ICAN/241/V/C5 Examination No...........................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

PROFESSIONAL LEVEL EXAMINATION – MAY 2024

CASE STUDY
EXAMINATION INSTRUCTIONS
PLEASE READ THESE INSTRUCTIONS BEFORE THE COMMENCEMENT OF THE PAPER

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have prohibited items such as telephone handset, electronic storage device,
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examination and liable to further disciplinary actions including cancellation
of examination result, if caught.

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3. Do NOT write anything on your question paper EXCEPT your

examination number.

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5. Read all instructions in each section of the question paper carefully before
answering the questions.

6. All solutions should be written in BLUE or BLACK INK. Any solution written
in PENCIL or RED INK will not be marked.

THURSDAY, MAY 16, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
PROFESSIONAL LEVEL EXAMINATION – MAY 2024
CASE STUDY
Time Allowed: 4 hours (including reading time)

INSTRUCTION: YOU ARE TO USE CASE STUDY ANSWER BOOKLET FOR THIS
PAPER

PRE-SEEN
This material is issued prior to the examination date to enable candidates familiarise
themselves with the case scenario so as to undertake any research and analysis they
think fit. This pre-seen part of the Case Study examination is also published on the
Institute‟s website: www.ican.org/students.

You MUST NOT bring this material with you to the Examination Hall. On receipt of
the material, you are to spend the few days to the examination date to familiarise
yourself with the information provided, carry out additional research and analysis
about the industry and analyse the financials provided in preparation for the
examination. Candidates should note that the use of pre-seen part of the Case Study
will not significantly help them in their preparation for this examination. It is
essential that they carry out sufficient analysis work on their own in order to have a
good understanding of the pre-seen part of the case scenario.

At the start of the examination, candidates will receive the complete case scenario
which will include both the pre-seen and the unseen which includes the
requirements. You must use the answer booklet provided by The Institute of
Chartered Accountants of Nigeria (ICAN) in the Examination Hall. Any solution
presented with other booklet WILL NOT be marked.

Assessment of the Case Study

The marks in the Case Study examination are awarded for professional skills and are
approximately allocated as follows:

 Assimilating and using information 20%

 Structuring problems and solutions 20%
 Applying judgement 20%
 Drawing conclusions and making recommendations 20%
 Demonstrating integrative and multidisciplinary skills 10%
 Presenting appropriate appendices 10%

Of the total marks available, 20% are awarded for the executive summary and
approximately 10% for the relevant discussion of ethical issues within your answer to
the requirements. Although ethical issues do not form a specific requirement, as this
has been deemed to have been tested in other subjects of the ICAN professional

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examination, but will be tested within a requirement which may include the
following areas:

 Lack of professional independence or objectivity;

 Conflicts of interest among stakeholders;
 Doubtful accounting and/or creative accounting practice;
 Unethical business/commercial practice; and
 Inappropriate pressure to achieve a reported result.

Candidates should note that marks are not awarded for just simply restating facts from
the case scenario, but marks are awarded for demonstrating professional skills and
technical depth. Therefore, to succeed, candidates are required to:

 Show sufficient evidence of knowledge of the case scenario;

 Be able to carry out appropriate analysis of the issues involved and suggest
feasible solutions to the problems identified;
 Demonstrate ability to make informed judgement on the basis of analysis carried
out; and
 Generate reasoned conclusions upon which relevant recommendations are made.

Candidate that omits any one of these will have a slim chance of success in the
examination.

May 2024 Case Study: Spicey Confectioneries Limited

List of exhibits

Exhibit 1: About you (John Adesola) and your employer, Osayemeh, Adelowo,
Chukwurah & Co

Exhibit 2: Spicey Confectioneries Limited: History, Business structure, strategies and

model

Exhibit 3: The confectionery market

Exhibit 4: Spicey Confectioneries Limited: Summarised financial statements 2021 –

2022

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 Exhibit 1

About you (John Adesola) and your employer, Osayemeh Adelowo Chukwurah &
Co

You are John Adesola, writing the Professional level of ICAN examination. You are
employed as a Trainee in the firm of Osayemeh Adelowo Chukwurah & Co. (Chartered
Accountants). You are reporting to Julius Idemudea, Partner in charge of the
Hospitality group within the firm.

Your responsibilities include:

 Preparing detailed financial analyses and reports on the performance of the firm‟s
hospitality clients;
 Analysing your clients‟ financial statements to identify areas of weakness and
proffering likely solutions to correct the anomalies;
 Assessing operational and strategic business proposals to see how each aligns with
the client‟s objectives and its impact on its business and financial risks;
 Assessing the client‟s financial and business forecasts together with the
assumptions upon which they are based to form judgements, conclusions and
recommendations to the client;
 Advising your clients on their strategic tax planning strategies for optimal tax
liabilities; and
 Drafting reports for your boss, based on the operational and strategic business
analyses you have carried out.

These responsibilities demand that you keep yourself abreast with the developments in
the accounting and taxation space, and the hospitality industry, both nationally and
internationally, to be able to carry out the above tasks effectively.

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 Exhibit 2

Spicey Confectioneries Limited: History, Business structure, strategies and model

Spicey Confectioneries Limited (SCL) was formed in 2010. It manufactures and sells top
quality confectionery. For many years, Spicey, as it is widely known, has been
recognised as a successful company and has become a household name, particularly in
Abuja and Lagos. Its fame is built on the very high-quality confectionery products it
sells through its own stores, strategically located in both cities. Some of these stores are
operated from buildings owned by Spicey, while the others are operating on leased
properties.

Spicey has its factory in Lagos, from where the business originally started. The products
are distributed through a multi-channel network comprising of Spicey‟s own stores and
„online‟ business, franchises and retail partners. In addition, Spicey has now started to
supply confectionery to large retail stores and supermarkets on contract basis. These
stores sell Spicey‟s products and also „own brand label‟ confectionery that Spicey
manufactures for them.

Spicey‟s product range includes a wide variety of milk, white and plain chocolate
products. Previously Spicey‟s main sales had been chocolate products but now the
company has expanded into producing other forms of confectionery which do not
contain chocolate in any form, for example cakes and other sweets (candies). Spicey‟s
customers continue to have strong regard for the quality of its products.

Spicey‟s customers vary from individuals to corporate clients which purchase Spicey‟s
products to present to their own clients as corporate gifts. Although individual
customers buy from Spicey‟s stores, franchises or online, corporate clients purchase
goods directly from Spicey on contract basis.

Business Structure
Spicey has a simple business structure. It has a head office (which includes its
management services function) and two divisions: Customer Sales and Distributions
and Manufacturing and Supplies. These divisions operate as follows:

Customer Sales and Distribution (CSD)

CSD sells and distributes Spicey‟s products through the following outlets:
• Spicey‟s own stores;
• Franchises; and
• Online sales.

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Manufacturing and Supplies (MS)
All purchasing of manufacturing supplies and the actual product manufacturing take
place at the Manufacturing and Supplies Division. The division then supplies these
products internally and externally as follows:
Internally to:
• CSD for its sales through its own stores; and
Externally to:
• Corporate clients
• External retail stores and supermarkets which sell Spicey‟s products under Spicey‟s
brand names and also under the stores‟ own special brand names.

Both divisions are operated as investment centres with limited capital investment
authority, for expenditure up to ₦10m per annum. Major capital investments, above
₦10m, have to be authorised by head office.

CSD does not allow any of its outlets to make any capital investment at all without its
prior approval. Each of CSD‟s stores is regarded as a profit centre, including online sales
which is a single profit centre in its own right. Brand development is carried out jointly
by both divisions. Any brand development costs, such as promotion, above ₦1m must
be approved at head office.

Spicey currently has 30 of its own stores and 20 franchises. It also has developed its
own website. This has become very popular and has enabled Spicey‟s business to grow.
In addition, as e-business has become more popular, especially from the time of Covid,
Spicey has been able to develop its online sales business and has introduced „click and
collect‟ services using its stores and franchise stores as the collection points.

Business Growth Strategies

Spicey‟s current strategies to continue to achieve development and growth of its
business are predicated on two strategic objectives, which are to:
 Expand Spicey range of customers through the development of Spicey‟s markets and
products through a wide variety of sales and distribution channels. The focus of this
is on the delivery of products the customer demands, where they are required and
when they are wanted; and
 Enhance the customer experience through strong and effective customer
relationship management. The focus of this is on clear and consistent branding and
marketing to encourage customer loyalty and retention all the year round.

Vision

 Spicey‟s vision is stated on the company‟s website as follows: “to be a leading,

innovative and customer responsive company that constantly strives to create value
which is shared between the shareholders and other stakeholders.”

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Mission

 Spicey‟s mission is to be the leading confectioneries manufacturer in the country

with a continuous growth in market share by adding new products to its products
portfolio regularly.

Culture

 The company recruits people that are top rated in their various disciplines, that
have something to offer the company and the company is willing to pay top of
the range salaries to the right persons. The company maintains a culture of
openness and freedom and allows any of its staff to come up with novel ideas
that can be translated into value creation.

Technology is at the heart of the company‟s business process, and it constantly invests
in new technology that is seen to further improve the company‟s value creation process.
The company is technology driven and it has deployed technology in virtually all areas
of the company‟s business process.

The company has a research laboratory where food scientists and technologists are
constantly working together to create new products and improve existing products and
processes. Scientific discoveries are constantly being evaluated in the company‟s
laboratory with the sole aim of converting such discoveries into commercially viable
products.

Business Model

Spicey recognises that one of its critical success factors is that value created by the
company is to be shared among its various stakeholders - shareholders, employees,
customers, consumers and the communities. The company therefore incorporates
responsibility and sustainability into all aspects of its business management, making
long term investments that are aimed at building value over time.

Sustainability and Corporate Social Responsibility

Spicey always strive to carry out its business operations in the most sustainable,
environmentally friendly and in a fair manner with regard to all its stakeholders. It
makes sure that each of its suppliers adheres to high ethical and sustainability
practices with regard to sources of materials and treatment of employees.

Spicey sources cocoa, from the Southwestern part of Nigeria. Spicey has initiated
schemes to encourage sustainable farming of cocoa and farmers are being trained in
effective agricultural methods. The introduction of approved cocoa production
certification programme has enabled farmers to achieve higher levels of income from
increased production and to access additional training directed at improving their
production yields.

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Spicey ensures that each of its products‟ label contain only the ingredients used in their
production. The packaging also shows nutritional content and gives advice on
recommended volumes of consumption. Spicey‟s product packaging are normally
recyclable and kept as minimal as possible to protect the environment.

Green energy source has been introduced in Spicey‟s factory which has reduced
consumption of electricity and greenhouse emissions. Spicey also introduced annual
independent health and safety audits in its factory and retail outlets. All factory staff
are required to undertake food safety and health safety training in the workplace at the
required industry standard level. Workplace benefits, such as pension, medical
insurance, and staff discounts are offered to all Spicey‟s employees.

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 Exhibit 3

The Confectionery Market

Confectionery refers to food items with a relatively high sugar and carbohydrate
contents. Confectionery has a variety of flavourings, colourings, and other components
that give them their distinct taste, texture, and appearance.

The global confectionery market has been put at $210.3billion in 2019 and is projected
to increase to $270.5 billion in 2027, which represents a compounded annual growth
rate of 3.6%. Chocolate segment had the highest confectionery market share in 2019.

According to the confectionery market analysis, the market is segmented on the basis of
product type, age group, price point and distribution channel, as follows:

 Product type: The market is categorised into chocolate confectionery, ice cream,
preserved pastry goods and, cakes and sugar confectionery;
 Age group: The market is classified into children, adults, and geriatric;
 Price point: The market is distributed into economy, mid-range, and luxury; and
 Distribution channel: The market is divided into supermarket/hypermarket,
convenience stores, pharmaceutical & drug stores, food services, duty-free outlets,
e-commerce, etc.

On the basis of product type, the chocolate category was the dominant segment in 2019
with 35.2% market share. Consumers of all age groups consume chocolate confectionery
to satisfy their taste buds. The growth in economic prosperity, especially in emerging
countries has driven the demand for the chocolate segment. Furthermore, chocolate is
the highest per capita (kg) consumed confectionery product across several countries.

However, it is projected that the medicated confectionery segment will grow at a faster
rate during the forecast period, 2021 to 2027. The increase in prevalence of minor
ailments and over-the-counter medications or dietary supplements requires active
ingredients such as antacids, vitamins, and herbal extracts. These products will propel
the growth of the medicated confectionery segment. Also, the rapid growth in geriatric
population in the next 10 years is anticipated to be a driver of the market growth for
the medicated confectionery segment.

The Nigerian confectionery market has been projected to grow at a compound annual
growth rate (CAGR) of 9.8% over the analysis period of 2021 to 2027, in terms of
revenue, by Strategy Helix, a data analytic company. The key factors responsible for
this market growth are increasing availability of different varieties of candies and
chocolates, rise in trend of gifting confectionery, and rising disposable income.

The Nigeria confectionery market is segmented on the basis of product and distribution
channel, as follows:

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By Product: It is categorised into chocolate confectionery, gum, and sugar
confectionery; and

By Distribution Channel: The confectionery market is divided into hypermarkets &

supermarkets, convenience stores, specialist retailers, online retailing, etc.

The constantly evolving consumer habits, tastes, and preferences have led to innovation
in the confectionery market, which is the driver of its market growth. Manufacturers are
increasing their product ranges by including functional ingredients, organic herbal
fillings, tropical fruit, and nut-based & exotic flavours in product formulations to meet
changing consumer demands. Furthermore, the trend of gifting confectionery products,
such as cookies, chocolates, bakery items, and others, has also propelled market growth
in recent years. Brands are constantly establishing unique engaging techniques to seek
consumer attention as confectionery products are significantly purchased as a result of
impulse buying. These factors have cumulatively driven the market for confectionery
products. However, the volatile nature of raw material prices of sugar and cocoa can
hamper the growth of the market.

COVID-19 and the subsequent lockdown in 2020 had severe impact on the confectionery
market. This impact has been felt from two dimensions, as follows:

 Differential impact on raw material supply (agricultural produce, food ingredients,

and intermediate food products), trade & logistics, demand-supply volatility,
uncertain consumer demand, also affected the workforce at industrial level; and
 Sales decline as a result of reduced gifting and impulse buying among consumers
across the globe.

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 Exhibit 4

Spicey Confectioneries Limited

Summarised Financial Statements 2021 – 2022

Income Statements

Year 2021 2022

N’000 N’000
Revenue 1,635.0 1,794.6
Cost of sales (901.0) (939.2)
Gross profit 734.0 855.4
Marketing & distribution expenses (216.9) (254.9)
Administrative expenses (75.1) (81.0)
Finance expenses (47.5) (44.3)
Profit before income tax 394.5 475.2
Income tax expenses (22.1) (55.9)
Profit after tax expenses 372.4 419.3

Statements of Financial Position

Year 2021 2022

N’000 N’000
Assets:
Property, plant and equipment 775.1 791.5
Current assets:
Inventories 120.6 125.5
Trade receivables 212.3 235.5
Prepayments 10.5 15.3
Cash and cash equivalents 30.5 110.9
Total current assets 373.9 487.2
Total assets 1,149.0 1,278.7

Equity:
Share capital 10.0 10.0
Retained earnings 483.8 583.1
Total equity 493.8 593.1
Liabilities:
Long term loans 146.0 88.3
Employee benefit 58.3 75.8
Deferred tax liabilities 50.6 50.6
Total non-current liabilities 254.9 214.7

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Year 2021 2022
N’000 N’000
Bank overdraft 15.0 5.0
Current tax liabilities 35.8 60.4
Short term loans 150.0 100.00
Trade and other payables 189.0 289.3
Provisions 10.5 16.2
Total current liabilities 400.3 470.9
Total equity and liabilities 1,149,0 1,278.7

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