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ASSOCIATION OF ACCOUNTING TECHNICIANS OF SRI LANKA

LEVEL II EXAMINATION - JULY 2021
(203) BUSINESS LAW
23-10-2021
• Instructions to candidates (Please Read Carefully): Afternoon
(1) Time Allowed: Reading : 15 minutes. [01.45 – 05.00]

Writing : 03 hours. No. of Pages : 08

No. of Questions : 07
(2) All questions should be answered.
(3) Answers should be in one language, in the medium applied for, in the booklets provided.
(4) State clearly assumptions made by you, if any.
(5) Action Verb Check List with definitions is attached. Each question will begin with an action verb
excluding OTQ’s. Candidates should answer the questions based on the definition of the verb given
in the Action Verb Check List.
(6) 100 Marks.

SECTION A
Objective Test Questions (OTQs)
(Total 25 marks)

Question 01

Select the most correct answer for question No. 1.1 to 1.6. Write the number of the selected answer
in your answer booklet with the number assigned to the question.

1.1 Which one of the following court has the jurisdiction to interpret the constitution?

(1) Court of Appeal. (2) Magistrate’s Court.

(3) High Court. (4) Supreme Court.

1.2 Which one of the following is not a component of the Constitution 1978?

(1) Provision on citizenship. (2) Judicial Services Commission.

(3) Functions of the Board of Investment. (4) Fundamental rights.

1.3 Which one of the following is not an implied condition under the sale of goods contract?

(1) When the goods are sold by a description, such goods shall correspond with the
description.
(2) The goods supplied must fit for the purpose.
(3) Goods must be of merchantable quality.
(4) Buyer shall have the quite possession of the goods without any interference.

1.4 Consider the following offences:

(a) Refusing to sell the goods.

(b) Denial of the possession of goods.
(c) Investing illegal money in legal financial instruments.

Of the above, the main offences under the Consumer Affairs Authority Act No.09 of 2003
are:

(1) (a) and (c) only. (2) (a) and (b) only.
(3) (b) and (c) only. (4) All of the above.

1.5 Which one of the following is not a feature of a valid Bill of Exchange?

(1) It should bear unconditional orders.

(2) It should be in writing.
(3) It should be in printed form with durable ink.
(4) It should be signed by the person who issue it.

1.6 Consider the following statements regarding a holder in due course under the law relating
to negotiable instruments:

(a) Get priority to receive the value for the bill.

(b) Cannot sue all previous parties to recover the rights on the bill.
(c) Can transfer his title by negotiation.

Of the above, the correct statements are:

(1) (a) and (b) only. (2) (a) and (c) only.
(3) (b) and (c) only (4) All of the above.

(02 marks each, 12 marks)

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State whether each of the following statements in question No.1.7 to 1.9 is TRUE or FALSE. Write
the answer (True/False) in your answer booklet with the number assigned to the question.

1.7 If an agency is created as of necessity, the principal is not bound by the actions of the agent.

1.8 In a CIF agreement, the seller’s obligation with regard to the contract ends, once the cargo
is loaded to the deck.

1.9 At an auction, once the sale is completed, the buyer acquires a better title even though the
auctioneer is not the owner of the good. (01 mark each, 03 marks)

Write short answers for question Nos. 1.10 to 1.14 in your answer booklet with the number
assigned to the question.

1.10 State two(02) regulatory institutions in Sri Lanka.

1.11 State two(02) elements of a contract of sale of goods.

1.12 State two(02) objectives of Financial Intelligence Unit.

1.13 State two(02) instances where “access to information can be denied” under the Section 05
of the Right to Information Act No.12 of 2016.

1.14 State two(02) powers of the ‘Drawer’ regarding crossing of a cheque.

(02 marks each, 10 marks)
(Total 25marks)
End of Section A

SECTION B
(Total 50 marks)

Question 02
Following the environmental hazard created by the Xpress Pearl ship, there was an unprecedent
increase in the demand for “White Salt” in households of Sri Lanka. Sarath is an agent of White
Salt (Pvt) Ltd. since 2018. Maximum retail price of a packet of “White Salt” is Rs.50/-. Sarath
has the control over four warehouses which are full of “White Salt”. Sarath wanted to meet the
demand of the market for “White Salt” and he made an underhand dealing with a Store Manager
to get more salt for him than the usual supply required for the market. Later, White Salt (Pvt)
Ltd. realized that Sarath has sold their salt at the rate of Rs.100/- per packet and he has earned
an extra profit of Rs. 5 million from that transaction. Meanwhile, the Consumer Affairs Authority
of Sri Lanka has initiated an inquiry against White Salt (Pvt) Ltd. due to Sarath’s acts of selling
“White Salt” at a higher price.
You are required to:
(a) Discuss the legal rights of White Salt (Pvt) Ltd. against Sarath. (06 marks)

(b) Explain whether White Salt (Pvt) Ltd. would be liable for selling packets of salt more than
the marked retailed price. (04 marks)
(Total 10 marks)
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 Question 03

Raja has obtained a life insurance from Star Insurance Co. for himself in 2010 and he has
nominated his wife Seetha and his two children Tina and Mina as his beneficiaries. He has paid
the premium on his life insurance policy regularly without any fail. In May 2021, Raja died due
to Covid-19. After his sudden demise, Seetha and the two children had to face so many financial
difficulties. Seetha contacted Star Insurance Co. to claim compensation from the life insurance
policy of her husband. Star Insurance Co. rejected the claim form made by Seetha and stated
that death due to COVID-19 was not covered under the life insurance policy obtained by Raja.

You are required to:

(a) Discuss the applicability of the principle of “Proximate Cause in Insurance” in the above
scenario. (06 marks)

(b) Explain the applicability of the principle of insurable interest, if the life insurance policy for
Raja had been obtained by Seetha and Raja’s demise is caused by a car accident. (04 marks)
(Total 10 marks)

Question 04

ABC PLC is a company incorporated under the Companies Act No. 07 of 2007 in the year 2015.
As per the Articles of the Association of ABC PLC, the main objective of ABC PLC is to engage in
agricultural business operations such as cultivating, planting, harvesting crops, storing etc.
Further, the Articles of the Association of ABC PLC contained a clause, which stated that any
disputes between members of the company, ABC PLC should be solved by arbitration.

However, due to the COVID-19 pandemic, Rajamohan, a director of ABC PLC has suggested to
buy three fully kitted ambulances at a cost of US $ 150,000 each under a leasing facility. He
suggested to rent out these vehicles to a private hospital and to earn rent income from it.
Zakeer, a key shareholder of ABC PLC had a dispute with the company regarding this
suggestion, and went to the court.

You are required to:

(a) Discuss the validity of the Articles of the Association of ABC PLC for the above scenario.
(07 marks)

(b) State three(03) persons who are not qualified to be appointed as a director of a company.
(03 marks)
(Total 10 marks)

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 Question 05

Dr. Jeewaka is a well-known medical practitioner in the town. He examines patients at Sada
Suwa Hospital in the evenings.

The following two options for his employment at Sada Suwa Hospital are given:

1st Option:
Rs.2,000/- is charged for examination of one patient and of that, 50% is charged as Dr.
Jeewaka’s fee and the balance is charged as a hospital fee.

2nd Option:

Dr. Jeewaka is paid a fixed monthly salary of Rs.200,000/- by Sada Suwa Hospital.

You are required to:

(a) Discuss whether Dr. Jeewaka is an employee of Sada-Suwa Hospital under each of the
above two options. (06 marks)

(b) State Four(04) types of employees who are not covered under the Employees Provident
Fund (EPF) Act No. 15 of 1958. (04 marks)
(Total 10 marks)

Question 06

(a) In international trade, a variety of methods are used to settle the payment of goods. The
expectations of importer and exporter are contradictory with regard to payments in
international trade. The buyer is willing to pay as late as possible in the transaction process
and the seller will expect a quick and secure process.

You are required to:

Explain the role of a Letter of Credit as a payment method in international trade. (05 marks)

(b) An intellectual property is an intangible creation of the human intellect. It greatly

contributes for the economic, social and technological development of any country.

You are required to:

List five(05) intellectual properties covered under the Intellectual Property Act No. 36 of
2003. (05 marks)
(Total 10 marks)
End of Section B

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 SECTION C
(Total 25 marks)

Question 07

(A) Tina and Tony are suppliers of Healthy Life Hospital Ltd. situated in Western province of
Sri Lanka. In March 2020, the hospital entered into a contract with Tina to purchase fresh
vegetables for a period of four years commencing from 01st April 2020.
In terms of the agreement with Tina, the hospital paid an upfront payment of 50% of the
contract value to Tina as an advance payment.
On the same day, the hospital entered into another contract with Tony to purchase
essential cleaning liquid for four years commencing from 01st April 2020. However, no
advance payment has been paid to Tony.

Both Tina and Tony agreed to supply these goods fortnight and goods should reach to the
hospital by midnight of Sundays.
During the first week of May, one of Tina’s drivers infected with COVID-19 and as a result,
all other employees had to place themselves in self-quarantine. Further, since quarantine
curfew was imposed and operated across the island, Tina could not be able to supply
vegetables to Healthy Life Hospital Ltd. till June 2020.
Meanwhile, Tony informed the Healthy Life Hospital Ltd. that he is not be able to supply
the cleaning liquid as agreed since there was a huge price increase in the product due to the
higher demand.
Due to the aforesaid circumstances, the hospital was compelled to reduce its number of
admissions by a considerable number. Now, the hospital plans to take legal actions against
Tina and Tony.

You are required to:

(a) Explain the following:

(i) Whether there is a valid contract between Tina and Healthy Life Hospital Ltd.
(02 marks)

(ii) Whether there is a valid contract between Tony and Healthy Life Hospital Ltd.
(02 marks)

(b) Discuss the legal rights of Healthy Life Hospital Ltd. regarding Tina and Tony.
(07 marks)

(c) Discuss the legal rights and remedies available to Tina. (04 marks)

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(B) Ride Ltd., a car dealer, bought a car from Mohan for the price of Rs.2 million. Ride Ltd.
painted the car and put it in their showroom and sold it to Kamal for Rs.2.5 million. Four
months later, the car was seized by the police as it had been stolen and was then returned it
to the original owner. Ride Ltd. was aware that the car had been stolen. Kamal claimed the
full amount paid to Ride Ltd. under the Sale of Goods Ordinance, but Ride Ltd. refused to
pay the full amount of Rs.2.5 million as the car had been used by Kamal for a period of four
months.

You are required to:

(a) Discuss whether Kamal is able to claim the full amount he paid for the car. (07 marks)

(b) State three(03) remedies available to an unpaid seller “against the goods” under the
Sale of Goods Ordinance. (03 marks)
(Total 25 marks)

End of Section C

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 ACTION VERBS CHECK LIST
Level of
Description Action Verbs Verb Definitions
Competency
Draw Produce a picture or diagram.
Relate Establish logical or causal connections.
Recall Facts
Knowledge (1)
and Basic State Express details definitely or clearly.
Concepts.
Identify Recognize, establish or select after consideration.
List Write the connected items.

Level of
Description Action Verbs Verb Definitions
Competency
Show validity or otherwise, using knowledge or
Recognize
contextual experience.
Explain &
Comprehension Elucidates Interpret Translate into understandable or familiar terms.
(2) Ideas and Describe Write and communicate the key features.
Information.
Explain Make a clear description in detail using relevant facts.
Define Give the exact nature, scope or meaning.

Level of
Description Action Verbs Verb Definitions
Competency
Reconcile Make consistent / compatible with another.
Graph Represent by graphs.
Assess Determine the value, nature, ability or quality.
Use and Adapt
Application (3) Solve Find solutions through calculations and/or explanation.
Knowledge in
New Prepare Make or get ready for a particular purpose.
Situations.
Demonstrate Prove or exhibit with examples.
Calculate Ascertain or reckon with mathematical computation.
Apply Put to practical use.

Level of
Description Action Verbs Verb Definitions
Competency
Communicate Share or exchange information.
Outline Make a summary of significant features.
Draw
Contrast Examine to show differences.
Analysis (4) Connections
Among Ideas Compare Examine to discover similarities.
and Solve
Problems. Discuss Examine in detail by arguments.
Differentiate Constitute a difference that distinguishes something.
Analyze Examine in details to find the solution or outcome.

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