THE INSTITUTE OF CHARTERED

ACCOUNTANTS OF NIGERIA

PATHFINDER
NOVEMBER 2024 DIET
FOUNDATION LEVEL EXAMINATIONS
Question Papers

Suggested Solutions

Examiners‟ Reports

and

Marking Guides
 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

PAGE

FOREWARD 1

TABLE OF CONTENTS 2

FINANCIAL ACCOUNTING 3 -31

MANAGEMENT INFORMATION 32 – 51

BUSINESS, MANAGEMENT & FINANCE 52- 75

BUSINESS LAW 76- 96

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 ICAN/242/F/A2 Examination No..................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2024

FINANCIAL ACCOUNTING
EXAMINATION INSTRUCTIONS
PLEASE READ THESE INSTRUCTIONS BEFORE THE COMMENCEMENT OF THE PAPER

1. Check your pockets, purse, mathematical set, etc. to ensure that you do not
have prohibited items such as telephone handset, electronic storage device,
programmable devices, wristwatches or any form of written material on you in
the examination hall. You will be stopped from continuing with the examination
and liable to further disciplinary actions including cancellation of examination
result if caught.
2. Write your EXAMINATION NUMBER in the space provided above.

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

number.

4. Do NOT write anything on your docket.

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

6. Do NOT answer more than the number of questions required in each section,
otherwise, you will be penalised.

7. All solutions should be written in BLUE or BLACK INK. Any solution written in
PENCIL or any other COLOUR OF INK will not be marked.

8. You are required to attempt ALL questions in Section A and any FOUR out of the
SIX questions in SECTION B.

9. Check that you have collected the correct question paper for the examination
you are writing.

TUESDAY, NOVEMBER 19, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

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 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – NOVEMBER 2024
FINANCIAL ACCOUNTING
Time Allowed: 31/4 hours (including 15 minutes reading time)

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT ALL QUESTIONS IN THIS

SECTION

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

1. What are the primary roles of accountants in business and the economy?

A. Providing legal advice to businesses and individuals

B. Managing human resources and employee recruitment
C. Conducting market research and analysing consumer behaviour
D. Preparing financial statements and conducting audits
E. Designing market campaigns and advertising strategies

2. What is the purpose of a chart of accounts in a business?

A. Organising financial transactions into identified categories of assets,

liabilities, income and expenses
B. Generating instructions and policies for recording information in the
financial statements
C. Designing a unique code and headings for each personal ledger
account
D. Following the rules of accounting set by the government
E. Resulting in consistent posting of transactions

Use the information below to answer questions 3 and 4:

A company has receivables at year-end of ₦2,250,000. The company has a

policy of maintaining a general allowance of 5% on its receivables. The
general allowance brought forward from the previous period was ₦52,000.

3. What is the general allowance for doubtful debts in the statement of profit
or loss at the current year-end, based on the company's policy?

A. N52,000
B. N60,500
C. N105,000
D. N112,500
E. N173,500

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4. What is the net account receivables after considering the general allowance
at the current year-end?

A. N2,076,500
B. N2,137,500
C. N2,145,000
D. N2,189,500
E. N2,198,000

5. Which of the following is NOT a disclosure requirement for property, plant

and equipment in accordance with IAS 16 - Property, Plant and Equipment?

A. The measurement bases used for determining the gross carrying

amount of property, plant and equipment
B. The number of inspections carried out on items of property, plant and
equipment
C. The depreciation methods used for each major class of property, plant
and equipment
D. The impairment losses recognised during the period
E. The total cost of property, plant and equipment acquired through
business combinations

6. Which of the following events can lead to a change in a partnership?

A. Introduction of additional capital by a partner

B. Establishment of a new marketing strategy
C. Admission of a new partner to the firm
D. Hiring of additional manager by the partnership
E. Implementation of a new financial management system

Use the Information below to answer questions 7 and 8:

On April 1, a company had an opening inventory of 250 units which cost
N75 each. During the month, it purchased 750 units at N90 each and issued
500 units.

7. Using the First-In-First-Out (FIFO) method, what is the value of the closing
inventory after the company issued 500 units?

A. ₦37,000
B. ₦37,500
C. ₦38,750
D. ₦42,500
E. ₦45,000

8. Using the Weighted Average Cost method, what is the cost per unit of the closing
inventory after the company issued 500 units?

A. N82.50
B. N83.75

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 C. N85.00
D. N86.25
E. N87.50

9. Which of the following best describes the impact of technological

advancement on accounting operations?
A. Technology has made accounting more complex and less efficient,
leading to data analysis challenges
B. Technological advancements have had no significant effect on
accounting practices and financial organisations
C. The use of technologically advanced software has made accounting
more efficient, particularly in data analysis, financial organisation and
measuring economic activities
D. Accounting operations have become slower due to the integration of
technologically advanced software
E. Technology has made accounting easier, but it has not improved data
analysis of financial organisations

10. Which of the following statements correctly describes cash basis of

accounting?

A. Revenue is recognised in the period when it is earned, regardless of

when the cash is received
B. Expenses are recognised in the period when they are incurred,
regardless of when they are paid
C. Revenue is recognised in the period when the cash is received,
regardless of when it is earned
D. Expenses are not recognised in the period when they are paid,
regardless of when they are incurred
E. Both revenue and expenses are recognised in the period when they are
incurred, regardless of cash transactions.

11. The primary purpose of the journal in accounting is to

A. Record transactions from books of prime entry
B. Record year-end adjustments only
C. Correct errors in personal ledgers
D. Provide a record and explanation of various adjustments
E. Serve as the primary book of entry for all financial transactions

12. In the notes to the financial statements, which of the following is NOT
required to be disclosed regarding property, plant and equipment under IAS
16?

A. The fair value of the assets at the beginning and end of the period
B. The current market value of the assets at the end of the period
C. The gross carrying amounts and accumulated depreciation at the
beginning and end of the period

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 D. The expected useful lives of the assets and their residual values
E. The total amount of additions made to the property, plant and
equipment during the year

13. Which of the following best describes incomplete records in accounting?

A. Incomplete records occur when a company has lost important financial

documents and cannot reconstruct them
B. Incomplete records are accounting records that contain errors and
discrepancies, leading to inaccurate financial statements
C. Incomplete records are financial records where information is missing
due to a lack of double entry book-keeping system and up-to-date
accounting practices
D. Incomplete records occur when a company's financial statements do
not include all the required disclosures and notes
E. Incomplete records are financial statements that have not been
audited by an external auditor, leading to potential inaccuracies

14. How does the application of data analytics assist in uncovering hidden
information from a data set?

A. Using encryption methods to protect sensitive data

B. Automating data entry processes to reduce human errors
C. Applying statistical methods and modeling to identify trends, patterns,
and insights
D. Generating visualisations for data representation and presentation
E. Providing cloud storage for secure data management.

15. The accounting equation of Kola Enterprises is ₦107,250 (Assets) =

₦55,500 (Equity) + ₦51,750 (Liabilities). Kola Enterprises decides to take
₦6,000 in cash and inventories with a value of ₦3,000 out of the business
for his personal use. What is the new value of the accounting equation for
Kola Enterprises after he takes ₦6,000 in cash and ₦3,000 worth of
inventories for personal use?

A. ₦98,250 = ₦46,500 + ₦51,750

B. ₦98,250 = ₦55,500 + ₦42,750
C. ₦107,250 = ₦58,500 + ₦54,750
D. ₦98,250 = ₦49,500 + ₦48,750
E. ₦98,250 = ₦52,500 + ₦45,750

16. Which of the following statements correctly describes the treatment of bank
accounts and cash balances from the perspective of both the company and
the bank?

A. Company - money in the bank is an asset. Bank - deposits are

liabilities
B. Company - money in the bank is a liability. Bank - deposits are assets

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 C. Company - an overdraft balance is a liability. Bank - overdrafts are
income
D. Company - an overdraft balance is an asset. Bank - overdrafts are
liabilities
E. Company - money in the bank is an asset. Bank - deposits are expenses

17. When a non-current asset is disposed of, what is the effect in the asset and
the accumulated depreciation accounts in the general ledger?

A. Both the asset account and the accumulated depreciation account will
be closed to zero
B. The asset account will have a closing balance, but the accumulated
depreciation account will be closed to zero
C. The asset account will be closed to zero, but the accumulated
depreciation account will have a closing balance
D. Both the asset account and the accumulated depreciation account will
have closing balances to carry forward
E. Neither the asset account nor the accumulated depreciation account
will have a zero closing balance

18. Which of the following statements accurately describes not-for-profit

organisations?

A. The organisations always strive to maximise their revenue and

minimise costs to generate a profit
B. These are businesses that focus solely on making a profit and do not
have any other objectives
C. The organisations include clubs, societies, charities, hospitals, and
government bodies
D. They operate at a level where their income exceeds their costs, similar
to a profit-making entity
E. These organisations do not generate any income and solely rely on
donations and grants

19. What is the cash paid for salaries and wages during the period, given the
following information?

Accrued salaries and wages at the beginning of the period: ₦6,500

Accrued salaries and wages at the end of the period: ₦12,500
Salaries and wages reported in the statement of profit or loss: ₦114,000

A. ₦108,000
B. ₦119,000
C. ₦120,000
D. ₦126,000
E. ₦133,000

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20. How has technology-driven disruption affected the accounting profession
over time?

A. It shielded accounting from disruptions, leading to minimal changes in

the industry
B. The transition to computerised accounting eliminated the need for
accountants' involvement
C. Accountants adapted to a machine-driven environment through
gaining computer skills and software knowledge
D. Recent innovations in technology, such as blockchain, pose a threat to
certain roles of accountants
E. Blockchain technology has revolutionised accounting, completely
replacing traditional accounting practices

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF

SIX QUESTIONS IN THIS SECTION

QUESTION 1
a. Explain the differences between the roles of a bookkeeper and an
accountant in the accounting process. (8 Marks)

b. Explain the various types of accounting and their respective roles in

providing relevant information to different users of financial information.
(12 Marks)
(Total 20 Marks)
QUESTION 2

a. List SIX documents used in the sales cycle of a business. (6 Marks)

b. Discuss how each of these documents facilitates the accounting process and ensure
effective management of sales transactions. (12 Marks)

c. State TWO of the documents you listed in (a) that impact double entry.
(2 Marks)
(Total 20 Marks)
QUESTION 3

a. i. State THREE types of errors that can be revealed by the trial balance.
(3 Marks)
ii. Explain TWO of the highlighted errors. (2 Marks)

b. The trial balance of Niger Limited failed to balance. The total of the debit
column exceeded the total of the credit column by ₦774,000. On
investigation, the following errors were later discovered:

(i) Sales of ₦50,000 were not recorded in the sales account.

(ii) An expense of ₦25,000 was mistakenly debited as ₦250,000.

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 (iii) Purchases of ₦70,000 were omitted from the purchases account.
(iv) An error in calculating depreciation resulted in an understatement
of expenses by ₦12,000.
(v) A credit sale of ₦35,000 was mistakenly recorded as a debit in
sales account.
(vi) An expense of ₦8,000 was not recorded in the expense account.
(vii) Liabilities of ₦100,000 were omitted from the books.
(viii) An error in recording interest due resulted in an overstatement of
(ix) Income by ₦6,000.
(x) Cash receipts of ₦45,000 were recorded as ₦450,000.
(xi) An error in inventory valuation resulted in an overstatement of
inventories by ₦10,000.
(xii) Dividends of ₦20,000 paid to shareholders were not recorded in
the cash book.

(xiii) An error in tax calculation resulted in an underpayment of taxes

by ₦35,000.
(xiv) A payment of electricity bill of ₦12,000 was accidentally entered
twice.
(xv) Loan repayments of ₦60,000 were omitted from the records.

You are required to prepare:

i. The journal entries to correct all the observed errors. (7 Marks)
ii. The suspense account to effect corrections as appropriate. (8 Marks)
(Total 20 Marks)

QUESTION 4

a. Provide a concise description of each cost element associated with Property,

Plant and Equipment (PPE) under IAS 16 and explain the conditions under
which these costs are capitalised. (8 Marks)

b. Caleb Limited has recently purchased a motor vehicle for its business
operations. The company incurred various costs in acquiring, preparing and
operating the motor vehicle. The following information is available:

(i) Purchase price of motor vehicle: ₦5,000,000

(ii) Annual insurance premium: ₦120,000
(iii) Transportation costs to the company's location: ₦50,000
(iv) Installation costs for specialised equipment: ₦150,000
(v) License and registration fees: ₦80,000
(vi) Fuel and maintenance expenses (for the first month of operation):
₦70,000
(vii) Legal fees for acquisition: ₦100,000

Required:
Calculate the initial measurement of the motor vehicle (6 Marks)

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c. Igba Enterprises, a small business, has incomplete records for the month of
September 2023. Suspecting discrepancies, the proprietor has invited an
accountant to assist in investigating the books. The available information
includes the following details:
(i) Opening cash balance as at September 1, 2023: N850,000
(ii) Payments to suppliers: ₦1,350,000
(iii) Payment to employees: ₦525,000

(iv) Closing cash balance as at September 30, 2023: ₦1,112,000

(v) Receipts during the month of September: ₦2,300,000
Required:
Prepare the cash book for September 2023. (6 Marks)
(Total 20 Marks)

QUESTION 5
a. State and explain the relationships among the main components of
financial statements. (12 Marks)
b. Explain the distinction between accounting policies and accounting
estimates in accordance with IAS 8 Accounting policies, change in
Accounting Estimates and Errors. (8 Marks)
(Total 20 Marks)

QUESTION 6
ABO Partnership consists of three partners: Awka, Bwari and Owo. The
partnership agreement specifies that profits and losses are to be shared in the
following manner:
Awka 40%
Bwari 30%
Owo 30%
The following balances are extracted from the partnership's statement of
financial position as at September 30, 2022:

N
Cash 250,000
Accounts receivable 400,000
Inventories 200,000
Furniture and fittings (carrying amount) 250,000
Accounts payable 120,000
Loan notes payable 300,000

Additional Information:
During the year, the partnership earned a profit of ₦600,000.
Interest on the loan notes is 10% per annum.

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Partners' current account balances at the beginning of the year were:
Awka: ₦150,000 (Credit Balance)
Bwari: ₦100,000 (Debit Balance)
Owo: ₦50,000 (Credit Balance)
Partners' salaries are as follows:
Awka: ₦120,000
Bwari: ₦90,000
Owo: ₦90,000

Transfers made during the year from current accounts to capital accounts:
Awka: ₦68,000
Bwari: ₦26,000
Owo: ₦26,000

Assume the initial capital accounts are established according to the agreed
profit-sharing ratios.

Required:
a. Show how the profits of ABO Partnership for the year ended September
30, 2023 is shared to the partners. (6 Marks)
b. Calculate the partners‟ initial capital. (5 Marks)
c. Prepare partners‟ current accounts for ABO Partnership as at
September 30, 2023. (6 Marks)
d. Prepare partners‟ capital accounts for ABO Partnership as at
September 30, 2023. (3 Marks)
(Total 20 Marks)

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 SECTION A

PART I - MULTIPLE CHOICE ANSWERS

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

Workings MCQ
N
3. Current year allowance (5%x 2,250000) 112,500
Previous year allowance (52,000)
Allowance charges for the year 60,500

4. Account receivables 2,250,000

Allowance charges for the year (112,500)
Net account receivables for the year 2,137,500

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 7. The value of closing inventories using First-in-First-Out (FIFO) method
Date Details Purchases Issues Balance
Units Price Amounts Units Price Amounts Units Price Amounts
N N N N N N
Apr1 Bal b/f 250 75 18,750
Purchases 750 90 67,500 1,000 86,250
Issues 250 75 18,750
250 90 22,500
500 41,250
Closing
Balance 500 90 45,000

250 x 75 + (750 x 90)

8. The weighted average method = 1,000

18,750+67,500
= 1,000

= N86.25

15. The withdrawals will reduce assets by N9,000 and equity by N9,000
Assets = N107,250 – 9,000 = N98,250

Equity = N55,500 – 9,000 = N46,500

New equation is N98,250 =N46,500 + N51,750

N
19. Accrued wages and salaries at the beginning of the period 6,500
Wages and salaries reported in the SOP/L 114,000
120,500
Accrued wages and salaries at the end of the period (12,500)
Cash paid wages and salaries during the period 108,000

OR

Wages account
N N
Cash paid 108,000 Bal b/d 6,500
Bal c/d 12,500 Profit or loss 114,000
120,500 120,500

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Examiner’s report
The questions test basic knowledge of accounting principles including their
applications to simple computations. Candidates‟ performance was above
average with few deficiencies in the application of principles to solve questions
that involved calculations.

Marking guide
Award 1 mark for each of the correct options 1 x 20 = 20 Marks

SECTION B

SOLUTION 1

a) Bookkeepers and accountants perform different roles within the realm of

financial management and they have distinct sets of responsibilities. Here
are the key differences between the two roles:

Bookkeeper
i. Recording transactions: Bookkeepers are primarily responsible for
recording the day-to-day financial transactions of a business,
including purchases, sales, receipts and payments.

ii. Categorising transactions: Bookkeepers classify and categorise

financial transactions into the appropriate accounts, such as assets,
liabilities, equity, revenue and expenses, to ensure that the financial
records are organised and accurate.

iii. Reconciling accounts: Bookkeepers reconcile bank statements,

accounts payable and accounts receivable to ensure that the financial
records accurately reflect the company's financial position.

iv. Generating financial reports: Bookkeepers may prepare basic financial

reports, such as, statement of profit or loss and statement of financial
position, based on the data they have recorded.

Accountant:
i. Financial analysis: Accountants are responsible for analysing financial
data, interpreting it and providing insights to help businesses make
informed decisions. They go beyond recording transactions to provide
strategic financial guidance.

ii. Tax planning and compliance: Accountants are often involved in tax
planning, ensuring that businesses comply with tax laws and
preparing and filing tax returns. They provide guidance on tax
strategies and help minimise tax liabilities.

iii. Financial statement preparation: Accountants prepare and analyse

complex financial statements, including statement of cash flows,

15
 statement of comprehensive income and notes to the financial
statements, which provide a comprehensive view of a company's
financial performance.

iv. Auditing: Some accountants perform audit and assurance services,

examining financial records to ensure accuracy and compliance with
laws and regulations. They may also provide recommendations for
improving internal controls and financial processes.

b) The various types of accounting and their respective roles in providing

relevant information to different users of financial information includes:

i. Financial accounting: This involves the process of recording,

classifying, preparing and interpreting financial statements so that
both internal and external users can make informed decisions.

ii. Cost accounting: Cost accounting is the procedure for accumulating

cost data to provide information for planning, control and decision
making by management.

iii. Performance management: Performance management is a continuous

process where managers and employees combine efforts in planning,
monitoring and reviewing the effectiveness of the workforce towards
the achievement of the overall objectives of the entity.

iv. Public sector accounting: Public sector accounting is a process of

recording revenue and expenditure of government ministries,
departments and agencies (MDAs). The government uses this
information for appropriate decision making, planning, control and
appraisal of government activities and in compliance with the laws
regulating government finances.

v. Tax accounting: The accounting profits generated in the financial

statements provide the basis for determining the taxable profits of an
entity. The taxable profits are different from the accounting profits
because certain expenses and income are allowable for accounting
purposes but disallowed for tax purposes. The adequate knowledge of
these taxable and non-taxable incomes and expenses would help an
entity in its tax management.

vi. Financial management: Financial management is the process by which

the resources of an organisation are efficiently and effectively
procured, utilised and accounted for by the owners of the business in
such a way to maximise the wealth of the owners.

vii. Forensic accounting: Forensic accounting refers to the application of

accounting skills to investigate and probe frauds, deliberate
misrepresentations (falsifications and misappropriations) or

16
 embezzlements of an entity‟s resources with a view to recovering such
funds, usually through legal proceedings.

viii. Social and environmental accounting: Social and environmental

accounting is the branch of accounting that deals with accounting for
and reporting of the social and environmental impact of an entity‟s
activities upon the stakeholders, such as, investors, management,
employees, customers, suppliers, local community where the entity
operates.

ix. Auditing: An independent examination of the financial statements of

an entity by a professional called an auditor. After gathering various
forms of audit evidence, the professional accountant forms an opinion
on the financial statements. The auditor expresses this opinion in a
report, asserting the fairness of the financial statements and the scope
of work carried out before arriving at this opinion.

Examiner’s report
The question examines candidates‟ knowledge of differences between the roles of
a bookkeeper and an accountant, and also requires them to discuss the roles of
different types of accounting.

Many candidates attempted the question and their performance was average in
part (a).

The candidates failed to provide a comprehensive overview of the differences

between the roles of bookkeeper and accountant. They only touched on a few key
points, leaving out important details of the tasks and responsibilities associated
with each role.

In part (b), many candidates identified elements and components of financial

statements. Those who did identify the types of accounting could not provide
acceptable explanations, especially for public sector accounting, forensic
accounting and cost accounting.

Candidates are advised to go back to the basics and review the different types of
accounting, their roles, and their applications. Candidates should also read
questions carefully to ensure they understand the requirements. They should
develop a study plan, focusing on key concepts and practice applying them to
different scenarios. The ICAN study text and Pathfinder will be of immense help
to the candidates in this regard.

17
Marking guide
Marks Marks
(a) Differences between the roles of bookkeeper and
accountants:
Explaining four (4) roles of bookkeepers 4
Explaining four (4) roles of accountants 4 8
(b) Explain the types and roles of accounting:
Listing six (6) types of accounting at ½ mark each 3
Explaining the primary focus and importance of each
type identified at 1½ marks each 9 12
Total 20

SOLUTION 2

a. List of documents used in the sales cycle of a business

i. Purchase order
ii. Goods received note
iii. Stores issue note
iv. Debit memo
v. Proforma invoice
vi. Sales Invoice
vii. Credit note
viii. Payment receipt
ix. Delivery note
x. Cheque counterfoils
xi. The teller

b. How each source document facilitates the accounting process and ensure
effective management of sales transactions
i. Purchase order
A purchase order is an evidence of request to supply to the order of the
bearer named. This is a document issued by the prospective purchaser
to the supplier requesting the latter to supply according to
specification on the order.
ii. Delivery note
When goods are dispatched, a document that usually accompanies the
goods is known as delivery note. The importance of delivery note is
summarised below;
 Protects the dispatch driver from police harassment on how he
comes about the goods.
 Evidence of receipt by the purchaser or consignee after signing
it.
 Evidence of dispatch by the supplier or consignor.
 Evidence of inventory reduction.

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iv. Sales invoice
This is a document raised by the seller to the buyer informing him of
the monetary effect of sales transaction that occurred between them
and also to request the latter to pay for the goods or services supplied
or rendered to him by the former. Usually where physical goods are
sold, sales invoice is raised, whereas where services are rendered, bill
is usually sent.
Sales invoice must contain the following:

 Name and address of the seller

 Name and address of the buyer
 Date of invoice
 Quantity and description of goods sold
 Price per unit and total account due
 Conditions or terms of sales
 Column for signatures of the two parties
 Invoice number
 Value added tax registration number and amount charged for
VAT
The original copy is sent to the buyer while the duplicate copies are
retained by the seller.

iv. Goods received note (GRN)

This is a document raised by the receiver of goods dispatched, usually
the customer or his agent to show that goods ordered have been
received. The document is raised after the inspection of the goods
delivered.
Goods received note has the following advantages;
 It is used to update accounting records like bin - card or any
inventory control card.
 Accurate inventory records keeping are maintained with the use
of goods received notes.
Goods received notes are usually in quadruplicates which are
distributed as shown below;
 Original goes to the supplier.
 Duplicate goes to the purchasing department
 Triplicate goes to the accounts department
 The fourth copy is sent to store.

v. Credit note
A credit note is issued to the purchaser otherwise referred to as debtor
in order to reduce his indebtedness because of returns he has made.
The total amount of goods sent to the customer has been debited to his
account, but it is quite possible that the customer returns part of goods
due to the following reasons:

19
  Damage to the goods before reaching the customer
 Wrong specification from the one ordered by the customer
 Any other genuine reason.
A credit note is to reduce the customer‟s liability on the earlier invoice
note sent to him with the value of the amount of goods returned.

vi. Payment receipt

This is the document issued by the person or organisation to whom
cash is paid. It is an acknowledgement of payment received. It
describes the amount received, what for, date, serial number, etc.

vii. Debit memo

A document issue to a customer for additional charges such as
supplying and handling fees.

viii. Profoma invoice

A document provided to customers outlining the products or services
offered, price and terms.

ix. Inventory issue note

An inventory issue note is made out whenever inventory items are to be
issued out of the store. In a small shop this procedure is not usually
carried out. A customer usually requests on the counter for what he
wants to buy and if the items are in inventory, they are brought out
and after the necessary sales invoice is made out, he is requested to
make payment and use a copy of the invoice already stamped “PAID‟‟
by the cashier to collect the items purchased.

x. Cheque counterfoils or payment mandate

It serves as evidence of payment made to creditors through the bank
and withdrawals made for personal use or office use.

xi. The teller

It serves as evidence of cheque and cash paid into bank. It contains
information about name of bank customers‟, bank account number, the
persons paying the cash or lodging-in the cheque.

x. The documents that impact double entry

 Cash Invoices
 Credit notes
 Debit notes
 Payment mandate

20
Examiner’s report
The question tests candidates‟ ability to identify and explain the various
documents used in sales cycle and their impact in accounting process,
particularly in relation to double-entry bookkeeping.

Most candidates attempted the question and their performance was above
average.

However, some candidates failed the question because they identified books of
prime entry instead of the documents.
Candidates are advised to pay attention to details while studying, so that they
could understand different accounting concepts, records and documents,
including their impacts to bookkeeping and accounting.

Marking guide
Marks
Documents in sales cycle:
(a) Stating six (6) types of documents 6
(b) Explaining the significance of the six (6) types of documents
identified at 2 marks each 12
(c) Identifying two(2) documents that impact double entry 2
Total 20

SOLUTION 3
a. (i) Types of errors that can be revealed by the trial balance
 Casting error
 Partial reversal of entry
 Error of transposition
 Over or understatement of opening or closing balances
 Mis-statement error on the trial balance

(ii) Explanation of the types of errors

 Casting error
This error occurs when adding up entries in the accounts
resulting in under-casting or over-casting.

 Partial reversal of entry

This is an error whereby the double entry for a transaction is
posted to the same side of the respective accounts. For
example, salaries paid may be debited to salaries account
but wrongly debited to the cash book.

 Error of transposition
Where an error of transposition affects only one side of the
account, it will affect the trial balance. For example, a

21
 cheque of N6,661 received from a debtor may be correctly
debited to the bank account but wrongly credited to the
debtor‟s account as N6,616

 Over or under- statement of opening or closing balances

This is an error in which the debit or credit entry for a
transaction is posted without posting the corresponding
opposite entry. It could also be as a result or omission or mis-
statement of the balance on an account when extracting the
trial balance.

b. (i)
Niger Limited
Correcting journal entries

Details DR CR
N N
i. Suspense account 5,000
Sales account 5,000
Being omission of sales on the sales account, not
recorded
ii. Suspense account 225,000
Sales account 225,500
Being an expense of N25,000, but recorded as
N250,000, now corrected
iii. Purchases account 70,000
Suspense account 70,000
Being omission of purchases on the purchases
account, now recorded
iv. Depreciation account 12,000
Suspense account 12,000
Being error in the calculation of depreciation,
which resulted in understatement of depreciation
expense, now corrected
v. Suspense account 70,000
Sales account 70,000
Being credit sales of N35,000 debited to sales
account in error, now corrected
vi. Expenses account 8,000
Suspense account 8,000
Being omission of an expense on expense account,
now recorded
vii. Suspense account 100,000
Liabilities account 100,000
Being omission of liabilities from the account, now
corrected

22
viii. Interest expense 6,000
Suspense account 6,000
Being overstatement on income, arising from the
error in recording interest, now corrected
ix. Suspense account 405,000
Cash account 405,000
Being cash receipts of N45,000 but recorded as
N450,000, now corrected
x. Cost of sales 10,000
Inventories account 10,000
Being overstatement of inventories, now corrected
xi. Suspense account 20,000
Bank account 20,000
Being omission of dividends payment on the cash
book, now recorded
xii. Income tax expense 35,000
Tax payable 35,000
Being error in tax calculation, which resulted to
tax underpayment now corrected
xiii. Bank account 12,000
Electricity account 12,000
Being payment of electricity bill, which was
recorded twice, now reversed
xiv. Loan account 60,000
Bank account 60,000
Being omission of loan repayments from the
records, now recorded

ii) Suspense account

N N
Sales (i) 50,000 Bal b/f 774,000
Expense (ii) 225,000 Purchases (iii) 70,000
Sales (v) (35, 000 x 2) 70,000 Expense (vi) 8,000
Liabilities (vii) 100,000 Interest received (viii) 6,000
Cash (ix) 405,000 Depreciation (iv) 12,000
Bank (xi) 20,000 ________
870,000 870,000

Examiner’s report
The question examines candidates‟ knowledge of the errors that affect trial
balance and their ability to correct such errors using journals and suspense
account.

Most candidates attempted the question and their performance was above
average, with candidates scoring more marks in part (a) of the question.
The common pitfalls of the candidates include:

23
 Inability to differentiate between errors that affect the trial balance and
those that do not; and
 Inability to demonstrate the principle of double entry and to prepare
appropriate journal entries and the suspense account.

Candidates are advised to acquaint themselves with the application of the

principle of double entry and make effective use of ICAN Pathfinder and Study
Text.

Marking guide
Marks Marks
(a) Types of errors that can be revealed by the trial balance:
 Stating three types of errors 3
 Explaining two (2) of the errors identified 2 5
(b) Journal entries and suspense account
(i) 14 correct journal entries at ½ mark each 7
(ii) Suspense account:
 Title of the account 1
 Correct total ½
 13 correct postings in the suspense account at ½
mark each 6½ 15
Total 20

SOLUTION 4
a. Describing elements of cost of property, plant and equipment (PPE)

Under IAS 16, costs related to property, plant and equipment (PPE) are
capitalised under specific circumstances. Here is a concise description of each
cost element associated with PPE and the conditions under which these costs
are capitalised:
i. Purchase price: The purchase price of an asset, including any import
duties and non-refundable purchase taxes, is capitalised as part of the
cost of PPE.
ii. Directly attributable costs: These are costs directly attributable to
bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
Directly attributable costs include expenses such as site preparation,
initial delivery and handling cost and installation cost.

iii. Borrowing costs: If a company borrows funds specifically to finance the

construction or acquisition of an asset, the interest incurred during the
construction period can be capitalised. However, this is subject to
certain criteria, such as the completion of substantial activities
necessary to prepare the asset for its intended use.

24
 iv. Costs of dismantling and removing the asset: The cost of dismantling
and removing the asset and restoring the site on which it is located is
capitalised, if it is incurred as a consequence of acquiring or using the
asset. This cost is recognised as part of the cost of the asset and is
accounted for over the asset's useful life.
v. Subsequent costs: Costs incurred after the initial recognition of the asset
can be capitalised if they result in increased future economic benefits
and can be measured reliably. For example, costs related to significant
upgrades or enhancements that extend the asset's useful life or improve
its performance can be added to the asset's cost.

It is important to note that costs are capitalised when they meet the
recognition criteria, which include the probability that future economic
benefits associated with the asset will flow to the entity and the cost of
the asset can be measured reliably. If these criteria are not met, the
costs are expensed in the period in which they are incurred. Proper
adherence to these guidelines ensures accurate valuation and
presentation of PPE in the financial statements, providing stakeholders
with reliable information about the company's long-term assets.

b. Caleb Limited
The initial measurement of motor vehicle at cost:
N‟000
Purchase price of motor vehicle 5,000
Transportation costs to the company location 50
Installation costs for specialised equipment 150
License and registration fees 80
Legal fees for acquisition 100
5,380

c. Igba Enterprises
Cash account for the month of September 2023
N'000 N'000
Bal b/f 850 Payments to suppliers 1,350
Receipts from customers 2,300 Payments to employees 525
Drawings (Difference) 163
_____ Bal c/d 1,112
3,150 3,150
1,112

Examiner’s report
Parts (a) and (b) of the question tests candidates‟ knowledge of the elements of
cost of property, plant and equipment within the context of IAS 16, while part (c)
requires candidates to determine missing cash by preparing of cash book for a
particular month.

25
Majority of the candidates attempted all parts of the question and their
performance was average. Performance level for (b) and (c) was impressive while
performance in part (a) was poor.

Most candidates who failed the question either discussed factors that affect
depreciation or could only identify the purchase price as elements of cost of PPE,
in part (a) of the question.

Candidates are advised to study all the relevant aspect of IAS 16 that is within
the syllabus at this level of the Institute‟s examinations.

Marking guide
Marks Marks
(a) Elements of cost of PPE:
(i) Listing four (4) elements of cost of PPE at ½ mark each 2

(ii) Explaining elements of cost of PPE:

Explaining the purchase price of a cost element 1½
Explaining how transportation cost incurred are
accounted for 1½
Explaining the importance of installation costs and how
they are capitalised 1½
Discussing how other elements are other elements such as
testing and commissioning costs are accounted for 1½ 8
(b) Calculating initial cost of motor vehicle:
 Identifying and including the five(5) relevant items 5
 Calculating the total initial cost of PPE 1 6
(c) Preparation of cash account to determine missing figures 6
Total 20

SOLUTION 5

a. The main components of financial statements include the statement of profit

or loss and other comprehensive income, statement of financial position,
statement of cash flows and statement of changes in equity. These financial
statements are interconnected and provide valuable insights into a
company's financial health and performance. Here are the relationships
among these components:

i. Statement of profit or loss and other comprehensive income:

Relationship with the statement of financial position: This summarises a
company's revenues, expenses, gains and losses over a specific period,
usually a fiscal year or quarter. The net income or net loss reported on
the statement of profit or loss and other comprehensive income directly
impacts the equity section of the statement of financial position.
Positive net income increases shareholders' equity, while a net loss
decreases it.

26
ii. Statement of financial position:
 Relationship with the statement of profit or loss and other
comprehensive income: The statement of financial position provides
a snapshot of a company's financial position at a specific point in
time, including its assets, liabilities and equity. The ending
balances of assets, liabilities, and equity reported on the statement
of financial position are derived from the cumulative effects of past
statements of profit or loss and other comprehensive income.

 Relationship with the statement of cash flows: The ending cash and
cash equivalents reported on the statement of financial position
match the cash balance reported on the statement of cash flows.
Changes in other statement of financial position items, such as
accounts receivable and accounts payable, are reconciled with the
statement of cash flows from operating activities section.

iii. Statement of cash flows:

 Relationship with the statement of financial position: The statement
of cash flows explains how changes in the statement of financial
position items affect a company's cash position. It reconciles the
beginning and ending cash balances on the statement of financial
position.

 Relationship with the statement of profit or loss and other

comprehensive income: The statement of cash flows' operating
activities section starts with net income from the statement of profit
or loss and then adjusts for non-cash items and changes in working
capital to arrive at the net cash provided by or used in operating
activities.

iv. Statement of changes in equity:

 Relationship with the statement of financial position: The statement
of changes in equity shows how equity items (shares, retained
earnings, additional paid-in capital, etc) change over time. It
reconciles the beginning and ending balances of equity items with
changes that occurred during the period.

 Relationship with the statement of profit or loss and other

comprehensive income: The net income or net loss from the income
statement is a significant driver of changes in retained earnings,
which is a key component of equity. Dividends paid to shareholders
also affect retained earnings.

In summary, financial statements are interrelated in that they provide a

comprehensive view of a company's financial performance, position and
cash flows. Changes in one statement have direct or indirect impacts on
the others and together they offer a comprehensive picture of a
company's financial health and activities. These statements are essential

27
 tools for investors, creditors and management to assess a company's
performance and make informed decisions.

b. In financial reporting, accounting policies and accounting estimates are

fundamental concepts, yet they serve different purposes and functions.

i. Accounting policies:
Definition: Accounting policies are the specific principles, bases,
conventions, rules and practices applied by an entity in preparing
and presenting financial statements.

Explanation: Accounting policies provide the framework for

recording and reporting transactions and events in financial
statements. These policies dictate how transactions are recognised,
measured, presented and disclosed. They are generally adopted to
ensure consistency and comparability across different periods and
entities within an industry.
Example: A company might adopt the FIFO (First-In-First-Out)
method for inventory valuation. This means that the oldest
inventory items are considered sold first when calculating the cost
of goods sold.

Impact: Accounting policies significantly influence the reported

financial position and performance of a company. Different policies
can lead to variations in reported revenue, expenses, assets and
liabilities, affecting financial ratios and analysis.

ii. Accounting estimates:

Definition: Accounting estimates are approximations of monetary amounts
made in the absence of precise means of measurement. They involve
judgments based on the most recent, reliable and relevant information
available.

Explanation: Accounting estimates are used when it's impossible to obtain

exact measurements, such as in estimating the useful life of an asset, the
collectability of receivables, or the fair value of investments. These
estimates are based on historical data, current economic conditions and
future expectations.

Example: Estimating the allowance for doubtful debts based on the past
experience of bad debts. This involves predicting the likelihood of customers
defaulting on payments.

Impact: Accounting estimates can significantly affect the financial

statements. Changes in these estimates can impact net income, assets,
liabilities and equity. For instance, changes in depreciation estimates can
alter the carrying amount of assets, affecting both the statements of
financial position and the statement of comprehensive income.

28
Examiner’s report
The question tests candidates‟ ability to explore the relationships among the
components of financial statements.

Candidates‟ pitfalls include the following:

 Instead of explaining the relationships among the components of

financial statements, they only focused on describing the content of these
components;

 Candidates who could highlight the components failed to discuss how the
components are interrelated;
 Candidates could only define accounting policies and changes in
accounting estimates but they failed to cite examples and explain their
impact on the financial statements. Some candidates confused changes
in accounting policies with changes in accounting estimates; and
 Some candidates interchanged the retrospective or prospective
application of changes in accounting policies and estimates.
To improve, candidates are advised to focus on developing a deeper
understanding of financial statements and their interrelationships. This includes
recognising how elements such as assets, liabilities, equity, revenues and
expenses interact and impact the components.

They should study ICAN study pack and Pathfinder to gain a deeper
understanding of accounting policies, changes in accounting estimates and error.

Marking guide
Marks Marks
(a) Identifying and explaining the relationship between the
following:
 Statement of financial position and statement of
comprehensive income 3
 Statement of financial position and statement of cash
flows 3
 Statement of comprehensive income and statement of
cash flows 3
 Statement of comprehensive income and statement of
changes in equity 3 12
(b) Accounting policies and accounting estimates:
 Definition, explanation, examples and impact of
accounting policies 4
 Definition, explanation, examples and impact of
accounting estimates 4 8
Total 20

29
SOLUTION 6
a. Abo Partnership
Statement of profit or loss and appropriation
₦ ₦
Net profit 600,000
Interest on loan (10% x 300,000) (30,000)
Partners‟ salaries:
- Akwa (120,000)
- Bwari (90,000)
- Owo (90,000) (300,000) (330,000)
Distributable profit 270,000
Share of profit:
- Akwa (40% x 270,000) 108,000
- Bwari (30% x 270,000) 81,000
- Owo (30% x 270,000) 81,000 (270,000)

b. Abo Partnership
Statement of financial position as at September 30, 2023
₦ ₦
Non-current assets:
Furniture &fittings 250,000
Current assets:
Inventories 200,000
Account receivables 400,000
Cash 250,000 850,000
1,100,000

Liabilities:
Loan notes payable 300,000
Account payables 120,000 420,000
Capital account:
- Akwa (40% x 680,000) 272,000
- Bwari (30% x 680,000) 204,000
- Owo (30% x 680,000) 204,000 680,000
1,100,000

30
c. Abo Partnership
Partners’ current account as at September 30, 2023
Akwa Bwari Owo Akwa Bwari Owo
₦ ₦ ₦ ₦ ₦ ₦
Balance b/f 100,000 Balance b/f 150,000 50,000
Capital 68,000 26,000 26,000 Profit 108,000 81,000 81,000
Account
Bal. c/d 310,000 45,000 195,000 Salaries 120,000 90,000 90,000
378,000 171,000 221,000 378,000 171,000 221,000
Balance 310,000 45,000 195,000
b/d

d. Abo Partnership
Partners‟ capital account as at September 30, 2023
Akwa Bwari Owo Akwa Bwari Owo
₦ ₦ ₦ ₦ ₦ ₦
Balance c/f 340,000 230,000 230,000 Balance b/f 272,000 204,000 204,000
Capital
_______ ________ ________ account 68,000 26,000 26,000
340,000 230,000 230,000 340,000 230,000 230,000
Balance b/f 340,000 230,000 230,000

Examiner’s report
Candidates were required to apply the knowledge of accounting equation to
derive the initial capital of the partners and then prepare the partners‟ capital
and current accounts.

Many candidates attempted the question and their performance was average.
Few candidates could not prepare partners‟ current and capital accounts while
few others could not derive the initial capital of the partners from incomplete
records.

Candidates are advised to cover in-depth all aspects of the syllabus.

Marking guide
Marks
Partnership accounts
(a) Determination of share of profit 6
(b) Calculation of initial capital 5
(c) Preparation of partners current account 6
(d) Preparation of partners capital account 3
Total 20

31
ICAN/242/F/A3 Examination No....................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2024

MANAGEMENT INFORMATION

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

1. Check your pockets, purse, mathematical set, etc. to ensure that you do not
have prohibited items such as telephone handset, electronic storage
device, programmable devices, wristwatches or any form of written
material on you in the examination hall. You will be stopped from
continuing with the examination and liable to further disciplinary actions
including cancellation of examination result if caught.
2. Write your EXAMINATION NUMBER in the space provided above.
3. Do NOT write anything on your question paper EXCEPT your examination
number.
4. Do NOT write anything on your docket.
5. Read all instructions in each section of the question paper carefully before
answering the questions.
6. Do NOT answer more than the number of questions required in each
section, otherwise, you will be penalised.
7. All solutions should be written in BLUE or BLACK INK. Any solution
written in PENCIL or any other COLOUR OF INK will not be marked.
8. You are required to attempt ALL questions in Section A and any FOUR out
of the SIX questions in SECTION B.
9. Check that you have collected the correct question paper for the
examination you are writing.

TUESDAY, NOVEMBER 19, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

32
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – NOVEMBER 2024

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

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT ALL QUESTIONS IN THIS

SECTION

Write ONLY the alphabet (A, B, C, D or E) that corresponds to the correct

option in each of the following questions/statements.

1. Which of the following is NOT a likely problem commonly encountered

when companies increase the amount of automation without updating
their costing systems?

A. Incorrect product cost

B. Incorrect selling price
C. Company may incur loss
D. Incorrect new system
E. Incorrect overhead rates

2. Which of the following is NOT a common feature of process costing

systems?

A. Clearly defined process cost centres

B. Maintenance of accurate records of units and part units produced
C. Maintenance of cost for each process and not transferring to other
processes
D. Averaging the total cost of each process over the total production of
that process
E. Clearly defined procedures for separating costs where two or more
products are produced

3. Which of the following affects the balance on a cash budget?

A. Changes in credit policies

B. Depreciation
C. Imputed Charges
D. Impairment of assets
E. Accrued expenses

33
4. Which of the following best describes the difference between budgeted
and actual profit?

A. Sum of sales variances

B. Sum of cost variances
C. Sum of overhead variances
D. Sum of variable cost variances
E. Sum of all variances

5. A unit of product or service in relation to which costs are ascertained is

called

A. Cost Ascertainment
B. Product cost
C. Cost apportionment
D. Cost unit
E. Cost price

6. „In implementing coding systems which are useful, various practical

matters need to be considered‟. Which of the following is NOT a matter to
be considered?

A. Open notation
B. Block coding
C. Indexing
D. Centralised control
E. Check digit verification

7. The following information was extracted from the records of a

manufacturing company.

Average Usage 6,000 kgs

Minimum Usage 3,600 kgs
Maximum Usage 9,600 kgs
Lead time 8 -10 days

What is the minimum level?

A. 96,000 kgs
B. 63,600 kgs
C. 48,000 kgs
D. 42,000 kgs
E. 36,000 kgs

8. Wages determination is a complex area where innumerable factors are

involved. Which of the following is NOT a factor in wages determination?

A. General economic climate of industry

B. Government policy

34
 C. Profitability of the firm
D. Extent of employment in the society you belong to
E. Availability of workers with appropriate skills

9. Which of the following is NOT a cause of labour efficiency variance?

A. Payment of unplanned overtime or bonus

B. Use of incorrect grade of labour
C. Poor workshop organisation
D. Incorrect materials
E. Unexpectedly favourable conditions

10. A contract value of N5,000,000 has an architect valuation of work done of

N2,750,000, out of which N950,000 has been paid and the agreed
retention percentage is 15%. What is the amount of the current progress
payment due?

A. N2,000,000
B. N1,800,000
C. N1,387,500
D. N1,300,000
E. N1,050,000

11. What is a system called when the inputs, process and the outputs are known
with certainty?

A. Probabilistic
B. Deterministic
C. Open
D. Close
E. Conclusive

12. In which type of network is application processing shared between clients and
one or more servers?

A. Client-server computing
B. Cloud computing
C. Mobile computing
D. Data computing
E. Peer-to-Peer

13. The attempts by individuals to obtain confidential information from you by

falsifying their identity is known as

A. Spying
B. Computer viruses
C. Phishing scams
D. Spyware scams
E. Trojan

35
14. A set of processes and procedures that transforms data into information and
knowledge is called?

A. Information system
B. Knowledge system
C. Database system
D. Computer system
E. Decision system

15. Which of the following is a popular programming language for developing

web pages?

A. HTML
B. COBOL
C. BASIC
D. ASSEMBLER
E. FORTRAN

16. The smallest unit in a digital system is a

A. Bit
B. Byte
C. Character
D. Kilobyte
E. Field

17. Vendor-created program modifications are called

A. Patches
B. Bugs
C. Fixes
D. Holes
E. Virus

18. Which of the following is an example of an optical disk?

A. Digital versatile disks

B. Magnetic disks
C. Memory disks
D. Data bus disks
E. Flash drive

36
19. The following are needed to connect to the internet, EXCEPT

A. Computer
B. Internet Service Provider
C. Modem
D. Communication software
E. CD

20. A specific procedure for solving a well-defined computational problem is

called

A. A compiler
B. A code
C. An algorithm
D. A description
E. An Instruction

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT FOUR OUT OF THE SIX

QUESTIONS IN THIS SECTION

QUESTION 1

ME & YOU Limited operates two processes for the production of a single product.
The output of the product ME is used as the input of process YOU. Five percent of
each of the input is declared as normal loss with no value in process ME and
N2.00/litre in process YOU. The following data was extracted from the company‟s
record for the period just ended.

ME
N
Raw material 200,000 litres @ N5/litre 1,000,000
Labour 400,000
Overheads 310,000
Output 195,000 litres

YOU
Input from ME 195,000 litres
N
Additional Materials 275,000
Additional Labour 269,500
Additional Overhead 220,875
Output 185,000 units

Prepare the process account for ME and YOU showing all workings.
(Total 20 Marks)

37
QUESTION 2
In the first quarter of the year, the following data was given in respect of a
product.

Selling price N750 per unit

Variable production cost N420 per unit
Other variable expenses N75 per unit
Production for first quarter 24,000 units
Closing inventory 4,000 units
Fixed production expenses N4,320,000

Required:
i. Prepare the statement of profit or loss using both absorption and
marginal costing bases in a columnar format. (18 Marks)
ii. Reconcile the profits in (i) above. (2 Marks)
(Total 20 Marks)

QUESTION 3

a. List SIX characteristics of Just-In-Time system. (6 Marks)

b. Describe briefly, the practical implication of Just-In-Time production.
(5 Marks)
c. Describe briefly, Just-In-Time purchasing. (5 Marks)
d. Discuss briefly, the problems with Just-In-Time system. (4 Marks)
(Total 20 Marks)
QUESTION 4
a. Identify EIGHT ways business organisations can take advantage of the
internet technology to achieve its set goals and objectives. (8 Marks)
b. Identify SIX features of a well-designed website (6 Marks)
c. State SIX benefits of a well-designed website. (6 Marks)
(Total 20 Marks)

QUESTION 5
a. What is authentication? (3 Marks)
b. Identify and explain FOUR components of information systems.
(8 Marks)
c. State FIVE types of business information systems. (5 Marks)
d. Define URL and state TWO examples. (4 Marks)
(Total 20 Marks)
QUESTION 6
a. What is m-commerce? (3 Marks)
b. Identify and explain FIVE areas of applications of m-commerce.
(10 Marks)
c. State FIVE examples of technologies used in e-commerce. (5 Marks)
d. Identify FOUR hardware components of a computer system. (2 Marks)
(Total 20 Marks)

38
SECTION A

MULTIPLE-CHOICE QUESTIONS

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

Examiner’s report
This section comprises 20 questions, each with 5 suggested solutions for the
candidates to choose from. The questions are drawn from topics across the
syllabus and were attempted by all candidates.

Performance was above average. Some candidates narrowed their preparations

to their favourite topics whereas the questions covered virtually all sections of the
syllabus. This was revealed by some elements of guesswork in their answers.

Candidates are advised to be guided by the ICAN study text in their preparations
in the future.

39
Section A Marks
MCQs 1-20 Award 1 mark each for any correct option stated, up to
a maximum of 20 marks 20

SECTION B

SOLUTION 1
ME and YOU

PROCESS ME

Litres ₦ Litres ₦
Material 200,000 1,000,000 Good Production 195,000 1,755,000
Labour 400,000 Normal Loss 10,000 -
Overhead 310,000
Abnormal gain 5,000 45,000
205,000 1,755,000 205,000 1,755,000

Valuation of Good Units = 1,000,000+400,000+310,000/190,000

= 1,710,000/190,000
= ₦9.00
Good production = 195,000 x 9 = 1,755,000

PROCESS YOU
Litres ₦ Litres ₦
Transfer from ME 195,000 1,755,000 Good 185,000 2,497,500
Production
Materials 275,000 Normal Loss 9750 19,500
Labour 269,500 Abnormal loss 250 3,375
Overhead 220,875
195,000 2,520,375 195,000 2,520,375

Valuation of Good Units = 2,520,375– 19,500 =13.50

185,250

Examiner’s report
This question tests candidates‟ knowledge of process costing. It was attempted by
about 70% of the candidates and performance was good as about 75% of them
scored 50% and above of the marks allocated.

The major pitfall was in determining the values of abnormal gain and abnormal
loss.

40
 Candidates should recognise the differences in the formulae for computing each
of the abnormal results.

Marking guide
Marks
PROCESS ME
1 mark each for correct figure under value 5
½ mark each for correct figure under litres 2
2 marks for computation of valuation of good units 2

PROCESS YOU
1 mark each for correct figure under value 7
½ mark each for correct figure under litres 2
2 marks for computation of valuation of good units 2
20

SOLUTION 2
Absorption basis Marginal Basis
₦ ₦ ₦ ₦
Revenue 15,000,000 15,000,000
Less cost of production
Variable cost of sales 10,080,000 10,080,000
Other Variable Expenses 1,800,000 1,800,000
Fixed Production Expenses 4,320,000 __________
16,200,000 11,880,000
Less: closing inventory (2,700,000) (13,500,00) (1,980,000) (9,900,000)
1,500,000 5,100,000
Less: Fixed Production Expenses _________ 4,320,000
Net Profit 1,500,000 780,000

Reconciliation of Profit
₦
Profit as per absorption basis 1,500,000
Fixed cost included in closing inventory (2,700,000 – 1,980,000) (720,000)
Profit as per Marginal basis 780,000

Workings
Closing inventory: Absorption basis
4000 x (420 + (4,320,000/24,000) +75)

4000 x 675 = N2,700,000

Marginal basis

4000 x (420 + 75) = N1,980,000

41
Examiner’s report
This question tests candidates‟ knowledge of preparing statements of profit or
loss under absorption costing and marginal costing; and reconciling the results
under both methods.

About 80% of the candidates attempted the question and performance was good,
as about 70% of them scored 50% and above of the marks allocated. However,
some candidates had challenges determining what should constitute direct
expenses and the value of closing inventory.

Candidates should endeavour to distinguish between fixed and variable, direct

and indirect expenses.

Marking guide
Marks
(a) 1 mark each for every correct figure as per solution 16
(b) 1 mark each for absorption and marginal profit 2
1 mark for stock difference 1
(c) 1 mark for columnar arrangement 1
20

SOLUTION 3

a. A Just-In-Time system is characterised by:

i. A move towards zero inventory;
ii. Elimination of non-value-added activities;
iii. An emphasis on perfect quality i.e., zero defects;
iv. Short set-ups;
v. A move towards a batch size of one;
vi. 100% on time deliveries;
vii. Constant drive for improvement; and
viii. Demand-pull manufacture.

b. Practical implication of JIT production

1. Increased productivity – Production times must be very fast in order to
meet new customer orders quickly.
2. Improve quality – Production must be reliable and there must not be
poor quality production. Smaller and frequent deliveries make it easier
to maintain quality.
3. Eliminate waste – There must not be hold-ups, stoppages or
bottlenecks leading to rejected items and scraps.
4. Reduced obsolete inventory – Finished goods must be available when
customers order them and raw materials and components must be
supplied when they are needed for production.
5. Reduced cost – the improved efficiency provides substantial cost
savings thereby reducing cost.

42
 6. Improved supplier relationships – JIT can improve relationship with
suppliers.

c. JIT Purchasing
1. JIT depends for its success not only on highly efficient and high-quality
production, but also on efficient and reliable supply arrangements with
key suppliers.
2. Reduce or eliminate inventory and work in progress.
3. It enhances performance as this leads to improved operational flow.
4. JIT purchasing policy is based on consistency and quality rather than
looking for the lowest purchase price available.
5. Ensure deliveries arrive in the factory exactly at the time that they are
needed.
6. Improved cash flow – making purchases when required helps the
organisations cash flow.

d. Problems with JIT

1. Zero inventories cannot be achieved in some industries because of

unpredictable demand.
2. It might be difficult to arrange a reliable supply system with key
suppliers.
3. JIT purchasing system will increase ordering costs.
4. Over dependence on automation – JIT system can become overly
dependence on automation.

Examiner’s report
This question tests candidates‟ knowledge of Just-In-Time system including its
practical applications. It was attempted by about 50% of the candidates,
performance was just fair as only about 45% of them scored 50% and above of the
marks obtainable.
Several candidates did not prepare for this topic, and this reflected in their poor
performance.

It is recommended that candidates should not ignore any part of the syllabus as
they are all examinable.

Marking guide
Marks
(a) 1 mark each for six correct characteristics 6
(b) 1 mark each for five practical implications of JIT 5
(c) 1 mark each five points on JIT purchasing 5
(d) 1 mark each for four points on the problem of JIT 4
Total 20

43
SOLUTION 4

a. Ways business organisations can take advantage of internet to achieve its

set goals and objectives include:

i. Sales and marketing;

ii. Research and data mining;
iii. Access to clients for products and services around the world;
iv. Tools to track business performance and growth;
v. Cloud computing (computing, networking, storage) etc.;
vi. Text, audio, and video conferencing tools for instant business
communication;
vii. Business automation applications to reduce human interface or
intervention;
viii. Online accounting and bookkeeping software and apps;
ix. Social media networks to build relationships with important people
and for character development;
x. Payment gateways and online payment systems to accept and send
money;
xi. E-commerce: Buying and selling products and services online,
expanding market reach and customer base;
xii. Digital marketing using social media, e-mail and search engine
optimisation to promote products services and brand awareness;
xiii. Online customer service by providing 24/7 customer support via
chat bots, email and social media enhancing customer experience
and loyalty;
xiv. Remote work and collaboration by enabling employees to work from
anywhere, fostering flexibility, productivity and team collaboration;
xv. Data analysis and insights by leveraging big data analytics tools
and business intelligence to inform data-driven decisions and
optimize operations;
xvi. Online training and development by offering webinars, e-learning
platforms and online resources to upskill employees and enhance
professional development;
xvii. Encourage knowledge sharing;
xviii. Encourage better business opportunities;
xix. Benefits of internet of things (IoTs); and
xx. Increased communication between devices.

b. Features of a well-designed website include;

i. Clear, user-friendly navigation;

ii. Simple and professional web design;
iii. Search engine optimization;
iv. Web compatibility for variety of browsers and platforms;
v. Optimised for mobile devices;
vi. Readily accessible contact and location;

44
 vii. Online–real time interactive channels e.g. chat;
viii. High security;
ix. Attractive homepage;
x. Fast loading speed;
xi. Search functionality;
xii. Ease of usage;
xiii. Clear purpose of the website.

c. The benefits of a well-designed website include;

1. Improved User Experience: A well-designed website provides a positive
and intuitive experience for visitors, making it easy for them to find
what they are looking for and achieving their goals.
2. Increased Credibility and Trust: A professional and modern website
design conveys a sense of credibility and trustworthiness, helping to
establish your brand as a leader in the industry.

3. Enhanced Brand Awareness: A well-designed website effectively

communicates your brand's message, values, and unique value proposition,
helping to build awareness and recognition.

4. Increased Conversions and Sales: A well-designed website is optimised

for conversions, with clear calls-to-action, intuitive navigation, and a
focus on driving sales, leads, or other desired actions.
5. Better Search Engine Optimisation (SEO): A well-designed website is
optimized for search engines, improving visibility, driving organic
traffic, and increasing the likelihood of appearing on the first page of
search results.
6. Competitive Advantage: A well-designed website differentiates your
business from competitors, establishing a unique online presence that
sets you apart and helps you stand out in a crowded market.

7. Improved website performance and speed.

8. Increased engagement and time on site.
9. Enhanced accessibility and usability.

10. Better integration with social media and other channels.

11. Improved analytics and insights.

12. Increased customer satisfaction and loyalty.
13. Effective online presence management.
14. Enhanced marketing and advertisement.
15. Increased sales and services.

45
 16. Information exchange.
17. Make it simpler to add future website functionality.
18. Provides a better first impression.
19. Provides quick feedback.

Examiner’s report
This question tests candidates‟ understanding of the impact of the internet on
businesses.

It was attempted by about 65% of the candidates and performance was good as
about 75% of them scored 50% and above of the marks allotted. However, some
candidates had just a shallow knowledge of the features and benefits of a well
designed website.

Candidates are advised to study to gain a deeper knowledge of this topic for
future preparations.

Marking guide
Marks
(a) 1 mark for each of 8 correct answers 8
(b) 1 mark for each of 6 correct answers 6
(c) 1 mark for each of 6 correct answers 6
Total 20

SOLUTION 5

a. Authentication is the process of recognizing a user‟s identity. It is the

mechanism of associating an incoming request with a set of identifying
credentials. Authentication is a process of identifying a user through a
valid username and password. It is a method for verifying the identity of a
user before providing network access or facilities to the user.
OR

Authentication is a process that verifies a user‟s identity or device before

granting access to a system/ network/ computer resources.
OR
It is the process of verifying the identity of a user, process or device, often
as a prerequisite to allowing access to resources in an information system.

46
b. The following are the components of information systems:
1. Hardware
2. Software
3. Data
4. Human ware /people resources
5. Telecommunication and Network.

1. Hardware: This refers to the physical components of the system, such as:
- Computers (servers, workstations, laptops)
- Storage devices (hard drives, solid-state drives)
- Networking equipment (routers, switches, firewalls)
- Input/output devices (keyboards, mice, printers, monitors)

2. Software: This includes the programs and operating systems that run on
the hardware, such as:
- Application software (Microsoft Office, Google Docs)
- System software (Windows, macOS, Linux)
- Programming languages (Java, Python, C++)
- Database management systems (MySQL, Oracle)

3. Data: This component refers to the information and knowledge that the
system processes and stores, including:
- Text documents
- Images and multimedia
- Database records
- Reports and analytics

4. People (or Human Resources): This component includes the

individuals who interact with and manage the system, such as:
- Users (end-users, customers)
- IT professionals (developers, administrators, support staff)
- Managers (project managers, department heads)
- Stakeholders (executives, customers, suppliers)

5. Telecommunication and Network: Telecommunication unit connects the

hardware together through the use of cables (either wet cables or fibre
optics) or wireless such as microwaves and Wi-Fi to form a network
(intranet, Extranet and internet)

47
c. Types of business information systems include:
i. Executive support systems (ESS) Designed to help senior
management make strategic decisions;
ii. Management information systems (MIS) Primarily concerned with
internal sources of information;
iii. Decision support systems (DSS);
iv. Knowledge management systems (KMS);
v. Transaction processing systems (TPS);
vi. Office automation systems;
vii. Customer Relationship systems/management (CRM);
viii. Business Intelligence systems;
ix. Enterprise Collaboration systems;
x. Export systems; and
xi. Process Control systems.
d. URL stands for Uniform Resource Locator standardised naming convention
for addressing documents accessible over the Internet and Intranet.
OR
A URL is a web address that identifies a specific resource on the internet
such as a webpage, image, video or document.
Examples of a URL include:

i. https://www.ifac.org;
ii. https://www.icanig.org;
iii. https://unilag.edu.ng; and
iv. https://www.channelstv.com.

Examiner’s report
This question tests candidates‟ understanding of authentication and business
information systems.
It was attempted by about 40% of the candidates and performance was below
average as only about 30% of them scored 50% and above of the marks
obtainable.

It was obvious that these topics are not popular with the candidates from the
performance recorded.

Candidates are enjoined to cover all topics in the syllabus in the future.

48
Marking guide
Marks
(a) 1 mark for any correct definition 3
(b) 2 marks for any 4 correct answers with explanation 6
(c) 1 mark for any 5 correct answers 5
(d) 2 marks for correct definition and one mark each for two correct
examples 4
20

SOLUTION 6

a. m-commerce (mobile commerce) is the buying and selling of goods and

services through wireless handheld devices such as smart phones and
tablets. As a form of e-commerce, m-commerce enables users to access
online shopping platforms without needing to use a desktop computer. It
is an advancement of e-commerce, enabling people to buy and sell goods
or services from almost anywhere, simply using a mobile phone or tablet
device.

b. Areas of applications of m-commerce are:

i. Mobile Banking: Using a mobile website or application to perform all
banking functions/ transactions such as bill payment, fund transfer
etc.
ii. Mobile Ticketing and Booking: Making bookings and receiving tickets
on a mobile device. The digital ticket or boarding pass is sent directly
to your phone after you make the payment from it; e.g Travel (flights,
hotels, rented cars), Events (concerts, sports, movies), etc.
iii. E-bills: This includes mobile vouchers, mobile coupons to be
redeemed and even loyalty points or cards system;
iv. Online auctions: involving buying and selling goods/services by
offering them for bids, taking bids and selling the item to highest
bidder;
v. Stock Market Reports and even stock market trading over mobile
applications;
vi. Digital Marketing: Using phone to promote a brand of goods/services
and connect with potential customers;
vii. Mobile shopping through mobile apps and websites, allowing users
to browse, select and purchase products or services remotely;
viii. Mobile Healthcare and fitness: By using mobile healthcare and
fitness applications, which include:- Telemedicine and consultations,
fitness tracking and monitoring, health monitoring and diagnostic,
etc.;

49
 ix. Financial services: Using mobile phones for economic services, which
encompass a broad range of business that manages money, including
credit unions, banks, etc.;
x. Mobile money transfer: is a way to store and manage money in an
account linked to a mobile phone, similar to a bank account;
xi. Chatbots: are conversational AI tools that engages with customers on
the custom mobile application interface of a company; and
xii. Augmented reality: is an enhanced version of the real world,
achieved through the use of mobile devices generated digital
information.
c. Examples of technologies used in e-commerce include:
i. Mobile commerce;
ii. Electronic Funds Transfer;
iii. Supply Chain Management;
iv. Artificial Intelligence (AI);
v. Chatbots;
vi. Voice assistants;
vii. Internet marketing;
viii. Online transaction processing;
ix. Electronic Data Interchange (EDI);
x. Inventory Management Systems;
xi. Block chain Technology;
xii. E-commerce security technology;
xiii. Mobile shopping;
xiv. Social media integration;
xv. Email marketing system;
xvi. Analytics and performance monitoring tools;
xvii. Virtual and augmented reality technologies;
xviii. Payment gateway systems; and
xix. Database Management systems.
d. Hardware components of a computer system include:
i. Monitor;
ii. Motherboard;
iii. CPU(Microprocessor);
iv. Main memory(RAM);
v. Expansion cards;
vi. Power supply unit;
vii. Optical disc drive; ;
viii. Hard disk drive (HDD);
ix. Keyboard;
x. Mouse;
xi. Speakers;
xii. Printer;
xiii. Graphic card;
xiv. Sound card; and
xv. Network card.

50
Examiner’s report
This question tests candidates‟ knowledge of m-commerce, e-commerce and
hardware. It was attempted by about 75% of the candidates and performance
was a bit above average as about 60% of them scored 50% and above of the
marks allocated.

Several candidates had issues differentiating e-commerce from m-commerce and

some actually believed that they were one and the same.

Candidates are advised to add the ICAN study text to their study materials,
especially on terms that are similar.

Marking guide
Marks
(a) 1 mark for definition and 2 marks for explanation 3
(b) 2 marks each for 5 correct answers 10
(c) 1 mark each for 5 correct answers 5
(d) ½ mark each for 4 correct answer 2
Total 20

51
ICAN/242/F/A1 Examination No....................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2024

BUSINESS, MANAGEMENT & FINANCE

EXAMINATION INSTRUCTIONS
PLEASE READ THESE INSTRUCTIONS BEFORE THE COMMENCEMENT OF THE PAPER
1. Check your pockets, purse, mathematical set, etc. to ensure that you do not have
prohibited items such as telephone handset, electronic storage device,
programmable devices, wristwatches or any form of written material on you in
the examination hall. You will be stopped from continuing with the examination
and liable to further disciplinary actions including cancellation of examination
result if caught.
2. Write your EXAMINATION NUMBER in the space provided above.
3. Do NOT write anything on your question paper EXCEPT your examination number.
4. Do NOT write anything on your docket.
5. Read all instructions in each section of the question paper carefully before
answering the questions.
6. Do NOT answer more than the number of questions required in each section,
otherwise, you will be penalised.
7. All solutions should be written in BLUE or BLACK INK. Any solution written in
PENCIL or any other COLOUR OF INK will not be marked.

8. You are required to attempt ALL questions in Section A and any FOUR out of the
SIX questions in SECTION B.

9. Check that you have collected the correct question paper for the examination you
are writing.
WEDNESDAY, NOVEMBER 20, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

52
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – NOVEMBER 2024
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 ATTEMPT ALL QUESTIONS IN

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

1. Which of the following is a disadvantage of a flat organisation?

A. Possibility of poor communication between the top and bottom of

the organisation
B. Senior management can be far-removed from the business activities
C. The cost of the middle levels managers might exceed the benefits
they provide
D. Empowering employees may be problematic
E. Attracting and retaining talented managers may be difficult

2. Which of the following is associated with senior managers and top

managers in an organisation?

A. Decide strategy
B. Functional responsibilities
C. Monitoring and control
D. Short-term planning
E. Employee discipline and morale

3. Which of the following is an advantage of a centralised decision-making?

A. Facilitates quick response to changes in business conditions and
events
B. Encourages innovation
C. Effective at applying standardisation of products in the organisation
D. Aids the development of the initiative and talent of junior managers
E. Reduces the workload of central management at head office
4. Which of the following best describes the viability of a proposed
undertaking from its technical, commercial and economic standpoints?

A. Operational report
B. Marketing report

53
 C. Feasibility report
D. Appraisal report
E. Sales report

5. Which of the following elements of a report is of top priority?

A. Objective
B. Structure
C. Subject
D. Reader
E. Writer

6. Which of the following phenomena WOULD NOT be explained by emotional

intelligence?

A. Job performance
B. Social cognition
C. Leadership
D. Bullying
E. Health

7. Which of the following is an advantage of electronic communication?

A. Over-dependence on technology
B. Rapid changes in technology
C. Information overload
D. Cost of development
E. Online real time

8. A collection of Web pages is called

A. Web addresses
B. Web browser
C. Web hosting
D. Hyperlinks
E. Websites

9. When the basis for making an investment decision is for the reason of the
time it will take to recover the cash invested in the project, which of the
following investment appraisal techniques will be considered the most
appropriate?

A. Accounting rate of return

B. Internal rate of return
C. Net present value
D. Profitability index
E. Payback period

54
10. Which of the following is NOT a feature of payback period method

A. It can be used to eliminate projects that will take too long to pay
back
B. Often used by companies that have liquidity problems
C. Ignores the total cash returns from the project
D. Analyses accounting profits
E. Simple to calculate

11. Laniya planned to deposit N1,000 annually in her savings account for a
period of 6 years. The annual interest rate is 8 percent. What will be the
sum of money in her account at the end of the period?

A. N7,036
B. N7,136
C. N7,236
D. N7,336
E. N7,436

12. From the point of view of investors, which of the following features of
convertibles is FALSE?

A. Investors are expected to accept a lower interest rate in return for

the option to convert the bonds into equities in the future
B. Investors receive no annual income up to the conversion date
C. Convertibles combine some fixed annual income and the
opportunity to benefit from a rising share price
D. Investors hope to make an immediate capital gain on conversion
E. Investors will benefit from a rise in the company‟s share price

13. The threat that a professional accountant will promote a client‟s or

employer‟s position to the point that the professional accountant‟s
objectivity is compromised is known as a/an

A. Advocacy threat
B. Self review threat
C. Self interest threat
D. Familiarity threat
E. Intimidation threat

14. Which of the following is specifically designed to govern organisations

that enjoy incentives like shared profits or benefits apart from the fact that
such is jointly owned and administered by its members?

A. Agricultural Credit Guarantee Scheme Fund (Amendment) Act, 2019

B. The National Office of Technology Acquisition and Promotion Act

55
 C. The Nigerian Co-operative Societies Act
D. The Nigeria Data Protection Regulation
E. The Correctional Service Act

15. Which of the following presents a summarised description of the historical

financial performance of the organisation, its achievements and problems
experienced during the period under review?

A. Chairman‟s performance report

B. Chairman‟s appraisal report
C. Chairman‟s progress report
D. Chairman‟s annual report
E. Chairman‟s project report

16. Performance can be measured and evaluated in relation to the key

performance objectives. Which of the following is NOT a performance
measure of quality?

A. Average time between receiving an order and completing the work

B. Average number of defects per unit produced
C. Percentage of items rejected or scrapped
D. Number or cost of warranty claims
E. Number of customer complaints

17. Which of the following features is TRUE of a finance lease?

A. The leased asset is reported in the statement of financial position of

the lessor as a non-current asset
B. The lessor is responsible for insurance, running and maintenance
costs for the asset
C. The purchase cost of the leased asset is paid by the lessor
D. The lessee can claim the tax depreciation allowances
E. The lessee is the legal owner of the asset

18. Which of the following features of the net present value method of
investment appraisal is NOT CORRECT?

A. Decision rule is not consistent with the objective of maximising

shareholders‟ wealth
B. Uncertainty about what the appropriate cost of capital or discount
rate should be
C. The time value of money is a concept that is used
D. It takes account of the timing of the cash flows
E. It evaluates all cash flows from the project

19. From the point of view of companies, which of the following features of
convertibles is FALSE?

56
 A. Whenever there is a strong demand for convertibles, companies can
respond to investors‟ demand by issuing convertibles in order to
raise new capital
B. Convertibles combine some fixed annual income and the
opportunity to benefit from a rising share price
C. The interest rate on convertibles is lower than the interest rate on
similar straight bonds
D. The company can issue bonds now and receive tax relief on the
interest charges
E. The company hopes to convert the debt capital into equity in the
future

20. Which of the following features of a finance lease is FALSE?

A. For financial reporting purposes, lease finance is actually reported

in the statement of financial position as a debt obligation
B. For tax purposes, the lessee can claim the full amount of each lease
payment as an allowable expense
C. For financial reporting purposes, the principle of „substance over
form‟ applies
D. For practical purposes, the lessee treats the asset as if it is the
owner
E. In law, the lessee is the owner of the asset

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT FOUR OUT OF THE SIX

QUESTIONS IN THIS SECTION

QUESTION 1

a. Describe the term „group cohesion‟ (2½ Marks)

b. Briefly explain FIVE characteristics of an effective team (7½ Marks)
c. Briefly explain the following concepts:
i. Formal organisation
ii. Organisation structure
iii. Flat organisation
iv. Outsourcing
v. Shared services
(10 Marks)
(Total 20 Marks)

57
QUESTION 2

a. A financial objective can be expressed in a number of different ways and

there are advantages and weaknesses or limitations with each. List the
THREE commonly-used ways of expressing financial objectives and explain
TWO problems identified with each. (12 Marks)
b. Uhuru Limited wants to buy a new item of equipment which will be
used to provide better services to its customers. The expected after-tax
cash inflows are as stated below:

Year 1 2 3 4
N N N N
Cash flow 200,000 220,000 240,000 260,000
The cost of capital to the company is 8 percent (expressed in 4 significant
figures). Assuming the NPV of the investment is N70,000, what was the
initial investment? (8 Marks)
(Total 20 Marks)

QUESTION 3
a. Describe cash budget and explain THREE of its uses. (5 Marks)
b. Describe the objectives of a good cash management and explain 3
objectives of cash flow forecasting. (4 Marks)
c. State TWO reasons why investors usually avoid investing in the equity of
private companies. (2 Marks)
d. Explain the concepts of relevant cost and opportunity cost. (3 Marks)
e. With the aid of an example in each case, explain THREE ways by which
you will be able to identify relevant costs in investment analysis.
(6 Marks)
(Total 20 Marks)

QUESTION 4

a. Managers think about non-financial issues as well as financial issues when

making outsourcing decisions.
i. Explain SIX non-financial considerations that will be relevant to a
make-or-buy decision. (6 Marks)
ii. Describe, with the aid of one example, TWO non-financial benefits
from outsourcing work to an external supplier. (4 Marks)
b. Sustainable development has been described as the development that
meets the needs of the present without compromising the ability of future
generations to meet their own needs.‟ A problem with accounting for
sustainable development is to identify what „sustainable development‟
actually means. Identify FOUR practical difficulties with this definition.
(10 Marks)
(Total 20 Marks)

58
QUESTION 5

a. According to Goleman, emotional intelligence has FIVE components. State

FOUR of the components of emotional intelligence. (2 Marks)
b. Explain THREE methods of reducing agency problem in an organisation?
(6 Marks)
c. The theoretical objective of a private sector company is to maximise the
wealth of its owners, nonetheless, many individuals and groups are also
interested in what a company does. State SIX other categories of
stakeholders in a company with their interests and concerns. (12 Marks)
(Total 20 Marks)

QUESTION 6

a. Different stakeholders have differing interests in a company which may

be incompatible and in conflict with one another. How may a company
resolve conflicts between different stakeholders‟ objectives? (5 Marks)
b. Biggie and Baggie Venture Limited is considering investing in a project
costing N6.8 million. The project would yield cash inflows of N1.3 million
per annum in perpetuity. The cost of capital to the business venture is 20%.

Required:
Assess whether the project should be undertaken if:
i. The cash inflow starts from year 0 to perpetuity
ii. The cash inflow starts from year 1 to perpetuity
iii. The cash inflow starts from year 5 to perpetuity (15 Marks)
(Total 20 Marks)

59
SECTION A

MULTIPLE-CHOICE QUESTIONS

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

Workings:
MCQ 11
The future value of an annual sum at 8% for 6 years is 7.336.
Therefore, Sn = 1000 (7.336) = 7336

Examiner’s report
Section A of the paper comprises twenty mandatory multiple-choice questions.
The questions tests candidates‟ comprehension of the various aspects of the
syllabus.
All the candidates attempted the question and their performance was average
The common pitfalls were the inability of some candidates to correctly answer the
computational questions of the multiple choice.
Candidates are advised to cover all sections of the syllabus and also make use of the
Pathfinder and the Study Text of the Institute for better performance in Institute‟s
future examinations.

Section A Marks
MCQs 1-20 Award 1 mark each for any correct option stated, up to
a maximum of 20 marks 20

60
 SECTION B

OPEN-ENDED QUESTION

SOLUTION 1

a. Group cohesion describes the strength of the bond uniting the group. It refers
to the degree of unity and cooperation within a group. It involves the
emotional bond, trust and shared goals among members which contributes to
the group's togetherness. When cohesion is strong, the group will remain
strong, stable and continue to exist. Conversely, when cohesion is weak the
group may ultimately disband. Group cohesion often leads to increased
productivity and satisfaction of members of the group.
b. Characteristics of an effective team:

i. Success: An effective team successfully achieves its goals or

objectives.
ii. Focus: An effective team is aware of its goals and objectives, and
always keeps these in mind. They use their time and resources
well.
iii. Collective decision-making: An effective team reaches decisions
through discussion and agreement.
iv. Good communication: In an effective team, the team members
communicate with one another well and keep one another well-
informed. They are also truthful in communicating with each
other.
v. Collaboration: In an effective team, the members will cooperate
and collaborate. Each team member will do whatever is
necessary to get the job done, even if this means doing work that
is unfamiliar and outside their normal experience.
vi. Positive conflict: Positive conflict occurs when there is
disagreement, but the team members are willing to discuss their
differences fully and reach a suitable agreement about what the
solution should be. Some conflicts are inevitable in teams and
the way that the conflicts are resolved is important.
vii. Mutual support: In an effective team, each team member is
aware of the contributions provided by the other team members.
viii. Team spirit: In an effective team, team members identify
themselves with the team and feel a part of the team. Team spirit
and team loyalty are strong.

c. Explain briefly of the following concepts:

i. Formal organisation: A formal organisation is a structure created and

maintained by its leaders. It is a structured group where there are
stated rules and regulations, with a defined hierarchy of duties and
obligations that are expected to be carried out by each individual. It
is often shown as an organisation chart, with job descriptions.

61
 ii. Organisation structure: It is the framework within which the activities
of people in the organisation are coordinated and managed. It is a
system that defines how certain activities are directed to achieve the
goals of an organisation. Common organisational structure includes
entrepreneurial structure, functional structure, divisional structure,
matrix structure and boundary-less structure.

iii. Flat organisation: A flat organisation is one in which the scalar chain
is short, (minimal number of levels in its hierarchy) with only a few
layers between top management and employees.

iv. Outsourcing: Outsourcing is the practice of contracting work, tasks,

processes or services to external third parties rather than handling
them internally. Companies do this to take advantage of specialist
external expertise to free up management time to concentrate on core
activities. For example, a national food retail company might
outsource its delivery work to a specialist transport company.

v. Shared services: It refers to the provision of a service by one part of

an organisation or group where that service had previously been
found in more than one part of the organisation or group. It involves
the consolidation of support functions in an organisation into a
centralised unit, the unit then provides such service to different
departments within the organisation rather than duplicating such
service across the organisation. Thus, the funding and resourcing of
the service are shared and the providing department effectively
becomes an internal service provider.

Examiner’s report
The question is in three parts. Part (a) of the question requires the candidates to
describe the term „group cohesion‟, while part (b) requires the candidates to
explain briefly the characteristics of an effective team. Part (c) also requires the
candidates to explain the concepts of formal organisation, organisation structure,
flat organisation, outsourcing, and shared services.

Few candidates attempted the question and their performance was below
average. Some candidates could not correctly explain the concept of formal
organisation and shared services in part (c) of the question.

Candidates are advised to make use of ICAN Pathfinders and the Study Text for
better performance in the Institute‟s future examinations.

62
 Marking guide
Marks
(a) Award a maximum of 2½ marks for stating
the correct definition of „Group Cohesion‟ 2½
(b) Award a maximum of 1½ Marks each for correctly stating
any 5 characteristics of an effective team (1½ x 5). 7½
(c) Award a maximum of 2 marks each for the correct
explanation of the specified concepts.(2 x 5). 10
Total 20

SOLUTION 2
a. i. Ways of expressing financial objectives
 Maximising the wealth of shareholders;
 Profit maximisation; and
 Growth in earnings per share (EPS).

ii. Problems with the financial objective of a company

Maximising the wealth of shareholders
 What should be the period for setting targets for wealth maximisation?
 How will the created wealth be measured?
 How to determine the targets for dividend payments and targets for
share price growth?
 How to determine the real causes of share price fall seeing that share
prices may be affected by general stock market sentiment and not just
the company‟s performance. Short-term increases or falls in a share price
might be caused by investor attitudes rather than any real success or
failure of the company itself.

Profit maximisation objective

 What should be the period over which profit performance should be
measured?
 Profits can be increased by raising and investing more capital. When
share
capital is increased, total profits might increase due to the bigger
investment, but the profit per share might fall.
 Short-term gains may be prioritised over long-term sustainability
 It may lead to cost-cutting or cost reduction, especially in essential
areas, harming long-term health
 Long-term investments may be neglected to boost short-term profits
which can harm future profitability
 Managers might focus on short-term results to meet annual
performance targets

63
 Growth in EPS as a financial objective
 It might be possible to increase EPS through borrowing and debt capital.
 Increased debt can expose shareholders to greater financial risk.
 As a consequence of higher gearing (the ratio of debt capital to total
capital), the share price might fall even when EPS increases.

b. Year Cash flow Df @ 8% Present Value

N N
0 x 1.0000 x
1 200,000 0.9259 185,180
2 220,000 0.8573 188,606
3 240,000 0.7938 190,512
4 260,000 0.7350 191,100
Total PV from
years 1 to 4 755,398
NPV 70,000
Initial Outlay=
Total PV + NPV 825,398

ALTERNATIVE SOLUTION
Cash Flow
Year (₦) DCF @ 8% Present Value (₦)
1 200,000 0.9259 185,180
2 220,000 0.8573 188,606
3 240,000 0.7938 190,512
4 260,000 0.7350 191,100
Total present value 755,398

Net Present Value (NPV) = Total Present Value – Initial investment

Initial investment = Total Present Value + NPV
Initial investment = ₦755,398 + ₦70,000
Initial investment = ₦825,398

Examiner’s report
The question is in two parts. Part (a) of the question requires the candidates‟
knowledge of a firm‟s financial objectives, while part (b) requires the candidates
to calculate initial investment using Net Present Value (NPV) method of
investment appraisal.

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

The commonest pitfall was the inability of the candidates to correctly calculate
initial investment of the project using Net Present Value (NPV) method of
investment appraisal technique.

64
 Candidates are advised to pay more attention to the capital budgeting aspects of the
syllabus and other related areas for better performance in future examination of the
institute.

Marking guide
Marks Marks
(a) Award a maximum of 1 mark each for correctly listing
the 3 commonly used ways of expressing financial
objectives (1 x 3). 3
Award a maximum of 1½ marks each for any 2
problems identified with using maximisation of
shareholders' wealth as the financial objective of a
company (1½ x 2). 3
Award a maximum of 1½ marks each for any 2
problems identified with using maximisation of profit
as a financial objective of a company. (1½ x 2). 3
Award a maximum of 1½ marks each for any 2
problems identified with using growth in EPS as a
financial objective of a company. (1½ x 2). 3 12
(b) Award a maximum of 1 mark each for the ticks as
shown in the marking scheme (1 x 8 ticks). 8
Total 20

SOLUTION 3
a. i) A cash budget is a detailed plan that outlines the expected cash
inflows (cash receipts) and cash outflows (cash payments) over a
specific planning period. This planning period is further broken
down into shorter intervals, such as weeks, months or quarters.
The cash receipts and payments are forecast or planned for each
of the sub-divisions of time.

ii) Uses of a cash budget are as follows:

 To estimate the expected cash receipts and payments over the
planning period;
 To determine whether there will be a cash shortage or surplus at any
point during the period;
 In the event of a projected cash shortage, the budget helps in planning
corrective measures, for example, by planning to defer some purchases of
non-current assets or approaching the bank for a larger bank overdraft
facility; and
 To track actual cash flows during the planning period by comparing
actual cash flows with the budgeted cash flows.

65
b. i) The objective of good cash management is to maintain a sufficient cash
balance to meet liabilities as they fall due while avoiding holding
excessive cash that could otherwise be invested in the organisation's
wealth-creating assets.
ii) The objectives of cash flow forecasting, like the purposes of a cash
budget, are to:
 confirm that the entity has adequate cash to meet its immediate
payment obligations as they fall due;
 identify periods of potential cash shortages so that financing can
be arranged;
 identify whether there will be a surplus of cash in a given period
so that arrangements can be made to have the surplus cash
invested; and
 assess whether operating activities are generating the expected
level of cash inflows.

c. Reasons why investors usually avoid investing in the equity of private

companies include the fact that the shares are:
i. Not traded on a stock exchange;
ii. Difficult to value; and
iii. Difficult to sell when the shareholder wants to cash in the investment.

d. i. Concepts of relevant cost and opportunity cost

Relevant costs are future cash flows that will arise as a direct
consequence of the decision under consideration. It excludes sunk costs,
non-cash expenses, or costs that will be incurred regardless of the
decision.

ii. Opportunity costs

Opportunity costs are the benefits forgone by using assets or resources
for one purpose, instead of using them in the most profitable alternative
way. Opportunity costs are commonly measured as contribution forgone
but might also be measured as a present value in DCF analysis. When
resources have more than one alternative use and are in limited supply,
their opportunity cost is the contribution forgone by using them for one
purpose and so being unable to use them for another purpose.

e. How to identify relevant costs

i. Relevant costs are cash flows. Any items of cost that are not cash flows
must be ignored for decision-making. For example, depreciation expenses
are not cash flows and must always be ignored.
ii. Relevant costs or benefits are future cash inflow or outflows. Costs that
have already been incurred are not relevant to a decision that is being
made now. For example, a company might incur costs on an initial
investigation. The investigation costs are irrelevant because they have
already been spent. The cost should not affect the decision to proceed with
or abandon the project.

66
 iii. Relevant costs are also costs that will arise as a direct consequence of the
decision, even if they are future cash flows. If the costs will be incurred
whatever decision is taken, they are not relevant to the decision. For
example, in a "make-or-buy" decision, the cost of raw materials is relevant
if it arises only in the "make" option. However, the salary of the
procurement manager, which will be paid regardless of whether the
company makes or buys, is not relevant.

Examiner’s report
The question is in five parts. Part (a) of the question examines candidates‟
knowledge of cash budgets and their uses. Part (b) requests a description of good
cash management and objectives of cash forecasting. Part (c) delves into the
factors that discourage investors from investing in the equity of private
companies. Part (d) tests the candidates‟ knowledge of relevant costs and
opportunity costs, while part (e) of the question expects candidates to provide
answers with illustrative examples of how relevant costs may be identified when
analysing investment proposals.
Most of the candidates attempted the question and their performance was
average.
The commonest pitfall was the inability of the candidates to identify and describe
relevant costs and opportunity costs.
Candidates are advised to make use of ICAN Pathfinders and the Study Text for
better performance in the Institute‟s future examinations.

Marking guide
Marks Marks
(a) Award 2 marks for a correct description of the cash budget 2
Award 1 mark each for the correct explanation of three of its
uses (1 x 3). 3 5
(b) Award 1 mark for a correct description of the objective of a
good cash budget 1
Award 1 mark each for explaining 3 objectives of cash flow
forecasting (1 x 3). 3 4
(c) Award a maximum of 1 mark each for stating 2 reasons why
investors usually avoid investing in the equity of private
companies. (1 x 2). 2
(d) Award a maximum of 1½ marks for correctly describing the
relevant cost concept 1½
Award a maximum of 1½ marks for correctly describing the
opportunity cost concept 1½ 3
(e) Award a maximum of 2 marks each for correctly explaining 3
ways of identifying relevant costs in investment analysis (2 x 3). 6
Total 20

67
 SOLUTION 4

a. i) Non-financial considerations that will be relevant to a make-or-buy

decision.
 The company relies on an external supplier to produce and supply the
outsourced items. Implying that there is a degree of some loss of control
over the work.
 The company is exposed to a risk that the external supplier will produce
the outsourced items to a lower standard of quality.
 The company takes the risk that the external supplier will fail to meet
delivery dates on schedule, so that production of the end product may be
held up by a lack of components.
 There is a loss of some flexibility. For instance, if the company needs to
increase or reduce the supply of the outsourced item at short notice, it may
be unable to do so, because of the terms of the agreement with the
external supplier.
 The decision to increase or reduce the supply of the outsourced item at
short notice may be frustrated by the external supplier.
 The arrangement has implications for employment within the entity, with
the consequence of making some employees redundant.
 It will attract some cost implications that could also adversely affect the
relationship between management and other employees especially in the
case of redundancy.
 In case the entity changes its mind at some time in the future and decides
either to bring the work back in-house or to give the work to a different
external supplier, the external provider might not be cooperative in
helping with the removal of its work.
 Outsourcing the work will enable management to focus their efforts on
those aspects of operations that the entity does best.
 The external supplier may have specialist expertise which enables it to
provide the outsourced products or services more efficiently and
effectively.

ii) Non-financial benefits from outsourcing work to an external supplier

 If the work that is outsourced is not specialised or is outside the entity‟s
main area of expertise, outsourcing work will enable management to focus
their efforts on those aspects of operations that the entity does best. For
example, it could be argued that activities such as the management of an
entity‟s fleet of delivery vehicles or the monthly payroll work, should be
outsourced because the entity itself has no special expertise in these areas.
 The external supplier, on the other hand, may have specialist expertise
which enables it to provide the outsourced products or services more
efficiently and effectively. For example, a company might outsource all its
IT support operations, because it cannot recruit and retain IT specialists.
An external service provider, on the other hand, will employ IT specialists.

68
b. Identification of the practical difficulties with sustainability definition
i. Inability to identify the needs of the present
Presumably, these are more than simply survival needs because
current levels of consumption are, in many parts of the world, well
above survival level.
ii. Inability to identify the needs of future generations
inability to state if these are just survival needs. If they are
identified as survival needs, then there is presumably an
assumption that economic wealth will decline.
iii. Inability to identify the period the needs of future generations be
measured.
In theory, future needs should be measured in the long-term future.
However, companies and governments plan for the future over
much shorter time frames.
iv. Inability to know if the needs being referred to in the definition are
describing the needs of all people in all societies, or that
sustainability is being measured in terms of individual countries or
regions of the world.
v. Since companies plan for the future and report their performance
within fairly short time frames, reporting for sustainable
development by companies is likely to focus on relatively short-term
measures of sustainability.
Examiner’s report
The question is in two parts. Part (a) of the question requires candidates to assess
the comprehension of both financial and non-financial considerations when
making decisions on outsourcing work or products while, part (b) requires the
candidates to identify the practical difficulties with the definition of sustainable
development.
Majority of the candidates attempted the question and their performance was
average.
The main pitfall was the inability of the candidates to identity the practical
difficulties as it relates to sustainable development.
Candidates are advised to make use of ICAN Pathfinders and the Study Text for
better performance in the Institute‟s future examinations.

69
 Marking guide
Marks Marks
(a) i Award a maximum of 1 mark each for correctly explaining
. 6 non-financial considerations that will be relevant to a
make-or-buy decision. (1 x 6). 6
i Award a maximum of 11/2 marks each for correctly
i describing 2 non-financial benefits from outsourcing work
. to an external supplier. (2 x11/ 2) = 3
Award 1 mark for the identified example 1 mark = 4 4 10
(b Award a maximum of 2½ marks each for correct
) identification of 4 practical difficulties with the definition
of sustainable development (2½ x 4) 10
Total 20

SOLUTION 5

a. Components of emotional intelligence

i. Self-awareness
ii. Self-regulation
iii. Motivation
iv. Empathy
v. Social skills

b. Methods of reducing agency problem

i. Devising a remuneration package for executive directors and senior
managers that give them an incentive to act in the best interests of the
shareholders.
ii. Fama and Jensen (1983) argued that an effective board must consist
largely of independent non-executive directors. Independent non-
executive directors have no executive role in the company and are not full-
time employees. They can act in the best interests of the shareholders.
iii. Independent non-executive directors should also make decisions where
there is (or could be) a conflict of interest between executive directors and
the best interests of the company. For example, non-executive directors
should be responsible for the remuneration packages for executive
directors and other senior managers.

c. The main categories of stakeholder groups in a company are usually the

following:

i. Directors and senior managers:

An organisation is led by its board of directors and senior executive
management. These individuals have significant personal stakes in the
company's success, as their careers, income and personal wealth are often
directly linked to the organisation‟s performance.

70
 ii. Other employees:
Other employees in a company have personal interests in what the
company does. They rely on the organisation for their salaries or wages
and often benefit from job security and career prospects. However, unlike
directors and senior executives, their influence on decision-making is
usually limited, unless they have strong trade union representation or
possess specialised skills critical to the company‟s success.

iii. Lenders:
When a company borrows money, the lender or lenders become
stakeholders. Lenders might be banks or bondholders. The primary
concern of lenders is the security of their investments, especially
concerning the prompt payment of the interest and repayment of
principal. For companies with significant debt, lenders may focus on
managing credit risk and may seek to prevent further borrowing to avoid
escalating the risk.

iv. Government:
The government has multiple interests in businesses, particularly larger
companies. The government has vested interest in businesses as a
regulators, tax collectors, employers, advocates and customers. It
regulates commercial activities to ensure compliance, relies on businesses
for tax revenue, views them as key drivers of employment and often
procures goods and services from them.

v. Customers:
The customers are critical stakeholders, as they purchase the goods or
services offered by the company. Their interests include receiving high-
quality products at fair prices. Additionally, they may influence company
behaviour by favouring ethical and sustainable business practices.

vi. Suppliers:
The suppliers play a vital role in supporting a company‟s operations by
providing necessary goods and services. They are interested in
maintaining stable relationships, timely payments and consistent demand
for their products or services. In some cases, major suppliers may have
significant influence over a company‟s actions.

vii. Society:
The society at large is an important stakeholder, with interests
encompassing ethical conduct, human rights, environmental protection
and sustainable resource management. A company must consider its
public reputation, as societal concerns can lead to legislative changes or a
decline in consumer support, affecting long-term success.

71
 Examiner’s report
The question is in three parts. Part (a) tests the candidates‟ abilities to explain
the components of emotional intelligence, while part (b) tests candidates'
abilities to explain the methods of reducing agency problems in an organisation.
Part (c) requires candidates to scrutinise various categories of stakeholders
within a company, taking into account their respective interests and concerns.
Majority of the candidates attempted the question and their performance was
above average.
The commonest pitfall was the inability of the candidates toexplain the
components of emotional intelligence.
Candidates are advised to read widely and ensure they have adequate
knowledge of relevant regulations relating to public sector accounting for better
performance in the Institute‟s future examinations.

Marking guide
Marks
(a) Award a maximum of ½ mark each for correctly stating 4
components of emotional intelligence (½ x 4) 2
(b) Award 2 marks each for any 3methods of reducing agency
problems correctly stated (2 x 3) 6
(c) Award 2 marks each for correctly stating 6 other categories
of stakeholders in a company with their interests and 12
concerns (2 x 6)
Total 20

SOLUTION 6

a. How a company can resolve conflicts between different stakeholders‟

objectives
i. A compromise will be found so that the interests of each stakeholder
group are satisfied partially, but not in full.
ii. The company will act in the interests of the most powerful stakeholder
group so that the interests of the other stakeholder groups are ignored.
iii. A company might make small concessions to some stakeholder groups,
but act mainly in the interests of its most powerful stakeholder group
(or groups)

b. Biggie and Baggie Venture Ltd

Year Cashflow Present Value
N N
0 -6,800,000 -6,800,000
0 +1,300,000 +1,300,000
1 to ∞ @ 20% df 1,300,000 N1,300,000/.20 6,500,000
NPV 1,000,000

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 i. The project should be undertaken because it gave an NPV of N1,000,000

Year Cashflow Present value

N N
0 6,800,000 -6,800,000
1 to ∞@ 20% df 1,300,000 N1,300,000/.20 6,500,000
NPV -300,000

ii. The project should not be undertaken because it gave a negative NPV of
N300,000
Year Cashflow Present value
N N
0 6,800,000 -6,800,000

5 to ∞@ 20% df 1,300,000 3,134,300

NPV -3,665,700

iii. The project should not be undertaken because it gave a negative NPV of
N3,665,700

Workings
N N N
PV of 1,300,000 from year 1 to ∞ @ 1,300,000 1,300,000/.20 6,500,000
20% df
Less PV of 1,300,000 for years 1-4 @ 1,300,000 @Annuity factor of -3,365,700
20% df 2.589
PV of 1,300.000 from 5 to ∞ @ 20% df 3,134,300

ALTERNATIVE SOLUTION

a. Biggie and Baggie Venture Limited

i) The PV of cash inflow of ₦1,300,000 to perpetuity if the cash inflow starts
from year 0
PV of annual cash inflow to perpetuity = A + (1/r x A)
Note: A = Annual cash inflow
= ₦1,300,000 + (1/0.2 x 1,300,000)
= ₦1,300,000 + ₦6,500,000
= ₦7,800,000
NPV of annual cash inflow of ₦1,300,000 to perpetuity if the cash inflow
starts from year 0
NPV = PV of annual cash inflow to perpetuity – Investment
= ₦7,800,000 - ₦6,800,000 = ₦1,000,000
The decision rule of NPV is to accept the project with a positive NPV,
therefore, the company should undertake the project since the NPV is
positive.

73
ii) The PV of annual cash inflow of ₦1,300,000 to perpetuity if cash inflow
starts from year 1
PV of annual cash inflow to perpetuity = 1/r x A
=1/0.2 x 1,300,000 = ₦6,500,000

NPV = PV of annual cash inflow to perpetuity – Investment

= ₦6,500,000 - ₦6,800,000 = - ₦300,000
The decision rule of NPV is to reject a project with a negative NPV;
therefore, the company should not undertake the project since the NPV is
negative.

iii) The PV of annual cash inflow of ₦1,300,000 to perpetuity if cash inflow

starts from year 5
PV of annual cash inflow from year 1 to perpetuity
₦6,500,000

Less:
PV of annual cash inflow from years 1- 4
N3,356,310 (N1,300,000 x factor 2.5887)
PV of annual cash inflow from year 5 to perpetuity
₦3,134,690
NPV = PV from year 5 to perpetuity – Investment
= N3,134,690 - ₦6,800,000 = - ₦3,665,310

The decision rule of NPV is to reject a project with a negative NPV, therefore, the
company should not undertake the project since the NPV is negative.

Examiner’s report
The question is in two parts. Part (a) of the question requires the candidates to
state the ways to resolve conflicts between different stakeholder objectives, while
part (b) requires the candidates to assess the comprehension of the calculation of
present values in perpetuity across three distinct scenarios.
Few of the candidates attempted the question and their performance was below
average.
The commonest pitfall was the inability of the candidates to correctly calculate
present values in the perpetuity across the three distinct scenarios.

Candidates are advised to make use of Pathfinders and the Study Text of the
Institute for better performance in the Institute‟s future examinations.

74
 Marking guide
Marks Marks
(a) Award a maximum of 2½ marks each for stating any
2ways a company might resolve conflicts between
different stakeholders' objectives (2½ x 2) 5
(b) i Award 1 Mark each for the 5 ticks in the marking guide 5
Award 1 Mark each for the 4 ticks in the marking guide 4
ii
15
iii Award 1 Mark each for the 6 ticks in the marking guide 6
Total 20

75
ICAN/242/F/A4 Examination No....................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2024

BUSINESS LAW
EXAMINATION INSTRUCTIONS
PLEASE READ THESE INSTRUCTIONS BEFORE THE COMMENCEMENT OF THE PAPER

1. Check your pockets, purse, mathematical set, etc. to ensure that you do not
have prohibited items such as telephone handset, electronic storage device,
programmable devices, wristwatches or any form of written material on you
in the examination hall. You will be stopped from continuing with the
examination and liable to further disciplinary actions including cancellation
of examination result if caught.

2. Write your EXAMINATION NUMBER in the space provided above.

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

number.

4. Do NOT write anything on your docket.

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

6. Do NOT answer more than the number of questions required in each section,
otherwise, you will be penalised.

7. All solutions should be written in BLUE or BLACK INK. Any solution written in
PENCIL or any other COLOUR OF INK will not be marked.

8. You are required to attempt ALL questions in Section A and any FOUR out of
the SIX questions in SECTION B.

9. Check that you have collected the correct question paper for the examination
you are writing.

THURSDAY, NOVEMBER 21, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

76
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – NOVEMBER 2024

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

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT ALL QUESTIONS IN

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

1. Within how many months from date of incorporation must a company

that is incorporated newly hold its first Annual General Meeting?

A. 18 months
B. 17 months
C. 15 months
D. 13 months
E. 12 months

2. Who/Which of the following may appoint an administrator for a

company out of Court?

A. The Corporate Affairs Commission

B. The directors of the company
C. An interested person
D. The creditors of the company
E. The Official Receiver

3. What is the minimum membership of a private company?

A. 1
B. 2
C. 3
D. 5
E. 7

4. Judicial precedent is the application of the principle of

A. Distinguishing
B. Obiter dictum

77
 C. Original precedent
D. Per incuriam
E. Stare decisis

5. Which of the following is NOT required to appoint an auditor at the

general meeting to audit its financial records?

A. A two-member company
B. A private company
C. A holding company
D. A company limited by guarantee
E. A small company

6. A Receiver appointed by the Court obtains directions on how to

distribute the proceeds of his receivership from

A. The Corporate Affairs Commission

B. The shareholders at general meeting
C. The board of directors
D. An emergency general meeting
E. The Court

7. In the law of torts, a company that brands its product with the logo of
another company‟s fast selling product is liable for

A. The personal safety of an individual

B. Passing off
C. Detinue
D. Negligence
E. Impersonation

8. For an offender to be convicted for the offence of bribery under Section

98 of the Criminal Code the offender must be

A. A policeman
B. A Nigerian
C. A public servant
D. Anybody resident in Nigeria
E. Anyone who commits the offence within Nigeria

78
9. Which of the following is true of director‟s duty of care?

A. The same standard applies to executive and non-executive

directors
B. The duty is of intermittent nature
C. The nature of the company determines the duty
D. Public companies have a more stringent duty of care
E. The duties are not statutory

10. The roles of an accountant in a criminal investigation involving

electronic fraud include the following, EXCEPT

A. Litigation support
B. Provision of support for the investigations
C. Detection of fraud
D. Supply of evidence of forensic findings
E. Filing judicial processes

11. A contract formed and concluded using a software system is a/an

A. Software contract
B. Systemic contract
C. Unenforceable contract
D. Specialised contract
E. E-contract

12. Which of the following does NOT give rise to agency relationship?

A. Agreement
B. Ratification
C. Operation of law
D. Voluntarism
E. Doctrine of necessity

13. To sustain an action for negligence in court, the plaintiff must prove

A. Dangerous act, negligent conduct, and damage

B. Specific damage, causation ab initio, and duty
C. Existence of a legal duty of care, breach of the legal duty, and
damage due to the breach
D. General duty, general damages, and compensation
E. Breach, duty and compensation

14. The deposit of goods with a person by another person as security for
repayment of a debt is a/an

79
 A. Bailment
B. Pledge
C. Assignment
D. Sale
E. Warehousing

15. Where a buyer discloses the purpose for which he requires goods and
relies on the skill of the seller to get the goods, there is an implied
condition of the contract that the goods must

A. Be of merchantable quality
B. Be fit for purpose
C. Correspond to description
D. Correspond with sample
E. Be of good quality

16. How may rights under an insurance policy be transferred to a third

party?

A. Policy holder may set off his rights

B. By mere delivery of the policy instrument
C. By execution of the policy
D. By conveyance
E. By an assignment

17. A limited liability partnership has the following features, EXCEPT

A. Corporate personality
B. Separate legal personality
C. Perpetual succession
D. Minimum of four partners limited liability
E. A change in the number of partners does not dissolve the
partnership

18. For a person to be a party to a contract of employment, he must be at

least

A. 16 years old
B. 17 years old
C. 18 years old
D. 19 years old
E. 21 years old

80
19. An executor of an estate is appointed by

A. The testator in his Will

B. The court
C. The personal representatives
D. The trustees
E. The beneficiaries

20. When an arbitral award is filed in court, it

A. Acquires the same authority as a judgement of the court

B. Brings the dispute to an end
C. Becomes unappealable
D. Operates as an appeal against the award
E. Begins the litigation process

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT ANY FOUR OUT OF

THE SIX QUESTIONS IN THIS SECTION

QUESTION 1
a. The Constitution of the Federal Republic of Nigeria has key features/
characteristics.
Required:
State THREE features/characteristics of the Constitution. (3 Marks)

b. In the cyber security space, persons entrusted with personal data have key
duties.
Required:
State THREE duties of a person that is entrusted with personal data.
(3 Marks)
c. The distinctions between a fixed charge and a floating charge underscore
the advantages of each.
Required:
Explain FOUR advantages of a floating charge. (8 Marks)

d. The Companies and Allied Matters Act 2020 specifies business names that
must be registered with the Corporate Affairs Commission (CAC).
Required:
State the business names that must be registered with the CAC.
(6 Marks)
(Total 20 Marks)

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QUESTION 2
a. Under the Companies and Allied Matters Act 2020, a company may be
placed in receivership in certain situations.
Required:
State FIVE situations in which a company would go into receivership.
(10 Marks)
b. The rules on maintenance of capital regulate acquisition by a company of
its own shares.
Required:
State FIVE conditions for the acquisition of its own shares by a company.
(10 Marks)
(Total 20 Marks)

QUESTION 3
a. Certain rules determine whether a partnership exists or not.
Required:
State the elements of a valid partnership. (6 Marks)

b. “The Criminal Code … has not created a single general offence known
as fraud but has created a number of offences that are fraud related”.
Required:
State FOUR fraud related offences. (4 Marks)

c. E-contract enhances the ease of doing business.

Required:
Explain the following:
i. e-contract;
ii. Digital signature. (2 Marks)

d. A seller of goods has rights not only against the buyer but the goods
also.
Required:
Explain TWO rights of a seller against his goods. (6 Marks)
(Total 20 Marks)
QUESTION 4

a. A cheque is a bill of exchange drawn, on a bank, payable on demand.

Required:
Explain the following:
i. Bearer cheque
ii. Crossed cheque (4 Marks)

82
 b. Ayodele has created intentionally a false West African School Certificate to
facilitate her admission into a university.
Required:
i. Explain the offence, if any, that Ayodele has committed. (2 Marks)

iii. State the offence that Ayodele would be charged for if she were
employed as an accounting clerk and she made a false entry in the
accounting books of her employer. (2 Marks)

c. In the law of agency, ratification is said to be equal to an antecedent

authority.
Required:
State FOUR conditions precedent for the act of a purported agent to be
ratified by the principal. (6 Marks)

d. Vicarious liability is the subjection of a person to liability for the tort

committed by another person, and it occurs in master/servant relationship.
Required:
State FOUR tests for determining if a relationship is that of
master/servant to which vicarious liability may apply. (6 Marks)
(Total 20 Marks)

QUESTION 5
a. Alternative Dispute Resolution (ADR) as a mode of resolving commercial
disputes enjoys an edge over court litigation.
Required:
State SIX advantages of ADR. (6 Marks)

b. A trust is an equitable relationship for the benefits of persons or objects.

Required:
i. State THREE essential elements or certainties of a trust.
(3 Marks)
ii. State THREE types of charitable trust. (3 Marks)

c. Hire purchase is a contract of possession with an option to the hirer to

purchase the goods in due course.
Required:
State FIVE ways of terminating a hire purchase contract. (5 Marks)
d. Ethics and ethical codes differ from legal rules.
Required:
Explain ethics and ethical codes. (3 Marks)
(Total 20 Marks)

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QUESTION 6

a. Where an insurer has settled a claim on behalf of another insurer, certain

insurable interests apply.
Required:
State FOUR conditions for contribution to take place. (6 Marks)

b. The validity of a contract may be vitiated by some factors known to law.

Required:
State TWO factors that may vitiate a contract. (2 Marks)

c. An employee may be dismissed for justifiable reasons.

Required:
State FOUR grounds upon which an employee may be dismissed.
(6 Marks)
d. The Trustee Investments Act stipulates securities in which trustees may
invest.
Required:
State THREE categories of securities in which trust funds may be invested.
(6 Marks)
(Total 20 Marks)

84
SECTION A

MULTIPLE-CHOICE QUESTIONS

1. A

2. B

3. A

4. E

5. E

6. E

7. B

8. C

9. A

10. E

11. E

12. D

13. C

14. B

15. B

16. E

17. D

18. A

19. A

20. A

85
Examiner’s report
The questions in this section test topics across the syllabus over which they had a
good coverage.

All the candidates attempted the questions, and about 40% of them scored above
average marks.

Candidates‟ major pitfall was inadequate coverage of the syllabus in their

preparation, especially the areas covered by the amendments to the Companies
and Allied Matters Act.

The advice to the candidates who performed poorly is study ICAN Study Text,
which covers the syllabus systematically.

SECTION B

OPEN-ENDED QUESTION

SOLUTION 1
a. The characteristics of the Constitution of the Federal Republic of Nigeria
are as follows:
i. Written form and rigidity;
ii. Federalism;
iii. Separation of powers;
iv. It enshrines Fundamental rights enshrining; and
v. Supremacy.

b. The duties of a person entrusted with personal data are as follows:

i. Duty not to disclose the data to another person without the
consent of the data controller;
ii. Duty of care over the data; and
iii. Duty of accountability for his acts and omissions in respect of the
data.

c. The advantages of a floating charge are as follows:

i. It is a valuable means by which a company operating as a going

concern could raise money on the security of its assets while
preserving the power of the company to deal with the assets in the
ordinary course of business;

ii. It offers the most convenient way of creating security over a

company‟s assets where the company has little or no fixed assets,
but carries a large and valuable stock in trade. This is significant

86
 because the stock in trade on the assets to be turned over in the
course of business has made the creation of a fixed charge
impracticable, since the consent of the fixed chargee would have to
be sought and obtained for the company to be able to sell any asset;
iii. A floating charge enables stocks to be turned over in the ordinary
course of the company‟s business and “attaches to whatever it is
converted into and to whatever new stock is acquired” without any
difficulty;
iv. A floating charge affords an unsecured creditor some protection
upon crystallisation. It gives the floating chargee a measure of
control over the company. It enables the company to report
regularly to the chargee if the company gets into financial
difficulties and enables the chargee to be privy to management
decisions; and
v. A floating charge is also an incentive to creditors to give larger
credit to a going concern as it expands with the consequent accrued
profits from interest to the creditor. The facts that the company can
deal with the charged property that are due in the ordinary course
of business makes it possible to create a subsequent fixed legal or
equitable charge over the floating charge unless the latter provides
otherwise.

Under the Companies and Allied Matters Act, the following are the business
names that must be registered:

i. A name that is not the true surname and forenames or initials of all
the partners;

ii. In the case of an individual, a name that does not consist of her true
surname and forenames or initials; or

iii. In the case of a company, a name that does not consist of its
corporate name without an addition.

However, registration shall not be required if the addition to the

names simply indicates that the business is carried on in succession
to a former owner of the business.

Examiner’s report
The question tests candidates‟ knowledge of the characteristics of the
Constitution of the Federal Republic of Nigeria; the duties that bind a possessor
of personal data in cyber security law; the advantages of floating charge in
company law; and the law on registration of business names with the Corporate
Affairs Commission.

About 80% of the candidates attempted the questions, and 40% of them scored
above average marks.

87
Candidates‟ major pitfall was inadequate understanding of charges in company
law, and the duties that are attached to possession of personal data in cyber
security law.

The advice to candidates who performed below expectations is to factor those

areas into their future preparation.

Marking guide

Marks
(a) Characteristics of the Constitution
1 mark for each point, subject to maximum of 3
points 3
(b) Duty of person entrusted with personal data
1 mark for each point, subject to a maximum of 3
points 3
(c) Advantages of floating charge
2 marks each for any 4 points 8
(d) Business names that must be registered
2 marks for each point subject to a maximum of 3
points 6
Total 20

SOLUTION 2
a. Depending on the terms of the agreement between the company and
its debenture holder, a company may be placed into receivership
when:
i. The principal sum borrowed by the company or the interest is
in arrears;
ii. The security or property of the company is in jeopardy and the
security of the debenture holder shall be in jeopardy if the court
is satisfied that events have occurred or is about to occur which
renders it unreasonable in the interest of the debenture holder
that the company should retain the power to dispose of its
assets;
iii. The company fails to fulfill any of the obligations imposed on it
by the debentures or debentures trust deed;
iv. Any circumstance occurs which by the terms of the debentures
or debenture to realise his security;
v. The company is being wound up;
vi. Any creditor of the company issues a process of execution against
any of its assets;
vii. The company ceases to carry on business; or
viii. The creditors amounting to more than one-half of the total
amount owing in respect of a class of outstanding

88
 debentures apply to court for receivership.

b. The Companies and Allied Matters Act allows a company to acquire its
own shares, including redeemable shares on the following conditions:
i. If it so permitted by its articles of association;
ii. If the purchase is authorised by the shareholder‟s special
resolution;
iii. The company shall within seven days of the special resolution
cause to be published in two national newspapers;
iv. The purchase must be only of fully paid up shares of the
company;
v. The terms of purchase must provide for payment of the shares
(and the payment must be from the company‟s distributable
profits;
vi. Within 15 days after the publication in two national
newspapers, the directors of the company shall file a statutory
declaration of solvency with the Corporate Affairs Commission
to the effect that the company is able to pay its debts as they
fall due after the purchase;
vii. Within six weeks of the publications, company creditors and
dissenting shareholders may apply to court for an order to
cancel the resolution; and
viii. The company may proceed with the share buyback only on the
order of the court, where applicable.

Examiner’s report
The question tests candidates‟ understanding of the factors for corporate
receivership, and the conditions under which a company may acquire its own
shares.

About 20% of the candidates attempted the question, and about 30% of them
scored above average marks.

Candidates‟ major pitfall was inadequate understanding of both sub-questions

within the question.

The advice to candidates who performed below expectations is to study the two
segments of the question in ICAN Study Text and Pathfinder.

Marking guide
Marks
(a) Situations for company insolvency
2 marks for ach point subject to a maximum of 5 points
10
(b) FIVE conditions for a company to acquire own shares
2 marks for each point, subject to a maximum of 5 points 10
Total 20

89
SOLUTION 3

a. The elements for determining the existence of a partnership are as follows:

i. There must be a business: The Partnership Act/Laws define
„business‟ to
include “trade, vocation and profession”;
ii. The business must be carried on by or on behalf of the partners;
iii. There must be profit making and profit sharing; and
iv. There must be a minimum of two members and not more than a
maximum of twenty members of full contractual capacity, except
otherwise required by law.

b. The fraud related offences in the Criminal Code are:

i. False pretences;
ii. Cheating;
iii. Obtaining credit by fraud;
iv. Forgery; and
v. Fraudulent false accounting.

c. i. E-contract is a contract in which the parties employ electronic

devices such as computers, telephones, and other digital devices
in the course of its negotiation and execution.
iii. A digital signature is an electronic authentication by the maker of
an electronic document or creator of data.

d. A seller has the following rights against his goods:

i. Right of lien: A seller‟s right of lien is a right in equity to withhold
goods until the price is paid. This right only exists when the seller
has actual possession of the goods either as principal or as agent.
This right could be exercised when the goods are sold without any
stipulation as to credit, the terms of credit have expired or the
buyer has become insolvent. This right is lost where the goods have
been delivered to a carrier for onward transmission to the buyer.
The same thing applies if the buyer or his lawful agent is in
possession of the goods as well as when there is a waiver of the
right by the seller;

ii. Right of withholding delivery: A seller may withhold delivery of the

goods where neither ownership nor possession has passed to the
buyer; and

iii. Stoppage of goods in transit: An unpaid seller has the right to stop
goods in transit before they are received by the buyer. The seller
may exercise this right where the consideration remains unpaid or
the buyer is insolvent, and the goods are actually in the course of
transit. This right is, however defeated if any person to whom a
document of title to goods has been lawfully transferred, transfers
the goods further to a third party.

90
Examiner’s report
The question tests candidates‟ understanding of business by at least two persons
as well as profit making and profit sharing as the elements of a valid
partnership; types of fraud-related offences in criminal law; the conditions for
ratification in the law of agency; meaning and import of e-contract as well as
digital signature; and the rights of a seller on his goods.

Attempt rate was about 60%, and pass rate was about 50%.
Candidates‟ major pitfall was their insufficient understanding of the rights of a
seller on his goods.

The advice to candidates who performed poorly is to study the rights of a seller
on his goods in the ICAN Study Text and other texts on sale of goods.

Marking guide
Marks
(a) Elements of a partnership
2 marks for each point, subject to a maximum of 3
points 6
(b) FOUR fraud related offences
1 mark for each point, subject to a maximum of 4
points 4
(c) i. Definition of e-contract
2 marks for each correct answer 2
ii. Definition of digital signature
2 marks for correct answer 2
(d) Sellers‟ rights against goods
3 marks for each point, subject to a maximum of 2
points ___
Total 20

SOLUTION 4
a. i. A bearer cheque is a cheque made payable to whoever is in
possession of the cheque. It is also a cheque that is endorsed in
blank or a cheque made payable to an unnamed person.

ii. A crossed cheque is a cheque with two parallel transverse lines

across its face with or without the words „and company‟ or „not
negotiable‟ which cannot be cashed over the counter.

b. i. The offence which Ayodele has committed by creating a false

West African School Certificate with the intent that it could be
relied upon granting her admission to a university is the offence
of forgery. This is defined as knowingly making a false document
or writing with intent that it may in any way be used or acted
upon as genuine.

91
 ii. Ayodele would be charged for the offence of fraudulent false
accounting if she had made false entry in the accounting books of
her employer, being employed as an accounting clerk.

c. For a principal to ratify the act of a purported agent, the following

conditions must be satisfied:
i. At the time of making the contract, the agent must purport to be
acting on behalf of his projected principal;
ii. The principal must have been in existence and have contractual
capacity at the time the agent purported to act for him;
iii. The principal must be competent to act at both the date of the
contract and the date of the ratification;
iv. The principal must have had full knowledge of all the material facts
at the time of ratification or else be shown to manifest an
intention to ratify the act, notwithstanding his ignorance of all the
facts;
v. The contract must be a valid one, and not void ab initio; and
vi. Time is of essence for an agency to be created by ratification, so the
principal must ratify the act within a reasonable time of the act.

d. The tests for determining if a relationship is that of master/servant to

which vicarious liability applies include the following:
i. If the employer who shows the employee what to do and how to do it.
In this situation, it is a master/servant relationship that distinguishes
the servant from an independent contractor who is trained in his
trade or profession and works without supervision;

ii. if one person pays the other wages and salaries, it is a master/servant
relationship;

iii. If one person has power to hire and fire another, the relationship is a
master/servant relationship;

iv. If the employee is an integral part of the organisation, that makes

him a servant; and

v. If the employee was acting within the scope of his employment and
in lawful capacity that is incidental to his work, he is observant.

92
Examiner’s report
The question tests candidates‟ understanding of bearer and crossed cheques;
forgery and its elements as well as fraudulent accounting in criminal law; the
conditions for ratification in the law of agency; and the elements of a
master/servant relationship.

Attempt rate was about 85%, and pass rate was about 55%.

Candidates‟ major pitfall was inadequate understanding of fraudulent

accounting and the conditions for ratification in agency relationships.

The advice to the candidates who performed poorly is to study the areas of
deficiency more in ICAN Study Text in their future preparation.

Marking guide
Marks
(a) i. Definition of bearer cheque
2 marks for correct answer 2
ii. Definition of crossed cheque
2 marks for correct answer
(b) i. Offence committed
2 marks for the correct answer 2
ii. Offence to be charged for
2 marks for the correct answer 2
(c) Conditions precedent for ratification
1½ marks for each point subject to a maximum of 4 points 6
(d) Tests for determining a master/servant relationship
1½ marks for each point, subject to a maximum of 4 points 6
Total 20

SOLUTION 5

a. The advantages of Alternative Disputes Resolution (ADR) over litigation

include the following:
i. It is faster;
ii. It is cheaper;
iii. It is flexible;
iv. It makes parties feel freer and more relaxed;
v. It is informal;
vi. It is confidential; and
vii. It encourages goodwill and friendliness of the parties towards each
other.

b. i. The essential elements or certainties of a trust are:

 Certainty of intention or word;
 Certainty of object; and

93
  Certainty of subject matter.

ii. The types of charitable trusts are:

 Trust for advancement of education;
 Trust for advancement of religion;
 Trust for relief of poverty; and
 Trust for other purposes beneficial to the community.

c. A hire purchase 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;

v. 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

vi. An order or judgment of court for conversion or detinue, which may

in effect bring the agreement to an end.

d. Ethics consists of commonly acceptable mode of conduct or behavior in

a given society. It is a moral persuasion against wrongdoings or
unacceptable conducts.

Ethical codes regulate the conduct of professionals such as chartered

accountants, legal practitioners, doctors, and engineers in their dealings
with their clients.

Examiner’s report
The question tests candidates‟ understanding of the advantages of Alternative
Dispute Resolution; certainties in trusts and types of charitable trusts;
termination of a hire purchase contract; and the meanings of ethics and ethical
codes respectively.

Attempt rate was about 70%, and pass rate was about 65%.
Candidates‟ major pitfall was inadequate understanding of the trusts segment of
the question.

The advice to candidates who performed below pass mark is to study the law of
trusts more in ICAN Study Text as they prepare for the future.

94
Marking guide
Marks
(a) Advantages of ADR
1 mark for each point, subject to a maximum of 6 poins
6
(b) i. Essential elements of certainties of trust
1 mark for each point, subject to a maximum of 3 points
3
ii. Types of charitable trusts
1 mark for each point, subject to a maximum of 3 points
3
(c) Ways of terminating a hire purchase contract
1 mark for each point, subject to a maximum of 5 points
5
(d) Explanation of ethics and ethical code
1½ marks for definition of ethics 3
Total 20

SOLUTION 6
a. In insurance claims, the following are the conditions for contribution:
i. The risk which occurred must be common to all the policies;
ii. The insurances must have a common subject matter;
iii. The policies must cover the same interest, that is, all the policies
must be in protection of the same interest of the insured;
iv. Each policy must be enforceable as at the date of loss because an
Invalid policy as at time of the loss would not give rise to a claim of
contribution; and
v. The policies must not exclude contribution.

b. The factors that vitiate a contract include:

i. Mistake;
ii. Misrepresentation;
iii. Duress; and
iv. Undue influence.

c. An employee may be dismissed for any of the following:

i. Act or conduct likely to bring the employer in to disrepute;
ii. When the servant‟s practices or conducts expose the master to loss
of public confidence;
iii. Gross immorality;
iv. Absenteeism without leave or permission, amounting to an
abandonment of duties; or
v. Gross misconduct, which may include insubordination, habitual
drunkenness, gross negligence, willful disobedience of lawful
orders.

95
d. By virtue of the Trustee Investment Act, trust funds may be invested in the
following categories of securities:
i. Securities created or issued by or on behalf of the Government of
the Federation of Nigeria;
ii. Securities of a State government declared to be securities in
which a trustee can invest by the President of the Federation by
notice published in the Federal Gazette;
iii. Securities created or issued by public corporations such as are
listed in the schedule to the Act and which are by notice
published from time to time in the federal gazette by the
President of the federation to be securities in which trustees may
invest; and
iv. Debentures and fully paid up shares of any company
incorporated and registered under the Companies and Allied
Matters Act provided that the company is not a private company.
In other words, a trustee may only invest in the debentures and
paid up shares of a public limited liability company. In addition
the shares and debentures must be quoted on the Nigerian
Exchange Limited.

Examiner’s report
The question tests candidates‟ understanding of the conditions for contribution
by multiple insurers to an insurance claim by a single insured; the factors that
vitiate a contract; grounds upon which an employer may dismiss an employee;
and the securities in which a trustee may invest a trust fund.

Attempt rate was about 65%, and pass rate was about 55%.
Candidates‟ major pitfall was their inadequate understanding of the securities in
which a trustee may invest a trust fund.
An advice to candidates who scored below pass mark is to study trustee
investment more in the ICAN Study Text and Trustee Investments Act.

Marking guide
Marks
(a) Conditions for contribution to take place
1½ marks for each point subject to a maximum of 4 points 6
(b) Factors that may vitiate a contract
1 mark for each point subject to a maximum of 2 points 2
(c) Grounds upon which an employee may be dismissed
1½ marks for each point subject to a maximum of 4 points 6
(d) Categories of securities in which trust funds may be invested
1½ marks for each point subject to a maximum of 4 points 6
Total 20

96