c)
Marks Marks
(i) Software-As-A-Service
- Correct meaning ½
- Correct utilisation ½ 1

(ii) Infrastructure-As-A-Service
- Correct meaning ½
- Correct utilisation ½ 1

(iii) Storage-As-A-Service

- Correct meaning ½
- Correct utilisation ½ 1

GRAND TOTAL: 20

60
SOLUTION 6

a) Authorisation and authentication

Authorisation means granting access to the system while

Authentication means confirming your own identity.

Authorisation is the process of confirming if you are allowed to use the

system while authentication is the process of verifying if you are the
authorised user.

A mechanism for authorisation is user name while a mechanism for

authentication is Password or tokens.

b) Malware is a contraction for “malicious software.”

Examples of common malware includes viruses, worms, Trojan viruses,
spyware, adware, and ransomware.

c) A ransomeware is a type of malicious software designed to block access to a

computer system until a sum of money is paid. The writer usually threaten to
publish the victim's data or perpetually block access to it unless a ransom is
paid.
d) If an organisation is faced with a ransomeware threat, the best solution is
not to cooperate with the criminals. The best solution is to always have a
back-up of your database and a backup of the backup

e) A database is a repository of the data of an organisation. All data of an

organisation is stored in the database. A database management system on
the other hand is a software that interfaces between user and the database.
Access to the data in the database is through the database management
system.

f) (i) Physical security means the protection of personnel, hardware,

software, networks and data from physical actions and events that
could cause serious loss or damage to an enterprise, agency or
institution. This includes protection from fire, flood, natural disaster,
burglary, theft, vandalism and terrorism

(ii) Logical Security consists of software safeguards for an organization's

systems, including user identification and password access,
authenticating, access rights and authority levels. These measures are
to ensure that only authorised user are able to perform actions or
access information in a network or a workstation.

61
 (iii) Confidentiality is the state of keeping or being kept secret or private.
It is the quality of a system that says, „unauthorised user will not be
able to have access to it‟.

(iv) Data Integrity means that the data in the database is consistent, free
from unauthorised amendments and remains the same as when it was
stored.

EXAMINER‟S REPORT

This question tested candidates‟ knowledge of computer security. It was attempted

by about 70% of the candidates.

Performance was good but there was a mix-up between different types of threats to
computer security.

Because there is a thin line between these security threats, candidates are advised
to master the intricacies in the future.

MARKING GUIDE

Marks Marks
(a) Difference between authorisation and
authentication

- Meaning of authorisation 1
- Meaning of authentication 1
- Difference 1 3

(b) Explain the term „MALWARE‟ and give

Two example

- Meaning of malware 1
- One example 1
- One example 1 3

(c) What is „RANSOMWARE‟

- Meaning of ransomware 1 1

(d) Best solution to a ransomware threat

- Explanation of what a ransomware

Threat is 1
- Recommendation of one solution 1 2

62
(e) What is the difference between a Database
and a Database Management System?

- Explanation of what a database is 1

- Explanation of what a database
management system is 1
- Difference between the two 1 3

(f) Explanation of each term

(i) - Explanation of physical security 1

- Example of physical security 1 2

(ii) - Explanation of logical security 1

- Example of logical security 1 2

(iii) - Example of confidentiality 1

- Explanation of confidentiality 1 2

(iv) - Example of integrity 1

- Explanation of integrity 1 2
20

63
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – NOVEMBER 2019
TAXATION
Time Allowed: 31/4 hours (including 15 minutes reading time)

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER 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:

2. Tax system usually involves which of the following aspects?

A. Tax policies and tax laws
B. Tax administration
C. Tax laws
D. Tax policies
E. Tax policies, tax laws and tax administration

2. Which of the following is NOT an objective of taxation?

A. Revenue generation
B. Redistribution of income and wealth
C. Management of the economy
D. Promotion of competition between Federal and state governments
E. Harmonisation of diverse trade or economic objectives of different
countries
3. The Joint Tax Board (JTB) comprises the following, EXCEPT
A. The Legal Adviser of a State Ministry of Justice
B. The Chairman of the Federal Inland Revenue Service Board
C. One member from each state, being a person experienced in income tax
matters nominated by the Commissioner charged with the responsibility
for matters relating to income tax of the state in question
D. The Secretary, who is not a member of the Board, is appointed by the
Federal Civil Service Commission
E. The Legal Adviser of the FIRS who acts as the Legal Adviser to the JTB

64
4. Which of the following is NOT a function of the Joint State Revenue
Committee?
A. Implement the decisions of the Joint Tax Board
B. Harmonise tax administration in the state
C. Provide the general policy guidelines relating to the functions of
Federal Inland Revenue Service
D. Enlighten members of the public on state and local government
revenue matters
E. Carry out such other functions as may be assigned to it by the Joint Tax
Board
5. Under the National tax policy (NTP), 2017, which of the following is NOT a
key stakeholder in the Nigeria tax system?
A. All levels and arms of government, ministries, extra-ministerial
departments and agencies
B. A group of persons or an entity that pays or is liable to tax often called
the taxpayer
C. Any revenue agency responsible for the collection and administration of
revenue
D. Media and advocacy groups
E. Tertiary institutions

6. The fundamental principles of ethics as specified by the International Ethics

Standards Board for Accountants (IESBA) EXCLUDE
A. Integrity
B. Professional competence and due care
C. Objectivity
D. Confidentiality
E. Relationship

7. Within how many months after the commencement of business, should a

limited liability company register for tax purposes with the Federal Inland
Revenue Service?
A. 12 months
B. 10 months
C. 8 months
D. 6 months
E. 4 months

65
8. In line with the provision of section 69 of Companies Income Tax Act Cap C21
LFN 2004 (as amended), a notice of objection must meet the following
conditions to be valid, EXCEPT
A. Be in writing and addressed to the Chairman, Federal Inland Revenue
Service
B. State the amount of assessable and total profits of the company for the
relevant assessment year
C. Be raised within thirty days of the date of service of the notice of
assessment
D. Be raised within sixty days of the date of service of the notice of
assessment
E. State the amount of tax which the taxpayer claims as payable for the
year of assessment

9. Which of the following is NOT an objective of withholding tax?

A. To build training schools for the Federal Inland Revenue Service

B. To discourage, minimise or prevent incidence of tax evasion
C. To increase the tax net of the government
D. To serve as a collection mechanism for income tax
E. To serve as a veritable source of revenue to the government

10. Which of the following is NOT exempted from VAT?

A. Basic food items

B. Baby products
C. All medical and pharmaceutical products
D. Books and educational materials
E. Building materials

11. A company that fails to commence business after six months of

incorporation, shall pay a pre-operational levy of ............... on its first
application for tax clearance certificate

A. N25,000
B. N20,000
C. N15,000
D. N10,000
E. N5,000
12. Which of the following is NOT required by law to be stamped?

A. Contract notes
B. Agreements
C. Mortgages
D. Receipts
E. Instruments relating to reconstruction and amalgamation
66
13. The stamping of documents can be effected through the following, EXCEPT

A. Affixing adhesive stamp

B. Affixing postage stamp in lieu of adhesive stamp
C. Embossing with dies
D. Printing on the instruments
E. Cello taping

14. Members of the Customs Service Commission include the following, EXCEPT

A. The Legal Adviser of the Customs Service

B. All Deputy Comptrollers – general of the Customs Service
C. The Chairman of the Federal Inland Revenue Service
D. A representative of the Council for the Regulation of Freight Forwarding
in Nigeria (CRFFN)
E. A representative of the Minister of Health

15. Which of the following is NOT a benefit of taxation of luxury goods?

A. To raise government revenue

B. To broaden the tax base
C. To redistribute wealth from the rich to the poor
D. To mitigate the consumption of non – essential goods and services
E. To encourage manufacturers of luxury goods to increase production

16. “Property” under the Lagos State Land Use Charge Law 2018, includes the
following, EXCEPT

A. A building
B. A fleet of cars
C. Any improvement on land
D. Leasehold of up to ten years
E. A parcel of land, whether or not reclaimed, waterlogged or otherwise

17. Which of the following is a benefit–in–kind?

A. Official remuneration of management staff

B. Official non-monetary remuneration of an employee
C. Tax paid by an employee
D. Official remuneration of an employee
E. A year-end bonus

67
18. Who among the following is usually appointed by the Court to administer the
estate of a person who died intestate?

A. Beneficiary
B. Trustee
C. Investor
D. Accountant
E. Administrator

19. In commencement of business, a taxpayer‟s right of election to have some

assessment years revised to actual basis only apply to

A. The third year of assessment

B. The first year of assessment
C. The second year of assessment
D. Both the second and third years of assessment
E. The first and second years of assessment

20. Which of the following is allowable expense in the determination of

assessable profit?

A. Depreciation
B. Expenditure of a capital nature
C. Cost of defending traffic offence
D. Income tax provision
E. Specific allowance for doubtful debts

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX
QUESTIONS IN THIS SECTION
QUESTION 1
a. Mr. James Akpobo was born on August 1, 1949, in Kaduna. He attended
Community Primary School, Kaduna, and graduated from the University of
Ibadan in 1974.
He was employed as the Site Engineer of XYZ Limited in Jos, and spent 20
years working for this company. On his retirement in 1995, he sought an
advice of his friend on profitable ventures in Nigeria. Thereafter, he decided
to register James Akpobo Enterprises which is into buying and distribution of
building materials.

68
He commenced business on June 4, 1996, making up accounts to December
31, every year. The statement of profit or loss of James Akpobo Enterprises
for the year ended December 31, 2017, is as follows:
N N
Revenue 29,500,000
Cost of sales (15,200,000)
Gross profit 14,300,000
Other income 800,000
15,100,000
Administrative expenses:
Staff salaries 4,000,000
Printing and stationery 248,000
Postages and telephone 36,200
Electricity 68,100
Rent 800,000
Donation 50,000
Repairs and maintenance 41,500
Defalcation and embezzlement 120,000
VAT on equipment 25,000
Entertainment 196,000
Allowance for doubtful debts 48,000
Legal fees and other professional charges 200,000
Audit fees 250,000
Bank charges and commissions 147,500
Depreciation 82,100 (6,312,400)
Net profit 8,787,600

You are provided with the following additional information:

(i) Income comprises:

N
Reversal of allowance for doubtful debts earlier
disallowed 674,900
Sale of scraps 125,100
800,000

(ii) During the year, he received a gross dividend of N220,000.

(iii) Donation was made to XYZ political party.
(iv) Capital allowance of N48,000 was agreed with the relevant tax
authority.
(v) An accounting clerk in the organisation was involved in the
defalcation and embezzlement.
(vi) Mr. James Akpobo has a life assurance policy on his life for which he
pays an annual premium of N600,000.
(vii) Mr. James Akpobo has four children and maintains his aged parents.
69
 (viii) Mr. James Akpobo makes the following contributions per annum to:

N
National housing fund 120,000
National health insurance scheme 48,000

Required:
Compute the income tax payable by James Akpobo for the relevant
assessment year. (18 Marks)

b. Alhaji Kudus Abdulahi was appointed to manage the estate of a deceased

individual on June 1, 2018. He sought your advice on the computation of
capital allowances on assets transferred to the estate of the deceased.

Required:

Explain to Alhaji Kudus Abdulahi the specific provisions that should be noted
when computing the capital allowances on the assets transferred to the
estate. (2 Marks)
(Total 20 Marks)

QUESTION 2
Allright Nigeria Limited was incorporated on January 4, 2013, and it commenced a
retail business on June 1, 2014. The authorised share capital of the company is
N10,000,000, out of which, 5,000,000 shares of N1.00 each were issued and fully
paid on January 24, 2018.
The statement of profit or loss of Allright Nigeria Limited for the year ended
December 31, 2018, has revealed the following:
N
Revenue 25,000,000
Cost of sales (10,500,000)
Gross profit 14,500,000
Other income 125,000
14,625,000
Distribution cost (711,000)
Administrative expenses (6,900,200)
Other expenses (618,500)
Finance cost (391,800)
Profit before tax 6,003,500

You are given the following additional information:

70
(i) A dividend of N2,000,000 was proposed and paid.
(ii) Profit before tax is after charging:

N
Depreciation 496,000
Loss on sale of property, plant and equipment 181,300
Preliminary expenses now written off 240,850
Share issue expenses 36,400
Allowance for doubtful debts 198,300
(iii) Qualifying capital expenditures:
Written down value b/f:
Office equipment N10
Furniture and fittings N10
Motor vehicles N10
Acquired on January 4, 2018:
Office equipment N202,000

Furniture and fittings N185,000

Motor vehicles N1,200,000

(iv) Unrelieved losses brought forward N3,160,000

(v) Unutilised capital allowances bought forward N640,000

(vi) Balancing allowance N428,300

(vii) Net assets as at the end of the year N3,410,160

Required:
Compute the company‟s income tax payable for the relevant year of assessment.
(Total 20 Marks)
QUESTION 3
Personal income tax is the tax that is imposed on individuals who are in
employment, self-employed and those in partnerships. In Nigeria, the taxation of
individuals is guided by the provisions of Personal Income Tax Act Cap P8 LFN 2004
(as amended).

Required:
In line with the provisions of the above stated Act:
a. i. Explain “employment”, “vocation” and “profession”. (6 Marks)
ii. Highlight the distinctions among the terminologies. (4 Marks)

71
b. i. Explain “cash emoluments” and “benefits-in-kind”. (4 Marks)
ii. State three general rules for quantifying “benefits-in-kind”. (6 Marks)
(Total 20 Marks)
QUESTION 4
a. The Federal Government is fully aware of the need to assist small companies
to grow and this partly informed the provision of section 40 (7) of the
Companies Income Tax Act Cap C21 LFN 2004 (as amended), which relates to
small company relief.

Required:
i. State the small company rate of tax on total profits. (1 Mark)

ii. State THREE criteria that must be met to be eligible for small
company relief. (6 Marks)
b. Education tax was introduced into the Nigeria tax system through the
Education Tax Act, 1993 (ETA 1993), which was repealed by the Tertiary
Education Trust Fund (Establishment, etc.) Act, 2011, to address the funding
crisis in the education sector.

In line with the provisions of Tertiary Education Fund (Establishment, etc)

Act 2011, the management and administration of the Tertiary Education Tax
Fund (TET Fund) is vested in the Board of Trustees.

Required:
i. State the composition of the Board of Trustees. (7 Marks)

ii. State SIX functions of the Board of Trustees. (6 Marks)

(Total 20 Marks)

QUESTION 5
Mr. Kehinde Jacob is the Managing Director of XYZ Limited, a company that
commenced business in January 2010. The company having posted profits in
previous years, decided to diversify into the importation of food items.
In November 2018, the company imported the following items from Texas, USA,
through Apapa port:

Quantity Price ($)

Item Cost ($)
(Carbons) (per carton)
Live freshwater ornamental fish 10,000 20 200,000
Tilapias meat 4,200 18 75,600
Edible livers of swine 6,000 30 180,000
Meat of bovine animals 7,500 25 187,500
643,100
You are given the following information:
72
i. The exchange rate in November 2018 was N364 to $1;
ii. The rate of import duty, cost of freight and insurance for each of the
imported items are as follows:

 Rate of import duty:

Live freshwater ornamental fish - 10%
Tilapias meat - 10%
Edible livers of swine - 35%
Meat of bovine animals - 35%
 The cost of insurance was put at 0.5% of the cost of the imported
items.
 The cost of freight:
$
Live freshwater ornamental fish 1,750
Tilapias meet 1,500
Edible livers of swine 1,500
Meat of bovine animals 1,600

Required:
Compute the import duty payable to Nigeria Customs Service by XYZ Limited on
items imported. (Total 20 Marks)

QUESTION 6
Tax administration in Nigeria involves the practical interpretations and application
of the tax laws. The bodies charged with the administration of tax in Nigeria are the
Federal, State and Local Governments. The tax authorities of these tiers of
government derive their formations from Federal laws.

The tax laws allow all tiers of government to establish their own tax authorities. The
administration of taxation in Nigeria is, therefore, vested in various tax authorities
depending on the type of tax under consideration.
You are required to state:
a. The composition and FOUR functions of the Joint Tax Board. (8 Marks)
b. FOUR functions of the State Board of Internal Revenue. (6 Marks)
c. The functions of the Local Government Revenue Committee. (6 Marks)
(Total 20 Marks)

73
 NIGERIAN TAX RATES
1. CAPITAL ALLOWANCES
Initial % Annual %
Building Expenditure 15 10
Industrial Building Expenditure 15 10
Mining Expenditure 95 Nil
Plant Expenditure (excluding Furniture & Fittings) 50 25
Manufacturing Industrial Plant Expenditure 50 Nil
Construction Plant expenditure (excluding Furniture
and Fittings) 50 Nil
Public Transportation Motor Vehicle 95 Nil
Ranching and Plantation Expenditure 30 50
Plantation Equipment Expenditure 95 Nil
Research and Development Expenditure 95 Nil
Housing Estate Expenditure 50 25
Motor Vehicle Expenditure 50 25
Agricultural Plant Expenditure 95 Nil
Furniture and Fittings Expenditure 25 20
2. INVESTMENT ALLOWANCE 10%
3. RATES OF PERSONAL INCOME TAX
Graduated tax rates with consolidated relief allowance of N200,000 or 1% of
Gross Income whichever is higher + 20% of Gross Income.
Taxable Income Rate of Tax
(N) (%)
First 300,000 7
Next 300,000 11
Next 500,000 15
Next 500,000 19
Next 1,600,000 21
Over 3,200,000 24
After the relief allowance and exemption had been granted, the balance of
income shall be taxed as specified in the tax table above.
4. COMPANIES INCOME TAX RATE 30%
5. TERTIARY EDUCATION TAX (2% of Assessable Profit)
6. CAPITAL GAINS TAX 10%
7. VALUE ADDED TAX 5%

74
SOLUTIONS

SECTION A MULTIPLE – CHOICE QUESTIONS

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

Tutorial note

11. Pre-operational levy (POL)

It is pertinent to state that POL is only raised when a taxpayer applies for
current tax clearance certificate (TCC). Put differently, POL should not be
imposed on a taxpayer for any of the previous years when the company
failed to apply for TCC.

75
SOLUTION 1
(a) Mr. James Akpobo
Computation of personal income tax liability
For 2018 assessment year
N N
Net profit per accounts 8,787,600
Add: Disallowable expenses:
Donation 50,000
VAT on equipment 25,000
Allowance for doubtful debts 48,000
Depreciation 82,100 205,100
8,992,700
Deduct: Non-taxable income:
Reversal of allowance for doubtful debts
previously disallowed 674,900
Adjusted profit 8,317,800
Capital allowances (48,000)
Income from trade 8,269,800
Dividend (gross) 220,000
Gross income 8,489,800
Dividend (gross) (220,000)
8,269,800

Less: Consolidated relief allowance (CRA)

N200,000 or 1% of N8,489,800, whichever is

higher plus 20% of N8,489,800 1,897,960

6,371,840

Less: Tax exempt items:

Life assurance premium 600,000

Contribution to national housing fund 120,000

Contribution to national health insurance

scheme
48,000 768,000

Chargeable income 5,603,840

76
Personal income tax payable
N : K
1st N300,000 @ 7% 21,000.00
Next N300,000 @ 11% 33,000.00
Next N500,000 @ 15% 75,000.00
Next N500,000 @ 19% 95,000.00
Next N1,600,000 @ 21% 336,000.00
Next N2,403,840 @ 24% 576,921.60
N5,603,840
Personal income tax payable 1,136,921.60

Tutorial notes:

(i) In the heat of the controversy generated by the promulgation of

Personal Income Tax (Amendment) Act, 2011, the Joint Tax Board (JTB)
came up with a template on how to compute the income tax liability of
an individual. The suggested solution is in line with the tax template of
the JTB.
When a tribunal or any superior court of law decides that the tax
template of the JTB is no longer tenable, subsequent suggested
solutions will accommodate such a decision.
It is pertinent to mention that the practices of most of the state tax
authorities are in tandem with the tax template of the JTB. Additionally,
it is not out of place to state that in accordance with the provisions of
section 86 (9) (d) and (e) of Personal Income Tax Act Cap P8 LFN 2004
(as amended), the JTB shall “use its best endeavours to promote
uniformity both in the application of this Act and in the incidence of tax
on individuals throughout Nigeria and impose its decisions on matters
of procedure and interpretation of this Act on any state for purposes of
conforming with agreed procedure or interpretation”.
(ii) It should be noted that the consolidated relief allowance (CRA) was
computed based on the gross income of N8,489,800. Given the fact that
withholding tax deducted at source on dividend is regarded as the final
tax in the hands of the recipients, another school of thought is of the
opinion that consolidated relief allowance should be computed based
on gross income less dividend. This method is favourable to the
Revenue but this is not in line with the provision of section 33(1) of
Personal Income Tax (Amendment) Act, 2011, which requires that CRA
should be computed based on gross income.

77
(b) Specific provisions to be noted when computing the capital allowances of
the assets transferred to the estate
These are as follows:
(i) Where an individual setting up the estate transfers qualifying capital
expenditure to the estate, the estate shall be deemed to have incurred
qualifying expenditure on the acquisition of the asset equal in amount
to the residue of the expenditure on the day following the death of the
individual.
(ii) No balancing allowance or charge shall be given or made to that
individual in respect of the asset for that year.
(iii) In the event of the disposal of the asset on or after that day, any
balancing charge to be computed should take into consideration the
sum of all allowances previously granted to the transferor and the
estate
(iv) No initial allowance may be claimed on the transferred assets and the
unexpired life of the assets will be considered when computing the
annual allowance.

EXAMINER‟S REPORT

Part (a) of the question tests candidates‟ knowledge of the computation of personal
income tax, whilst part (b) expects candidates to provide professional advice on
capital allowances of assets transferred to the estate of a deceased individual.

Majority of the candidates attempted the question as it is compulsory and the

performance was fair.

The common pitfall was the inability of some candidates to differentiate between
allowable expenses and disallowable expenses. In addition, over 80% of the
candidates could not provide reasonable advice on the provision of the Personal
Income Tax Act Cap P8 LFN 2004 (as amended) relating to capital allowances on
the assets transferred to the estate of a deceased person.

Candidates are advised to read ICAN Pathfinders and Study Texts when preparing
for the Institute‟s examinations.

78
MARKING GUIDE
Marks Marks
(a) Heading 1
Net profit per accounts 1
Disallowable expenses
(1 mark for each correct expense) 4
Non – taxable income ½
Adjusted profit 1
Capital allowances 1
Income from trade 1
Gross income 1
Dividend (gross) 1
Gross income used in the calculation of CRA 1
Calculation of CRA 1
Tax exempt items
(½ mark for each correct item) 1½
Computation of personal income tax payable
(½ mark for each correct calculation) 3 18
(b) Specific provisions that should be noted when
computing the capital allowances of the assets
transferred to the estate
(½ mark for each correct specific provision) 2
20

SOLUTION 2

Allright Nigeria Limited

Computation of companies income tax liability
For 2019 assessment year
N N
Net profit per accounts 6,003,500
Add: Disallowable expenses:
Depreciation 496,000
Loss on sale of property, plant and equipment 181,300
Preliminary expenses now written off 240,850
Share issue expenses 36,400
Allowance for doubtful debts 198,300 1,152,850
Adjusted profit 7,156,350
Losses brought forward (3,160,000)
3,996,350

79
Capital allowances:
Unutilised capital allowances b/f 640,000
Capital allowances for the year (see workings) 950,250
Balancing allowance 428,300 (2,018,550)
Total profit 1,977,800
Companies income tax payable (30% of total profit) = N 593,340

COMPUTATION OF MINIMUM TAX PAYABLE

N N : K
(i) 0.5% of gross profit (N14,500,000) = 72,500.00
(ii) 0.5% of net assets (N3,410,160) = 17,050.80
(iii) 0.25% of paid – up capital (N5,000,000) = 12,500.00
(iv) 0.25% of 1st N500,000 of revenue N500,000 1,250
(v) 0.125% of excess over N500,000 revenue N24,500,000 30,625
N25,000,000
Plus the highest of (i) to (iii) 72,500 103,125.00
The minimum tax payable is N103,125
Invoking the provision of section 19 of Companies Income Tax Act Cap C21 LFN
2004 (as amended), the Federal Inland Revenue Service will revise the company‟s
income tax liability for 2019 assessment year by substituting N2,000,000 (dividend
paid) for the company‟s total profit of N1,977,800, more so when the minimum tax
liability is N103,125.
Arising from the above, the companies income tax payable by Allright Nigeria
Limited is computed thus:

N2,000,000 (Dividend paid) x 30% = N600,000

Working:
Computation of capital allowances
Furniture
Office Motor
and Total
equipment vehicles
fittings
Initial allowance (%) 50 25 50

N N N N

W.D.V. b/f to A.Y. 2019 10 10 10 30

80
Additions:
Cost 202,000 185,000 1,200,000
201,010 185,010 1,200,010
Initial allowance (101,000) (46,250) (600,000) 747,250
Annual allowance (25,250) (27,750) (150,000) 203,000
950,250
W.D.V. c/f to A.Y. 2020 75,760 111,010 450,010

EXAMINER‟S REPORT

The question tests candidates‟ knowledge of the computation of companies income

tax liability.

Many candidates attempted the question and the performance was average. The
common pitfalls were the inability of the candidates to correctly identify
disallowable expenses and difficulty in the computation of minimum tax payable
by companies.

Candidates are advised to study indepth all aspects of companies income tax in the
syllabus.

MARKING GUIDE
Marks
Heading ½
Net profit per accounts 1
Disallowable expenses
(½ mark for each correct expense) 2½
Total of disallowable expenses ½
Adjusted profit ½
Correct treatment of losses brought forward 1
Unutilised capital allowances brought forward 1
Capital allowances computation for the year:
(½ mark for each correct cost of asset) 1½
Initial allowance
(½ mark for each correct computation) 1½
Annual allowance
(½ mark for each correct computation) 1½
Ascertainment of total annual allowance for the year 1½
Balancing allowance 1
Computation of companies income tax payable 1
Computation of minimum tax payable:
81
Gross profit ½
Net assets ½
Paid – up capital ½
Revenue – N500,000 @ 0.25% ½
Revenue – Excess over N500,000 at 0.125% ½
Conclusion, that is, dividend paid to be substituted for total profit 1
Computation based on dividend paid 1
Computation of minimum tax payable ½
20

SOLUTION 3

(a)(i) Employment
Employment is an agreement between an employer and an employee that
the employee will provide certain services on the job and in the employer‟s
designated workplace to facilitate the accomplishment of the employer
organization‟s goals and mission, in return for compensation. The
agreement can be verbal, implied or an official employment contract.

In employment, the employer determines the where, when, how, why and
what of the work that is performed by the employee. The degree of input,
autonomy and self-directedness that an employee experiences on a job is a
by-product of an employer‟s philosophy of management and employment.
Employment ends at the prerogative of the employer or the employee.

Vocation
A vocation is a specified occupation, profession or trade to which a person
is specially drawn or for which he or she is suited, trained or qualified.
Vocation can either be an activity that serves as an individual‟s regular
source of livelihood or as an activity engaged in especially as a means of
passing time.

Profession
A profession refers to an occupation that requires specialized education,
knowledge, training and ethics. Although professionals make their living in
what they do, this paid work is often more than just a job or occupation
alone. Whether the occupation is law, medicine, plumbing, writing, interior
design or accounting, those who are in it are expected to meet and
maintain common standards.

82
 Professions are, ideally, made up of people with high ethical standards
who have special knowledge and skills. The responsibility of people in
certain occupations to the public is an important distinction from those
who may participate in the fields on an amateur or non-professional basis.
For example, if a home owner hires a non-licensed plumber to save money,
he or she wouldn‟t be able to hold this person to the same standards as a
licensed professional in the same industry.

(ii) Distinctions among employment, vocation and profession include:

 Employment is an agreement between an employer and an employee
in which the employee is required to provide certain services on the
job in a work place in return for compensation, that is, salary and
other emoluments while vocation and profession are specified
occupation, profession or trade to which a person is specially drawn in
for which he or she is suited, trained or qualified;
 Employment income includes salary, wages, fee and allowance
including compensations, bonuses, premiums, benefits or other
perquisites. Vocation and profession income includes gains or profits,
fee, etc;
 Employment can be exercised under a contract of service, while
vocation and profession can be exercised in a contract for service; and
 Employment can be brought to an end at the prerogative of the
employer or the employee, vocation and profession would usually
come to an end at the end of a contract or upon the delivery of
service.

(b) (i) Cash emoluments

Cash emoluments are the remuneration an employee receives from the
employer in cash.
Cash emoluments include salary, wages, fee, allowance or other gain or
profit from employment including compensations, bonuses, premiums,
benefits, share of profits received by an employee.

Benefits–in–kind (BIK)
Benefits-in-kind mean those expenses incurred by an employer in the
provision of benefits to the employee.

Such benefits often include: furnished living accommodation;

gardener/stewards (domestic servants); use of official car for private
purposes by employees; installation of air conditioners or generator in an
employee‟s residence, etc. These benefits are regarded as part of the
83
 employee‟s taxable income if these relate to services rendered by the
employee. Benefits-in-kind will also include such benefits which are
usually provided to the spouse, family, servant, dependent or guest of the
employee.

(ii) The following are the general rules for quantifying benefits-in-kind:
 The use of assets
- Owned or acquired by the employer
The employee is deemed to have derived income equal to: 5% of the
cost of assets if known or 5% of the market value at the date of
acquisition and where the cost is not known, to be determined by
the tax authorities.

- Rented or hired by the employer

The employee is deemed to have derived an income equal to the
annual amount of the rent or hire expended by the employer on the
asset.

Where an employee has made any refund in respect of the asset

rented or hired by the employer for the employee‟s benefit, the
employee shall be deemed to have derived income equal to the
difference between the amount incurred by the employer and any
amount refunded by the employee.

 Provision of residential accommodation

If an employer provides residential accommodation for the benefit of
an employee anywhere in Nigeria and the employee pays no rent for
the premises, or pays a rent which is less than the annual value of the
premises, the employee is deemed to have derived income each year
equal to the annual rateable value of the premises less any rent paid
by the employee. The annual rateable value of any premises is that
value as determined by the relevant tax authority for purposes of local
rate.

 Domestic staff paid by the employer

Where an employer engages the service of domestic staff (such as
driver, steward, washman, housemaid, gardener, etc) for the exclusive
benefit of an employee, the cost incurred in form of salary by the
employer for the use of the domestic staff by the employee shall be
deemed as income in the hands of the employee and taxed
accordingly.

84
 The income of a domestic staff shall only be deemed as income in the
hands of the employee only where the domestic staff is not a
permanent employee of the employer, that is, a contract staff.

EXAMINER‟S REPORT

The question tests candidates‟ understanding of the provisions of Personal Income

Tax Act Cap C21 LFN 2004 (as amended), relating to employment, vocation,
profession, cash emoluments and benefits – in – kind.

About 70% of the candidates attempted the question and performance was above
average. The common pitfall was the inability of some candidates to correctly
differentiate between vocation and profession. Also, few of the candidates could
not correctly explain “cash emoluments”.

Candidates are advised to pay more attention to this part of the syllabus by making
best use of the Institute‟s texts and relevant taxation Acts.
MARKING GUIDE
Marks Marks
(a) (i) Definition of employment 1
Employer‟s right to determine how, when, etc the
work is performed by the employee 1
Definition of vocation 2
Definition of profession 1
Explanation of profession 1
(ii) The distinctions among employment, vocation and
profession (1 mark for each point) 4 10

(b) (i) Definition of cash emoluments 1

Examples of cash emoluments 1
Definition and explanation of benefits-in-kind (BIK) 2

(ii) Stating three general rules for quantifying

benefits-in-kind (2 marks each for any point
subject to a maximum of 3 points) 6 10
20

SOLUTION 4
85
(a) (i) The small company rate of tax on total profits is 20%.

(ii) Small company relief only applies to a company:

 That has a revenue of N1,000,000 or less per annum;
 That is engaged in manufacturing or agricultural production or
mining of solid minerals or wholly export trade;
 That was not set up to acquire part or whole of the trade or
business previously carried on by another company; and
 During its first five years of assessment.

(b) (i) Composition of the Board of Trustees of the Tertiary Education

Tax Fund (TET fund)

The Board of Trustees shall consist of:

 A Chairman who shall:
 Be a person with good knowledge in finance and
administrative matters; and
 Have qualifications and experiences as are required to
perform the functions of that office under the Act;
 Six persons, each representing a geo-political zone in the
country;
 A representative of the Federal Ministry of Education who shall
not be below the rank of a director;
 A representative of the Federal Ministry of Finance who shall not
be below the rank of a director;
 A representative from the universities;
 A representative from the polytechnics;
 A representative from the colleges of education; and
 The Executive Secretary of TET fund who shall be the Secretary to
the Board of Trustees.

The membership of the Board of Trustees shall reflect the six

geopolitical zones of the Federation and members shall be persons of
considerable experience from both the public and private sectors and
appointed by the President on the recommendation of the Education
Minister to represent the business, financial and education sectors.

(ii) Functions of the Board of Trustees

The following are the functions of the Board of Trustees:
 Monitor and ensure collection of tertiary education tax by the
Federal Inland Revenue Service and ensure transfer to the fund;

86
  Manage and distribute the tax imposed by the Act;
 Liaise with the appropriate ministers or bodies responsible for
collection or safekeeping of the tax;
 Receive requests and approve admittable projects after due
consideration;
 Ensure disbursement of funds to various public tertiary
educational institutions in Nigeria;
 Monitor and evaluate execution of the projects;
 Invest funds in appropriate and safe securities;
 Update the Federal Government on its activities and progress
through annual and audited reports;
 Review progress and suggest improvements within the
provisions of the Act;
 Do such other things as are necessary or incidental to the objects
of the fund under the Act or as may be designed by the Federal
Government;
 Make and issue guidelines from time to time to all beneficiaries
on disbursements from the fund and the use of monies received
from the fund; and
 Regulate the administration, application and disbursement of
monies from the fund under the Act.

EXAMINER‟S REPORT
Part (a) of the question tests candidates‟ knowledge of the provision of the
Companies Income Tax Act Cap C21 LFN 2004 (as amended) as it affects small
companies. Part (b), however, tests candidates‟ understanding of the management
of the Tertiary Education Tax Fund (TET Fund).

About 60% of the candidates attempted the question and performance was fair.
Most of the candidates that attempted part (a) of the question could not correctly
state the criteria that must be met to be eligible for small company relief. In part
(b) of the question, few of the candidates could not correctly state the functions of
the Board of Trustees of TET Fund.
Candidates are advised to study and pay attention, in particular, to the provision of
the Tertiary Education Fund (Establishment, etc) Act 2011, as it concerns the
composition and functions of the Board of trustees of TET Fund.

MARKING GUIDE
Marks Marks

(a) (i) Small company rate of tax 1

87
 (ii) Criteria that must be met to be eligible for small
company relief (1½ marks for each of 4 points
raised)
6 7

(b) (i) Composition of the Board of Trustees (1 mark each

subject to a maximum of 7 points)
7

(ii) Functions of the Board of Trustees

(1 mark each subject to a maximum of six points) 6 13

20

88
SECTION B EXAMINATION TYPE QUESTIONS

SUGGESTED SOLUTION 5

XYZ Limited
Computation of import duty paid to Nigeria Customs Service on imported items in November 2018

Exchange
Price Rate of
Quantity Insurance Freight Landing Cost rate – Duty payable
($) (per Cost ($) Cost in Naira import Remarks
(cartons) ($) ($) ($) N364 to N . K
carton) duty
$1
Live freshwater
ornamental fish 10,000 20 200,000 1,000 1,750 202,750 364 73,801,000 10% 7,380,100.00

Tilapias meat 4,200 18 75,600 378 1,500 77,478 364 28,201,992 10% 2,820,199.20

Edible livers of
swine 6,000 30 180,000 900 1,500 182,400 364 66,393,600 35% 23,237,760.00

Meat of bovine
animals 7,500 25 187,500 937.5 1,600 190,037.50 364 69,173,650 35% 24,210,777.50

[
643,100 3,215.50 6,350 652,665.50 237,570,242 57,648,836.70

Arising from the above computations, the import duty paid was N57,648,836.70.

89
EXAMINER‟S REPORT

The question tests the candidates‟ knowledge of computation of import duty

payable to Nigeria Customs Service.

Being one of the new topics introduced into the syllabus, less than 20% of the
candidates attempted the question, probably due to lack of knowledge about the
topic. For the few candidates that attempted the question, the performance was
poor.

The major pitfall was the inability of the candidates to correctly compute the import
duty.

Candidates are advised to make use of the Institute‟s study texts and pay attention
to the computation of import duty.

MARKING GUIDE
Marks
Identifying the cost of purchase of each product in dollars
(1 mark for each product) 4
Computation of the cost of insurance for each product
(½ mark for each product) 2
Computation of freight for each product in dollars
(½ mark for each product) 2
Computation of the landing cost for each product in dollars
(½ mark for each product) 2
Applying the rate of exchange for each product
(½ mark for each product) 2
Computation of the landing cost for each product in naira
(½ mark for each product) 2
Applying the rate of exchange for each product
(½ mark for each product) 2
Applying the correct rate of import duty
(½ mark for each product) 2
Computation of the import duty payable
(1 mark for each product) 4
20

90
SOLUTION 6

(a) Composition of the Joint Tax Board

It comprises:
i) The Chairman of the Federal Inland Revenue Service Board, who
doubles as the Chairman of JTB;

ii) One member from each state, being a person experienced in income
tax matters nominated either by name or office, from time to time, by
the Commissioner charged with responsibility for matters relating to
income tax of the state in question;

iii) The Secretary, who is not a member of the Board, and is appointed by
the Federal Civil Service Commission; and

iv) The Legal Adviser of the FIRS acts as the Legal Adviser to the JTB.

Functions of the Joint Tax Board

The Board shall:
i) Exercise the powers or duties conferred on it by the PITA and other
Acts;

ii) Advise the Federal Government, on request, in respect of double

taxation arrangement with any other country;

iii) Advise the Federal Government, on request, in respect of rates of

capital allowances and other taxation matters, having effect
throughout Nigeria in respect of any proposed amendment to PITA;

iv) Promote uniformity both in the application of PITA and the incidence
of tax on individuals throughout Nigeria; and

v) Impose its decisions, on matters of procedure and interpretation of

PITA, on any State, for purposes of conforming to agreed procedures
or interpretations.

b) Functions of the State Board of Internal Revenue

It shall be responsible for:

i) Ensuring the effectiveness and optimum collection of all taxes and

penalties due to the government under the relevant laws;

ii) Doing all such things as may be deemed necessary and expedient, for
the assessment and collection of the tax and shall account for all sums
so collected, in a manner to be prescribed by the Commissioner;

91
 iii) Making recommendations, where appropriate, to the Joint Tax Board
on tax policy, tax return, tax legislation, tax treaties and exemptions
as may be required, from time to time;

iv) Generally controlling the management of the state service on matters

of policy, subject to the provisions of the law setting up the State
Internal Revenue Service; and

v) Appointing, promoting, transferring and imposing discipline on

employees of the State Internal Revenue Service.

Other issues relating to delegation of functions

The State Board may, by notice in the gazette or in writing, authorise any
person to:

(i) Perform or exercise on behalf of the State Board, any function, duty or
power conferred on the State Board; and

(ii) Receive any notice or other documents to be given or delivered to it or

in consequence of this Act or any subsidiary legislation made under it.
However, the State Board shall not delegate any power conferred on it
under sections 2, 6, 7, 17, 46, 47, 50, 53, 54, 55, 57, 78, 86, 99, 102,
103 and 104 of PITA to any person.

c) Functions of the Local Government Revenue Committee

It shall be responsible for:
i) The assessment and collection of all taxes, fines and rates under its
jurisdiction;
ii) The collection of all amounts and shall account for same in a manner
to be prescribed by the Chairman of the local government; and
iii) The day–to–day administration of the department which forms its
operational arm.

92
EXAMINER‟S REPORT

The question tests the candidates‟ knowledge of organs of tax administration in

Nigeria.

Specifically, part (a) of the question tests candidates‟ understanding of the

composition and functions of the Joint Tax Board; whilst part (b) considers the
functions of the State Board of Internal Revenue; and part (c) asks candidates to
state the functions of the Local Government Revenue Committee.

Over 80% of the candidates attempted the question and they exhibited good
understanding of the requirements of the question. The major pitfall especially in
part (c) was the inability of the candidates to state correctly other functions of the
Local Government Revenue Committee aside from the collection of taxes and levies
within their jurisdictions.

Candidates are advised to make use of the Institute‟s study texts and relate their
learning to the requirements of the question.

MARKING GUIDE
Marks Marks
(a) Composition of the Joint Tax Board
(1 mark for each member) 4
Functions of the Joint Tax Board (1 mark for each function
subject to a maximum of 4 functions) 4 8

(b) Functions of the State Board of Internal Revenue

(1½ marks for each function subject to a maximum of 4
functions) 6

(c) Functions of the Local Government Revenue Committee

(2 marks for each function) 6
20

93
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2019

BUSINESS MANAGEMENT & FINANCE

Time Allowed: 31/4 hours (including 15 minutes reading time)

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER 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 management of an organisation is accountable to its owners for the

performance of the firm. From the foregoing, which of the following
statements is incorrect?

A. Charities are accountable to stakeholders

B. Limited liability partnership is accountable to the government
C. The directors of a company are accountable to equity holders
D. Managers of public sector enterprises are accountable to government
E. Partners in a business partnership are accountable to the stakeholders

2. An arrangement between the rival firms in an industry to operate the same

policies on pricing is called a/an

A. Cartel
B. Alliance
C. Franchising
D. Collaboration
E. Joint venture

3. „Classical‟ theories of organisation and management are associated with the

following theorists EXCEPT

A. Max Weber
B. Henri Fayol
C. William Ouchi
D. Frederick Taylor
E. Rosemary Stewart

94
4. Which of the following is NOT a reason government has interest in all business
organisations?

A. Tax on profits
B. Safety regulations
C. Level of unemployment
D. Creation of strong economy
E. Provision of affordable goods

5. The functions of the treasury department include the following EXCEPT

A. Investing surplus cash

B. Managing the cash generated by the business
C. Obtaining new funds from financial markets
D. Arranging insurance of the assets of the company
E. Ensuring that the company has money to settle financial obligations

6. A business entity can be classified as any of the following in its market

EXCEPT

A. Nicher
B. Leader
C. Follower
D. Prospect
E. Challenger

7. Professional accountants are required to comply with the following

fundamental principles EXCEPT
A. Integrity
B. Efficiency
C. Objectivity
D. Competence
E. Confidentiality

8. Which of the following is outside the scope of the functions of a

supervisor?
A. Empowering staff
B. Front line management
C. Administrative management
D. Staff development and training
E. Conceptualise corporate strategy

95
9. Which of the following is true of a leader?

A. Maintenance
B. Obedience
C. Administration
D. Reliance on control
E. Focusing on systems and structures

10. Jeta borrowed N800,000 at 6% simple interest for 7 months. What is the
value
of interest due at the end of the period?

A. N25,000
B. N26,000
C. N27,000
D. N28,000
E. N29,000

11. Suppose N1million is deposited in a money deposit bank that is paying

7.5% interest per annum compounded annually. What will be the compound
amount at the end of the third year?

A. N 1,242,300
B. N 1,243,400
C. N 1,344,500
D. N 1,345,600
E. N 1,446,700

12. Suppose Bonde invested N240,000 in a savings account that paid interest
twice in a year. After 8 years the money had accumulated to N 380,980. What
was the annual compound interest rate?

A. 3.64%
B. 4.75%
C. 5.86%
D. 6.65%
E. 6.76%

13. What is the present value of N10million in 8 years, if money could be

deposited at 6.5 % compounded quarterly?

A. N 15.73 million
B. N 16.75 million
C. N 17.73 million

96
 D. N 18.75 million
E. N 19.46 million
14. Larry wishes to save money towards his new-born daughter‟s wedding. He
intends to save ₦50,000 on the first day of every 6 months for 18 years,
starting immediately. The account pays interest of 6% compounded semi-
annually. What will be the balance on the account at the end of 18 years?

A. ₦3,258,748.33
B. ₦4,368,748.34
C. ₦5,278,748.33
D. ₦6,588,748.33
E. ₦6,788,748.33

15. Which aspect of these finance functions is generally regarded as a

management accounting function?

A. Ratio analysis
B. Budget preparation
C. Managing financial derivatives
D. Maintaining a good system of accounts
E. Setting of financial objectives and targets

16. The market for Treasury bills is known as the

A. Money market
B. Discount market
C. Financial system
D. Financial market
E. Intermediation market

17. Assuming a 5% time preference rate, what is the present value of ₦12,000
received at the end of 15 years?

A. 3,772.00
B. 4,772.00
C. 5,772.00
D. 6,772.00
E. 7,772.00

18. Which of the following is ONE of the four key elements of communication
planning?

A. Efficiency
B. Authority
C. Structure
D. Regulation
E. Effectiveness
97
19. A Non-Governmental organisation (NGO) is set up to pursue certain non-
commercial objectives. Which of the following is NOT a particular reason for
setting up an NGO?

A. Human rights
B. Mental health
C. Economic research
D. Protection of children
E. Addressing of natural disasters

20. Public limited liability companies (Plc) obtain funds from a variety of sources.
Which of the following is NOT a source of long-term funds for a public limited
liability company?

A. Public offer
B. Commercial paper
C. Rights issue
D. Offer for Sale
E. Retained earnings

SECTION B: OPEN - ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX

QUESTIONS IN THIS SECTION
QUESTION 1

a. Managing stakeholders‟ interests can be a challenging task for managers.

Mendelow proposed a model of mapping each stakeholder power and interest
in order to win particular stakeholder group for business decisions. Construct
the 22 interest/power matrix and recommend the approaches in dealing with
each stakeholder group. (14 Marks)

b. State TWO characteristics of formal and FOUR characteristics of informal

organisations. (6 Marks)
(Total 20 Marks)

QUESTION 2

a. A corporate objective is a purpose or aim that a company is trying to achieve.

Identify and explain the FOUR steps of the initial stage in an extensive process
of strategy formulation and implementation. (8 Marks)

b. THREE commonly-used financial objectives of a firm are to maximise

shareholders‟ wealth, profitability and growth in earnings per share. However,

98
 these three objectives have some limitations hence the saying „no financial
target on its own is ideal‟.
(i) Explain the limitations of these THREE financial objectives of the firm.
(6 Marks)
(ii) State and explain THREE ways by which financial performance of a firm
might be assessed. (6 Marks)
(Total 20 Marks)
QUESTION 3
a. Explain the term „Corporate code of ethics‟ and state the contents thereof.
(5 Marks)
b. The code of conduct recommends the way each stakeholder group might be
treated ethically. Explain briefly TWO ways of dealing with employees,
customers and competitors ethically. (6 Marks)

c. State the THREE main benefits of corporate code of ethics (9 Marks)

(Total 20 Marks)

QUESTION 4
a. According to management theory, an organisation is built on ten principles.
State and explain these TEN principles as propounded by Lyndall Urwick.
(10 Marks)

b. State and explain the reasons for growth of bureaucracy as suggested by

Stewart. (10 Marks)
(Total 20 Marks)

QUESTION 5
a. Identify and explain the key elements of business communication. (9 Marks)

b. State FIVE listening skills that can aid effective oral and face-to-face
communication. (5 Marks)

c. Measuring and evaluating team performance is essential, especially in a

system that rewards success. State the THREE basic approaches to measuring
and evaluating team performance and explain any TWO of the approaches.
(6 Marks)
(Total 20 Marks)
((
QUESTION 6
a. State the decision rules of the following investment appraisal techniques:

i. Accounting rate of return (2 Marks)

ii. Payback period (3 Marks)

99
b. Fatfelic Ltd is considering a project with the following cash flows.

Year Cost of Plant Running costs Savings

N N N

2020 (1,280,000)
2021 480,000 840,000
2022 550,000 980,000
2023 670,000 1,120,000
2024 890,000 1,400,000

Fatfelic Ltd‟s cost of capital is 10%. Show your workings

You are required to:

i. Appraise the viability of the proposed project using the Net Present Value
method of investment appraisal.

ii. State with reasons, if the project is worthwhile. (15 Marks)

(Total 20 Marks)

100
SOLUTION TO MULTIPLE CHOICE QUESTIONs

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

Workings
Question 10
I = Principal x Rate x Time
I = N 800,000(0.06) (7/12) = N 28000
N 800,000 at 6% simple interest for 7 months,

Question 11
n
A= P (1 + r)
A = N 1,000,000(1 + 0.075)3
A = N 1,000,000 (1.075)3
101
A= N 1,000,000 ( 1.2423)
A= N 1,242,300

Question 12
P (1 +i)n = A
240,000 ( 1 + r/2)16 = 380,980
( 1 + r/2)16 =1.587417 …….both sides divided by 240,000
( 1 + r/2) =1. 5874171/16 ….both sides taken to power 1/16
( 1 + r/2) = 1.02930
r/2 = 0.02930 …… subtracted 1 from both sides
r = 0.0586
= 5.86%

Question 13
n
P = A (1 + i)
P = 10 (1 + 0.065/4)8 x 4
P = 10 (1.01625)32
P = 10 (1.6750)
P = N 16.75 million

Question 14
Sn = X (1 + i/m)n.m− 1 x (1 + i/m)
i/m
Sn = 50,000 (1 + 0.06/2)18x2 − 1 x (1 + 0.06/2 )
0.06/2
Sn = 50,000 (1.03)36− 1 x 1.03
0.03

Sn = 50,000 (2.8983 - 1) x 1.03

0.03
Sn = 94,915 x 1.03
0.03
Sn = ₦3,258,748.33

Question 17
P= F (1 + i) –n
P= 12,000 (1 + .05) –15
P= 12,000 (0.4810)
P= ₦ 5,772.00

EXAMINER‟S REPORT
This first section of the paper is compulsory and comprises of 20 Multiple Choice
Questions. The questions covered the entire syllabus and around 99.8% of the
candidates that sat for the paper attempted the questions.

About 70% of the candidates that attempted this section scored above 10 marks.
102
MARKING GUIDE
Each correct option x 1 mark = 20 marks
SECTION B
SOLUTION 1

Recommended approaches in dealing with each stakeholder group are as stated

below:

i. Minimal effort is required if a stakeholder has very little power and very
little interest in a matter. They are more likely to accept whatever they are
told;

ii. If a stakeholder has very little power but a strong interest in a matter, the
appropriate way to deal with them is to keep them informed about what is
happening and the possible reasons for the occurrence. It is important that
stakeholders are kept informed, even if they would oppose what the
organisation is doing;

iii. If the power of a stakeholder is strong but the stakeholder has very little
interest in the matter, it is important to keep the stakeholder satisfied in
order to avoid them gaining interest which might consequently force them to
exercise their power. This could involve reassuring them of the outcome of
the strategy well in advance; and

iv. The stakeholders with strong power and high level of interest are the key
players and drivers of change. They could stop management plans if not

103
 satisfied and for this reason, it is imperative to obtain and keep their
support.

(a) CHARACTERISTICS OF A FORMAL ORGANISATION

These include:
i. Clearly stated organisational structure;
ii. Defined duties and rights as shown in the organisational chart;
iii. Established and planned procedure to accomplish specific tasks; and
iv. Existence of an appointed leader.

CHARACTERISTICS OF AN INFORMAL ORGANISATION

i. Arises from a network of personal and social relationships;
ii. Develops from the way in which individuals meet and communicate with
each other;
iii. Develops friendships and personal relationships;
iv. Facilitates talking to each other as individuals rather than simply as other
employees who are required to do a job;
v. Focuses on people, not the work;
vi. Develops common rules of behaviour and normal ways of doing things
(„norms‟);
vii. Affects attitudes to work;
viii. It is not part of the organisation structure but lends support to the formal
organisation;
ix. Helps to make working practices more efficient and effective;
x. Might sometimes conflict with the formal organisation;
xi. Possesses independent channel of communication;
xii. Has no written rules and procedures; and
xiii. Not represented anywhere on the organisational chart

EXAMINER‟S REPORT
The question tested Mendelow‟s matrix and characteristics of the formal and
informal organisations.

About 82% of the candidate attempted the question.

Major pitfalls included inability of candidates to label the required 2 x 2 matrix

correctly, difficulty in stating the correct recommended approaches in dealing with
each stakeholder group, a mix up of the characteristics of formal and informal
organisation

About 46% of the candidates that attempted the question scored 10 marks and
above.

Candidates are advised to read the ICAN study text and Pathfinder in preparation
for future examinations.

104
 MARKING GUIDE

a) Construction and labeling of the 2 x 2 interest/ power matrix = 6 marks

Recommendation of the approaches in dealing with each stakeholder
4 x 2 marks =8 marks
b) Any 2 characteristics of a formal organisation x 1 mark = 2 marks
Any 4 characteristics of a formal organisation x 1 mark = 4 marks

TOTAL = 20 marks

SOLUTION 2
a. The four initial stages in an extensive process of strategy formulation and
implementation involves:
i. Identifying corporate objective (usually a financial objective)
Financial objective can be expressed in a number of different ways which can be
maximisation of shareholders‟ wealth, profitability or growth in earnings per share;
ii. Establishing targets for the financial objective
This is setting a target in order to make achievement of the financial
objective possible. These targets should be realistic, measurable, attainable
and achievable within a given time frame;
iii. Develop business strategies for achieving the financial objective/targets
This means developing a clear plan which focuses on the big picture and is aimed
at achieving the targeted financial objective; and

iv. Converting strategies into action plans

a) The limitations of the three commonly used financial objectives of a firm:

The objectives of maximising shareholders‟ wealth suffer the following practical

difficulties:
This financial objective is uncertain about time period for setting targets for wealth
maximisation;
i. It does not show how wealth creation can be measured, and how the main objective
can be divided into targets for dividend payments and targets for share price
growth;
ii. It is often affected by general stock market sentiments; and
iii. It is not practical in terms of actually setting financial performance and measuring
actual performance against the target.

The problems with the objective of maximising profits include:

i. It does not define the time period over which profit performance should
be measured;

105
 ii. Does not reveal the impact of raising and investing more capital into the
business. For instance, when share capital is increased, total profits
might increase due to the bigger investment, but the profit per share
might fall;
iii. Emphasis is generally on short term profitability;
iv. Does not address the amount of risk a firm undertakes in its attempt to
increase the profit; and
v. Ignores the time value of money.

The problem with using EPS growth as a financial objective becomes obvious when
the capital structure changes. However, the apparent ones include the following:
i. Does not take the company‟s debt position and financial leverage into account; and
ii. Might be misleading as it might be possible to increase EPS through borrowing and
debt capital.

No financial target on its own is ideal consequently; financial performance of a firm

might be assessed by measuring:
i. Actual or expected increase in the share price;
ii. Growth in profits; and
iii. Growth in EPS.

EXAMINER‟S REPORT

Question 2 tested the four steps involved in strategy formulation and

implementation, limitations of financial objectives and evaluation of financial
performance. About 70% of the candidates attempted the question. However, it
appears most of the candidates that attempted the question had no clear
understanding of it.

Major pitfalls included confusing the three ways by which financial performance of
a firm might be assessed with other management concepts and muddling up the
limitations of the three financial objectives of the firm.

About 10% of the candidates who attempted the question scored 10 marks and
above.

Candidates are advised to read the ICAN study text and Pathfinder in preparation
for future examinations.

MARKING GUIDE
a) Stating and explaining the four initial stages in an extensive process of strategy
formulation and implementation.
4 points X 2 marks = 8 Marks
b) Stating any 2 limitations of the objective of maximising shareholder‟s wealth
Any 2 points X 1 mark = 2 Marks

Stating any 2 limitations of the objective of maximising profits.

106
 Stating any 2 limitations of using EPS growth as a financial objective.

Stating the ways by which the financial performance of a firm might be

assessed. Total = 20 marks
SOLUTION 3
(a) A corporate code of ethics is a code of ethical behaviour, issued by the board
of directors of a company.

It is a formal written statement, distributed to all employees and intended to

guide their decisions and actions in the organisation.

A corporate code of ethics is normally quite short, dealing with each point in
just a few sentences.

The contents of a corporate code of ethics.

There is no standard format or content for a corporate code of ethics, but a typical
code contains:
i. general statements about ethical conduct by employees; and
ii. specific reference to the company‟s dealings with each stakeholder group,
such as employees, customers, shareholders and local communities.

(a) Ways of dealings with stakeholder groups and ethical treatment of each group
Employees
A code of ethics might include statements about:
i. Human rights, including the right of all employees to join legally authorised
organisations such as a trade union or political party;
ii. Equal opportunities for all employees, regardless of gender, race, ethnic
origin, religion, age, disability or sexual orientation;
iii. Refusal to tolerate harassment of employees by colleagues or managers;
iv. Concern for the health and safety of employees;
v. Respect for the privacy of confidential information about each employee;
and
vi. Company policy on giving or receiving entertainment or bribes.

Customers
A code of ethics in relation to customers might include statements about:
i. Fair dealing with customers;
ii. Product safety and/or product quality;
iii. The truthfulness of advertisements; and
iv. Respect for the privacy of confidential information about each customer.

Competitors
A code of ethics in relation to customers might include statements about:
i. Fair dealing with competitors; and

107
 ii. The use of techniques for obtaining information about competitors
(industrial spying).

(b) Benefits of a corporate code of ethics

i. Promotes compliance
The company wants to ensure that all its employees comply with
relevant laws and regulations and conduct themselves in a way that
the public expects. For example, companies providing services to the
general public need to ensure that their employees are polite and
well-behaved in their dealings with customers.
ii. Improves stakeholder relations
A code of ethics can help to improve and develop the relations
between the company and its stakeholders by improving the trust that
stakeholders have in the company.
iii. Creating a value-based organisation
A company might recognise the long-term benefits of creating an
ethical culture, thus encouraging employees to act and think in a way
that is consistent with the values in its code of ethics.

EXAMINER‟S REPORT

This question tested corporate code of ethics. About 77% of the candidates
attempted the question. Most of the candidates who attempted the question had
difficulty comprehending the requirements of the question.

Major pitfalls included candidates‟ inability to describe corporate code of ethics

and its contents. Majority of the candidates also had difficulty in explaining the
benefits of corporate code of ethics.

About 15% of the candidates who attempted this question scored above 10 marks.

Candidates are advised to use ICAN study text and the Pathfinder as part of their
study materials.

MARKING GUIDE
a) Explanation of the term „corporate code of ethics‟ =2 marks
Typical contents of a corporate code of ethics‟ 3 x 1 mark =3 marks

b) Explanation of the ways of dealings with stakeholder groups and ethical

treatment of each group
Employees Any 2 points x 1 mark = 2 marks
Customers Any 2 points x 1 mark = 2 marks
Competitors 2 points x 1 mark = 2 marks
108
c) Benefits of a corporate code of ethics
Listing 3 x 1 mark = 3 marks
Explanation 3 x 2 marks = 6 marks
TOTAL = 20 marks
SOLUTION 4
a) Ten principles upon which an organisation is built as propounded by Urwick:

i. Objective - Every organisation and every part of the organisation must

be an expression of the purpose of the undertaking concerned, otherwise
it would be meaningless and therefore redundant;

ii. Specialisation - The activities of every member of any organised group

should be confined, as far as possible, to the performance of a single
function. Implying one group, one function;

iii. Co-ordination - The purpose of organising per se, as distinguished

from the purpose of the undertaking, is to facilitate co-ordination and
thus unity of effort;

iv. Authority - In every organised group, the supreme authority must rest
somewhere. There should be a clear line of authority to every individual
in the group;

v. Responsibility - The superior is absolutely responsible for the acts of his

subordinates;

vi. Definition - The content of each position, both the duties involved, the
authority and responsibility contemplated and the relationships with
other positions should be clearly defined in writing and published to all
concerned;

vii. Correspondence - In every position, the responsibility should match the

authority;

viii. Span of control - No person should supervise more than five, or at

most, six direct subordinates whose work inter-relate;

xi. Balance - It is essential that the various units of an organisation should be

kept in balance; and

xii. Continuity - Re-organisation is a continuous process: in every

undertaking specific provisions should be made for it.

(b) The following are the reasons for growth of bureaucracy as suggested by Stewart:

i. The growing size of organisations.

109
 Large organisations need some bureaucratic structure to function
efficiently;

ii. Greater complexity of work.

Complexity makes it necessary to have specialisation of tasks within an
organisation. Job-holders often need to be „experts‟ in their work to deal
with the complex issues involved;

iii. Scientific management.

A scientific approach to management is widely used. This approach
supports a rational way of organising work and having formal
procedures for getting work done; and

iv. The demand for equality of treatment.

Citizens expect to be treated equally by organisations. Bureaucracies
provide impartiality and should ensure equal treatment for all.

EXAMINER‟S REPORT
This question tested the ten principles of management as propounded by Lyndall
Urwick and reasons for the growth of bureaucracy as suggested by Stewart. Only a
few of the candidates that sat for the paper attempted this question. Most of the
candidates who attempted the question had little understanding of the
requirements of the question and so responses were extremely poor.

Major pitfalls was that the candidates had challenges in explaining the reasons for
growth of bureaucracy as suggested by Stewart.

About 20% of the candidates that attempted the question scored above 10 marks.

The candidates should read the ICAN Study Text in the preparation for future
examinations.

MARKING GUIDE

a) Ten principles upon which organisation is built as propounded by Urwick:

Listing 10 x ½ mark = 5 marks

Explanation 10 x ½ mark = 5 marks

b) Reasons for growth of bureaucracy as suggested by Stewart:

Listing 1 x 4 mark = 4 marks

Explanation 1½ marks x 4 = 6 marks
TOTAL = 20 marks

SOLUTION 5
110
(a) The key elements of business communication are:
i. Source;
ii. Message;
iii. Channel;
iv. Destination;
v. Effect; and
vi. Feedback

i. Source:
This is the origin of the message. It can be referred to as the sender of
the message. It is he that encodes the message to be sent and decides
the appropriate channel to be used for the message

ii. Message :
This is the content of the information to be transmitted to the receiver.
This can take the form of symbols, words, actions and signs to be passed
on by the sender while communicating with the receiver.

iii. Channel:
This is the medium through which the information is transmitted. It
addresses such questions as: by what method has the information been
given or sent? What is the channel of communication? Has the
information been given verbally, in a face-to-face discussion or by
telephone? Has it been sent by e-mail or by letter? Is it in a report? Is it
in a published book or journal? television? radio? web site?

iv. Destination:
This is where the intended message is being sent to implying the
„destination‟ of the information. Thus providing answers to question
like:. Who is the information sent to.

v. Effect: intended and Actual

What effect has the communication had on the recipient? Is this the
intended effect?

vi. Feedback:
When the receiver acknowledges the message of the sender and responds to
him/her, feedback takes place. Without feedback, communication is incomplete.
Does the sender of the message expect any response to the message? If so, how
clear or effective has the response been?

(b) The listening skills that can aid oral and face-to-face communication are
stated below:

i. Open mind:
111
 Ability to retain an open mind will enhance avoidance of bias and
judgment;

ii. Avoidance of distraction

Being able to avoid distractions and having the awareness that attention is
typically greatest at the start and end of discussions;

iii. Developing a keen interest

Putting in all efforts to induce ones interest in the subject of
communication;

i. Distinguishing between supporting evidence and the key issue

Possessing radar for picking up the main ideas by distinguishing
between supporting evidence and the key issue;

ii. Waiting
Ability to wait before interruption;

iii. Critical listening

Assess what the other person is saying by identifying potential bias,
omissions and assumptions;

iv. Focus on main concepts

Be prepared to listen and make an active decision to focus on grasping
the main concepts; and

v. Note taking
Notes are often taken, however due care should be exercised to avoid
distraction from listening

(b) The 3 basic approaches to measuring and evaluating team performance

i. Economy;
ii. Efficiency; and
iii. Effectiveness.

Economy
This is measured by the success of the team or workgroup in controlling its costs.
Cost control may be judged by comparing actual spending with the planned
spending limit. (There is often a spending limit for each workgroup or team in the
annual budget of organisations)

Efficiency (or Productivity)

This will measure the amount of resources used for the tasks that have been
achieved. For example, the productivity of a workgroup may be measured by the
output per member of the team during a period of time, or the output per labour
hour. Alternatively, productivity may be measured by the sales achieved per
112
member of the team (for example, annual sales revenue per member of the sales
team).

Effectiveness
It measures success in achieving goals and targets. Targets may be short-term or
long-term. This:
i. may be quantitative – measuring the volume of work achieved or the size of
results
ii. could be qualitative – measuring output in terms of quality (percentage of
rejected items, level of customer satisfaction, and so on)
iii. might require timescale for achievement – thus focusing on whether a
particular task is completed before a target date for completion.

EXAMINER‟S REPORT

Question 5 tested elements of communication, listening skills and evaluation of

team performance.

About 80 % of the candidate attempted the question. Most of the candidates who
attempted the question had little or no difficulty comprehending the requirements
of the question.

Major pitfalls included candidates‟ inability to clearly state the listening skills. A
sizeable number of the candidates could not state the basic approaches to
measuring and evaluating team performance.

About 25% of the candidates that attempted the question scored 10 marks.

The candidates should interact closely with ICAN study pack in the preparation for
future examinations.

MARKING GUIDE
a) The key elements of business communication

Identification 6 x ½ mark = 3 marks

Explanation 6 x 1 mark = 6 marks

b) The listening skills that can aid oral and face-to-face communication
Any 5 x 1 mark = 5 marks

The 3 basic approaches to measuring and evaluating team performance

Listing 3 x 1 mark = 3 marks
Explaining any 2 x 1½ marks = 3 marks
TOTAL = 20 marks

113
SOLUTION 6
Chapter
(a) The decision rule for the ARR capital investment appraisal technique is:
i. Accept capital project if its expected ARR is higher than a minimum target ARR
or minimum acceptable ARR;
OR
ii. Reject capital project if its expected ARR is less than a minimum target ARR or
minimum acceptable ARR; and
OR
iii. Alternatively the decision rule might be to accept a project if the return on
capital employed (ROCE) of the company as a whole will increase as a result of
undertaking the project.

The decision rule for the payback period capital investment appraisal technique is:
i. Accept project if payback period is less than the maximum acceptable payback
period; and
OR
ii. Reject project if payback period is greater than the maximum
acceptable payback period.
(b)

Year Net Cash flow Discount Present

factor @10% value
N N
2020 (1,280,000) 1.0000 (1,280,000)
2021 360,000 0.9091 327,276
2022 430,000 0.8264 355,352
2023 450,000 0.7513 338,085
2024 510,000 0.6830 348,330
89,043

Workings

Year Savings Running Net cash

cost flow
N N N
2021 840,000 480,000 360,000
2022 980,000 550,000 430,000
2023 1,120,000 670,000 450,000
2024 1,400,000 890,000 510,000

114
ALTERNATIVE SOLUTION

Fatfelic Limited
Computation of Net Present Value
Year 2020 2021 2022 2023 2024
N N N N N
Cost of plant (1,280,000)
Savings 840,000 980,000 1,120,000 1,400,000
Running Cost (840,000) (550,000) (670,000) (890,000)
Net Cash flow
(NCF) (1,280,000) 360,000 430,000 450,000 510,000
DCF @ 10% 1.000 0.9091 0.8264 0.7513 0.6830
Present value (PV) (1,280,000) 327,276 355,352 338,085 348,330
NPV 89,043

i. The project yields a positive NPV, therefore the project is worthwhile.

EXAMINER‟S REPORT

Question 6 tested candidates‟ knowledge of investment appraisal. Around 70 % of

the candidate attempted the question. Most of the candidates that attempted the
question understood its requirements.

Major pitfalls include the candidates‟ inability to state the decision rules for ARR
and Payback period investment appraisal techniques and many candidates
muddled up the computation of Net Present Value

About 40% of the candidates, who attempted question scored 10 marks.

The candidates should interact closely with ICAN Study Text and the Pathfinder in
preparation for future examinations.

MARKING GUIDE
Chapter
(a) Stating the decision 2 rules for the ARR investment appraisal technique
Any 1 point x 2 marks = 2 marks
Stating the decision rule for the payback period investment appraisal technique
Any 1 point x 3 marks = 3 marks

(b) 6 correct Present Values and the NPV x 1½ marks = 9 marks

4 correct NCF values x 1 mark = 4 marks

Stating the implication of the NPV arrived at on the shareholders wealth

115
 = 1 mark
= 2 marks
TOTAL = 20 marks

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2019

BUSINESS LAW
Time Allowed: 31/4 hours (including 15 minutes reading time)

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER 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 will prevail when there is a conflict between a doctrine
of equity and the rule of common law?
A. The court‟s opinion
B. Doctrine of equity
C. Rule of common law
D. Arbitral decision
E. Doctrine of equity and Rule of common law

2. Under which of the following is criminal law classified?

A. Public law
B. Private law
C. Contract law
D. Trust law
E. Law of Tort

3. Who among the following is liable for the debts of a firm incurred while a
deceased partner was alive as a partner in the partnership?
A. Limited partners
B. The firm
C. Insurance Company
D. Estate of the deceased partner
E. Partners‟ banker

4. The doctrine of law which restricts a company‟s activities to its objects clause
is known as
A. Uberrimae fidei doctine
116
 B. Quatum meruit doctrine
C. Ultra vires doctrine
D. Estoppel doctrine
E. Caveat emptor doctrine
5. A person appointed to take charge of an insolvent company pending the
appointment of a liquidator by the court is the

A. Auctioneer
B. Bailiff
C. Administrator
D. Accountant
E. Official Receiver

6. Which of the following is a characteristic of ethics?

A. Punishment for offence

B. Act of tort
C. Moral suation
D. Criminal act
E. Professional guidance

7. What is the punishment for persons found guilty of the offence of bribery?

A. 3 years imprisonment
B. 5 years imprisonment
C. 7 years imprisonment
D. 10 years imprisonment
E. 14 years imprisonment

8. Under the Money Laundering (Prohibition) Act, what is the punishment

against a corporate body found guilty of obstructing officials of authorised
government agencies from performing their official duties?

A. N1 million
B. N5 million
C. N7 million
D. N15 million
E. N25 million

9. A prerequisite for admissibility of tape recording evidence in a case of

electronic fraud is to determine

A. What the tape recorder edits

B. How the recording has been preserved
C. Who the owner of the recording is
D. Where the recording was tested
E. When the recorder was last repaired

117
10. A contract which becomes impossible to fulfil because of unforeseen
circumstances is said to be discharged by

A. Frustration
B. Breach
C. Inaction
D. Uncertainty
E. Compromise

11. Under sale of goods law, which of the following is a remedy for breach of
warranty?

A. Termination
B. Restitution
C. Rescission
D. Rejection
E. Damages

12. In which of the following ways is an agency terminated by operation of law?

A. Mutual agreement
B. Notice by either party
C. Revocation by a party
D. Death of a party
E. Renunciation of authority

13. Which of the following is the meaning of “tortfeasor”?

A. Beneficiary of tort
B. Suit in tort
C. Person who commits tort
D. Accessory to tort
E. Action in tort

14. Under sale of goods law, the rule in nemo dat quod non habet is not
applicable where the goods are

A. Not necessaries
B. Sold in market overt
C. In saleable condition
D. Damaged
E. Ascertained

118
15. In hire purchase contract, in which of the following circumstances will a third
party acquire a good title to the goods?

A. Where the hirer knows the third party

B. Where the owner is not informed
C. Where the third party knows the owner
D. Where the owner and hirer disagree
E. Where the hirer has completed payment of instalments

16. In which of the following types of insurance contract is subrogation not

applicable, under insurance law?

A. Fidelity insurance
B. Life insurance
C. Motor vehicle insurance
D. Carbotage insurance
E. Fire insurance

17. In addition to being delivered, for a bill of exchange to be negotiable, it must

be

A. Endorsed
B. Incohate
C. Countermanded
D. Accepted
E. Crossed

18. Cessation of employment on the ground of excess manpower is known as

A. Suspension
B. Interdiction
C. Redundancy
D. Probation
E. Dismissal

19. Persons named in a will to administer the testator‟s estate are

A. Representatives
B. Administrators
C. Custodians
D. Trustees
E. Executors

119
20. Under Alternative Dispute Resolution, the decision of an arbitration panel is

A. Damages
B. Refund
C. Award
D. Sentence
E. Appeal

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX

QUESTIONS IN THIS SECTION

QUESTION 1

a. Customary law is one of the sources of Nigerian Laws.

Required:
Explain briefly, TWO validity tests which customary law must pass to be
enforceable. (4 Marks)

b. Wonderland Enterprises is a firm of four partners, trading in motor vehicle

batteries. Mr. Bright was appointed the Managing Partner, while two other
partners were appointed Finance Manager and Sales Manager, respectively.
The remaining partner, Mr. Blake, did not take part in the firm‟s management,
but he contributed N2million to the business just as each of the other partners
did.

The firm recorded heavy trading loss during the year which resulted in a debt
of N10million. The three partners in the firm‟s management insist that all the
four partners must pay the debt equally. Mr. Blake is displeased and has
served a notice on the other partners for dissolution of the partnership.

Required:
Advise the partners, stating the legal issues in the matter. (6 Marks)

c. Company directors are appointed by the shareholders to manage the

company.

Required:
Explain briefly FIVE circumstances that may disqualify a director from office.
(10 Marks)
(Total 20 Marks)
120
QUESTION 2

a. Criminal law and civil law are differentiated in the legal system.

Required:
Explain briefly THREE differences between criminal law and civil law.
(6 Marks)

b. Partnership can be dissolved by the partners for various reasons and also by
court order.

Required:
Explain briefly the order of application of the firm‟s properties upon
dissolution of a partnership. (6 Marks)

c. Under law of contracts, a contract may be discharged in various ways.

Required:
i. Explain “Frustration” briefly under the law of contracts. (3 Marks)
ii. State causes of frustration of contract. (5 Marks)
(Total 20 Marks)

QUESTION 3

a. Bala and Yesufu are joint directors and shareholders of YEBA Limited, which
was incorporated in 2015. Yesufu was appointed the Managing Director and
Bala, the Operations Director. The Articles of Association of YEBA Limited was
silent on directors‟ remuneration, and there was no written agreement to pay
remuneration to the directors of the company.

Bala had attended several board meetings from 2015 to 2017, travelling from
Abuja to Lagos at his own expense. In 2018, Bala wrote to YEBA Limited
through Yesufu, claiming N2million annual director‟s remuneration for years
2015 to 2017 as well as a total sum of N2million reimbursement of his
travelling expenses for the same period.

YEBA Limited has refused to pay both claims, insisting that there is no
agreement for such payments to be made to the directors of the company.
Bala is aggrieved and intends to take legal action against YEBA Limited.

Required:
Advise Bala, stating the legal issues involved. (8 Marks)

b. Business ethics is concerned with what is right or wrong practice in the

business environment.

121
 Required:
State FOUR factors that influence individual ethical behaviour in a business
environment. (4 Marks)

c. Chief Wadada, a very prosperous trader, recently completed the construction

of a mansion in his village and intend to have the house warming ceremony
on New Year day. He contracted Exclusive Décor Enterprises to do the interior
decoration of the mansion, which must be completed not later than a week
before the house warming.

Exclusive Décor Enterprises moved all the required materials to site on

schedule, but heavy rainstorm ravaged the whole village, flooded the mansion
and destroyed all the materials on site. The decoration could no longer be
done until after the New Year day when the flood would have receded. Chief
Wadada cancelled the contract, and refused to pay the contract sum
demanded by Exclusive Décor Enterprises, who intends to make a claim in
court for the payment of the contract sum.

Required:
Advise Exclusive Décor Enterprises, stating the legal issues involved.
(8 Marks)
(Total 20 Marks)
QUESTION 4
a. An insolvent company has several alternatives to liquidation.
Required:
State FOUR conditions under which a company may be placed in receivership.
(4 Marks)
b. Bribery is an offence of official corruption in public office.

Required:
State and explain briefly ONE broad classification of “Gratification”, citing
TWO examples. (4 Marks)
c. Agency may be terminated by acts of the parties.
Required:
State SIX circumstances under which agency may be terminated by operation
of the law. (6 Marks)

d. Multiple insurance is an allowable practice under insurance law.

Required:
Explain briefly THREE essential factors necessary to claim contribution by an
insurance company. (6 Marks)
122
 (Total 20 Marks)

QUESTION 5

a. The Economic and Financial Crimes Commission (EFCC) Act relates to the
activities that are offences:

Required:
i. Explain briefly “Economic Crime” as contained in the EFCC Act.
(2 Marks)

ii. State TWO examples of economic crime. (2 Marks)

b. Under law of torts, a master may be liable for the torts of his servant.

Required:
Explain briefly THREE exceptions to the rule that a master may be held liable
for his servant‟s acts. (6 Marks)

c. Disputes and differences between parties could be resolved or redressed

through various means, including arbitration.

Required:
i. Explain briefly, the term “Arbitration”. (2 Marks)

ii. State TWO advantages of Arbitration. (2 Marks)

d. In administration of estates, personal representatives take charge of a

deceased‟s estate.

Required:
State SIX duties of a personal representative. (6 Marks)
(Total 20 Marks)
QUESTION 6

a. Employment contract is a relationship between an employer and the

employee.

Required:
Explain briefly THREE duties of an employee to his employer. (6 Marks)

b. Under hire purchase contract, the general rule is that the hirer cannot pass a
good title in the goods to a third party.

Required:
Explain briefly TWO exceptions to this rule. (4 Marks)

123
c. A Bill of Exchange is a type of negotiable instrument.
Required:
Explain briefly, the following:
i. Endorsement of a Bill; and (2 Marks)
ii. Negotiation of a Bill. 2 Marks)

d. Under sale of goods law, the seller and buyer have obligations to each other.

Required:
Explain briefly THREE remedies available to a buyer for breach of contract
terms by the seller. (6 Marks)
(Total 20 Marks)

124
MULTIPLE-CHOICE QUESTIONS – SOLUTIONS

1. B

2. A

3. D

4. C

5. E

6. C

7. C

8. A

9. B

10. A

11. E

12. D

13. C

14. B

15. E

16. B

17. A

18. C

19. E

20. C

125
 OPEN-ENDED QUESTIONS - SUGGESTED SOLUTIONS

SOLUTION 1

(a) The validity tests which every customary law must pass are as follows:

i. Repugnancy test.
Customary laws must not be repugnant to natural justice, fair hearing,
fairness, equity and good conscience. Any customary law which is
barbaric or falls below civilised standard of behaviour would be
invalid and thus, unenforceable in the court.

ii. Incompatibility test.

Customary laws which are incompatible with an existing law, or in
conflict with any law in force would be invalid, a nullity and
unenforceable under the law.

iii. Public policy test.

Customary laws which, in the opinion of the court, are contrary to
public good or encourage promiscuity, immorality or discrimination
based on gender or birth situations would be invalid and
unenforceable under the law.

(b) The legal issue involved is the rights and obligations of general and limited
partners in a partnership. The general rule is that every partner is an implied
agent of the firm as well as his other partners for the purposes of the
business of the partnership. However, a limited partner does not participate
in the day-to-day management of the firm, and his liability for the
partnership‟s debt is limited to his capital contribution.

In this case, the three general partners are liable in respect of all the firm‟s
debts and obligations of the partnership, while the limited partner, Mr.
Blake‟s liability is limited to his capital contribution in the firm.

Under partnership law, only general partners have the right to call for the
partnership dissolution. Mr. Blake, a limited partner, cannot call for
dissolution of the partnership.

(c) A company director may become disqualified and vacate office, under the
following circumstances where he:

i. Fails to meet his share qualification within two months of his

appointment.

126
 ii. Fails to hold his share qualification, where his appointment is on the
basis of share qualification. He shall be disqualified from being re-
appointed director of the company, until he has obtained his share
qualification.

iii. Is convicted by a court of competent jurisdiction for any offence in

connection with promotion, formation or management of the
company.

iv. Becomes bankrupt or makes any arrangement or composition with his

creditors generally.

v. Has been a director of two different insolvent companies and the

companies wound-up within 5 years.

vi. Becomes of unsound mind or insane or loses his legal capacity while
in office.

vii. Has been absent from meetings of directors of the company, for more
than 6 months and without permission.

viii. Resigns his appointment by giving notice of his resignation to the

company. He shall become disqualified and vacate office on
expiration of his notice.

Examiner‟s Report
The question tests candidates‟ knowledge of validity tests under customary law.
Liabilities of general and limited partners under partnership law and
disqualification of company director.

Attempt rate was about 65% and general performance was good with about 70%
pass rate.

Marking Guide Marks Marks

(a) Explain 2 validity tests in customary law– 2 marks each 4

(b) * State legal issue – partners rights and obligations 2

* Adapt legal issue to case and explain 1
Blake‟s liability is limited to his capital as limited partner 1
Other 3 general partners liable fully liable for firm‟s debts 1
Advice to Blake – cannot ask to dissolve partnership 1 6

(c) Explain 5 disqualification of company director

(2 marks each) 10
20

127
 SOLUTION 2

(a) The differences between criminal law and civil law are as follows:

i. Criminal law deals with offences against the society at large, and or the
state or the nation; civil law deals with wrongs committed by or against
individuals;

ii. The aim of criminal law is to punish the offender, while civil law is to
compensate the injured or aggrieved party;

iii. Under criminal law, parties are referred to as prosecution and the
suspect, while parties in civil action are called plaintiff and defendant;

iv. Criminal actions arise from documents contained in statutes and laws,
while civil litigations arise from acts of the parties towards one another;

v. Criminal offences remain alive perpetually and can be reopened at any

time; civil action is time bound and lapses as statute barred at the
expiration of the fixed time limits; and
vi. The standard of proof required in criminal law is proof beyond
reasonable doubt; whereas, in civil law, the standard of proof is based
on the preponderance or balance of probability.

(b) Upon dissolution of partnership, the partnership properties are to be applied

in the following order:
i. Paying the debts and liabilities of the firm owed to employees,
customers‟ suppliers, taxes and other persons who are not partners;

ii. Paying the debts and liabilities of the firm owed to partners, which
include loans, payments for the firm‟s assets and inventory and
legitimate expenses incurred on behalf of the firm;
iii. Paying each partner rateably, what is due to the partners of their
respective capital contribution to the partnership; and

iv. Paying the partners the ultimate residue (if any), which will be divided
among the partners in the proportion in which they share profits.
(c) i. Frustration occurs usually when unforeseen or extraneous
circumstances make it simply impossible for the parties to perform their
contractual obligations under the contract. This is due to events or acts
beyond the control of the parties, also referred to as force majore. Such
contracts automatically become discharged.

128
 ii. The following are examples of what may constitute frustration in
contract:
 Where the subject-matter of the contract is non-existent;
 Where the subject-matter is destroyed before contract is executed;
 Where there is non-occurrence of an essential event for the
performance of the contract;
 Upon the death of a party whose personal service is essential to
the contract;
 On a party‟s protracted illness or insanity of a party;
 On the bankruptcy or other subsequent legal incapacity of a
Party;
 Government interference and change in policy;
 Change in law that may render the contract illegal or impossible;
and
 Outbreak of war or protracted civil strife and public disturbance.

EXAMINER‟S REPORT

The question tests candidates‟ understanding of distinction between criminal and

civil laws, application of partnership properties on dissolution and frustration
under law of contracts.

About 70% of the candidates attempted the question and general performance was
about 55% pass rate.

Candidates‟ major pitfall was their shallow understanding of frustration.

Candidates are advised to read the topic more deeply when preparing for future
examinations.

MARKING GUIDE Marks Marks

(a) Explain 3 differences between criminal and civil laws
(2 Marks each) 6

(b) Explain application of partnership property

upon dissolution (2 Marks each for 3 applications) 6

(c) i. Explain Frustration 3

ii. State 5 examples of frustration (1 Mark each) 5 8
20

SOLUTION 3

(a) The issues involved in this case are whether or not a company director is
entitled to remuneration and whether or not a director is entitled to be
reimbursed for expenses incurred in respect of the company‟s operations.

129
 On the issue of directors‟ remuneration, the position of the law is that a
company is not bound to pay remuneration to its directors, except it is
contained in the company‟s Articles of Association or there is a written
agreement to that effect.

Conversely, the position of the law on reimbursement of directors‟ expenses

is that, a company shall reimburse its directors, all travelling and other
expenses related to attending and returning from company meetings.

In this case, YEBA Ltd is not liable to pay remuneration to Bala, as directors‟
remuneration is not contained in the Articles of Association and, there was
no written agreement on payment of remuneration to its directors.

(b) Factors that influence individual ethical behavior in business environment

include the following:

i. Individual family influence and background at early age;

ii. Educational attainment and academic exposure of the individual;
iii. Religious inclination of the individual;
iv. Professional affiliation of the individual;
v. Cultural and ethnic consideration of the individual;
vi. Existence of laws that define and regulate societal behaviour;
vii. Peer influences of colleagues and associates;
viii. Nature and structure of the business organisation; and
ix. The existence of clear procedures for punishment for breach of ethical
rule.

(c) The legal issues involved relate to frustration of contract and principle of
part-performance, also referred to as quantum meruit in law of contract.
Frustration arises when unforeseen circumstances or events, which are
beyond the control of the parties, happen, and make it impossible for the
parties to perform their contractual obligations under the contract.

Part-performance or quantum meruit is a remedy available to a party who

has partly performed his obligation under the contract, to claim the cost
he has suffered.

In this case, the contract for furnishing and painting of Chief WADADA‟s
building by Exclusive Décor Enterprises was frustrated by rain floods, which
made it impossible to execute the contract. The contract was thus discharged
and both parties are absolved from liability. Exclusive Décor Enterprises
cannot succeed in suit to claim the contract sum from Chief WADADA.

130
 However, under the principle of quatum meruit, Exclusive Décor Enterprises,
who had incurred costs in delivery of materials to site, all of which were
destroyed by rain floods, may succeed to claim the loss suffered on the
materials.

EXAMINER‟S REPORT
The question tests candidates‟ knowledge of director‟s remuneration and expenses
reimbursement, business ethics and part-performance principle (Quantum meruit)
under frustration of contract.

Attempt rate was about 65% and general performance was average at about 50%
pass rate.

Candidates‟ major pitfalls were lack of understanding of quantum meruit principle

and rules of business ethics.

Candidates are advised to read the ICAN study text properly.

MARKING GUIDE Marks

Marks
(a) * State legal issue – director‟s remuneration and
expenses reimbursement 2
* Explain legal position on director‟s remuneration 2
and expenses reimbursement 2
* Advise Bala – not entitled to remuneration, but can
claim expenses reimbursement 2 8

(b) State 4 factors affecting ethical behaviour in

business environment (1 mark each) 4

(c) * State legal issues – frustration and quantum meruit 2

* Explain legal position on frustration and quantum meruit 2
* Apply to case – contract discharged by frustration and
parties not liable 2
* Advice to Exclusive Decor - can claim quatum meruit 2
8

20

131
SOLUTION 4

(a) The conditions under which an insolvent company may be placed under
receivership are as follows:

i. When a company is unable to repay loans borrowed when due or the

interest payable falls into arrears;

ii. If the property or assets of the insolvent company is in jeopardy, or when

events occur to reasonably conclude that the debenture holders‟ interests
are under threat;

iii. When the company fails to honour or defaults to fulfill any of its
obligations imposed on it by the debenture trust deed;

iv. If any circumstance occurs which prevents the terms of the debenture
from realising its assigned or pledged security;

v. If the company is being wound-up as a result of insolvency;

vi. If any creditor of the company issues a process of execution against any
of the company‟s assets;

vii. If the company ceases to carry on business; and

viii. If secured creditors with amounts that exceed specified amount apply
to court for receivership.

(b) Under the Criminal Code, the broad classifications of gratification are as
follows:
i. Demand or offer and receipt of things of monetary values.
These include cash gifts, donations of assets, loans, financial rewards,
value securities and stocks, discounts, commission, rebates, bonuses,
deductions, contracts for supply of goods and services, discharge or
liquidation of any loan, financial obligation or liability whether in
whole or in part, property or interest in property, whether movable or
immovable, any forbearance to demand any money; all with the aim
of inducing performance or non-performance of a public official‟s
normal duties.

ii. Demand or offer and receipt of things of intangible values

These include any offer of employment, grant of public privileges,
sexual gratification, award of chieftaincy titles or dignity, benefits in
kind, protection from legal proceedings and prosecution, either civil
or criminal, etc; all these acts are usually made to induce performance
or non-performance of public officials‟ normal duties.

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 (c) Agency contract may be terminated by operation of the law under the
following circumstances:

i. Death of either party;

ii. Insanity of either party;
iii. Bankruptcy of the principal;
iv. Frustration of the subject-matter;
v. Subject-matter is illegal ab initio;
vi. Subject-matter no longer exists;
vii. Expiration or effluxion of time;
viii. Subsequent legal incapacity of either party; and
ix. Completion of the work.

(d) The following are essential factors necessary to claim contribution by

an insurance company:

i. The subject-matter of the insurance must be the same and common to

both the insurer and the assured. It is sufficient if the insured entered
into double or multiple insurance and the loss is covered by
both insurance policies;

ii. The interest insured must be the same, although both or any of the
insurance policies may include other interests, but the loss must be
caused by a peril common to both insurance policies;

iii. The same assured must be covered by both insurance policies and
which must have been effected by the same assured or by any other
person acting for him or on his behalf; and

iv. Both insurance policies must be legally enforceable at the date of the
peril or loss. Thus, an expired or invalid insurance policy at the time of
the peril will not qualify for contribution.

EXAMINER‟S REPORT
The question tests candidates‟ understanding of company insolvency and
receivership, bribery and corruption, agency termination and contribution under
multiple insurance.
About 80% of the candidates attempted the question, and performance was good.

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MARKING GUIDE Marks Marks
(a) State 4 conditions for receivership. 4

(b) * Explain gratification 2

* State 2 examples (1 Mark each). 2 4

(c) State 6 reasons for agency termination by operation of law Marks Marks
(1 Mark each) 6
(d) Explain 3 essential factors for contribution in multiple insurance
(2 Marks each). 6
20

SOLUTION 5
(a) i. Economic crime is described as a non-violent criminal and illicit
activity, committed with the objectives of earning or acquiring wealth
illegally, either individually or in a group, or in organised manner,
thereby violating existing legislation governing economic activities of
government and its administration.

ii. Examples of economic crime include the following:

 Any form of fraud;

 Narcotic drugs trafficking and smuggling;
 Money laundering and economic sabotage;
 Cyber crime;
 Embezzlement and treasury looting;
 Bribery and other corrupt practices;
 Illegal arms deals and illegal imports;
 Human trafficking and child labour; and
 Currency counterfeiting and illegal foreign exchange deals.

(b) The following are exceptions to the rule of a master to be held liable for the
torts of his servant:

i. A master will not be held liable for torts of the servant performed
outside the scope or course of his employment.

ii. Where the servant uses his master‟s time, tools and other resources for
his own personal purposes, the master will not be liable for any liability
arising therefrom.

iii. Where a servant is employed to do a particular job, but goes on to do

something completely different, the master will not be liable.

iv. Where a servant does some work which he is employed to do, but does
it in an unauthorised manner, which the master has specifically told
him not to do, the master will not be liable.
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 v. Where the master prohibits an act, and specifically informed the
servant, if the servant does that act, the master is not liable.

vi. Where the servant detours from the normal route which he ought to
have taken, but uses an illegal route, the master is not liable.

(c) i. Arbitration is referring disputes or differences between at least 2

Parties for determination, either with or without an umpire, after
hearing both sides in a judicial manner, by a person or persons,
(whose judgment shall be binding on the parties) other than in court.

ii. Advantages of arbitration include the following:

 It is faster than legal processes;

 It is much cheaper than litigation;
 It is more flexible in its administration;
 Proceedings are usually conducted privately away from the
public;
 Venue of arbitration is at the discretion of parties; and
 Arbitral awards are mutually acceptable to the parties.

(d) The duties of personal representatives, also referred to as administrators

are as follows:

i. Gather together assets of the deceased;

ii. Apply to the court presenting himself as the appointed administrator
and obtain the letter of administration;
iii. Protect the assets from jeopardy;
iv. Realisation and disposal of the assets;
v. Payment of debts and liabilities;
vi. Payment of estate taxes;
vii. Keep accounts and records of the estate‟s transactions; and
viii. Distribute the estate to beneficiaries appropriately.

EXAMINER‟S REPORT
The question tests candidates‟ knowledge of economic and financial crimes, various
liabilities and exceptions, arbitrations and duties of personal representatives in
estate administration.

Attempt rate was about 50% and general performance was below average.

Major pitfalls were candidates‟ shallow knowledge the EFCC Act and duties of
personal representatives.

Candidates are advised to study the topics more deeply through the ICAN Study
Texts.

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MARKING GUIDE Marks Marks

(a) i. Explain economic crime. 2

ii. State 2 examples of economic crime
(1 mark each). 2 4

(b) i. Explain arbitration 2

ii. State 2 advantages of arbitration (1 mark each). 2 4

(c) Explain 3 exceptions to the rule of master‟s liability

for servant‟s deeds (2 marks each) 6

(d) State 6 duties of personal representatives (1 mark each). 6

20

SOLUTION 6
(a) The duties of an employee to his employer under contract of employment
are as follows:

i. Duty of care and diligence

In contract of employment, it is implied that the employee must take
reasonable care and diligence in the performance of his functions;

ii. Duty to demonstrate knowledge of skills professed

An employee has the duty to demonstrate expertise and knowledge of
the professional skills he professed to possess, in the discharge of his
functions;

iii. Duty of loyal service

An employee has the duty to take all reasonable steps to advance his
employer‟s business within the scope of his employment, and not do
anything to jeopadise or be in conflict with the business interests of
his employer;

iv. Duty to obey lawful orders.

An employee has the duty to obey all lawful and reasonable orders of
his employer within the scope of his contract of employment;

v. Duty to render personal service.

An employee has the duty to render personal service within the terms
of his contract of employment, and must not abdicate his functions
and duties to another person;

vi. Duty to keep the employer‟s secrets

An employee has the duty to keep secret, his employer‟s confidential
information which may be harmful to the business of the employer, if
revealed; and
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 vii. Duty not to delegate
An employee has a duty and is expected to carry out his employer‟s
duties and instructions personally, unless such delegation is
authorised by the employer or by the nature of the business or trade
custom.

(b) The following are the exceptions to the general rule that the hirer cannot
pass good title in the goods to a third party:

i. Where the hirer has completely paid all instalments on the goods and
has exercised his option to purchase the goods, thus also possessing
good title to the goods;

ii. Where the hirer sold the goods, and immediately paid off the
outstanding instalments, thereby exercising his option of purchase, and
thus acquiring good title to the goods;

iii. Where the sale by the hirer is directed by order of court in execution of a
writ of fifa;

iv. Where the owner is estopped by his own act or conduct from denying the
authority of the hirer to sell the goods; and

v. Where the hirer sold the goods in market overt in a public and legally
constituted open market.

(c) i. Endorsement of a Bill

Endorsement of a bill is when the holder of the bill appends his
signature on the back (reverse) side of the bill. A validly endorsed bill
transfers title in the bill from the person who endorses the bill to
whom the bill is endorsed.
ii. Negotiation of a Bill
A bill is said to be negotiated when the bill is transferred from one
person to another in such a manner as to make the transferee become
the holder of the bill. A bearer bill is negotiated by mere delivery,
while an order bill becomes negotiated after endorsement.

(d) The remedies available to the buyer for breach of contract terms by the seller
are as follows :
i. Rejection of the goods
The buyer has the right to reject or refuse to accept or pay for the
goods, if the seller breaches any express agreement, or implied
condition or term of the contract;

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 ii. Claim damages
The buyer has the right to sue and claim damages from the seller, for
undue delay or late delivery of the goods, delivery of defective goods,
and delivery of goods which do not meet agreed specification;

iii. Sue for refund for non-delivery of the goods

The buyer has the right to sue the seller for the tort of dentine, and
claim refund, if the seller retains possession of the goods after
property has passed to the buyer;

iv. Sue for conversion or non-release of title

If the seller refuses to pass title to the buyer after sales have been
concluded, the buyer can sue the seller for conversion; and
v. Court may compel specific performance by the seller
The court may order specific performance, compelling the seller to
deliver the goods, if the buyer convinces the court that damages will
be insufficient as compensation.

EXAMINER‟S REPORT
The question tests candidates‟ knowledge of duties of employee under contract of
employment, exceptions to the purchase terms on third parties, bill of exchange
and remedies for aggrieved buyer under sale or goods.
Attempt rate was about 70% and general performance was good.

MARKING GUIDE Marks Marks

(a) Explain 3 duties of an employee (2 marks each). 6

(b) Explain 2 exceptions to hirer passing good title to

third party ( 2 marks each). 4

(c) i. Explain endorsement of bill of exchange 2

ii. Explain negotiation of bill of exchange 2 4

(d) Explain 3 remedies of buyer against seller in breach.

(2 marks each) 6
20

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