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DECEMBER 2011 Past Questions

INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA

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ADEYANJU AKEEM
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DECEMBER 2011 Past Questions

INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA

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ADEYANJU AKEEM
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Professionalism and Integrity THE INSTITUTE OF CHARTERED SECRETARIES & ADMINISTRATORS OF NIGERIA Questions, Suggested Answers and Examiners Reports December 2011 CONTENTS Professional Programme I Page Strategic & Operations Management 3-13 Corporate Law 15-30 Management Accounting 31-46 Financial Accounting 47-67 Professional Programme II Corporate Secretaryship 69-86 Corporate Administration 87-99 Corporate Financial Management 100-109 Corporate Governance 110-132 DISCLAIMER: it should be noted that this booklet contains ‘suggested’ answers only; they are not model answers, and are not exhaustive, but indicate what could have been achieved by 2 good candidate in the time allowed, The aim is to provide students with guidance regarding what could be ineluded in their answers. eee a aati eee a et i THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA Code: P101 PROFESSIONAL EXAMINATION Strategic and Operations Management December 2011 Diet Tuesday Afternoon, 6" December, 2011 . INSTRUCTIONS 1, Answer ALL questions in Section A. All questions carry equal marks. 2. Answer THREE (3) questions from Section B. All questions carry equal marks. 3, TimeAllowed: THREE3HOURS E s 4. Candidates are expected to show their workings using the inside page and the last sheet ofthe answerbooklet. Candidates are forbidden from bringing phones into the examination hall Only non-programmable calculators are permitted for use in the examination, ia isms eco STRATEGIC & OPERATIONS MANAGEMENT SECTION A (Answer aii questions in this section} QUESTION {a) Identity FOUR factors that facilitate group cohesiveness. (4 Marks) (b) Explain the team development process. (4Marks) © Give abriefoverviewof the communication process. (4 Marks) (4) Briefly explain the TWO major purposes of performance evaluation, (4 Marks) (e) Describe Kurt Lewins model of change management. (4Marks) (f) Whoorwhatis a stakeholder? List FOUR stakeholders of a professional organization. (4 Marks) (a) Whatare the key issues in project management? (4Marks) (h) When managers are advised to think global and act local, whatdoes that imply? (4 Marks) (Identify the FOUR factors that influence employee performance. (4 Marks) @ Explain, with TWO examples, the push and pull factors in facility location. (4Marks) (Total: 20 Marks) SECTION B (Answer in all THREE Questions from this section) QUESTION2 “if you cannot accurately communicate what needs to be done, how do you expect to get it accomplished? Even if you can accurately communicate directions, you may do so in such a way that causes hard feelings or tums off other people. In either case, the job may not gat done atall, maynot get done on time, may nat get done correctly or maybe sabotaged” Alessandra & Hunsakar, 1993, (2) What are the roles of communication in an organization? (10 Marks) (b) How do you ensure that it fulfls these roles effectively? (10 Marks) (Total: 20 Marks) QUESTION 3 Between 2005 and 2010, Nigerian Banks literally overtan the West African landscape and even made Giant strides into other parts of Africa and the globe. What are'the risks inherent in the trend? (20 Marks) 3) vat ret de UESTION4 the past 20 years, the world has moved deeply into the 3i economy; an economy yaracterized by information, ideas and intelligence. The scenario led to the emergence, qtrenchment and continued refinement of knowledge management, Why is knowledge anagement becoming increasingly popular and how will you introduce it into your ganization? (20 Marks) UESTIONS 5 organizational training programme is coniplete without a session on leadership. As the vironment becomes more turbulent, leadership will become even more pertinent. ) Whatare the approaches to the study ofleadership? (6 Marks) ) What roles do they play in organizations? (8 Marks) ) Whatare the pre-requisites for effective leadership in today’s environment? (6 Marks) (Total: 20 Marks) UESTION 6 ‘ ) Whatare the usual approaches to goal-setting in your organization? (8 Marks) }_ Howdoes goal setting impact on employee performance? (12Marks) (Total: 20 Marks) STRATEGIC & OPERATIONS MANAGEMENT MARKING GUIDE SECTION ONE a Cohesiveness refers to the extent of attraction which members have towards the group; their degree of togethemess. Factors influencing group cohesiveness include: +Size * Degree of dependence of the members on the group ++ Stability or otherwise of membership + Homogeneity of membership * The extentof success achieved by the group ‘+ Agreement and commitmentio the goals bymembers + The level of success achieved by the group + Leadership 1 Mark forany 4=4 Marks Communication is a process and broadly involves the following key elements: «Themessage + The sender ‘+ The mediumn/channel + The receiver + The feedback from the receiver. * The environment within which the communication takes place + Noise which is any disturbance of the process ‘1 Mark forany 4 Elements = 4 Marks Teams develop in stages and these stages are termed different things by different people. ‘Touchman, classifies it on forming, storming, norming and performing; Woodcock sees itas an undeveloped, experimenting, consolidating and performing while Glueck has it as forming, structuring/growth, maturity and performance. All or most authorities thus classify the stages of the process as 4, Using the Touchman model, the Team Development Process has the following stages: + Forming: The initial stage of getting together, objectives not yet clear. + Storming; characterized by infighting, conflicts and confrontations. + Performing in the team settles down, setting standards and norms of behavior, + Performing: Actual performance by the team characterized by cohesiveness, trust and collaboration. 4 Marks for these 4 stages or any other classification used air Performance appraisal is a collaborative effort by the appraiser and appraisee to enhance individual team and corporate performance. The two major purposes of appraisal are: + Evaluation: To evaluate the performance of slaff based on their responsibillies so as to determine how they will be rewarded for the period under consideration, + Developmental: To assess the developmental needs of the staff and thus determine the appropriate measures: training, transfer, counselling etc. 4 Marks Kurt-Lewis change management mode! holds that for change to take place, time is needed to Unffeeze the status quo, initiate the required changes and referees (institutionalize) the new scenarios. Itthus involves: + Unfreezing . + Changing + Refreezing Thisis diagrammatically shown in 3 Marks formentioning the 3 steps; 1 Mark for the drawing stakeholder is a person, group of persons or institutions affected by or who affects, the activities ofan organization. Iisa groupthatis morein meaning and significance than shareholders. Stakeholders of a professional organization include; + Council and full members ‘* Students and aspiring members » Experts in that profession who are not members + Asexaminers + Asomployees + As suppliers (hard, soft) * Regulators * Asneighbours. * The general public. 1 Mark for definition, 3 Marks for any 3 Stakeholders Project managers always grapple with a lot of worries and challenges but the key ones are ensuring that the project is completed to specification of time arid within budget. Specifically, these issues are: # Quality: getting the projects designed : . «Time: Ensuring hat itis completed within the scheduled period «Cost: Ensuring thatitis done within the budget. Failure on any of these dimensions is actually a failure of the project. 4 Marks h. In this era of globalization, managers are enjoined to always think global but to act local. Ir Practical terms, this means that while striving to meet the challenges of globalization, globa brand, global business model, global customer base and the quest for global efficiency, they must recognize and integrate the local realities in their operations and activities. Thus the manager of Coca-Cola in Nigeria must think globally - Coca-Cola wise, but act locally in line with whatever realities are pecullarto Nigeria. 4 Marks 1. There ate four broad set of factors that influence employes performance and they are: * Organizational support (the opportunities to perform) + Work effort (willingness to perform) + Individual attributes (ability to perform) * Other environmental factors like group membership, unionism, ete, 4 Marks i The push factors are those forces that trigger a decision to move from the current location, Examples of such factors include labour problems, competitors, regulatory activities and costs. Pull factors aro those factors that attract an organization to a given location and these include government policies, labour and other related costs, location of markets and neamess to the source of raw materials. Definition with two examples each: 4 Marks Definitions only: 2 Marks SECTIONB QUESTION2 2A. No organization can exist without effective communication which is a sine-que-non for its Success. This is because every aspect of organizational activities requires commurication. The roles of communication are several and include the following: Blending the people, tasks, technologies, processes and policies together in pursuit of corporate objectives. + Facilitating the performance of the management duties of coordination, planning, controlling, organizing, staffing and leading, * Ensuring that visions are properly articulated and shared: hamessing everybody’ inputs in determining the missions and objectives and ensuring that everybody understands, internalizes and accepts the vision, mission and objectives. Helps the organization to achieve coordinated action, *Faciltates the sharing of information about organizations goals, tasks, performance and decision making * Itenabie members express their feelings and emotions, + Ithelps in transmiting corporate policies and instructions downwards and getting suggestions ‘and opinions upwards. * Communication helps to gonerate interest, goodwill and cooperation fromall Lin bal hey the sith, s its he of i 1s 2B. elt enhances manager-subordinate relalions, narrows down areas of conflicl and cements bonds of interpersonal relationships. ‘2Marks forany § = 10 Marks Organizational communication is effective when the message is received and acted upon therby leading to the achievement of corporate objectives without alienating the stakeholders, especialy the staff. This requires ensuring that the quantity, quality, process and spread of communication is optimal. This can be achieved through the following: Good communication environment whicti refers to communication sources and relationships, available information and the organization itself as perceived by the people. i) Cordial interpersonal relation especially between Superiors and subordinates. ii) Credibility of the communicators wich goes a Jong way in smoothening the flow of communication Optimal organizational structure with a chain of command, variety of rights and responsibilities and minimal physical barriers. iv) _Demooratisation of information, so that everybody knows everything: transfers, new products, leave ete, This gives a sense of belonging and satisfies the promotions, natural urge to be informed Vv). Opendoor policy by the bosses so that subordinates can express their opinions without fear orfavour, vi) Utilization of follow-up techniques vil) Regulation of the flow of communication. vill) Installation of effective feedback mechanism. ix) Ensuring thatactions support formal and information communication 2Marks forany 5:10 Marks QUESTION 3 Risks inherent in the internationalization and globalization of Nigerian Banks or more specifically, cross-border banking are as follows: Contagious Risks: The risk that arises in any country where our banks operate and have tentacles willbe transmitted tothe banks at home, individually and collectively. Market integrity Risks: When offshore supervisory and regulatory systems are weaker, Nigerian banks may take more rsks there than they are allowed at home and any problems resulting, therefrom will adversely affect theirfinanéiathealth athome PolticallCountry risks: These risks arise be.ause the political environments are different from the Nigerian sconario. Some ofthe risks may affect all foreign businesses, oF a specific industry and these arise from stabiliy of government, political mood, attitude towards foreign investment, legal and regulatory regimes. The Government of Ghana stipulated diferent capital requirements for businesses between local and foreign and for banks, or gave different capital and diferent compliance dates. + Foreign ExchangeCurrency risks: In addition to normal forex risks, cross-border banks face more risks because theirinvestments and returns are in foreign currency. + Human Resources Risk: The risk that the bank may not have adequale human resources in terms of number, qualification and experience to pursue its mandate + Super-Bank & Two Big to fal risks: When banks expand across borders, their size increases, their systematic importance also increases and they become “super banks” and even unable to effectively monitor their operations. This puts their operations and continued existence at tisk ‘especially when the cross-border is aligned with product diversification and complexstructures. * IFC Risks: The Nation also suffers the international Financial Center Risks. As our banks move abroad, other foreign banks also move into Nigeria, When a nation becomes a financial center, it suffers extra-ordinary from financial risk as Britain andin the last global crises, + They are also exposed to other business risks, market, reputation, financial, ICT, succession, ‘reditand change risks. * Boing banks, they are equally exposed to all risks that face the banking business which ate credit, liquidity, interest, balance sheet and income structure, solvency and capital adequacy. 4 Marks forany 5 risks discussed: 20 Marks QUESTIONS Knowledge Management (KM) is a range of practices employed by organizations to identity, create, epresent and distribute knowledge for re-use, awareness and learning, It is a multi-disciplinary approach to achieving organizational objectives by making the best use of available knowledge. {t involves linking people with people and linking them to information so that they can leam from documented experiences and improve their performances. 2Marks KM Is becoming increasingly popular because: * Organizations are becoming more knowledge intensive, more capital intensive. © Weliveinaworld dominated by information, ideas and intelligence, in effect, knowledge + Unstable markets have necessitated organized abandonment or in plain terms continuous innovation. KMis very critical in this process. +. KM allows you to lead change so that change does not lead you. It enables you to see opportunities and proactively exploit them before your competitors. ‘+ We have moved from the survival of the fittest to the survival of the most knowledgeable. This happens when the organization applies past knowledge and experience to facilitate future work. + Cross-Industry work is breeding complexity coupled with uncertainty and ambiguity. KM allows organizations to turn complexity into advantages. +” Knowledge in a critical decision support and with KM, information about past ideas, projects; failures and efforts are conveniently and readily available to facilitate clearance. + KMhelps tokeep track of competitors who are now dispersed and beyond our shores: 2% Marks for any 6:9 Marks 10 i Introducing KM intoan organization involves these or similar steps 1) Analyse existing infrastructure so as to know whatis available anc establish intial gaps. ‘Aligning KM to business strategy since knowledge drives strategy and strategy drives Kw if there ‘i isno clear time, there will be confusion. 3) Design the KM archilecture: understand and integrate the various components of KM infrastructure 4) Knowledge aucitand analyses: ascertaining what the company already knows 5) Assemblingthe KM team 7 6) Creating a KM blueprint 7) DevelopingaKM system 8) Pilot-testingand deployment 9) Manage change, culture and reward structures to align with the KM paradigm. 40) Evaluate performance, measure returns on knowledge investment with the appropriate Metrics and continually refine the KM system. 1% Marks for any 6: 9 Marks QUESTIONS ‘There are several approaches to the study of leadership. The most common ones are: “The trait approach: This approach focuses on the qualities for effective leadership. The contingency approach: This approach focuses on the extent to which leadership being affected by the situation, especially the tasks, followership, the organization itself and the ‘external environment. ‘The behavioural approach: This focuses on what the leader does or fails to do as it rales to the ‘workerand the work. “The functional approach: This approach examines the extent to which the leader influences and is influenced by the Group in the attainment of common tasks. This approach sees the! task, the individual and the group as the key elements in the leadership function, The power influence approach: This explains leadership and its effectiveness in torm® of the source and amount of power available to the leader and how the leader exercises power over the followers as well as the consequences of applying these different kinds and forms of power and influence, There are other newer approaches like: Transformationalleadership Charismaticleadership Servant leadership 2 Marks for each 3 briefly explained: 6 Marks 1 58. 5c. 12 The roles of the leader broadly balls down to influencing the followers in the course of attaining the Vision ofa better future for the organization and its constituents, Specifically, hese roles are: 41) Setting the Agenda: Envisioning the vision, sharing that vision and managing the resulting tension. 2) Mobilizing and Empow motivating, retaining and empowering quality human capital 3) Continuous Change Management: This involves creating the appropriate environment, ‘evaluating the process and ensuring that the organizations identity is intact 4) Symbolization and External Relations Management: Symbolizing the organization and managing relationships with various stakeholders and the outside world. 5) Strategic Management: Initiating, executing, controlling and evaluating strategy to ensure \g: Convincingly communicating the vision and attracting, that the shared vision is achieved. 6) Coalition Balancing; It is the role of leadership to build a coalition powerful enough to implement he vision and move the organization from where itis to where itwants to be. 7) Alignment and Commitment: Aligning corporate systems and processes with the vision ora sustained period and building organizational commitment to common goals. 1% Marks for any 6: 8 Marks Leadership qualities, attributes and skils « Strategic outlook + Emotional intolligenc’ and maturity « Social intelligence: a set of interpersonal competences that inspire others tobe effective include empathy, influence, inspiring, teamwork and developing others. ‘* Communication synthesizing: Ability to manage communication for problem solving and conclusion building, + People managementskills + Ethics andintegrity + Global outlook + Modeling the way (walking the talk) * Industry and organizational knowledge and relationships + Personal traits lke optimism, patience, courage, humility, diplomacy, passion « Soft qualities ite openness, sensitivity, thoughtful intelligence, candour. 1 Mark for any 6: 6 Marks QUESTIONG 6A. Goalsare setin organizationsin the following ways, 1) 2) 3) 4) 5) Goals are set iy higher authorities or groups which may not even be known by statf Goals are set by the manager and passed onto the staff. ‘The manager and the staff collaborate in selting the goal. ‘The staff sets the goal based on broad guideline or instruction issued by his manager. ‘There areno formal goalsand the staffis asked to goand do his best . 2 Marks forany 4: 8 Marks 68. _ Impactof goal-setting on employee performance The impact of goal setting on performance depends on how the goals are set as wall as on the nature and structure of the goals. Specifically 4) 2) 3) 4) 8) 8) v Goal setting has a general postural impacton performance. When goals are higher, there is tendency for performance tobe higher. ‘Specific goals have more pronounced effects on performance than non-specific, do- your-best goals, Goal-setting that contains an element of feedback (staff has knowledge of result) has more positive impacton performance. Statf usually adjust their efforts in ine with the perceived difficulty of the goals. So, hard goals, lead to higher efforts and higher performance. Goal setting impact on staff performance when the staff has accepted the goals. Statfperforms betterin the goal-setting model where they are involved, Goal setting may be more effective for some people than for others and or affects different groups differently, 2 Marks for any 6: 12 Marks 13 THE INSTITUTE OF 7 CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA Code: P102 PROFESSIONAL EXAMINATION Corporate Law December 2011 Diet Wednesday Afternoon, 7” December, 2014 INSTRUCTIONS 1. Answer ALL questions in Section A. All questions carry equal marks. 2. Answer THREE (3) questions from Section B. All questions carry equal marks. 3. TimeAllowed: THREE 3 HOURS 4, Candidates are expected to show their workings using the inside page and the last sheet of the answer booklet. Candidates are forbidden from bringing phones into the examination hall. Only non-programmable calculators are permitted for use in the examination, CORPORATE LAW SECTIONA (Answer all questions in this section) | QUESTION! (a) What names are prohibited from being a company under the Companies and Alied Matters Act, Cap 620, Laws of the Federation of Nigeria 20047 (4 Marks) 4 (o) Define an ordinary resolution and give ‘examples of decisions of a company ‘that should be by 4 ordinaryresolution? (4 Marks) © (@) Explain the importance of the subscription clause of a Memorandum of Association i (4Marks) ‘Whatmusta prospectus contain? (4Marks) ‘Who may apply to the court as applicantundera derivative action? (4Marks) List four ways of acquiring the membership of a company. (4Marks) Mention the circumstances under which the Corporate Affairs Commission may refuse to i register the Memorandum andAvlicles of Association, (4 Marks) _ (0) What company names are classified as restricted names by the Companies and Allied Matters : ‘ActCap 20, Laws of the Federation of Nigeria, 2004? (4Marks) © () When and how can a company’s register of members be rectified? (4Marks) £@) Whatare the roles ofa provisional liquidator in the winding up process? (4Marks) (Total: 40 Marks) SECTION B (Answer THREE Questions from this section) QUESTION2 Coal Pic is a mining company, whose main business consists of open cast mining. It has Articles of Association that arein the form of Table A. The board of directors includes Elisa, Michaol and Carl Ata recent Board meeting, the directors considered an offer from Land Corp Plc to sell land adjoining one of Coal Ple's mining sites for N35, 000, 000. The Board of Coal Pic decided that the company should not accept the offer as it doubted whetheril could raise the finance needed to buy the land. Elisa then formed her own company, Ore.Ltd, which purchased the land for N36, 000, 000. At the same ‘meeting, the directors discussed a proposed contract with Geo Plc, which is being considered to survey ‘plot of land recently purchased by Coal Plc. Michael owns 10% of the shares of Geo Ple, but did not feveal his interest at the board meeting, 17 Cari has an arrangement with Driller Ple whereby he receives a 10% commission for all orders placed with it by Coal Ple. Six months ago, Coal Ple purchased some driling equipment from Driller Plc for N15, 000, 000 for which Carl was paid N1, 500,000 commission. The shareholders of Coal Plc have discovered these facts. They have passed an ordinaty resolution directing the board of directors to commence legal proceedings against Elisa, Michael and Cart. Required: Discuss the legal issues arising out of theabove facts. (20 Marks) QUESTION3 (a) Distinguish between members’ voluntary winding up and creditors’ voluntary winding up. (10 Marks) (b) Explain the grounds under which a company may be wound up by the Court. (10 Marks) (Total: 20 Marks) \UESTION4 What corporate law principle was entrenched by Section 37 of the Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria 2004? Are there circumstances when the principle is disregarded? (20Marks) * \UESTIONS Delta Ltd (the company) was formed in 2001, to take over a carpet business previously carried on as a partnership by three brothers: Mike, Pete and Rob. They are the only directors and shareholders of the company. Mike owns 80,000 shares, Pete 40,000 and Rob 10,000 shares. “The Company's Atticles of Association provide that a quorum of three is required for a general meeting ofthe company to be held, and that if any member wishes to transfer his shares he must give notice to the company, and to other members, who must then purchase them at a price to be determined by an independent auditor. In addition, when the company was formed there was an informal agreement that none of them would be removed asa director. Mike and Pete wantto expand the business, but Rob does not: This has led to a complete breakdown in their relationship with Rob. Rob has written to Mike and Pete requesting them to buy his shares, but they have refused. They have called a general meeting for the purpose of removing Rob as a director, but Rob has made it clear that he will not attend any meeting of the company. Required: 18 1 re ig an at wn wut on Advise: (@) Mike and Pete whether they can hold the general meeting hey hav called. (3 Marks) (@) Rob whether he can bring an action against Mike and Peter on the ground of unfaitly prejudicial conduct and, if he is successful, what the likely remedy will be. (12 Marks) (0) Why petition to wind-up the company on the grounds that it is jus! and equitable to do so is unlikely to succeed. (5Marks) (Total: 20 Marks) QUESTIONG Diroctors of a company are sometimes classified as altemate director, shadow director, executive director, non-executive director or life director. Explain the meaning of each of these classifications of directors ofa company. (20Marks) 19 b) d) 20 CORPORATE LAW MARKING GUIDE SECTION A Section 30(1) of CAMA provides that no company shall be registered under the Companies andAllied Matters Act by aname which: (@) _isidentical with the name by which a company in existence is already registered, or so nearly resembles that name as to be calculated to deceive, except where the company in existence is in the course of being dissolved and signifies its consent in such manner as the Corporate Affairs Commission requires; LASISI V. REGISTRAR OF COMPANIES (1976)7.8.C.73 (i) contains the words “Chamber of Commerce" unless itis a company limited by guarantee; (ii) _ in the opinion of the Corporate Affairs Commission Is capable of misleading as to the nature or extent ofits activities oris undesirable, offensive or otherwise contrary to public policy; (V)__ inthe opinion of the Corporate Affairs Commission would violate any existing trademark or business name registered in Nigeria unless the consent of the owner of the trademark ‘orbusiness name has been obtained. ‘According to Section 233(1) of CAMA, an ordinary resolution is a resolution passed by a simple majority of votes cast by such members of the company as being entited to do so, vote in person orby proxy ata general meeting, Itis required for taking decisions on the following matters; a) Determination of the rights attached to shares issued by a company; section 119 b) Conversion of paid up shares into stock and the re-conversion of stocks into paid-up shares: Section 150(2) 6) Removal ofa director before the expiration of his term of office; Section 262(1) 4) __ Removal ofan auditor before the expiration of his term of office; Section 362(1) ) Removal of a member of the committee of inspection appointed in the course of the winding up of a company: Section 434(6) The subscription clause indicates the initial subscribers of the company who are also promoters of the company. A company can only be formed with two or more persons so the clause reveals if this provision has been complied with the subscribers or the majority of them also appointthe first directors of the company. Section 73(1) of the Investments and Securities Act 2007 provides that, subject to the Provisions of Section 76, every prospectus issued by or on behalf of any person who is or has been engaged or interested in the formation of the company, shall state the matters specified in part | of the third schedule to the Investments and Securities Act 2007 and set out the Reports y i: t i specified in pat I of that Schedule and Parts {and II shall have effect subject to the provisions containedin that schedule gy vitue of Part of the Third Schedule of he Investments and Securities Act 2007, the ollowing ‘matters mustbe contained in @ prospectus; namely: i) The company'sproprietarship, management, and capital requirement; ji) _Detailsralating tothe offer, ji) Particulars ofproperty acquired or tobe acquired by the company, iv) Commissions payable and other preliminary expensesincurradas result of theoffer; y) Details of material contracts; vi) Detalls ofthe company’s auditors; vii) Particulars ofthe interests of directors; vii) Other matters, such as, the rights altached to different classes of shares of the company and the length of ime the business has been cartiedon, ifless than three years By virlue of Section 309 of CAMA, the following persons may apply to court under a derivative action as applicant: i) ~ A registered holder or a beneficial owner and a former registered holder or beneficial owner of a security of the company. ii) Adirector oran officer, or a former director or officer of a company. iii) The Corporate Affairs Commission. iv) Any other person who, in’ the discretion of the court, is a proper person to make an application for that purpose. Membership ofa company may be acquired in any of the following ways: 1) By subscription (Section 7a) 2) Byallotmentand registration (Section 125-129) 3) Bytransferofshares (Section 151) 4) Bytransmission of Shares (Section 155) “The commission may refuse to register a Memorandum andAvticles of Association, if a) They do not comply with the provisions of CAMA b) The business or object is illegal ©) Anysubscriberisincompetentor disqualified 4) There isnon-compliance with the requirement of any other law as regards registration or incorporation. €) The proposed name conflicts with or is likely to conflict with an existing trademark or business name. ‘A company can only be registered with a restricted name by obtaining the consent of the 21 ‘Such names are as follows: * Includes the word Federal, State, National Government or any word which suggests government patronage. + “Municipal” or “Chartered” which suggests connection with a local government + Cooperate or building society ‘+ "Group or Holding’ Section 30 CAMA i) Acompany is register of members can be rectified by the courts if application is made to the court by a person aggrieved any member of the company or the company. In the following circumstances: - Ifthe name of a personis without sufficient cause entered or omitted in the register of member, If default or delay takes place in entering any person's name or removing a person's name from the register. i) Aprovisional liquidator may be approved during a winding up of a company by the court lo take over the aifairs of the company and to manage the assets of the company until a winding up orderismade. ‘The official receiveri.e. deputy Chief Registrar is often appointed as the provisional liquidator. QUESTION2 This question raises issues relating to directors’ duties and the appropriate organ to commence litigation in the company's name. The duties of a director were codified in Section 279 CAMA. Section 279 (1) requires directors to always act in the best interest of the company. They stand in a fiduciary relationship with the company and shall observe utmost good faith. Allthe three directors may bein breach of this duty together with the other duties listed below. ELISA The relevant duly to consider here is Section 280 (1) "The personal terest of a director shall not conflict with any of his duties. Specifically, see Section 280(4) “the inability or the unwillingness of the company to perform any functions or duties underits articles and memorandum shall not constitute a defence to any breach of duty ofa director under this Decree” “Elisa” personal interestis in conflict, with her duty as a director. It is immaterial that the. company itself could not take advantage of this see Regal (Hastings Ltd) Lid V, Gulliver (1942). ‘As Elisa has not disclosed her interest, and for failure to disclose the formation of Her own company to purchase the land, Elisa cannot take advantage of Section 280 (6) which provides that where a director discloses his interest before the transaction and before the secret profits are mado, in a 22 ing er. me ake up or. Wee na not any of self ito. 2a va on may be authorized. Failure of Elisa lo disclose mean seneral meeting, the transac she cannot take a gavantage of this provision. Hence, the purchase of the land by Elisa is a breach of her fiduciary duty. It makes no difference that she hs formed a company to take the benef ofthe opportunity. See CMS Dolphin V Simonet. MICHAEL ‘The proposed contract with Geo Pics governed by Section 260(1). sThepersonal interest of a director shall not conflict with any of his duties as a director under this Decree” Section 280(2) "A director shall not... make any secret profit or achieve other unnecessary benefits” ‘nso, Section 287 (1) prohi kind rom any person in respect of any transaction involving his company. its a director from accepting a bribe, a gift or commission either cash or Michael has a duty to disclose the nature and extent of his interest before the general meeting, This disclosure must be made before the general meeting in he made the disclosure after he had entered into the contract, he would be liable to account Section 8066. bare By receiving a commission from Diller Pic, Car! isin breach of Section 287(1), the duty not to accept benefits from third parties by reason of being a director or doing anything asa director. Section 287(2) permits the company (0 recover the commission from him and sue him for damages, t is to be noted that there is no provision for such benefits to be authorized by the board, except where uch gift or commission was unsolicited and given after the contract, and a disclosure of itis made defore the board. The fact must appear in the minutes book of the directors, THE SHAREHOLDERS’ RESOLUTION Section 63(1) provides that 'a company shell act through its members in general meeting or through its doard of directors or through officers or agents, appointed by or under authority dorived from, the ‘embers in general moeting or the board of directors.” Table A of CAMA is silent on the management of the company but Section 63(3) vests the power to ‘anage the affairs of the company to manage the affairs of the company in the board of directors. Ordinary, itis the board of directors that should take decisions on itigating in the name of the company, Dut because three directors have comprised themselves, the shareholders can under Section 63(6) (b) 3N¢ directions to the board lo institute an action in the name of the company. 23 However, since such direction is nota normal business of the general meeting, It should be by special resolution and not ordinary resolution. 20Marks QUESTION3 a) Acompany may be wound up voluntatiy if: A fixed duration has been fixed as duration of the company by the articles or if any event prescribed by the articles for the winding up of the company has occurred, {nthe above circumstances the company is wound up by ordinary resolution. A company may also be wound up by a “special resolution of the company’, Section 457 CAMA; The difference between members’ voluntary winding up and creditors’ voluntary winding up ‘depends on whether a Dectaration of solvency has been made by the director ornot, declaration of solvency is a declaration by the directors or a majority of them to the effect that they have made a full inquiry into the affairs of the company and are of the opinion that the company would be able to pay allits debts within 12 months, This declaration must be made 5 weeks before the Passing of the special resolution, ‘Where a declaration of solvency is made, itis a members| voluntary winding up, Where there is. no declaration of solvency, itis a creditors voluntary winding up, Also, the procedure for creditors voluntary winding up involves having a meeting of members before the meeting of creditors. Each meeting many appoint a liquidator but the liquidator appointed by the creditors shall be the liquidator except there is a court order on the application of any member, director or creditor. ») The following are the grounds upon which a company may be wound up by the court. According to Section 408 (a) - (¢) of CAMA, a company maybe wound up when: i) ‘The company has, by special resolution resolved that the company be wound up by the court il) Default is made in delivering the statutory report to the CAC or holding the statutory meeting. See Section 211 of CAMA. il) The number of members is reduced below two-Sections 18 and 93. iv) The company is unable to pay its debt. Section 400 of CAMA gives conditions where a Company shall be deemed to be unable to pay its debt. They are if a) Acroditor, by assignment or otherwise, to whom the company is indebled to ina sum exceeding N2,000 then due has geared on the company, by leaving itat its registered office or head office, a demand under his hand requiring the company ‘opay the sum so due, and the company has for throe weeks thereafter, neglected 24 san suena aitcaninll sins at at 1” to pay the sum or to secure or compound for it to the reasonable satisiaction of the creditor; or b) Execution or other processes issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or inpart; OF ¢) The court, taking into account, any contingent or prospective liability ofthe company is satisfied that the company is unable to pay ts debt. y) The courtis of the opinion that itis just and equitable that the company should be wound up. E.g. deadlock of the board so that directors cannot meet and take a decision QUESTION 4 By virtue of Section 37 of CAMA, as from the date of incorporation mentioned in the certificate of ‘corporation, te subsorbers of he memorandum together with such other persons as may, rom tie to time, become members of the company, shall be a body corporate by the name contained in the “pemorandum, capable forthwith of exercising all he powers and functions of an incorporled company “noluding the power to hold land, and having perpetual succession and a common seal, but with such ‘abiliy on the part of the members to contribute to the assets of the company in the event of its being “wound up as in mentioned in CAMA. ‘The principle of corporate personality was enunciated in the case of SALOMON V SALOMON & Go. Ltd ‘vhere LORD MACNAGHTEN stated that when the memorandum is duly signed and registered, though here be only seven shares taken, the subscribers are a body corporate “capable forthwith”, to use the ‘vords of their enactment, “of exercising all the functions of an incorporated company”. Those are strong ‘vords. The company attains maturity atts birth. Thereis no period of minority, no interval ofincapacty. | Jannot understand how a body corporate this made capable by statute can lose individuality by Issuing he bulk of its capital to one person, whether he be a subscriber to the memorandum or not. The Jompany is at law a different person altogether from the subscribers to the memorandum; and, lthough it may be that after incorporation, the business is precisely the same as it was before, and the Jame persons are managers, and the same hands receive the profits, the company is not in law the {gent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or ‘orm, exceptto the extent and in the manner provided by the Act. diher relevant cases: EBBWVALEU.D.C.V SOUTH WALES TRAFFIC CHARTERBRIDGE CORP. VLLOUD'S BANKLTD LEE VLEE'S FARMINGLTD MARINANOMINEES LTDVFBIR 25 The corporate personality of a company may be disregarded under two broad circumstances: 1, BY THE COURTS (CASE LAW): The corporate veil may be lifted by the courts in the following situations: i) FRAUD ORIMPROPER CONDUCT Pioneer launding V Minister of int. Rev. Re Bugle Press Ltd Gilford Motor Co. V Home: fi) ILLEGALITY . Merchandise Trans Ltd V British Transport Jones V Lipman Gilford Motor Co. V Horne: ‘Timstor AB V, Smallbone Yoring Line Ltd V. Rendsburg Inv. Co. Lid iil) PUBLIC POLICY/ ENEMY CHARACTER eee Daimler Co. Ltd V. Continental Tyre & Robber iv) AGENCY ReFG.(Films)Ltd v) TRUST Abbey Malvern Wells Ltd V Ministry of Local Government Little Woods Stores V LR.C. TAXATION Natina Nominees VF.B.LR. vii) ASSOCIATED COMPANIES DHN Food Dist. Ltd V Tower Hamlets 1 Mark Each 2. UNDER STATUTES: (@)__ Numberof members below legal minimum, Section 93 (6) Numberof directors fess than two, Section 246(3) (©) Personalliability of directors and officers. Section 290 (a) (c) (6) Recklessor fraudulent trading. Section 506 (1) (©) Company's name not mentioned in Bill of Exchange Section 548(4) (0) () Holding and subsidiary companies. Section 336-338 (g) Investigation into retated companies. Section 316 QUESTIONS a) 26 Whether Mike and Pete can hold the general meeting they have called: Mike and Pete on their own do not constitute a quorum as required by the company's Articles of Association, which states that three people are needed. Its therefore, ‘impractical to hold the meeting Section 232()), and $0 they can ask the court to order a meeting fo be held specifying of 1 9 that the quorum shall be two. In Re Ei Sombrero Lid (1958), the company had three shareholders, two of whom were also directors. The non-director shareholder held a majority of the shares, and he wanted to call a general mesting to dismiss the directors. They refused to altend the meeting and the quorum for a meeting was three, The court ordered a meeting to be held. 3Marks Rob; Whether Rob can bring an action against Mike and Pete on the ground of unfairly prejudicial conduct, andif he is successful, what the likely remedy willbe. The company is a quasi-partnership as ithasthe characteristics identified by Lord Wilberforce in Ebrahimi V Westbourne Galleries Ltd (1973). These were: () that the company was formed on the basis of a personal relationship and mutual confidence, which is usually satisfied when the business was originally carried on as a partnership; (i) that there was an understanding or agreement that they would all take part in the management ofthe company; and )__ that there isa restriction on the transfer of shares. Amember of a company may petition the court for an order that the affairs of the company have been, of are being, conducted in a manner which is unfairly prejudicial to the interests of its member generally, orto some parts ofits members. See O'Neill V Phillips (1999). Lord Hoffmann held that unfaimess usually requires the petitioner to show some breach of the terms on which the members had agreed that the affairs of the company would be conducted. ‘The fact that the company is a quasi-partnership is not enough, but where there is a quasi- partnership, these terms can be found in the Articles of Association or in some wider, equitable, agreement or understanding between the parties. Mike and Peter are in breach of the Articles as they refused to buy Rob's shares when he gave notice under the Articles. Rob could also enforce this Article against them by relying on Section 44(1) of CAMA. See Rayfield V Hands (1960). ‘The intention of calling a meeting to remove Rob from his directorship is also @ breach of the informal agreement made on the formation of the company, See Re a company (1986). It was held that in a quasi-partnership a member's interests may include a legitimate expectation to continue to be a director, and his exclusion from management was held to be unfairly prejudicial or removing Rob will amount to unfairly prejudicial conduct. Re acompany. Court wil most likely make an order that Mike and Pete buy Rob's shares. No discount will be allowed Re Bird Precision Bellows Ltd (1984). The court has a wide discretion in deciding the rate at which the share are to be valued. 12Marks 27 ‘Why a petition to wind-up the company on the grounds that it is just and equitable to do so is Unlikely to succeed. ‘Awinding-up order is a very drastic remedy, and results in the death of the company. Section 411 (2) provides that a winding-up order will notbe granted when there is an alternative remedy which the petitioner is unreasonably refusing to pursue. i. unfairly prejudicial conduct. See Rea company (1983) 5 Marks 20Marks QUESTIONG a) b) 28 Alternate Director: Is a director who attends board meetings on behalf of another director where that other director is unable to attend the meetings. The legality of such directorship in Nigeria is doubtful in view of the absence of any provision for such directorship in CAMA. There was a provision for such directorship in the Companies Act 1968 which CAMArepealed ‘Shadow Director: According to Section 245 of CAMA, a shadow director is a person on whose instructions or directions the directors of a company are accustomed to act. In other ‘words, even through the person's name is not listed as a director, because of the influence he has overthe directors, he is deemed to be a director, In Re Hudrodan (Corby) Limited four tasks for determining who a shadow director is were established by the court. These are: 1) Theidentity ofthe appointed and acting directors must be established. 2) It must bé established that the alleged shadow director did direct the appointed directors in their actions or decisions in the running of the company. 3) It must be established that the appointed directors followed those direction or instructions of their alleged shadow director. 4) __ Itmustbe established that itis the usual practice of the directors to follow the directives or instructions ofthe alleged shadow director. Executive Director: An executive director is that director of a company who in addition to being a director of a company is also an employee of the company. Thus, apart from his directorship, he has a contract of employment with the company with terms and conditions ‘hich are not of general application to all other directors of the company. He is involved in the day-to-day running of the company ands otherwise known as an inside director. The removal lly terminate his contract of employment of such a person as a director does not automatic with the company. ‘The termas a description for directors is recognized in Sections 244(2) and 282(4) of CAMA. d) Non-Executive Director: This is @ director of acoampany who is notinvolved in the day-to-day running of the company. He has ne contract of employment with the company other than that by which he Is appointed as a director. He is otherwise known as an outside director. “The term as.a description fordirectors is recognized in Section 244(2) and 282(4) of CAMA, Life Director: According to Section 255 of CAMA, a life director is a person appointed a a director until death. However, a life director for life. In other words, the person rem: director is susceptible to be removed from office under the terms of Section 262 of CAMA. ‘Thal isto say, he canbe removed by an ordinafy resolution of which special notices; given The main advantage of being a life director is that such 8 director is not subject to retirement by rotation. 4 Marks Each 29 CORPORATE LAW Examiner's Report (December, 2011 General Comments The performance of students in this December diet of the examination can best be describe as average, This is an indication of inadequate preparation and lack of basic knowledge of corporate la However, candidates who did well displayed good knowledge of basic corporate law whic was borne out of adequate preparation QUESTION 4 ‘This is @ compulsory question for all candidates. About 55% pass was recorded for th Guestion and the fact stil remains that candidates are yot to grapple with the bas concepts of Corporate law and giving sketchy answers, : QUESTION2 Alet of candidates avoided this question because they lack the basic knowledge about th tegal issues relating to the duties and responsibilities of directors of a company and th Sppropriate organ to commence litigation in the company’s name for breach of duties 2 stipulated in 8.279 of CAMA, UESTION3 This question was very popular amongst the candidates but unfortunately they could nc differentiate between members’ voluntary winding up and creditors’ Voluntary winding up. the second part ofthis question, mast of the candidates were unable to give more than thes grounds under which a company may be wound upby the court, thereby losing vital marks. QUESTION4 About 50% of the students altempted their question with about 60% pass rate, The: displayed appreciable knowledge of Section 37% of CAMA and the circumstances when the veil of incorporation may be lifted by the courts. QUESTIONS Many candidates avoided this question and the few that attempted it performed very poorly ‘They were unable o explain in detail and correctly all the legal issues involved in the case o Delta Ltd with three brothers as directorsand shareholder of the company. QUESTIONG This isa very popular question and all the candidates that allempted it performed well above average. This shows that they have adequate knowledge about the meaning and functions ofthe classifications of direction of a company. 30 HE INSTITUTE OF ‘HARTERED SECRETARIES AND \DMINISTRATORS OF NIGERIA ode: P104 [ROFESSIONAL EXAMINATION flanagement Accounting lecember 2011 Diet ednesday Morning, 7" December, 2011 'STRUCTIONS Answer ALL questions in Section A. All questions carry equal marks. Answer THREE (3) questions from Section B. All questions carry equal marks. TimeAllowed: THREE 3HOURS Candidates are expected to show their workings using the inside page and the last sheet ofthe answer booklet. Candidates are forbidden from bringing phones into the examination hall Only non-programmable calculators are permitted for use in the examination 31 i MANAGEMENT ACCOUNTIN SECTION A (Answer all questions in this Section) © QUESTION + © Josyiad Trading Company Limited maintains the same inventories at the end of the year as at the | peginning ofthe year. The estimated costs for the year N288,000 and the estimated variable cost per | ypitis N14. Itis expected that 60,000 units will be sold at a price at N20 per unit. From the above information calculate: 3 (a) Thecontribution margin ratio, (4 Marks) : (b) _Theunit contribution margin ratio. (4 Marks) | (0)... Determine the breakeven pointin units. (4Marks) |) Whatisthe margin ofsafety? (4 Marks) 4 (@) LAA Company uses a standard cost system. The standard for each finished unit of product allows for 3kgs of Plastic at NO.72 Per Kg, During December, LAA bought 4,500kgs of plastic at NO.75 perkg and used 4,100kgs in the production of 1,300 finishod units of product. ‘Whatis the material purchase price variance forthe month ofDecember? (4 Marks) 1 Nyanyan Limited has determined its activity and is now preparing its budget for its cost for the | three months ending 31™March, 2011 basedon the following forecasts: | Variable Cost Probability Fixed Cost Probability + N200,000 0.40 N275,000 0.50 | _N345,000 035 1N281,.000 0.30 | N610,000 0.25 N210,000 0.45 | Caloulate its Expected Value of Total Costs. (4 Marks) {g) Give FOUR possible disadvantages of treating adivisionas profitcentres. (4Marks) (h) Explain briefly the role of bench making in continuous improvementin an organization. ! (4 Marks) () Briefly explain the concept*Learning Curve” (4 Marks) () Howcan Learning Curve be applied for cost management? (4 Marks) (Total: 40 Marks) 33 SECTION B (Answer ANY THREE questions from this Section) ttle QUESTION 2 During the current period CAB Limited sold 60,000 units of product at N30 per unit. At the beginning of the period, there were 10,000 units in stock, and CAB Ltd manufactured 50,000 units during the period. The manufacturing costs and selling and administrative expenses were as follows: TotalCost NumberofUnits Unit Cost N N Beginning Stock: Direct Materials 67,000 10,000 6.70 Direct Labour 455,000 70,000 16.50 Variable Factory Overhead 18,000 10,000 1.80 Fixed Factory Overhead 20,000 40,000 2.00 Total 260,000 26.00 Current Period Costs: Direct Materials 350,000 50,000 Direct Labour 810,000 50,000 Variable Factory Overhead 90,000 50,000 Fixed Factory Overhead 100,000 50,000 Total 4,350,000 Solling and Administrative Expenses Variable 65,000 Fixed 45,000 410,000 Required: (@) Prepare an income statement based on variable costing concept. (11 Marks) (b) Prepare anincome statement based on absorption costing concept (7 Marks) © _ Whatisthe reason for the difference in the amountof income from operations in (a)and (b). (10Marks) (Total: 20 Marks) 34 of 18 | QUESTIONS Fine Products Limited manufacture the Fine Raid” spray. The accounts of the company for the year | 2610 are expected toreveal a profil of V140, 000 from the manufacture of Fine Raid” after charging of N100,000. The Fine Raid issold for N5 and has a variable unil cost of N2. fixed cost Market Sensitivity Analysis suggests thefollowing responses to price changes: © alternatives Selling Price Changes ‘Quantity Sold increased by toa 5% Reduction 10% / B 7% Reduction © 20% c 10% Reduction 25% Evaluate these alternatives and state which profitability consideration, should be adopted for the forthcoming year. Assuming all costs areunchanged. (20 Marks) QUESTION4 ‘The basic difference between job order costing and process costing is the breadth of the denominator. Discuss this stalemen, contrasting the principal characteristics of the two costing methods, i (20 Marks) | QUESTIONS © (@) Discuss brieflytne significance of Value Added Concept. (2Marks) | (b) Explain the Absorption costing versus marginal costing controversy. (4 Marks) (©) Kolly Lte manufactures three prototypes to Y furniture products - chairs, benches and tables. ‘The budgeted unit cost and resource requirements of each item is detailed below: ~ ; Chair Bench Table i N N N ; Timber Cost 5.00 15.00 10.00 ; Direct Labour Cost 4.00 10.00 8.00 f Variable Overhead 3.00 7.50 6.00 Fixed Overhead 4.50 11.25 9.00 0S B.D Budgeted Volumes PerAnnual 4,000 2,000 1,500 ‘These volumes are believed to equal market demand for the three products, ‘The fixed overhead costs are attributed to the three products on the basis of direct labour hours. 1 ‘The labour rate is N4.00 perhour. ‘The cost ofthe timberis N2.00 persquare metre. ‘The products are made from a specialist timber. Ameme from the purchasing manager advises you that because of a problem with the supplier, itis to be assumed that this specialist timber is, limited in supply to 20,000 square metres per annum. 35 The Sales Manager has already accepted an order for 500 chairs, 100 benches and 150 tables which if not supplied would incur a financial penalty of N2,000. These quantities ay included in the market demand estimates above, ‘The selling prices of the three products are: - N Chair 20.00 Bench 0.00 | Table . 40.00 : Required: () Determine the optimum production plan and state the net profit that this should yield per annum. (10 Marks) (i) Calculate and explain the maximum prices which should be paid per square metre in orderto obtain extra supplies of the timber, (4 Marks) (Total: 20 Marks) QUESTION ; Telex-O-Limited has several operating divisions one of which, the North Division, is currently 3 preparing Budget for the year ending 31% December 2012. The division manufactures a standard = product to which the following details for 20 2will supply. } i Per Unit ; N N j Direct Materials 15 Direct Wages 35 Variable Overheads 20 Fixed Overhead (Including Depreciation i of N14 por unit) 0 80 Profit Selling Price 100 Aforecastof the Division's Working Capital position at 31" December, 2010 is as follows: ~ N Stock of Raw Materials 6,000 Work-In-Progress (200 Unis half Complete} 6,000 Finished goods (400 Units) 30,000 i Debtors 38,000 j 36 > 5 cash 15,000 es ay 95,000 Less: “Taxation 40,000 | creditors 12,000 52,000 43,000 ‘The following additional information s available: | |. Budgeted production and sales for 2010is 5,200 units. i a Raw materials will be in stock for four weeks prior to issue to production 4 Eachunitwillbein progress for an average of two weeks. |= Finished goods will remain in store foran average of four weeks awaiting delivery. J-. Suppliers allowan average credit period of eight weeks. 4. Customers are allowed a four-week credit period. =. Sales and production are spread evenly overthe year. £.Workcin-progressis valued at variable cost. |. Taxation of N40,000 wil be paid in January 2042 and captal expenditure of N10,000 wil be i incurred in December 2012. b Finished goods are valued at full cost. | Required: “())_. Prepare a budgeted income statement for2012. {8 Marks) Al) Prepare quarterly cash budgetstor 2012. (10Marks) A) State your assumptions (2Marks) (Total: 20 Marks) a MANAGEMENT ACCOUNTING MARKING GUIDE SECTION 1 a) The Contribution Margin = Variable Co: Sales = (60,000xN20)_-_- (60,000 x N44) 60,000 x.N20 4,200,000 ~ N840,000 1,200,000 = _ 360,000 1,200,000 = 30% 0 b) The Unit Contribution Margin Unit Selling Price ~ Unit Variable Costs = N20-N14 = NB ¢) The Breakeven point in Units = Fixed Costs Units Contribution Margin 288,000 NG 48,000 Units, 4) Margin of Safety nN Expected Sales (60,000 xN20) 1,200,000 Breakeven point (48,000 x N20) _960.000 Margin of Safely 249,000 oR Sales — Sales at Breakeven Point Sales, (000 - 960,000 1,200,000 E ¢) — LAACompany Material Purchase price Variance = (Standard Price ~ Actual Price) x Purchase NO.75 x NO.75 x 4,500kq8, 135 Unfavourable a 38 satan Shi i varlable Costs Probability Expected Value Total 200,000 0.40 N80,000 345,000 0.35 120,750 N570,000 0.25 427,500 328,250 Fixed Cost Probability Expected Value 1N275,000 0.60 N137,500 N281,000 030° 84,300 N210,000 0.48 94,500 316,300 ‘Total Expected Value 644,550 ‘The Possible disadvantages of treating a division as profitcentre: -(Any four). _ Division may compete with each other therefore taking decision to increase profit above otherconsiderations. = {tmay adversely affect co-operation between the divisions, leading to failure to achieve the objective of goal congruence. = Itmay lead to reduction in the Company's overall total profits = The cost of activities which are common to all divisions may be greater for decentralized structure than for centralised structure. Series of control repoits prepared for several depariments may not be effective from the pointof view oftop management, + Itmayunderutlize corporate competence = Itleads to complications associated into transfer pricing problems. = Itbecomes difficult to identity and define precisely sultable profitcentres = ‘Itconfuses division's results with manager's performance. Bench Marking This Is a technique which is being adopted as a mechanism for achleving continuous Improvement. It Is @ continuous process of measuring a company's products, services or activities against the other best performing organisations either Internal or external fo the company. “The objective is to ascertain how the processes and activities can be improved. trepresents an ideal way of achieving high competitive standards, Learning Curve This Is a function that measures how Labour hours per unit decline as units of production increase because workei$ are learning and becoming better at their jobs. As the operation is repeated and the workers become more familar with thelr work. Labour efficiency increases andthe labour costper unit declines. This rate can be used to predict future labour cost, 39 | i) Cost Management Application of Learning Curve ~ Learning Curve is useful in analyzing cost volume profit relationship. The company can Setlow price ofits producto generate high demand. As this production increase cost per unitdrops. ~ Ithelps in budgeting and profit planning ~ __ ltenablesin price fixation, the company can fixa lower price forrepeat orders. ~ __[theips the dosign engineers to take suitable decisions based on expected rates of improvement. + Ithelpsin price negotiations ~ _ Itisusefulin setting standards and in performance evaluation, QUESTION2 ) Variable costing income statement N N Sales (60,000 x N30) 1,800,000 Variable cost of goods sold: Opening stook (10,000 x. N24) 240,000 Variable cost of goots manufactured (50,000 x N25) 1,250,000 Variable costs of good sold 1,490,000 Manufacturing margin 310,000 Fixed Costs: Manufacturing 100,000 Selling and Administrative 45,000 145,000 165,000 Less: Vatlable Selling & ‘Administrative Exp. 85,000 Net Profit 100,000 b) Absorption costing income statement N N Sales (60,000 x N30) 1,800,000 Cost of good sold: y Opening stock (10,000 x N26) _260,000 Cost of goods manufactured (60,000 x N27) 1,380,000 1,610,000 Gross profit 190,000 Selling and Administrative Exp, (N65,000 +N45,000) 110,000 Net Profit 80,000 40 an er of a notthe case inAbsorption costing method. QuesTION3 otal contribution from the present operation Netprofit | Fixed cost Contribution + original quantity sold (N240,000/3) + Unit Contribution 4 Selling price per unit | Varabiecostper unit | Contribution per unit | attorativea + Salling Price reduced by 5% + quantity soldincreased by 10% © Contribution per unitwill reduce by 5% Original contribution © Less 5% reduction in selling price (NS x5%) New Contribution / Original quantity sold Increase in quantity by 10% Quantity sold at contribution of N2.75 _ New total contribution (88,000 xN2.75) Alternative B Selling Price reduced by 7% ‘Quantity sold increased by 20% Original contribution perunit Less: 7% of Selling price (N5 x7%) Original units of sales “Inctease by 20% New quantity New Contribution (96,000 x N2.65) “The main reason forthe diference in the Nol proftis the treatment given to the fixed costof Ihe opening stock, When stocks are valued, only variable production costs will be included, whichis N140,000 400,000 240,000 = 80,000 Units N le ino NB & 80,000 8,000 88,000 ‘N242,000 N3.00 0.35, 2.65, 80,000 16,000 96.000 N254,400 a“ Alternative Selling Price reduced by 10% ‘Quantity sold increased by 25% ake aces Sarto Original contribution per unit N3.00 in Less: 10% in Selling price (N5 x 10%) 50 be N2.50, te & Ori units sold 80,000 a Increase by 25% 20,000 1 New quantity 100,000 - New Contribution (100,000 xN2.50) 250,000 @ On the basis of the above calculations based on profitability consideration and ignoring other factors. alternative B with contribution of N254,000 should be adopted. 42 retors 1g ORDER COSTING AND PROCESS COSTING “he fundamental poin! which isbeing made inthe statement [s that job costing tends to be One-off” individual orders whereas, process costing is concemed with long-run, repetitive production of items to pe sold oa variety of customers PRINCIPAL CHARACTERISTICS 08 ORDER COSTING ‘istype of costing fs employed when the work carried outis ' Toacustomer's specification and requirement Ofa‘one-off", non-repetitve nature Likely to ineurspecific design/planning costs Unlikely to have “normallosses” Likely to use different ypes of plantllabour for varying periods of time. Likely to incura large amount oftooling-up* cost. PROCESS COSTING ‘This type of costing is employed when the work carried outis:- = Tothe company's specification = Ofahighly repetitive nature Unlikely to incur design/planning cost once the run has been established. -

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