THE INSTITUTE OF CHARTERED

ACCOUNTANTS OF NIGERIA

PATHFINDER
MAY 2021 DIET
FOUNDATION LEVEL EXAMINATIONS
Question Papers

Suggested Solutions

Marking Guides

and

Examiner’s Reports
 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.

1
 TABLE OF CONTENTS

FOREWARD PAGE

FINANCIAL ACCOUNTING 3 - 27

MANAGEMENT INFORMATION 28 - 51

TAXATION 52 - 80

81 - 103
BUSINESS, MANAGEMENT & FINANCE

BUSINESS LAW 104 – 124

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 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – MAY 2021
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 is NOT correct about the definition of assets?

A. Resources which an entity must control

B. Resources which an entity must own
C. Resources which are expected to bring future benefits to an entity
D. Resources that their costs can be reliably measured
E. Resources for which liabilities arise from past events

2. Inventories are recognised at the net realisable value when this is lower than
the cost price in other to satisfy the ……….. principle

A. Matching
B. Prudence
C. Accrual
D. Periodicity
E. Realisation

3. Which of the following is checked against a waybill to ensure that the goods
ordered are the ones supplied?

A. Good received note

B. Purchase invoice
C. Purchase order
D. Store Issue voucher
E. Delivery note

3
4. Which of the following is CORRECT in respect of cash discount?

A. Discount allowed is a deduction from trade payables

B. Discount received is a deduction from sales
C. Discount columns in cash book form part of the double entry
D. The total amount of discount on the debit side of cash book is an
income
E. The total amount of discount on the credit side of cash book is
discount received

5. A credit sale of N257,000 was recorded in the day book as ₦275,000. The
effect is that

A. Assets, liabilities and equity are understated

B. Assets, liabilities and equity are overstated
C. Assets and liabilities are overstated; no effect on equity
D. Assets and equity are overstated; no effect on liabilities
E. Equity and liabilities are understated; no effect on assets

6. Which of the following is the effect of a reduction in allowances for

doubtful receivables?

A. A reduction in gross profit

B. A reduction in profit for the period
C. A reduction in cash balance
D. Increase in profit for the period
E. Increase in cash balance

7. The bank balance in the books of Super on 1 April 2018 was ₦5,000,000
overdraft. The entity made a total payment of ₦13,116,300, the balance
at 31 March 2019 was ₦8,145,600. How much cash was received by the
entity during the year ended 31 March 2019?

A. ₦ 9,970,700
B. ₦16,261,900
C. ₦18,116,300
D. ₦21,261,900
E. ₦26,261,900

4
 8. An entity purchased an equipment for ₦20,000. The equipment was
transported at N86, installation cost was N125, abnormal waste of materials
was N15,000 and training cost of staff on the use of the machine was N255.
How much should be recorded as the initial cost of the equipment?

A. N20,000
B. ₦20,086
C. ₦20,125
D. ₦20,211
E. ₦20,466

9. Daoda purchased a piece of equipment for ₦930,000 on 1 September

2014. Depreciation was charged at 12.5% per annum on a straight-line
basis from the date of purchase to 1 September 2018. The remaining useful
life of the equipment was reviewed to 5 years at this date. The estimated
residual value of the equipment was zero.

Calculate the amount of depreciation charged to statement of profit or loss in

respect of the equipment for the year ended 31 August 2019.

A. ₦ 23,250
B. ₦ 93,000
C. ₦103,333
D. ₦104,625
E. ₦114,000

10. A business proprietor failed to maintain proper records, but you managed to
ascertain that his opening capital, closing capital and drawings during the
year were N225,000, N260,000 and N10,000 respectively.
How much will be the profit during the period?

A. N45,000
B. N50,000
C. N270,000
D. N485,000
E. N495,000

11. Ajani, Bala and Okon are in partnership sharing profit in ratio 5:4:2. During
the period, the partnership made a profit of ₦18,200,000 after deducting
partners’ salary and interests on capital. Ajani and Bala guaranteed Okon
minimum share of profit of ₦3,800,000. How much is Ajani’s share of the
profit?

5
 A. N4,472,727
B. N6,400,000
C. N6,618,181
D. N7,781,818
E. N8,000,000

12. In which of the following situations is partners’ current accounts NOT

required?

A. First year of the partnership business

B. Dissolution of partnership
C. Change in partners’ profit sharing ratio
D. Admission of a partner
E. Retirement of a partner

13. Which of the following is correct about the treatment of a partner with
deficiency at the end of partnership dissolution?

i. The partner may have to pay the whole deficiency

ii. Insolvent partners’ deficiency is borne by the solvent partners in
the last agreed capital
iii. Insolvent partners’ deficiency is borne by the solvent partners in
the profit or loss sharing ratio

A. I and II
B. II and III
C. I and III
D. I, II and III
E. II

14. The following information relates to Owuro Enterprises

N
Opening inventory 124,000
Closing inventory 96,000
Purchases 2,972,100
Profit margin is 5%

What is the gross profit for the period?

A. ₦119,555
B. ₦127,400
C. ₦150,005
D. ₦154,847
E. ₦157,900

6
15. In accordance with IASS, IAS 8 - Accounting Policies, Changes in Accounting
Estimates and Errors , which of the following is considered changes in
accounting estimates?

i. Changing the useful life of an asset

ii. Changing from cost model to revaluation model
iii. Change in the allowances for doubtful receivables
iv. Change from FIFO to weighted average for valuation of inventory

A. I and II
B. I and III
C. II and III
D. II and IV
E. III and IV

16. Which of the following is NOT required to be disclosed under IAS 2,

Inventory?
A. Accounting policies adopted for measurement of inventory
B. Physical count of inventory at the end of the period
C. Amount of inventories recognised as expense during the period
D. Carrying amount of inventories pledged as security for liabilities
E. Carrying amount of inventories carried at fair value less cost of sale

17. When the statement of comprehensive income is prepared using nature of

expenses method, the following information is disclosed, EXCEPT

A. Gross profit
B. Changes in inventories of finished goods
C. Employee benefit expenses
D. Depreciation and amortisation expenses
E. Raw materials and consumables used

18. The following information relates to a limited liability company.

Authorised share capital of ₦650,000 of ₦0.50 each.

Issued and paid up capital of N376,000
Share premium of N234,000
The company paid dividends of 16 kobo per share

Calculate the total dividends paid

A. N 30,000
B. ₦ 52,000
C ₦104,000
D. ₦120,320
E. ₦208,000

7
 19. In preparing the profit or loss account of a sole trader, which of the following
is deducted from goods available for sale to arrive at cost of sales?

i. Inventory sold
ii. Closing inventory
iii. Lost inventory
iv. Inventory withdrawn by owner

A. I and II
B. II and III
C. II and IV
D. I, II and III
E. II, III and IV

20. Rent received in advance is

i. Credit balance in rent account

ii. Current asset in the statement of financial position
iii. Liability in the statement of financial position
iv. Debit balance in the rent account

A. I and II
B. I and III
C. II and II
D. II and IV
E. III and IV

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. Briefly explain the following fundamental accounting concepts used in the

preparation of financial statements in accordance with IAS 1 – Presentation of
financial statement
i. Going concern (2 Marks)
ii. Consistency of presentation (2 Marks)
iii. Accrual (2 Marks)
iv. Fair presentation (2 Marks)
v. Substance over form (2 Marks)
vi. Prudence (2 Marks)
vii. Materiality (2 Marks)

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b. i. What is accounting standards? (2 Marks)
ii. Explain the purpose of accounting standards (4 Marks)
(Total 20 Marks)

QUESTION 2

a. The following is a summary of the cash book of Babagana Limited for the
month of March 2019.
N’000 N’000
Receipts 22,035 Balance b/f 18,415
Balance c/d 8,310 Payments 11,930
30,345 30,345

All receipts are banked and payments made by cheque. On investigation, you
discovered that:

(i) Bank charges of N2,040,000 entered on the bank statement had not
been entered in the cash book.
(ii) Cheques drawn amounting to N4,005,000 had not been presented to
the bank for payment.
(iii) Cheques received amounting to N11,430,000 had been entered in the
cash book and paid into the bank, but had not been credited by the
bank until April, 2019.
(iv) A cheque for N330,000 had been wrongly entered as a receipt in the
cash book.
(v) A cheque drawn had been overstated by N375,000.
(vi) A cheque of N1,200,000 received had been returned by the bank. No
adjustment had been made in the cash book.
(vii) All dividends receivable are credited directly to the bank account.
During March 2019, amounts totalling N930,000 were credited by the
bank and no entries were made in the cash book.
(viii) A cheque drawn for N90,000 had been incorrectly entered in the cash
book as N990,000.
(ix) The bank statement as at 31 March 2019 showed an overdraft of
N17,430,000.

Required:-
i. The adjustments required in the cash book (5 Marks)
ii. Starting with balance as per bank statement, prepare a bank
reconciliation statement as at March 31, 2019. (5 Marks)

9
b. A book keeper extracted a trial balance and found that the credit side total
exceeded the debit side by N5,500,000 and this amount was posted to a
suspense account. It was subsequently discovered that the difference was
caused by the following errors:
(a) Sale of goods valued at N4,000,000 to F. Lola was posted to Felix
Chukwu’s account
(b) A purchase valued at N1,000,000 from Bada was posted to the debit of
his account
(c) Sales returns book was undercast by N5,000,000
(d) Petty cash balance of N500,000 was omitted from the trial balance
(e) Cost of repairing plant N2,250,000 was charged to plant account as
N200,000
You are required to prepare journal entries to rectify the errors. (10 Marks)
(Total 20 Marks)

QUESTION 3

a. The following information was extracted from the books of Super Limited as at
1 July 2018
N
Cost:
Property cost 6,000,000
Plant and machinery 2,419,000
Motor vehicles 585,000
Accumulated depreciation:
Property 1,200,000
Plant and machinery 687,000
Motor vehicles 210,000
During the year ended 30 June 2019, the following transactions took place:

(i) Additions to plant amounted to ₦231,000

(ii) Plant which cost ₦415,500 with accumulated depreciation of ₦293,000 was
sold for ₦129,000.
(iii) The company bought a new car costing ₦61,500 and was given in a part-
exchange allowance against an old car at a value of ₦15,871. The car that
was being part exchanged originally cost ₦55,548 and had accumulated
depreciation of ₦39,536.
(iv) Depreciation is charged on PPE at the following rates:
Property 2% per annum straight line
Plant 20% per annum straight line
Motor vehicles 25% per annum reducing balance

10
Required:
a. Calculate the gain or loss on disposal of plant and the old car. (5 Marks)

b. Show the disclosure (Schedule of movement) under IAS 16-Property, Plant

and Equipment in relation to the non-current assets for the year ended 30
June 2019. (15 Marks)
(Total 20 Marks)

QUESTION 4

Wakanda is an African-focused company in the sales of super-tech wrist watches

with corporate logos. The wrist watches are purchased and sold in bulk on credit. The
accountant is currently carrying out a reconciliation of the payables and receivables
ledger control account balances which are N218,320,000 and N172,120,000
respectively to the total of the balances on the individual accounts in the payables
and receivables ledgers, which are N197,660,000 and N156,134,000 respectively for
the month of March 2019.

The following has been detected:

(i) Cash received of N1,070,000 has been debited to the individual customer's
account in the accounts receivable ledger.
(ii) The total of discount received for the month, amounting to ₦17,150,000
has not been entered in the control account but has been entered in the
individual ledger accounts.
(iii) On listing-out, a supplier credit balance of ₦2,050,000 has been incorrectly
treated as a debit.
(iv) A cheque for ₦2,555,000 from a customer has been dishonoured. The
correct double entry has been posted but the individual accounts have not
been updated.
(v) A petty cash payment to a supplier amounting to ₦630,000 has been
correctly treated in the control account, but no entry has been made in the
supplier's individual ledger account.
(vi) A payment of ₦322,000 from a customer has been incorrectly entered in
the accounts receivable ledger as ₦233,000.
(vii) The purchases day book total for March has been undercast (understated)
by ₦20,000,000.
(viii) Total credit sales of ₦4,500,000 to an accountancy firm, TQ and Associates
have been posted correctly to the ledger account but not recorded in the
control account.
(ix) Contras (set-offs) with the receivables ledger, amounting in the total to
₦20,040,000, have been correctly treated in the individual ledger accounts
but no entry has been made in the control account.
(x) Discounts allowed totalling N120,000 has not been entered in the control
account.
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Required:

a. Prepare the Trade payable ledger control account and reconcile this to the sum
total of the individual accounts in the trade payable ledger. (10 Marks)
b. Prepare the Trade receivable ledger control account and reconcile this to
the sum total of the individual accounts in the trade receivable ledger.
(10 Marks)
(Total 20 Marks)

QUESTION 5

a. The nature and structure of business entities determine largely their

accounting systems and processes.
On the basis of the above, you are required to explain seven advantages of a
limited liability company over a sole proprietorship business. (14 Marks)

b. Outline FOUR uses of source documents in the process of producing financial

information. (6 Marks)
(Total 20 Marks)

QUESTION 6

a. “International Accounting Standards Board (IASB) Conceptual Framework

describes the elements of financial statements as broad classes of financial
effects of transactions and other events.”

i. Explain FIVE elements of financial statements. (10 Marks)

ii. State FOUR models of measurement of the elements of financial
statements. (2 Marks)

b. Jayek Limited is a manufacturer of plastic buckets. On 1 January, 2018 Jayek

Limited held 15,000 plastic buckets at ₦11,865,000. During the year ended 31
December 2018, Jayek Limited produced 120,000 plastic buckets, compared to
a normal production level of 150,000 plastic buckets. 12,000 plastic buckets’
inventories were held at 31 December 2018.

Production costs for the year were as follows:

N
Raw materials 42,000
Direct labour 2,000
Variable overheads 14,040
Fixed overheads 25,950

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At the reporting date, net realisable value of the plastic buckets is higher than
cost.

Required:
Using First-in-First-Out method within the context of IAS 2 Inventory, calculate
the cost of plastic buckets sold during the period. (8 Marks)
(Total 20 Marks)

13
SOLUTION

PART 1 – MULTIPLE CHOICE QUESTIONS

1. B

2. B

3. C

4. E

5. D

6. D

7. E

8. D

9. B

10. A

11. E

12. B

13. A

14. E

15. B

16. B

17. A

18. D

19. E

20. B

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 MCQ Tutorials
7. Cash book

₦ N’000
Cash received 26,261,900 Balance b/d 5,000,000
Payment 13,116,300
Balance c/d 8,145,600
26,261,600 26,261,600

8. Determination of cost of equipment

N’000
Purchase cost 20,000
Transport cost 86
Installation cost 125
Initial cost of equipment 20,211

9. Computation of depreciation charged

Date N’000
1/4/2014 Cost 930,000
1/4/2014 - 31/8/2018 Accumulated depreciation 930,000 x 12,5% x 4yrs (465,000)
1/4/2019 Carrying amount 465,000

Revised useful life 5 years

Revised depreciation N465,000/5 years N93,000 per annum

10. Determination of profit for the period

N’000
Closing capital 260,000
Add drawings 10,000
270,000
Less opening capital (225,000)
Profit for the period 45,000

11. Share of distributable profits

N’000
Distributable profits 18,200
Allocate minimum guarantee to Okon (3,800)
Balance due to Ajani and Bala 14,400
Ajani’s share of the profit 5/9 x 14,400 8,000

Note: 2/11 x ₦18.2 million, which is ₦3,209,000 is less than the minimum
guaranteed to Okon, hence the minimum share of profit was allocated to him.

15
14. Determination of gross profit for the period

₦’000
Opening inventory 124,000
Purchases 2,972,100
Closing inventory (96,000)
Cost of goods sold 3,000,000
Profit margin of 5% is 5/95 of cost of good sold ; 5/95 x 3,000,000 157,900

Examiner’s report
The question tests all the areas of the Financial Accounting Syllabus and covers
concepts, principles and their application.

All the candidates attempted the questions and their performance was below
average.

Candidates displayed inadequate knowledge of some accounting concepts and

application of principles, thereby choosing the wrong options.

Candidates are advised to cover all sections of the syllabus and pay more attention to
accounting concepts and application of principles.

SECTION A

SOLUTION 1

(a) i. Going Concern

• An entity is considered a going concern if the business entity is capable of
earning a reasonable net income and there is no intention or threat from
any source to curtail significantly its line of business in the near future.

• When financial statements are not prepared on a going concern basis, it

should disclose the fact together with the basis on which they were
prepared and the reason why the entity is not regarded as a going
concern.

ii. Consistency of presentation

• The concept of consistency holds that when an entity selects an
accounting policy, it should continue to use that policy in subsequent
periods.

• The concept ensures that the accounting treatment of like items to be the
same, from one accounting period to another, to allow for comparison.

16
iii. Accrual
• The accrual basis of accounting means that the effects of
transactions and other events are recognised as they occur and
not as when cash or its equivalent is received or paid.

• It dictates the period in which revenue and expenses should be

recognised in the financial statements.

iv. Fair presentation

• Financial statements should present information that is
complete, neutral and free from error about the financial
position, financial performance and cash flows of an entity.

• An entity achieves a fair presentation through compliance with

applicable IFRSs with additional disclosure when necessary.

v. Substance over form

• This requires that business transactions should be recognised in
the financial statements in accordance with their economic
realities to the reporting entity, rather than their legal form.

• If the economic reality is followed, then the financial

statements will represent faithfully, the financial transactions
that have occurred.

vi. Prudence
• This concept requires the exercise of caution when making
judgement under conditions of uncertainty.
• The exercise of prudence means that assets and income are not
overstated and liabilities and expenses are not understated.

vii. Materiality
• Information is material if its omission from, or mis-statement in
the financial statements could influence the economic decisions
of users.
• Whether an item is material or not depends on the magnitude
or its nature or both in the context of specific circumstances of
the business.
• An entity should present separately each material class of
similar items; if a line item is not individually material, it is
aggregated with other items in those statements or in the notes.
• An item that is not significantly material to warrant separate
presentation in those statements may warrant separate
presentation in the note.

17
(b) i. Accounting standards
• These are common sets of principles and procedures that define the basis
of financial accounting policies and practices.
• They apply to the whole spectrum of an entity’s financial picture,
including assets, liabilities, revenue, expenses and equity.
• They are authoritative statements of how particular types of transaction
and event are reflected in the financial statements.

ii. The purposes of accounting standards are to:

• Improve the reliability of financial statements;
• Allow for inter-firm and intra-firm comparisons, which allows users of
financial statements to check the progress of the firm and its position in
the market.
• Allow effective interpretations of financial statements by users
• Ensure uniformity in the preparation of financial statements of
organisations within the same industry.
• Ensure that financial statements of organisations are prepared in
consistent manner every year
• Ensure that financial statements are prepared in a transparent manner,
based on rules and principles

Examiner’s report
The question tests candidates’ knowledge of the nature and significance of
accounting concepts and the objectives of accounting standards.

Majority of the candidates attempted the question and their performance was fair.

Candidates’ commonest pitfall includes their inability to explain the significance of

basic accounting concepts.

Candidates are advised to study the IASB Conceptual Framework for financial
reporting and practice the Institute’s past examination questions in this area.

Marking guide
Marks Marks

(a)i. Going concern - 2 points at I mark

ii. Consistency - 2 points at I mark 2
iii. Accrual - 2 points at I mark 2
iv. Fair presentation - 2 points at I mark 2
v. Substance over form - 2 points at I mark 2
vi. Prudence – 2 points at I mark 2
vii. Materiality – 2 points at I mark 2
2 14

18
b. Definition of 2
accounting standard
for 2 marks
c. Functions of 4
accounting standards -
Any 4 points at 1 mark
Total 20

SOLUTION 2
ai In the books of Babagana Limited
Adjusted cash book
N’000 N’000
Dividend received 930 Balance b/d 8,310
Cheque drawn overstated 375 Bank charges 2,040
Cheque drawn overstated 900 Paid cheque entered as receipt
(330 X 2) 660
Adjusted balance c/d 10,005 Returned cheque 1,200
12,210 12,210

ii Bank reconciliation statement

N’000
Bank Reconciliation Statement (17,430)
Bank as per bank statement 11,430
Add uncredited cheques (6,000)
Less unpresented cheque 4,005
10,005

b. JOURNAL
DR CR
N‘000 N‘000
i. F. Lola 4,000
Felix Chukwu 4,000
Being correction of posting made to wrong
account.

ii. Suspense account

2,000
Trade payables – Bada
2,000
Correction of item of N1,000,000 debited instead
of credit to Bada
iii. Sales returns account
Suspense account 5,000
Adjustment of error in addition of sales Return 5,000
Book.

19
 iv. Petty cash
500
Suspense account
500
Adjustment of omission of N500,000 cash balance
v. Plant repairs account
2,250
Plant account
200
Suspense account
2,050
Transferring cost of repairs on plant erroneously
charged to plant account as N2,000,000

Tutorial
Suspense Account
₦’000 ₦’000
Balance b/d 5,550 Sales returns 5,000
Payables 2,000 Petty cash 500
Repairs and maintenance 2,050
7,550 7,550

Examiner’s report
This question tests candidates’ ability to prepare adjusted cash book, bank
reconciliation statement and correct account using the journal.

Majority of the candidates attempted the question and their performance was above
average.

Candidates’ commonest pitfalls were their inability to correct errors; they debited
and credited wrong accounts.

Candidates are advised to pay more attention to the application of the double entry
principle, and practice with past examination papers

Marking guide
Marks Marks

(a)i. Adjusted cash book – 10 ticks at ½ mark 5

ii. Bank reconciliation statement- 10 ticks at ½ mark 5 10

b. Naira sign ½
Journal entries 11 ticks at ½ mark 5½
Accounts debited and credited 11 ticks at ¼ mark 3¾
Narration 5 ticks at ¼ mark 1¼ 10
Total 20

20
SOLUTION 3

Super Limited

(a) Computation of gain or loss on disposal of plant for the year ended 30 June 2019

i) Plant and machinery

N N
Sales proceed 129,000
Cost 415,500
Accumulated depreciation (293,000)
Carrying amount 122,500
Gain on disposal of plant 6,500

(ii) Gain or loss on disposal of car (Part exchange)

₦ ₦
Sales proceed 15,871
Cost 55,548
Accumulated depreciation (39,536)
Carrying amount 16,012
Loss on disposal 141

₦
Net Gain
Plant and machinery 6,500
Motor car (141)
6,359

(iii) Super Limited

Statement of movement in property, plant and equipment for the year ended 30 June
2019
Property Plant & Motor Total
equipment vehicles
N N N N
Cost/Valuation
At 1 July 2018 6,000,000 2,149,000 585,000 9, 004,000
Additions 231,000 61,500 292,500
Disposal (415,500) (55,548) (471,408)

At 30 June 2019 6,000,000 2,234,500 590,952 8,825,452

21
 Accumulated depreciation:
1 July 2018 (1,200,000) (687,000) (210,000) (2,097,000)
Disposal 293,000 39,536 332,536
Charge for the year (120,000) (446,900) (105,122) (672,022)

At 30 June 2019 (1,320,000) (840,900) (279,479) (2,436,486)

Carrying amount
At 30 June 2019 4,680,000 1,393,600 327,044 6,400,644
At 30June 2018 4,800,000 1,732,000 375,000 6,907,000

Workings:
Computation of depreciation for the year
i) Property - 6,000,000 x 2% = N120,000
ii) Plant & machinery N2,334,500 x* 20% N446,000
iii) Motor vehicles N590,952 – (N210,000 -39,536) x 25% N105,122

Examiner’s report
The question tests candidates’ ability to calculate gain or loss on disposal of non-
current assets and prepare the movement in property, plant and equipment in
accordance with IAS 16, Property, Plant and Equipment, (PPE)

Majority of the candidates attempted the question and their performance was
average.

Candidates’ commonest pitfalls were their inability to;

i. calculate gain or loss on asset given in exchange for the acquisition of
another,
ii. disclose the comparative balances of the movement in PPE on June 2018, and
iii. use the correct format as prescribed under IAS 16.

Candidates are advised to cover the aspect of PPE outlined in the Institute’s syllabus
and practice past examination questions.

Marking guide
Marks Marks

(a)i. Gain on sale of plant 5 ticks at ½ mark 2½

ii. Gain on sale of car 5 ticks at ½ mark 2½ 5

(b) Movement on PPE 30 ticks at ½ mark 15

Total 20

22
SOLUTION 4

Wakanda Tech Ltd

Trade payables ledger control account-

N’000 N’000
Discount received 17,150 Balance b/f 218,320
Receivable ledger control 20,040 Purchases 20,000
Balance c/f 201,130
238,320 238,320
Balance b/d 201,130

Reconciliation of individual payable balances with control account balance.

N’000
Balance as extracted 197,660
Credit balances incorrectly treated (2 x ₦2,050,000) 4,100
Petty cash payment (630)
Net total agreeing with payable control account 201,130

Trade receivables ledger control account

₦’000 N’000
Balance b/f 172,120 Contra-Payable ledger control 20,040
Credit sales 4,500 Discounts 120
Balance c/f 156,460
176,620 176,620
Balance b/d 156,460

Reconciliation of individual receivable balances with control account balance

N’000
Balances as per accounts receivable ledger 156,134
Cheque dishonoured 2,555
Mis-posting (₦322,000 - ₦233,000) (89)
Cash received (₦1,070,000 *2) (2,140)
Net total agreeing with receivables control account 156,460

Examiner’s report
The question tests candidates’ knowledge of posting transactions to payables and
receivables control accounts and reconciling the balances in these accounts with
their corresponding individual ledger accounts.

Only few of the candidates attempted the question and their performance was below
average.

Candidates failed because they mixed up entries in the control accounts with their
individual ledger accounts.

23
Candidates are advised to have adequate knowledge of the differences between the
control accounts and the subsidiary ledger accounts.

Marking guide
Marks Marks
(a)
i. Payables control account 5 ticks at 1 mark 5
ii. Reconciliation with ledgers 5 ticks at 1 mark 5 10

(b)
i. Receivables control account 5 ticks at 1 mark 5
ii. Reconciliation with ledgers 5 ticks at 1 mark 5 10
Total 20

SOLUTION 5

Advantages of limited liability companies over sole proprietorship are:

• Liability: The liability of the shareholders of company is limited whereas that
of sole proprietorship is unlimited.
• Funding: A limited liability company has access to capital market, this implies
better access to fund than a sole proprietorship, which has limited source of
capital.
• Succession: The chance is high that companies operate perpetually,
succession plan is high whereas the death of a sole proprietor may likely lead
to death of a business.
• Legal Entity: A company is an entity distinct from its owners. It can be sued
and can sue whereas a sole trader cannot sue and be sued in the name of the
sole trader. Thus, the chances of a sole trader to enter into enforceable
contract is limited.
• Ownership: Ownership of a company can be transferred from one person to
the other, whereas ownership of a sole trader cannot be transferred except if
the business is sold.
• Floating and fixed charges: A limited liability company can mortgage its
assets to take loan in the company’s name whereas a sole trader cannot.
• Law and registration : A company is registered under the law (Companies and
Allied Matters Act, 2020), this gives the entity better business opportunities
than a sole proprietorship
• Soundness of accounting system: A company has good accounting system and
control than a sole trader who most times do not prepare financial statements.
• Risk bearing: A sole trader bears more risk than a limited liability company.
The sole proprietor bears the entire risk of survival alone whereas companies
spread the risk across all shareholders. The risk of the shareholders is limited.

24
 • Management. A sole trader manages the business alone whereas there is a
separation of company’s management from the company, this allows company
to take better economic decisions.

b. The following are the uses of source documents:

i. Source documents initiate business transactions.
ii. Source documents form the basis for maintaining the books of original
entries.
iii. Source documents serve as evidence of financial transaction hence they
help to guide against fraud.
iv. Source documents are signed by parties involved in business
transactions, therefore they are not usually denied.
v. They serve as sources of evidence to auditors in carrying out audit
assignments.
vi. Sometimes the source documents’ transactions may be from two or
more sources which will compliment themselves.
vii. Alterations are not always possible when parties to the transaction have
signed the documents

Examiner’s report
The question tests candidates’ knowledge of the advantages of a limited liability
company over a sole proprietorship and the uses of source documents.

Majority of the candidates attempted the question and their performance was
average.

Candidates lost marks, in part ‘b’ of the question, because of their inability to explain
the uses of source documents rather, they merely stated the types of source
documents or mentioned the use of one or two source them.

Candidates are advised to pay more attention to all aspect of the ICAN Syllabus.

Marking guide

Marks

(a) Advantages of a limited liability company over sole trader 7 points at

2 marks 14

(b) Uses of source documents 4 points at 1½ marks 6

Total 20

25
 SOLUTION 6

ai. Elements of financial statements

i. Assets: These are resources controlled by the entity as a result of past

events and from which future economic benefits are expected to flow to the
entity.
ii. Liabilities: These are present obligations of an entity arising from past
events, the settlement of which is expected to result in an outflow from the
entity of resources embodying economic benefit.

iii. Equity: The residual interest in the assets of an entity after deducting all
of its liabilities.

iv. Income: This is the increase in economic benefit during the accounting
period in form of inflows or enhancement of assets or decrease of liabilities
that result in an increase in equity. Income comprises of both revenue and
gains.

v. Expenses: This is the decrease in economic benefits during the accounting

period in form of outflows or depletion of assets or incurrences of Liabilities
that result in decrease in equity, other than those relating to distributions
to equity participants.

ii. Models of measurement of elements of financial statements

The models of measurement of elements of Financial Statements are as
follows:-
i. Historical Costs
ii. Current Costs
iii. Realizable (Settlement) value
iv. Present value

b.

Cost of buckets sold during the period for the year ended 31 Dec 2018
Units Unit price (₦) ₦'000

Opening inventory 15,000 791 11,865

Cost of plastic buckets produced 120,000 815 97,800

135,000 109,665

Closing inventory of plastic buckets (12,000) 815 (9,780)

Cost of plastic buckets sold 123,000 99,885

26
 Cost per unit of goods produced during the period
₦
Raw materials (42,000,000 / 120,000) 350
Direct labour (21,000,000 / 120,000) 175
Variable overheads (14,040,000/ 120,000) 117
Fixed overheads (26,950,000 / 150,000) 173
Cost of plastic buckets produced during the period 815

Examiner’s report

The question tests candidates’ knowledge on the nature of the elements of financial
statements and the models for measuring them. The candidates ability to apply the
first-in first-out method to determine cost of inventories was also tested.

Many candidates attempted the question and performance was average.

Candidates’ commonest pitfalls were:

• Lack of the knowledge of the models of measurement of financial statement;
and
• Inability to apply the FIFO method to calculate cost of goods sold.
• Candidates displayed lack of knowledge of calculating the fixed overhead
absorption rate and the cost per unit.

Candidates are advised to practice more related questions in this area and use ICAN
study text for better performance in future examinations.

Marking guide

Marks Marks
(a)
i. Five elements of financial statements:
- Listing the element 5 points at ½ mark 2½
- Explaining each point 5 points at 1½ marks 7½ 10

ii. Models for measuring elements 4 points at ½ mark 2

(b) Cost per unit of buckets 8 ticks at ½ mark 4

Cost of sales of bucket 8 ticks at ½ mark 4 10
Total 20

27
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 2021

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. Which of the following best describes Prime Cost and Production Cost?

A. Prime cost is the same as production cost

B. Prime cost plus manufacturing indirect cost is production cost
C. Prime cost minus manufacturing overhead is production cost
D. Prime cost plus all direct costs is production cost
E. Prime cost plus fixed costs is production cost

2. Perpetual inventory is a method of recording inventory

A. Everyday
B. Every weekend
C. In perpetuity
D. After each physical stock count
E. After each movement in stock

3. Overhead apportionment is a process of

A. Charging costs to a number of cost centres or units

B. Direct allocation of costs to cost centres or cost units
C. Accounting for some portion of costs and carrying forward the balance
D. Sharing costs into direct and indirect elements
E. Differentiating between variable and fixed costs

4. Which of the following is NOT true about contribution?

A. Contribution equals sales minus variable costs

B. Contribution equals profit plus fixed costs
C. Zero contribution means total sales equal total variable costs
D. Contribution equals net profit
E. If total contribution fails to cover fixed costs, the result is a loss

28
5. Notional profit is

A. Profit made by all companies in a nation

B. Profit estimated on an on-going contract at the end of a financial year
C. Profit earned from all branches of a business nationwide
D. Estimated profit on a job about to be commenced
E. Profit earned on a contract just concluded

6. Which of the following is NOT associated with process costing?

A. Normal loss
B. Abnormal loss
C. Abnormal gain
D. Equivalent units
E. Cost of goods sold

7. Abnormal gain is calculated as

A. Unexpected profit from price increase due to sudden jump in demand

B. Profit from sale of fixed assets
C. Normal loss minus actual loss
D. Donations and subventions received unexpectedly
E. Profit realised outside the normal course of business

8. A company uses 40,000 units of an item per annum. It is recorded that the
holding costs are N4 per unit and ordering cost is N50 per order. The Economic
Order Quantity is

A. 2,500
B. 1,500
C. 1,000
D. 800
E. 500

9. Which of the following usually makes use of composite cost unit?

A. Job costing
B. process costing
C. contract costing
D. batch costing
E. service costing

29
10. XYZ Company has the following budget for the coming year:

Production 144,000 units

Sales 140,000 units
Materials:
Usage per unit 4kg
Opening inventory 8,000 kg
Closing inventory 10,000 kg

The material purchase budget is

A. 578,000kg
B. 574,000kg
C. 568,000kg
D. 562,000kg
E. 558,000kg

11. Last month when a company had an opening inventory of 16,500 units and
closing inventory of 18,000 units, the profit using absorption costing was
N40,000. The fixed production overhead rate was N10 per unit.

Using marginal costing, the profit for last month would be

A. N75,000
B. N65,000
C. N55,000
D. N25,000
E. N15,000

12 You are given the following data:

N
Budgeted sales 500,000
Budgeted contribution 200,000
Budgeted profit 50,000

The break-even sales is

A. N475,000
B. N450,000
C. N375,000
D. N350,000
E. N125,000

30
13. Which of the following is NOT a subset of a database?
A. Record
B. Byte
C. Field
D. Text
E. Table

14. Which of the following is NOT a unit used for measuring the capacity of
computer memory?

A. Gigabyte
B. Multibyte
C. Megabyte
D. Byte
E. Kilobyte

15. A software program that is designed to perform a specific task is known as

A. Operating system
B. System software
C. Localised software
D. Utility software
E. Application package

16 Which of the following is carried out by the control unit?

A. Performs logical comparison

B. Receives the results of processing from the processor
C. Interprets the instructions
D. Performs multiplication and division
E. Performs addition and subtraction

17. Which of the following is NOT a function performed by a system software?

A. Provision of utility services

B. Providing settings for application packages
C. Enabling the use of peripheral devices
D. Memory management
E. Providing suitable environment for program development

18. In a batch processing system, which of the following is the first stage?
A. Data validation
B. Data verification
C. Job waiting in a queue

31
 D. Storage of output
E. Writing on printed sheet

19. Which of the following is NOT part of implementation activities during system
development?

A. Changeover procedures
B. System specification
C. End-user training
D. System testing
E. File conversion

20. The coding of data into a form that is not understandable to a casual reader is
called
A. Firewall
B. Password
C. Encryption
D. Digital Signature
E. Logging

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

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

QUESTIONS IN THIS SECTION

QUESTION 1

Cost-volume-profit analysis is used to show how costs and profits react or change
with changes in the volume of activity.

a. State FIVE assumptions underlying the above propositions (5 Marks)

b. Sekeseke manufacturing company sold 250,000 units of its product called

“CHAIN” at N20 per unit. The variable costs of N15 per unit consist of
manufacturing cost of N12 and selling expenses of N3. The fixed costs incurred
evenly throughout the year amounted to N486,000 consisting of administrative
overhead of N300,000 and selling overheads of N186,000.

32
 You are required to calculate:
i. The breakeven point in Units and Naira (4 Marks)
ii. The contribution/sales ratio (2 Marks)
iii. The number of units that must be sold to earn a profit of N75,000
(2 Marks)
iv. The number of units that must be sold to earn an after tax profit of
N112,000, if the tax rate is 30% (3 Mark)
v. The number of units required to break even if the variable cost increased
by 6% and fixed cost by 2.5%. (4 Marks)
(Total 20 Marks)

QUESTION 2

Segelu Nigeria Limited is a construction company located in Bukuai Local

Government. The company commenced the construction of a health centre building
on 3 January, 2018 for a contract price of N30,000,000 with completion date of
February 2019. Estimated cost of the contract was N21,000,000. The construction
company’s financial year end was 30 September 2018, with the following balances
extracted from the books of accounts on that date.

N
Materials issued to site 3,220,000
Materials returned from site 250,000
Wages of workers paid 1,250,000
Own plant in use on site (at cost) 2,200,000
Plant hire and scaffolding 1,050,000
Head office expenses 1,220,000
Supervisory staff: direct 485,000
indirect 480,000
Value of work certified to 30 September 2018 16,200,000
Cost of work not yet certified 2,150,000
Progress payments 12,150,000
Material on site 30 September 2018 580,000
Workers’ wages due but unpaid 125,000

Depreciation on plant is to be provided at the rate of 15% per annum on cost.

You are required to prepare:

a) The contract account as at 30 September, 2018 assuming the contract
commenced 3 January 2018.
b) Contractee account
c) An extract from the construction company’s financial position at 30 September
2018. (Total 20 Marks)

33
QUESTION 3

Koloko Wakama Plc trades in farm feeds. The following information relate to the
movement of inventory for the month of June 2019:

Date Units Cost/Unit

June 6 20,000 N10.00
June 16 15,000 N12.50
June 26 30,000 N15.00

The following issues were made to the production floor from the store department:
Date Units
June 8 8,000
June 18 10,000
June 24 6,000
June 29 20,000

You are required to:

a. Determine the value of closing inventory and the value of the materials issued
as at the end of June, 2019 using
i. First-in-first-out (FIFO) method (7 Marks)
ii. Last-in-first-out (LIFO) method (7 Marks)

b. List SIX factors to be considered in choosing methods of pricing material issued

to production. (6 Marks)
(Total 20 Marks)

QUESTION 4

From the information below, prepare a monthly cash budget for Wareroom Trading
Limited for the first three months of 2020 using a columnar format.

NOV 2019 DEC 2019 JAN 2020 FEB 2020 MAR 2020
N N N N N
Sales 850,000 950,000 720,000 750,000 780,000
Purchases 360,000 360,000 300,000 400,000 350,000

(i) All sales are on credit, collectable 50% in 30 days, 25% in 60 days, 20% in 90
days and balance regarded as bad debts.
(ii) All purchases are also on credit, payable 40% in 30 days and 30% each in 60
and 90 days respectively.

34
(iii) A new generator costing N455,000 will be acquired in February under a 30-
day credit agreement.

(iv) An old car will be sold for N50,000 cash in February.

(v) Monthly salaries are N80,000 payable as and when due.

(vi) Commission on sales are 5% payable to sales agents 2 months in arrears.

(vii) Company income tax of N235,000 is due and payable in January.

(viii) An investment is expected to bring in N60,000 gross in February, subject to

10% withholding tax.

(ix) The staff christmas party in December is expected to cost the company a total
of N90,000, though 60% of the expenses will be settled the following month.
(x) Assume an overdraft of N283,000 on 31 December 2019.

Show all workings. (Total 20 Marks)

QUESTION 5

a. Define computer forensics. (2 Marks)

b. State TWO uses of computer forensics. (2 Marks)

c. List FIVE techniques used in forensic process and briefly describe each.
(10 Marks)
d. Define social networking, stating TWO benefits and TWO risks of social
networking. (6 Marks)
(Total 20 Marks)

QUESTION 6

a. Define Decision Support System (DSS). (2 Marks)

b. List FIVE DSS packages that can be used to explore alternatives. (5 Marks)

c. Enumerate THREE advantages and TWO disadvantages of DSS. (5 Marks)

d. State FOUR benefits and FOUR lapses of information technology to each of the
individual, the organisation and the government. (8 Marks)
(Total 20 Marks)

35
SECTION A

1. B

2. E

3. A

4. D

5. B

6. E

7. C

8. C

9. E

10. A

11. C

12. C

13. E

14. B

15. E

16. C

17. E

18. C

19. B

20. C

36
Workings

Question 2 EOQ = 2. Co.D

Cc
Where Co = Ordering cost per order
D = Demand per annum
Cc = Carrying cost per item per annum

= 2x 40,000 x N50
N4

= 4,000,000 = 1,000 units

N4

Question 6 Materials purchase budget:

Units
Production 144,000
Usage per unit 4kg
Material requirements 576,000kg
Add closing inventory 10,000 kg
586,000 kg
Less opening inventory 8,000 kg
Material purchase budget 578,000 kg

Question 11

Closing Inventory 18,000 units

Opening Inventory 16,500 units
Difference 1,500 units
Overhead rate N10/units
Overhead added to inventory N 15,000
Using marginal costing profit will be N 40,000 +15,000
N 55,000

Question 12

Fixed cost = contribution-profit

Fixed cost = 200,000-50,000
Fixed cost = 150,000
CMR = contribution ÷sales
CMR = 200,000 ÷500,000 = 0.4
BEP = FC ÷ CMR
BEP = 150,000 ÷4 =N375,000
Examiner’s report

37
This section contains 20 questions with a fair coverage of the major parts of the
syllabus.

It was attempted by all candidates and performance was above average as over 70%
of the candidates scored 10 marks or above.

Candidates are advised to put in more efforts in this area as it is a mark booster.

SECTION B

SOLUTION 1

a. Assumptions underlying cost-volume-profit analysis are:

i. All costs can be resolved into fixed and variable elements;

ii. The only factor affecting revenue and cost is volume or activity level;
iii. Total fixed cost will remain constant while total variable costs vary
proportionately with activity level;
iv. The method of production, level of technology and efficiency remain
unchanged;
v. There are no inventory (stocks) level change or that stocks are valued at
marginal cost only;
vi. Within the relevant range of activity being considered, costs and revenue
behave in a linear fashion;
vii. The analysis of cost volume profits relates to a single product or constant
sale mix;
viii. Variable cost per unit is constant;
ix. The selling price per unit is equally constant over the entire range of
output;
x. Mixed costs can be separated into variable and fixed elements.

b. Contribution = selling price – variable costs

= (N20-15) = N5
i. Break-even points (units) fixed cost/contribution/units
= N486, 000/5 = 97,200 units
Break-even point (value) fixed cost/contribution x selling pr ice
N486,000/5 x N20 = N1,944,000

ii. Contribution sales ratio = contribution × 100% = N5/20 ×100%

=25% Sales
iii. No of units required to earn a profit of N75,000
Fixed cost + target profit/contribution per unit
486,000+75,000/5 = 112,200 units

iv. Units required to earn after tax profit of N112,000 =

38
  Target Profit 
Fixed cost + 
 1 - Tax rate  ÷ Contribution/Unit
 

 112,000 
486,000 + 
= 1 - 0.3 ÷ 5
 
= (486,000 +160,000)÷5
= 646,000 ÷5 = 129,200 units
v. Units required to breakeven in revised situation.
New fixed costs = N 486,000 × 1.025
New contribution/unit N20 - (N15.00 × 1.06)

= N498,150 = 121, 500 Units

N4.1
Examiner’s report
This question tests candidates’ knowledge of cost-volume-profit analysis. It was
attempted by about 80% of the candidates and performance was above average as
about 65% of the candidates scored 50% or above of the marks allocated.
The major pitfall was inability of candidates to correctly state the assumptions
underlying cost-volume-profit analysis, but they did well in the computational aspect
of the question.

Candidates are enjoined to also give attention to the theoretical part of the subject
when preparing for future examinations.

Marking guide
a. Five assumptions underlying breakeven analysis 5
b. Determination of contribution per unit 1
i. Breakeven point in units 1½
BEP (Naira) 1½
ii. C/S ratio 2
iii. BEP with target profit 2
iv. BEP after tax profit 3
v. BEP with reversed situation 4
Total 20

39
 SOLUTION 2
SEGELU NIGERIA CONSTRUCTION LIMITED
HEALTH CENTRE BUILDING CONTRACT ACCOUNT FOR THE YEAR ENDED 30
SEPTEMBER 2018
N N N
Material issued to site 3,220,000 Materials returned from site 250,000
Wages - paid 1,250,000 Materials at site c/d 580,000
- Accrued 125,000 1,375,000 Plant on site c/d 1,952,500
Plant at cost 2,200,000 Cost of work certified 5,097,500
Hiring of plants 1,050,000 Cost of work not yet certified 2,150,000
Supervisory staff: direct 485,000
Supervisory staff: indirect 480,000
Head office expenses 1,220,000
10,030,000 10,030,000
Cost to date 5,097,500 Value of work certified 16,200,000
Profit taken (wki) 5,551,250
Profit suspense c/d 5,551,250
16,200,00 16,200,00
Material on site b/d 580,000 Profit in suspense b/d 5,551,250
Plant on site b/d 1,952,500

CONTRACTEE ACCOUNT
N N
Value of work certified 16,200,000 Payment on account 12,150,000
Balance c/d 4,050,000
16,200,000 16,200,000

c. SEGELU CONSTRUCTION LIMITED

Statement of Financial Position Extract

N N
Non-current Assets:
Plant at cost 2,200,000
Less depreciation 247,500 1,952,500
Current Assets:
Inventory
Material on site 580,000
Work-in-progress 648,750 1,228,750
Current Liability:
Accrued wages 125,000

40
 Workings (i)
Calculation of profit to be taken (notional profit)
N N
Value of work certified 16,200,000

Cost to date 7,247,500

Less cost of work not certified 2,150,000 5,097,500
Notional profit 11,102,500

Profit to be taken
Notional profit x cash received × 2/3
Value of work certified
11,102,500 × 12,150,000 × 2 / 3 N5,551,250
=
16,200,000

Workings (ii)
Work in progress

Cost to date 7,247,500

Add profit taken 5,551,250
12,798,750
Less cash received 12,150,000
Work in progress 648,750

Examiner’s report
This question tests candidates’ understanding of contract accounts including extracts
of the financial statements at year end.

About 80% of the candidates attempted the question and performance was above
average as about 60% of the candidates scored above 50% of the marks allocated.

The major pitfall was the inability of candidates to correctly compute the notional
profit and the figures to be disclosed in the statement of financial position.

To perform better in this area in future examinations, candidates are advised to

ensure they can recall important formulas of the subject.

41
 Marking guide
Definition of contract costing 2
Contract costing account 21 ticks @½ 10½
Contractee account 3 ticks @ ½ 1½
Extract of financial position 6 ticks @½ 3
Working notional profit 1
Profit realized or taken 1
Work in progress determination 1
Total 20

SOLUTION 3
a. KOLOKO WAKAMA
Store ledger account for June, 2019 using FIFO method
RECEIPTS ISSUES BALANCE

Qty Price Value Qty Price Value Qty Value

N N N N N
June 6 20,000 10 200,000 - 20,000 200,000
June 8 8,000 10 80,000 12,000 120,000
June 16 15,000 12.5 187,500 27,000 307,500
June 18 10,000 10 100,000 17,000 207,500
June 24 2,000 10 20,000
4,000 12.5 50,000
6,000 70,000 11,000 137,500
June 28 30,000 15 450,000 41,000 587,500
June 29 11,000 12.5 137,500
9,000 15 135,000
21,000 315,000
522,500
Store ledger account for the month of June 2019 using LIFO method
RECEIPTS ISSUES BALANCE
Date Qty Price Value Qty Price Value Qty Value
N N N N N
June 6 20,000 10 200,000 20,000 200,000
June 8 8,000 10 80,000 12,000 120,000
June 16 15,000 12.5 187,500 27,000 307,500
June 18 10,000 12.5 125,000 17,000 182,500
June 24 5,000 12.5 62,500
1,000 10 10,000
11,000 110,000
June 26 30,000 15 450,000 41,000 560,000
June 29 20,000 15 300,000 21,000 260,000
577,500

42
b. Factors to be considered in materials pricing are as follows:
i. The nature of the business undertaken by the company;
ii. Frequency or changes in price level of bought-in materials and
components. i.e, price stability;
iii. The ratio of materials costs to total costs;
iv. Difference in the volume of discount;
v. The need for uniformity within an organisation;
vi. The system of cost accounting in operation in the organisation, whether
historical or standard;
vii. The frequency at which issues of items will be made;
viii. The frequency at which materials are purchased;
ix. The facilities available for calculating issues prices, that is whether the
system is computerised or not;
x. Impact of material pricing on company profitability; and
xi. Accounting standard.

Examiner’s report
This question tests candidates’ ability to compute inventory balances using different
methods of inventory valuation.
About 80% of the candidates attempted the question and performance was good,
especially in the computational aspect. About 70% of the candidates who attempted
the question scored 50% or above of the marks allocated. However, many of the
candidates performed poorly in the “b” part requesting for factors to be considered
in choosing methods of material pricing.
Candidates are reminded that the theory aspect of the subject is as important as the
computational aspect and should be accorded equal attention during their
preparation for future examinations.

Marking guide
a. Store ledger using FIFO method 14 ticks × ½ 7
Store ledger using LIFO method 14 ticks ×½ 7
14
b. Factors to be considered in material pricing 6
20

43
SOLUTION 4

WAREROOM TRADING LIMITED

INFLOWS JANUARY FEBRUARY MARCH

N N N
Sales 687,500 767,500 745,000
Sales of car - 50,000 -
Investment income - 54,000 -
Total (A) 687,500 871,500 745,000

OUTFLOWS
Purchases 252,000 336,000 358,000
Salaries 80,000 80,000 80,000
Purchase of Generator - - 455,000
Sales Commission 42,500 47,500 36,000
Company Income Tax 235,000 - -
Staff Christmas Party 54,000 - -
Total (B) 663,500 463,500 929,000

BALANCE
Opening Balance (283,000) (259,000) 149,000
A-B 24,000 408,000 (184,000)
Closing Balance (259,000) 149,000 (35,000)

Workings
Sales Collections

Sales Dec.2019 Jan. 2020 Feb. 2020 Mar. 2020

N N N N
Nov 2019-850,000 425,000 212,500 170,000 -
Dec 2019-950,000 - 475,000 237,500 190,000
Jan 2020-720,000 - - 360,000 180,000
Feb 2020- 750,000 - - - 375,000
Mar 2020-780,000 - - - -
687,500 767,500 745,000

Purchase Payment
Purchases Dec. 2019 Jan. 2020 Feb. 2020 Mar. 2020
Nov. 2019-360,000 144,000 108,000 108,000 -
Dec. 2019-360,000 - 144,000 108,000 108,000
Jan. 2020-300,000 - - 120,000 90,000
Feb.2020-400,000 - - - 160,000
Mar.2020-350,000 - - - -
252,000 336,000 358,000

44
 Sales Commission
Month Sales 5% Commission Amount Paid
N N N
Nov 2019 850,000 42,500 -
Dec 2020 950,000 47,500 -
Jan 2020 720,000 36,000 42,500
Feb 2020 750,000 37,500 47,500
Mar 2020 780,000 39,000 36,000

Examiner’s report
This question tests candidates’ ability to prepare cash budgets. About 85% of the
candidates attempted this question and performance was very good as above 70% of
the candidates who attempted the question scored 50% or above of the marks
allocated.

The only pitfall was poor application of accrual principles in determining the exact
amount of cash inflow or outflow.

Candidates are enjoined to improve upon their understanding of accrual principles in

the future.

Marking guide
Mark
Title ½
Entries in the columnar cashflow (30 ticks x ½) 15
Workings: Sale collection (3 ticks x½) 1½
Purchases Payment (3 ticks x½) 1½
Sales Commission (3 ticks x ½) ½
20

SOLUTION 5
a. Computer Forensics is the process of identifying, preserving, analyzing and
presenting digital evidence in a manner that is legally acceptable.
OR
This is a discipline that combines elements of law and computer science to
collect and analyse data from computer systems, networks, wireless
communications and storage devices in a way that is admissible as evidence
in a court of law.

OR

45
 The process of examining computers and digital media with the aim of
identifying, preserving, recovering, analysing and presenting such evidence
for legal matters.

b. Uses of Computer Forensics

i. In legal cases, computer forensics techniques are frequently used to
analyse computer systems belonging to defendants.
ii. It is used to recover data in the event of hardware or software failure.
iii. To analyse a computer system after a break-in in order to determine
how the attackers gained access and what the attacker did.
iv. To gather evidence against an employee that is undergoing
investigation in an organisation.
v. To gain information about how computer systems work for the
purpose of debugging, evaluation and performance optimisation.
vi. For system auditing and internal control.
vii. Detection of fraud, misappropriation and excesses.
viii. For reliability of financial reporting.

c. Techniques used in forensic process

i. Live Analysis: This is a situation where the investigation is done on a

running system especially within an operating system by using a
customised or existing historical data to extract evidence.
ii. Cross-drive Analysis: This technique analyses information held on
multiple hard drives or storage and correlates the data. This can also
be applicable to correlation of pieces of social media networks of
individual in order to identify any unusual activities.
iii. File Recovery: This technique allows an investigator to recover deleted
files hidden on the operating system after being deleted from the
physical machine.
iv. Password Recovery: This technique helps an organisation to recover
password protected files without having access or knowledge of the
password. This is made possible through the use of forensic tools.
v. Timeline Analysis: This technique establishes a chronological trail and
analyses preceding and succeeding events in a system.
vi. Key searching: This technique helps to analyse and identify
vulnerabilities and threat to a system.
vii. Stochastic forensic: This technique uses stochastic properties of the
computer system to investigate activities lacking digital artefacts. Its
major use is to investigate data theft.
viii. Steganography: This technique is the process of hiding data inside of a
picture or digital image e.g. hiding pornographic images of children or
other information that a given criminal does not want to have

46
 discovered. Forensics experts can fight this by looking at the hash of the
file and comparing it to the original image, while the image appears
the same, the hash changes as the data changes.
x. Analysis tools: Typical forensic analysis includes a manual review of
materials on the media, reviewing the windows registry of suspect
information, discovering and cracking passwords, keyword searches
for topics related to crime, and extracting e-mail and picture for
review.

d. Social networking is the use of dedicated websites and applications to

create a profile, establish a link in order to find and interact with other
users with similar interests to one’s own.

OR

It is the use of website that allows registered members or users to create

profiles, upload photos and videos, send and receive messages and keep in
touch with friends, families and colleagues. Examples of social networking
platforms include: Facebook, Twitter, WhatsApp, Instagram, etc.

Benefits of Social Networking

1. Modern and quick way for employees to discuss ideas, post news, ask
questions and share links.
2. Can target a wide audience which improves recruitment potential
3. Social network allows organisation to target selected groups or
individuals thereby fostering more of a friendship rather than corporate
relationship.
4. It is a vastly expanded research resource that can be accessed by
employees about other organisation and products for marketing
campaigns.
5. Promotes open communication leading to enhanced information
discovery and delivery.
6. Offers opportunity to a wide spectrum business contracts.
7. Helps improve business reputation and client base with minimal
expense on advertisement.
8. Integrating social networking into business strategy will enable
business to prosper in the long run.
9. It is a fast medium for feedbacks to organisations from their customers.
10. By visiting competitors’ social media pages, organisations will
understand the edge that their competitors have over them.

47
 Risks of social networking

1. Provides an extra channel for hackers to attack and launch spam or

viruses.
2. Can result in negative comments from disgruntled employees about the
organisation.
3. Potential legal consequence if employees use sites to view
objectionable, illicit or offensive materials.
4. Increased risk of employees succumbing to online spam resulting in
identity or data theft.
5. Lost productivity if workers are using the sites for personal use rather
than work related activity.
6. Employees may send negative messages, status up, etc.
7. It exposes organisations to the prying eyes of their competitors.

Examiner’s report
This question tests candidates’ knowledge of computer forensics and social
networking.

The question was attempted by about 60% of the candidates and performance was
just fair as about 50% of those who attempted the question scored 50% or above of
the marks allocated.

Many candidates lacked good grammatical construction and ability to define terms
correctly.

Candidates are advised to take the information technology aspect of the subject more
seriously in the future and improve on their English grammar.

Marking guide
Marks
A Definition of computer forensics 2
B Stating two users of computer forensics @ 1 mark 2
c i. Listing out 5 techniques used in forensics process @ 1mark 5
ii. Describing each of the 5 techniques @ 1 mark 5
d i. Definition of social networking 2
ii. Stating 2 benefits @ I mark 2
iii. Stating 2 risks @ 1 mark 2
Total 20

48
SOLUTION 6

a. Decision Support System (DSS) is an interactive, flexible and adaptable

computer based information system developed for supporting the solution of
non-structured management problem for improved decision making

OR

DSS is a computer based information system that utilises data, provides easy
to use interface to assist managers in the retrieval of pertinent information
from a body of database to facilitate decision making.

OR

DSS is a collection of computer programs and data that is used to assist the
tactical level of management with the analysis of information that will assist
in decision making within an organisation.

b. Decision Support System packages

i. Modeling and simulation packages.
ii. Spreadsheet packages e.g Microsoft Excel, Apache, etc.
iii. Statistical packages for social scientists (SPSS).
iv. Forecasting packages.
v. Non-linear and linear programming packages.
vi. Regression analysis packages.
vii. Financial modeling packages.
viii. Sensitivity and risk analysis packages.
ix. Microsoft Access (DBMS).
x. Accounting packages e.g Sage, Microsoft, Tally.
xi. SQL Report Generator.

c. Advantages of DSS
i. It provides information and analysis for making decisions.
ii. It makes better use of organisation’s data resources.
iii. It is used to examine multiple alternative solutions.
iv. It improves control and communication.
v. It provides better understanding of the business.
vi. It simplifies the rigorous manual computation of data.
vii. It enables tactical level managers to give detailed report of analysis for
decision making.

49
 Disadvantages of DSS
i. The computer skills required to obtain results may not be adequate.
ii. It requires preparation and analysis time to get desired information.
iii. It is difficult to quantify the benefits of DSS to justify cost.
iv. It is difficult to maintain data integrity.
v. It is detail-oriented as it involves detailed analysis of situation under
investigation for decision making.
vi. It provides moderate support for external data and graphical
capabilities.

d. Benefits of Information Technology

i. Faster communication speed for sending messages via e-mail to

everyone efficiently.
ii. It lowers communication cost by use of internet, telephone, mailing, etc
iii. With the use of internet as reliable mode of communication,
information is accessed and retrieved from anywhere and at any time.
iv. Using information technology, people can share and exchange through
discussion groups, mailing lists and forums on the internet.
v. Information technology creates paperless environment via sharing and
retrieving of information through digital medium like e-mail, online
chat and instant messaging.
vi. It is a borderless source for services and information retrieval,
interactivity, accessibility and versatility.

Lapses
i. Fraudsters now explore IT media like e-mails, social media, etc to
defraud their victims.
ii. There is identity theft where criminals impersonate individuals for
financial gain, e.g ATM withdrawal alert after ATM card and password
has been stolen.
iii. There is hacking of codes and passwords to gain unauthorised entry
into computer system or network.
iv. IT permits the society to be easily accessible to visual materials like
display of unwholesome activities.
v. There is high cost of installation and maintenance.
vi. There is loss of information confidentiality.
vii. Addiction of some users to unhealthy and irrelevant surfing of sites.

Examiner’s report
This question tests candidates’ knowledge of Decision Support System and also the
benefits and lapses of information technology to the users.

About 70% of candidates attempted this question but performance was just fair as
about 55% of the candidates scored 50% or above of the marks allocated.

50
The major pitfalls were bad grammar and inability to define information technology
terms correctly. Generally, many candidates tried to avoid the information
technology aspect of the subject.

Candidates are advised to attach equal importance to information technology as they

do to the costing aspect of the subject in the future examinations.

Marking guide

Marks
a. Definition of DSS 2
b. 5 DSS packages @ 1 mark 5
c. 3 advantages of DSS @ 1 mark 3
2 disadvantages of DSS @ 1 mark 2 5
d. 4 benefits of IT @ 1 mark 4
4 lapses of IT @ 1 mark 4 8
20

51
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – MAY 2021
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:

1. Which of the following is NOT a principle of taxation?

A. Equity
B. Certainty
C. Convenience
D. Simplicity
E. Residency

2. Which of the following is NOT a source of tax laws in Nigeria?

A. Budget and pronouncement of relevant Ministries
B. The Constitution of the Federal Republic of Nigeria
C. Circulars issued by and practices of the Inland Revenue
D. Opinion of a local government chairman
E. Case laws

3. How many members of a State Board of Internal Revenue shall constitute a

quorum at any meeting?
A. 10
B. 8
C. 7
D. 5
E. 3

4. Which of the following is NOT a function of the Joint Tax Board?

A. Exercise the powers or duties conferred on it by the PITA and other Acts
B. Advise the Federal Government on request, in respect of rates and capital
allowances and other taxation matters, having effect throughout Nigeria
in respect of any proposed amendment to PITA
C. Advise the Federal Government, on request, in respect of double taxation
agreement with any other country
D. Advise the State Board on all its powers and duties

52
 E. Impose its decision, on matters of procedure and interpretation of PITA, on
any State, for purposes of conforming to agreed procedures or
interpretations

5. In the development and implementation of the National tax policy, the Federal
Ministry of Finance, has a pivotal role to play and shall take appropriate steps
to ensure that it receives cooperation from the following, EXCEPT

A. The President and the Governors

B. Legislature
C. Ministry of Finance
D. Ministries, departments and agencies (MDAs)
E. A local government Chairman

6. When undertaking a professional activity, a tax practitioner may be faced with

a conflict of interest when he

A. Undertakes a professional service for a group of companies as per his brief

B. Undertakes a professional service for a new client
C. Undertakes a professional activity relating to a particular matter for two or
more clients whose interests with respect to that matter are in conflict
D. Refuses to undertake a professional activity relating to a particular matter
for two or more clients whose interests with respect to that matter are in
conflict
E. Undertakes a professional activity relating to separate and distinct
services for two different clients

7. Within how many months after the end of an accounting year should an
existing company file its tax returns with the Federal Inland Revenue Service?
A. 12 months
B. 10 months
C. 8 months
D. 6 months
E. 4 months

8. The tax payable as determined by the Tax Appeal Tribunal is payable

within…………….of the date of notice of assessment, notwithstanding that an
appeal may be pending on same, before the Federal High Court.

A. 6 months
B. 5 months
C. 3 months
D. 2 months
E. 1 month

53
9. In line with the Federal Inland Revenue Service (Establishment) Act, 2007, any
excess withholding tax deducted should be refunded within………………. of the
decision of the Service of refund.
A. 120 days
B. 90 days
C. 60 days
D. 40 days
E. 30 days

10. Which of the following is NOT a vatable person?

A. A firm
B. A limited liability company
C. A sole trader
D. An individual
E. A public educational institution

11. In respect of VAT, a person who fails to notify the FIRS of any change of address
within one month of such change is liable to pay a penalty of

A. N25,000
B. N20,000
C. N15,000
D. N10,000
E. N5,000

12. Which of the following is NOT assessed on ad-valorem basis?

A. Share capital of companies

B. Mortgage and debenture loans
C. Property valuation
D. Promissory notes
E. Admission as solicitor or notary public

13. Which of following is NOT a function of a Commissioner of Stamp Duties?

A. He is the administrative head of the department

B. He has the duties of assessing documents on appropriate duties and
imposing penalties where applicable
C. Adjudication
D. Stamping or embossments
E. He varies the stamp duties rate from time to time to reflect realities

54
14. The rate of import duty on live reptiles, including snakes and turtles is

A. 25%
B. 20%
C. 15%
D. 10%
E. 5%

15. Tax imposed on goods and services that are considered to be non-essentials is

A. Excise duty
B. Value added tax
C. Non-essential tax
D. Luxury tax
E. Essential tax

16. Section 24(2) of Lagos State Land Use Charge Law 2018, states that the time
allowed for an appeal to the tribunal shall be……………….after the date of
delivery of the demand notices
A. 90 days
B. 60 days
C. 45 days
D. 30 days
E. 14 days

17. Under the National Health Insurance Act, Cap N42 LFN 2004, an employer who
has a minimum of ten employees in the private sector is expected to pay 10%,
while the employee pays…………….. of his basic salary.

A. 10%
B. 8%
C. 5%
D. 4%
E. 2%

18. Which of the following is NOT a consideration that influences the identification
of badges of trade?

A. The subject matter of the realisation

B. The length of period of ownership
C. The frequency or number of similar transactions
D. The circumstances that were responsible for the realisation
E. The date of incorporation of the company.

55
19. For an existing business, the basis of assessment is
A. Continuity basis
B. Accrual basis
C. Preceding year basis
D. Actual basis
E. Succeeding year basis

20. The minimum tax payable by a company engaged in air or sea transport
business shall not be less than……………… of the full sum receivable in respect
of carriage of passengers, mails, livestock or goods shipped or loaded into an
aircraft in Nigeria.

A. 20%
B. 10%
C. 5%
D. 2%
E. 1%

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

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

QUESTIONS IN THIS SECTION

QUESTION 1

Chief Adio Jaiyesimi, a Chartered Accountant, died in London after a brief illness on
June 10, 2015.
He was survived by four children namely: Akeem; Ayodeji; Olabisi; and Adekunle. He
created a trust for the benefits of his four children. The records of the trustee for the
year ended December 31, 2020, have revealed the following:
N
Adjusted trading profits for the year ended December 31, 2020 36,400,000
Dividend (gross) 305,000
Rental income (gross) 820,000
Interest received (gross) 118,500
Sundry income 24,800

Additional information:
(i) Fixed annuity paid to Deji, his first child 81,000
(ii) Fixed remuneration for the trustee 500,000
(iii) Variable remuneration of the trustee – 5% of gross income

56
(iv) Allowable expenses of the trustee as agreed 60,000
(v) Capital allowances as agreed with the Revenue 395,000
(vi) Discretionary payments were made by the trustee in
agreement with the trust deed as follows:
Akeem 300,000
Ayodeji 250,000
Olabisi 220,000
Adekunle 180,000
(vii) One third of the distributable income is to be shared
equally among the children.

Required:
a. Compute the net distributable income in the hand of the trustee. (13 Marks)

b. Compute the assessable income in the hand of each beneficiary. (7 Marks)

(Total 20 Marks)

QUESTION 2

a. Atlat Airline Limited was incorporated in New York, USA, on June 6, 1993. It is
engaged in the carriage of mails, passengers and livestock into and out of
Nigeria.
The company’s worldwide statement of profit or loss as at December 31, 2018,
has revealed the following:
N N
Income from passengers flown from New York to
Nigeria 510,720,000
Income from passengers loaded and flown out of
Nigeria 241,305,000
Income from cargo loaded into aircraft to Nigeria from
other routes 181,300,100
Income from cargo freight from Nigeria to New York 102,960,000
1,036,285,100

Operating expenses:
Staff salaries 328,000,000
Depreciation 12,750,000
Use of airport facilities 49,800,000
Hotel bills for passengers 16,250,000
Hotel bills for airline crew 21,670,200
Gifts to airport staff for gratifications 1,081,000
Purchase of twin engine 54,700,000
Allowance for doubtful debts 11,810,400
Other overhead expenses 7,960,000 (504,021,600)
532,263,500

57
 Additional information:
(i) The Federal Inland Revenue Service is satisfied that the tax authority in
New York computes and assesses a company which operates an aircraft
on a basis not materially different from that prescribed by Companies
and Allied Matters Act Cap C21 LFN 2004 (as amended).
(ii) The tax authority in New York has certified the adjusted profit and
depreciation allowance ratios.
(iii) Out of the overhead expenses, N2,194,500 relates to disallowable
expenses.

Required:
Compute the taxes payable in Nigeria by Atlat Airline Limited for the relevant
assessment year. (16 Marks)

b. “E-commerce” and e-business present a major challenge for tax administrators

given the often multi-jurisdictional nature of the transactions and the potential
anonymity of the parties.
Based on the above, it is, therefore, crucial to give the subject a critical
examination through the lenses of relevant statutes.

Required:
State the tax complexities of “e-commerce” and “e-business”. (4 Marks)
(Total 20 Marks)

QUESTION 3

The Personal Income Tax Act Cap P8 LFN 2004 (as amended) defines employment to
include any appointment or office whether public or otherwise for which
remuneration is payable.

An employer shall register with the relevant tax authority for the purposes of
deducting income tax from its employees with or without formal notification or
direction by the relevant tax authority.

Required:
a. Define an ”itinerant worker”. (2 Marks)
b. Explain the conditions for taxation of income from employment. (10 Marks)
c. State the penalties payable by employers who failed to file
returns of emoluments paid to employees in the preceding
year on January 31, of each year, with the relevant tax authority.
(8 Marks)
(Total 20 Marks)

58
QUESTION 4
a. Under the provisions of Companies Income Tax Act Cap C21 LFN 2004 (as
amended), for an expenditure to be allowable for tax purposes, it should be an
expenditure incurred wholly, exclusively, necessarily and reasonably in
earning the income of the company.
Despite the above – stated assertion, some donations are still allowable for tax
purposes.

Required:
State the conditions that must be met before a donation is allowed for tax
purposes. (8 Marks)

b. Mr. James Adegun has been in Japan for so many years. There is pressure
from his parents in Nigeria to return to the country to take advantage of so
many favourable economic policies being put in place by the government.

Mr. James Adegun had a sudden meeting with you sometime in 2019 and
intimated you of his desire to return to Nigeria. He was of the opinion that his
business associates in Japan would be willing to invest in a free trade zone in
Nigeria.
Required:

State SIX special tax incentives for enterprises operating in a free trade zone
in Nigeria. (12 Marks)
(Total 20 Marks)

QUESTION 5

a. In 2018, the 8th Assembly, House of Assembly, Lagos State, enacted the Land
Use Charge Law 2018, to provide for the consolidation of property and land
based charges and make provisions for the levying and collection of land use
charge in Lagos State and for connected purposes.

Required:
State the offences and their penalties as stated in sections 29 and 30 of the
law. (8 Marks)

59
b. Mr. James Ado who is a successful businessman built a house for commercial
purposes at Surulere, Lagos, in 2018.
You are given the following information:
(i) The area of the land parcel is 3,600 square metres.
(ii) The average market value of a land parcel in the neighbourhood, on a per
square metre basis is N17,000 as determined by the professional valuers
appointed by the Commissioner.
(iii) The total developed floor area of building on the plot of land is 2,000
square metres.
(iv) The average construction value of medium quality buildings and
improvements in the neighbourhood, on a square metre basis, is put at
N200, based on the market value of the property as determined by
professional valuers.
(v) The depreciation rate for the buildings and improvements of land based
on age of building is put at 1%.
(vi) The annual relief rate is 40%.
(vii) The annual charge rate expressed as a percentage of the assessed market
value of the property is 0.76% of the assessed value.

Required:
Compute the land use charge payable by Mr. James Ado. (12 Marks)
(Total 20 Marks)

QUESTION 6
The National Tax Policy (NTP), 2017, provides the fundamental guidelines for the
orderly development of the Nigeria tax system. The policy is expected to achieve the
following specific objectives, among others:
(i) Provide clarity on the roles and responsibilities of stakeholders in the tax
system;
(ii) Guide the operation and review of the tax system;
(iii) Serve as a point of reference for all stakeholders on taxation;
(iii) Provide the basis for future tax legislations and administration; and
(iv) Provide benchmark on which stakeholders shall be held accountable.

Tax administration in Nigeria cuts across the three tiers of government. This tax
policy document establishes clear guidelines on crucial tax administration issues.

60
In the context of the Nigeria Tax Policy, tax authorities at all levels shall administer
their mandates in accordance with the following:
Registration of taxable persons;
Tax compliance;
Efficiency of administration;
Technology and tax intelligence; and
Dispute resolution.

Required:
Explain the administration of the mandates of tax authorities at the State level.
(20 Marks)

61
 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 7.5%

62
SECTION A MULTIPLE – CHOICE QUESTIONS

1. E

2. D

3. D

4. D

5. E

6. C

7. D

8. E

9. B

10. E

11. E

12. E

13. E

14. D

15. D

16. D

17. C

18. E

19. C

20. D

63
SECTION A - MCQ

Examiner’s report

The questions cover all the components of the syllabus.

Most of the candidates attempted the questions and the performance was above
average. The commonest pitfalls were the inability of the candidates to provide
correct solutions to questions 5, 16 and 20.
Candidates are advised to cover all the topics in the syllabus before they sit for the
Institute’s examinations.

SECTION B

SOLUTION 1
(a) Chief Adio Jaiyesimi Trust
Computation of the net distributable income in the hand of the trustee
N N
Income:
Trading profit 36,400,000
Capital allowances ( 395,000) 36,005,000
Dividend (gross) 305,000
Rental income (gross) 820,000
Interest received (gross) 118,500
Sundry income 24,800
Gross income 37,273,300

Expenses:
Fixed annuity paid to Akeem 81,000
Trustee’s remuneration:
Fixed 500,000
Variable (5% of gross income) 1,863,665
Allowable expenses of the trustee 60,000 (2,504,665)
Computed income 34,768,635
Discretionary payments:
Akeem 300,000
Ayodeji 250,000
Olabisi 220,000
Adekunle 180,000 (950,000)
Amount available for distribution 33,818,635
Dividend (gross) (305,000)
Net amount available for distribution 33,513,635

64
 Distribution:
Akeem 2,792,803
Ayodeji 2,792,803
Olabisi 2,792,803
Adekunle 2,792,803 (11,171,212)
Net distributable income assessable to tax
in the hand of the trustee 22,342,423

(b) Chief Adio Jaiyesimi Trust

Computation of assessable income in the hands of each beneficiary

Akeem Ayodeji Olabisi Adekunle Total

N N N N N
Fixed annuity 81,000 81,000
Discretionary
payments 300,000 250,000 220,000 180,000 950,000
Share of net
distributable
income 2,792,803 2,792,803 2,792,803 2,792,803 11,171,212
Assessable income
of the beneficiaries 3,092,803 3,123,803 3,012,803 2,972,803 12,202,212

Examiner’s report
The question tests candidates’ knowledge of the computations of net distributable
income and assessable income in the hands of a trustee and beneficiaries,
respectively.

About 70% of the candidates attempted the question but the performance was poor.

The commonest pitfalls of the candidates were their inability to deduct capital
allowances from trading profit and dividend from amount available for distribution
before arriving at the net amount available for distribution between the beneficiaries
and the trustee.

Candidates are advised to pay attention to the computations of taxable income in the
hands of trustees and beneficiaries.

65
Marking guide
Marks Marks
(a) Heading ½
Income (½ mark each for any correct income) 2½
Capital allowances ½
Gross income ½
Expenses (½ mark for each correct expense) 2
Computed income ½
Discretionary payments (½ mark for each correct
payment) 2
Amount available for distribution ½
Deduction of gross dividend ½
Net amount available for distribution ½
Distribution (½ mark for each correct amount) 2
Net distributable income assessable to tax in the hands
of the trustee 1 13

(b) Heading ½
Fixed annuity ½
Discretionary payments (½ mark for each correct
amount) 2
Share of distributable income (½ mark for each correct
amount) 2
Assessable income of the beneficiaries (½ mark for each
correct amount) 2 7
20

SOLUTION 2
(a) Atlat Airline Limited
Computation of taxes payable
For 2019 assessment year
N
Income:

Income from passengers loaded and flown out of Nigeria 241,305,000

Income from cargo freight from Nigeria to New York 102, 960,000
344,265,000

Assessable profit is N204,242,940 (income derived from

Nigeria x 59.33% (wii) 204,242,940
Capital allowances is N4,234,460 (income derived from
Nigeria x 1.23% (wiii) (4,234,460)
Total profit liable to tax in Nigeria 200,008,480

66
 Companies income tax payable (N200,008,480 x 30%) = N60,002,544.00

Tertiary education tax payable (N204,242,940 x 2%) = N4,084,858.80

Minimum tax payable is 2% of the full sums receivable in respect of the
carriage of passengers, mails, livestock or goods shipped or loaded into an
aircraft in Nigeria = N344,265,000 x 2%
= N6,885,300
Given the fact that the minimum tax payable of N6,885,300 is lower than the
companies income tax payable of N 60,002,544, the latter becomes payable.

Workings:

(i) Computation of adjusted profit

N N
Net profit per accounts 532,263,500
Add:
Depreciation 12,750,000
Gifts to airport staff for gratifications 1,081,000
Purchase of twin engine 54,700,000
Allowance for doubtful debts 11,810,400
Overhead expenses 2,194,500 82,535,900
Adjusted profit 614,799,400

(ii) Computation of adjusted profit ratio

Adjusted profit N614,799,400 x 100% = 59.33% approximately
x 100% =
Worldwide income N1,036,285,100

Please note that the ratio used was the actual adjusted profit ratio not
59.33% as shown above.

(iii) Computation of depreciation allowance ratio

Depreciation N12,750,000 x 100% = 1.23%
x 100% =
Worldwide income N1,036,285,100

67
 ALTENATIVE SOLUTION
Atlat Airline Limited
Computation of taxes payable in Nigeria
For 2019 assessment year
N N
Income from passengers loaded and flown out of 241,305,000.00
Nigeria
Income from cargo freight from Nigeria to New York 102,960,000.00
344,265,000
Add: Allowable expenses
Use of airport facilities 49,800,000.00
Staff salary 328,000,000.00
Hotel bill for passengers 16,250,000.00
Hotel bill for airline crew 21,670,200.00
Other overhead expenses 5,765,500.00
421,485,700.00
Proportion applicable to operations in Nigeria
N 421,485,700/N1,036,285,100 x N 344,265,000 140,022,060
Adjusted profit 204,242.940
Less: Capital allowances
N344,265,000 x 1.23% 4,234,460
Total profit 200,008,480

CIT @ 30% N 200,008,480 N60,002,544.00

TET @ 2% N204,242,940 N4,084,858.80

(b) Tax complexities in “e-commerce” and “e-business”

With the accessibility to internet across borders, e-commerce transactions can involve
people who are residents of more than one country, therefore, income arising out of
such transactions may be taxed in more than one country.

E-commerce raises twin problems:

(i) The determination of the character of income that is generated by the e-
commerce transaction: is it royalty, business profit, or fees for technical service?
(ii) The determination of income liable to tax, which necessitates the establishment
of the existence of permanent establishment (PE) and determination of
attributes of income, if any, to the PE.

68
Income characterisation
The Act as well as the tax treaties impose different tax treatments on different types
of cross-border incomes, for example, business profits are generally sourced to the
country where the income – producing business is based and taxed on a net basis.
Royalty income, on the other hand, is generally sourced to the country where
intellectual property was used (e.g. the country where the consumer of the
intellectual property is resident) and may be subject to gross withholding taxes.

The digital world raises a number of problems with respect to income

characterisation issues. Cross-border transactions involving the transmission of
digital goods and services often make it difficult to determine whether a transfer of
product has occurred, whether services have been performed, or whether an
intangible product has been licensed. The problem is that transactions involving e-
commerce are very difficult to track, thereby making it difficult for the tax authority
to impose tax.

The existence of permanent establishment

Under the Nigerian tax system, companies resident in Nigeria are liable to pay tax
on their global income, whilst non-resident companies are subject to tax in Nigeria
only on the activities carried out within Nigeria through a permanent
establishment.

For a non-resident company, therefore, where a tax liability arises in more than one
jurisdiction, the company can seek relief from double taxation under existing
double taxation treaties, which are by and large, adaptions of the OECD model tax
convention.

The main challenge posed by e-commerce to the Nigerian tax system is that the law
that governs direct taxes, that is, income taxes, are presently premised on the
concept of permanent establishment (PE) as presently defined in the double
taxation treaties. With the advent of e-commerce, the need for physical presence in
the country receiving the goods or services is removed or at best diminished. This
creates the problem of how to determine the right to tax profits that are derived
from e-transactions.

On indirect taxes (VAT), the major challenge is how to track e-commerce

transactions for purpose of VAT collection.

Examiner’s report
The question tests candidates’ knowledge of taxation of foreign air companies in
Nigeria, and tax complexities of e-commerce and e-business.
About 80% of the candidates attempted the question. Candidates demonstrated a
poor understanding of the question and its requirements, hence performance was
below average.

69
In part (a) of the question, the commonest pitfalls of the candidates were their
inability to compute adjusted profit ratio and depreciation allowance ratio.
Additionally, some of them could not compute minimum tax liability and were
unable to differentiate between allowable and allowable expenses. In part (b), most
of the candidates could not explain the complexities of e-commerce and e-business.
Candidates are advised to familiarize themselves with the principles guiding the
taxation of foreign air companies in Nigeria and the taxation of e-commerce and e-
business.
Marking guide
Marks Total
(a) Heading 1
Income from passengers loaded and flown out of Nigeria ½
Income from cargo freight from Nigeria to New York ½
Assessable profit 1
Capital allowances 1
Total profit ½
CIT payable 1
TET payable 1
Minimum tax computation 1
Computation of adjusted profit:
Net profit per accounts ½
Add backs (1 mark for each correct answer) 5
Adjusted profit 1
Computation of adjusted profit ratio 1
Computation of depreciation allowance ratio 1 16
(b) Income characterization 2
The existence of permanent establishment 2 4
20
Marking guide (Alternative solution)
Marks Marks
(a) Heading 1
Income (1 mark for each Nigerian income) 2
Allowable expenses (1 mark for each correct answer) 5
Computation of proportion applicable to operation in
Nigeria (1 mark for total of allowable expenses and 1 mark
for ratio) 2
Adjusted profit 1
Computation of capital allowances 2
Total profit 1
Companies income tax computation 1
Tertiary education tax 1 16
(b) Income characterisation 2
Existence of permanent establishment 2 4
20

70
SOLUTION 3
(a) “Itinerant worker” means an individual irrespective of his status, who works
at any time in any State during a year of assessment (other than as a member
of the armed forces) for wages, salaries or livelihood by working in more than
one State and work for a minimum of twenty (20) days in at least three (3)
months of every assessment year.
(b) Conditions for taxation of income from employment
While PITA 2004 (as amended) provides for the taxation of individuals in
Nigeria, it makes special provisions for the taxation of those in employment.
Section 10 of PITA provides that the gain or profit from an employment shall
be deemed to be derived from Nigeria if:
(i) The duties of the employment are wholly or partly performed in
Nigeria, unless:

• The duties are performed on behalf of an employer who is in a

country other than Nigeria and the remuneration of the employee
is not borne by a fixed base of the employer in Nigeria;
• The employee is not in Nigeria for a period or periods amounting
to an aggregate of 183 days, (inclusive of annual leave or
temporary period of absence) or more in any twelve months period
commencing in a calendar year and ending either within that
same year or the following year; and
• The remuneration of the employee is liable to tax in that other
country, under the provisions of the avoidance of double taxation
treaty with other country.

(ii) The employer is in Nigeria or has a fixed base in Nigeria;

(iii) The gain or profit from any employment exercised in Nigeria shall be
deemed to be derived from Nigeria whether the gains or profits from
the employment are received in Nigeria or not;
(iv) The gains or profits from any employment, the duties of which are
wholly or mainly performed in Nigeria shall be deemed to be derived
from Nigeria during any period of leave of the employee from the
employment, and any period of his temporary absence on duty from
Nigeria; and
(v) Notwithstanding the above provisions, the gains or profits of an
individual from any employment as a seafarer, other than any such
employment in the Nigerian Navy or the Nigerian Ports Plc, shall be
deemed to be derived from Nigeria only during any period in which the
individual is serving under articles which he had signed in Nigeria or is

71
 performing stand-by duty on board a ship preparatory to his signing
articles in Nigeria.

(c) Penalties payable by employers who failed to file returns of all emoluments
paid to employees in the preceding year with relevant tax authorities
Not later than thirty first day of January of each year, an employer is required
to file a return with the relevant tax authority of all emoluments paid to
employees in its employment in the preceding year. The return in respect of
the employees shall show the total emoluments of each employee during the
year, the tax relief, if any, and the total tax deducted from the employee.

The return specified above shall be accompanied by a statement and a

declaration on form H1 or any other form approved or prescribed by the
relevant tax authority.

Any employer who contravenes the above provisions shall be liable on

conviction to a penalty of N500,000 in case of a body corporate and N50,000
in case of an individual.

Examiner’s report
The question tests candidates’ knowledge of taxation of employment income and the
penalties payable by an employer for failing to file returns of emoluments paid to
employees in the preceding year to the relevant tax authority in a State.

About 70% of the candidates attempted the question. Candidates demonstrated a

poor understanding of the question, hence performance was poor.

Parts (a) and (b) were poorly attempted by the candidates as some of them could not
explain “itinerant worker” and the conditions for taxation of income from
employment. Additionally, they could not state the penalties payable by a corporate
body or an individual for not filing tax returns in respect of all emoluments paid to
employees in the preceding year.

Candidates are advised to read ICAN Study Text and Pathfinder when preparing for
subsequent examinations to ensure better performance in future.

72
Marking guide
Marks Marks
(a) Definition of “itinerant worker” 2
(b) Conditions for taxation of income from employment
(2 marks for each point) 10
(c) Penalties payable by an employer who failed to file returns
2 marks for the due date of filing and information to be
disclosed 2
2 marks for documents to be attached to the return 2
Penalties:
2 marks for the penalty for corporate body 2
2 marks for the penalty for an individual 2 8
20

SOLUTION 4

(a) The conditions for allowing donations made by a company as deduction in

ascertaining the profit or loss chargeable to tax are as follows:

(i) The donations must be made to the funds, bodies, institutions in

Nigeria contained in the fifth schedule to CITA;
(ii) Donations must be made out of profit, that is, donations shall not be
allowed in circumstances where it will increase the loss of a company
or convert its profit into loss;
(iii) Donations must not be of a capital nature except donations to a
university or other tertiary or research institutions; and
(iv) Donations must not exceed 10% of the company’s total profit for an
assessment year before any deduction for donation. In the case of
donation to a tertiary or research institution, up to 15% of total profit or
25% of tax payable in the year, whichever is higher, is allowable.

(b) Approved enterprises in free trade zones in Nigeria shall be entitled to the
following incentives:

(i) Legislative provisions pertaining to taxes, levies, duties and foreign

exchange regulations shall not apply within the zones;
(ii) Repatriation of foreign capital investment in the zones at any time with
capital appreciation of the investment;
(iii) Remittance of profits and dividends earned by foreign investors in the
zones;
(iv) No import or export licenses’ shall be required;
(v) Up to 25% of production may be sold in the customs territory against a
valid permit and on payment of appropriate duties;

73
 (vi) Rent – free land at construction stage; thereafter, rent shall be as
determined by the authority;
(vii) Up to 100% foreign ownership of business in the zones is allowable; and
(viii) Foreign managers and qualified personnel may be employed by
companies operating in the zones.

Examiner’s report
The question is divided into two parts. Part (a) tests candidates’ knowledge of the
conditions that must be met before a donation is allowed for tax purposes, whilst
part (b) tests their knowledge on tax incentives for enterprises operating in a free
trade zone.

Approximately 75% of the candidates attempted the question and performance was
poor.

The commonest pitfall of the candidates was their inability to explain the incentives
available for enterprises operating in free trade zones in Nigeria.

Candidates are advised to read widely before sitting for the Institute’s examinations.

Marking guide
Marks
(a) Conditions that must be met before a donation is
allowed for tax purposes
(2 marks for each condition) 8

(b) Special incentives for enterprises operating in a free

trade zone in Nigeria
(2 marks for each incentive subject to a maximum of six
incentives) 12
20

74
SOLUTION 5
(a) Offences and penalties as stated in Land Use Charge Law 2018, are as follows:
(i) Offences
These include:
• Refusing or neglecting to comply with any provision of this law
when required to do so by the property identification officer or an
assessor;
• Preventing, hindering, or obstructing any property identification
officer or an assessor in the course of his lawful duty; and
• Removing, damaging or destroying a property identification
plaque on any property or building.

(ii) Penalties
These include:
• In respect of (a)(i) above, any person who commits any of the
offences shall be liable on summary conviction to a maximum fine
of two hundred and fifty thousand Naira only (N250,000.00) or to
a maximum term of imprisonment for a period of three (3) months
or both;
• Any person who incites another person to refuse to pay any rate
under the LUC law on or before the day on which it is payable; or
incites or assists any person to misrepresent in any way the
chargeable capacity, commits an offence and will be liable on
summary conviction to a maximum fine of two hundred and fifty
thousand naira only (N250,000.00) or to a maximum term of
imprisonment for a period of three (3) months or both; and
• Where a person who has received a LUC demand notice fails to pay
the amount within the period specified in the notice, the charge
payable shall be increased by the following percentage –
• Between forty five (45) calendar days and seventy five (75)
calendar days – 25%;
• Between seventy five (75) calendar days and one hundred
and five (105) calendar days – 50%; and
• Between one hundred and five (105) calendar days and one
hundred and thirty five (135) calendar days – 100%.

If payment is not made after 135 calendar days, the property on which
the LUC is payable shall be liable to enforcement under the provisions
of the law by the state or its appointed agent until all outstanding
taxes, penalties and administrative charges are paid.

75
 The owner is, however, entitled at any time to apply to the
Commissioner for a release of the property and other moneys accruing
to the owner upon payment of the outstanding taxes, penalties and
administrative charges.

Note
It is pertinent to state that the penalties were reviewed in 2020 as
follows:
• In respect of (a)(i) above, any person who commits any of the
offences shall be liable on summary conviction to a maximum
fine of one hundred thousand Naira only (N100,000.00) or to a
maximum term of imprisonment for a period of three (3) months
or both;
• Any person who incites another person to refuse to pay any rate
under the LUC law on or before the day on which it is payable; or
incites or assists any person to misrepresent in any way the
chargeable capacity, commits an offence and will be liable on
summary conviction to a maximum fine of one hundred thousand
Naira only (N100,000.00) or to a maximum term of imprisonment
for a period of three (3) months or both; and
• Where a person who has received a LUC demand notice fails to
pay the amount within the period specified in the notice, the
charge payable shall be increased by the following percentage-
• Between forty five (45) calendar days and seventy five (75)
calendar days – 10%;
• Between seventy five (75) calendar days and one hundred and
five (105) calendar days – 20%; and
• Between one hundred and five (105) calendar days and one
hundred and thirty five (135) calendar days – 50%.

(b) Mr. James Ado

Computation of land use charge payable
Land use charge formula is
(Land value + building developments value) x relief rate x charge rate
interpreted as
LUC = [(LA x LR) + (BA x BR x DR) x RR x CR]
Where LUC = Annual amount of land use charge
LA = Area of the land parcel in square metres
LR = The average market value of a land parcel in the
neighbourhood

76
 BA = The total developed floor area of building on the plot of land
in square metres
BR = The average construction value of medium quality buildings
and improvements in the neighbourhood
DR = The depreciation rate for the building and improvements of
land
RR = The rate of relief from tax
CR = The annual charge rate expressed as a percentage of the
assessed market value of the property.
Land value N
3,600 x N17,000 = 61,200,000

Building development value

2,000 x N200 x 1% = 4,000
Total of land and building development value 61,204,000

Using the formula, the land use charge payable is,

= N61,204,000 x 40% x 0.76%
= N186,060.16

Examiner’s report
The question tests the candidates’ knowledge on offences and penalties payable
under the Land Use Charge Law, 2018, of Lagos State, and the computation of land
use charge payable on a property.
About 30% of the candidates attempted the question and they demonstrated a poor
understanding of the question, hence performance was poor.
The commonest pitfalls were candidates’ inability to explain the specified offences
and penalties in Land Use Charge Law, 2018, of Lagos State, and they could not
compute the land use charge payable on a property in Lagos State.
Candidates are advised to read relevant study materials in order to perform well in
future examinations.

Marking guide
Marks Marks
(a) Offences
(1 mark for each correct offence) 3
Penalties
(½ mark for each correct penalty) 5 8

(b) Heading 1
Land value 2
Building developments value 3

77
 Formula:
½ mark for each of the formulae 4
Ascertainment of correct land use charge payable 2 12
20

SOLUTION 6
Tax administration in Nigeria cuts across the three-tiers of government. This tax
policy document establishes clear guidelines on crucial tax administration issues. In
the context of the Nigeria tax policy, tax authorities at State level shall administer
their mandates in accordance with the following:
(a) Registration of taxable persons
All taxable persons shall be registered and issued with taxpayer identification
number (TIN) applicable nationwide. Tax authorities should leverage on the
database of the Central Bank of Nigeria (CBN) on bank verification number
(BVN), National Identify Management Commission (NIMC), Nigeria
Communication Commission (NCC), Corporate Affairs Commission (CAC),
Federal Road Safety Commission (FRSC), Nigeria Immigration Service (NIS)
and other relevant sources. The current uncoordinated registration by different
agencies should be harmonised.

(b) Tax compliance

Government shall apply all available resources and tools at their disposal to
ensure that taxpayers voluntarily comply with their tax obligations. In order to
improve voluntary compliance, the relevant tax authority in the State should
ensure:
(i) That the option for self-assessment is in place, and the process and
procedures are simple;
(ii) Development of frameworks for tax amnesty in order to expand the tax
net;
(iii) Focus on taxpayers’ services;
(iv) Constant tax education and enlightenment;
(v) The overall performance of the tax system is measured and reported
periodically; and
(vi) The establishment of a system to recognize and honour compliant
taxpayers.

(c) Efficiency of administration

The following are important in ensuring an efficient tax administration:

(i) Payment processing and collection

Collection system shall leverage on modern technology towards
advancing ease of payment and prevention of revenue losses.

78
 (ii) Record keeping
Tax authorities shall partner with the relevant agencies to set up
automated systems and adequately train tax officials in the use and
maintenance of such systems. Electronic systems of record keeping in
line with global best practices should be entrenched to enhance the tax
administration process.

(iii) Exchange of information

Tax authorities shall develop an efficient framework for cooperation
and sharing of information with other tax authorities. This will mitigate
tax evasion and revenue losses.

(iv) Enforcement of tax laws

Tax authorities shall ensure the enforcement of civil and criminal
sanctions as provided under the various tax laws.

(v) Funding of tax departments

Government shall provide adequate funding for tax departments.
Accordingly, government should ensure that an adequate percentage of
revenue collected should be provided to the departments for their
operations.

(vi) Funding for tax refunds

Government shall provide adequate funding to meet refund obligations.
Tax authorities shall ensure timely and efficient payment of refunds.

(vii) Ease of paying taxes

Tax authorities shall ensure that payment procedures and
documentation are convenient and cost effective.

(d) Technology and tax intelligence

Tax relevant tax authority in a State shall ensure:
(i) Deployment of technology to aid all aspects of tax administration;
(ii) The integrity and regular update of the database; and
(iii) A workable and secure structure for intelligence and information
gathering.

79
(e) Dispute resolution
In the event of any dispute, the tax authority and relevant stakeholders shall
leverage all amicable means of dispute resolution including arbitration and
only resort to judicial determination as a last resort.

Examiner’s report
The question tests the candidates’ knowledge on the provisions of the National Tax
Policy (NTP), 2017, with emphasis on the administration of the mandates of the
relevant tax authority in each State.

About 65% of the candidates attempted the question and the performance was poor.

The commonest pitfall was candidates’ lack of knowledge of the administration of

the mandates of the relevant tax authority in a State. They spent time discussing the
functions of the Joint Tax Board (JTB).

Candidates are advised to pay attention to this particular aspect of the syllabus.

Marking guide
Marks
Registration of taxable persons 2
Tax compliance
(1 mark for each correct answer subject to a maximum of 4 points) 4
Efficiency of administration
(2 marks for each correct answer subject to a maximum of 4 points) 8
Technology and tax intelligence
(2 marks for each correct answer subject to a maximum of 2 points) 4
Dispute resolution 2
20

80
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – MAY 2021

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. A technique used in evaluating the level of power of interest a stakeholder

has in a company is termed
A. Mendelow matrix
B. Blanchard matrix
C. Hertberg model
D. BCG matrix
E. Porter five model

2. Which of the following is NOT a feature of entrepreneurial organisation?

A. There is no formal management structure
B. Owner does not delegate decision-making to other people
C. The entrepreneurial leader dominates the organisation
D. Entrepreneurial leader focuses on people and not the work
E. Owner is closely involved in the day-to-day operations of the business

3. A business organisational structure that creates segments on the basis of

products or geographical location is best described as a ……………. structure

A. Functional
B. Regional
C. Service
D. Divisional
E. Matrix

81
4. Which of the following is NOT a feature of boundaryless organisational
structure?

A. Extensive use of teams

B. Elimination of organisational hierarchy
C. Authorises teams to make decisions
D. Face-to-face meetings
E. Builds teams without geographical barriers

5. An organisation with no tangible identity and whose employees may not have
strong loyalty culture would be said to be operating a ………………..structure.

A. Network
B. Modular
C. Virtual
D. Hollow
E. Boundaryless

6. The practice of moving jobs outside the country where an organisation is based in
order to take advantage of incentives in the destination country is termed

A. Outsourcing
B. Outshoring
C. Offshore outsourcing
D. Offsourcing
E. Offshoring

7. Which of the following activities may NOT be taken as part of manufacturing

function in an organisation?

A. Engineering and maintenance work

B. Physical delivery of goods to customers
C. Production planning and control
D. Quality control and checking
E. Inspection of finished goods

82
 1. Which of the following is NOT part of the FIVE dimensions to differences in
organisation culture as propounded by Hofstede?

A. Uncertainty avoidance dimension

B. Medium – termism orientation
C. Power-distance dimension
D. Individualism versus collectivism dimension
E. Masculinity versus femininity

2. Most e-mail systems support the use of folders to help manage and file
e- mails. The e-mail system will normally include some standard folders except

A. Inbox
B. Sent
C. Maps
D. Deleted
E. Drafts

3. Which of the following attributes best describes a formal work team?

A. Comes together through the social interaction of its members

B. No specific objective or tasks
C. Decisions are taken by the group leader
D. Can be much more efficient in communicating information
E. Free entry and free exit

4. Which of the following is NOT a factor of motivation?

A. Wants
B. Rewards
C. Personality
D. Perceptions
E. Expectations

5. Herzberg in his two-factor theory identified two groups of factors causing

dissatisfaction or satisfaction with work. Which of the following is a motivating
factor?

A. Salary
B. Supervision
C. The work itself
D. Working conditions
E. Relationship with the boss

83
6. Which of the following CANNOT be classified amongst the scientific or classical
management theorist?

A. Elton Mayo
B. Henri Fayol
C. Lyndall Urwick
D. Frederick Taylor
E. David McClelland

7. Brown borrowed N150,000 at 6% p/a simple interest for 18 months, what is the
value of interest due at the end of the period?

A. N 13,200
B. N 13,500
C. N 13,800
D. N 14,000
E. N 14,200

8. Blake wants to borrow N120,000 from Jerry. Blake is willing to pay back
N127,000 in 3 months, what simple interest rate will he pay?

A. 21.33%
B. 22.33%
C. 23.33%
D. 24.33%
E. 25.33%
F.

9. What is the effective rate for an account that pays 9.0% compounded monthly?

A. 9.18%
B. 9.28%
C. 9.38%
D. 9.48%
E. 9.58%

10. Assuming a 6.5% time preference rate, what is the present value of N120,000
received two years from now?

A. ₦104,799.11
B. ₦105,799.11
C. ₦106,799.11
D. ₦107,799.11
E. ₦108,799.11

84
11. Which of the following is NOT an advantage of accounting rate of return (ARR)
method of investment appraisal techniques?

A. It is based on accounting profit

B. Measures profitability
C. Simple to calculate
D. Widely understood
E. Focuses on all the years of the project’s life

12. Which of the following is NOT a source of long-term funds for a public limited
liability company?

A. Retained earnings
B. Bonus issue
C. Rights issue
D. Initial public offer (IPO)
E. Further offer

13. Which of the following is relevant to investment decisions?

A. Committed cost
B. Notional cost
C. Present cost
D. Stock cost
E. Apportionment of overheads cost

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. Protectionism takes the form of government measures to discourage or

prohibit imports of foreign goods. State TWO measures countries adopt to protect
industries against foreign competition. (4 Marks)

b. Theoretically, disequilibrium in international payments could be rectified by a

fall in the exchange value of the currency of countries that have a deficit in

85
 their balance of payments in goods and services. What are the implications of
taking this measure? (6 Marks)

c. Governments of nations sometimes use economic policies to achieve political,

social or economic objectives. As an integral part of the Nigerian government’s
medium term fiscal framework, there is a proposal to remove fuel subsidy in
2021. According to economic theory, state TEN possible economic impacts of the
removal of fuel subsidy in Nigeria. (10 Marks)
(Total 20 Marks)

QUESTION 2

An important contribution to ideas about the management of teams was made by

Belbin. He studied the behaviour of individuals in teams and the ‘team role’ that
each individual plays. He defined a team role as ‘our tendency to behave, contribute
and interrelate with others in a particular way’.

You are required to:

a. State and describe briefly the THREE main groups of Belbin team roles.
(6 Marks)
b. For each of the THREE Belbin groups, state and describe the THREE team roles
it includes. (9 Marks)
c. According to Belbin, what are the factors that contribute to the most successful
team work? (5 Marks)
(Total 20 Marks)

QUESTION 3

CASHIO Limited must choose between two investments, Project ABUWA and Project
BRIWA. It cannot undertake both investments. The expected cash flows for each
project are:
Year Project ABUWA Project BRIWA
N N
0 (800,000) (800,000)
1 200,000 600,000
2 360,000 240,000
3 360,000 20,000
4 170,000 -

The company has a policy that the maximum permissible payback period for an
investment is three years and if a choice has to be made between the two projects,
the project with the earlier payback will be chosen.

86
Required:
a. Calculate the payback period for each project:
i. Assuming that cash flows occur at that year end
ii. Assuming that cash flows after Year 0 occur at a constant rate throughout
each year (16 Marks)
b. Which project should be selected according to the company’s payback rule
(2 Marks)
c. State the reasons for your decision in (b) above. (2 Marks)
(Total 20 Marks)

QUESTION 4
Felfred Limited is contemplating buying a new item of equipment to facilitate the
improvement of the quality of services provided to customers of the company. Two
models of the needed equipment are currently available in the market. The two
machines, Xetoy and Whytox would cost N750,000 and N1,500,000 respectively.
Additional information in relation to the two equipment is as stated below:
Equipment Equipment
Xetoy Whytox
Estimated Lifespan 5 years 5 years
Expected Cash inflows / Year N N
2021 500,000 500,000
2022 500,000 500,000
2023 300,000 600,000
2024 200,000 600,000
2025 100,000 600,000
Disposal value 50,000 100,000

Based on Net Present Value (NPV) and Discounted Payback Period methods of
investment appraisal, you are required to select the equipment in which the value
of shareholders will be maximised. Costs of installation for Xetoy and Whytox are
N50,000 and N100,000 respectively. The company’s minimum required rate of
return is currently at 12%. (20 Marks)
(Total 20 Marks)

QUESTION 5

Leadership means giving a lead to others. A leader gives guidance and direction and
the others (‘followers’) follow the lead that they are given.
You are required to:
a. Describe the main elements of Adair’s concept of action-centred leadership.
(6 Marks)
b. State the main skills required within each of Adair’s THREE leadership
groups. (11 Marks)

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c. Explain Adair’s 50/50 rule. (3 Marks)
(Total 20 Marks)

QUESTION 6

a. In a normal situation or circumstance, employees are expected to report

unethical or illegal conduct to the supervisor or manager. State TWO problems
that may arise that would make an employee to use a different reporting
channel. (5 Marks)

b. State the expectations of the public in respect of the accountants and the
professional bodies they affiliate with. (5 Marks)

c. What are the roles expected of the professional accountancy bodies in

promoting ethical behaviour in the business environment? (10 Marks)
(Total 20 Marks)

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SOLUTION MCQs

1. A

2. D

3. D

4. D

5. C

6. E

7. B

8. B

9. C

10. C

11. A

12. C

13. E

14. B

15. C

16. C

17. B

18. A

19. B

20. C 20 marks

89
Workings
Question 14
I = P.r.t
I = N 150,000(0.06)(18/12)= N 13,500

Question 15
A= P (1 + rt)
127,000 = 120,000 (1 + .25r)
127,000 = 120,000 + 30,000r
7,000 = 30,000r
r = 7,000/30,000
r = 0.2333 = 23.33%

Question 16

rE = (1 + r/m) m - 1
rE = (1+0.09/12)12 - 1
rE = 1.093806898 – 1
rE = 0.93806898
rE = 9.38%

Question 17
P= F (1 + i) –n
P= 120,000 (1 + .065)–2
P= 120,000 (0.8816)
P= ₦105,799.11

Examiner’s report

The questions test students’ understanding of the entire syllabus. It was attempted
by all the candidates being a compulsory question.

The performance was above average.

SECTION B

SOLUTION 1

(a) Measures adopted by countries to protect industries against foreign

competition are as stated below:

i. the imposition of high import taxes on goods coming into the country
ii. setting quota limits on the amount of goods that can be imported
iii. putting a ban on imports of some types of good.

90
(b) Implications of a fall in the exchange value of the currency of countries that
have a deficit in their balance of payments in goods and services.
i. Local currency becomes cheaper relative to other currencies.
ii. Exports to the debtor country therefore become relatively cheaper and buyers
in other countries will buy more of them.
iii. Imports from other countries become relatively more expensive consequently
domestic buyers will buy fewer imported goods (and might switch to buying
more domestically-produced goods).
iv. If exports go up and imports fall, the balance of payments position in goods
and services will improve.
v. A very substantial change in foreign currency exchange rates is needed to
rectify a very large disequilibrium in international payments.
vi. Inflation increases prices of goods and services.
vii. Increase in remittance from abroad (inflows).

(c) i. Deregulation and removal of the subsidy will lead to initial inflationary
pressures
ii. The market will open up to investors
iii. Significant capital will flow into the downstream sector
iv. More private refineries will open for business in Nigeria
v. Market will self-regulate
vi. Prices for refined petroleum products and related goods and services will
revert to natural market levels
vii. Competition will force prices down
viii. Less pressure on foreign reserves
ix. Government would gain access to funds to develop infrastructure
x. Borrowing will reduce
xi. Increased local investment Foreign Direct Investment (FDI) in the oil sector;
xii. Reduced importation of refined products significantly in the medium to
long term.

Examiner’s report
The question examines candidates on protectionism. Majority of the candidates
attempted the question and the performance was average. The main pitfall is
inability of students to identify measures that can be adopted to protect industries
against foreign competition.

Candidates are encouraged to make adequate use of the study pack for subsequent
examinations.

91
 Marking guide
Details Mark Total
1 a Any 2 points x 2 marks 4
b Any 4 x 1½ marks 6
c Any 10 points x 1 mark 10 20

SOLUTION 2

(a) The nine team roles are grouped into three broad groups:
i. Doing/Acting (Action Focused Team Roles)
Some team members are good at getting things done. When they discover
what needs to be done, they do it or encourage others to do it.

ii. Problem-Solvers and Thinkers (Thought Focused Team Roles)

Teams are often confronted with problems and difficulties that need to be
resolved. Some team members need to be good at finding answers to
problems.

iii. Showing Concern for People (People Focused Team Roles)

A team is a group of individuals acting together in a work environment. A
successful team needs members who have skills in bringing the team
together, by showing concerns for others, by helping others or through
communicating well with others and showing a concern for the team as a unit.

(b) Doing/Acting (Action Focused Team Roles)

i. Implementer:
He is a well-organised and predictable person. He takes basic ideas and
makes them work in practice. However, he can be slow.

ii. Shaper:
He is a person with energy, and full of action. He challenges other members of
the team to move forward and make progress. However, he can be insensitive
to the feelings of others.

iii. Completer/finisher:
He is a person who is reliable in seeing a task through to the end and getting
it finished. He sorts out minor problems and makes sure that everything is
working well. However, he can worry too much and may not trust other
people.

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 Problem-Solvers and Thinkers (Thought Focused Team Roles)
i. Plant:
He is a person who solves difficult problems with original and creative ideas.
However, he is a poor communicator and may ignore details.

ii. Monitor/evaluator:
He is a person who ‘sees the big picture’. He thinks accurately and carefully
about issues. However, he may lack energy and the ability to inspire other
people.

iii. Specialist:
He is a person who is driven by a pursuit of knowledge and information, and
wants to go into detail. The ‘specialist’ role is a behavioural characteristic
rather than functional specialism. However, he becomes an expert in some key
areas and will solve problems in those areas. He may be disinterested in all
other areas of the team’s activities.

Showing Concern for People (People Focused Team Roles)

He is a respected leader who helps everyone else in the team to focus on their
particular tasks. However, he may be seen as wanting to control things too
much.

i. Team worker:
He is a person who cares for individuals and the team, and who is a good
listener. He works hard to resolve social problems between other team
members. However, he may find it hard to take difficult decisions.

ii. Resource-investigator:
He is a person who explores new ideas and possibilities with enthusiasm, and
discusses them with others. He is a good ‘networker’. However, he may be
over-optimistic and may lose energy after an initial period of enthusiasm.

(c) Belbin suggested that teams will work most successfully when team members:
i. Appreciate a suitable balance amongst the different roles
ii. Understand their role in the team
iii. Work to their strengths, and
iv. Try to manage their weaknesses
Can assess the role or roles played by each team member, and identify
the roles that the current team members do not fulfil.

93
 Examiner’s report
The question tests candidates’ knowledge of Belbin team roles. Majority of the
candidates attempted the question and their performance was average. The major
pitfall for candidates is inadequate coverage of the ICAN study pack.

Candidates are encouraged to use the study pack adequately for subsequent
examinations.

Marking guide
Details Marks
2 a Stating the 3 broad groups x 1 mark 3
Explaining the 3 broad groups x 1 mark 3
bi Stating the team roles x ½ mark 1½
ii Explaining the 3 team roles x ½ mark 1½
Stating the 3 team roles x ½ mark 1½
iii Stating the 3 team roles x ½ 1½
Explaining the 3 team roles x ½ mark 1½
c 5 points x 1 mark 5
Total 20

SOLUTION 3

PROJECT ABUWA PROJECT BRIWA

Year Cash Cumulative Cash Cumulative

Flow Cash Flow Flow Cash Flow
N N N N
0 (800,000) -800,000 (800,000) -800,000
1 200,000 -600,000 600,000 -200,000
2 360,000 -240,000 240,000 40,000
3 360,000 120,000 20,000 60,000
4 170,000 290,000

(a) i. Assuming that cash flows occur at year end

𝐵𝐵
Pay Back Period = A +
𝐶𝐶
Where;
A = the last year with a negative cumulative cash flow

B= the absolute value of cumulative net cash flow at the end of the period A
(the last year with a negative cumulative cash flow)
94
 C = the total cash inflow during the period following period A

Workings:
(i) Assuming cash flows occur at a constant rate throughout the year:
Project ABUWA will pay back after
2 years + {(240,000 /360,000) x 12 months}
=2 years 8 months

Project BRIWA will pay back after

1 year + {(200,000 /240,000) x 12 months}
=1 year 10 months

If cash flows occur at the end of each year, project ABUWA will pay
back at the end of year 3 and project BRIWA will pay back at the end
of year 2.

(ii) Assuming that cash flows after Year 0 at a constant rate throughout
each year:
Initial Outlay
Pay Back Period +
Annual Constant Cash Flow

PROJECT ABUWA
Cash flow after year 0 = N 200,000
N800,000
Pay Back Period =
N200,000
= 4 years

PROJECT BRIWA
Cash flow after year 0 = N600,000
N800,000
Pay Back Period =
N600,000
= 1.33 years

Assuming cash flows after Year 0 is at a constant rate throughout each year,
project ABUWA will pay back at the end of year 4 and project BRIWA will pay
back at the end of year 2.

(b) According to the company’s pay back rule, the preferred choice is project
BRIWA.

95
(c) Cashio Ltd maximum permissible payback period for an investment is 3 years.
Under the first assumption wherein cash flows occur at the year end, the two
projects paid back within three years. The Pay Back Period method rules state
that where two projects are mutually exclusive, the project with a shorter
payback should be selected. Project Briwa was therefore selected because it
will pay back itself in a 1 year and 10 months’ time as against project Abuwa
that will pay back itself in 2 years 8 months’ time.
Cashio Ltd maximum permissible payback period for an investment is 3 years.
Under the second assumption wherein cash flows after Year 0 occur at a
constant rate throughout each year, Project Briwa was selected because it will
pay back itself in a 1 year and 4 months’ time as against Project Abuwa that
will pay back itself in 4 years’ time. Additionally, Project Abuwa was
disqualified because it’s calculated Pay Back Period of 4 years is above the
company’s maximum of 3 years. Total 20 Marks

Examiner’s report
The question tests candidates’ knowledge of project evaluation. Majority of the
candidates attempted the question and the performance was average. The major
pitfall for candidates is inadequate understanding of the ICAN study pack.

Candidates are encouraged to use the study pack adequately for subsequent
examinations.

Marking guide
Details Marks
a 5 ticks as indicated in the table x 1 mark 5
Solution under the first assumption 6
Solution under the second assumption 5
b Stating the right project 2
c Stating 2 reasons x 1 mark each 2
20

96
SOLUTION 4

Using Discount Factors at 4 Significant Figures

Xetoy
Year Cash DF@ 12% PV Cum P V
Flow
N N N
2020 -800,000 1.0000 -800,000 -800,000
2021 500,000 0.8928 446,400 -353,600
2022 500,000 0.7972 398,600 45,000
2023 300,000 0.7118 213,540
2024 200,000 0.6355 127,100
2025 150,000 0.5674 85,110
NPV 488,750

353,600
Discounted Payback Period =1 year + × 12
398,600

Discounted Payback Period = 1.88 years

Whytox
Year Cash Flow DF @ 12% PV Cum P V
N N N
2020 -1,600,000 1.0000 -1,600,000 -1,600,000
2021 500,000 0.8928 446,400 -1,153,600
2022 500,000 0.7972 398,600 -755,000
2023 600,000 0.7118 427,080 -327,920
2024 600,000 0.6355 381,300 53,380
2025 700,000 0.5674 397,180
NPV 450,560

327,920
Discounted Payback Period =3 years + × 12
381,300
Discounted Payback Period = 3 years + 10.32 months

Xetoy Whytox
Initial outlay N 800,000 N 1,600,000
Discounted Payback 1.88 years 3.86 years
NPV N488,750 N450,560

Project Xetoy will pay back earlier and also has the higher NPV. Therefore, Project
Xetoy should be selected.
OR

97
Using Discount Factors at 3 Significant Figures

Xetoy
Year Cash Flow DF@ 12% PV Cum P V
N N N
2020 -800,000 1.000 -800,000 -800,000
2021 500,000 0.893 446,500 -353,500
2022 500,000 0.797 398,500 45,000
2023 300,000 0.712 213,600
2024 200,000 0.636 127,200
2025 150,000 0.567 85,050
NPV 470,850

353,500
Discounted Payback Period =3 years + × 12
398,500
Discounted Payback Period = 1.87 years
Approx = 1.92 years

Whytox
Year Cash Flow DF @ 12% PV Cum PV
N N N
2020 -1,600,000 1.000 -1,600,000 -1,600,000
2021 500,000 0.893 446,500 -1,153,500
2022 500,000 0.797 398,500 -755,000
2023 600,000 0.712 427,200 -327,800
2024 600,000 0.636 381,600 53,800
2025 700,000 0.567 396,900
NPV 450,700

327,800
Discounted Payback Period =3 years + × 12
381,600
Discounted Payback Period = 3.86 years
Approx = 3.83 years

Xetoy Whytox
Initial outlay N 800,000 N 1,600,000
Discounted Payback 1.87 years 3.86 years
NPV N470,850 N 450,700

Project Xetoy will pay back earlier and also has the higher NPV. Therefore, Project
Xetoy should be selected.

98
 Examiner’s report
The question tests candidates’ knowledge of investment appraisal. The performance
was averagely good. The major pitfall for candidates is inadequate usage of the
ICAN study pack.

Candidates are encouraged to use the study pack adequately for subsequent
examinations.

Marking guide
Details Marks Marks
a Project Xetoy
Stating correct cash out flow in year x 2020 ¼
Stating correct cash out flow in year 2025 ¼
Stating correct df @ 12% for each year (5 x ½ mark) 2½
Stating correct PV from year 2020 – 2025 (7 x ½ mark) 3½
Stating correct Cum. PV from year 2020 – 2022 (3 x ½ 1½
mark)
Correct calculation of discounted Payback (2 ½ marks) 1

Whytox
Stating correct cash out flow in year 2020 ¼
Stating correct cash out flow in year 2025 ¼
Stating correct df @ 12% for each year (5 x ½ mark) 2½
Stating correct PV from year 2020 – 2025 (7 x ½ mark) 3½
Stating correct Cum. PV from year 2020 – 2024 (5 x ½ 2½
mark)
Correct calculation of discounted Payback (2 x ½ mark) 1
Correct choice of project to be undertaken (1 mark) 1 20

SOLUTION 5

(a) i. Task:
The action that is taken to achieve the task while adequately meeting the
demands of the task
ii. Team:
Managing and maintaining the team to encourage effective teamwork and
group’s cohesion.
iii. Individual: The action that is taken to address and meet team member’s
individual needs

99
 (b) i. Achieving the task
i. Define the task and the objectives/goals
ii. Make the plan for achieving the task
iii. Identify and acquire the resources needed
iv. Establish responsibilities for group members
v. Set standards and target performance standards
vi. Establish reporting systems
vii. Control actual performance through comparison with the performance
viii. Review on completion of the task

ii. Managing the team

i. Agree standard of performance/behaviour
ii. Establish the culture of the group
iii. Maintain ethical standards and discipline
iv. Resolve conflicts between group members
v. Change the balance/ membership of the group when necessary
vi. Develop the ability of the team members to work together
vii. Build team morale. Motivate the group as a team
viii. Develop the collective skills and maturity of the group
ix. Facilitate communications – within the group and externally
x. Consult with the group
xi. Give the group feedback on its performance
xii. Provide group training

(iii) Managing individuals

i. Understand the team members as individuals (personality, skills, needs)
ii. Assist individuals
iii. Give support to individuals
iv. Appreciate individuals
v. Agree individual responsibilities and objectives
vi. Make use of the strengths and skills of the individual
vii. Reward individuals (for example with more responsibility or higher
status)
viii. Train and develop individual team members

(c) Adair’s 50/50 rule

Leadership is influential, but effective leadership on its own is not sufficient.
i. 50% of motivation comes from within the individual. The other 50% of
motivation comes from influences outside the individual, including the
influence of the leader.

100
 ii. 50% of building a successful team comes from the team members and
50% comes from the leader of the team. Total 20 Marks

Examiner’s report
The question tests candidates’ knowledge of Leadership. Majority of the candidates
attempted the question and the performance was good. The major pitfall for
candidates is inadequate usage of the ICAN study pack.

Candidates are encouraged to use the study pack adequately for subsequent
examinations.

Marking guide
Details Mark Total
A Stating the 3 main elements x 1 mark 3
Describing the 3 main elements x 1 mark 3

b i. Stating any 8 main skills required within

achieving the task x ½ mark 4
ii. Stating any 8 main skills required for managing
the team x ½ mark 4
iii. Stating any 6 main skills required for managing
individuals x ½ mark 3
2 points to explain Adairs 50/50 rule x 11/2 marks 3
20

SOLUTION 6

(a) An employee would use a different reporting channel in the following

situations:
i. When the supervisor or manager is involved in the illegal or unethical activity
ii. When the employee has spoken to the supervisor or manager about the
problem, but the supervisor or manager has dismissed it as something that is
not important.
iii. When the employee has spoken to the supervisor or manager about the
problem, but the supervisor or manager has taken no action

(b) The general public has a very high expectation of the accountancy profession.
Reasons advanced to support this view include but are not limited to the fact
that:
i. Detecting and reporting any serious misdemeanor or crime
ii. Protecting health and public safety
iii. Preventing the public from being misled by a statement or action by an
individual or an organisation

101
 iv. Exposing the misuse of public funds and corruption in government
v. Revealing the existence of any conflict of interests of those individuals who
are in a position of power or influence
vi. Many non-accountants do not have much understanding of accounting issues
and so, rely on accountants to ensure that financial reporting is reliable and
‘fair.’
vii. Professional accountants in practice (Auditors) are seen, by many members of
the public as a safeguard against fraud.
viii. The public is of the view that accountancy profession is guided by ethical
standard.

(c) The role of the accountancy bodies should be that of offering unflinching support to
reinforce this public perception of an ethical profession. This can be achieved by:
i. Formulation, promotion and enforcement of acceptable levels of behaviour of
members
ii. Setting standards of behaviour and communication of such standard through
a code of ethics as well as examination and training systems
iii. Identifying area of concern and deliberating on them with members through
consultation and debate
iv. Setting minimum standards through their system of regulation
v. Representing the concerns of the profession and explaining the approaches
that the profession has adopted in order to resolve ethical conflicts to the
public at large
vi. Issuing codes of conduct
vii. Issuing codes of ethics
viii. Expecting all their members to comply with the requirements of the codes of
conduct and ethics
ix. Ensuring members act in the public interest whenever the situation or
circumstance demands Total 20 marks

Marking guide
Details Marks
a Stating any 2 problems x 21/2 marks 5
b Stating any 2 expectation of the public x 21/2 marks 5
c Stating any 5 roles x 2 marks 10
Total 20

Examiner’s report
The question tests candidates’ understanding of the expected roles of professional
accountancy bodies in promotion ethical behaviour. Majority of the candidates
attempted the question and the performance was average.

Candidates are encouraged to use the ICAN study pack adequately for improved
performance.

102
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 2021

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 is not a written law?

A. Act
B. Decree
C. Bye-law
D. Edict
E. Common law

2. Which of the following is not an equitable remedy?

A. Injunction
B. Specific performance
C. Damages
D. Rescission
E. Rectification

3. The length of notice that a company must give to a member for an

Extraordinary General Meeting is

A. 15 days
B. 17 days
C. 19 days
D. 21 days
E. 25 days

4. The power of a partner to bind the firm is revoked by

A. Amortisation
B. Merger
C. Restructuring
D. Dissolution
E. Articulation

103
5. Which of the following is an option for a company that is in financial distress
in Nigeria?

A. Receivership
B. Subrogation
C. Novation
D. Upsizing
E. Redemption

6. Members of professional bodies are regulated by law and

A. Ethical codes
B. Peer review
C. Morality
D. Clients
E. Conditional ties

7. A person that procures property or credit by a cheque that is dishonoured

could be charged with

A. Stealing by trick
B. False procurement
C. Obtaining by false pretence
D. Contracting by fraud
E. Conversion

8. In verifying a customer’s account, a bank shall require its body corporate

customer to provide, among other things, valid official documents of a
transaction by it of not more than

A. 3 months
B. 4 months
C. 5 months
D. 6 months
E. 7 months

9. The internal records of an Internet Service Provider (ISP) of a customer’s

online activity is admissible in evidence as business records if

A. Implied
B. Implicated
C. Authenticated
D. Ratified
E. Annexed

104
10. An acceptance that is subject to contract indicates a

A. Continuing negotiation
B. Void contract
C. Valid contract
D. Voidable contract
E. Closed negotiation

11. An offer to receive an offer is known also as an

A. Intention to receive acceptance

B. Invitation to treat
C. Inclusion of consideration
D. Implosion of offer
E. A considerate offer

12. Which of the following is not a tort that affects economic interest?
A. Detinue
B. Conversion
C. Passing off
D. Deceit
E. Bailment

13. A hire purchase contract does not involve transfer of

A. Possession
B. Title
C. Indemnity
D. Proposal
E. Inventory

14. Which of the following is not a subject matter of a sale of goods contract?

A. Motor car
B. Ascertained goods
C. Unascertained goods
D. Specific goods
E. Personality

15. A contract by which the representative of a party is to receive a specific sum of

money on the occurrence of an event that is bound to happen is a contract of

A. Insurance
B. Novation
C. Compensation

105
 D. Assurance
E. Quantum meruit

16. The contract by which a person is subject to the control of his master is a
contract of

A. Control
B. subjugation
C. Tortal involvement
D. Service
E. Work

17. Where there is no certainty of intention in a trust relationship, the grantee

A. Returns the property to the public trustee

B. Gives the property to a charitable organisation
C. Approaches the donor’s counsel
D. Distributes the property to the donee’s next-of-kin
E. Takes the property absolutely

18. The process by which parties to a dispute engage the assistance of a neutral
third party to intervene in resolving the dispute is called

A. Mediation
B. Conciliation
C. Arbitration
D. Facilitation
E. Fence building

19. Who, of the following, is not a special agent?

A. Factor
B. Broker
C. Auctioneer
D. Del credere agent
E. Vendor

20. Under the Money Laundering (Prohibition) Act, except through a financial
institution, a cash payment of not more than N5,000,000 must not be made by
a/an
A. Private company
B. Body corporate
C. Non-governmental organisation having incorporated trustees
D. Individual
E. Government agency
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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. The Constitution of the Federal Republic of Nigeria has a number of key
features.
Required:
State FOUR characteristics of the Constitution of the Federal Republic of
Nigeria. (4 Marks)
b. Kokori and Jendor have a dispute arising from non-execution of a contract
that Kokori awarded to Jendor about four years ago. Kokori intends to go to
court on the matter, and he has been advised that the matter falls under one
of the two broad divisions of law.

Required:
State FOUR characteristics of the broad division of law that applies to the
dispute between Kokori and Jendor. (4 Marks)

c. Oguche and Agoro have been friends for twenty-five years. They agreed to
trade together by contributing money to buy textile materials from Aswani
market in Lagos, Aba market in Abia State, and Sabongari market in Kano.
The two friends have been buying the materials and sharing them for sale in
towns and villages in Oyo State, Nigeria. Recently, Agoro bought textile
materials from Kano when he visited his political associates in that city. Agoro
resold the materials at a huge profit, and when Oguche became aware of that
fact, he approached Agoro, demanding a share in the profit of the resale,
basing his entitlement on the argument that they are partners. Agoro has
refused to share the profit with Oguche, and the latter has approached you for
an advice.
Required:
i. Advise Oguche on whether or not he is entitled to a share in the profit
that Agoro made. (6 Marks)
ii. Would you have advised Oguche differently if the two friends had a
registered partnership under the name and style “Oguche and Agoro
Ventures”? (6 Marks)
(Total 20 Marks)

107
QUESTION 2
a. The lead regulatory agency for companies in Nigeria is the Corporate Affairs
Commission, which is established by the Companies and Allied Matters Act.

Required:
State FOUR functions of the Corporate Affairs Commission. (8 Marks)

b. Adigwe and his two sons caused Adigwe and Sons Limited to be incorporated
and became the first directors of the company. The company traded profitably
for five years after it was incorporated, but it is about to be wound up because
it owes trade creditors a huge amount of money. Adigwe holds 95% of the
issued shares of the company while each of his two sons holds 21/2%. The
creditors of Adigwe and Sons Limited have discovered that the assets of the
company are insufficient to satisfy their claims and have filed an action to
recover the money from Adigwe who holds most of the shares of the company.

Required:
Explain to the creditors of Adigwe and Sons Limited their chance of succeeding
in their claim against Adigwe. (8 Marks)

c. Receivership is an alternative to company liquidation.

Required:
Explain receivership. (2 Marks)
(Total 20 Marks)

QUESTION 3
a. The Companies and Allied Matters Act classifies companies broadly into ‘private
company’ and ‘public company’.

Required:
State FOUR characteristics each of a private company and a public company
respectively. (8 Marks)

b. Okonto, an employee of a Federal Government Agency, had a parcel of land

allocated to him in the proposed estate of the Agency in Abuja. To facilitate the
building of a bungalow on the land pursuant to the Agency’s staff home
ownership scheme, the Agency gave Okonto a housing loan. Okonto purchased
an application form with the housing loan from one of the major political
parties so as to contest for a senatorial seat in his home state on the platform of
that party. Okonto planned to build the bungalow later from his income as a
Senator.

108
 Required:
Explain to the Director-General of Okonto’s Agency the legal implication of
Okonto’s action in criminal law. (6 Marks)

c. Evidence generated by a Global System for Mobile communication (GSM) phone

is admissible by the courts.

Required:
Explain the nature of GSM phone evidence and the duty of a person that seeks
to tender it in court in proof of a financial transaction. (6 Marks)
(Total 20 Marks)

QUESTION 4
a. Preliminaries of a contract may involve an offer or invitation to treat.

Required:
Distinguish an offer from an invitation to treat. (6 Marks)

b. Luandem resides in Rayfield area of Jos and has many helpful neighbours. The
closest of these neighbours is Dakkas, a specialist in landscaping. Luandem
travelled to Maiduguri as a volunteer to assist the International Commission of
the Red Cross in caring for Internally Displaced Persons (IDPs). The escalation of
internal displacement made it impossible for Luandem to return to Jos on time
to the extent that he spent six months of the rainy season there instead of a
month that he planned to spend. Seeing that Luandem’s compound was
overgrown with weeds, Dakkas took it upon himself to mow the lawns twice a
month for four months. In addition, he planted roses as hedges to the
compound.

Luandem returned from Maiduguri last month and promised to pay Dakkas a
sum of N100,000 for his labour of love in taking care of his compound in his
absence. Dakkas has waited for two months in expectation of the payment. He
is hard pressed for money presently because of his son’s demand for school
fees. Therefore, he intends to sue Luandem for the money after repeated
demands by him and failed promises by Luandem.

Required:
Explain the principle of the law of contract that applies to Dakkas’ plan and
apply it in advising Dakkas. (8 Marks)

c. Negligence is a tort that professional accountants must guard against in their

relationship with their clients.

109
 Required:
Define negligence and state the THREE elements that a litigant must prove to
succeed in an action for negligence. (6 Marks)
(Total 20 Marks)

QUESTION 5
a. Thabita called Ijeda, a distributor of different brands of cement, and expressing
her intention to buy 500 bags of a good cement. A notice board in front of
Ijeda’s shop has a notice that reads, “Cement for sale at N1,500”. Thabita
transferred the sum of N750,000 to Ijeda electronically and called at the latter’s
store to collect 500 bags of “Dan” Cement, each of which sells for N2,000.
Ijeda’s shop attendant asked Thabita’s assistants to take “Ele” Cement, that
sells for N1,500, but Thabita insists that she had paid for 500 bags of “Dan”
Cement which now belong to her.

Required:
i. Applying the Sale of Goods Law/Act, explain the classification of the
subject matter of the transaction between Thabita and Ijeda. (2 Marks)

ii. Explain the significance of the classification of the subject matter.

(3 Marks)

b. Kabir took possession of a Toyota Sienna bus from Auto Distributors Limited so
as to add to his fleet of commercial mini vans. The price of the bus is N3.6
million payable in ten equal monthly instalments. Kabir intends to terminate
the agreement that he has with Auto Distributors Limited after he has used the
bus for two months and paid two instalments because his brother, Jamal, has
just given him the same type of mini van.

Required:
State the nature of the agreement and FIVE ways of terminating it. (6 Marks)

c. Materiality of facts is important in fixing the duties of the insured under a

contract of insurance.

Required:
i. Explain the current law on material facts in insurance contract.
ii. Before the law, state a fact that would be material in a proposal for life
assurance. (2 Marks)

d. Arbitration is an Alternative Dispute Resolution (ADR) mechanism.

110
 Required:
How is an arbitral panel composed or constituted? (3 Marks)
(Total 20 Marks)

QUESTION 6
a. Osagie is a customer of Kash Bank Plc. He drew a cheque for the sum of
N150,000 in favour of Osula. When Osula presented the cheque for payment at
the nearest branch of Kash Bank Plc., the teller returned the cheque unpaid,
telling him to get back to Osagie. Osula insists that the teller must tell him the
state of Osagie’s account.

Required:
i. State THREE reasons for which the Kash Bank Plc. could be wrong in
returning Osagie cheque unpaid. (3 Marks)

ii. State THREE reasons for which Kash Bank Plc. could lawfully disclose the
state of Osagie’s account. (3 Marks)

b. Esero, who lives in Maiduguri with his family, has three children in a high
school. He intends to create a trust on his housing estate towards financing
the education of his children up to postgraduate level. He has come to you for
an advice.

Required:
i. Explain the law on the mode of creating the trust. (4 Marks)

ii. State the THREE essentials of the proposed trust (3 Marks)

c. There are a few tests for distinguishing employment relations

Required:
Applying the organisation test, distinguish between contract of employment
and contract for employment. (7 Marks)
(Total 20 Marks)

111
MCQ - SOLUTIONS

1. E

2. C

3. D

4. D

5. A

6. A

7. C

8. D

9. C

10. A

11. B

12. E

13. B

14. E

15. D

16. C

17. E

18. A

19. E

20. D

112
Examiner’s report
The 20 questions covered the entire syllabus with 100% attempt rate. General
performance was good, as about 60% of candidates scored pass mark or above.
Candidates appeared to have skipped some areas of the syllabus and are advised to
study the ICAN Study Text diligently.

SECTION B: SOLUTION TO OPEN-ENDED QUESTIONS

SOLUTION 1

a. The characteristics of the Constitution of the Federal Republic of Nigeria are the
following:
i. Supremacy;
ii. Being written and rigid;
iii. Federalism;
iv. Separation of powers;
v. Fundamental Rights; and
vi. Rule of law

b. The features of the proceedings that Kokori and Jendor will pass through
include the following:
i. The parties will be the Plaintiff (Kokori) and Defendant (Jendor)
ii. The aim will be compensation through damages for breach or an
order
of specific performance.
iii. The standard of proof will be ‘preponderance of evidence’ or ‘balance
of probabilities’.
iv. Being a civil action, Kokori, the aggrieved party, must initiate the
action of proceeding.
v. The action must be initiated not later than six years from the time the
dispute arose.
vi. The verdict will be ‘liable’ or ‘not liable’.

c. The issues in this hypothetical case revolve round the nature of the relationship
between Agoro and Oguche (the parties) as follows:
i. Since Oguche and Agoro agreed to share textile material purchased
from their common pool of funds and not the profit of the venture. Oguche
is not entitled to a share in the profit that Agoro made from the textile
materials that the latter bought from Kano and resold at a huge profit.

The parties are not partners because they have no agreement to share
profits, which is an essential element of a partnership in addition to
business and carrying on of business by or on behalf of the partners
(Ugoji v Uzoukwu).

113
 ii. If the parties had a registered partnership under the name and style
“Oguche and Agoro Ventures, Oguche would have been entitled not only
to carry on and manage the business with Agoro, but also share the profits
with him.

Oguche and Agoro would have been obliged to share the profits of the
business equally in the absence of an agreement to the contrary between
them.

Examiner’s report
The questions test candidates’ knowledge of the characteristics of the Nigerian 1999
Constitution, features of civil proceedings, and the elements of a partnership.

Attempt rate was about 80% and performance was generally good as over 60% of
candidates scored pass mark or above.

Candidates’ pitfall was their inadequate understanding of the characteristics of civil

proceedings and elements of partnership. They are advised to study the ICAN Study
Text diligently in future.

Marking guide
Marks Marks
a) Stating any 4 characteristics of the Nigerian 1999
Constitution (1 mark each) 4
b) Stating any 4 characteristics of the divisions of law
applicable to contractual disputes(1 mark each) 4
i. The legal issue involved is the test of existence of
partnership, 3
Applying principle to case as non-existence of
partnership because of no agreement to share
profit. 3 6
ii. If partnership is registered, partnership exists 4
for the registered partnership oguche and Agoro
would share profit equally. 2 6
Total 20

SOLUTION 2

a. By virtue of Section 7 of the Companies and Allied Matters Act, the Corporate
Affairs Commission has the functions to:
i. Administer the Companies and Allied Matters Act, regulate and supervise
the formation, incorporation, registration, management and winding up of
companies under the Act;

114
 ii. Establish and maintain companies registry and offices in all the states of
the federation that are suitably and adequately equipped to perform
its statutory functions;
iii. Arrange or conduct an investigation into the affairs of any company
where the interests of the shareholders and/or public so demand;
iv. Perform such other functions as may be specified by the Companies and
Allied Matters Act or any other enactment; and
v. Undertake such other activities as are necessary or expedient for giving
full effect to the provisions of the Companies and Allied Matters Act.

b. The trade creditors of Adigwe and Sons Limited will not be able to recover
from Adigwe the money that the company owes them. This is because of the
principle of separate personality that treats a company as a distinct person
from its members as from the date indicated on the company’s certificate of
incorporation. In the case of Salomon Vs Salomon, the unsecured creditors of
a company failed to make Salomon liable for the debts of the company on the
basis of his majority shareholding.

The applicable law does not require balance of powers between the
shareholders of the company. In addition, in the absence of fraud, the court
will not lift the veil of incorporation so as to treat Adigwe as one and the same
person with Adigwe and Sons Limited for the purpose of liability.

c. Receivership is the right of a secured creditor to appoint a receiver to manage

the company’s assets that are the subject of a company creditors’ security.
Receivership entails appointing a person to sell the company’s assets or collect
any income arising from the assets, subject to the charge so as to satisfy the
company’s outstanding debts to the creditor.

Examiner’s report
The questions test candidates’ knowledge of functions of the Corporate Affairs
Commission, separate legal entity of incorporated companies, and receivership under
company insolvency.

Attempt rate was about 70% and performance was good, as over 60% of candidates
score pass mark and above.

Candidates’ major pitfall was their inadequate understanding of the principles of

corporate personality and receivership. They are advised to study the ICAN Study
Text diligently.

115
 Marking guide

Marks Marks
(a) Stating any 4 functions of the Corporate Affairs
Commission (2 marks each). 8
(b) Legal issue involved is separate legal personality of a
company (Salomon vs Salomon) 5

Lifting of veil of incorporation is involved. 3 8

(c) Explaining receivership as secured creditor’s right
to appoint receiver to manage assets that are
creditor’s security. 4
Total 20

SOLUTION 3

a. The Companies and Allied Matters Act classifies companies into private and
public companies.

A private company has the following attributes:

i. A statutory minimum membership of 2 and a maximum membership of 50

(excluding member-employees);
ii. A name that ends with “Limited” or “Ltd., indicating that it is a company
iii. limited by share, or Ltd/Gte, indicating that it is limited by guaran
iv. A minimum authorized capital requirement of N10,000, at least 25% of
which the subscribers must keep subscribed at all times;
v. It is prohibited from inviting the members of the public to subscribe for its
shares or deposit money in it; and
vi. A minimum of two directors requirement.

A public company has the following attributes:

i. A minimum authorized capital requirement of N500,000, at least

25% of which the subscribers must keep subscribed at all times;
ii. A minimum membership of two, and an unlimited maximum
membership;
iii. A name ending with “Public limited company or “Plc.”;
iv. The capacity to invite members of the public to subscribe for its
shares;
v. A minimum of two directors requirement; and
vi. An obligation to hold a statutory meeting within six months of its
incorporation.

116
b. The issue in this case is the commission of the offence of theft by Okonto. Where
it concerns money, theft is defined as fraudulent taking of the money, which is
capable of being stolen, with intent to use the money at the will of the person
who takes or converts it, although the person may intend afterwards to repay the
money to the owner. This was what Okonto did when he expended the loan that
his Agency granted him for housing on the purchase of an application form to
seek an elective post with the plan to build the bungalow later.

In State Vs Odimayo (1967) N.M.L.R 92, the accused received a loan from a
housing corporation to build a house on a piece of land which he mortgaged to
the corporation. He expended the money instead on an election contest. He was
rightly convicted of stealing because the money still belonged to the corporation
until he used it for the specific purpose for which he received it, and it made no
difference that he might have intended to repay it afterwards.

c. Evidence from Global System for Mobile communication (GSM) phone is a form of
computer or electronic evidence. Since mobile phones are also computers, the
principles applicable to computer printouts are applicable to messages
generated by or from GSM phones. A GSM gadget or telephone itself that
contains valuable information could be tendered in court together with whatever
message or information is stored therein as documentary evidence, in proof of a
financial transaction.

The only duty of the tendering party is to read it and demonstrate its contents in
open court in a manner that is similar to the reading of ordinary documentary
evidence when admitted in evidence and taken as read.

Examiner’s report
The questions test candidates’ knowledge of the characteristics of private and public
companies, fraudulent diversion/conversion of funds under criminal law, and
admissibility of phone evidence by the court.

About 60% of candidates attempted the question and pass rate was about 50%.

Candidates’ major pitfall was shallow knowledge of electronic evidence in court

proceedings.

Candidates are advised to read the ICAN Study Text to broaden their knowledge of
this area of the law.

117
 Marking guide

Marks Marks
a) Stating 4 characteristics a private company 4
Stating 4 characteristics of a public company
(1mark each) 4 8
b) Legal issue involved is fraudulent conversion
of fund 4
Okonto is liable to conviction for stealing and
to refund the loan obtained 2 6
c) Explaining the law on admissibility of GSM
phone evidence by the court 4
Stating duty to demonstrate GSM phone
content as ordinary documentary evidence 2 6
Total 20

SOLUTION 4

a. An offer is a definite, clear, and final proposition made by an offeror to an

offeree with the clear intention to be bound by the terms of the offer if accepted.
An offer is the final proposal that transforms the offeror’s promise into a
contractual obligation when accepted by the offeree. (Union Bank of Nigeria Ltd
v Saw Nig Ltd & Ors (1994) .

An invitation to treat is describable as an invitation to negotiate, an invitation to

chaffer, or an invitation to negotiate. It is a preliminary step towards an offer, or
a communication that invites the other party to make an offer. The negotiation
between parties may or may not lead to the making of an offer by the interested
party. Examples include display of goods in shop windows, invitation to tender,
advertisement of goods in periodicals, and invitation to an auction.

b. The principle that applies to the relationship between Luandem and Dakkas is
that of past consideration. It is to the effect that consideration may be executory
(futuristic) or executed (given in anticipation of an agreed act or forbearance),
but it must not be past.

Applying the foregoing principle to the relationship between Luandem and

Dakkas, the promise by Luandem is not actionable because it was made after
Dakkas had completed the acts of taking care of Luandem’s compound, which
acts, the latter did not request for.

c. Negligence simply means carelessness or inadvertence. An act or omission is

considered negligent where a person did not take necessary care to avoid the
consequence of his act or the omission. No wrong or bad intention needs to be
proved for liability to attach in negligence. Negligence has also been described

118
 as a breach of a legal duty to take care by the defendant, which results in
damage to the plaintiff.

For an act or omission to be declared negligent, the following three elements

must be present:
i. A legal duty to take care by the defendant must exist;
ii. There must be a breach of that legal duty; and
iii. A consequential damage to the plaintiff must have arisen from the act or
omission.

Examiner’s report
The questions test candidates’ understanding of offer, invitation to treat and past
consideration under law of contract as well as negligence and its features.

Over 60% of candidates attempted the question and general performance was good,
as 60% of the candidates scored pass mark or above.

Candidates showed inadequate understanding of past consideration and negligence.

They are advised to study ICAN Study Text for better understanding of the areas.

Marking guide

Marks Marks
a) Explain offer 3
Explain invitation to treat 3 6

b) Legal issue involved is past consideration in

contract 4
Relating principle to case as past
consideration which is not actionable 4 8
c) Explaining negligence 3
Stating 3 elements which litigant must
prove (1 mark each) 3 6
Total 20

119
SOLUTION 5

a. (i) The cement that Thabita paid for are classified as unascertained goods. These
are goods that are not identified and agreed upon at the time of the
agreement between Thabita and Ijeda.

(ii) This classification is significant in determining when property passes from the
owner to the buyer and is relevant at the time of contract. Unascertained
goods are not subject of a sale of goods contract because property in the said
goods cannot pass until the goods are ascertained.

b. The agreement between Kabir and Auto Distributors Limited is a hire purchase
agreement.

The agreement may be terminated by:

i) A mutual agreement of the parties to rescind the agreement;
ii) The performance of all the obligations under the agreement;
iii) A provision in the agreement which allows the hirer to terminate the
contract at any stage of the agreement without prejudice to his option to
purchase the goods;
iv) Supervening circumstances like fire, destruction, act of God and other
similar circumstances outside the control of the parties;
vi) Repudiation by an aggrieved party, since the aggrieved party may sue for the
breach of an express or implied term and may, in addition, repudiate such
agreement; or
vii) An order or judgment of court for conversion or detinue, which may in
effect bring the agreement to an end.

c. i. Section 58 of the Insurance Act 2004, Laws of the Federation of Nigeria

states the law on material fact as follows:
“Where an insurer requires an insured to complete a proposal form ... for
insurance, the form shall be drawn up in such manner as to elicit all such
information as the insurer considers material in accepting the application
for insurance of the risk; and any information not specifically requested
shall be deemed not to be material”.

ii. Where the contract is that of life assurance, the fact that the person
whose life is to be insured suffers from some serious or terminal illness will
be material to the risk and worthy of disclosure.

d. The parties to the dispute may determine the number of arbitrators.

If the parties fail to determine the number, the arbitrators shall be three in
number.

120
 Each party to the dispute shall appoint one person each, while the two shall
combine to appoint the third person.

Examiner’s report
The questions test candidates’ knowledge and application or classification of goods
in sale of goods transactions, ways of terminating hire purchase contract, and
arbitral panel composition under alternative dispute resolution.

About 60% of candidates attempted the question and general performance was
average.

Major pitfall of candidates is shallow understanding of life insurance contract and

alternative dispute resolution mechanism.

Candidates are advised to read the ICAN Study Text as guide.

Marking guide
Marks Marks
a) i. The legal issue involved is goods classified as
unascertained goods 2
ii. Significance of the classification of goods is to
determine when property passes 3 5
b) The agreement is hire purchase 1
Stating 5 ways of terminating hire purchase
agreement (1 mark each) 5 6
c) i. Explaining material facts in insurance contract 4
ii. Stating one material fact to be disclosed in life
insurance 4 8
d) • Stating that the parties may determine the
number of arbitrators 1
• Stating that the arbitrators shall be
deemed to be three where the parties fail
to determine the number 1
• Stating the appointment of one arbitrator
by each party and the third by both parties 1 3
Total 20

121
SOLUTION 6
a. In the case of Osula and Kash Bank Plc.,

i. Kash Bank Plc. could be wrong in returning Osagie’s cheque unpaid if

• Osagie’s account is in fund;
• Osagie has made credit arrangement with the bank;
• Osagie’s mandate (e.g. cheque) was regularly drawn; or
• There is no legal impediment against repayment.

ii. Kash Bank Plc. could lawfully disclose the state of Osagie’s account If
• The disclosure is under compulsion of law;
• There is a public duty to disclose;
• The disclosure is in the interest of the bank; or
• Osagie has consented to the disclosure

b. The advice to Esero is as follows:

i. Esero must create the trust in writing. “All declarations or creations of
trusts or confidences of any land, tenements, or hereditaments, shall be
manifested and proved by some writing signed by the party who is by law
enabled to declare such trust, or by his Will in writing, or else, they shall
be utterly void and of no effect.”

ii. The elements that will determine the validity of the proposed trust are:
• Certainty of words or intention;
• Certainty of object; and
• Certainty of subject matter

c. Applying the organisation test laid down by Lord Denning, MR in the case of
Macdonald Evan, under a contract of service, a person is employed as part of
the business and his work is done as an integral part of the business, but
under a contract for service, although such work is done for the business, it is
not integrated into it, but merely accessory to it.

Going by this test, an engineer who works in the technical department of a

company would be a servant of the company despite the fact that he is a
professional, but if he was a contractor whose services, the company engaged
in carrying out a particular project, he would be an independent contractor.

Examiner’s report
The questions test candidates’ knowledge of reasons for bank to dishonor customer’s
cheque or advisable customer’s creation and elements of trust, and employment
contract.

Attempt rate was about 70% and performance was good, as over 60% candidates
scores pass mark and above.
122
Candidates did not have adequate understanding of reasons for which a bank could
disclose information on a customer’s account and the distinction between contract of
employment and contract for employment. ICAN Study Text will make them more
knowledgeable in the areas.

Marking guide

Marks Marks
a) i. Stating 3 reasons for which a bank could
dishonour a customer’s cheque (1 mark each) 3
ii. Stating 3 reasons for which Kash bank Plc could
discourse the state of Osagie’s account (1 mark x 3) 3 6

b) i. Explaining creation of trust 3

ii. State 3 essentials of trust (1 mark each) 4 7

c) Explaining contract of employment 4

Explain contract for employment 3 7
Total 20

123