THE INSTITUTE OF CHARTERED

ACCOUNTANTS OF NIGERIA

PATHFINDER
MAY 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.

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 TABLE OF CONTENTS

PAGE

FOREWARD 1

TABLE OF CONTENTS 2

FINANCIAL ACCOUNTING 3 - 33

MANAGEMENT INFORMATION 34 – 60

BUSINESS, MANAGEMENT & FINANCE 61 – 85

BUSINESS LAW 86 - 106

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ICAN/241/F/A2 Examination No................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 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 RED INK will not be marked.

TUESDAY, MAY 14, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

3
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 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. In the process of drawing up financial statements, adjustments are made

for prepaid expenses and accrued expenses in order to comply with
which fundamental accounting concept?

A. Matching
B. Prudency
C. Aggregation
D. Accrual
E. Consistency

2. A business proprietor failed to maintain proper records, but you

managed to ascertain that his opening capital, closing capital and
drawings during the year were N225,000, N260,000 and N10,000
respectively. Determine the profit for the period.

A. N25,000
B. N45,000
C. N55,000
D. N65,000
E. N75,000

3. Which of the following statements correctly differentiates bad debt from

doubtful debt?
A. Bad debt arises when a customer is in difficulty but might be able
to recover from it, while doubtful debt is an amount owed by a
customer that the business believes it will never be able to collect
B. Bad debt is an amount owed by a customer that the business
believes it will never be able to collect, while doubtful debt is an
amount owed by a customer that the business hopes to collect
despite the customer's difficulties.

4
 C. Bad debt is an amount owed by a customer that the business
believes it might be able to collect despite difficulties, while
doubtful debt arises when a customer is dishonest and has no
intention to pay.
D. Bad debt occurs when a customer disputes whether a contract has
been fulfilled or not, while doubtful debt arises when a customer
is declared bankrupt or insolvent.
E. Bad debt refers to the dishonesty of a customer, while doubtful
debt is an amount owed by a customer that the business believes
it might not be able to collect, but still hopes to do so.

Use the information below to answer questions 4 and 5:

A company has several motor cars that are accounted for as non-current
assets. As at April 1, Year 2, the cost of the cars was ₦300,000, and the
accumulated depreciation was ₦160,000.
During the month of April, the company bought a new car costing
₦77,500 and received a part-exchange allowance of ₦20,000 against an
old car. The old car originally cost ₦70,000 and its accumulated
depreciation is ₦45,000.

4. What is the carrying amount of the motor cars as at April 1, Year 2?

A. ₦120,000
B. ₦140,000
C. ₦180,000
D. ₦220,000
E. ₦240,000

5. What is the gain or loss on disposal of the old car?

A. ₦5,000
B. ₦(5,000)
C. ₦7,000
D. ₦(7,000)
E. ₦10,000

6. Which of the following about goodwill is true?

A. Goodwill is always recognised as an intangible asset in entity's
financial statements
B. Goodwill represents the total value of a business assets and
liabilities
C. The value of a business is solely based on the value of its net
assets
D. Goodwill reflects a business potential to generate future profits,
making it an intangible asset
E. Successful businesses do not have goodwill as it is not considered
a valuable aspect during acquisitions

5
7. How much inventories did the owner of the shop withdraw during the
period, if the opening and closing inventories for resale were ₦56,250
and ₦48,750, respectively, and there were no sales during the period?
A. ₦5,750
B. ₦6,500
C. ₦7,250
D. ₦7,500
E. ₦8,000

8. Which of the following best describes the concept of digitisation in

accounting?

A. Digitisation is the process of converting digital files into physical

formats for easier storage and retrieval
B. Digitisation refers to the use of digital technologies to create
invoices and receipts
C. Digitisation involves converting physical accounting records, such
as invoices and receipts, into a computer-readable format using
digital technologies
D. Digitisation is the practice of manually entering accounting data
into a computer system to ensure accuracy
E. Accounting digitisation is solely focused on minimising human
involvement in financial processes to increase efficiency

9. Why is it important to record the substance of transactions rather than

just their legal form in financial statements?
A. Legal principles are often complex and difficult to apply in
accounting
B. Financial statements must comply with tax regulations, not legal
principles
C. The legal form of transactions does not accurately represent their
financial impact
D. Recording transactions based on their legal form is easier and
more straightforward
E. Accountants prefer to use financial substance rather than legal
form for simplicity

10. Which of the following correctly explains the links between the statement
of financial position and the statement of profit or loss?
A. The statement of profit or loss shows the financial position of a
business at a given point in time, while the statement of financial
position shows the profit or loss for a period of time
B. The statement of financial position affects the statement of profit
or loss, by adding to the owner's capital
C. The statement of profit or loss affects the statement of financial
position, by either adding to or reducing the owner's capital
D. The statement of profit or loss affects the statement of financial
position, by adding to and reducing the owner's capital

6
 E. The statement of financial position affects the statement of profit
or loss, by reducing the owner's capital

11. Which of the following correctly describes the accruals concept in

accounting?
A. Expenses are recognised in the statement of profit or loss in the
same period as the related sales
B. Income is recognised in the statement of profit or loss when cash is
paid
C. Sales are recognised in the statement of profit or loss when the
related
expenses are paid
D. Expenses are recognised in the statement of profit or loss as they
are paid
E. Income and expenses are recognised in the statement of profit or
loss as they arise

12. Given the following information:

Total assets at December 31, Year 2: ₦150,400
Total assets at December 31, Year 1: ₦125,000
Total liabilities at December 31, Year 2: ₦43,200
Total liabilities at December 31, Year 1: ₦34,800
Additional capital input on December 31, Year 2: ₦10,000

What was the profit of the business for the year ended December 31, year
2?
A. ₦7,000
B. ₦17,000
C. ₦27,000
D. ₦90,200
E. ₦107,200

13. Which of the following items is classified differently from others on the
statement of financial position?

A. Inventories
B. Intangible assets
C. Prepayments
D. Cash and cash equivalents
E. Trade receivables

14. Which of the following best describes saving a PDF invoice in the cloud?
A. Data
B. Digitalisation
C. Storage
D. Safekeeping
E. Documentation

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15. What is the journal entry required to record the amount due to a retired
partner if he is not paid immediately in cash?

A. Dr. the retired partner‟s capital account

Cr. loan account in his name
B. Dr. loan account in his name
Cr. the retired partner‟s capital account
C. Dr. the retired partner‟s capital account
Cr. Statement of profit or loss
D. Dr. loan account in his name
Cr. Statement of profit or loss
E. Dr. loan account in his name
Cr. cash book

16. The primary purpose of performing bank reconciliations in accounting is

to
A. Ensure that the balance in the cash at bank account and the
balance shown in the bank statement are always the same
B. Identify and correct errors in accounting records related to cash
transactions with the bank
C. Combine the cash book balance with the bank statement balance
to get the total cash position
D. Reconcile the balances of other accounts in the general ledger
with the bank statement
E. Verify the accuracy of non-cash transactions in the accounting
Records

17. Which of the following corresponding examples correctly match the data
structure form?
A. Linear - binary, heaps, space partitioning
B. Tree - arrays, lists, stack
C. Hash - decision, directed, acyclic
D. Graphs - distributed hash table, hash tree
E. Stack - arrays, lists, queue

18. What does a receipt and payment account represent in accounting?

A. A summary of cash receipts and payments, including both accruals
and cash transactions
B. A summary of cash receipts and payments during the accounting
period, without considering accruals
C. A record of all revenue transactions in the accounting period,
irrespective of cash inflows or outflows
D. A record of all capital transactions, including cash receipts and
payments, during the accounting period
E. A record of all non-cash transactions in the accounting period,
excluding cash receipts and payments

8
19. What role does the statement of changes in equity play in a company's
financial reporting and decision-making?

A. It helps in assessing a company's non-current assets and

depreciation methods
B. It provides a detailed breakdown of a company's cash flows from
operating, investing and financing activities
C. It presents a summary of a company's equity transactions, aiding
stakeholders in understanding financial performance and
ownership changes over time
D. It shows the company's income and expenses, enabling
stakeholders to evaluate profitability and cash generation
E. It outlines a company's long-term debt obligations and interest
expense, assisting stakeholders in assessing capital structure and
financial stability

20. The difference between the assets and liabilities of a not-for-profit

organisation is called

A. Net asset
B. Net liability
C. Accumulated fund
D. Working capital
E. Net capital

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER FOUR OUT OF SIX
QUESTIONS IN THIS SECTION
QUESTION 1

a. Explain the information needs of different stakeholders who use financial

statements and how financial statements fulfill those needs. (10 Marks)

b. Briefly explain the impact of digital technologies on accounting systems,

focusing on machine learning and artificial intelligence, data analytics,
mobile accounting, and specialised accounting software. (10 Marks)
(Total 20 Marks)
QUESTION 2

a. Examine the internal control procedures over cash receipts in a business.

(8 Marks)
b. Ladu Limited has the following transactions related to sales and purchases
in the month of July 2023:

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 July
2 Purchases from Abe Limited: ₦300,000
5 Sales to Jide Limited: ₦150,000
9 Purchases returns to Abe Limited: ₦50,000
12 Sales returns from Jide Limited: ₦20,000
14 Purchases from Bola Limited (offering a trade discount of 5%):
₦400,000
15 Sales to Yau Limited: ₦200,000
22 Sales returns from Yau Limited: ₦30,000
25 Sales to Zeb Limited (cash discount of 2.5% granted): ₦250,000
26 Purchases from Cletus Limited: ₦250,000
31 Purchases returns to Cletus Limited: ₦30,000

Required:

i. Record the items in the relevant books of prime entry of Ladu

Limited in July 2023. (7 Marks)
ii. State how the postings will be done from the books of prime
entries into the ledgers (5 Marks)
(Total 20 Marks)

QUESTION 3

a. List THREE possible reasons for differences between the suppliers‟

statement balance and the suppliers‟ account balance in the ledger and
explain how these differences can be identified and resolved during the
reconciliation process. (6 Marks)
b. Baba Enterprise receivables ledger control account on June 30, 2023 has
a debit balance of ₦4,750,000 which did not agree with the net total of
the list of receivables ledger balances as at that date. The following
errors were discovered:
(i) Sales returns of ₦175,000 by Uda have been recorded in Uda‟s
account in the receivables ledger but the transaction was not
posted to the general ledger;
(ii) Credit sales of ₦200,000 to Chioma were not recorded in the
control account but were recorded in the personal ledger of
Chioma;
(iii) An item of goods sold to Abe, ₦312,500, had been entered once in
the sales day book but posted to his account twice;
(iv) Baba Enterprise had expected Idowu to take advantage of a
settlement discount of ₦32,750. Idowu did not settle the account
on time to qualify for the discount. This has been recorded
correctly in Idowu's own account but not entered in the general
ledger;
(v) A bad debt amounting to ₦500,000 had been written off in the
receivables ledger but had not been posted to the bad debts
expense account or entered in the control account;

10
 (vi) Debit balances in the receivables ledger, amounting to ₦128,750,
had been omitted from the list of balances;
(vii) Payment of ₦120,000 received from Kwali was posted to the cash
book but not recorded in the control account;
(viii) Credit sales was overstated by ₦250,000 in the control account;
and
(ix) No entry had been made in the control account in respect of the
transfer of a debit of ₦89,000 from Taju's account in the
receivables ledger to his account in the payables ledger.
Required:

i. Make the necessary adjustments in the receivables control account

and bring down the adjusted balance. (10 Marks)
ii. Reconcile the adjusted balance with the total balance in the
individual receivables ledger account. (4 Marks)
(Total 20 Marks)

QUESTION 4

a. Describe how subsequent costs related to Property, Plant and Equipment

(PPE) are treated in accordance with IAS 16 under the recognition
principle. (5 Marks)

b. Buma Limited recently acquired a piece of equipment for its operations.

The equipment was purchased for ₦1,600,000, and it has an estimated
useful life of 5 years with no residual value. The company estimates the
rates of depreciation under the straight-line method to be 20% and the
reducing balance method to be 30%. It is still considering which of the two
depreciation methods to adopt and requires ledger records to make a final
decision.
Required:
Present the ledger accounts to record the transaction for the first three
years using:

i. The straight-line method; and (6 Marks)

ii. The reducing balance method. (6 Marks)

c. Show the extracts from the statement of financial position at the end of the
third year for the two methods. (3 Marks)
(Total 20 Marks)

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QUESTION 5

a. Explain the essential components involved in measuring inventories in

compliance with IAS 2-Inventories (6 Marks)

b. Bala PLC prepares its financial statements on December 31, 2023. At the
end of the year, Bala PLC holds three different inventory items. The
following information is available for each item:

Item A:
Cost as at December 31, 2023 ₦1,500,000
Estimated selling price ₦1,800,000
Estimated costs of completion, disposal and selling expenses ₦200,000

Item B:
Cost as at December 31, 2023 ₦2,250,000
Estimated selling price ₦2,000,000
Estimated costs of completion, disposal, and selling expenses ₦300,000

Item C:
Cost as at December 31, 2023 ₦3,000,000
Estimated selling price ₦3,200,000
Estimated costs of completion, disposal and selling expenses ₦400,000

Required:

i. Calculate the net realisable value (NRV) for each inventory item.
(6 Marks)
Determine the lower of cost and NRV for each inventory item.
(3 Marks)
ii. Calculate the total lower of cost and NRV adjustment required for
inventory of Bala PLC's. (2 Marks)
iii. Prepare the necessary journal entry to adjust the inventory to its lower of
cost and NRV. (3 Marks)
(Total 20 Marks)

QUESTION 6

BIN Partnership is an existing partnership consisting of two partners, Bode and

Igere, sharing profits and losses equally. On January 1, 2023, they decided to
admit Ngor as a new partner into the partnership.

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Additional Information:

(i) The existing partnership's statement of financial position before Ngor's

admission is as follows:
₦ ₦
Capital: Property, plant and 2,400,000
equipment
Bode 1,750,000 Inventory 700,000
Igere 1,750,000 Account receivables 900,000
Loan notes 1,000,000 Cash 800,000
Account payables 300,000 _________
4,800,000 4,800,000

(ii) Goodwill of the partnership is valued at ₦200,000.

(iii) Ngor invests ₦1,500,000 in cash and acquires a 30% share in the
partnership's profits and losses.
(iv) ₦600,000 from the cash contributed by Ngor, the new partner will be
allocated to reduce the existing partnership's long-term liabilities.
(v) The partnership follows a policy of not recording goodwill on its financial
statements.

Required:

a. In the books of BIN partnership, prepare the following to give effect to the
admission of Ngor:
i. Goodwill account (2 Marks)
ii. Partners capital account (4 Marks)
iii. Statement of financial position after the admission of Ngor
(10 Marks)
b. Discuss TWO methods of valuation of goodwill in a partnership.
(4 Marks)
(Total 20 Marks)

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SECTION A

PART I - MULTIPLE CHOICE ANSWERS

1. A

2. B

3. B

4. B

5. B

6. D

7. D

8. C

9. C

10. C

11. A

12. A

13. B

14. B

15. A

16. B

17. A

18. B

19. C

20. C

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Tutorials
2. Determination of profit for the period
Closing capital = opening capital + profit – drawings
N260,000 = N225,000 + profit – N10,000
N260,000 – N225,000 + N10,000 = profit
Profit = N45,000

4. Carrying amount of the motor car as at April, Year 2

Carrying Amount = N300,000 – N160,000
= N140,000

5. Gain or loss on disposal of the old car

Carrying amount N70,000 – N45,000 = N15,000
Loss = (N5,000); N15,000 - N20,000

7. Inventory withdrew = opening inventories – closing inventories

= N56,250 – N48,750
= N7,500

12. Profit of the business for the year ended December 31, Year 2
Year 2 Year 1
N N
Total assets 150,400 43,200
Total liabilities (125,000) (34,800)
Capital 25,400 8,400
Profit in year 2 = Capital year 2 – capital year 1- additional capital
That is profit in year 2 = N(25,400 -8,400 -10,000) = N7,000

Examiner’s report
The questions test candidates‟ knowledge of the basic principle of accounting
and its applications.

All candidates attempted the question but the performance of most of them
was below average. Less than 50% of the candidates scored above average in
this section.

Their common pitfalls include poor understanding of the double entry

principles, the measurement and recognition bases for transactions and
events.

Candidates are advised to prepare very well and take necessary steps to
understand the fundamental principles of account and cover the syllabus.

15
SECTION B

SOLUTION 1

a. The following are the stakeholders who make use of financial

statements, including their information needs and how financial
statements fulfil those needs:

(i) Owners of the business or investors: They need accounting

information to assess how efficiently the management is performing,
that is, they want to know how profitable the business is and
dividends payable. It will also allow shareholders to make
appropriate investment decisions such as buying and selling of
shares, deciding on whether to dispose some or all the shares or to
acquire more of the entity‟s shares. Financial statement provide
insight into past performance, financial position and potential
future developments impacting their investment choices.

(ii) Management: They need accounting information to ascertain the

efficiency of the policy they formulate and to plan and control their
sources of finance for the business. Their information needs are
provided by the statement of profit or loss, statement of cash flows
and statement of financial position.

(iii) Employees of the entity: Existing employees need accounting

information to enable them decide how secure their job is and the
ability of the business to pay good salaries and provide good
welfare facilities. Their information needs are provided by the
statement of profit or loss and statement of financial position.

(iv) Lenders: These include the banks and other loan payables. Financial
statements enable them to decide whether more credit facility can
be granted and whether the company will be able to pay interest
and principal when they fall due. They are interested in the entity‟s
liquidity and of profitability as well as reliability of its underlying
assets. Their information needs are also provided by the statement
of profit or loss and statement of financial position.

(v) Trade payables: The suppliers want to know the ability of the
business to pay for the good supplied to the business promptly. They
will be interested in the liquidity of the business. These information
needs are provided by the statement of financial position.
(vi) Customers: The customers want to know whether the business will
continue to be a reliable source of supply; though they will also be
interested in the quality of the products of the business. These
information needs are provided by the statement of profit or loss and
statement of financial position.

16
 (vii) Tax authority: Accounting profits determine the basis of computing
tax. The tax authority wants to determine the tax payable by the
entity and its employees. These information needs are provided by
the statement of profit or loss, statement of cash flow, notes to the
financial statements and statement of financial position.

(viii) Government: Government needs accounting information to enable it

formulates fiscal policies. Also, the regulatory agencies of
government require financial statements to ascertain if the
organisation had met the necessary established requirements
expected of the organisation. In this respect, the government will
rely on the statement of profit or loss, notes to the financial
statements and statement of financial position.
(ix) Financial Analysts: They analyse financial statements for their clients
in order to help them make informed decisions. Financial analysts
include stock brokers, credit agencies and financial reporters. These
information needs are provided by the statement of profit or loss,
statement of cash flows, notes to the financial statements and
statement of financial position.

(x) The Public: Members of the general public need financial

information for various purposes. They use the available financial
information to take decisions on whether or not to deal with an
entity, determine their level of involvement in its activities. These
information needs of these stakeholders are provided by the
statement of profit or loss, statement of cash flow, notes to the
financial statements and statement of financial position.

b. The following are the impact of digital technologies on accounting system,

within the specified focus:

(i) Machine learning and artificial intelligence

This is a fast-evolving technologies which, enable the software to

learn on its own and improve results without requiring human
intervention. Additionally, AI-powered accounting applications can:

 Perform data entry and data sorting tasks, more efficiently and
accurately;
 Automatically reconcile accounts and do the classification of
accounting transactions based on patterns in historic data; and
 Utilise machine-learning-powered fraud management applications
and expense management systems to flag fraudulent transactions
and validate expenses, respectively.

17
 (ii) Data analytics
The deployment of data analytics helps in identifying trends, pattern
and insights that can otherwise remain hidden. It uses statistical
methods and modelling to analyse data.

(iii) Mobile accounting

With mobile applications dedicated to accounting functions, one can
create and send invoices, capture receipts, gather signatures and
create expense claims. Also, one can use customer management
software on mobile devices to improve customer communication and
support. With the help of customer relations management (CRM)
software and increased connectivity, one can build better
relationships with clients.

(iv) Specialised accounting software

The rising popularity and easy accessibility to specialised accounting
software and more efficient processing tools, has diminished the use
of traditional pen, ledger and desk calculator. These tools allow
quicker input and computation of data, with higher degree of
accuracy. Now, the accountant is able to focus more on how to
protect and grow the client‟s business.

Examiner’s report
The question tests the candidates‟ knowledge on the information needs of the
different stakeholders who use the financial statements and how financial
statements fulfill those needs. It also requires candidates to explain the impact
of digital technologies on accounting systems, focusing on machine learning
and artificial intelligence, data analytics, mobile accounting and specialised
accounting software.

Almost 95% of the candidates attempted the question and their performance
was average.

However, most of the candidates exhibited lack of knowledge in the information

needs of the different stakeholders who use financial statements and how
financial statements fulfill those needs.

Candidates are advised to ensure adequate coverage of the syllabus when

preparing for future examination.

18
Marking guide
Marks Marks
a. Information needs of users of financial statements:
Users‟ needs – 5 points at 1 mark each 5
Stating how financial statements fulfill users‟ needs 5 10
b. Impacts of technologies on accounting systems:
Listing 4 impacts at 1¼ each 5
Explaining the impacts 5 10
Total 20

SOLUTION 2

a. The following steps can be taken to ensure effective internal control over
cash receipts:

(i) All cash receipts from customers must be lodged intact at the bank on
a daily basis;

(ii) The function of receiving cash should be separated from that of

maintaining records of cash with each function performed by
different persons;

(iii) All cash receipts should be recorded in a cash register. At the end
of each day, the amount in the register should be compared with the
physical cash;

(iv) Receipts should be issued for all cash sales and cash received from
receivables;

(v) Regular and surprise cash count should be undertaken by a superior

officer to the officer handling the cash;

(vi) Requiring authorised approval for account receivables customers‟

account write off;

(vii) Reconciling the cash deposits on bank statement to recordings made

in the cash book on a monthly basis; and

(viii) Making use of a cash till box or safe for all cash held with the cashier.

b. i.
Ladu Limited
Purchases day book for the month of July 2023
N
02/07/2023 Abe Limited 300,000
14/07/2023 Bola Limited (Wk 1) 380,000
26/07/2023 Cletus Limited 250,000
31/07/2023 Transfer to purchases account 930,000

19
 ii. Sales day book for the month of July 2023
N
05/07/2023 Jide Limited 150,000
15/07/2023 Yau Limited 200,000
25/07/2023 Zeb Limited 250,000
31/07/2023 Transfer to sales account 600,000

iii. Purchases returns day book for the month of July 2023
N
09/07/2023 Abe Limited 50,000
31/07/2023 Cletus Limited 30,000
31/07/2023 Transfer to returns outward account 80,000

iv. Sales returns day book for the month of July 2023
N
12/07/2023 Jide Limited 20,000
22/07/2023 Yau Limited 30,000
31/07/2023 Transfer to returns inward account 50,000

v. Purchases day book

 Dr purchases account with the total of purchases day book.
 Cr the individual suppliers with the amount of purchases from them.

Sales day book

 Dr the individual customers with the amount of sales to them.
 Cr sales account with the total of sales day book.

Purchases returns day book

 Dr individual suppliers account with the amount of returns to them.
 Cr returns outwards account with the total amount of returns
outwards journal.

Sales returns day book

 Dr returns inwards accounts with the total of returns inwards journal.
 Cr the individuals accounts of customers with the amount of goods
returned by them.

Examiner’s report
This question tests candidates‟ knowledge on the internal control procedures
over cash receipts and application of the principles for recording transactions
in the book of prime entries and the ledgers.

About 90% of the candidates attempted the question and their performance
was above average.

20
However, few of the candidates failed the question due to the following
reasons.
 Their inability to distinguish between books of prime entry, the ledgers
and the journal; and
 Lack of knowledge of the internal control procedures.

Candidates are advised to learn the differences between the format for
preparing the day books, the ledger and the journal, and understand the
internal control procedures on cash by studying the ICAN Study Text.

Marking guide
Marks Marks
a. Internal control procedures over cash receipt:
Explaining 8 international control procedures at 1 mark 8
each
b. i. Preparation of books of prime entry:
Purchases day book 2
Sales day book 2
Purchases return day book 1½
Sales return day book 1½ 7
ii. Explaining posting from day books to the ledger:
Posting from purchases day book 1¼
Posting from sales day book 1¼
Posting from purchases return day book 1¼
Posting from sales return day book 1¼ 5
Total 20

SOLUTION 3

a. Three possible reasons for differences between the supplier‟s statement

balance and the ledger account balance, along with the steps to identify
and resolve them:

i. Omitted transactions by the supplier

 Reason for difference: The supplier might have omitted a
transaction from the statement, leading to an incorrect statement
balance.

 Identification: Compare the transactions listed in the supplier's

statement with the transactions recorded in the supplier's ledger
account.

 Resolution: If any transactions are missing, notify the supplier and

amend the statement balance to account for the error.

21
 ii. Omitted transactions by the customer
 Reason for difference: The customer might have omitted a
transaction from its accounting records, resulting in an incorrect
ledger account balance.

 Identification: Compare the transactions listed in the supplier's

statement with the transactions recorded in the customer's
payables ledger account.

 Resolution: If any transactions are missing, correct the error in the

customer's accounting records to update the ledger account
balance accordingly.

iii. Errors in recording transactions:

 Reason for difference: Errors, such as posting mistakes or incorrect
amounts, in either the supplier's or customer's accounting records.
 Identification: Thoroughly review both the supplier's statement
and the customer's ledger account to identify any posting errors or
discrepancies.
 Resolution: Rectify the errors by making the necessary corrections
in the relevant accounting records to reconcile the two balances.

Conclusion:
By following these steps and resolving any discrepancies, the company
can ensure that the amended balance on the supplier's statement and
the amended in the payables ledger will be equal, indicating an accurate
and reliable reconciliation process.

b. i. Receivables control account

N N
Balance b/d 4,750,000 (i) Sales return 175,000
200,000 (ii) Bad debt 500,000
(i) Credit sales (iii) Cash book 120,000
(ii) Discount reversed (iv) Credit sales
due to customer‟s 250,000
(v) Contra
failure to pay 89,000
Balance c/d
promptly 32,750 3,848,750
4,982,750 4,982,750

22
 ii. Baba Enterprise
Trade receivables ledger reconciliation statement as at June 30, 2023
N
Correct balance in the receivables control account 3,848,750
(iii) Correction of double posting 312,500
(vi) Omitted balances (128,750)
4,032,500

Examiner’s report
The examiner tests candidates‟ ability to identify possible reasons for differences
between the suppliers‟ statement balance and the suppliers‟ account balance in the
ledger and the process for reconciling the differences. Candidates were also required
to prepare an adjusted receivables control account, bringing down the adjusted
balance and reconcile same with the total balance in the individual receivables
ledger account.

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

Candidates‟ common pitfalls include:

 Inability to recognise items for adjustment in the receivables control

account;
 Posting transactions to wrong side of the control account; and
 Inability to reconcile the adjusted balance with the total balance in the
receivable ledger accounts.

Candidates are advised to study the basic principles of this subject matter,
making use of the ICAN study text and Pathfinder.

Marking guide

Marks Marks
a. Differences between suppliers‟ statements and ledger accounts:
Stating three reasons at 1 mark each 3
Explaining how the reasons can be identified 1½
Explaining how the reasons can be resolved 1½ 6
b. Receivables control account
i. Adjustments in receivables control account:
Balance c/d 1
Recording omission of credit sales 1
Discount receivables reversed 1
Recording omission of sales returns 1
Posting bad debt written off 1

23
 Recording cash received from customers 1
Correcting credit sales overstated 1
Recording offset against payables 1
Balance c/d 1
Total on both sides 1 10
ii. Reconciliation of control account with ledger balances:
Adjusted balance b/f from control account 1
Correction of double entry posting 1
Correction of omitted balances 1
Balance as per total list of ledger balances 1 4
Total 20

SOLUTION 4

a. According to IAS 16, subsequent costs are expenditure incurred after the
initial recognition of an asset. These costs are capitalised and added to
carrying amount of the asset if only they meet the following criteria:

i. Enhancement of future economic benefits: Subsequent costs are

capitalised if they enhance the future economic benefits expected
from the asset. This means the costs should improve the asset's
performance, increase its useful life, or adapt it to new technology or
standards. For example, if an old machine is upgraded to improve its
efficiency and prolong its usability, the costs associated with this
upgrade are capitalised;
ii. The expenditure is for a replacement part, provided that the part it
replaces is treated as an item that has been disposed of; and
iii. Major cost of inspections is recognised in the carrying amount of the
asset as a replacement, if the recognition criteria are satisfied.

Conclusion: Costs incurred for maintenance and repairs, which are

necessary to maintain the asset‟s originally assessed standard of
performance, are not capitalised. Instead, these costs are expensed in the
period in which they are incurred. For instance, regular servicing to keep
equipment in its optimal condition is expensed immediately rather than
capitalised.

b. Buma Limited
Ledger accounts for equipments using straight-line method

Year N Year N
1 Cash book 1,600,000 1 Balance c/d 1,600,000
2 Balance b/d 1,600,000 2 Balance c/d 1,600,000
3 Balance b/d 1,600,000 3 Balance c/d 1,600,000
4 Balance b/d 1,600,000

24
 Depreciation account

N N
Year 1 Year 1
Accumulated depreciation (Wk 1) 320,000 Statement of profit or loss 320,000

Year 2 Year 2
Accumulated depreciation (Wk 1) 320,000 Statement of profit or loss 320,000

Year 3 Year 3
Accumulated depreciation (Wk 1) 320,000 Statement of profit or loss 320,000

Accumulated depreciation account

Year N Year N
1 Balance c/d 320,000 1 Depreciation 320,000
2 Balance c/d 640,000 2 Balance b/d 320,000
Depreciation 320,000
640,000 640,000

3 Balance c/d 960,000 3 Balance b/d 640,000

Depreciation 320,000
960,000 960,000

4 Balance b/d 960,000

(ii) Buma Limited ledger accounts using reducing balance method

Depreciation account
N N
Year 1 Year 1
Accumulated depreciation (Wk 2) 480,000 Statement of profit or loss 480,000

Year 2 Year 2
Accumulated depreciated (Wk 2) 336,000 Statement of profit or loss 336,000

Year 3 Year 3
Accumulated depreciated (Wk 2) 235,200 Statement of profit or loss 235,200

Accumulated depreciation account

Year 1 N Year 1 N
Balance c/d 480,000 Depreciation (Wk2) 480,000
Year 2 Year 2
Balance c/d 816,000 Balance b/d 480,000
Depreciation 336,000

25
 Year 3 816,000 Year 3 816,000
Balance c/d 1,051,200 Balance c/d 816,000
1,051,200 Depreciation (Wk2) 235,200
1,051,200
Year 4
Bal b/d 1,051,200

(iii) Buma Limited

Statement of financial position extract as at the end of year 3
Straight line method
N
Equipment cost 1,600,000
Accumulated depreciation 960,000
Carrying amount 640,000

c. Buma Limited
Statement of financial position extract as at the end of year 3
Reducing balance Method
N
Equipment cost 1,600,000
Accumulated depreciation 1,051,200
Carrying amount 548,800

Buma Limited
Working notes
1. Calculation of annual depreciation, based on straight line method
Annual depreciation rate 20%
N
Cost of equipment 1,600,000
Depreciation per annum (20% x ₦1,600,000 320,000

2. Calculation of annual depreciation, based on reducing balance method

N N
Cost of equipment 1,600,000
Depreciation for year 1, (30% x N1,600,000) (480,000) 480,000
Balance at end of year 1 1,120,000
Depreciation for year 2, (30% x N1,120,000) (336,000) 336,000
Balance at end of year 2 784,000
Depreciation for year 3, (30% x N784,000) (235,200) 235,200
Balance at end of year 3 548,800
Total accumulated depreciation 1,051,200

26
Examiner’s report
This question tests candidates‟ knowledge on how subsequent costs related to
property, plant and equipment (PPE) are treated in accordance with IAS16
under the recognition principle and presentation in the statement of financial
position at the end of a particular year.

About 80% of the candidates attempted the question and their performance was
average. Only few of them understood the requirements of the question and
scored high marks.

Most candidates did not understand what ledger accounts should be prepared,
hence they lumped the accounts together.

Candidates are advised to pay attention to the requirements of the relevant

standard on PPE and posting of transactions to the relevant ledgers when
preparing for future examination.

Marking guide
Marks Marks
a. Accounting treatment of subsequent cost on PPE:
Explaining the general principle for recognition of
subsequent costs 1
Explaining instances when subsequent costs can be
capitalised 3
Explaining when subsequent costs should be expensed 1 5
b. Preparing accounts for acquisition of equipment
i. Straight-line method:
Equipment account 2
Depreciation account 2
Accumulated depreciation account 2 6

ii. Reducing balance method:

Depreciation account 2
Accumulated depreciation account 2
Calculation of depreciation 2 6
Total 20

SOLUTION 5
a. Measuring inventories in compliance with IAS 2 (Inventories) involves the
consideration of several essential components to ensure accurate financial
reporting. Here are the key elements involved in measuring inventories
under IAS 2.

27
i. Cost of inventories
 Purchase price: This includes the cost of purchase, including
import duties and other taxes (excluding recoverable VAT).

 Directly attributable costs: Any costs directly attributable to

bringing the inventory to its current condition and location, such
as handling, transport and other necessary overheads.

 Trade discounts and rebates: These are deducted in determining

the costs of purchase.

 Abnormal wastage: Abnormal amount of wasted materials, labour

or other production costs are excluded from the cost of inventories.

ii. Net realisable value (NRV):

 Selling price: The estimated selling price in the ordinary course of

business less the estimated costs of completion and the estimated
costs necessary to make the sale. If the NRV is lower than cost, the
inventory is written down to NRV.

iii. Separate valuation for specific items:

 Specific identification: For items that are specific (e.g., unique

artworks), their actual costs can be tracked individually.

 Grouping of similar items: For similar items, a weighted average

cost method can be used.

iv. Lower of cost and NRV: Inventories should be stated at the lower of
cost and net realisable value. This ensures that inventories are not
overstated, adhering to the principle of prudence.

Compliance with these components ensures that inventories are measured

consistently and accurately, providing reliable information for financial
reporting and decision-making. Proper application of IAS2 principles
enhances the transparency and credibility of a company‟s financial
statements.

28
b. i. Net realisable value (NRV)
Cost of completion,
Selling price disposal & selling Net realisable value
expenses
N N N
Item A 1,800,000 200,000 1,600,000
Item B 2,000,000 300,000 1,700,000
Item C 3,200,000 400,000 2,800,000
Total 7,000,000 900,000 6,100,000

ii. Lower of cost and NRV

Cost Net realisable value Lower of cost and net

realisable value
N N N
Item A 1,500,000 1,600,000 1,500,000
Item B 2,250,000 1,700,000 1,700,000
Item C 3,000,000 2,800,000 2,800,000
Total 6,750,000 6,100,000 6,000,000

iii. Adjustment required for lower of cost and net realisable value
N
Cost 6,750,000
Net realisable value 6,000,000
Amount by which cost is written down 750,000

iv. Journal for the adjustment required for lower of cost and net realisable
value
N
Debit cost of sales 750,000
Credit inventory 750,000
Being reduction in the cost of inventory on the basis of lower of cost and NRV.

Examiner’s report
The examiner tests candidates‟ knowledge of the essential components involved
in measuring inventories in compliance with IAS2 and its application in
adjusting inventory to its lower of cost and NRV.

Less than 50% of the candidates attempted the question and their performance
was average.

Most candidates could not clearly define inventory in accordance with IAS2,
while some did not answer the part requiring them to explain components
involved in measuring inventories.

29
Candidates are advised to pay attention to the requirements of IAS2 with
regards to the measurement and recognition of inventories when preparing for
future examination.

Marking guide
Marks Marks
a. Essential components involved in measurement of
inventory
Stating the general principles for measuring inventory 1
Explaining cost of inventory 1½
Explaining net realisable value (NRV) 1½
Describing the application of the lower of cost and NRV 2 6
b.
i. Calculation of NRV 6
ii. Determining lower of cost and NRV 3
iii. Determining the total of lower of cost and NRV 2 11
iv. Preparing journal to adjust inventory to lower of cost and NRV 3
Total 20

SOLUTION 6

a. i. BIN Partnership
Goodwill account
Recognition De-recognition
₦‟000 ₦‟000
Capital account – Bode 100 Capital account - Bode 70
Capital account – Igere 100 Capital account - Igere 70
Capital account - Ngor 60
200 200

ii) Partners capital account

Bode Igere Ngor Bode Igere Ngor
N‟000 N‟000 N‟000 N‟000 N‟000 N‟000
Goodwill 70 70 60 Balance b/f 1,750 1,750 -
Balance c/d 1,780 1,780 1,440 Cash 1,500
Goodwill 100 100 -
1,850 1,850 1,500 1,850 1,850 1,500
Bal b/d 1,780 1,780 1,440

30
 b. BIN Partnership
Statement of financial position as at January 1, 2023
N‟000
Non-current assets:
Property, plant and equipment 2,400
Current assets:
Inventory 700
Accounts receivable 900
Cash 1,700
3,300
Total assets 5,700
Capital:
Bode 1,780
Igere 1,780
Ngor 1,440
5,000
Non-current liabilities:
Loan notes (1,000 - 600) 400
Current liabilities:
Trade payables 300
Total equity and liabilities 5,700

Working notes
Cash account
N‟000 N‟000
Balance b/d 800 Loan 600
Capital-Ngor 1,500 Balance c/d 1,700
2,300 2,300
Balance b/f 1,700

c. The following methods of valuation of goodwill in a partnership business

exist:

(i) Purchase of average profit

Under this method, the net profits for a number of past years are
averaged and multiplied by a chosen number. Thus, two years‟
purchase of average profits implies that the average profits will be
multiplied by 2 to obtain the value of goodwill.

Another variation of this method, is the use of weighted average-

profits, in which case, each year‟s profit is multiplied by a weight to
get the total weighted profits which is divided by the total weights to
obtain the weighted average profit. The weights are usually allocated
in ascending order.

31
 (ii) Purchase of average gross fee income
This method, frequently adopted by professional firms (solicitors,
architects, accountants) is similar to (i) above, except that the
chosen factor is applied to the average gross fee income instead of
net profit.

(iii) Purchase of average super profits

Super profits are the profits in excess of the amount necessary to
pay a fair return on the capital employed in the business.
Alternatively, super profits can be described as the excess of
actual profits of the firm over the normal profit of comparable
businesses. The purchase-of-super-profits method of valuing
goodwill applies a given factor to the past average super profits.
In some cases, forecast super profits are substituted for past super
profits.

(iv) Capitalisation of super profit

Under this method, the average super profit is capitalised at an
appropriate rate of return, which takes account of the risk and
uncertainty involved in the particular line of business of the firm.
The figure obtained is the present value of the perpetual annuity
of the super profit. Alternatively, the present value of the annuity
of the super profit for a suitable number of years may be
calculated as the value of goodwill.

(v) Excess of value of a business over the value of net tangible assets
Under this method, the value of the business as a going concern is
ascertained and the value of the net tangible assets deducted
therefrom to obtain the value of goodwill.

Examiner’s report
The question tests the candidates‟ knowledge of preparing partnership accounts
relating to partners‟ goodwill, capital accounts and statement of financial
position after the admission of a new partner. It also requires candidates to
discuss methods of valuation of goodwill in a partnership.

About 20% of the candidates attempted the question but their performance was
very poor.

They lacked the ability to present proper and correct goodwill, partners‟ capital
accounts and statement of financial position.

Candidates are advised to cover all the aspects of the syllabus for better
performance in future examinations.

32
Marking guide
Marks Marks
a. Preparation of partnership accounts
i. Goodwill account 2
ii. Partners capital accounts 4
b. Preparation of statement of financial position
Non-current assets 1
Current assets 4
Partners capital accounts 3
Non-current liabilities 1
Current liabilities 1 10
c. Discussion of valuation of goodwill- 2 points at 2 marks each 4
Total 20

33
ICAN/241/F/A3 Examination No....................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 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 RED INK will not be marked.

TUESDAY, MAY 14, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

34
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 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 involves setting overall objectives and developing

broad plans, mostly over a long-term?

A. Long-term decision
B. Strategic planning
C. Tactical planning
D. Operational planning
E. Short-term decision

2. Which of the following is classified as a production cost?

A. Other factory costs

B. Selling costs
C. Distribution costs
D. Administration costs
E. Finance costs

3. Which of the following is NOT part of the purchase process?

A. Purchase requisition
B. Purchase order
C. Material usage note
D. Goods received note
E. Purchase invoice

35
4. Which of the following is NOT a practical implication of Just-In-Time
production?

A. Production times must be very fast

B. Production must be reliable
C. Factory layout must not change to reduce movement
D. Deliveries from suppliers must be reliable
E. There must be full employee involvement

5. A budgeting process that analyses costs into their fixed and variable
elements using the actual activity levels is referred to as

A. Fixed Budgeting
B. Flexible Budgeting
C. Activity Based Budgeting
D. Zero Based Budgeting
E. Marginal Costing

6. The following data were extracted from UVW Limited for a single product
V.

Activity (units) Total Cost (N)

144,000 3,624,000
842,000 12,000,000

Calculate the value of fixed cost

A. N8,376,000
B. N6,200,000
C. N3,264,000
D. N1,896,500
E. N1,896,000

7. Which of the following control ratios is given by Standard hours produced

is divided by actual hours worked?

A. Activity ratio
B. Overhead efficiency ratio
C. Volume ratio
D. Capacity ratio
E. Efficiency ratio

36
8. “Just-In-Time” works on a demand-pull basis seeks to eliminate all waste
and activities which do not add value”. Which of the following activities
adds value to a product?

A. Inspection time
B. Storage time
C. Processing time
D. Queuing time
E. Transport time

9. RSTU manufactures two products called S and T with a joint cost of

N3,550,000. Normal process loss is 5% of expected output with scrap value
of N50,000 and joint cost are apportioned based on sales value. Other data
available are as stated below:
Product Good Output selling Price(N)

S 11,520 units 250

T 9,750 units 320

The Profit on product T is?

A. N1,515,628
B. N1,492,708
C. N1,416,000
D. N1,300,000
E. N1,274,000

10. There are common features in most process costing systems. Which of the
following is NOTONE of the common features?

A. Clearly defined process cost centres and the accumulation of all costs
B. Maintenance of accurate records of units and part units produced
and the cost incurred by each process
C. Averaging of the prime costs of each process over the total
production of that process, excluding partly completed units
D. Charging of the cost of the input of one process as the raw materials
input of the following process
E. Clearly defined procedures for separating costs where the process
produces two or more products

37
11. In system development, RFP stands for which of the following?

A. Ready for processing

B. Request for proposal
C. Ready for planning
D. Ready for power
E. Request for performance

12. Awarding payroll software to accommodate changes in tax legislation is

an example of which of the following type of maintenance?

A. Adaptive
B. Corrective
C. Preventive
D. Detective
E. Perfective

13. MIS implantation CANNOT be successful without people because of which

of the following?

A. Systems will be costly

B. People cannot be successful with MIS
C. It is contrary to labour law
D. System cannot be effective without people
E. People will destroy any computer system

14. One of the most effective ways of introducing a software upgrade is by

which of the following?

A. Debate
B. Persuasion
C. Exchange
D. Advocacy
E. Training

15. The changeover method that provides the best opportunity for change is
A. Direct changeover
B. Module method
C. Parallel running
D. Prototyping
E. Pilot changeover

38
16. Strategies of IT risk tolerance does NOT include which of the following?

A. Mitigation
B. Transference
C. Eradication
D. Elimination
E. Avoidance

17. Availability and continuity of IT resources is dependent on back-up and

which of the following procedures?

A. Logical
B. Physical
C. Procurement
D. Recovery
E. System

18. IT controls are often described in TWO categories or types namely: IT

general controls and which of the following controls?

A. System
B. Software
C. Hardware
D. Application
E. Program

19. The act of illegal copying of a set of instructions or programs is technically

described as which of the following?

A. Virus attack
B. Piracy
C. Theft
D. Crime
E. Privacy infringement

20. A software system that provides a variety of tools for investigating a

suspect‟s personal computer is called

A. Forensic software
B. Cyber software
C. Cloud software
D. Crime software
E. Software toolkit

39
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 how a time series can be analysed. (10 Marks)

b. „There are TWO models used to estimate seasonal variation‟.
List and briefly describe the TWO models. (10 Marks)
(Total 20 Marks)

QUESTION 2

Breakable Limited is preparing for the last half of the year and you, as the cost
accountant, have been requested to prepare the cash budget for the third
quarter of the year. The following information were available:

1. Sales - 20% of monthly sales are in cash, while the balance is on credit.
a. Collections from receivables are as follows:
i. 60% in the first month after sales.
ii. 20% in the second month; and
iii. The balance after considering 1% bad debt and 5% discount on the
outstanding balance in the third month after sales.

2. Purchases are usually 60% of the month‟s Sales and are paid for 70% in
the same month and 30% in the following month less 2% discount on the
total purchase price.

3. Loan of N500,000 is expected to be approved by the bank on the first day

of August payable equally over twelve months with one month
moratorium and 1% interest on the outstanding.

4. Salary Deductions are paid on preceding month basis.

5. The sum of N951,550 being fixed deposit will mature in the month of
July, N500,000 will be reinvested same month with 0.5% interest credited
the following month.

6. Cash and Cash equivalent balance as at end of June is N1,050,706.00.

7. Bank Charges is 1% of total outflow from the bank payment for the
month.

40
 8. Additional Information is as follows:

April May June July August Sept. Oct.

N N N N N N N

Sales 850,000 900,000 1,250,000 1,520,000 1,650,000 1,800,000 1,400,000

Net
Salaries 430,000 500,000 650,000 720,000 740,000 770,000 770,000

Expenses 210,700 221,500 297,500 277,200 287,500 292,700 292,700

Salaries
Deductions 39,400 48,400 49,480 58,700 52,750 57,650 57,650

Required:
Prepare a monthly columnar cash budget for the third quarter of the year.
(Total 20 Marks)

QUESTION 3
From the information given below, you are required to compute the price of
store issues and the value of closing stocks using:
i. First-In-First-Out (FIFO) basis
ii. Last-In-First-Out (LIFO) basis

January 2nd - Purchased 500 Units of XYZ at N40 per unit

January 7th - Purchased 200 Units at N45 per unit
January 10th - Issued 300 Units
January 12th - Purchased 350 Units at N42 per unit
January 15th - Issued 500 Units
January 18th - Purchased 200 Units at N38 per unit
(Total 20 Marks)

QUESTION 4
a. State clearly the distinction between system security and system control.
(2 Marks)
b. List and explain briefly the THREE supply chain management flows.
(3 Marks)
c. Define the following terms in relation to information system:
i. Quality assurance
ii. Quality control (4 Marks)

41
d. i. What is a quality information system? (2 Marks)
ii. State any FIVE characteristics of quality information system. (5 Marks)

e. Enumerate TWO examples in each of the following ethical, social and

political issues as raised by information systems:

i. Ethical issues
ii. Human interaction issues
iii. Relationship issues
iv. Security issues (4 Marks)
(Total 20 Marks)

QUESTION 5

a. Nowadays, e-commerce is becoming more popular in emerging economies.

You are required to:

i. Define electronic commerce (e-commerce) (2 Marks)

ii. List THREE advantages and TWO disadvantages of e-commerce
(5 Marks)
iii. State FOUR areas of application of e-commerce (4 Marks)
iv. State the distinction between B2C and B2B e-commerce models (2 Marks)

b. Enumerate FIVE differences between e-commerce and e-business (5 Marks)

c. List FOUR e-commerce firms in Nigeria (2 Marks)

(Total 20 Marks)

QUESTION 6

a. Storage controls are controls put in place at the database level where data
is stored.
You are required to enumerate FIVE examples of storage controls.
(5 Marks)
b. State ONE major function of the following IT Department staff:
i. Software Engineer
ii. System Analyst
iii. Network Engineer
iv. Software Tester
v. Business Analyst (5 Marks)

42
c. A system needs to be reviewed and maintained after it has been
implemented.

You are required to:

i. Define System maintenance (1 Mark)
ii. State THREE reasons for maintaining a system (3 Marks)
iii. Enumerate THREE reasons for adaptive maintenance (3 Marks)

d. What is the distinction between Interview and Questionnaire methods of

information gathering? (3 Marks)
(Total 20 Marks)

43
SECTION A

PART I - MULTIPLE CHOICE ANSWERS

1. B

2. A

3. C

4. C

5. B

6. E

7. E

8. C

9. D

10. C

11. B

12. A

13. D

14. E

15. C

16. C

17. D

18. D

19. B

20. A

44
Workings

(6) 144,000 3,624,000

842,000 12,000,000
Difference 698,000 8,376,000

8,376,000/698,000 = 12
12,000,000 - (842,000*12) = 1,896,000

(9)
Value of good output S 11,520 x 250 = 2,880,000
T 9,750 x 320 = 3,120,000
TOTAL = 6,000.000

Share of Joint cost

3,120,000
X (3,550,000-50,000) = 1,820,000
6,000,000
Profit = 3,120,000 – 1,820,000 = 1,300,000

Examiner’s report
This section contains 20 questions spread across the syllabus. The questions in
this section were attempted by almost all the candidates and performance was
fair as about 50% of those who attempted them scored above 50% of the marks
allocated.

The commonest pitfall was that candidates did not give enough attention to this
section, believing that one-mark questions are not critical. Candidates are
advised to change their mindset because every mark counts.

SECTION B

SOLUTION 1

a. A time series is a record of data over a period of time for example, sales
revenue per month or revenue per quarter. Time series is a convenient way
of representing historical information but more importantly, it might be
used to make predictions about the future. This is done by continuing the
series forward in time. In order to do this, the time series must be analysed
into its component parts.

A change in value of an observed variable in a time series might be due

to a combination of factors. These are described as the components of the
time series. There are two models of a time series that differ in how these
components are linked together.

45
 There are two aspects to analysing a time series from historical data:
 estimating the trend line; and
 calculating the amount of these asonal variations (monthly
variations or daily variations).

The time series can then be used to make estimates for a future time
period, by calculating a trend line value and then either adding or
subtracting the appropriate seasonal variation for that time period.

Two methods of calculating a trend line are:

 Moving averages; and
 Linear regression analysis.

Linear regression analysis is a technique that produces a line of best fit for
observed data.

Moving averages might be used to identify the underlying trend and then
linear regression might be used to identify a line of best fit for the moving
averages identified.

The technique involves smoothing out fluctuations in the underlying

observed data by calculating averages for small groups of observations
from that data.

b. A „seasonal variation‟ can be measured from historical data as the

difference between the actual historical value for the time period, and
the corresponding trend value.

These asonal variation is then used to adjust a forecast trend value.

There are two models used to estimate seasonal variation:

- The additive model; and

- The proportional model or Multiplicative Model.

The additive model

This model assumes that seasonal variations above and below the trend
line in each cycle add supto zero. Seasonal variations below the trend line
have a negative value and variations above the trend line have a positive
value.

The seasonal variation for each season (or daily variation for each day) is
estimated as follows, when the additive assumption is used:

Calculate the difference between the moving average value and the actual
historical figure for each time period.

Group these seasonal variations into the different seasons of the year (days
of the week; months or quarters of the year).

46
 Calculate the average of these seasonal variations for each season (or day;
month; quarter).

If the total seasonal variations for the cycle do not add up to zero the
difference is spread evenly across each season (or day; month; quarter).

This adjusted figure is the seasonal variation.

The proportional model

This model expresses the actual value in each season as a proportion of the
trend line value.

When a proportional model is used to calculate seasonal variations, rather

than the additive model, these asonal variations for each time period are
calculated by dividing the actual data by corresponding moving average
or trend line value.

The sum of the proportions for each time period must add up to 1. This
means that the total of the proportions quarterly data must sum to 4. If
this is not the case the difference is spread evenly over each squarter.

Examiner’s report
The question tests candidates‟ understanding of time series and models used to
estimate seasonal variations. Few candidates attempted the question and
performance was poor, as they did not understand the requirements.
Candidates are encouraged to read widely for future examination and pay
attention to every of the question detail.

Marking guide
Marks
a. 1 mark for points underlined in the solution 10
b. 1 mark for points underlined in the solution 10
Total 20

47
SOLUTION 2

a. INFLOWS JULY AUGUST SEPTEMBER

Sales collections 1,175,840.00 1,394,960.00 1,583,200.00
Loan obtained - 500,000.00 -
Fixed deposit 951,550.00 - -
Interest income - 2,500.00 -
Total (A) 2,127,390.00 1,897,460.00 1,583,200.00

b. OUTFLOWS
Purchases 848,400.00 948,360.00 1,033,200.00
Net Salaries 720,000.00 740,000.00 770,000.00
Expenses 277,200.00 287,500.00 292,700.00
Salaries deductions 49,480.00 58,700.00 52,750.00
Interest paid - 5,000.00 5,000.00
Loan repayment - - 41,667.00
Fixed deposit 500,000.00 - -
Bank Charges 23,950.80 20,395.60 21,953.17
Total (B) 2,419,030.80 2,059,955.60 2,217,270.17

Opening Balance 1,050,706.00 759,065.20 596,569.60

A-B (291,640.80) (162,495.60) (631,570.17)
Closing Balance 759,065.20 596,569.60 (37,000.57)

WORKINGS

SALES
April May June July August September
850,000 900,000 1,250,000 1,520,000 1,650,000 1,800,000
Credit Sales 680,000 720,000 1,000,000 1,216,000 1,320,000 1,440,000
Cash Sales 170,000 180,000 250,000 304,000 330,000 360,000
60% 600,000 729,600 792,000
20% 144,000 200,000 243,200
20% 136,000 144,000 200,000
5% Discount (6,800) (7,200) (10,000)
1% Bad debt (1,360) (1,440) (2,000)
1,175,840 1,394,960 1,583,200

48
 May June July August September
SALES 900,000 1,250,000 1,520,000 1,650,000 1,800,000
PURCHASES 540,000 750,000 912,000 990,000 1,080,000
70% 638,400 693,000 756,000
30% 225,000 273,600 297,000
2% Discount (15,000) (18,240) (19,800)
848,400 948,360 1,033,200

July August September

BANK CHARGES
Purchases 848,400 948,360 1,033,200
Net Salaries 720,000 740,000 770,000
Expenses 277,200 287,500 292,700
Salaries deductions 49,480 58,700 52,750
Interest paid - 5,000 5,000
Loan repayment - - 41,667
Fixed deposit 500,000 - -
2,395,080 2,039,560 2,195,317

23,950.80 20,395.60 21,953.17

1%

Interest received
0.50% 500,000.00 2,500.00 2,500.00
Interest paid
1% 500,000.00 5,000.00 5,000.00

Loan repayment 500000/12 = 41,666.67

Examiner’s report
The question tests candidates‟ knowledge of preparing cash budgets. About 60%
of the candidates attempted the question and candidates‟ performance was far
below average with only about 35% of them scoring 50% and above of the marks
allotted.

The major pitfall of most candidates was inability to differentiate between cash
and non-cash items as instructed by the examiner. Candidates are, therefore
encouraged to carefully study the examiners‟ report so as to help them in future
examination.

49
 Marking guide

Sales 1 mark for each correct entry 3

Loan ½ mark for each correct entry ½
Fixed deposit ½ mark for each correct entry ½
Interest income ½ mark for each correct entry 1
Total (A)

Purchases 1 mark for each correct entry 3

Net Salaries ½ mark for each correct entry 1½
Expenses ½ mark for each correct entry 1½
Salaries deductions ½ mark for each correct entry 1½
Interest paid ½ mark for each correct entry 1
Loan repayment ½ mark for each correct entry ½
Fixed deposit ½ mark for each correct entry ½
Bank Charges ½ mark for each correct entry 1½
Total (B)

Opening Balance ½ mark for each correct entry ½

A-B ½ mark for each correct entry 1½
Closing Balance ½ mark for each correct entry 1½
Total 20 Marks

SOLUTION 3

1 (a) PRICING OF STORE ISSUES USING FIFO

Date RECEIPTS ISSUES BALANCE
Qty U/Cost Value Qty U/Cost Value Qty U/Cost Value
Jan 2 500 40 20,000 500 40 20,000

Jan 7 200 45 9,000 500 40 20,000

200 45 9,000
700 29,000

Jan 10 300 40 12,000 200 40 8,000

200 45 9,000
400 17,000

Jan 12 350 42 14,700 200 40 8,000

200 45 9,000
350 42 14,700
750 31,700

50
Jan 15 200 40 8,000
200 45 9,000
100 42 4,200
500 21,200 250 42 10,500

Jan 18 200 38 7,600 250 42 10,500

200 38 7,600
450 18,100

CLOSING STOCK VALUE: N18,100.00

(b) PRICING OF STORE ISSUES USING LIFO

Date RECEIPTS ISSUES BALANCE

Qty U/Cost Value Qty U/Cost Value Qty U/Cost Value
Jan 2 500 40 20,000 500 40 20,000

Jan 7 200 45 9,000 500 40 20,000

200 45 9,000
700 29,000

Jan 10 100 40 4,000

200 45 9,000
300 13,000 400 40 16,000

Jan 12 350 42 14,700 400 40 16,000

350 42 14,700
750 30,700

Jan 15 150 40 6,000

350 42 14,700
500 20,700 250 40 10,000

Jan 18 200 38 7,600 250 40 10,000

200 38 7,600
450 17,600

CLOSING STOCK VALUE: N17,600.00

Examiner’s report
The question tests candidates‟ understanding of materials pricing using First-In-
First-Out (FIFO) and Last-In-First-Out (LIFO) methods.

About 90% of the candidates attempted the question and performance was good
as about 60% of candidates scored 50% and above of the marks obtainable.

The major pitfall was lack of presentation skills.

Candidates are encouraged to prepare for future examinations using the ICAN
Study Text.

51
Marking guide
Ticks Marks Marks
i. Pricing of Store Issues using FIFO
Jan 10 Issues Quantity 1 tick
Jan 10 Unit Cost 1 tick
Jan 10 Issues Value 1 tick
Jan 15 Issues Quantity 3 ticks
Jan 15 Unit Cost 3 ticks
Jan 15 Issues Value 3 ticks
Jan 7 Balance Quantity 1 tick
Jan 7 Balance Value 1 tick
Jan 10 Balance Quantity 1 tick
Jan 10 Balance Value 1 tick
Jan 12 Balance Quantity 1 tick
Jan 12 Balance Value 1 tick
Closing Stock Value 2 ticks
½ mark per tick 20 ticks 10

ii. Pricing of Store Issues using LIFO

Jan 10 Issues Quantity 2 ticks
Jan 10 Unit Cost 2 ticks
Jan 10 Issues Value 2 ticks
Jan 15 Issues Quantity 2 ticks
Jan 15 Unit Cost 2 ticks
Jan 15 Issues Value 2 ticks
Jan 7 Balance Quantity 1 tick
Jan 7 Balance Value 1 tick
Jan 10 Balance Quantity 1 tick
Jan 10 Balance Value 1 tick
Jan 12 Balance Quantity 1 tick
Jan 12 Balance Value 1 tick
Closing Stock Value 2 ticks
½mark per tick 20 ticks 10 20

52
SOLUTION 4

a. System security refers to the policies, procedures and technical measures

used to prevent unauthorised access, alteration, theft or physical damage to
information systems.

OR
System security is the protection against unauthorized access or
modification of information in storage processing or transit and against
denial of service to authorized users
WHILE
System control consists of all the methods, policies and organisation
procedures that ensure the safety of the organisation‟s assets including the
accuracy and reliability of its accounting records and adherence to
management standards.
OR
Is the control and implementation of a set of functions that prevents or
eliminates degradation of any part of the system.

b. The THREE supply chain management flows are:

i. Product flow: has to do with the movement of goods from supplier to

customer as well as customer returns or service needs;
ii. Information flow: involves transmitting orders and updating the status
of delivery; and
iii. Financial flow: consists of credit terms, payment schedule, consignment
and title ownership arrangement.

c. i. Quality Assurance: This relates to the way information system is

designed to ensure that the system is doing what it is expected to do.
OR
Processes and procedures that improves quality including training,
documentation, monitoring and audit/ensures that products and
services consistently meet or exceed customer‟s expectations.
ii. Quality control: Relates to checks that are built into the information
system or carried out by the organisation to ensure that the quality of
the system is maintained.
OR
Is a process through which a business seek to ensure that product
quality is maintained or improved.

d. i. Quality information system is the system whose operations are fit for the
purpose for which it is intended.
ii. Characteristics of quality information system include:

53
  Storing, handling and managing the business information;
 Ease of use for users of the system;
 Reliability including no breakdowns and any issues encountered
resolved quickly;
 Support the work of the employees and objectives of the
organisation;
 Data held within the system is accurate and complete;
 System operates at an acceptable speed;
 Correct, appropriate and reliable information can be extracted from
the system; and
 System is supported by a robust set of policies, procedures, and
controls.

e. i. Ethical issues, e.g.

 intellectual property rights
 electronic monitoring of employees
 data utilisation
 Personal privacy
 Ethics of AI
 Copyright
 Liability
 Technology
 Access rights
 Patents
 Harmful actions
 Lack of accountability

ii. Human interaction issues, e.g.

 recruitment and retainment of technical personnel.
 motivation
 leadership
 social presence
 Organisational champions of information system

iii. Relationship issues, e.g.

 development partnerships
 virtual teams
 group cohesiveness
 collaboration
 group facilitation
 networking
 buyer-supplier linkages

54
 iv. Security issues
 misuse of data
 virus/worms creation
 intranet abuse
 data perfection
 fraud with systems use
 standards and regulations

Examiner’s report
The question tests candidates‟ understanding of system security and control of
information systems. About 80% of the candidates attempted the question and
performance was very good as more than 60% of the candidates scored 50% and
above of the marks allotted.

Some candidates did not display sufficient knowledge of the quality of

information systems. They are advised to study very well and cover all areas of
the syllabus for future examinations.

Marking guide
Ticks Total Marks
a. 1
ticks for each distinction
1
12 3
2

b. 1 tick for each list and explanation 1 3

c. 2 ticks for each term 2 4
d. i. 1 tick for correct definition 1 1
ii. 1 tick for each characteristics 1 5
e. 1 tick each for correct examples 1 4
Total 20

SOLUTION 5

a. i. Electronic commerce is the process of buying and selling of products and

services over electronic systems such as the internet and other computer
networks.
OR
It is the process of buying, transferring or exchanging products, services
and /or information via computer network and the internet.

55
 ii. Advantages of e-commerce
 E-commerce allows people to carry out businesses without the barriers
of time and distance.
 The direct cost of sales for an order taken from a website is lower than
through traditional means (paper-based).
 It is the cheapest means of doing business.
 It reduces both time and personnel required to complete business
processes and reducing strains on other resources.
 It reduces the delivery time, labour cost and costs incurred in
document preparation, detection and correction of errors, data entry,
supervision expenses etc.
 It reduces buyer sorting-out time.
 Less time is spent in resolving invoices and order discrepancies.
 Wider reach and market availability.
 Ability to operate 24/7.
 Integration with other business systems.
 Very convenient for customers.
 Improved customer engagement.
 Easier management of inventory.

Disadvantages of e-commerce
 Lack of personal touch for it is difficult for customers to check the
quality of product/services.
 Delivery of the product not immediate (takes time) unlike the
traditional business where one get the product as soon as payment is
made.
 E-commerce is prone to security threats for it is easier for hackers to
get customers details.
 Dependence on technology
 Increased competition
 Lack of physical interaction with customers
 Difficulty in establishing trust
 Legal and regulatory compliance
 Initial investment and ongoing maintenance cost may be high
iii. Areas of application of e-commerce
 Mobile commerce
 Electronic fund transfer
 Supply chain management
 Internet marketing
 Online transaction processing
 Electronic data interchange (EDI)
 Internet banking
 B2B innovation
 Manufacturing

56
  Mobile application
 Digital shopping
 Multimedia
 Social networking
 Emails

iv. B2C = Business-to-Customer describes activities of business serving end

users with products/services or electronic business relationship between
business and final consumer e.g transaction between a commercial bank
like first bank and individual customer.

B2B = Business-to-Business e-commerce that encompasses all electronic

transactions of goods and services conducted between one company and
another company. Example is a transaction between Central bank of
Nigeria and a commercial bank.

b. Differences between e-commerce and e-business

i. e-commerce is buying and selling of goods and services through the

internet, e-business is an electronic presence of business through which
all business activities are conducted through the internet.
ii. e-commerce is e-business website, but e-business is not necessarily e-
commerce.
iii. e-commerce uses internet to connect to the rest of the world while e-
business uses internet, intranet and extranet to connect with the parties.
iv. e-commerce requires a website that can represent the business while e-
business requires a website customer relationship management and
enterprise resource planning for running the business over the internet.
v. e-commerce includes transaction relating to money, but e-business
include monetary and allied activities.
vi. e-commerce is a major part of e-business.
vii. In e-commerce,transactions are limited while in e-business transactions
are unlimited.
viii. e-commerce covers external business processes whereas e-business
covers both internal and external processes/activities.

c. e-commerce firms in Nigeria

i. Jumia Nigeria
ii. Konga
iii. Jiji Nigeria
iv. OLX
v. Deal Dey
vi. SME Market Hub

57
 vii. SLOT
viii. Kara
ix. Payparte
x. Kaiglo Nigeria
xi. Supermart
xii. Kusriap
xiii. Ajebo market
xiv. Obivezy
xv. Printivo store etc.
xvi. Yudala
xvii. Ebeosi etc.

Examiner’s report
The question tests candidates‟ understanding of electronic commerce (e-
commerce).

About 95% of the candidates attempted the question and performance was very
good as about 75% of the candidates scored 50% and above of the marks
allocated.

A few candidates however, required to answer the question appropriately. They

are advised to familiarise themselves with such terms when preparing for future
examinations.

Marking guide
Ticks TotalMarks
a. i. 2 ticks for correct definition 2 1
ii. 1 tick each for correct points 1 6
iii. 1 𝑡𝑖𝑐𝑘 for each application 14
iv. 1 tick for each correct distinction 1 2
b. 1 tick for each difference 1 5
c. 1
tick for each form ½ 2
2
Total 20

SOLUTION 6

a. Storage controls
i. File labeling in a particular order to prevent accidental loss of storage
media.
ii. Segregation of duty between the input and storage officers.
iii. Access to storage media must be properly authorised.
iv. Access to the database must be properly authorised.
v. There must be a log file which records every activity carried out on the
database.

58
 vi. Physical security of storage media environment including the data
processing centre.
vii. Regular file backup.
viii. Proper custody of storage media to prevent data loss and damages.

b. Functions of IT Department staff

i. Software Engineer: design and program system level software like
operating systems, database systems, embedded systems as well as
application software.
ii. Systems Analyst: investigate and analyse business problems and then
design information systems that provide a feasible solution in response to
requests from their business or customer.
OR

A person who uses analysis design techniques to solve business problems

using information technology.

iii. Network Engineer: Setting up, administering, maintaining and

upgrading communication systems, and network for an organisation.
OR
Network architect that designs, implements, manages and troubleshoot
computer network of an organistaion.

iv. Software Tester: Preparing test scripts and testing applications before it
is released to end – users. OR
A person responsible for checking and testing whether a software
satisfies expectation for which the software was developed.

v. Business Analyst: - function involves analysing User‟s needs, gathering

and documenting requirements and creating a project plan to design the
resulting technology solution.
OR
A person who processes, interprets and document business process,
products, services and software through analysis of data.

c. System maintenance
i. System maintenance is the process of modifying a system after it has
been implemented and in use to correct errors and provide new facilities.
ii. Purposes/reasons
 To deal with unforeseen problems arising from the operations of the
system.
 To confirm that the planned objectives are being met and to take
action(s) if there are deviations.
 To ensure that the system is able to cope with the changing
requirements of the system/business.

59
 iii. Reasons for adaptive maintenance.
 User requests may have changed or ill defined when the system was
designed.
 The system environment may have significantly changed.
 The system may have grown beyond the limits that were originally
envisaged for it.

d. Distinction between interview and question methods:

Interview: this is the face – to – face discussion between system analyst
(interviewer) and the respondents (interviewee or respondent),
specialised other individuals with the knowledge of the system. The
analyst asks questions and obtains answers, comments and suggestions.
It is the most widely used fact – finding method.

WHILE

Questionnaire is a method of fact – finding for obtaining data and

information from a large number of people in a uniform manner on
specific issues. It consists of a set of questions written down by the
questionnaires to be answered in writing by the respondents. It is a
widely used method of fact – finding for collecting data and information
from large number of respondents.

Examiner’s report
The question tests candidates‟ understanding of storage control, IT department
functions and system maintenance.
About 75% of the candidates attempted the question and performance was very
good as about 65% of them scored 50% and above of the marks allocated. Some
candidates mixed up the functions of some IT personnel.
Candidates are encouraged to lay more emphasis on this subject during
preparations for future examinations.

Marking guide
Tick Total Marks
a. 1 tick for each example of storage 1 5
b. 1 tick each for functions 1 5
c. i. 1 tick for control definition 1 1
ii. 1 tick for each reason 1 3
iii. 1 tick each for reason 1 3
d. 1
12 ticks for correct distinction 12
1
3
Total 20

60
ICAN/241/F/A1 Examination No....................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 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 RED INK will not be marked.

WEDNESDAY, MAY 15, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

61
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – MAY 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 best describes the objective of a Not-for-profit

organisation?

A. Maximising benefits
B. Maximising of shareholders‟ wealth
C. Earn a return for the owners
D. Increase in market value
E. Capital growth

2. Co-operatives form of business are owned by the

A. Owners
B. Managers
C. Members
D. Investors
E. Governments

3. Which of the following is the focus of an informal organisation?

A. Process
B. Plan
C. Work
D. People
E. Organising

4. Which of the following is NOT an aspect of employment law?

A. Minimum wage
B. Working conditions
C. Cash flow
D. Redundancy
E. Discrimination

62
5. The purpose of data protection law is to protect the

A. Managers
B. Owners
C. Governments
D. Individuals
E. Investors

6. Which of the following is NOT a feature of a profession?

A. Admit new members to the profession

B. Award qualifications to individuals who achieve a required
standard of skill or competence
C. Expel members from the profession, for professional conduct
D. High entry requirements
E. An extensive period of rigorous academic training in a particular
area

7. The decisions and actions of all professional accountants in an

organisation are guided by

A. Organisational culture
B. Management
C. Professional trainings
D. Core values
E. Corporate code of ethics

8. An organisation that is not defined by, or limited to, the horizontal,

vertical, or external boundaries imposed by a predefined structure is
called a/an

A. Matrix organisation
B. Boundaryless organisation
C. Divisonal organisation
D. Virtual organisation
E. Entrepreneurial organisation

9. Which of the following best describes the promotion of team spirit and
unity among employees in an organisation?

A. Togetherness
B. Equity
C. Esprit de Corps
D. Scalar Chain
E. Division of Work

63
10. According to McClelland motivation theory, a N-ach person seeks

A. Authority
B. Achievement
C. Power
D. Affiliation
E. Effort

11. Which of the following is NOT a characteristic of a successful work team?

A. The team should have a complex purpose

B. The team should have effective leadership
C. Its area of authority should be clearly defined
D. Provide benefits to the business
E. Morale or team spirit should be high

12. Which of the following does NOT describe the need for effective
communication?

A. Instructions and guidelines are properly understood

B. Individuals know what they are expected to do
C. Better co-ordination between people and groups
D. Arguments and conflicts in the work place are reduced
E. Openness, understanding and trust are eliminated

13. Which of the following components of a report is of a top priority?

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

14. Which of the following is NOT a feature of effective report?

A. Fit for purpose

B. Decisive
C. Persuasive
D. Correct in fact and language
E. Lasting

64
15. Which of the following does NOT represent short-dated financial
instruments?

A. Treasury bills
B. Bills of exchange
C. Commercial paper
D. Certificates of deposit
E. Equity finance

16. A method of issuing new shares for cash to a relatively small number of
selected investors is called

A. Financing
B. Public offer
C. Rights issue
D. Placing
E. Private offer

17. Calculate the present value, discounted at 15 percent, of receiving

N500,000 at the end of year 4

A. N245,836.22
B. N255,846.32
C. N265,856.42
D. N275,866.52
E. N285,876.62

18. Which of the following is an advantage of a partnership form of

business?
A. Unlimited liability for the individual partners
B. Minimal organisational effort and costs
C. Limited ability to raise large sums of money
D. Dissolved upon the death of any of the partners
E. Dissolved upon the withdrawal of any of the partner

19. Calculate the present value, discounted at 6 percent, of receiving

N300,000 at the end of year 5
A. N222,175.45
B. N223,176.45
C. N224,177.45
D. N225,178.45
E. N226,179.45

65
20. A series of regular or periodic payments of equal amounts are called

A. Sinking funds
B. Premium
C. Annuities
D. Interest
E. Direct transfer

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT FOUR OUT OF THE
SIX QUESTIONS IN THIS SECTION

QUESTION 1

As maintained by Harold Koontz “management is an art of creating an

environment in which people can perform and individuals can co-operate
towards attainment of group goals”.

a. Define the term “Self-efficacy”. (2 Marks)

b. Briefly explain FOUR ways in which self-efficacy impact human functions.
(8 Marks)
c. Briefly explain the following concepts:
i. Management by objectives (MBO);
ii. Intrinsic rewards;
iii. Unity of direction;
iv. Communication style;
v. Queuing theory; (10 Marks)
(Total 20 Marks)

QUESTION 2

a. Briefly explain the term “Financial engineering”. (3 Marks)

b. Describe the relationship between financial accounting and management
accounting. (4 Marks)
c. State FIVE examples of Nigerian bond markets hosted by the Nigerian
Exchange Limited (NGX). (5 Marks)
d. Explain briefly the following financial concepts.
i. Certificate of deposits (CDS)
ii. Commercial paper (CP)
iii. Treasury bills (TB)
iv. Banker‟s acceptances (BAs) (8 Marks)
(Total 20 Marks)

66
QUESTION 3

a. Explain briefly FIVE ethical threats that could compromise a professional

accountant‟s ability to comply with relevant laws and regulations.
(5 Marks)
b. Within the framework of a capital budget and strategic planning, state the
FIVE steps of investment appraisal. (5 Marks)
c. When companies retain profits in the business, the increase in retained
profits adds to equity reserves.
i. Explain TWO benefits of retaining profits in the business. (4 Marks)
ii. Explain THREE reasons why there could be a limit to the amount of
earnings available for retention. (6 Marks)
(Total 20 Marks)

QUESTION 4

a. Define the term “Stakeholder”. (2 Marks)

Explain briefly THREE internal stakeholders of a company. (6 Marks)
b. State FOUR advantages and FOUR disadvantages of Joint ventures. (8 Marks)
c. On the basis of qualification, nature of work, establishment and motive;
distinguish between profession and employment. (4 Marks)
(Total 20 Marks)

QUESTION 5

a. Conflict usually has a negative impact on the effectiveness of an

organisation
i. Explain SIX causes of conflict in an organisation. (6 Marks)
ii. Explain FOUR characteristics of conflict. (4 Marks)
b. Explain briefly THREE implications of expectancy theory for management.
(6 Marks)
c. State TWO disadvantages of Management by Objective (MBO). (4 Marks)
(Total 20 Marks)

QUESTION 6

Managers that do not design effective communication models risk the long-run
survival of their organisations.

a. Define the term “Formal communication”. (21/2 Marks)

b. State FIVE attributes of effective communication system. (71/2 Marks)
c. List SIX features of effective reports. (6 Marks)
d. State FOUR features of bad reports. (4 Marks)
(Total 20 Marks)

67
SECTION A

PART I - MULTIPLE CHOICE ANSWERS

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

Tutorial
MCQ 17
1
𝑃 = 500,000[ 1+0.15 4 ] = N 500,000 x 0.5717.53= 285,876.62
MCQ 19
1
𝑃 = 300,000[ 1+0.06 5 ] = N 300,000 x 0.7473= 224,177.45

68
Examiner’s report
Section A of the paper comprises of twenty mandatory multiple-choice
questions. The questions test candidates‟ comprehension of the various aspects
of the syllabus. This section is compulsory and was attempted by almost all the
candidates. All the candidates attempted the questions and more than 50% of
the candidates scored above average. Candidates should be encouraged to
cover all aspects of the syllabus. ICAN study text and Pathfinder offer the
required guidance.

Marking guide
Section A

MCQs 1-20 Award 1 mark each for any correct option

stated, up to a maximum of 20 marks 20 Marks

SECTION B

SOLUTION 1

a. Self-efficacy is the measure of the belief in one‟s own ability to succeed

in a given situation that is, to complete tasks and reach goals. It reflects
confidence in the ability to exert control over one's own motivation,
behavior and environment.

b. Levels of self-efficacy impact human functions in a number of ways.

i. Motivation: People with high self-efficacy are more likely to

make the effort to complete a task and persist with those efforts
than people with low self-efficacy. However, this can also
manifest as high self-efficacy people being over-confident, less
thorough and less well- prepared compared to someone with
low self-efficacy.
ii. Behaviour choice: High self-efficacy generally leads to tasks
being undertaken, whereas low self-efficacy generally leads to
tasks being avoided. High self-efficacy beyond one‟s ability level
to complete a task can lead to poor execution of the task, whereas
self-efficacy significantly below ability levels can lead to under-
achievement and stifle growth. The optimal level of self-efficacy is
considered to be slightly above ability.

iii. Thought patterns and responses: High self-efficacy people will

attribute failure to external factors, whereas low self-efficacy
people will blame themselves. Barriers and obstacles will
stimulate high self-efficacy employees whereas they will tend to
discourage low self-efficacy employees. Employees with high self-

69
 efficacy tend to take a broader overview of a task and embrace
„big-picture‟ thinking whereas low self-efficacy employees will
limit their thinking and focus on achieving rather than exceeding.
Low self-efficacy employees tend to think that tasks are harder
than they actually are. This then can result in poor planning and
increased stress levels.

iv. Academic productivity: It has been argued that students with

high self-efficacy demonstrate better academic performance than
those with low self-efficacy. This is because they are more likely to
proactively take control of their learning experience, participate in
class and enjoy hands-on learning experiences.

c. Brief explanation of the following concepts.

i. Management by Objectives (MBO)
Management by Objectives is a management approach that emphasises
the establishment of clear objectives and goals for individuals and teams
within an organisation. It involves setting specific, measurable,
achievable, relevant and time-bound (SMART) objectives that align with
the overall organisational goals. MBO aims to create a sense of direction
and focus, promote employee engagement and motivation as well as
improve organisational performance. It typically involves a collaborative
process between managers and employees, where objectives are jointly
established, progress is monitored, and feedback is provided regularly.

ii. Intrinsic rewards

Intrinsic rewards refer to the internal or psychological rewards that
individuals experience as a result of engaging in a particular activity or
task. These rewards are inherently satisfying and enjoyable and come
from within the individual. Examples of intrinsic rewards include a sense
of accomplishment, personal fulfillment, enjoyment of the work itself, a
feeling of competence, or the opportunity for personal growth and
development. Unlike extrinsic rewards such as money or external
recognition, intrinsic rewards are derived directly from the activity or
task and can significantly impact an individual's motivation and
engagement.

iii. Unity of direction

Unity of direction is a principle of management that emphasises the need
for all individuals and groups within an organisation to work towards a
common goal. It suggests that there should be a single plan of action and
a coordinated effort to achieve the organisation's objectives. Unity of
direction ensures that everyone understands the organisation's overall
direction, strategies, and priorities, and that their individual efforts are
aligned with the larger goals. It helps minimise conflicts, duplication of
efforts and confusion, thereby improving organisational efficiency and
effectiveness.

70
iv. Communication style
Communication style refers to the manner in which individuals express
themselves, convey information and interact with others during the
communication process. It encompasses various elements such as verbal
and nonverbal cues, tone of voice, choice of words, listening skills, and
overall communication approach. Communication styles can vary widely
among individuals and can be influenced by cultural, personal and
situational factors. Effective communication styles involve clarity, active
listening, empathy, adaptability and the ability to convey information in
a manner that is easily understood by the intended audience.

v. Queuing theory
Queuing theory is a branch of mathematics and operations research that
deals with the study and analysis of queues or waiting lines. It provides a
framework for understanding and optimising the behaviour and
performance of systems involving the arrival, service, and departure of
entities (such as customers, vehicles, or data packets) in a sequential
manner. Queuing theory helps in analysing factors such as average
waiting time, queue length, service capacity, arrival rates and service
rates to optimise system performance and resource allocation. It finds
applications in various fields, including telecommunications,
transportation, healthcare and customer service, where waiting lines are
prevalent. (Total 20 Marks)

Examiner’s report
The question is in three parts. The first part requires the definition of self-
efficacy while the second part demands a brief explanation of how self-efficacy
impacts human functions. The third requires candidates to explain the
following concepts: management by objectives (MBO); intrinsic rewards; Unity
of Direction; Communication style; and Queuing theory. Majority of the
candidates attempted the question and the pass rate was above average.
Candidates should be encouraged to be using ICAN Study Text and Pathfinder
as guide.

Marking guide
Marks Marks
a. Award a maximum of 2 marks for stating
the correct definition of self-efficacy 2
b. Award a maximum of 2 Marks each for the correct
explanation of any four ways in which self-efficacy
impacts human functions (2 x 4) 8
c. Award a maximum of 2 marks each for the correct
explanation of the concepts
(2 x 5) 10
Total 20

71
SOLUTION 2
a. Financial engineering involves the use of mathematical techniques to
solve financial problems. Tools and knowledge are drawn from the fields
of statistics, economics, computer science and applied mathematics to
address current financial issues; and devise new and innovative financial
products. Financial engineering is sometimes called quantitative analysis
and is primarily used by investment banks, insurance agencies, hedge
funds and commercial banks.

Financial engineering can also be used to refer to strategies adopted by

companies to maximise profits or other metrics through derivatives that
address unusual risks faced by a party in a transaction; structuring a
purchase or sale in a way that better addresses the interests of the buyer
or seller; and using new methods to compute the fair value of new or
existing financial instrument.

b. The relationship between financial accounting and management

accounting
Financial accounting and management accounting are two branches of
accounting that serve different purposes within an organisation.
i. Financial accounting focuses on the preparation, presentation, and
reporting of financial information to external stakeholders, such as
investors, creditors, and regulatory authorities. Its primary objective is to
provide accurate and reliable financial statements, including the
statement of profit or loss, statement of financial position and statement
of cash flows that reflect the financial performance and position of the
organisation. One aspect of financial accounting is the assessment of
financial performance and financial position using accounting ratios such
as return on capital employed, gearing, profitability ratios and working
capital ratios. Users of financial reports can try to use the information in
financial statements to make predictions about the future. Ratio analysis
is also an element of financial management, because the attitude of
shareholders and other investors to a company will depend largely on
prospects for its financial performance and the strength of its capital
structure.

ii. Management accounting is concerned with the provision of financial

information to internal stakeholders, specifically the management of an
organisation. Its primary objective is to support managerial decision-
making, planning and control. Management accounting provides
information such as cost analysis, budgeting, performance measurement
and variance analysis to help managers make informed decisions and
effectively manage the organisation's resources. An aspect of
management accounting is strategic management accounting, which is
concerned with providing senior management with information to assist
with the long-term (strategic) planning and control.

72
 iii. Financial accounting focuses on historical financial data and follows
Generally Accepted Accounting Principles (GAAP) or International
Financial Reporting Standards (IFRS). Management accounting is more
flexible and can tailor its reports and analysis to meet the specific needs
of management. Financial accounting is primarily concerned with
external reporting and compliance, whereas management accounting is
focused on internal decision-making and performance evaluation.

iv. Financial accounting and management accounting overlap in the area of

working capital management. Staff in the financial accounting
department might have the day-to-day responsibility for trade
receivables, in particular the collection of payments. An aspect of
management accounting is to provide information for inventory control,
such as information about economic order quantities and reorder levels.

c. The following are the examples of the Nigerian bond markets hosted by
the Nigerian Exchange Limited (NGX):

i. Federal government bonds;

ii. FGN savings bonds;
iii. State/local government bonds;
iv. Supranational bonds;
v. Corporate bonds; and
vi. Eurobonds

d. i. Certificates of deposit (CDs): Certificates of deposit are financial

instruments issued by banks or financial institutions to depositors
acknowledging that the bank is holding a short term bank deposit
on which interest is being earned. CDs typically have a fixed
maturity date and pay a fixed interest rate. They are considered to
be low risk investments because they are insured by the Nigeria
Deposit Insurance Corporation (NDIC). CDs offer a higher interest
rate compared to regular savings accounts but generally have
penalties for early withdrawal before the maturity date.

ii. Commercial paper (CP): Commercial paper refers to short-term

unsecured promissory notes issued by corporations, financial
institutions, or government entities to meet their short-term funding
needs. It is typically issued at a discount to its face value and has
maturities ranging from a few days to a few months. Commercial
paper is a common instrument used by highly rated companies to
raise funds quickly and at a lower cost compared to other forms of
borrowing. Investors in commercial paper include money market
funds, institutional investors and other entities seeking short-term
investments with relatively low risk.

73
iii. Treasury bills (TBs): Treasury bills are financial instruments
acknowledging a short-term debt issued by governments to finance
their short-term funding requirements. They are typically issued by
central banks on behalf of the government and have maturities of less
than one year, usually 91 days, 182 days, or 364 days. Treasury bills
are considered to be low-risk investments as they are backed by the
full faith and credit of the government. The buyer or holder of a bill
can hold the bill until maturity, when it should be redeemed.
Alternatively, the bill holder can sell the bill in a secondary market
before maturity. Bills are redeemable at face value (at „par‟) and do
not pay interest. Therefore, their market value is always below their
redemption value or face value.

iv. Banker's acceptances (BAs): Banker's acceptances are short-term

financial instruments that arise from a time draft or bill of exchange
drawn on and accepted by a bank. They are commonly used in
international trade transactions to facilitate payments between
importers and exporters. A banker's acceptance represents a bank's
unconditional promise to pay the holder of the instrument a specified
amount at a future date. They are typically traded at a discount to
their face value in the secondary market and are considered to be
relatively low-risk investments due to the involvement of banks in the
transaction. (Total 20 Marks)

Examiner’s report
The question is in four parts. The first part tests the candidates‟
knowledge of financial engineering”. The second part examines the
connection between financial accounting and management accounting.
The third part requests five examples of Nigerian bond markets hosted by
NGX. The fourth part requires candidates to explain the following
concepts: Certificates of deposits (CDs); Commercial paper (CP);
Treasury bills (TB): and Bankers acceptances (BAs). More than half of
the number of candidates attempted the question and majority scored
above average.

For better performance in future examinations, candidates are strongly

advised to cover the entire syllabus in their preparation for this subject
and make adequate usage of the study text.

74
 Marking guide
Marks Marks
a. Award a maximum of 3 marks each for
stating the correct definition of financial 3
engineering
b. Award a maximum of 1 mark each for any 4
relationship correctly described (1 x 4) 4
c. Award a maximum of 1 mark each for the
examples of the Nigerian bond market stated
(1 x 5) 5
d. Award 2 marks (maximum) each for correctly
explaining the stated financial concepts.
(2 x 4) 8
Total 20

SOLUTION 3

a. The ethical threats

i. Self-interest threat: The threat that a financial or other interest will

inappropriately influence the professional accountant‟s judgment or
behaviour;

ii. Self-review threat: The threat that a professional accountant will not
appropriately evaluate the results of a previous judgment made or service
performed by himself or herself, or by another individual within the
professional accountant‟s firm or employing organisation, on which the
accountant will rely when forming a judgment as part of providing a
current service;

iii. Advocacy threat: 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;

iv. Familiarity threat: The threat that due to a long or close relationship with a
client or employer, a professional accountant will be too sympathetic to
their interests or too accepting of their work; and

v. Intimidation threat: The threat that a professional accountant will be

deterred from acting objectively because of actual or perceived pressures,
for example, attempts to exercise undue influence over the professional
accountant.

75
b. The steps of investment appraisal within the framework of a capital budget
and strategic planning include:

i. Generating capital investment proposals in line with the company‟s

strategic objectives;
ii. Forecasting relevant cash flows relating to the project;
iii. Evaluating the projects;
iv. Implementing projects which satisfy the company‟s criteria (i.e. project
that will earn a satisfactory return on investment); and
v. Monitoring the performance of investment projects to ensure that they
perform in line with expectations.

c. (i) Benefits of retaining profits in business

 Cheap source of financing: When new equity is raised by issuing

shares, there are large expenses associated with the costs of the issue.
When equity is increased through retained earnings, there are no
issue costs because no new shares are issued.
 Availability of funds: The finance is readily-available, without having
to present a case to a bank or new shareholders. Shareholder
approval is not required for the retention of earnings.
 Increased financial reserves: Retaining profits allows a company to
build up its financial reserves, which enhances its stability and
flexibility.
 Cushion against financial challenges: By retaining earnings, a
company can create a cushion to withstand economic downturns,
unexpected expenses, or other financial challenges. It provides a
source of internal funding that can be used for investments,
expansion initiatives, research and development, or strategic
opportunities without relying solely on external financing.
 Enhances growth: Retained profits can fuel the growth and expansion
of a company. By reinvesting earnings back into the business, a
company can finance new projects, acquire assets, develop new
products or services, or enter new markets. Retained profits can
provide a reliable and cost-effective source of capital for these
endeavours, enabling the company to pursue its long-term growth
objectives.

(ii) Reasons why there could be a limit to the amount of earnings available
for retention

i. Availability of profits: The company might not earn large profits.

Earnings can only be retained if the company is profitable.
ii. Efficiency: Retained earnings must be used efficiently, to provide a
suitable return on investment. Unless retained earnings contribute to

76
 future growth in earnings and dividends, shareholders will demand
higher dividends and lower earnings retention.
iii. Dividend policy: Earnings are either retained or paid out to shareholders
as dividends. By retaining earnings, a company is therefore withholding
dividends from its shareholders. A company might have a dividend
policy, and its shareholders might have expectations about what future
dividends ought to be. Earnings retention is therefore restricted by the
constraints of dividend policy.
iv. Capital requirements and debt obligations: Companies may have
substantial capital requirements or debt obligations that limit the
amount of earnings available for retention. If a company needs to repay
loans or meet interest payments, it may have to allocate a significant
portion of its earnings towards these obligations, leaving limited funds
for retention.
v. Dividend expectations and shareholder demands: Shareholders often
expect a return on their investment in the form of dividends. If a
company has a consistent dividend policy or has made commitments to
distribute a certain percentage of profits as dividends, it may have
limited funds available for retention. Balancing the interests of
shareholders and the need for capital retention can be a challenging
task.
vi. Regulatory and legal constraints: Some industries or jurisdictions impose
regulatory or legal constraints on the amount of earnings that can be
retained by a company. These constraints may be in the form of dividend
payout ratios, capital adequacy requirements or other financial
regulations. Such limitations can restrict the amount of earnings
available for retention and influence a company's capital allocation
decisions.

Examiner’s report
The question is in three parts (a) of the question examines candidates‟
knowledge of the ethical threats that could compromise a professional
accountant‟s ability to comply with relevant laws and regulations. Part (b)
requests candidates to state the five steps of investment appraisal. Part (c) is in
two subparts and it requests the benefits of retaining profits in business and
reasons why there could be a limit to the amount of earning available for
retention. Above average attempted the question and the pass rate was above
average.

Candidates are expected to have a mastery of the contents of the syllabus

through adequate usage of ICAN Study Text and Pathfinders.

77
 Marking guide
Marks Marks
a. Award a maximum of 1 mark each for
explaining 5 ethical threats that could
compromise an accountant's ability to comply
with relevant laws and regulations. (1 x 5) 5
b. Award a maximum of 1 mark for each of the 5
steps of investment appraisal correctly
explained. (1 x 5) 5
c. i. Award a maximum of 2 marks each for a correct
explanation of any 2 benefits of retaining
profits in the business (2 x 2) 4
ii. Award a maximum of 2 marks each for correctly
explaining 3 reasons why there could be a limit
to the amount retained from earnings. (2 x 3)
6
Total 20

SOLUTION 4

a. A stakeholder is an individual, group or entity that has an interest or

concern in an organisation or project and is affected by its activities,
decisions, or outcomes. Stakeholders can include individuals or groups such
as employees, shareholders, customers, suppliers, government agencies,
local communities and even competitors.

b. The internal stakeholders of a company are:

i. Shareholders or owner: Shareholders are individuals or entities that own

shares or equity in the company. They have a financial interest in the
company's performance and profitability. Shareholders may include
individual investors, institutional investors or even employees who own
company stock through employee stock ownership plans (ESOPs). They
may participate in decision-making through voting rights and have
expectations of receiving dividends or capital appreciation on their
investment. The main shareholders are not usually involved in the day-
to-day management. Shareholders in a large company are usually
investors, seeking to earn a return on their investment in the form of
dividends and higher share price. Shareholders leave the management of
their company to the board of directors and executive management team.
However, they might become more closely involved in the company and
try to influence the decisions of the directors, when they feel that their
interests are threatened.

78
 ii. Executive directors and senior managers: The management team and
executives within the company form another important internal
stakeholder group. They are responsible for making strategic decisions,
overseeing day-to-day operations and ensuring the company's success.
Their interests may include achieving financial targets, enhancing the
company's reputation and maximising shareholder value. A board of
directors might consist of executive directors and non-executive directors.
Executive directors are usually full-time employees of the company,
whereas non-executives are not. As executives and full-time employees,
executive directors are involved in the management of the company.
Their interests are therefore often similar to the interests of other senior
executives, who do not have a position on the board of directors.

iii. Managers and employees: Employees are a crucial internal stakeholder

group. They contribute to the day-to-day operations of the company and
are directly affected by its decisions and performance. Employees may
have a vested interest in the company's success as it can affect their job
security, career growth opportunities, compensation and working
conditions. Managers in the middle and junior ranks of a management
hierarchy might have ambitions to become senior managers. However,
their interests and concerns are different. Often, junior managers and
other employees share common interests such as pay, working
conditions, job security, job satisfaction and quality of life.

c. Advantages of a joint venture

i. Provides opportunity to gain new insights and expertise.
ii. Enables access to specialised technology, staff and other resources.
iii. It is of a limited lifespan and short-term commitment in the event that
the project fails, risks and costs are jointly shared.
iv. Eradicates the risk of discrimination.

Disadvantages of a joint venture

i. Flexibility can be restricted.
ii. Degree of partners‟ involvement may not be equal.
iii. Clash of cultures and management styles may impair the success of
the venture.
iv. It has uncleared and unrealistic objectives.

79
d. Comparison of profession and employment.

Basis Profession Employment

Qualification Certified professional Determined by the
knowledge is essential employer and specified
in the job specification
Nature of work Rendering highly skilled Performance based on
and professional services job analysis
Establishment Membership of a Contract of employment
specified professional usually forms the basis
body is required of employment
Motives The motive is to render The motive is to serve as
service and charge fees a means of livelihood
(Total 20 Marks)

Examiner’s report
The question is in four parts. Part (a) tests the concept of “Stakeholder”. Part
(b) requires an explanation of the internal stakeholders. Part (c) tests the
advantages and disadvantages of Joint Ventures and part (d) examines the
distinguishing factors between profession and employment. Majority of the
candidates attempted the question and the pass rate was good.

For better performance in future examinations, candidates should concentrate

on the usage of the ICAN Study Text.

Marking guide
Marks Marks
a. Award a maximum of 2 marks for stating
the correctly defining „stakeholder‟ 2
b. Award a maximum of 2 marks each for
correctly explaining 3 internal stakeholders 6
in a company. (2 x 3)
c. Award a maximum of 1mark each for
correctly stating the advantages 8
/disadvantages of the joint ventures. (1 x 4)
+ (1 x 4)
d. Award a maximum of ½ Mark each for the
required distinguishing factors correctly
explained (½ x 8) 4
Total 20

80
SOLUTION 5
a. i. Causes of conflict in an organisation

 Conflict can arise when individuals are unclear about their respective
areas of responsibility, so that one person believes that another is
trying to take away his authority and responsibility. Conflict occurs
because each individual believes that he has the responsibility for
doing something, and it is not the responsibility of the other person.

 Conflict can arise when workgroups are unclear about their respective
area of responsibility. Each workgroup believes that it has the
decision-making responsibility and not the other group.

 Conflict may occur when one person or group thinks that another
person or group is deliberately trying to spoil what he is or they are
trying to do, by being deliberately unhelpful or critical. For example,
there may be conflict between the operations division and finance
department of a company if the operations division‟s management
want to invest in new equipment and the finance department will not
allow them to have the money to invest.

 Conflict may occur when two workgroups are pursuing incompatible

objectives. Similarly, conflict may occur between management and
trade union representatives, because management act in the best
interests of the organisation and its owners, and the trade union
representatives try to get the best terms of employment for their
members.

 On a personal level, conflict can arise when one individual thinks he

can tell another person what to do, but the other person refuses to
follow his instructions or recognises his authority.

 Conflict may even occur when operational managers are advised by

specialist. The operational managers may feel that the specialists are
being deliberately unhelpful in the advice they give. The specialists
might feel that their advice is being wasted when it is ignored.

 Conflict may occur due to the nature of the work involved, so that for
one person or group to succeed, another group has to fail. Operational
departments may have conflicts with regulators and checkers for this
reason.

 Political conflict may occur at the most senior level of the organisation,
for example among the directors and senior managers of a company.

 Conflict might arise due to personality differences and natural ways of

approaching a task. For example, there may be conflict between a

81
 conservative employee who favours a measured and structured
approach to implementing a new piece of technology versus a more
adventurous and care-free employee who favours a try it, see what
happens and worry later approach.

 Non-compliance with rules, regulations and policies can be a common

cause for conflict between those breaching the rules and those
advocating compliance.

 Simple misunderstanding through ineffective communication can be

another common cause of conflict in the workplace. For example,
written communication may not easily convey body language or elicit
constructive dialogue and hence misrepresent the tone with which it
was sent.

 Conflict may arise where quotas and incentives generate competition

for a scarce resource. Whilst on the one hand healthy competition can
be good motivator, it can also lead to destructive and divisive
behaviour such as sabotage and deliberate misinformation.

ii Characteristics of conflict
 Conflict usually has a negative impact on the effectiveness of an
organisation.
 There may be unfriendly rivalries between workgroups, departments
or individuals.
 The individuals or groups in conflict are unlikely to communicate
openly with each other.
 There may be inter-departmental disputes and arguments.
 Individuals or groups will be unwilling to listen to ideas from others
with whom they are in conflict. There will be a refusal to co-operate.
 The opponents or rivals will constantly make accusations of wrongful
treatment or improper behaviour.
 Individuals are likely to feel frustrated in their work and put the
blame on the „enemy‟.
 There may be disputes over rights and responsibilities.

b. Implications of expectancy theory for management

i. Motivation depends partly on valence, which is the strength of an

individual‟s desire for particular rewards. Managers should therefore try
to find out what their employees do want.

ii. Motivation also depends on expectancy. Some individuals do not believe

that they are able to achieve better performance by trying harder. They
may lack self-confidence, or lack training. Alternatively, they may not be
in a position to affect performance, in which case motivation will be very
low, and possibly nil. Management must consider ways of trying to
increase the expectancy of their employees, for example by providing

82
 training and development, giving them the resources, they need to do
the job or by providing supervision and guidance.

iii. Instrumentality may also affect motivation. Managers must keep the
promises that they have given of rewards for performance and try to
make sure that employees believe that the managers will keep their
promises.

c. Disadvantages of MBO
i. MBO is often challenging and lengthy to implement needing what can
be perceived as an unnecessarily expensive underlying goal tracking
system.

ii. Implementing MBO requires commitment across the whole

organisation; however, significant employees‟ resistance do occur.
(Total 20 Marks)

Examiner’s report
The question is in three parts. Part (a) tests the candidates‟ abilities to explain
the causes and characteristics of conflicts. Part (b) tests their abilities to explain
the implications of expectancy theory for management. Part (c) examines the
disadvantages of Management by Objectives (MBO). Majority of the candidates
attempted the question and above 50% of them passed.

Candidates should be encouraged to cover all aspects of the syllabus while

preparing for future examinations by making adequate use of ICAN Study Text.

Marking guide
Marks Marks
(a) i. Award a maximum of 1 Mark each for any 6
causes of conflicts explained (1 x 6) 6
ii. Award 1 Mark each for any 4 characteristics
of conflicts explained. (1 x 4) 4
(b) Award 2 Marks each for any 3 implications of
expectancy theory for management correctly 6
explained. (2 x 3)
(c) Award a maximum of 2 Marks each for any 2
disadvantages of MBO stated (2 x 2) 4
Total 20

83
SOLUTION 6

a. Formal communication refers to the official, structured, and predefined

channels of communication within an organisation. It follows established
lines of authority, hierarchy, and organisational structure. Formal
communication is typically documented, recorded, and can include official
memos, reports, emails, or meetings that follow a prescribed format or
protocol.

b. Attributes of effective communication system

i. Clarity
ii. Consistency
iii. Active listening
iv. Feedback
v. Appropriate medium
vi. Timing and timeliness

c. Features of an effective report:

i. Fit for purpose
ii. Decisive
iii. Easy to read and follow
iv. Correct in fact and language
v. Conciseness
vi. Persuasive
vii. Action-based
viii. Clarity
ix. Get to the point
x. Accuracy and reliability
xi. Organisation and structure
xii. Relevance and focus
xiii. Actionable recommendations

d. Features of a bad report:

i. Does not serve its purpose
ii. Leaves the reader‟s questions unanswered
iii. Hard work, boring and irritating to read
iv. Still needs basic editing
v. Unconcise
vi. Leaves the reader unconvinced or in disagreement
vii. Over-uses the passive voice
viii. Is muddled and illogical
ix. Is story-like rather than business-like
x. Indecisive

84
Examiner’s report
The question is in four parts. The first part requires the definition of “formal
communication‟ and the second part request the attributes of effective
communication. The third part requires that the candidates list the features of
effective reports while the feature of bad reports were demanded in the fourth
part. Majority of the candidates attempted the question and a high percentage
of the candidates passed.

For better performance in future examinations, candidates are encouraged to

concentrate on the usage of the ICAN Study Text and Pathfinder.

Marking guide
Marks Marks
a. Award a maximum of 2½ marks for stating
the correct definition of „formal
communication‟ 2½
b. Award 1½ marks each for any 5 attributes of
effective communication correctly stated
(1½ x 5) 7½
c. Award 1 Mark each for any 6 features of
effective reports listed (1 x 6) 6
d. Award 1 Mark each for any 4 features of bad
reports stated (1 x 4) 4
Total 20

85
ICAN/241/F/A4 Examination No....................

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 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 RED INK will not be marked.

THURSDAY, MAY 16, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

86
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 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. Under the 1999 Constitution, the list that contains matters which a House
of Assembly could legislate upon to the exclusion of the National
Assembly is the
A. Exclusive Legislative List
B. Concurrent Legislature List
C. Discretional Legislative List
D. Residual Legislative List
E. Remainder Legislative List

2. Which of the following is NOT required to hold an Annual General

Meeting?
A. A one-member company
B. A micro company
C. A private company
D. A municipal company
E. An unlimited liability company

3. Who among the following is eligible to be appointed as administrator of

a company?
A. A chartered accountant
B. A legal practitioner
C. Administrator-General
D. An insolvency practitioner
E. A public administrator

4. The maximum turnover of a small company is

A. N20 million
B. N50 million
C. N80 million
D. N100 million
E. N120 million

87
5. The documents of incorporation that regulate the company‟s external
relations is the
A. Articles of Association
B. Articles of incorporation
C. Memorandum of Association
D. Memorandum of Understanding
E. Bye-law

6. The two types of insolvency recognised by the law are

A. Directors‟ and shareholders‟ insolvency
B. Members and company insolvency
C. CAC and company insolvency
D. Corporate and personal insolvency
E. Receiver and shareholders insolvency

7. Which of the following is a tort that affects economic interest?

A. Nuisance
B. Champerty
C. Libel
D. Trespass
E. Passing off

8. In a sale of goods contract, goods that are not identified and agreed
upon at the time of contract are
A. Generic goods
B. Prospective goods
C. Specific goods
D. Unascertained Goods
E. Perishable Goods

9. An agreement for the bailment of goods with an option to buy the goods
is a contract of
A. Insurance
B. Hire purchase
C. Sale of goods
D. Agency
E. Credit sale

10. In a contract of insurance, the consequence of non-disclosure of material

facts by either party to the contract where the duty exists is to render the
contract
A. Unacceptable
B. Voidable
C. A nullity
D. Vain
E. Derelict

88
11. An offer that is NOT accepted within the time fixed by the offeror is said
to be terminated by
A. Death
B. Rejection
C. Revocation
D. Counter offer
E. Lapse of time
12. The agency relation that arises in emergencies or situations of urgent
commercial need is agency of
A. Ratification
B. Estoppel
C. Condonation
D. Necessity
E. Needs

13. A payee/endorser in possession of a bill that he obtained after giving

consideration to the drawer ∕endorser is
A. Drawer
B. Drawee
C. Bearer
D. Holder for value
E. Indorser

14. The law that allows an internet service provider to keep all traffic data
and subscribers‟ information and to intercept electronic communication
that could support criminal investigation or proceeding is
A. 419 Act
B. Computer 201 Violation Act, 2022
C. Anti-Scam Act, 2012
D. Nigerian Data Protector Regulation Act, 2019
E. The Cybercrime Act, 2015

15. A moral persuasion against wrongdoing or unacceptable conduct in a

given society is called
A. Laws
B. Morality
C. Lifestyle
D. Ethics
E. Values

16. The minimum number of designated partners that a limited liability

partnership must have is
A. 1
B. 2
C. 3
D. 4
E. 5

89
17. To constitute the offence of stealing, the conversion or taking of another
person‟s property must be done with the intention to
A. Deprive the owner permanently of it
B. Shield the property
C. Bail the property
D. Destroy the property
E. Move the property

18. Which of the following means Alternative Dispute Resolution?

A. Private hearing
B. Public hearing
C. General intervention
D. Conciliation
E. Commission of Inquiry

19. The removal of an employee without formalities is called

A. Termination
B. Dismissal
C. Probation
D. Suspension
E. Interdiction
20. When a Will fails or is declared invalid by the court, the administration of
the estate of the testator will be governed by rules of
A. Intestacy
B. Testacy
C. Equity
D. Good conscience
E. Trust

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. i. The Supreme Court of Nigeria usually follows its previous decisions on

the same subject matter and similar facts.
Required:
State TWO situations in which the Supreme Court may depart from its
previous decisions. (4 Marks)

90
 ii. The Received English Law has three components.
Required:
State TWO types of Received English Law. (4 Marks)

b. The Companies and Allied Matters Act provides for freedom of association
with business organisations.
Required:
State THREE grounds upon which a member of a limited liability
partnership may cease to become a member of the organisation.
(6 Marks)
c. The persons that desire to manage the estate of a deceased person may
need to apply for letters of administration.
Required:
Explain TWO situations that could warrant the need to apply for letters of
administration. (6 Marks)
(Total 20 Marks)

QUESTION 2

a. The Companies and Allied Matters Act makes copious provisions for
corporate insolvency in Nigeria.
Required:
State THREE tests of corporate insolvency in Nigeria. (6 Marks)

b. A partnership is one of the business organisations that the Companies

and Allied Matters Act provides for.
Required:
Explain THREE rules that could be applied to determine the existence of
a partnership. (6 Marks)

c. The Audit Committee has objectives and functions under the Companies and
Allied Matters Act, subject to the provisions of the articles of the company.

Required:
State and explain FOUR statutory functions of the Audit Committee.
(8 Marks)
(Total 20 Marks)
QUESTION 3
a. Certain agents are classified as special agents.
Required:
Explain the following special agents:
i. Factor (3 Marks)
ii. Del credere agent (3 Marks)

91
b. Consideration is an element of a contract.
Required:
State FOUR rules that govern consideration. (6 Marks)

c. The Corporate Affairs Commission is the statutory body that regulates the
affairs of business organisations in Nigeria.
Required:
Explain FOUR functions of the Corporate Affairs Commission. (8 Marks)
(Total 20 Marks)

QUESTION 4
a. Decisions during company meetings are made by passing of resolutions.
Required:
State FOUR company matters that require the passing of a special
resolution. (4 Marks)

b. Gabriel is a shareholder in Zee Zee Company Plc. He desires to transfer

his shares to his son who has just graduated from the Nigerian Law
School as a sign of his appreciation of his excellent performance in the
Bar Final examination.
Required:
i. Advise Gabriel on his competence to transfer his shares to his son.
(2 Marks)
ii. Which legal step must Gabriel take to transfer the shares?
(2 Marks)
iii. State TWO reasons for which Zee Zee Company PLC may reject the
transfer of Gabriel‟s shares to his son. (4 Marks)

c. For the conversion of a movable thing to amount to stealing, the

prosecution must prove a fraudulent intent.
Required:
i. Explain what the intent states concerning money. (4 Marks)

ii. James promised to send some people to Canada on scholarship. He

collected money from them for the purpose. He did not send them
and did not refund the money on demand or within a reasonable
time. Explain the liability of James, if any. (4 Marks)
(Total 20 Marks)

QUESTION 5

a. A contract of hire purchase is different from other contractual

relationships.
Required:
State FOUR ways of terminating a hire purchase contract. (6 Marks)

92
b. A limited liability company based in Ibadan employed the services of two
accountants to work in the organisation. The letters of appointment given
to the accountants contain a clause that the new employees will be on
probation for a period of 6 months.

Required:
i. Explain the clause in the letters of appointment, which states that
the two accountants would be on probation for a period of six
months. (1½ Marks)
ii. How could the contract of the two accountants be terminated, if
their employment were for an indefinite period of time?
(1½ Marks)
iii. Would your answer be different if the contract of employment of
the two accountants were for a term certain? (1½ Marks)
iv. What remedies will be available to the two accountants if their
contract for a term certain is wrongfully terminated? (1½ Marks)

c. The Money Laundering (Prohibition) Act requires financial institutions to

keep special surveillance on some transactions.
Required:
State TWO transactions that require the special surveillance of financial
institutions. (4 Marks)

d. Biz Limited manufactures an efficient ceiling fan that is fast selling. The
ceiling fan, which is branded „Biz‟, is the most preferred in the market.
Magomago Limited recently introduced its own ceiling fan, which is
branded „Bizz‟ into the market, and customers have been purchasing it
significantly, thereby reducing the market share of „Biz‟ fan.
Required:
Explain the implication of Magomago Limited‟s action in the law of torts.
(4 Marks)
(Total 20 Marks)

QUESTION 6

a. As a general rule in sale of goods, only the owner of goods or any person
acting with his authority could transfer title to it. This is otherwise known
as the nemo dat quod non habet rule.
Required:
State SIX exceptions to the rule. (6 Marks)

b. It is important for all professionals to avoid negligence in handling the

matters of their clients.

Required:
State TWO elements of negligence. (2 Marks)

93
 c. Arbitration is an Alternative Dispute Resolution mechanism.
Required:
State SIX essentials of arbitration. (6 Marks)

d. The Central Bank of Nigeria is the banker‟s bank.

Required:
State FOUR principal objects of the Central Bank of Nigeria under its
enabling Act. (6 Marks)
(Total 20 Marks)

94
SECTION A

PART I - MULTIPLE CHOICE ANSWERS

1. D

2. A

3. D

4. E

5. C

6. B

7. E

8. D

9. B

10. B

11. E

12. D

13. D

14. E

15. D

16. B

17. A

18. D

19. B

20. A

Examiner’s report
The questions achieved a very good spread over the syllabus.

All the candidates attempted the questions, and performance was very good.

95
SECTION B

SOLUTION 1

a. i. The Supreme Court will depart from its previous decisions in the following
circumstances:
 Where the previous decision was reached per in curiam; and
 Where there are two conflicting past decisions of the court, the court
will overrule one and follow the other.

ii. The following are the types of Received English Law:

 The Common Law of England;
 Doctrines of Equity; and
 Statutes of General Application.

b. A person may cease to be a member of a limited liability partnership on

the following grounds:

i. In accordance with his agreement with the other partners;

ii. In the absence of such an agreement, after the expiration of at least a
thirty-day notice in writing to the effect; on the person‟s death;
iii. On the dissolution of the partnership;
iv. When declared to be of unsound mind by a court of competent
jurisdiction; or
v. If after applying to court to be so adjudged, he has been declared
insolvent.

c. The situations that raise the need to apply for letters of administration are
as follows:

i. Where a person dies leaving a Will but fails to name an executor in

the Will or named an executor who is unable or refuses to obtain
probate from the Probate Division of the High Court. In the latter
situation, the Will would be annexed to the application for letters of
administration which is then known as letters of administration cum
testament annexo, that is, letters of administration with the Will
annexed; or

ii. Where a person dies without making a Will at all or dies intestate; or

iii. Where a person leaves a Will but nonetheless dies intestate as to

some beneficial interests in his real or personal estate. In other
words, some of his properties are not covered by his Will, and he is
intestate in respect of them.

96
Examiner’s report
The question tests candidates‟ understanding of Supreme Court powers, types of
received English Law, cessation of limited partnership membership, and
obtaining of letters administration.

75% of the candidates attempted the question, and their performance was well
above average.

The major pitfall of the candidates was their inadequate understanding of

cessation of limited partnership membership.

Candidates are advised to focus more on limited partnership and limited

liability partnership in ICAN Study Text for their future preparation.

Marking guide
Marks
a. (i) Stating the situations in which the supreme court may depart
from its previous decisions
(1 mark for each correct answer, subject to a maximum of 4 4
points)

( (ii) Stating the components of received English law

(1 mark for each component of received English law, subject to a
maximum of 4 points) 4

b. Stating grounds when a partner can cease to be a member of a

limited liability partnership
(2 marks for each correct answer, subject to a maximum of 3
points) 6

c. Explaining situations that could warrant the need to apply for

letters of administration
(3 marks for each correct answer, subject to a maximum of 2
points) 6
Total 20

SOLUTION 2
a. The tests for corporate insolvency under the Companies and Allied Matters
Act of Nigeria are as follows:

i. A company‟s inability to pay a debt exceeding N200,000 within three

weeks after a demand for payment has been made; or
A company‟s inability to pay a debt of a sum to be determined by a
regulation issued by Corporate Affairs Commission.

ii. A wholly or partially satisfied court process issued in respect of a

judgment debt; or

97
 If execution or other process used on a judgement, act or order of any
court in favour of a creditor of the company is returned unsatisfied in
the whole or in part;

iii. A court‟s determination after taking into account any contingent or

prospective liability of the company that the company is unable to
pay its debts; and

iv. A situation in which the company‟s liabilities exceed its assets.

b. The rules that could be used to determine the existence of partnership are:
i. There must be a business. Business is defined as including trade,
profession, and vocation;
ii. The business must be carried on by, or behalf of, the partners. Each
partner is therefore an agent of the other partners in carrying on the
business of the company; and
iii. There must be profit-making and profit-sharing. Sharing of profits
means sharing of profits equally, unless otherwise agreed by the
partners.

c. The Audit Committee has the following objectives and functions, subject to
the provisions of the articles of the company, to:
i. Determine if the accounting and reporting policies of the company
comply with the requirements of law and agreed ethical practices;
ii. Review the scope and planning of audit requirements;
iii. Review findings on management matters in conjunction with the
external auditor and departmental responses thereon;
iv. Keep under review the effectiveness of the company‟s system of
accounting and internal control;
v. Make recommendations to the board of directors on the appointment,
removal and remuneration of the company‟s external auditors; and
vi. Authorise the internal auditor to carry out investigations of any
activities of the company, which is of interest or concern to the
committee.

Examiner’s report
The question tests candidates‟ understanding of the tests for corporate
insolvency, elements of a valid partnership, and the statutory functions of the
audit committee.

Attempt rate was about 60%, and performance was average.

Candidates‟ major pitfalls were lack of understanding of corporate insolvency

tests and elements of a partnership.

Candidates are advised to study the areas of their deficiency more carefully in
the ICAN Study Text and other relevant books.

98
 Marking guide
Marks

a. Stating tests of corporate insolvency

(2 marks each for any rule test of corporate insolvency, subject to
a maximum of 3 points) 6

b. Explaining rules for determining the existence of partnership

(2 marks each for determining the existence of partnership,
subject to a maximum of 3 points) 6

c. Stating and explaining statutory functions of the audit commitee

(2 marks each for correctly stating and explaining the statutory
functions of the audit committee, subject to a maximum of 4 8
points)
Total 20

SOLUTION 3

a. i. Factor: A factor is a mercantile agent who in the course of his

business has the authority to sell goods or to consign goods or raise
money on security for goods.

ii. Del credere agent: A del credere agent is an agent, who in return for
a higher rate of commission, promises to indemnify the principal if
the third party with whom he contracts in respect of goods fails to
pay or deliver under the contract. A del credere agent is a surety of
the buyer.

b. The rules governing consideration are as follows:

i. Consideration must move from the promisee, but not necessarily to
the promisor;
ii. Consideration must be sufficient but does not necessarily need to
be adequate;
iii. Consideration must not be illegal, immoral, or contrary to public
policy;
iv. Consideration must be definite, not vague;
v. Consideration may be executory (i.e. to be done in the future) or
executed (present) but must not be past; and
vi. Consideration must not be something that the promisee is already
bound, either by contract or public duty, to do or refrain from
doing.

99
c. The Companies and Allied Matters Act provides that the functions of the
Corporate Affairs Commission shall be to –

i. Administer the CAMA, including the registration, regulation and

supervision of:
 The formation, incorporation, management, striking off and
winding up of companies, business names, management and
removal of names from the register; and
 The formation, incorporation, management and dissolution of
incorporated trustees.

ii. Establish and maintain company‟s registry and office in each State of
the Federation, suitably and adequately equipped to perform its
functions under this Act or any other law;

iii. Arrange or conduct an investigation into the affairs of any company,

incorporated trustees, or business names where the interest of the
shareholders, members, partners, or public so demands;

iv. Ensure compliance by companies, business names and incorporated

trustees with the provisions of the CAMA and such other regulations
as may be made by the Corporate Affairs Commission;

v. Perform such other functions as may be specified in this Act or any

other
law; and

vi. Undertake such other activities as are necessary or expedient to give

full effect to the provisions of the CAMA.

Examiner’s report
The question tests candidates‟ knowledge of special agency, rules on
consideration in the law of contract, and the functions of the Corporate Affairs
Commission.

Attempt rate was about 65%, and performance was above average.

Candidates‟ major pitfall was their lack of understanding of the rules on

consideration.

Candidates are advised to study consideration more diligently in the ICAN‟s

Study Text.

100
Marking guide
Marks Marks
a. (i) Explaining the special agent of factor
(3 marks for correct explanation of factor) 3

(ii) Explaining the special agent del credere

(3 marks for correct explanation of special agent del
credere) 3 6

b. Stating rules governing consideration

(1½ marks for each rule governing consideration,
subject to a maximum of 4 points) 6

c. Explaining functions of Corporate Affairs Commission

(CAC)
(2 marks for each function of CAC, subject to a
maximum of 4 functions 8
Total 20

SOLUTION 4

a. The following company matters require a special resolution of the general

meeting:

i. Alteration of the business or object clause;

ii. Change of the company‟s name;
iii. Alteration of any provision of the memorandum of association;
iv. Reduction of capital;
v. Change in the liability of the directors from limited to unlimited;
vi. Winding up of the company (voluntary winding up);
vii. Re–registration of a private company as public company;
viii. Alteration of the articles of association; and
ix. Creation of capital reserve.

b. i. Gabriel, a shareholder of Zee Zee PLC, a public company, has

the right to transfer his shares to his son as a general rule. This
is because shares in a public company are freely transferable.
ii. He can achieve this purpose by the execution of an instrument of
transfer and filing it with the company.
iv. Zee Zee Company PLC may reject the transfer for the following
reasons:
 If the shares are not fully paid up; and
 Where Zee Zee PLC has a lien on Gabriel‟s shares.

c. i. In the case of money, the relevant intent is to use it at the will of the
person who takes or converts it, although he may intend afterwards
to repay the money to the owner. The implication of this test is that

101
 when someone uses money and is unable to repay the money when
asked to do so or at a reasonable time the Law will presume that he
has converted the money, notwithstanding his intention to repay the
money to the owner.

ii. The issue in the case is whether the conduct of James by his failure to
refund the money he collected would amount to conversion or
stealing.

His failure to refund the money on demand or at a reasonable time

fails the test laid down under the Criminal Code to the effect that
anybody in possession of somebody‟s money, who uses such a money
but fails to refund it could be convicted of stealing. Therefore James
is guilty of stealing.

Examiner’s report
This question tests candidates‟ understanding of special resolution and transfer
of shares in company law, as well as elements of conversion in criminal law.

Attempt rate was about 60% and performance was average.

Candidates‟ major pitfall was their insufficient understanding of all aspects of

the question.

Candidates are to intensify their study of all the aspects of this question in the
ICAN Study Text and other materials.

Marking guide
Marks
a. Stating company matters that require special resolutions
(1 mark for each matter that requires special resolution, subject to
a maximum of 4 points) 4

b. (i) Stating when a shareholder can competently transfer his shares in

a public limited liability company
(2 marks for correct answer) 2

(ii) Stating steps to transfer shares in a public limited liability

company
(1 mark for each correct step, subject to a maximum of 2 steps) 2

(iii) Stating reasons why a public limited liability company may reject
transfer of shares
(2 marks each for any reason, subject to a maximum of 2 points) 4

c. (i) Explaining intent in conversion relating to money

(4 marks for correct description of intent in conversion relating to
money) 4

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 (ii) Explaining when receipt of money amounts to conversion
(4 marks for correct description of when receipt of money amounts
to conversion) 4
Total 20

SOLUTION 5
a. A hire purchase agreement may be terminated through:

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.

b. i. The clause in the letters of appointment of the two accountants that

they would be on probation for a period of six months means that the
company would, during a period of six months study the competence
of the two accountants for the job they are employed for, as well as
test their skill and suitability for the job.

ii. If the employment of the two accountants were for an indefinite

period, their services could only be terminated by a reasonable notice
or payment in lieu of notice.

iii. If their employment were for a term certain, their employment could
not be terminated until the expiration of the term.
iv. The remedies that will be available to the two accountants if their
contract for a term certain is wrongfully terminated, is their
entitlement to all their earnings on the contract as if they had been
allowed to run the full term.

c. The transactions which financial institutions are required to keep special

surveillance on, under the Money Laundering (Prohibition) Act are
transactions that:
i. Involve a frequency, which is unjustifiable or unreasonable;
ii. Are surrounded by conditions of unusual or unjustified complexity; and
iii. Appear to have no economic justification or lawful objective.

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d. Magomago Limited would be liable for the tort of passing off for branding
its ceiling fan with a name that so closely resembles an existing brand
name, so as to deceive the prospective buyers of ceiling fans. Biz Limited is
entitled to sue Magomago for damages and injunction.

Examiner’s report
The question tests candidates‟ knowledge of termination of hire purchase
contract, probation and termination in employment law, special surveillance of
financial institutions against money laundering, and the tort of passing off.

Attempt rate was about 65%, and performance was good.

Candidates‟ major pitfalls were inadequate understanding of probation and

termination in employment law.

Candidates are advised to focus on employment law more intensely in their

future preparation.

Marking guide
Marks
a. Stating ways of terminating a hire purchase contract
(1½ marks each for any way of terminating a hire purchase contract,
subject to a maximum of 4 points) 6

b.(i) Explaining probation clause in a letter of appointment

(1½ marks for correct description of probation clause in a letter of
appointment) 1½

(ii) Stating how a contract of employment for an indefinite period could

be terminated
(1½ marks for correct description of how a contract of employment
for an indefinite period could be terminated) 1½
Stating how a contract of employment for a term could be
(iii) terminated
(1½ marks for correct explanation of how a contract of employment
for a certain term could be terminated) 1½

(iv) Stating remedies for wrongful termination of a contract of

employment for a term certain
(1½ marks for correct explanation of remedies for wrongful
termination of a contract of employment for a term certain) 1½
c. Stating transactions which require special surveillance of financial
institutions
(2 marks each for stating transactions which require special
surveillance of financial institutions, subject to a maximum of 2
points) 4
d. Explaining the implications of acts of passing off in the law of torts
(4 marks for correct explanation of the implications of acts of passing
off in the law of torts) 4
Total 20
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SOLUTION 6

a. The exceptions to the nemodat quod habet rule are as follows:

i. Sale in market overt;
ii. Sale under a voidable title ;
iii. Estoppel;
iv. Sale by a seller in possession;
v. Sale by a buyer in possession;
vi. Sale by mercantile agents; and
vii. Sale under common law or statutory powers.

b. The elements of negligence are as follows:

i. Duty of care;
ii. Breach of the duty; and
iii. Consequential damage or injury.

c. The essentials of arbitration are as follows:

i. There must be a dispute between the parties concerning some
disagreement over a point of law or fact;
ii. The dispute or difference must be justiciable;
iii. The parties must voluntarily agree to resolve the dispute through
third party mediation;
iv. The agreement to submit to arbitration must not be illegal;
v. The parties must have inserted the Scott v Avery Clause in the said
agreement mandating them to submit to arbitration in the present or
in the future;
vi. There must be a form a reference of the dispute to the decision of the
third party;
vii. That third party must expressly or impliedly be required to decide
according to law; and
viii. It must be a term of the contract that the award shall be final and
binding and that the parties must act in good faith.

d. The principal objects of the Central Bank of Nigeria under its enabling Act
are to:
i. Ensure monetary and price stability;
ii. issue legal tender currency in Nigeria;
iii. Maintain external reserves to safeguard the international value of the
legal tender currency;
iv. Promote a sound financial system in Nigeria; and
v. Act as banker and provide economic and financial advice to the
Federal Government.

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Examiner’s report
The question tests candidates‟ knowledge of the exceptions to the nemo dat
quad non habet rule, elements of negligence, essentials of arbitration, and the
objects of the Central Bank of Nigeria.

The rate of attempt was about 50%, and pass rate was around 65%.

Candidates‟ major pitfalls were their inadequate understanding of the nemo dat
quod rule and essentials of arbitration.
Candidates are advised to focus more on the nemo dat quod rule and essentials of
arbitration in the ICAN Study Text.

Marking guide
Marks
a. Stating the exceptions to the rule of nemo dat quod non habet
(1 mark for each exception to the rule of nemo dat quod non
habet, subject to a maximum of 6 points) 6

b. Stating elements of negligence

(1 mark for each element of negligence, subject to a maximum
of 2 points) 2

c. Stating essentials of arbitration

(1 mark for each essential of arbitration, subject to a maximum
of 6 points) 6

d. Stating principal functions of the Central Bank of Nigeria (CBN)

(1½ marks for each function of the CBN, subject to a maximum
of 4 points) 6
Total 20

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