THE INSTITUTE OF CHARTERED

ACCOUNTANTS OF NIGERIA

PATHFINDER
MAY 2018 DIET
FOUNDATION LEVEL EXAMINATIONS

Question Papers

Suggested Solutions

Examiner‟s Reports

Plus

Marking Guides

0
 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

FORWARD …………………………………………………. 1

FINANCIAL ACCOUNTING ………………………………….. 3 - 37

MANAGEMENT INFORMATION ……………………………. 38 – 59

QUANTITATIVE TECHNIQUES IN BUSINESS ……………... 60 – 97

BUSINESS AND FINANCE ………………………………….. 98 – 120

BUSINESS LAW ……………………………………………… 121 – 139

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 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION - MAY 2018
FINANCIAL ACCOUNTING
Time Allowed: 3¼ hours (including 15 minutes reading time)
SECTION A: MULTIPLE - CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ALL QUESTIONS IN THIS SECTION

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

1. Which of the following is NOT a purpose of the Conceptual Framework for

Financial Reporting?
A. To assist national standard setting bodies in developing national
standards
B. To assist preparers of financial statements in applying IFRSs and in
dealing with topics that have yet to form the subject of an IFRS
C. To assist auditors in forming an opinion on whether financial statements
comply with IFRS
D. To assist users of financial statement in interpreting the information
contained in financial statements prepared in compliance with IFRS
E. To define standards for measurement or disclosure

2. Adeyemi Boat Shop bought a N70,000 electric hoist to lift engines out of boats. The
Boat Shop paid N20,000 in cash for the hoist and signed a note to pay the balance in
90 days. This transaction will cause:
A. The Boat Shop‟s assets to increase by N70,000 and liabilities to increase
by N50,000
B. No change in owners‟ equity but a N50,000 increase in both assets and
liabilities
C. Assets to increase by N50,000 and owners‟ equity to decrease by the
same amount
D. No change in total assets, but a N50,000 increase in liabilities
E. Both assets and liabilities decrease by N50,000.

3. Which of the following is included in the cost of inventories?

A. bnormal amounts of wasted materials, labour and other production
costs
B. Conversion costs
C. Storage costs
D. Administrative overhead
E. Selling costs

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4. At the end of the year, Chukwu makes a charge against the profit for electricity
consumed but not yet paid, this adjustment is in accordance with the:
A. Consistency concept
B. Objectivity concept
C. Materiality concept
D. Accruals concept
E. Prudence concept

5. Which of the following elements is directly related to the measurement of an

entity‟s financial position?
A. Performance, income and expenses
B. Income, expenses and equity
C. Performance, income and equity
D. Assets, liabilities and equity
E. Assets, liabilities and performance.

6. At the end of a financial period, the statement of profit or loss of a company

showed a profit of N2,400,000. It was however, discovered that revenue of N240,000
was recorded as expenses while expenses of N80,000 had been recorded as revenue.
What should be the correct profit for the period?
A. N2,080,000
B. N2,560,000
C. N2,640,000
D. N2,680,000
E. N2,720,000

7. A cheque payment recorded in the cash book, but not yet reflected in the bank
statement is
A. Uncredited cheque
B. Dishonoured cheque
C. Standing order
D. Unpresented cheque
E. Undebited cheque

8. The cash basis of accounting requires the recognition of revenue only when they
are
A. Due
B. Earned
C. Paid
D. Received
E. Budgeted

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9. Which of the following is NOT an enhancing qualitative characteristic of useful
financial information?
A. Understandability
B. Relevance
C. Timeliness
D. Comparability
E. Verifiability

10. Which of the following is the definition of non-current assets?

A. Assets held for trading purposes
B. Assets which are used for production and services over a number of years
C. Assets that are expected to be realised within normal operating
cycle
D. Assets that are expected to be realised within a year
E. Assets expected to be consumed in ordinary course of business

11. Computer Company Limited recently bought ten computers for its use, which of the
following is the correct method of recording this transaction?
A. Debit computers account and credit cash account
B. Debit purchases account and credit cash account
C. Debit cash account and credit purchases account
D. Debit cash account and credit computers account
E. Debit computers account and credit purchases account

12. Alaro Company Limited has authorised share capital of N1,000,000 ordinary
shares of 50 kobo each. The company issued enough shares at par to raise
N900,000. What is the number of shares stated in the Company‟s memorandum of
association?
A. 900,000 shares
B. 1,000,000 shares
C. 1,600,000 shares
D. 1,800,000 shares
E. 2,000,000 shares

13. The double entry for partners‟ drawings is to

A. Debit appropriation account and credit drawings account
B. Debit partners‟ current accounts and credit cash account
C. Debit cash account and credit appropriation account
D. Debit partners‟current accounts and credit appropriation account
E. Debit appropriation account and credit cash account

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14. In the statement of cashflows, when recognising income under the accrual basis,
which of the following statements is correct?
A. Income is recognised when earned and cash is received
B. Income is recognised only when it is not certain that cash will be received
C. Income is recognised only when cash is received
D. Income is recognised when earned and not necessarily when cash is
received
E. Accrued income is only recognised in the financial statements.

15. Which of the following is NOT an operating activity?

A. Cash receipt and cash payment of an insurance entity for premiums on
claims, annuities and other policy benefits
B. Cash advances and loans made to other parties
C. Cash payments or payments from contracts held for dealing or trading
purposes.
D. Cash receipts from the sale of goods and rendering of services
E. Cash receipts from royalties, fees, commissions and other revenue
16. If opening capital was N125,000, closing capital was N137,000, and the owner's
withdrawals were N123,000, the amount of profit or loss for the period was
A. Loss of N139,000
B. Loss of N135,000
C. Profit of N111,000
D. Profit of N135,000
E. Profit of N139,000
17. Which of the following errors does NOT affect the balancing of a trial balance?
A. Error of principle
B. Casting error
C. Transposition error
D. Duplication entries
E. Missing entries in the ledger

18. What accounting concept is violated when N50,000 cost of electricity consumed
during the first year of operation of a business was not charged as expense for the
year?
A. Accrual
B. Materiality
C. Historical cost
D. Business entity
E. Prudence

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19. A vehicle was purchased on January 1, 2011 at a cost of N2,000,000 and was
depreciated at 25% on cost. It was sold on December 31, 2013 for N1,400,000.
Full-year depreciation was charged in the years of purchase and disposal.
Determine the profit or loss on the disposal
A. N900,000 loss
B. N500,000 loss
C. N500,000 profit
D. N900,000 profit
E. N1,150,000 profit

20. The source of data for the recording of sales day book of a business enterprises is
A. Returns inward note
B. Returns outward note
C. Official receipt
D. Payment voucher
E. Invoice

SECTION B:

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX QUESTIONS IN
THIS SECTION (80 MARKS)

QUESTION 1

On January 1, 2016, Mr. Wale commenced business as a sole trader with N10,000,000
which he paid into the business bank account. He purchased a van for N6,000,000 from
Mallam Tanko and paid half of the amount due by cheque on January 2, 2016. The
following transactions took place in the month of January, 2016:

Jan 2 Paid rent of N500,000 for two years in advance for the business premises by
cheque
Jan 3 Purchased goods worth N2,000,000 from Granules Limited and paid half of
the amount by cheque so as to enjoy a cash discount of 4%
Jan 4 Purchased furniture for N200,000 and computers for N250,000 by cheque
Jan 6 Conducted sales promotion for one month that gave customers opportunity
to enjoy cash discounts and trade discounts as follows:
All sales with full cash payments will be given 5% discount and all sales
above N500,000 will qualify for a trade discount of 10%.
Jan 8 Sold goods for cash to Sanders Limited for N340,000
Jan 10 Sold goods to Miles and Stone Limited for N1,000,000, who paid 75% of the
amount by cheque
Jan 12 Mr. Bobby purchased goods valued at N100,000 from Mr. Wale and paid
fully by cash
Jan 13 Deposited the sum of N300,000 cash in the safe to the bank
Jan 15 Paid salaries by cheque of N80,000 and electricity bill of N10,000
Jan 20 Paid the sum of N1,750,000 to Mallam Tanko by cash for the Van

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Jan 27 Mr. Wale withdrew cash of N10,000 to pay for some of his personal expenses
Jan 30 Cash sales of N40,000 was made

Required:
a. a three column cash book (6 Marks)
b. the ledger accounts for the transactions (8 Marks)
c. a trial balance as at January 31, 2016 (6 Marks)
(Total 20 Marks)

QUESTION 2

The financial statements of Uwana Manufacturing Limited are given below:

Uwana Limited
Statement of profit or loss and other comprehensive income for the year ended
December 31, 2017
2017 2016
N‟000 N‟000 N‟000 N‟000
Revenue 8, 380 6,983
Cost of Sales (3,351) (2,234)
Gross Profit 5,029 4,749
Distribution Cost 1,676 1,676
Administrative expenses 2,514 2,486
(4,190) (4,162)
Operating profit 839 587
Finance cost (559) (279)
Profit before tax 280 308
Tax (140) (151)
Profit for the year 140 157

Statement of Financial Position as at December 31, 2017

2017 2016
Non-current assets N‟000 N‟000 N‟000 N‟000
Property, plant & equipment (PPE) 5,978 4,302
Current Assets
Inventory 358 207
Trade receivables 335 223
Cash and cash equivalent 84 777 112 542
Total assets 6,755 4,844

Equity & Liabilities

Equity:
Share capital 3,910 2,794
Retained earnings 207
4,117 179 2,973

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 Liabilities
Non-current liabilities
Loan notes 1,676 670
5% Preference shares 438 2,114 838 1,508

Current Liabilities
Trade payables 117 67
Taxation payable 140 151
Bank overdraft 267 524 145 363
Total equity & liabilities 6,755 4,844

Movement on property, plant & equipment is given below:

Land & Plant & Other Total

Building Machinery Equipment
Cost N‟000 N‟000 N‟000 N‟000
January 1, 2017 2,793 1,676 1,117 5,586
Additions 1,117 1,304 280 2,701
Disposals - (466) - (466)
December 31, 2017 3,910 2,514 1,397 7,821
.
Depreciation:
January 1, 2017 279 558 447 1,284
Charge for the year 56 615 223 894
Disposals - (335) - (335)
December 31, 2017 335 838 670 1,843

Carrying amount:
December 31, 2017 3,575 1,676 727 5,978
January 1, 2017 2,514 1,118 670 4,302

Additional Information
In the year 2017, a plant costing N466,000 with accumulated depreciation of N335,000
was disposed off for N186,000. Included in trade payables is accrued interest of N37,000
(N18,000 in 2016).

The trade payables had a creditor for plant purchased of N18,000.

Required:
Prepare statement of cash flow for the year ended December 31, 2017 using the indirect
method. (Total 20 Marks)

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QUESTION 3

Peju runs a big grocery store in Ibadan, but many of her accounting records were
destroyed by a flood incident close to the end of the financial year of the business. From
the records that were retrieved after the incident, the following balances were gathered in
respect to her assets and liabilities at the beginning of the year:
N‟000
Tables, chairs and shelves 12,000
Motor van 3,500
Inventory 15,000
Trade receivables 4,000
Trade payables 15,000

The analysis of the printout of her bank statement showed the following:

Deposits Withdrawals Balance

N‟000 N‟000 N‟000
Deposits from customers 10,600 14,850
Cash deposit 155,370 170,220
Sale of old van 3,000 173,220
Payment to suppliers 165,940 7,280
Procurement of new van 10,000 2,720 Dr
Rent for nine months 2,250 4,970 Dr
Electricity bills for 18 months 3,600 8,570 Dr
Sundry expenses 4,460 13,030 Dr
Motor vehicle expenses 600 13,630 Dr
Advertising 2,190 15,820 Dr
Drawings 920 16,740 Dr
Closing balance 16,740 Dr

The cash book retrieved after the flood had the following information:

Dr Cr
N‟000 N‟000
Balance b/d 1/1/17 210 Wages and salaries 15,240
Cash sales 154,000 Cash paid into bank 155,370
Receipt from customers 33,360 Van expenses 1,680
Insurance policy redemption 1,420 Advertising 840
Drawings 13,510
Sundry expenses 1,190
Payment to suppliers 1,040
Balance c/d 31/12/17 120
188,990 188,990

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 In addition to the above, you were informed that:

(i) Inventory was valued at N46,510,000, trade receivables at N20,680,000 and trade
payables at N15,430,000.
(ii) Sundry expenses accrued amounted to N370,000 for 2016.
(iii) Depreciation is to be provided as follows; furniture and fittings 10% and motor
vehicle 20% on reducing balance method
(iv) Peju took some groceries from the store costing N2,060,000. She is yet to pay.
(v) Allowances for doubtful debts are raised at the beginning and end of the year at
5%. Bad debts of N600,000 had been written off the trade receivables as at
December 31, 2017
(vi) The insurance policy redeemed was to be used as additional capital.

Required:
a. Calculate the capital as at January 1, 2017 (6 Marks)
b. Prepare statement of profit or loss for the year ended December 31, 2017
(8 Marks)
c. Prepare statement of financial position as at December 31, 2017 (6 Marks)
(Total 20 Marks)

QUESTION 4

a. Define “depreciation” (2½ Marks)

b. List FIVE factors which should be taken into account in arriving at the depreciation
charged on a non-current asset. (7½ Marks)

c. Mr. Jingolo is a trader who prepares account to December 31, each year.

The following transactions with regard to non-current assets have taken place:
 January 3, 2015 purchased one office equipment for N2,000,000.
 July 5, 2016 purchased plant and machinery costing N50,000,000.
 December 1, 2016 purchased plant and machinery for N20,000,000.
 December 15, 2017 bought office equipment for N1,000,000.
 Bank balance as at January 1, 2015 was N100,000,000.
Mr. Jingolo maintains its non-current assets at cost and keeps a separate ledger for
each type of non-current asset. All assets are purchased and are paid for
immediately.
Required:
i. Prepare plant and machinery account (1 Mark)
ii. Prepare office equipment account (3 Marks)
iii. Prepare bank account (6 Marks)
(Total 20 Marks)

11
QUESTION 5

Yerima and Boluke have been friends for some time and they both had different
businesses as sole-traders and decided to form a partnership with effect from May 1,
2017.

Their respective financial position on April 30, 2017 are as follows:

Yerima Boluke Yerima Boluke

N‟000 N‟000 N‟000 N‟000
Capital 50,000 80,300 Premises 20,000 40,000
Payables 500 1,200 Office equip. 10,000 20,000
Loan from business - 20,000 Inventory 500 2,000
associates
Receivables 10,000 20,000
Bank 5,000 10,000
______ _______ Cash 5,000 9,500
50,500 101,500 50,500 101,500

For the purpose of the partnership formation, the following agreements were reached:

(i) Yerima:

Premises were re-valued at N30,000,000 and was to be used as an office annex and
the equipment valued at N3,000,000 was counted as obsolete; some of the
customers were found unable to pay their outstanding debts therefore, N2,000,000
should be written-off. The payables were paid out of the bank balance; other assets
were brought in at book values.

(ii) Boluke:

He agreed to acquire, out of his private resources, additional equipment costing

N3,000,000, to pay his payables from his bank balance, repay his loan by himself
and bring in his other assets at book values.

Required:

a. Prepare the statement of financial position for the partnership of Yerima and
Boluke on May 1, 2017. (10 Marks)

b. State TEN provisions that should be contained in partnership agreement.

(10 Marks)
(Total 20 Marks)

12
QUESTION 6

a. Explain chart of accounts and its usefulness. (3 Marks)

b. The trial balance of Emeka failed to agree. The debit exceeded the credit by
N8,204,000. The following errors were subsequently discovered:

 Sale of goods for N16,000,000 on credit to Lade was debited to Wale‟s account.
 A sale of goods to Ben for N1,323,000 was posted to the credit of his account.
 Purchase of office furniture for N7,600,000 was debited to the purchases
account.
 The sales day book was under-cast by N10,000,000.
 N1,500,000 paid by Titi was not credited to her account, although it was
correctly entered in the cash book.
 A debit balance of N650,000 in the insurance account was omitted from the
trial balance.

Required:

i. Prepare the necessary journal entries, and (10 Marks)

ii. Prepare the suspense account. (7 Marks)

(Total 20 Marks)

13
PART I- MULTIPLE CHOICE QUESTIONS

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

Working Note

Question 6

Determination of the correct profit for the period

N
Reported Net Profit 2,400,000
Add:
Revenue treated as expenses (240,000 x 2) 480,000
Less:
Expenses treated as revenue (80,000 x 2) (160,000)
Corrected Profit for the year 2,720,000

14
Question 16

Determination of profit for the period

N
Closing Capital 137,000
Add Drawing 123,000
260,000
Less: Opening Capital 125,000
Net Profit for the period 135,000

Question 19

Determination of profit or loss on disposal

Dates Details Amount
N
01/01/2011 Cost 2,000,000
31/12/2013 Accumulated Depreciation (25% x N2,000,000 x 3yrs) (1,500,000)
31/12/2013 Carrying Amount 500,000
31/12/2013 Proceeds from disposal 1,400,000
31/12/2013 Profit on Disposal 900,000

15
SOLUTION 1

(a)

MR. WALE
CASH BOOK FOR THE MONTH OF JANUARY, 2016
DATE DETAILS DISCOUNT CASH BANK DATE DETAILS DISCOUNT CASH BANK
N N N N N N
1/1/16 Capital 10,000,000 2/1/16 Sundry payable - Mallam Tanko 3,000,000
8/1/18 Sales 17,000 323,000 2/1/16 Rent 500,000
10/1/16 Trade Receivables – Miles & Stone 675,000 3/1/16 Trade payables – Granules Ltd 80,000 960,000
12/1/16 Sales 5,000 95,000 4/1/16 Furniture 200,000
13/1/16 Cash 300,000 4/1/16 Office equipments 250,000
30/1/16 Sales 2,000 38,000 13/1/16 Bank 300,000
15/1/16 Salaries 80,000
15/1/16 Electricity 10,000
20/1/16 Sundry payable – Malam Tanko 1,750,000
27/1/16 Drawings 10,000
31/1/16 Balance c/d 146,000 4,225,000
24,000 456,000 10,975,000 80,000 456,000 10,975.000
1/2/16 Balance c/d 146,000 4,225,000

16
 WALE
(b) LEDGER ACCOUNTS FOR THE MONTH OF JANUARY, 2016

Capital a/c
N N
31/1/206 Balance c/d 10,000,000 1/1/2016 Bank 10,000,000
2/1/2016 Balance c/d 10,000,000

Motor Van a/c

N N
2/1/2016 Sundry payables – Malam 6,000,000 31/1/2016 Balance c/d 6,000,000
Tanko
1/2/2016 Balance b/d 6,000,000

Sundry Payable – Mallam Tanko a/c

N N
2/1/2016 Bank 3,000,000 2/1/2016 Motor Van 6,000,000
20/1/2016 Bank 1,750,000
31/1/2016 Balance c/d 1,250,000
6,000,000 6,000,000
1/2/2016 Balance b/d 1,250,000

17
 Rent a/c
N N
1/2/2016 Balance b/d 500,000 31/1/2016 Balance c/d 500,000

Trade Payables - Granules Limited a/c

N N
3/1/2016 Discount Received 80,000 3/1/2016 Purchase 2,000,000
3/1/2016 Bank 960,000
31/1/2016 Balance c/d 960,000
2,000,000 2,000,000
1/2/2016 Balance c/d 960,000

Purchases a/c
N N
3/1/2016 Trade Payables – Granules 2,000,000 31/1/2016 Balance c/d 2,000,000
Limited a/c
1/2/2016 Balance b/d 2,000,000

Furniture and Fittings a/c

N N
4/1/2016 Bank 200,000 31/1/2016 Balance c/d 200,000
1/2/2016 Balance b/d 200,000
Office Equipments a/c
N N
4/1/2016 Bank 250,000 31/1/2016 Balance c/d 250,000
1/2/2016 Balance b/d 250,000

18
 Sales a/c
N
31/1/2016 Balance c/d 1,380,000 6/1/2016 Cash 323,000
8/1/2016 Discount allowed 17,000
10/1/2016 Trade receivables- 900,000
Miles and Stone
12/1/2016 Cash 95,000
12/1/2016 Discount allowed 5,000
30/1/2016 Cash 38,000
_________ 30/1/2016 Discount allowed 2,000
1,380,000 1,380,000
1/2/2016 Balance b/d 1,380,000

Discount Allowed a/c

N N
8/1/2016 Sales 17,000 31/1/2016 Balance c/d 24,000
12/1/2016 Sales 8,000
30/1/2016 Sales 2,000
24,000 24,000
1/2/2016 Balance b/d 24,000

Trade Receivable - Miles and Stone Limited a/c

N N
10/1/2016 Sales 900,000 10/1/2016 Bank 675,000
31/1/2016 Balance c/d 225,000
900,000 900,000
1/2/2016 Balance b/d 225,000

19
 Salaries a/c
N N
15/1/2016 Bank 80,000 31/1/2016 Balance c/d 80,000
1/2/2016 Balance b/d 80,000

Electricity a/c
15/1/2016 Bank 10,000 31/1/2016 Balance c/d 10,000
1/2/2016 Balance b/d 10,000

Drawings a/c
N N
27/1/2016 Cash 10,000 31/1/2016 Balance c/d 10,000
Balance b/d 10,000
Discount received a/c
N N
31/1/2016 Balance c/d 80,000 3/1/2016 Trade payables – 80,000
Granules ltd
2/1/2016 Balance b/d 80,000

20
(c) MR. WALE
TRIAL BALANCE AS AT 31 JANUARY, 2016

DETAILS DR CR

N N
Cash 146,000
Bank 4,225,000
Capital 10,000,000
Motor van 6,000,000
Sundries payables – Mallam Tanko 1,250,000
Rent 500,000

Trade payables – Granules Limited 960,000

Furniture and fittings 200,000

Office equipments 250,000

Sales 1,380,000
Discount allowed 24,000
Trade receivables – Miles and Stone 225,000
Salaries 80,000
Electricity 10,000
Purchases 2,000,000
Drawings 10,000
Discount received _________ 80,000
13,670,000 13,670,000

EXAMINER‟S REPORT
The question tests candidates‟ ability to prepare three-column cash book, the
relevant double entries and extraction of trial balance.

Over 90% of the candidates attempted the question and performance was below
average.

The commonest pitfalls are that:

i. The candidates demonstrated lack of understanding of the basic double entry

principle.

ii. Candidates also did not follow the presentation format required by the
question.

Candidates are advised to pay attention to the accounting principle.

21
Marking Guide Marks Total
(a) Three column cash-book:
Discount column 1
Cash column 13/4
Bank column 31/4 6

(b) Ledgers accounts 8

(c) Trial balance 6
Total 20

SOLUTION 2

UWANA MANUFACTURING LIMITED

STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2017

N‟000 N‟000
Cashflow from Operating Activities
Profit before tax 280
Adjust for items not involving cash movement:
Finance charge 559
Depreciation 894
Profit on sale of plant & machinery (55)
1,398
Movement in Working Capital
Increase in inventory (151)

Increase in trade receivables (112)

Increase in trade payables 13

(250)

Total Cashflows from Operating Activities 1428

Interest paid (w1 (540)

Tax paid (w2) (151) (691)

Net Cashflow from Operating Activities 737

Cashflow from investing activities

Proceeds from sale of PPE 186

Cash paid for purchase of PPE (2701-18) (2,683)

Net cash outflow from investing activities (2,497)

22
Cashflow from Financing Activities

Cash from issue of shares 1,116

Cash from issue of loans 1,006

Repayment of pref. Shares (400)

Dividend paid (w3) (112)

Net cash flow from financing activities 1,610

Net cash and cash equivalent for the year (150)

Cash and cash equivalent January 1, 2017 (33)

Cash and cash equivalent December 31, 2017 (183

Cash and cash equivalent 2017 2016

N‟000 N‟000
Cash 84 112
1. Bank overdraft (267) (145)
(183) (33)

Workings
1. Interest N‟000
Balance b/d 18
Charge for the year 559
577
Paid during the year (540)
Balance c/d 37

2. Taxation
Balance b/d 151
Charge for the year 140
291
Paid (151)
Balance c/d 140

3. Dividend
Profit b/d 179
Profit for the year 140
319
Dividend paid (112)
Profit c/f 207

23
4. Trade Payables
2017 2018
N‟000 N‟000
Given 117 67

Accrued interest (37) (18)

Creditors for PPE 62 49

EXAMINER‟S REPORT

The question examines candidates‟ ability to prepare the statement of cashflows, in

accordance IAS7.

About 40% of the candidates attempted the question and their performance was
below average.

Candidates‟ failure could be attributable to their lack of understanding of the items

to be classified under the three categories of operating, investing and financing
activities. Some candidates also could not derive the figures to be included in the
statement due to their poor understanding of the double entry principle.

Candidates are advised to pay attention to presentation format and apply the
double entry principles correctly.

Marking Guide Marks Total

Cash flows from operating activities 11
Cash flows from investing activities 2
Cash flows from financing activities 5
Cash and cash equivalents 2
Total 20

24
SOLUTION 3

(a) PEJU
CAPITAL AS AT JANUARY 1, 2017
N‟000 N‟000 N‟000
Non-Current Assets:
Motor van 3,500
Furniture and fittings 12,000
15,500
Current Assets
Inventory 15,000
Trade receivables 4,000
Allowance for doubtful debts (200) 3,800
Bank balance 4,250
Cash in hand 210 23,260
Total Assets 38.760
Equity and Liabilities
Equity: 23,390
Owners‟ equity (balance)
Current Liabilities
Trade payables 15,000
Accrued sundry expenses 370
15,370
Total Equity and Liabilities 38,760

(b) PEJU
STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED DECEMBER 31, 2017
N‟000 N‟000
Revenue (Wk 3) 215,240
Cost of sales
Opening inventory 15,000
Purchases (Wk 4) 165,350
180,350
Closing inventory (46,510) (133,840)
Gross profit 81,400
Operating expenses
Loss on sale of motor van (Wk 5) 500
Increase in allowance for doubtful debts (Wk 6) 834
Depreciation (Wk 7) 3,200
Sundry expenses (Wk 8) 5,280

25
Motor van expenses (Wk 9) 2,280
Advertising (Wk 10) 3,030
Rent (Wk 11) 3,000
Electricity (Wk 12) 2,400
Bad debts 600
Wages and salaries 15,240 (36,364)
Profit for the year 45,036

(c)

N‟000 N‟000 N‟000

Net
Non-Current Assets Cost Accumulated Book
Depreciation Value
Motor van (Wk 7) 10,000 (2,000) 8,000
Furniture and fittings (Wk 7) 12,000 (1,200) 10,800
22,000 (3,200) 18,800
Current Assets
Inventory 46,510
Trade receivables 20,680
Allowances for doubtful (1,034) 19,646
debts
Prepaid electricity (Wk 12) 1,200
Cash in hand 120 67,476
Total Assets 86,276

Equity and Liabilities

Equity:
Owners‟ equity 23,390
Additional capital 1,420
Net profit 45,036
69,846
Drawings (Wk 13) (16,490)
53,356

Current Liabilities
Trade payables 15,430
Accrued rent (Wk 11) 750
Bank overdraft 16,740 32,920
Total Equity And Liabilities 86,276

26
WORKING NOTES
Wk 1: Credit sales for the year

Trade receivables control account

N‟000 N‟000
Bal b/d 4,000 Bank 10,600
Credit sales (Difference) 61,240 Cash 33,360
Bad debt 600
______ Bal c/d 20,680
65,240 65,240
Bal b/d 20,680

Wk 2: Total purchases for the year

Trade payables control account
N‟000 N‟000
Bank 165,940 Bal b/d 15,000
Cash 1,040 Purchases (Difference) 167,410
Bal c/d 15,430 _______
182,410 182,410
Bal b/d 15,430

Wk 3: Total sales for the year

N‟000
Credit sales for the year (Wk 1) 61,240
Cash sales for the year 154,000
165,350

Wk 4: Purchases figure as per statement of profit or loss

N‟000
Purchases as per account (Wk 2) 167,410
Cost of goods taken for personal use (2,060)
165,350

Wk 5: Gain/loss on sale of motor van

N‟000
Sales proceed on old van disposed 3,000
Carrying value of old van disposed (3,500)
Loss on sale on old van (500)

27
Wk 6: Increase/decrease in allowance for doubtful debts
N‟000 N‟000
Allowance for doubtful debts @ beginning 5% x 400 200
Allowance for doubtful debts @ end 5% x 20,680 (1,034)
Increase in allowance for doubtful debts (834)

Wk 7: Depreciation for the year

Furniture & Motor Van Total
Fittings
Depreciation rate 10% 20%
N‟000 N‟000 N‟000
Carrying amount of assets at Jan. 12,000 3,500 15,500
1, 2017
Additions during the year - 10,000 10,000
Carrying amount of assets disposed _______ (3,500) (3,500)
during the year normal
12,000 10,000 22,000
Depreciation for the year (1,200) (2,000) (3,200)
Carrying amount December 31, 10,800 80,000 18,800
2017

Wk 8: Sundry expenses account

N‟000 N‟000
Bank 4,460 Accrued b/f 370
Cash 1,190 Profit or loss 5,280
5,650 (difference) 5,650

Wk 9: Total van expenses

N‟000
Van expenses as per cash account 1,680
Van expenses as per bank statement 600
2,280

Wk 10: Total advertising expenses

N‟000
Advertising expenses as per cash account 840
Advertising expenses as per bank statement 2,190
3,030

28
Wk 11: Rent expenses as per statement of profit or loss
N‟000
Rent paid for 9 months as per bank statement 2,250
Accrued rent for 3 months (N2,250/9 x 3) 750
3,000
Wk 12: Electricity payment for the year
N‟000
Amount paid for electricity as per bank statement for 18 months 3,600
Electricity expenses for the year (N3,600/18 x 12) (2,400)
Prepaid electricity (N3,600/18 x 6) 1,200

Wk 13: Total drawings

N‟000
Drawings as per bank statement 920
Drawings as per cash account 13,510
Cost of goods taken for personal use 2,060
16,490

EXAMINER‟S REPORT

The question tests the ability of candidates to prepare financial statements from
incomplete records.

About 70% of the candidates attempted the question but they displayed poor
understanding as a result of which their performance was below average.

Candidates‟ pitfalls are their inability to make necessary adjustments that relate to
accruals, prepayments and the determination of credit sales and credit purchases
through the receivables and payables control accounts.

The double entry principle is germane to the understanding of financial statements,

hence, candidates should devote more time to learn and practice this principle.

Marking Guide Marks

Capital at January 1, 2017 6
Statement of profit or loss 3
Statement of financial position 4
Calculation of credit sales 1
Calculation of credit purchases 1
Determination of total sales and total purchases 1
Determination of carrying of PPE 1
Determination of sundry expenses, rent, electricity and advertising 2
Gain or loss on motor van ½

29
Determination of change in doubtful receivables ½

Total 20

SOLUTION 4
a) Depreciation can be defined as the systematic allocation of the depreciable
amount of an item of property, plant and equipment over its estimated
useful life.

b) The following are the factors which should be taken into consideration in
arriving at the depreciation charged on a non-current asset:
i) The cost (or revalued amount) of the non-current asset.

ii) The estimated residual value of the non-current asset.

iii) The estimated useful economic life of the non-current asset.

iv) The method of depreciation considered appropriate for the business

by management (i.e. Straight line, Reducing balance, Sum of the year
digit etc.)

v) Nature of the non- current asset.

vi) The legal norms relating to such non- current asset, where such is
application.

vii) The chance of the asset becoming obsolete.

c) (i) In the books of Mr. Jingolo

Plant and Machinery Account

2016 N‟000 2016 N‟000

Jan. 5 Bank 50,000 Dec. 31 Balance c/d 70,000
Dec. 1 Bank 20,000 ______
70,000 70,000
Balance b/d 70,000

(ii) Office Equipment Account

2015 N‟000 2015 N‟000

July 3 Bank 2,000 Dec. 31 Balance c/d 2,000

30
 2016 2016
Jan. 1 Balance b/f 2,000 Dec. 31 Balance c/d 2,000
2017 2017
Jan. 1 Balance b/f 2,000 Dec. 31 Balance c/d 3,000
Dec. 15 Bank 1,000 ______
3,000 3,000
Balance b/d 3,000

(iii)

Bank Account
Date Particulars N'000 Date Particulars N'000
Jan 1-15 Balance b/f 100,000 Jan 3-15 Office equipment 2,000
_______ Dec 31-15 Balance c/d _98,000
100,000 100,000
Jan 1-16 Balance b/d 98,000 Jul 5-16 Plant & machinery 50,000
Dec 1-16 Plant & machinery 20,000
______ Dec 31-16 Balance c/d 28,000
98,000 98,000
Jan 1-17 Balance b/d 28,000 Dec 15-17 Office equipment 1,000
______ Dec 31-17 Balance c/d 27,000
28,000 28,000
Jan 1-18 Balance b/d 27,000

EXAMINER‟S REPORT

The question tests candidates‟ knowledge of definition of depreciation as well as

factors taken into account in arriving at the depreciation charged on non-current
asset. Principles of accounting entries into the ledger for each type of non-current
asset is also tested.

About 80% of the candidates attempted the question and performance was good.

Most candidates could not define depreciation in accordance with IAS 16 while
some candidates could not post entries into the ledger using the double entry
principle.

Candidates are advised to be conversant with the relevant provisions of the

International Accounting Standards by studying the Institute‟s study text and
practice with past questions in the Institute‟s Pathfinder.

Marking Guide Marks

(a) Correct definition of depreciation 21/2
(b) Factors affecting depreciation of PPE (5 x 11/2) 71/2
(c)i. Plant account 1

31
 ii. Office equipment account 3
iii. Bank account 6
Total 20

SOLUTION 5

YERIMA AND BOLUKE

STATEMENT OF FINANCIAL POSITION AS AT MAY 1, 2017

N'000 N'000
Non-Current Assets:
Premises 70,000
Office equipments 30,000
100,000
Current Assets:
Inventory 2,500
Trade receivables 28,000
Bank balance 13,300
Cash in hand 14,500
58,300
Total Assets 158,300
Equity
Capital accounts:
Yerima 55,000
Boluke 103,300
Total Equity 158,300

Wk 1: Yerima - Revaluation account

N'000 N'000
Office equipment 3,000 Premises 10,000
Bad debt written off 2,000
Capital 5,000 ______
10,000 10,000

32
Wk 2: Bank balances transferred to the partnership

Yerima Boluke
N'000 N'000
Balance b/f 5,000 10,000
Less: Payments to suppliers 500 1,200
4,500 8,800

Wk 3: Capital accounts

Yerima Boluke Yerima Boluke

N'000 N'000 N'000 N'000
Bal c/d 55,000 103,300 Bal b/f 50,000 80,300
Loan capitalised - 20,000
Revaluation gain 5,000 -
Additional
Equipment 3,000
55,000 103,300 55,000 103,300

ALTERNATIVE SOLUTION TO QUESTION 5A

SOLUTION 5

(a) Yerima and Boluke

Statement of financial position as at May 1, 2017

Yerima Boluke Total

Non-Current Assets N'000 N'000 N'000
Premises 30,000 40,000 70,000
Office equipment 7,000 23,000 30,000
37,000 63,000 100,000
Current Assets
Inventory 500 2,000 2,500
Receivables 8,000 20,000 28,000
Bank 4,500 8,800 13,300
Cash 5,000 9,500 14,500
18,000 40,300 58,300
Total assets 55,000 103,000 158,300
Capital 55,000 103,300 158,300

33
b) The following are the provisions that are usually contained in the
partnership agreement:a

i. Capital: The agreement would indicate whether each partner should

contribute a fixed amount of capital or not and how much each
partner should contribute;

ii. Profit Sharing: How profits and losses should be shared among the partners
will be spelt out; whether they are capital or revenue profits or losses;

iii. Interest on capital and drawings: Whether interest on capital or

drawings should be allowed or charged before arriving at divisible
profits, and if so at what rate;

iv. Interest on loan by partners: The rate of interest payable on any loan
advanced by any of the partners.

v. Whether current accounts are to bear interest, and if so at what rate;

vi. Whether partners‟ drawings are to be limited in amount so that

the current account does not turn into debit balance;

vii. Whether partners are entitled to remuneration for their services before
arriving at divisible profits and if so what amounts and which of the
partners;

viii. How the books of account would be kept and where they should be
kept;

ix. The method for the valuation of assets, (e.g. goodwill) in case of an
incoming or outgoing partner;

x. The method and procedures for settlement of disputes;

xi. The method of determining the amount due to a deceased or retiring

partner and the rate of interest to be allowed on outstanding balances;

xii. The need to audit the partnership accounts and how the auditors are to
be appointed;

xiii. Whether the partners‟ capital accounts are to be operated on fixed

bases so that drawings and profit are adjusted on partners‟ current
accounts or to operate capital accounts on circulating basis;

xiv. The name of the firm, types of business and duration of the
partnership.

34
EXAMINER‟S REPORT

The question tests candidates‟ knowledge of principles involved in formation of

partnership by sole traders as well as stating provisions contained in partnership
agreement.

About 30% of the candidates attempted the question and performance was below
average.

Commonest pitfall is their lack of understanding of the basic accounting principles

of partnership.

Candidates are advised to familiarise themselves with the provisions of partnership

agreement, read the ICAN study text and practise relevant past questions.

Marking Guide Marks Total

(a) Partnership Accounts
Statements of financial position 4
Revaluation account 2
Bank balance 2
Partners‟ capital account 2 10
(b) Provisions contained in partnership accounts
10 points at 1 mark each 10
Total 20

SOLUTION 6
(a) Chart of Accounts is a list of accounts created by a business to be used to
organise its financial transactions into identified categories of assets,
liabilities, income and expenses. The aim of the chart is to ensure that all
transactions are recognised in accordance with the requirements of the
business.

Each general ledger account is identified by a unique code and heading.

This allows a business to generate instructions and policies to be followed by
those members of staff responsible for recording information.

The list is typically arranged in the order of the customary appearance of

accounts in the financial statements, statement of financial position general
ledger accounts and statement of profit or loss general ledger accounts. The
structure and headings in the list aim to result in consistent posting of
transactions.

A company might have complete freedom in designing its chart of accounts

(within the boundaries set by the rules of accounting). In some countries, the

35
 government might issue a generic chart of accounts from which a business
selects those codes that are appropriate to its needs.

(b) i. Journal Entries DR CR

N N
Trade Receivables - Lade's Account 16,000,000
Trade Receivables - Wale's Account 16,000,000
Being error of commission corrected

Trade Receivables - Ben's Account 2,646,000

Suspense Account 2,646,000
Being error of partial reversal of entry corrected

Office Furniture Account 7,600,000

Purchases Account 7,600,000
Being error of principle corrected

Suspense Account 10,000,000

Sales Account 10,000,000
Being sales daybook undercast, now corrected

Suspense Account 1,500,000

Trade Receivables - Titi's Account 1,500,000
Being error of single entry corrected

Insurance Account 650,000

Suspense Account 650,000
Being Insurance balance omitted from the trial balance

ii. Emeka
Suspense Account
N N
Sales Revenue 10,000,000 Balance b/f 8,204,000
Trade Receivable - Titi's 1,500,000 Trade Receivable - Ben 2,646,000
___________ Insurance __650,000
11,500,000 11,500,000

36
EXAMINER‟S REPORT

The question requires candidates to explain and state usefulness of chart of

accounts. Candidates are also required to prepare journal entries to correct errors
in posting of transactions in the ledger and prepare suspense account.

About 80% of the candidates attempted the question and performance was above
average.

Commonest pitfall was inability of candidates to explain and state usefulness of

chart of accounts.

Candidates should make use of the Institute‟s study text to familiarise themselves
with the theoretical aspects of financial accounting, which will continue to feature
in future examinations of the Institute at the foundation level.

Marking Guide Marks

(a) Chart of accounts - 3 points 3
(b)i Journal entries - including narrations 10
ii. Suspense account 7
Total 20

37
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION - MAY 2018

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

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ALL QUESTIONS IN THIS

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

1. Which of the following is NOT a function of the Cost Accountant?

A. Advising management on cost control
B. Preparing budgets
C. Purchasing materials with the cheapest costs
D. Compiling cost of production
E. Allocating indirect expenses to manufactured products
2. Which of the following describes cost behaviour?
A. The effect of cost on company performance
B. The total cost of running a business
C. The movement of material costs during inflation
D. How total costs react to changes in output
E. The ratio of costs to turnover
3. Which of the following statements is NOT correct in the relationship between
direct and variable costs?
A. Direct costs and variable costs are one and the same
B. Direct costs can be directly traced to a product while variable cost
vary with the level of production output
C. Direct costs are traceable to cost objects, e.g. goods or services,
departments or projects while all variable costs are not necessarily
traceable
D. Direct costs may include fixed and variable costs
E. Both direct costs and variable costs are traceable to production

4. What are the components of mixed costs?

A. Fixed costs and variable costs
B. Relevant costs and irrelevant costs
C. Current costs and sunk costs
D. Direct costs and indirect costs
E. Controllable costs and uncontrollable costs

38
5. Which of the following statements correctly defines stepped costs?
A. Costs which occur at certain times or seasons during the year
B. Costs which increase with each succeeding month
C. Costs which are semi-fixed or semi-variable
D. Costs which remain fixed over a given range of activity but jump to a
higher level once the activity increases beyond the range
E. Costs which are incurred at various levels of a company‟s hierarchy

6. Which of the following statements is NOT true of conversion costs?

A. All non-production costs apportioned to product units
B. The combination of direct labour costs and manufacturing overheads
C. Production costs necessary to convert raw materials into products
D. Production costs other than the cost of materials
E. Production costs incurred from the moment materials are introduced
into production up to saleable stage

7. Which of the following is NOT a feature of standard cost?

A. Estimated
B. Predetermined
C. Actual
D. Basis for later comparison
E. Developed from historical data

8. The term „equivalent units‟ features under which of the following?

A. Contract Costing
B. Process Costing
C. Standard Costing
D. Job Costing
E. Batch Costing

9. Which of the following may NOT be classified as period cost?

A. Depreciation
B. Consumables
C. Vehicle Insurance
D. Rent
E. Administrative Salaries

10. What is the difference between a budget and a forecast?

A. They mean the same and they are used interchangeably
B. A budget is for internal use while a forecast is for external use
C. A budget is qualitative while a forecast is quantitative
D. A budget is a plan whereas a forecast is the actual
E. A budget is a plan of where a business wants to go while a forecast is
the indication of where it is actually going

39
11. What is the basis for requesting for progress payments on an on-going
contract?
A. Contractor‟s invoice
B. Architect‟s certificate
C. Bill of quantities
D. Inspection report
E. Certificate of Occupancy

12. Which of the following is NOT a purpose of cash budgeting?

A. To ensure availability of working capital throughout the period
concerned
B. To determine the timing of cash inflows and outflows in advance
C. To plan on investing surplus cash whenever it arises
D. To plan against likely cash deficits during the budget period
E. To reduce cost of operation

13. An Information System Auditor should be involved in

A. Observing tests of the disaster recovery plan
B. Assessing disaster recovery plan
C. Developing disaster recovery plan
D. Maintaining disaster recovery plan
E. Reviewing disaster recovery requirement of supplier contracts

14. Which of the following should be addressed by digital signature?

A. Unauthorised reading
B. Theft
C. Unauthorised copying
D. Interruption
E. Alteration

15. Which of the following is NOT an Information System Control objective?

A. Ensuring consistent system functionality
B. Safeguarding system assets
C. Maintaining system economy and efficiency
D. Promoting technology usage
E. Preventing system facilities from hackers

16. To sponsor change effectively in change management, sponsors must

demonstrate authority, accountability and
A. Knowledge
B. Involvement
C. Power
D. Currency
E. Training

40
17. An output device that translates digital output into a visual display directly
to a screen is known as
A. Speaker
B. Scanner
C. Visual Display Unit
D. Printer
E. Projector
18. Binary coded program is a product of
A. Language translator
B. Text editor
C. Decoder
D. Loader
E. Debugger

19. Which of the following is NOT true about data?

A. Consist of unprocessed facts
B. Collected and processed to produce information
C. Has no meaning until processed into information
D. Raw facts about entities
E. Relevant to a particular purpose
20. Which of the following is NOT a major function of a typical Human Resource
Transaction Processing System?
A. Budgeting
B. Salaries
C. Labour Relation
D. Training
E. Employee benefits

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

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

QUESTION 1
The following data is compiled from the operations of QUEENSLY NIGERIA LIMITED in
respect of their sole product:

PROCESS 1 PROCESS 2
Material introduced (Kgs) 8,000 2,000
Labour costs (N) 12,000 8,000
Material cost per kg. (N) 10 15
Expenses (N) 20,000 15,000
Normal loss (%) 10 15
Output (Kgs) 6,800 7,700

41
You are required to:

Draw up the process, abnormal loss and abnormal gain accounts.

(20 Marks)

QUESTION 2

Orok Trading Company sells cement bags at N2,000 each. According to projections,
it would sell 100 bags each in October, November and December; and 120 bags per
month in the succeeding months.

The company sells on credit, with customers paying 50% in the month following
sale, and the balance 30 days later.
Other expected inflows are:
 Sale of plant, N80,000 in January and N50,000 in February
 Insurance claim, N50,000 in February
 Damages from a lawsuit, N60,000 in March
The company purchases its products from a supplier who gives two months‟ credit.
The company‟s cost of sale is 60%.

Projected outflows are:

 Salaries of N30,000, paid monthly
 Rent of N25,000, paid monthly
 Other administrative expenses of N55,000 per month are settled as they arise.
 Income tax of N25,000 payable in January
 New asset, N40,000 to be purchased in January
The bank balance on December 31 is N235,000 negative.

You are required to:

Prepare a monthly Cash Budget for January to March. Show all workings.
(20 Marks)

QUESTION 3

Seagull Fabricators Limited buys a component for N280 per unit, 6,000 units of
which it uses monthly. Below is the cost of making the same component in-house:

UNIT TOTAL
COST COST
N N
Direct Material 100 600,000
Direct Labour 100 600,000
Variable Overheads 50 300,000
Total 250 1,500,000

42
In order to produce the component, the company would purchase a mould for
N5 million with an estimated life span of 5 years. An annual rent of N1 million is
required for the fabrication space and the cost of power consumption is expected to
increase by N500,000 per year.
a. You are required to advise the company whether to discontinue the
outsourcing of the component and commence local fabrication or not, based
on the given quantitative factors. (11 Marks)
b. In deciding to outsource a component, explain THREE qualitative factors to
be taken into consideration. (9 Marks)
(Total 20 Marks)

QUESTION 4

a. The overhead costs of HABA LIMITED is analysed below:

N
Production Departments - Weaving 1,000,000
- Spinning 500,000
Service Departments - Admin 80,000
- Maintenance 60,000

The administrative overhead costs are to be apportioned on the basis of

Weaving 50%, Spinning 30% and Maintenance 20%; while the Maintenance
overhead costs are to be apportioned on the basis of Weaving 60%, Spinning
20% and Administrative 20%.

You are required to apportion service departments‟ overhead to production

departments using continuous apportionment method. (10 Marks)

b. Describe FIVE career path options available to an Accountant in an IT-based

environment. (10 Marks)
(Total 20 Marks)

QUESTION 5

a. Define Object-Oriented Programming (OOP) and state TWO examples.

(4 Marks)
b. State THREE advantages of Object-Oriented Programming (OOP) as a fifth
generation language (5GL). (3 Marks)

c. List and describe the FOUR system changeover methods. (10 Marks)
d. Explain the term „IP address‟. (3 Marks)
(Total 20 Marks)

43
QUESTION 6

a. Define computer network and explain TWO types of computer networks.

(6 Marks)

b. What is Open-Source Software (OSS)? State ONE example. (3 Marks)

c. State FIVE key functions of an Operating System. (5 Marks)
d. List and explain briefly THREE requirements of a multi-user environment.
(6 Marks)
(Total 20 Marks)

44
 MULTIPLE CHOICE SOLUTIONS - SECTION A

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

EXAMINER‟S REPORT

There are twenty multiple-choice questions which test various aspects of the syllabus.

All the candidates attempted these questions and performance was good with about
half of the candidates scoring 50% and above.

It is evident that those who did not do well are those who did not cover the syllabus
preparatory to the examination.

For improved performance in future, it is recommended that candidates should cover

the syllabus. They should also practise with past question papers.

45
SECTION B
SOLUTION 1
QUEENSLY NIGERIA LIMITED

PROCESS 1 Account
Kg Unit Cost Total kg Unit Cost Total
N N N N
Materials 8000 10 80,000 Normal Loss 800 -
Labour 12,000 Abnormal Loss 400 15.56 6,192
Expenses 20,000 Transfer to
Process 2 6,800 15.56 105,808
8000 112,000 8000 112,000

PROCESS 2 Account
Kg Unit Cost Value Kg Unit Cost Total
N N N N
From Process 1 6,800 15.56 105,808 Normal Loss 1,320 -
Materials Intro. 2,000 15 30,000 Finished Goods 7,700 21.23 163,471
Labour 8,000
Expenses 15,000
Abnormal Gain 220 21.23 4,663 ______ _______
9,020 163,471 9,020 163,471

ABNORMAL LOSS ACCOUNT

Kg Total Kg Total
N N
Process 1 400 6,192 Income Statement 400 6,192

ABNORMAL GAIN ACCOUNT

Kg Total Kg Total
N N
Income Statement 220 4,663 Process 2 220 4,663

EXAMINER‟S REPORT

This question tests candidates‟ ability to prepare a simple Cash Budget with minimal
derivations.

About 90% of the candidates attempted the question but performance was poor as
about only 30% of them scored 50% and above of the allocated marks.

Candidates who performed poorly had similar shortcomings as follows:

i) Inadequate presentation
ii) Difficulty in driving the monthly sales proceeds and the monthly payments to
suppliers.

46
iii) Confusing a Cash Budget with an Income Statement
iv) Poor Arithmetic
To improve performance in future, candidates are advised to:
a) Develop ability to differentiate items of inflow from those of outflow
b) Take time to understand the requirements of a question before attempting
them.
c) Practise with the Pathfinder.
d) Improve on the quality of time spent on preparation.

Marking Guide Marks Marks

1. Headings: Queensly Nig. Ltd 1
Process 1 ½
Process 2 ½
Abnormal Loss Account ½
Abnormal Gain Account ½ 3
Process 1: 14 ticks x ½ marks per tick 7
Process 2: 16 ticks x ½ mark per tick 8
Abnormal Loss Account 2 ticks x ½ mark per tick 1
Abnormal Gain Account 2 ticks x ½ mark per tick 1
Total 20

SOLUTION 2
OROK TRADING COMPANY
CASH BUDGET FOR JANUARY TO MARCH
Jan Feb. Mar.
INFLOWS N N N
Collection from sales 200,000 220,000 240,000
Sales of Plant 80,000 50,000 -
Insurance - 50,000 -
Damages from Lawsuit - - 60,000
Total Inflows 280,000 320,000 300,000
Outflows
Purchases 120,000 120,000 144,000
Salaries 30,000 30,000 30,000
Rent 25,000 25,000 25,000
Other administrative expenses 55,000 55,000 55,000
Total Outflows 295,000 230,000 254,000
Opening Balance (235,000) (250,000) (160,000)
Inflows 280,000 320,000 300,000
Outflows (295,000) (230,000) (254,000)
Closing balance (250,000) (160,000) (114,000)

47
WORKINGS

1. Collections from sales

NOV. DEC. JAN. FEB. MAR. Total

Sales Collections 200,000 200,000 240,000 240,000 240,000

JAN. 100,000 100,000 200,000

FEB. 100,000 120,000 220,000
MAR. 120,000 120,000 240,000

PAYMENT TO CREDITORS:-

Jan - 60% of Nov. Sales = 60% x 200,000 = N120,000

Feb - 60% of Dec. Sales = 60% x 200,000 = N120,000
Mar - 60% of Jan. Sales = 60% x 240,000 = N144,000

EXAMINER‟S REPORT
The question tests candidates‟ ability to prepare Process Costing Accounts with the
intricacies of Abnormal Loss and Abnormal Gain.

About 80% of the candidates attempted the question and performance was very
good with about 65% of candidates who attempted the question scoring 50% and
above of the allocated marks.

Those candidates who did not do well had some common pitfalls including:
i. Poor presentation
ii. Poor display of the knowledge required
iii. Preparation of accounts without headings

For improved performance in future, candidates are enjoined to:

a) Improve on their presentation
b) Do improved coverage of the syllabus
c) Practise with Past Question Papers
d) Make better use of standard texts including the ICAN Study Texts

Marking Guide Marks

Heading 1 tick
Collection from sales 3 ticks
Sale of Plant 2 ticks
Insurance Claim 1 tick
Damages from land suit 1 tick
Total Receipts 3 ticks
Purchases 3 ticks
Income Tax 1 ticks

48
 Salaries 3 ticks
New Assets 1 ticks
Rent 3 ticks
Other admin expenses 3 ticks
Total Receipts 3 ticks
Opening Balance 3 ticks
Total Receipt 3 ticks
Total Payments 3 ticks
Closing Balance 3 ticks
40 ticks x ½ mark 20

SOLUTION 3
a.
SEAGULL FABRICATORS LIMITED

Per Unit Per Month Per Year

N N N
Cost of Producing the component
Direct Material 100 600,000 7,200,000
Direct Labour 100 600,000 7,200,000
Variable Overhead 50 300,000 3,600,000
Other Relevant Costs:
Cost of Mould/Component 14 84,000 1,008,000
Rentage of Space 14 84,000 1,008,000
Increase in powder consumption 7 42,000 504,000
285 1.710,000 20,520,000

Cost of Buying from outside suppliers 280 1,680,000 20,160,000

Decision: The company should outsource the component since it is cheaper for her to
do so.

b. Qualitative factors to consider when deciding whether to manufacture locally

or outsource

 The quality of the product

The company must ensure that the quality of the component from the
supplier is neither traded off nor discounted. The decision to
outsource must be based not only on the lower price, but on the
quality of the component.

49
  The reliability of the supplier as to timely delivery
It is important to be assured that supplies will come in a timely basis.
This is essentially to ensure that production by the customer is not
disrupted unnecessarily. Late deliveries or deliveries coming much
earlier than planned or expected is not good for business, delivery
must therefore come at the right time.

 The impact on the decision on the suppliers and the customers

The suppliers may need to increase capacity in terms of equipment
and staff as a result of the new contract. The customer in the same
vein may subsequently have idle capacity and may also need to lay
off some employees as a result of redundancy.

 The implication on the labour force that may be sent away if the
company decided to outsource
When a company decides to outsource, there would be excess
employees who may need to be laid off. The challenge here is the
impact of severance package of the company‟s cashflow. The
company may need to go out to borrow if its current cashflow is
incapable of meeting these payments. To avoid labour unrest, the
outgoing staff have to be paid off before their exit from the company

 The environmental factors, e.g. noise, smoke, toxic waste etc if the
company decides to manufacture in-house
All the problems and challenges itemised here will be avoided by the
customer. The costs of averting or attending to these problems will be
saved thereby having a positive impact on the company‟s cashflow
and profitability.

EXAMINER‟S REPORT
This question tests candidates‟ ability to make a simple business decision on Make
or Buy under Marginal Costing Technique.

The question appears popular with candidates and performance was good as about
60% of the candidates who attempted the question scored 50% and above of the
allocated marks.

Common pitfalls of the candidates who performed poorly include:

i. Mixing up a monthly information with those of annual without prorating and

segregating
ii. Poor Arithmetic

50
iii. Insufficient number of qualitative factors in comparison with numbers required
by the question

For improved performance in future, candidates are enjoined to:

a. Appreciate the essence of making regular business decisions
b. Improve on their ability in the process of decision making
c. Understand the fact that business decisions require both quantitative and
qualitative factors
d. Use ICAN Study Text.

Marking Guide Marks Marks

a. Direct Materials 1
Direct Labour 1
Variable Overhead 1
Cost of Mould/Component 2
Rentage of Space 2
Increase in power consumption 2
9
Decision 2
11
b. Listing of 3 points @ 1 mark each 3
Explanation of the 3 points @ 2 marks each 6 9
Total 20

SOLUTION 4
a. HABA LIMITED
APPORTIONMENT OF SERVICE DEPARMENTS‟ OVERHEAD TO
PRODUCTION DEPARTMENTS
Production Departments Service Departments
Weaving Spinning Admin. Maintenance
N N N N
Primary 1,000,000 500,000 180,000 60,000
Allocation
Adm 50/30/20 40,000 24,000 - 16,000
Maint 60/20/20 45,600 15,200 15,200 (76,000)
Adm 50/30/20 7,600 4,560 - 3,040
Maint 60/20/20 1,824 608 608 -
Adm 50/30/20 304 182.4 - 121.6
Maint 60/20/20 72.96 24.32 24.32 -
Adm 50/30/20 12.16 7.296 - 4.864
Main 60/20/20 2.9184 0.9728 0.9728
1,095,416.04 544,582.99

51
 Production Department Service Department
Weaving Spinning Maintenance Admin.
N N N N
Primary 1,000,000 500,000 60,000 80,000
Allocation
Adm 60/20/20 36,000 12,000 - 12,000
Maint 50/30/20 46,000 27,600 18,400 92,000
Adm 60/20/20 11,040 3,680 - 3,680
Maint 50/30/20 1,840 1,104 736 -
Adm 60/20/20 441.6 147.2 - 147.2
Maint 50/30/20 73.6 44.16 29.44 -
Adm 60/20/20 17.664 5.888 - 5.888
Main 50/30/20 2.944 1.7664 1.1776 -
1,095,415.81 544,583.01

b. The career options available to an Accountant in an IT based environment

include:
i. Forensic auditing: Forensic auditing is a specialist branch of auditing
devoted primarily to „special investigations‟, often employed when a
fraud is suspected. Specialist Information Technology/Information
System (IT/IS) skills may be required in order to help uncover hidden
audit trails adopted to camouflage fraudulent activity.

ii. System security: Organisations require the service of system security

expert to protect their valuable data from the activities of intruders
such as hackers, eavesdroppers and to also protect the entire system
resources.

iii. Network Engineering: A network engineer sets up networks and

troubleshoots networks.

iv. Due diligence and corporate finance advisory: One of the increasingly
popular assurance services offered by firms of accountants is due
diligence and corporate finance advisory of a take-over target.

The accountant needs robust knowledge of IT/IS in order to analyse

and advise fully in a corporate action.

v. Programming: A programmer writes programs by using appropriate

programming language. He debugs programs and carries out
authorised update on programs.

vi. System Analysis: A system analyst proposes system development,

supervises system development and carries out system test.

52
 vii. Database Administration: A Database Administrator designs database
by using DBMS (Database Management System). He manages and
controls the database. He ensures the integrity of the data in the
database. He creates user accounts, carries out authorised update on
the data in the database and renders necessary assistance to the
database users.

viii. Computer Operator: He operates computer system according to

manual and generates output from the system.

ix. Computer Engineering: A computer engineer assembles computer

hardware, carries out repairs and maintenance on the system and
installs software.

x. Web design: To design websites using appropriate HTML (Hypertext

Mark-up Language) and carries out authorised update on websites.

xi. Education and Training: Opportunity to train employees in sales and

marketing. This includes presales product demonstration etc.

xii. Accountancy: The knowledge of accounting and auditing methods and

procedures are important in helping a company choose or design the
best software and overall system.

xiii. Financial Audit: This is to examine a company‟s financial statements,

expense reports and accounting records to make sure that the
information is accurate.

xiv. System Audit: To look at the controls, data processing methods, data
integrity, general operations, maintenance, security and other aspects
of all types of information systems used by businesses.

xv. Consultancy: Assessing the inefficiencies in a company‟s IT system and

making recommendations for improvements.

xvi. Upper Management: This is managing IT businesses to achieve

excellence.

EXAMINER‟S REPORT

a. This question tests the ability of candidates to apportion overheads using the
Continuous Allocation Method.

About 90% of the candidates attempted the question. Performance was a

little below average as about 45% of them scored 50% and above of the
allocated marks.

53
 Majority of the candidates that performed poorly had the following
characteristics:

a. Using apportionment methods other than that prescribed by the

question
b. Poor Arithmetic
c. Wrong sequence of figures for apportionment

Candidates who will do well in future must:

i) Cover the syllabus more appropriately
ii) Vary study texts for preparation
iii) Adhere strictly to examination instructions
iv) Revise with ICAN Study Text and the Pathfinder

b. This question requires candidates to itemise and discuss the available career
paths for a professional accountant in an IT environment.

About 90% of the candidates attempted the question and performance was
fairly good as about 50% of them passed.

The common pitfall of the candidates that performed poorly are:

a. Lack of sufficient understanding

b. Itemisation of points instead description
c. Poor communication
In order to improve performance in future, candidates are advised to:

i. Use of ICAN Study Texts and the Pathfinder for preparation

ii. Improve on their vocabulary with respect to computer terminologies

Marking Guide Marks Marks

a. Heading ½
Primary allocation ½
Admin 50/30/20 1
Maint 60/20/20 1
Admin 50/30/20 1
Maint 60/20/20 1
Admin 50/30/20 1
Maint 60/20/20 1
Admin 50/30/20 1
Maint 60/20/20 1
Total 1 10
b. 1 mark each for 5 sub-heading labels (1x5) = 5
I mark for each of 5 explanations (1x5) 5 10
Total 20

54
SOLUTION 5

a. Object-Oriented Programming (OOP) is a programming language model

organised around objects rather than “actions” and data rather than logic.
It introduced a form of sub-routine called objects to avoid re-writing of
programs. An object is a predetermined set of programme codes that, after
having been written and tested, will also behave the same way, so that it
can be used for other applications. Examples include:

i. Smalltalk,
ii. C++,
iii. Visual Basic
iv. Java
v. Python
vi. Object Pascal
vii. PHP

b. Advantages of Object-Oriented Programming include:

1. Usage of graphical interface
2. Ease of use
3. Faster program development
4. Enhancement of programmer productivity
5. More reliable programs which contain fewer errors
6. Easy modification and maintenance
7. Objects have the ability to hide certain parts of themselves from
programmers thereby preventing the programmers from tampering
with values they should not tamper with.

c. Direct Change-over
Direct change-over approach is a direct approach where an old system is cut
and over-written by a new system. The direct change-over approach causes
the change-over from the old system to the new system to occur immediately
the new system becomes operational.

Parallel change-over
The two systems run simultaneously for some time. The parallel operation
change-over method requires that both the old and the new information
systems operate fully for a specified period. When users, management, and
the IT group are satisfied that the new system operates correctly, the old
system is terminated.

55
 Pilot Change-over
Pilot change-over method involves implementing the complete new system
at a selected location of the company. The group that uses the new system
first is called the pilot site. The old system continues to operate for the entire
organisation including the pilot site. After the system proves successful at
the pilot site, it is implemented in the rest of the organisation, usually, using
direct change-over method.

Phased Operation/Change-over
Phased operation works in different phases or stages. Implementation of a
new system in modules or stages is called phased operation. In this
approach the entire system is NOT provided to some users. Instead, a part of
the new system is provided to all users.

d. Internet Protocol (IP) address is a code that uniquely identifies a particular

computer on the Internet. Every computer requires a unique IP address to
connect to the Internet, which consists of four sets of numbers from 0 to 255.
- e.g. “125.148.224.63”

IP addresses enable computers to locate other computers and Internet hosts

on the Internet.

EXAMINER‟S REPORT

The question tests candidates‟ understanding of the following:

a. Object Oriented Programming Technique
b. System Development Change-over Technique
c. Internet Protocol Address

25% of the entire population candidate attempted the question. Performance was
poor as about 40% of them scored 50% and above of the allocated marks.

The common pitfalls of candidates who performed poorly include:

i) Lack of good understanding of the requirement of the question.
ii) Poor communication
iii) Illegible handwriting

Performance by candidates in future will be better if they:

 Study hard with respect to the contents of the syllabus.
 Improve on their use of computer language
 Read ICAN Study Text and the Pathfinder
 Extend their reading and preparation beyond the classroom lectures.

56
Marking Guide Marks Marks
a. 2 marks for definition 2
1 mark each for 2 examples (1x2) = 2 4
b. 1 mark each for three examples (1 x3) = 3
c. 1 mark each for listing 4 methods (1x4) 4
1½ marks each for de bing 4 methods (1½ x 4) = 6 10
d. 3 marks for explanation 3
Total 20

SOLUTION 6

a. A computer network is a telecommunications infrastructure that allows

computers to exchange data (or „talk‟) with each other. The connection that
exists between networked computers can use either physical media such
as fibre optics, copper wire cables, or wireless media.

OR

A computer network may be defined as an interconnection of a number of

computers, telephones, and other shared devices in various ways so that
users can process and share information.
Types of Network include:

i. LAN - Local Area Network: A LAN is a computer network covering a

small geographic area such as a home, office, group of buildings or
school

ii. WAN - Wide Area Network: A WAN is a computer network that covers
a broad area i.e. a network that communicates across regional,
metropolitan or national boundaries over a long distance

iii. MAN - Metropolitan Area Network: It is a computer network that

interconnects users with computer resources in a geographic area or
region larger than that covered by even a large LAN but smaller than
the area covered by a WAN.

b. Open-Source Software (OSS) is a computer software with its source code

made available and licensed with an open-source license in which the
copyright holder provides the rights to study, change and distribute the
software for free to anyone and for any purpose. Linux is a computer
operating system assembled under the model of free and open source
software development and distribution.

57
 Examples include:
i. Linus Kernel
ii. GNU utilities and compilers
iii. My SOL
iv. Samba
v. BSD Operating System
vi. Apache
vii. D Space
viii. Perl
ix. Ubentu
x. Open office

c. Key functions of an Operating System (OS) include:

i. Control of all operations within the computer itself
ii. Control of the operations of all other software, such as the application
software
iii. Control of the operation of all the hardware connected to the computer
iv. Provision of systems security. For example, it enables work to be
saved and provides password protection
v. Provision the graphical user interface (GUI) between the
user and the computer
vi. Control of the operation of all the other hardware connected to the
computer
vii. Control of communications between the computer system and
operator, other computer systems within the network
viii. Keeping operation log of all the processing activities carried out on
computer
ix. Control of application software which are online the computer system.
x. Control of multi programming
xi. Allocating memory and loading programs
xii. Job scheduling and loading in a multi programming environment
xiii. Peripheral control
xiv. Error correction and reporting
xv. Communication with operator
xvi. It controls the input and output of data between the computer (CPU)
and the peripheral input and output devices (like keyboard and
monitor)
xvii. It tests the main components of the computer whenever it is powered
on. This is the POST (Power On Self-Test) operation
xviii. It prepares the main memory for the loading of application programs.
This process is known as booting the computer

58
d. Multi-user application
A multi-user environment is a system or software that allows access by
multiple users of a computer system. This will avoid having the processor
idle while it waits for input/output operations to be completed. The work
space repository resides on a database server and can be accessed by any
user with appropriate database privileges.

The requirements include:

i. Terminal controllers for controlling the operations of groups of

terminals.
ii. If the terminals are located remotely, it requires modem, multiplexors
and front-end processor private leased communication lines
iii. A powerful processor to support the multi-user environment as it must
be capable of pooling the lines to allocate time slots (time slices) to
each terminal
iv. Large memory capacity for storing the various user programs as well
as the high overhead required for storing the OS (overhead is the area
of the primary memory which is inaccessible to the user)
v. Protection features for preventing system crash as a result of several
users processing the same file simultaneously
vi. Graphical User Interface: This allows users to interact with electronic
devices through graphical icons
vii. Operating System: This allows programs to run very well
viii. Software requirement: Standard glossary of software engineering
terminology defines a requirement needed by a user to solve a problem

EXAMINER‟S REPORT
This question tests candidates‟ knowledge of:
a. Networking
b. Open-Source Software
c. Functions of Operating System
d. The requirements for Multi-Usage environment
About 90% of the candidates attempted the question and about 30% of them
passed.

General characteristics displayed by those who performed poorly are itemised

below:
i) Exhibition of poor quality tuition
ii) Poor presentation of facts
iii) Poor communication

59
For improved performance in future, it is advised that candidates should:
 Use ICAN Study Text and the Pathfinder
 Spend more time for preparation

Marking Guide Marks Marks

a. 2 marks each for explanation 2
1 mark each for listing two examples (1x2) = 2
1 mark each for explaining two examples (1x2) = 2 6
b. 2 marks for definition 2
1 mark for one example 1 3
c. 1 mark each for five examples (1x5)= 5
d. 1 mark each for three requirements (1 x 3) = 3
1 mark each for three examples 3 6
Total 20

60
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
FOUNDATION LEVEL EXAMINATION – MAY 2018

QUANTITATIVE TECHNIQUES IN BUSINESS

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

SECTION A: MULTIPLE - CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER 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. An experiment consists of rolling two dice. Find the probability that the sum
of the numbers thrown is at least 10
1
A.
3
3
B.
4
1
C.
6
5
D.
6
1
E.
36
2. The pump price of a particular petroleum product was reduced from N97.00 to
N86.00. Calculate the percentage decrease of the product
A. 0.89%
B. 11.34%
C. 12.79%
D. 88.66%
E. 100.00%

3. The total cost of producing x number of nails is N40,000. Each of these nails
has a variable cost of N3.00, if the fixed cost is N10,000, then the value of x is
A. 6,000
B. 7,000
C. 8,000
D. 9,000
E. 10,000

61
4. The table below shows the number of customers who made various deposits
(N‟000) into a bank within the first quarter of a year:

Deposits(N‟000) Number of customers

0 but less than 220 25
220 but less than 240 38
240 but less than 260 68
260 but less than 280 29

The relative frequency of the „class 240 but less than 260‟ is

A. 0.410
B. 0.415
C. 0.425
D. 0.430
E. 0.435

5. If the total cost of a product at a point is minimum, then the second derivative
of the cost function at that point is ........... zero
A. Less than
B. Equal to
C. Greater than
D. Less than or equal to
E. Greater than or equal to

6. In a transportation problem, dummy source or destination is utilised to have

the
A. Rim conditions satisfied
B. Solution to be optimal
C. Solution not degenerated
D. Total cost not exceeding a limit
E. Profit matrix table solvable

7. Yaro, the eldest of the four sons of a business tycoon is to take 40% of the
profit from the business. Chukwu‟s share is 50% of the remainder while Olu
and Etim share the rest equally. If Etim receives N600,000, the total profit is
A. N2,000,000
B. N2,500,000
C. N3,000,000
D. N4,000,000
E. N5,000,000

62
8. Which of the following is NOT a limitation of the range, as a measure of
dispersion?
A. It does not reveal the distribution values as related to measure of
central tendency
B. It cannot be computed when distribution has open-end classes
C. It does not utilise the entire data for computation
D. It is easy to understand and its computation is simple
E. Since it is based on two extreme values of the entire distribution, it
can be changed if either of the extreme values is dropped

9. A sales person takes record of his daily sales figures for a month. If he wants
to measure his performance for the month, which of the following statistics
will be appropriate for him to use?
A. Upper quartile
B. Median
C. Lower quartile
D. Mean
E. Mode

10. Which of the following best describes time series?

A. It is a record of data over a period of time
B. It is a result of a number of movements
C. It is used for prediction by continuing the series forward to time.
D. It is plotted as a graph called a historigram
E. Its five models differ in how the components in each model are linked

11. Three business partners ADEX(X), BIOK(Y) and CARZ(Z) invested in a business
deal. If the profit shared at the end of the deal is in the ratio 3:4 between X
and Y, and ratio 6:5 between Y and Z, then the ratio of the profit shared
among X,Y and Z respectively is
A. 3 : 24 : 5
B. 3 : 12 : 10
C. 9 : 10 : 12
D. 9 : 12 : 10
E. 12 : 10 : 3

12. The drawing of a frequency polygon does not need ONE of the following steps
A. The mid-point of the top of the first rectangle is joined to a point on
the x-axis that is half a class interval above the upper limit of that
rectangle
B. The mid-point of the top of the last rectangle is joined to a point on
the x-axis that is half a class interval above the upper limit of that
rectangle

63
 C. The mid-point of the top of the first rectangle is joined to a point on
the x-axis that is half a class interval below the upper limit of that
rectangle
D. A histogram as a graph is converted to a curve by joining the mid-
point of the top of each rectangle with a straight line.
E. The curve is extended to the x-axis at a point outside the first and last
class intervals

13. The two types of series of regular periodic payments of equal amount are
A. Ordinary annuity and discounting annuity
B. Ordinary annuity and annuity due
C. Sinking fund and annuity due
D. Ordinary annuity and sinking fund
E. Present value annuity and amortisation

14. The extent of relationship between TWO related variables can be measured
with
A. Regression
B. Spearman‟s rank
C. Correlation
D. Pearson product moment method
E. Least squares method

15. Histogram, bar chart, pie chart, etc. are examples of diagrammatic
representation. Which of the following is NOT an advantage of a
diagrammatic representation?
A. Diagrams have greater attraction than figures
B. Diagrams help in deriving the required information in less time and
without any mental strain
C. Diagrams have great memorising value than figures
D. Diagrams and figures have equal advantage
E. Diagrams facilitate comparism

16. Which of the following is NOT true about correlation coefficient?

A. It is – 1 for perfect negative correlation
B. Its value ranges between – 1 and + 1
C. It is the measurement of the degree of correlation between variables
D. It is always zero for inverse correlation
E. It is +1 for perfect positive correlation

64
17. The average of 20, 70 and x is 40. If the average of 20, 70, x and y is 50,
then y is
A. 30
B. 60
C. 70
D. 80
E. 95

18. The cost function of a business has been estimated to be 400 + 60x while the
revenue function is 100x, where x is the number of items produced and sold.
The profit which the business will make if 20 items are produced is
A. N400
B. N800
C. N1,200
D. N1,600
E. N2,000

19. Which of the following methods CANNOT be utilised for trend measurement in
time series data?
A. Free hand method
B. Semi-average method
C. Moving average method
D. Least squares method
E. Spearman‟s ranking method

20. Which of the following expressions correctly represents the relationship that
exists among the Arithmetic Mean(AM), Harmonic Mean(HM) and Geometric
Mean(GM) given that AM = 57.6, HM = 43.2 and GM = 50.7?

A. 57.6  43.2  50.7

B. 43.2  50.7  57.6
C. 43.2  50.7  57.6
D. 43.2  50.7  57.6
E. 43.2  50.7  57.6

65
SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX

QUESTIONS IN THIS SECTION

QUESTION 1

A lorry load of cement supplied to dealers, P, Q, R & S contained some defective

bags. The consignments to dealers P, Q, R & S contain 21%, 20%, 17% and 15%
1 1 1
defectives respectively. Dealers P, Q & R got , and of all the consignments
2 3 8
respectively while dealer S got the rest.

You are required to:

a. Draw the appropriate tree diagram to represent the above information.
(15Marks)
b. Use the tree diagram above to calculate the probability that, if:
i. Any defective is found in a consignment, it is from the ones supplied to
dealer R. (2½ Marks)
ii. Any good bag of cement is found, it is from the ones supplied to dealer S.
(2½ Marks)
(Total 20 Marks)

QUESTION 2
A car battery manufacturing company‟s weekly sales of 100A-hour batteries are
recorded as follows:
45 32 74 24 37 40 66
21 79 49 48 17 26 23
16 65 28 23 79 15 33
61 22 60 85 64 87 81
18 33 42 52 37 55 71
a. By grouping the recorded sales into classes 13 and under 20, 20 and under
27, etc., use TALLY method to construct the frequency distribution of the
battery sales. (5 Marks)

b. Determine the number of such classes (1 Mark)

c. Calculate the Mean Deviation (14 Marks)
(Total 20 Marks)

66
QUESTION 3

a. The demand for an item of stock in a bank is 4,000 units per quarter, the cost
of an order is N400 and the holding cost of an item is 80k per annum. If the
cost of an item is N300, you are required to determine the:
i. number of orders per annum (21/2 Marks)
ii. length of inventory circle in weeks (2 Marks)
iii. total annual cost (7 /2 Marks)
1

b. WFF Printing Press Limited gives the following information on the production
of accounting textbooks: the total cost of producing 300 textbooks is N90,000
and the cost of producing 500 textbooks is N100,000.
Given that the cost function is linear,
i. Find the relationship between the cost (C) and the number of
textbooks produced (N), taking C as the dependent variable and N as
the independent variable. (61/2 Marks)
ii. Determine the cost of producing 1,000 textbooks. (11/2 Marks)
(Total 20 Marks)

QUESTION 4
a. BOBODI Plc. produces commodities at a variable cost of N5 per unit with a
fixed cost of N400,000. The demand curve for the commodities is given by

P = 55 – 0.001q
where q is the quantity of commodities produced and sold.
i. Derive an expression for the marginal profit
Calculate:
ii. The quantity to be sold for maximum profit
iii. The maximum profit
iv. The unit price at maximum profit (16 Marks)

b. The profit after tax (in millions of naira) of a firm increases geometrically
from N4M in year 2000 to N8M in year 2001, and N16M in year 2002. It is
assumed that the trend of profit is maintained over the years.

Find the total profit of the firm from Year 2000 to Year 2011. (4 Marks)
(Total 20 Marks)

67
QUESTION 5
a. A research was carried out to know the weights of employees in a firm in
order to solve the problem of obesity within the organisation. By this, it was
discovered that the mean weight of 400 employees was 70kg and the
standard deviation was 6kg. If the weights are normally distributed, find
how many employees weigh;

i. Between 60kg and 75kg (10 Marks)

ii. More than 80kg (6 Marks)

b. A petty trader planned to start saving for a project. She saved N10,000 at
the end of 1980 and increased it by N2,000 in the subsequent years. What
amount would she have saved at the end of 1999? (4 Marks)
(Total 20 Marks)

QUESTION 6
a. The distribution of the marks scored, out of 100, by some candidates in a
qualifying examination is as given below:
Marks Number of candidates
20 – 29 18
30 – 39 21
40 – 49 35
50 – 59 14
60 – 69 9
70 – 79 2

You are required to:

i. Obtain the modal mark. (2 Marks)

ii. Draw the histogram for the distribution of marks and use it to estimate
the mode. (13 Marks)

iii. Give a reason which may account for the difference (if any) between
the modes obtained in (i) and (ii) above. (1 Mark)

b. A small manufacturing firm‟s total revenue function (in N) of producing and

selling q units of a product was investigated to be q2 – 1,140q + 10,000.
How many units of the product must be produced and sold to make a total
revenue of N82,000? (4 Marks)
(Total 20 Marks)

68
 Formulae
PROBABILITY
A B = A or B A B = A and B (overlap).
P(B A) = probability of B, given A

Rules of Addition
If A and B are mutually exclusive: P(A B) = P(A) + P(B)
If A and B are not mutually exclusive: P(A B) = P(A) + P(B) – P(A B)

Rules for Multiplication

If A and B are independent: P(A B) = P(A) * P(B)
If A and B are not independent: P(A B) = P(A) * P(B |A)

E(𝑿) = (probability * payoff)

Quadratic Equations
If 𝒂𝑿𝟐 + 𝒃𝑿 + c = 0 is the general quadratic equation, the two solutions (roots) are
given by:

−𝒃 ± 𝒃𝟐 − 𝟒𝒂𝒄
𝒙=
𝟐𝒂

DESCRIPTIVE STATISTICS
Arithmetic Mean
𝒙 𝒇𝒙
𝒙 = 𝒙 = (frequency distribution)
𝒏 𝒇

Standard Deviation

 x  x  𝒇𝒙𝟐
2
SD = SD = − 𝒙𝟐 - (frequency distribution)
𝒇
n

 f 0  f1 
Mode = L   c
 2 f 0  f1  f 2 
N 
   fm 
Median = Lm   2 c
 fm 
 
 
All notations bear their usual meanings.

INDEX NUMBERS
Price relative = 100 * 𝑷𝟏 𝑷𝟎 Quantity relative = 100 * 𝑸𝟏 𝑸𝟎

Price: 𝒘 ∗
𝑷𝟏
𝑷𝟎
x 100
𝒘

Quantity: 𝒘 ∗
𝑸𝟏
𝑸𝟎
x 100
𝒘

69
TIME SERIES:
Additive Model Series = Trend + Seasonal + Random

Multiplicative Model Series = Trend * Seasonal * Random

LINEAR REGRESSION AND CORRELATION

The linear regression equation of Y on X is given by:
Y = a + bX or 𝒀 − 𝒀 =𝒃𝑿 − 𝑿

Where
𝑪𝒐𝒗𝒂𝒓𝒊𝒂𝒏𝒄𝒆 (𝑿𝒀) 𝒏 𝑿𝒀 − 𝑿 𝒀
𝒃 = =
𝑽𝒂𝒓𝒊𝒂𝒏𝒄𝒆 (𝑿) 2
𝒏 X𝟐 − X

and 𝒂 = 𝒀 - 𝒃𝑿

or solve
𝒀 = na + 𝒃 𝑿
𝑿𝒀 = a 𝑿 + 𝒃 𝑿𝟐

Coefficient of Correlation
𝑪𝒐𝒗𝒂𝒓𝒊𝒂𝒏𝒄𝒆 (𝑿𝒀) 𝒏 𝑿𝒀 − 𝑿 𝒀
𝒓 = =
𝑽𝒂𝒓 𝑿 . 𝑽𝒂𝒓(𝒀) 2 2
𝒏 X𝟐 − X 𝒏 𝒀𝟐 − Y

𝟔 𝒅𝟐
R (rank) = 1 -
𝒏 𝒏𝟐 − 𝟏

FINANCIAL MATHEMATICS

Compound Interest (Values and Sums)

Future Value S, of a sum of X, invested for n periods, compounded at r% interest
n
S = 𝑿 𝟏 + 𝒓

Annuity
Present value of an annuity of N1 per annum receivable or payable for n years,
commencing in one year, discounted at r% per annum
1  1  r 
n
PV 
r
Perpetuity
Present value of N1 per annum, payable or receivable in perpetuity, commencing in
one year, discounted at r% per annum.
𝟏
PV =
𝒓

70
ARITHMETIC PROGRESSION

nth term : Tn  a  n  1d

Sum : Sn 
n
2a  n  1d 
2
GEOMETRIC PROGRESSION

nth term : Tn  ar n1

ar n  1
Sum : Sn  for r  1
r 1

a1  r n 
Sum : Sn  for r  1
1 r

71
 Annuity Table

Present value of an annuity of 1 i.e. 1 - (1 + r)-n

r
Where r = discount rate
n = number of periods
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0·990 0·980 0·971 0·962 0·952 0·943 0·935 0·926 0·917 0·909 1
2 1·970 1·942 1·913 1·886 1·859 1·833 1·808 1·783 1·759 1·736 2
3 2·941 2·884 2·829 2·775 2·723 2·673 2·624 2·577 2·531 2.487 3
4 3·902 3·808 3.717 3·630 3.546 3.465 3·387 3·312 3·240 3·170 4
5 4·853 4·713 4·580 4·452 4·329 4·212 4·100 3·993 3.890 3·791 5
6 5·795 5·601 5·417 5·242 5·076 4·917 4·767 4·623 4.486 4·355 6
7 6·728 6.472 6·230 6·002 5·786 5·582 5·389 5·206 5·033 4·868 7
8 7·652 7·325 7·020 6·733 6·463 6·210 5·971 5·747 5·535 5·335 8
9 8·566 8·162 7·786 7.435 7·108 6·802 6·515 6·247 5·995 5·759 9
10 9·471 8·983 8·530 8·111 7·722 7·360 7·024 6·710 6.418 6·145 10
11 10·368 9·787 9·253 8·760 8·306 7·887 7.499 7·139 6·805 6.495 11
12 11·255 10·575 9·954 9·385 8·863 8·384 7·943 7·536 7'161 6·814 12
13 12·134 11·348 10·635 9·986 9·394 8·853 8·358 7·904 7·487 7·103 13
14 13·004 12·106 11·296 10·563 9·899 9·295 8·745 8·244 7·786 7·367 14
15 13·865 12·849 11·938 11·118 10·380 9·712 9·108 8·559 8·061 7·606 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0·901 0·893 0·885 0·877 0·870 0·862 0·855 0·847 0·840 0·833 1
2 1·713 1·690 1·668 1·647 1·626 1·605 1·585 1·566 1·547 1·528 2
3 2.444 2.402 2·361 2·322 2·283 2·246 2·210 2·174 2·140 2·106 3
4 3·102 3·037 2·974 2·914 2·855 2·798 2·743 2.690 2·639 2.589 4
5 3·696 3·605 3·517 3·433 3·352 3·274 3·199 3·127 3·058 2·991 5
6 4·231 4·111 3·998 3·889 3·784 3·685 3·589 3.498 3.410 3·326 6
7 4·712 4·564 4.423 4·288 4·160 4·039 3·922 3·812 3·706 3·605 7
8 5·146 4·968 4.799 4·639 4.487 4·344 4·207 4·078 3·954 3·837 8
9 5·537 5·328 5·132 4·946 4·772 4·607 4.451 4·303 4·163 4·031 9
10 5·889 5·650 5.426 5·216 5·019 4·833 4·659 4.494 4·339 4·192 10
11 6·207 5·938 5·687 5.453 5·234 5·029 4·836 4·656 4.486 4·327 11
12 6·492 6·194 5·918 5·660 5·421 5·197 4·988 4·793 4·611 4.439 12
13 6·750 6.424 6·122 5·842 5·583 5·342 5·118 4·910 4·715 4·533 13
14 6·982 6·628 6·302 6·002 5·724 5.468 5·229 5·008 4·802 4·611 14
15 7·191 6·811 6.462 6·142 5·847 5·575 5·324 5·092 4·876 4·675 15

72
73
 SOLUTIONS

SECTION A:

1. C

2. B

3. E

4. C

5. C

6. A

7. D

8. D

9. E

10. D

11. D

12. A

13. B

14. C

15. C

16. D

17. D

18. A

19. E

20. C

74
WORKINGS
1.
1 2 3 4 5 6
1 1,1 1,2 1,3 1,4 1,5 1,6
2 2,1 2,2 2,3 2,4 2,5 2,6
3 3,1 3,2 4,3 3,4 3,5 3,6
4 4,1 4,2 5,3 4,4 4,5 4,6
5 5,1 5,2 6,3 5,4 5,5 5,6
6 6,1 6,6 6,3 6,4 6,5 6,6

P (At least sum of 10) = P (4,6), (5,5), (5,6), (6,4), (6,5), (6,6)
6 1
  (C)
36 6

2. Decrease = N97.00 – N86.00 = N11.00

11.00 100
% Decrease = 
97.00 1
= 11.34% (B)

3. Total cost = Variable cost + fixed cost

40,000 = 3x + 10,000
 3x = 40,000 – 10,000
 3x = 30,000
 x = N10,000 (E)

68
4. Relative frequency of 240 < 260 =
25  38  68  29
68
= - 0.425 (C)
160

7. Let x be the profit shared

:.Yaro = 0.4x

Chuku = 50% of x  0.4 x   0.3x

:.Olu = ½x  0.4 x  0.3x   0.15x

and Etim = ½x  0.4 x  0.3x   0.15x

But Etim‟s share = 600,000
 0.15x  600,000
600,000
x
0.15

 x = 4,000,000 (D)

75
 𝑥 3 4𝑥
11. x:y = 3:4  =  y=
𝑦 4 3
𝑦 6 5𝑦
y:z = 6:5 𝑧 =5  z= 6
5 4x
Z = .
6 3
20𝑥
= 18
x : y : z
4 x 20 x
= x: :
3 18

The LCM is 18
 x : y : z = 18x : 24x : 20x

Divide them by 2x gives

x : y : z = 9 : 12 : 10 (D)

ALITER (alternative solution)

x:y:z
3 4 Multiply this line by 6
6 5 Multiply this line by 4 gives

:. x : y : z
18: 24: 20
or x : y : z = 9 : 12 : 10

20  70  x
17.  40
3
 90  x  120

 x  120  90  30

20  70  30  y
Also  80
4
 120  y  200
 y  200  120  8 (D)

76
18. C = 400 + 60x
R = 100x

P = R – C = 100x – (400 + 60x)

= 100x – 400 – 60x
= 40x – 400
At x = 20
= 40 (20) – 400 = 800 – 400
= 400 (A)

EXAMINER‟S REPORT
All the candidates attempted the Multiple Choice Questions out of which about 45%
scored 10 marks or above.

SECTION B:
SOLUTION 1 0.79
(a)
D PD = ½ (0.21) = 0.105
0.21
G PG =½ (0.79) = 0.395
P 1
2
0.79
D
Q 0.2
PD = 1 3 (0.2) = 0.0667
1 G
3 PG = 1 3 (0.8) = 0.2667
0.8
R PD = 8 (0.17) = 0.02125
1
D
1
8
0.17
S
G PG = 1 3 (0.83) = 0.2767
1 0.83
24
D PD = 1 24 (0.15) = 0.00625
0.15

G PG = 24 (0.85) = 0.03542
1
0.85

where PD = Proportion of defectives

PG = Proportion of good ones

1 1 1
Part supplied to dealer S  1     
 2 3 8
23
 1
24
1

24

77
(b) (i) Proportion of defective parts in all the consignments from the
diagram

= 0.105 + 0.0667 + 0.02125 + 0.00625

= 0.1992

:. Probability of discovering defective parts from the consignment

of dealer R

0.02125
  0.107
0.1992 \
(ii) Proportion of good parts in all the consignments from the diagram
= 0.395 + 0.2667 + 0.10375 + 0.03542
= 0.80087
:. Probability of discovering a good part from the consignment of
dealer

0.03542
 = 0.0442
0.80087

EXAMINER‟S REPORT
The question tests the candidates‟ knowledge of the application of conditional
probability in business environment using probability tree diagram. About 65% of
the candidates attempted the question, out of which about 50% of them scored 9
marks or above. The commonest pitfall in answering the question was inability of
the candidates to show the part supplied to dealer „S‟ to be 1/24 or 0.042.

Relevant materials and ICAN Study Text should be utilised by the candidates.

MARKING GUIDE
Marks Marks
(a) For correct well labeled 8 branches of the tree diagram ( 1
mark for each branch) 8
For correct probability value for multiplication of two
probabilities along the 8 branches of the tree diagram (1/2
mark for each correct probability value) 4
For correct expression 1 – (1/2 + 1/3 + 1/8) 1
23
For simplifying to get 1 -
24 1
1
For correct answer i.e.
24 1 15

78
(b) i. For correct expression for the sum of 4 probabilities to
get proportion of defective parts (i.e. 0.105 + 0.0667
+ 0,025 + 0.00625) ½
For correct sum of 0.1992 1
For correct answer of 0.107 1 2½

ii. For correct expression for the sum of 4 probabilities to

get proportion of good parts (i.e. 0.3951 + 0.2667 +
0.10375 + -.03542) ½
For correct sum of 0.80065 1
For correct answer of 0.0442 1 2½
20

SOLUTION 2

(a)

No of Frequency Mid-point f.x xx x  x .f

batteries value x
Tally f
sold

13 < 20 IIII 4 16.5 66 -29.6 118.4

20 < 27 IIIII 6 23.5 141 -22.6 135.6

27 < 34 IIII 4 30.5 122 -15.6 62.4

34 < 41 III 3 37.5 112.5 -8.6 25.8

41 < 48 II 2 44.5 89 -1.6 3.2

48 < 55 III 3 51.5 154.5 5.4 16.2

55 < 62 III 3 58.5 175.5 12.4 37.2

62 < 69 III 3 65.5 196.5 19.4 58.2

69 <76 II 2 72.5 145 26.4 52.8

76 <83 III 3 79.5 238.5 33.4 100.2

83 < 90 II 2 86.5 173 40.4 80.8

35 1613.5 690.8

79
(b) No of classes is 11

 fx 1613.5
(c) x    46.1
f 35

f x - x 690.8
 Mean Deviation    19.7
f 35

EXAMINER‟S REPORT
The question tests the candidates‟ understanding of the application of the Tally
method to construct frequency distribution for grouped data and computation of a
measure of dispersion (mean deviation). About 98% of the candidates attempted
the question. About 80% of them scored 12 marks or above.

The candidates‟ commonest pitfall included their inability to use the Tally method
correctly in constructing the frequency distribution and not being able to correctly
determine mid-points of the class intervals. In order to improve on the candidates‟
performance, they should familiarise themselves with construction of frequency
distribution of various types of class intervals.

MARKING GUIDE
(a) Correct Tally column (-½ each error) 3
Correct frequency (f) column (-½ each error) 2 5

(b) Correct number of classes (i.e. 11) 1

(c) Correct x column (for at least correct two values) 1

Correct fx column (-½ each error) 3
Correct x - x column (-½ each error) 2
Correct f x - x column (-½ each error) 3

Correct fx i.e. 1613.5 1

Correct f x - x i.e. 690.8 1

Correct substitution into mean ( x ) formular 1

Correct value for the mean, x ½
Correct mean deviation formular ½
Correct substitution into mean deviation formular ½
Correct value for mean deviation ½ 14
20

80
SOLUTION 3
(a)
(i) Annual demand = 4,000  4 =16, 000 Q
2𝑐𝑑
= where c=N400, d=16,000, h=N 0.8
𝑕

2𝑥400𝑥16000
∴ Q=
0.8

= 4,000
𝑑 16,000
Number of orders per annum = = =4
𝑄 4,000

52
(ii) Length of inventory cycle = = 13 weeks
4

(iii) Total annual cost = annual cost of items + annual ordering cost +
annual holding cost.

4,000
=(300  16,000) + (4  400) +  0 .8
2

=N4,800,000 + N1,600 + N1,600

=N 4,803,200

(b) (i) The cost function is linear

Let N be independent variable and C dependent variable
Two points are (300, N90000) and (500, N100,000)
𝐶𝑕𝑎𝑛𝑔𝑒 𝑖𝑛 𝑐𝑜𝑠𝑡
Slope, m =
𝐶𝑕𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑕𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑡𝑒𝑥𝑡𝑏𝑜𝑜𝑘𝑠

C 2  C1
=
N 2  N1

100,000  90,000
=
500  300

10,000
=
200
= 50
 The linear cost function is given by
C – C1 = m (N – N1)
C – 90,000 = 50(N – 300)

81
 C – 90,000 = 50N – 15,000
C – 50N = -15,000 + 90,000
C – 50N = 75,000

(ii) When N = 1,000

C – 50(1,000)= 75,000
C – 50,000 = 75,000
C = 75,000 + 50,000
C = N125,000

ALITERNATIVE SOLUTION FOR Q3b(i)

(i) Assume total cost is a linear function represented by
y=a + bx

where y = TC, a = FC, b = VC per unit, x = units

y = a +b(300) =90,000.......................................(1)

y = a +b(500) =100,000.....................................(2)

Solving simultaneously, we have

b=N50/unit and a = Fixed Cost = N75,000

 the cost function relationship is y = 75,000+50x

(ii) TC (x) = N75,000 + N50x

TC (1000) = N75,000 + N50 (1000)

= N75,000 + N50, 000

= N125,000

82
ALITERNATIVE FOR Q3b(i)

Using the linear regression equation of y on x approach,

Let the linear cost function be

y  a  bx

let N be the independent variable i.e N  x

let C be the dependent variable i.e C  y

 C  a  bN

x y x2 xy
300 90,000 90,000 27,000,000
500 100,000 250,000 50,000,000
 x  800  y  190,000  x 2  340,000  xy  77,000,000
n=2
n xy   x y
 b=
n x 2   x 
2

2(77,000,000)  (800)(190,000)
 b=
2(340,000)  (800) 2
154,000,000  152,000,000
 b=
680,000  640,000
2,000,000
 b=
40,000
 b= 50

 a
 y bx
n n
190,000 (800)
 a  50
2 2
 a  95,000  20,000
 a  75,000
 The linear cost function is

C  75,000  50N

83
EXAMINER‟S REPORT
The question tests the candidates‟ understanding of the Inventory Control and
simultaneous equations in business. About 70% of the candidates attempted the
question, out of which 20% scored 10 marks or above. Most of the candidates did
not obtain the correct figures for the parameters in the EOQ formular. Also in (3b),
the candidates could not obtain the appropriate simultaneous equations to be
solved to obtain the required values. Candidates are advised to prepare well by
studying the ICAN Study Text for better performance in future ICAN examinations.

MARKING GUIDE
Marks Marks
(a) i. Correct annual demand i.e. 16,000 ½
Correct substitution into Q formular ½
Correct value for Q i.e. 4,000 ½
Correct substitution into No of orders per annual
formular ½
Correct answer ½ 2½

ii. Correct substitution into length of inventory cycle

formular 1
Correct answer 1 2

iii. Correct total annual cost formular showing the sum of

annual cost of items, annual ordering cost and annual
holding cost 2
Correct expression for annual cost of items (i.e. 300 
16,000) 1
Correct annual cost of items (i.e. N4,800,000) ½
Correct expression for annual ordering cost (i.e. 4  400)
1
Correct annual ordering cost (i.e. N1,600) ½
4000
Correct expression for annual holding cost (i.e. 
2
0.8) 1
Correct annual holding cost (i.e. N1,600) ½
Correct final answer (i.e. N4,803,200) 1 7½

(b) i. Correct identification of the two points (i.e. (300,

N90,000) and (800, N100,000)) (1 mark for each point) 2
Correct slope, m formular 1
Correct substitution of the two points into the slope
formular ½
Correct value for m ½
Correct substitution of the slope and a point into the

84
 formular ½
Correct simplification 1
Correct linear cost function 1 6½

ii. Correct substitution of N1,000 into the linear cost

function ½
Correct simplification ½
Correct answer ½ 1½
20

ALITERNATIVE FOR QUESTION 3b (i)

Correct representation of total cost function by y = a+bx 1

Correct substitution of (300, 90.000) into the total cost
function 1
Correct substitution of (500, 100.000) into the total cost
function 1
Correct simplication and solving 1
Correct value of b 1
Correct value of a 1
Correct total cost function ½ 6½

ALITERNATIVE FOR QUESTION 3b (i)

Correct representation of cost function by y = a+bx

(i.e. C = a+bN) ½
Correct x2 column ½
Correct xy column ½
Correct x ½
Correct y ½
Correct x 2 ½
Correct y 2 ½
Correct substitution into b formular ½
Correct simplification ½
Correct value of b ½
Correct substitution into a formular ½
Correct value of a ½
Correct cost function ½ 6½

85
SOLUTION 4
(a) i. Given the demand expression as p = 55 – 0.001q
 Revenue R  q.p  55q - 0.001q2

The total cost TC = 5q + 400,000

profit function   R  TC

 55q  0.001q 2  5q  400,000

 0.001q 2  50q  400,000

d
marginal profit,  0.002q  50
dq
d
ii. But at the turning point, 0
dq
50
 0.002q  50  0  q 
0.002
i.e. q = 25,000
To test for maximum profit, we have
d 2
 0.002
dq 2

But – 0.002 < 0

 q  25,000 units will give maximum profit

ALITERNATIVE Q4(a) (ii)

MR  55  0.002q

MC  5
Condition for maximum profit is
MR  MC
i.e 55  0.002q  5
0.002q  50

50
q
0.002
q  25,000

iii. Maximum profit = N[50(25,000) – 400,000 – 0.001(25,000)2]

N(1,250,000 – 400,000 – 625,000)
= N 225,000

86
 iv. The selling price per unit P = N[55 – 0.001 (25,000)]
= N(55 – 25)
= N30

(b) Year: 2000, 2001, 2002, …

Profit: 4, 8, 16, …
This follows geometric progression
a = 4, r = 2
for 2011, n = 12

Sn =

a r n 1 
r 1
42  1
Sn =
2 1
S12 = 4(212 – 1) = 4(4,096 – 1)
S12 = 4(4,095)
S12 = 16,380

The total profit of the firm from year 2000 to year 2011 = 16,380 x 1,000,000
= N16,380,000,000
ALITERNATIVE Q4(b)
Since profit increases geometrically from 4million in 2000 to 8million in 2001
8m
Rate of increase = 2
4m
 2000 4m
2001 8m
2002 16m
2003 32m
2004 64m
2005 128m
2006 256m
2007 512m
2008 1024m
2009 2048m
2010 4096m
2011 8192m
Total 16,380m i.e N16,380,000,000.00

87
EXAMINER‟S REPORT
The question tests the candidates‟ knowledge of application of differentiation to
marginal and geometric progression in business. About 35% of the candidates
attempted the question, out of which about 40% scored 8 marks or above.

The major pitfall of the candidates was due to the fact that most of the candidates
integrated instead of differentiating the relevant functions. The candidates are
advised to study the ICAN Study Text and consult other relevant textbooks for better
performance in future examinations.

MARKING GUIDE
Marks Marks
(a) i. Correct revenue function 1
Correct total cost function 1
Correct substitution of revenue function and total cost 1
function into profit function formular
Correct profit function 1
Correct marginal profit function 1 5

ii. d
Correct condition for turning point i.e. =0
dq 1
Correct expression of marginal profit being equated to
zero and solve 1
Correct value of q = 25,000 1
d 2
Correct = -0.002 1
dq 2
Correct condition for maximum profit i.e -0.002<0 1
Correct conclusion 1 6

ALITER QUESTION 4a (ii)

Correct MR function 1
Correct MC function 1
Correct condition for maximum Profit (i.e. MR = MC) 1
Equating MR to MC ½
Correct simplification ½
Correct further simplification 1
Correct value of q 1 6

iii. Correct substitution of q = 25,000 into the profit

function 1
Correct simplification 1
Correct answer 1 3

iv. Correct substitution of q = 25,000 into the demand

function 1
Correct answer 1 2

88
(b) Correct identification of geometric progression ½
Correct value for r ½
Correct Sn formular 1
Correct substitution into Sn formular ½
Correct simplification ½
Correct value of S12 ½
Correct value for total profit ½ 4
20
ALITER QUESTION 4b

Correct rate of increase (i.e. 2) ½

Correct profit from year 2003 to year 2011 (-½ each
error) 2½
Correct total profit 1 4

SOLUTION 5
(a) i. n = 400
Mean, μ = 70kg
Standard deviation, σ = 6kg
X 
Z

The probability that an employee weighs between 60kg and 75kg is
calculated as follows:

60  70  10
For 60kg, Z    1.67
6 6
75  70 5
For 75kg, Z    0.83
6 6
 Using the Normal Table
The required probability = 0.4525 + 0.2967

= 0.7492

The number of employees with weights between 60kg and 75kg

= 0.7493 x 400
= 299.68
= 300 approximately
(ii) The probability that an employee weighs more than 80kg is
calculated as follows:

89
 80  70 10
For 80kg, Z    1.67
6 6
 Using the Normal table
The required probability = 0.5000 – 0.4525
= 0.0475
The number of employees with weights more than 80kg
= 0.0475 x 400
= 19

(b) Year: 1980, 1981, 1982, ……….

Amount: N10,000, N12,000, N14,000, …….

This follows arithmetic progression

a = N10,000
d = N2,000

From 1980 to 1999 gives n = 20

S n = 2a  (n  1)d 
n
2

S20 =
20
2(10,000)  (20  1)2000
2
S20 = 1020,000  38,000
S20 = N580,000

ALITER Q5 (b)

Since she saved N10,000 at the end of 1980 and increased it by N2,000 in the
subsequent years, then rate of increase arithmetically = N2,000

 1980 N10,000
1981 N12,000
1982 N14,000
9183 N16,000
1984 N18,000
1985 N20,000
1986 N22,000
1987 N24,000
1988 N26,000
1989 N28,000
1990 N30,000
1991 N32,000
1992 N34,000
1993 N36,000

90
 1994 N38,000
1995 N40,000
1996 N42,000
1997 N44,000
1998 N46,000
1999 N48,000
Total: N580,000

EXAMINER‟S REPORT
The question tests the candidates‟ understanding of the application of Normal
Probability Distribution and Arithmetic progression (A.P) to solve business
problems.

Less than 50% of the candidates attempted the question. About 65% of the
candidates that attempted the question scored 10 marks and above.

The interpretation and computation of Z –scores constitute the major weakness

observed. Relevant materials and ICAN Study Text are recommended for
candidates for better performance in future examinations.

MARKING GUIDE
Marks Marks
(a) i. Correct Z-score expression for 60kg 1
Correct Z-score value for 60kg 1
Correct Z-score expression for 75kg 1
Correct Z-score value for 70kg 1
Correct probability for Z-score value for 60kg (i.e.
0.4525) 1
Correct probability for Z-score value for 75kg (i.e.
0.2967) 1
For adding the two probabilities 1
Correct probability value for between 60kg and 75kg 1
Correct multiplication of the probability value by 400 1
For getting 299.68 ½
Correct answer (i.e. 300) ½ 10

ii. Correct Z-score expression for 80kg 1

Correct Z-score value for 80kg 1
Correct probability for Z-score value for 80kg (i.e.
0.4525) 1
For subtracting 0.4525 from 0.5000 1
Correct probability value for more than 80kg 1
Correct multiplication of the probability value by 400 ½
Correct answer (i.e. 19) ½ 6

91
(b) Correct identification of the Arithmetic progression 1
Correct d value ½
Correct Sn formmular 1
Correct substitution into Sn formular ½
Correct answer 1 4
20
ALITER Q5b

Marks Marks
Correct rate of increase arithmetically ½
Correct savings from year 1981 to 1999 (-1/2 each error) 3
Correct total savings ½ 4

SOLUTION 6
(a) (i) modal class is 40 – 49

 f 0  f1 
∴ Mode = L   c
 2 f 0  f1  f 2 

 35  21  140
= 39.5 +   10 = 39.5 +
 70  21  14  35

= 39.5 + 4

= 43.5

(ii) Table for histogram

Class Frequency
19.5 – 29.5 18
29.5 – 39.5 21
39.5 – 49.5 35
49.5 – 59.5 14
59.5 – 69.5 9
69.5 – 79.5 2

92
93
 (iii) Both calculations are approximately the same.

(b)
q2 - 1,140q + 10,000 = 82,000
q2 – 1,140q + 10,000 – 82,000 = 0
q2 – 1,140q – 7,200 = 0
This is a quadratic equation. Hence, using the quadratic formula, we have

 b  b 2  4ac
q
2a
a = 1, b = -1,140, c = -72,000

  1,140   1,1402  41 72,000

q
21

1,140  1,587,600
q
2
1,140  1,260
q
2
1,140  1,260 1,140  1,260
q or
2 2
 120 2,400
q or
2 2
q = -60 or 1,200
Since q cannot be negative.
Therefore, q = 1,200 units.

ALITER 1 Q6 (b)

q 2  1,140q  10,000  8,200

q 2  1,140q  72,000  0
2 2
 1,140   1,140 
q    72,000   
 2   2 
q  5702  72,000  5702
q  5702  72,000  324,900
q  570 2  396 ,900

q  570   396,900

94
 q  570  630
q  570  630
q  1,200 or q  60
q can not be negative
 q  1,200
ALITER 2 Q6 (b)

q 2  1,140q  10,000  8,200  0

q 2  1,140q  72,000  0
72,000  72  1,000
 6  12  1,000
 60 1,200

 q 2  1,200q  60q  72,000  0

 qq  1,200  60q  1,200  0
 q  60q  1,200  0
i.e q  60  0 or q  1,200  0

 q  60 or 1,200
But q can not be negative

 q  1,200
EXAMINER‟S REPORT
The question tests the candidates‟ knowledge and understanding of the
construction of histogram and using it to estimate the mode. Q6(b) is testing the
candidate‟s ability to use the quadratic equation to solve total revenue problem.
About 90% of the candidates attempted the question out of which about 70% scored
10 marks or above. The commonest pitfall included the inability of the candidates
to use the correct formular as well as differentiating the revenue function correctly.
Candidates should be encouraged to register at any ICAN approved Tuition House
and study the ICAN Study Text in order to improve on their performance.

MARKING GUIDE

Marks Marks
(a) i. Correct modal class ½
Correct modal formular ½
Correct substitution ½
Correct answer ½ 2

95
 ii. Correct class boundaries column (-1/2 each error) 2
Correct labeling of frequency axis ½
Correct labeling of class axis ½
Correct construction of 6 bars for the histogram (1
mark for each correct bar) 6
Correct 2 diagonal lines joining the vertices of two
adjacent bar to the highest bar (1/2 mark for each line) 1
Correct line through the point of intersection of the 2
diagonal lines 1
Correct reading of the modal mark from the graph 1
Correct answer 1 13

iii. Correct conclusion 1 1

(b) Correctly equating q2 – 1140q + 1000 to 82,000 ½

Correct quadratic equation ½
Correct substitution into the quadratic equation formular ½
Correct simplification ½
 210 2400
Correct further simplification to get q = or
2 2 ½
Correct q = -60 ½
Correct q = 1200 ½
Correct conclusion/answer ½ 4
20

ALITER 1 Q6(b)
Correct equation of q 2  1140q  10000 and 8200 1
2

Correct quadratic equation 1

2

Correct 2 factors for 72000 q i.e  1200 q and 60 q 1

2

Correct factorization 1
2

For getting q  60q  1200  0 1

2

For equating q  60  0 or q  1200  0 1

2

Correct value of q i.e -60 or 1200 1

2

Correct conclusion/ answer 1

2 4

ALITER 2 Q6(b)
Correct equation of q 2  1140q  10000 and 8200 1
2

96
For getting q 2  1140q  72000 1
2

2 2
 1140   1140 
For getting  q    72000    1
2
 2   2 
For getting q  5702  396900 1
2

For getting q  570  630 1

2

For getting q  570  630 1

2

For getting q  1200 or  60 1

2

For correct conclusion/answer 1

2 4

97
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION – MAY 2018

BUSINESS AND FINANCE

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

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ALL QUESTIONS IN THIS SECTION

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

1. Which of the following is NOT a characteristic of a well stated corporate

mission statement?
A. Ambiguity
B. Precision
C. Motivation
D. Clarity
E. Distinctiveness

2. Which of the following options is NOT a tool for developing organisational

strategy?
A. SWOT analysis
B. Critical question analysis
C. PEST analysis
D. Business portfolio analysis
E. Profitability ratio

3. Which of the following is NOT a barrier to international business?

A. Tariff
B. Quota
C. Embargoes
D. Market Growth
E. Infrastructure

98
4. Which of the following is a benefit derivable through international business?
A. Economies of scale
B. Low profit
C. High cost
D. Short supply of goods and services
E. Insufficient capital accumulation

5. Which of the following is NOT a feature of an informal organisation?

A. It is a network of personal and social relationships
B. It develops from the way in which individuals meet and communicate
with each other
C. It has been created and maintained by its leaders
D. It develops friendships and personal relationships
E. It focuses on people, not the work

6. A company that needs to innovate and continually produce new services is

likely to have a/n ……… function.
A. Research and development
B. Procurement
C. Operations
D. Finance
E. Administration

7. The level of culture in which unconscious beliefs, perceptions and thoughts

are taken for granted is the ……….. level.
A. Artefacts
B. Basic underlying assumptions
C. Inner layer
D. Outer skin
E. Espoused values

8. Which of the following options is NOT directly related to financial

management?
A. Sourcing for funds
B. Decision making
C. Assessment of risk
D. Evaluation of return
E. Recording data accurately and reporting business transactions

99
9. A source of financing, negotiated between a bank and a company for a
duration of 4-10 years at a fixed rate of interest is called
A. Finance lease
B. Term loan
C. Acceptance credit
D. Factoring of debtors
E. Preference share

10. Managerial functions like planning, organising, co-ordinating and

communicating require …….. because they involve giving guidance and
direction to employees.
A. Management
B. Foresight
C. Experience
D. Leadership
E. Intuition

11. Expenditure that does not create a long-term asset is called a(n)
A. Capital expenditure
B. Investment expenditure
C. Revenue expenditure
D. Sundry expenditure
E. Capital budgeting expenditure

12. The factors that impact group cohesiveness EXCLUDE

A. Group success
B. Task cohesion
C. Location
D. Finance
E. Leadership style

13. The main threats to ethical behaviour in the accountancy profession fall into
the following categories EXCEPT

A. Professional competence threat

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

100
14. The code of conduct in respect of employees as a stakeholder group might
include all of the following EXCEPT

A. Equal opportunities for all employees regardless of gender, race or

religion
B. Refusal to tolerate harassment of employees by colleagues and
managers
C. Respect for the privacy of confidential information about each
employee
D. Concern for the health and safety of employees
E. Unfair dealing with the company‟s customers.

15. Who amongst the following theorists is associated with the Human Relations
School of Management?
A. Max Weber
B. Elton Mayo
C. Henry Mintzberg
D. Rosemary Stewart
E. Lyndall Urwick

16. A written communication of factual information on a specific subject

presented in an orderly and formal manner is called a(n)
A. Operating report
B. Business plan
C. Feasibility study
D. Business report
E. Business proposal

17. A club culture or spider‟s web culture is also known as

A. Personal culture
B. Existential culture
C. Task culture
D. Role culture
E. Power culture

18. The process of using the right words in the right order to achieve the
objective of a message is called
A. Communication Style
B. Communication Skills
C. Communication Personality
D. Communication Structure
E. Communication Creativity

101
19. Which of the following options is NOT a feature of an effective work team?
A. Good communication
B. Focus
C. Collaboration
D. Doing your own job
E. Positive conflicts

20. The theory of motivation, which states that our behaviour is the result of
conscious choices that we make between different alternatives, is known as
A. Maslow‟s hierarchy of needs
B. Vroom‟s expectancy model
C. McClelland‟s motivational needs
D. Heifetz‟s activity model
E. Herzberg‟s hygiene and motivational factors

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX

QUESTIONS IN THIS SECTION

QUESTION 1

In order to make subordinates perform better, managers can use different types of
reward systems. Assuming you are a manager in an accounting firm, you are
required to:
a. Define a reward system. (1 Mark)
b. Explain intrinsic and extrinsic rewards. (2 Marks)

c. List SIX examples each of intrinsic and extrinsic rewards that your
subordinates could receive from doing their jobs. (12 Marks)

d. State TWO extrinsic rewards you could give to your subordinates.

(2 Marks)

e. State THREE benefits of management by objectives (MBO). (3 Marks)

(Total 20 Marks)

102
QUESTION 2

The following are extracts from the financial position and income statement of TYX
Limited for 2014 and 2015
I Jan 31 Dec I Jan 31 Dec
2014 2014 2015 2015
N N N N
Share capital of N1 each 200,000 200,000 200,000 200,000

Share premium 100,000 100,000 100,000 100,000

Accumulated profits 500,000 600,000 600,000 750,000
Bank loans 200,000 600,000 600,000 350,000

2014 2015

N N

Profit Before Taxation 210,000 294,000

Taxation 75,000 100,000

Profit after taxation 135,000 194,000
Interest charges on bank loans 30,000 25,000
Dividend 45,000 45,000
Sales 5, 800, 000 6,670,000

a. You are required to compute the following ratios:

i. Return On Equity
ii. Return On Capital Employed
iii. Net Profit Percentage
iv. Earnings Per Share
v. Dividend Per Share (10 Marks)

b. Nike Kenny is a student of a state-owned polytechnic in Yobe. She planned

to save N5,000 each year out of the emolument she collects from the work
study club of a school. How much will she have at the end of the tenth year,
if interest on her savings is 6% compounded semi- annually? (4 Marks)

c. Agency conflicts are the differences in the interests of a company‟s owners

and managers. However, several remedies have been recommended to
lessen this age long managerial problem.
Required:
Explain briefly THREE of these remedies (6 Marks)
(Total 20 Marks)

103
QUESTION 3
a. High unemployment rate is a challenge in any economy. Attempts have been
made to classify unemployment so as to resolve it. State and explain briefly
FIVE categories of unemployment. (10 Marks)

b. State the implications of a fall in the value of a nation‟s currency.

(4 Marks)
c. Explain briefly the following business terms:
i. Fiscal policy
ii. Monetary policy
iii. Monopoly
iv. Downsizing
v. De-layering
vi. Outsourcing (6 Marks)
(Total 20 Marks)

QUESTION 4
a. State FOUR characteristics of a perfectly competitive market (4 Marks)

b. Explain the term monopolistic competition and state its SIX main features.
(8 Marks)
c. Many businesses expand beyond their national markets and have
competitors all over the world.
Explain FOUR reasons for internationalisation of markets and competition.
(8 Marks)
(Total 20 Marks)

QUESTION 5
a. Corporate financial objectives may be expressed as maximising shareholders‟
wealth, as well as profit or growth in earnings.
State and explain briefly the weaknesses of THREE commonly-used corporate
financial objectives. (14 Marks)

b. State briefly the features of the following operational techniques:

i. Mathematical logic
ii. Game theory
iii. Mathematical optimisation (6 Marks)
(Total 20 Marks)

104
QUESTION 6

Effective communication skills are essential to any manager or professional

accountant in the 21st century.

a. List FIVE methods of communication and state FIVE benefits of using e-mail.
(10 Marks)
b. Explain briefly the advantages and disadvantages of video conferencing.
(10 Marks)
(Total 20 Marks)

105
MULTIPLE CHOICE SOLUTIONS - SECTION A

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

EXAMINER‟S REPORT
There are twenty multiple–choice questions in section A which test candidates
understanding of the various aspects of the syllabus.

All the candidates attempted these questions and performance was good. About
60% of the candidates scored above 50% of the marks allotted to the questions. For
improved performance in future, candidates are advised to cover the syllabus.

MARKING GUIDE
20 correct options x 1 mark = 20 marks

SECTION B: SOLUTION 1

(a) A reward system is the system of extrinsic rewards that an organization

could give its employees.
(b) Intrinsic rewards are rewards that are within the control of an individual.
While extrinsic rewards are outside the control of the individual.

106
(c) Examples of intrinsic rewards
 Pride in doing the work
 A sense of responsibility
 A sense of achievement in doing the work
 A sense of recognition for doing the work
 Enjoying the status that the job provides
 Personal satisfaction from doing the work

Examples of Extrinsic rewards

 The award of a company vehicle
 Basic pay (the size of a pay increase)
 Cash bonuses and incentive payments
 Subsidised loans
 Pension benefits
 Rewards from employers in form of share options or a gift of some
shares
 Free medicare
(d) The two significant extrinsic rewards I could give my subordinates are:
 Promotion and advancement
 Increased remuneration or pay

(e) Benefits of MBO:

i) Ensures that team members are clear about their work and how it
benefits the whole organization.

ii) Enables employees and managers to distinguish between tasks that

are necessary and those that do not contribute to the organisation‟s
objectives.
iii) Helps managers control teams and provides a robust reference point
for team briefings, goal setting, performance appraisal, delegation
and feedback.

iv) Provides a sense of purpose for individuals.

v) Improves communication.

vi) Easier performance evaluation.

EXAMINER‟S REPORT
The question tests candidates understanding of reward system and other
motivation concepts.

About 80% of the candidates attempted the question and performance was above
average. More than 60% of those that attempted the question had a good

107
knowledge of the requirements of the question, however, they could not clearly
distinguish between intrinsic and extrinsic rewards. For improved performance,
candidates should pay attention to the clarifications made in the ICAN Study Text
and Pathfinder.

MARKING GUIDE Marks Marks

(a) Explaining briefly intrinsic and extrinsic rewards 2

(b) Listing of SIX examples each of intrinsic and extrinsic rewards 12

(c) Definition of reward system 1

(d) Stating TWO significant extrinsic rewards 2

(e) 3 benefits of MBO 3 20

SOLUTION 2
(a)
Ratios 2014 2015
i. Return On Equity (ROE) PAT/Equity x 135/850 x 100% 194/975 x 100%
100%
15.88% 19.90%
ii. Return On Capital PBIT/Capital (210+ 30) (294+ 25)
Employed (ROCE) Employed x 100% /(1250) x 100% /(1450 X 100%
240/1250 x 100% 319/1450 x 100%
19.2% 22%
iii. Net Profit Net Profit/ Sales x 210/5800 x 100% 294/6670 x 100%
100%
3.62% 4.40%

iv. Earnings Per Share Profit After ₦135/200 ₦194/200

(EPS) Tax/No of Shares
Issued
₦0.675 ₦0.970
v. Dividend Per Share( DPS) Dividend /No of ₦45/200 ₦45/200
Shares Issued
₦0.225 ₦0.225

108
i. Working 2014 2015
Average equity 800 +900 900 +1,050
2 2
= 850 = 975
ii. Average capital employed = 1,000 + 1,500 1,500 + 1,400
2 2
= 1,250 = 1,450
 r
n.m

 1    1 
 m
(b) FVIFA = k  
 r 
 m 
 
  0.06  2 x10 
 1    1
 
= 5,000  
2
 0.06 
 2 
 

 1.0320  1
= 5,000  
 0.03 

1.806  1
= 5,000 
 0.03 

 0.806 
= 5,000 
 0.03 

= 5,000 x 26.97

= N134-,350

c) Methods of reducing agency problem include:

i. Devising a remuneration package for executive directors and senior

managers that gives them incentive to act in the best interest of the
shareholders.

ii. Constituting an effective board of a large number of independent or

non-executive directors. These directors should be able to act in the
best interest of the shareholders.

109
 iii. Independent or non-executive directors should be empowered to take
decisions where there is a conflict of interest between executive
directors and the best interest of the company. For example, non-
executive directors should be responsible for fixing the remuneration
packages for executive directors and other senior managers.

EXAMINER‟S REPORT

The question tests candidates understanding of financial ratios, time value of

money and agency conflicts.

About 90% of the candidates attempted the question but performance was below
average. 50% of the candidates that attempted the question did not have a good
knowledge of its requirements.

For improved performance in future examination, candidates are advised to use

ICAN Study Text and Pathfinder as guide.

MARKING GUIDE Marks Marks

i. Stating and inserting correct variables in the formula
2 x ¼ mark ½
Correct answer 2 x ½ mark 1
ii. Stating and inserting correct variables in the formula
2 x ¼ mark ½
Correct answer 2 x ½ mark 1

iii. Stating and inserting correct variables in the formula

2 x ½ mark 1
Correct answer 2 x ½ mark 1
iv. Stating and inserting correct variables in the formula
2 x ½ mark 1
Correct answer 2 x ½ mark 1
v. Stating and inserting correct variables in the formula
2 x ½ mark 1
Correct answer 2 x ½ mark 1
Workings
Calculation of average equity 2 x ¼ mark ½
Calculation of average capital employed 2 x ¼ mark ½ 10

110
(b) Stating correct formula 1
Inserting correct variables in the formula 2
Correct answer 1 4

(c) 3 methods of reducing agency problem (2 marks each) 6

20

SOLUTION 3
Categories of unemployment

i. Transitional unemployment
This happens when an employee has left one job in order to start another.
The time gap between leaving a job and starting another is transitional
unemployment. For example, a teacher might leave a job at one school in
order to start at another in three months‟ time. During the three months,
unless one of the schools pays him, he is transitionally unemployed.

ii. Frictional unemployment

This is short-term unemployment when individuals are dismissed from their
work or rendered redundant.

iii. Structural unemployment

This arises from a significant change in the structure of the economy which
causes a decline and collapse of industries that used to be major employers.

iv. Technological unemployment

This occurs when technological changes dispense with some categories of
workers.

v. Regional unemployment
This occurs in a particular region of the country. Levels of unemployment can
vary from one region to another, especially when there is low mobility of
labour. For instance where individuals are reluctant to move to other
regions to find work.
vi. Seasonal unemployment
This is unemployment, often within a particular industry, because the
demand by firms for labour is higher at some times of the year than at the
other. For example, the demand for agricultural labour might be seasonal.
vii. Cyclical unemployment
When the national economy is growing, demand for labour increases and
unemployment should fall. When the economic business and finance cycle
go into recession, the demand for labour falls and the rate of unemployment

111
 increases. Governments try to deal with cyclical unemployment by
managing the economy and trying to achieve real economic growth.

(b) Implications of a fall in the value of a nation‟s currency are:

i.Her currency becomes cheaper relative to other currencies.

ii.Exports from the country therefore become relatively cheaper.
iii.Imports from other countries become relatively more expensive.
iv. When exports go up and imports fall, the balance of payments position in
goods and services improves.
v. A very substantial change in foreign currency exchange rates will be
needed to rectify a very large disequilibrium in international payments.

(c) Fiscal policy

Fiscal policy is government policy on taxation, spending and government
borrowing. Government spending is a part of national income, but in order
to spend a government must raise the money in tax, and borrow any excess
of spending over tax revenue.

A government might also try to encourage investment by the private sector.

It could do this by offering special tax incentives or subsidies.

Monetary policy
Monetary policy involves trying to establish monetary conditions that will be
favourable to economic growth. Government is expected to encourage long-
term economic growth by keeping the rate of inflation within limits. The rate
of inflation should be managed through control over interest rates.

Monopoly
Monopoly means supply by a single person or firm. It exists only if there are
no substitutes for the product and the supplier is able to prevent other firms
from entering the market.

Downsizing
Downsizing means a deliberate reduction in the size of a business
organisation. It means that its business activities are conducted by a smaller
number of people. Technological change makes downsizing possible,
because tasks that were previously performed by humans can now be
performed by machine or computer.

112
 De-layering
De-layering means removing one or more levels of management in the
organization structure. It could mean removing middle management layer,
leaving senior managers, front-line managers and supervisors. De-layering is
enhanced by high-quality communications, provided that senior
management can delegate sufficient authority to junior managers, and
expect junior managers to meet their responsibilities.

Outsourcing
Outsourcing means arranging for other business organisations to perform
some tasks, instead of having to employ individuals to do the tasks
internally, as part of the organisation‟s own activities.

EXAMINER‟S REPORT
The question tests candidates understanding of business environment with
emphasis on unemployment, exchange rate policy and other business related
terms.

About 95% of the candidates that sat for the paper attempted the question and
performance was above average.

The commonest pitfall is the inability of the affected candidates to clearly explain
the implication of a fall in the value of national currency. This is a direct
consequence of inadequate preparation for the examination.

For improved performance in future examinations, candidates are advised to use

the ICAN Study Text and the Institute‟s Pathfinder.

MARKING GUIDE Marks Marks

(a) Any 5 categories of unemployment x 2marks 10
(b) Any 4 implications of a fall in the value of a nation‟s currency x 1
4
(c) Brief explanation on each of the 6 business related terms x 1 6 20

SOLUTION 4
a. Characteristics of a perfectly competitive market include:
i. A large number of buyers and sellers, none of whom can dominate the
market.
ii. An undifferentiated and homogenous product so that buyers are
indifferent as to who they buy from.
iii. Perfect information about factors affecting price leading to rational
consumer behaviour.

113
 iv. No barriers to firms entering or leaving the market.
v. Sellers are price takers.

b. Monopolistic competition applies where many sellers produce similar goods

but try to differentiate their products from those of other firms. For example
they might do this using advertising or by changing features of the product.
Each producer can set price and quantity without affecting the marketplace
as a whole.

Features of monopolistic competition include the following:

i. Many producers and consumers
ii. Knowledge is widespread, but not perfect
iii. Products are differentiated by firms to distinguish them from the
products of other firms
iv. Producers have some control over prices of their own product
v. Barriers to entry and exit do exist, but, are low
vi. Brand loyalty exists, making demand less sensitive to price
vii. Firms engage in some form of marketing

c. Reasons for internationalisation of markets and competition can be

summarised as follows:

i. Business entities succeed by gaining competitive advantage in their

markets. One way of achieving competitive advantage is by reducing
costs. Costs can be reduced by economies of scale. Expanding
business operations into the markets of other countries creates a
bigger volume of sales. This provides an opportunity for achieving
economies of scale and lower unit costs.

ii. Markets in many countries are converging and national differences

might be fairly small. When customer needs and demands are
similar in different countries, an entity should be able to sell a fairly
standard product in all of those countries.

iii. By setting up operations in other countries or currency blocs, an

entity can avoid the currency risk of exporting to those countries. By
producing and selling its products within the same country or
currency bloc, there is no risk of variations in the exchange rate. In
contrast, if products are exported from one country to another with a
different currency, the exporter is exposed to the risk of losses from
fluctuations in the exchange rate of the two currencies.

114
 iv. Business entities could use the competitive advantage gained from
their own country to compete successfully in other countries.

v. Business entities often need to adopt a global strategy to compete

effectively against rival entities that are pursuing the same strategy.

vi. In some cases, a company might choose to set up new operations

within an economic trading bloc, to overcome the difficulties in
exporting goods into the bloc due to import control and other
regulations. For example, a Japanese or USA corporation wanting to
sell goods into Europe might set up a subsidiary in the Eurozone in
order to get round the difficulties of exporting from their home
country.

EXAMINER‟S REPORT

The question tests candidates‟ understanding of business environment with special

emphasis on markets and industries.

About 90% of the candidates attempted the question, but performance was below
average. Inadequate preparation appeared to be the major pitfall of the
candidates.

Candidates are advised to prepare adequately for improved performance in future

examinations.

MARKING GUIDE Marks Marks

(a) Any 4 characteristics of a perfectly competitive market x 1 4
(b) (i) Brief explanation of monopolistic competition 2
(ii) Any 6 features of monopolistic competition x 1 6
(c) Any 4 reasons for internationalisation of markets and 8 20
competition x 2

SOLUTION 5
(a) Three commonly-used financial objectives are to maximise:
i. Shareholders‟ wealth
ii. Profitability
iii. Growth in earnings per share.

1. Maximising shareholders‟ wealth weaknesses include:

(a) Absence of time period for setting targets for wealth maximisation

115
 (b) Difficulty in measurement of wealth creation, targets for dividend
payments and share price growth.
(c) Share prices are often affected by general stock market sentiment,
and short-term increases or falls in share prices.
(d) The main financial objective of a company is to maximise
shareholders‟ wealth but there are practical difficulties in selecting a
suitable measurement for growth in shareholders‟ wealth.

2. Weaknesses of using Profit Maximisation as a financial objective include:

(a) Difficulty in determining the period over which profit performance
should be measured.

(b) Emphasis on short-term profits might jeopardize long term

profitability.

(c) Profit maximization in the short term might not accommodate

innovation and business risks that are essential for long term success.

(d) Profit maximization may not be real when share capital is increased.
Total profits might increase due to the larger investment but in
absolute terms, profit per share might fall.

3. Growth in Earnings Per Share (EPS)

Problems with using EPS growth as a financial objective
(a) It might be possible to increase EPS through borrowing and debt
capital. If a company needs more capital to expand its operations, it
can raise the money by borrowing. In this case, EPS may not reflect
operational efficiency.

(b) Tax relief is available on the interest charges, and this reduces the
effective cost of borrowing. Shareholders benefit from any growth in
profits after interest, allowing for tax relief on the interest, and EPS
increases.

(c) Higher financial gearing (the ratio of debt capital to total capital) can
expose shareholders to greater financial risk. As a consequence of
higher gearing, the share price might fall even when EPS increases.

b) Mathematical logic – Mathematical logic is integral to most of the other

operational techniques. It is used to reflect the relationships between the
various components, variables and parameters within something that is
being modeled. The logic is constructed so as to include an „objective

116
 function‟ with which different solutions can be evaluated and constraints
that restrict feasible values are tested.

Game theory – This involves studying mathematical models of conflict and

cooperation to help make strategic decisions. Rules are specified which
represent the various choices of action available and help determine what
the potential and likely outcomes of various courses of action will be. A
number of different game theory styles exist including:

Zero-sum games – this is where one person‟s gain is another‟s loss –

frequently used by military strategists.

Many-person‟ (or non-zero-sum) games – these are used to study economic

behaviour where the objective is that, for the greater good, it pays for parties
to cooperate – e.g. in a bargaining situation.

Mathematical optimization – In broad terms, mathematical optimization is a

technique used in management science, mathematics and computer science
to select the optimal solution from a set of available alternatives. The
solution is derived by either maximizing (e.g. profit) or minimizing (e.g.
cost) a real function by systematically selecting input values from within a
feasible range.

EXAMINER‟S REPORT
The question tests candidates understanding of corporate financial objective.

About 70% of the candidates attempted the question but performance was below
average.

For improved performance in future examinations, candidates are advised to make

use of the ICAN Study Text and Pathfinder as guide.

MARKING GUIDE Marks Marks

(a) State the 3 correct financial objectives 3 x 1 mark 3
For stating and briefly explaining:
i. Wealth maximisation objective 4
ii. Maximising profit 4
iii. Growth in EPS 3 14

(b) Stating briefly the 3 features x 2marks 6

20

117
SOLUTION 6

Effective communication skills are essential to any manager or professional

accountant in the twenty-first century.

(a) Methods of communication

1. Face-to-face discussion
2. Discussion by telephone
3. Video conferencing
4. E-mail
5. Web sites
6. Fax messages
7. Formal speeches or lectures
8. Public address systems
9. Notices on a notice board
10. Communication in electronic form
11. Communication in written form, such as reports, letters, notes
(memoranda), journals and magazines
12. Signs and symbols
13. Social media (WhatsApp, linkedin, Twitter, Instagram, SMS, Skype,
Facebook, etc.)

Benefits of using email include:

1. An audit trail of messages is automatically retained (and can be for
long periods). This can be valuable in disputes or for checking the
thread of a conversation or client‟s order.
2. The sending and receiving of email is virtually instantaneous. This
enables managers to communicate with colleagues and companies to
communicate with clients or suppliers incredibly quickly.
3. Recipients can access emails anywhere and anytime at their
convenience.
4. It could be used to reach many recipients simultaneously and cheaply
5. Easy to use and organize daily correspondence.
6. Low cost.
7. Environmentally friendly
8. It is a relatively secure means of communication.

(b) Advantages of video conferencing

1. It is the next best option when face-to-face meeting is impossible

2. It is a cost-effective solution where a live conversation is needed and

non-verbal (i.e. visual) information is an important component of the
conversation but a face-to face meeting is not possible.

3. Saves travel costs.

118
4. It facilitates productivity across dispersed workforces and teams –
video conferencing helps ensure delegates capture the up to 80
percentage of communication consisting of non-verbal visual cues.

5. It enables individuals in distant locations to participate in meetings at

short notice.

6. It makes available technology such as VoIP in conjunction with

desktop video conferencing to enable low-cost face-to-face business
meetings without leaving the desk.

7. It assists the facilitation of telecommuting (home working), enabling

businesses to embrace diversity of workforce and flexible working.
This helps improve work-life balance, particularly with the reduction
in lengthy commutes.

8. It facilitates hiring and retention of top talents by extending the

geographical scope of the early recruitment phase.
9. Competitive advantage:
- Improved sharing of knowledge
- Faster and more informed decisions that reduce time to market
for new products and services
- Improved relationships with suppliers and customers
- Good public relations through promoting video conferencing as
proof of environmental initiatives
10. Video messages and information can be recorded for reference
purposes.

Disadvantages of video conferencing

1. Eye contact: Camera positioning and interaction are highly important

yet frequently overlooked. Video conferencing can often give the
incorrect impression that the remote participant is avoiding eye
contact when in fact they are not.

2. Appearance consciousness: This describes the psychological problem

where delegates change their behaviour or feel uncomfortable
because they are on camera. The problem may well be exacerbated if
the session is recorded. There has been some research performed that
suggests that communication is in fact impaired by the addition of
camera.

119
 3. Technology: The video conference experience is entirely reliant on
stable technology and communications links with large bandwidth.
Unexpected variations in signal quality or technology issues can
destroy the video conference unexpectedly.

4. Limited non-commercial take-up: Mass adoption and use of video

conferencing in non-commercial environments remains relatively low
due to the perceived complexity of systems, lack of common
technology standards, highly variable bandwidth and quality of
service in different countries and relative expense of commercial
systems.

5. Anxiety: The stress and anxiety present in some participants due to

appearing on camera can have a negative impact on their health and
social wellbeing.

6. Problem of different time zones.

7. Insecurity – It could be hacked into, thus leading to non-

confidentiality of discussions.

EXAMINER‟S REPORT
The question tests candidates‟ understanding of communication in business.

About 90% of the candidates attempted the question and performance was above
average. About 50% of them failed to provide solution from business
communication‟s perspective.

Candidates are advised to make use of the ICAN Study Text and Pathfinder for
improved performance in future examinations.

MARKING GUIDE Marks Marks

(a) i. Any 5 methods of communication x 1 mark 5
ii. Any 5 benefits of using email x 1 mark 5

(b) Any 5 advantages of video conferencing x 1 mark 5

Any 5 disadvantages of video conferencing x 1 mark 5 20

120
 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FOUNDATION LEVEL EXAMINATION - MAY 2018

BUSINESS LAW

Time Allowed: 3¼ hours (including 15 minutes reading time)

SECTION A: MULTIPLE - CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER 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. A written Constitution is
A. Flexible
B. Rigid
C. Changeable
D. Amenable
E. Discretionary

2. Courts of coordinate jurisdiction are courts of

A. Equal status
B. Unequal powers
C. Customary courts
D. International courts
E. Court of first instance

3. Which court has original jurisdiction in company matters?

A. State High Court
B. National Industrial Court
C. Federal High Court
D. Magistrate Court
E. Supreme Court

4. Partnership is the relationship which subsists between persons carrying on

business in common with a view to
A. Assisting other partners
B. Making and sharing profit
C. Ensuring accuracy
D. Establishing good business
E. Deceiving the public

121
5. The representative of a shareholder during the meeting of a company is a/an
A. Member
B. Promoter
C. Proxy
D. Accountant
E. Lawyer

6. A company that is unable to pay its debts is

A. Fluid
B. Floating
C. Bankrupt
D. Insolvent
E. Distressed

7. The body of general rules backed by sanctions, which governs the behaviour
of people in a country or state is known as
A. Ethics
B. Law
C. Ethical Codes
D. Contract
E. Trust

8. The Offence of taking someone‟s goods without his consent, coupled with the
intention to permanently deprive the owner of such goods is called
A. Trespass
B. Battery
C. Fraud
D. Stealing
E. False Pretence

9. The limit of cash payment or acceptance by a body corporate outside a

financial institution under the Money Laundering (Prohibition) Act is
A. N1,000,000.00
B. N2,000,000.00
C. N5,000,000.00
D. N7,500,000.00
E. N10,000,000.00

10. An electronic means that indicates that a person adopts the contents of an
electronic message is
A. E-signature
B. Computer signature
C. Rubber Stamp
D. Clone
E. Scan

122
11. A contract may be valid without consideration if it
A. Has exclusion term
B. Has warranty
C. Is by deed
D. Is implied
E. Is made express

12. The agency relationship created when a person, by his conduct, led a third
party to believe that someone is his agent, is agency by
A. Intuition
B. Estoppel
C. Necessity
D. Cohabitation
E. Marriage

13. The duties of parties in tort are fixed by

A. Law
B. The parties
C. Contract
D. The Executive
E. Governor

14. Property in unascertained goods passes when the goods are

A. Produced
B. Ascertained
C. In the warehouse
D. Packaged
E. In transit

15. The party who has the option to purchase goods in a Hire Purchase Agreement
is the
A. Hirer
B. Hiree
C. Owner
D. Insurance company
E. Bailee

16. The instruction given by the drawer to the drawee to stop the payment of a
cheque is
A. Countermand
B. Injunction
C. Memo
D. Order
E. Signal

123
17. The party that accepts the offer in a general insurance contract is known as
A. Insurer
B. Insured
C. Agent
D. Broker
E. Intermediary

18. The period of time during which an employer retains the right to confirm or
not to confirm the appointment of the employee is known as the period of
A. Protection
B. Redundancy
C. Overtime
D. Probation
E. Judicial Intention

19. The maker of a will is known as

A. Testator
B. Magistrate
C. Executor
D. Judge
E. Personal Representative

20. A Company may acquire its own shares in the following circumstances EXCEPT
to
A. Eliminate fractional shares
B. Satisfy the claim of a dissenting shareholder
C. Ensure that the company‟s share price does not fall on the stock exchange
D. Comply with a court order
E. Settle or compromise a debt or claim asserted by or against the Company

SECTION B: OPEN - ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF SIX

QUESTIONS IN THIS SECTION

QUESTION 1

a. The sources of Nigerian law are diverse, but all laws are interpreted by the
courts.

Required:
(i) State the THREE types of Received English Law; (3 Marks)

(ii) State the parties to criminal proceedings and civil proceedings (3 Marks)

124
b. A contract may possess all the elements of a valid agreement and still be
unenforceable if such a contract is induced by a vitiating factor like
misrepresentation.

Required:
i. What is misrepresentation in contract? (2 Marks)
ii. State TWO types of misrepresentation. (2 Marks)

c. Kofi bought a mobile phone from Adjua. Kofi later discovered that the phone
was not functioning. Advise Kofi based on the following:

i. When he was contemplating buying the phone, Adjua said it was in a

perfect working condition, knowing this was untrue;

ii. Adjua told Kofi that the mobile phone was in a perfect working condition,
basing this comment on the users‟ manual in the packet of the mobile
phone;

iii. Adjua is a GSM engineer but still told Kofi, who was relying on his expert
advice, that the phone was in a perfect condition. (6 Marks)

d. There are THREE conditions under which agency of necessity may arise.

Required:
State TWO of the conditions (4 Marks)
(Total 20 Marks)

QUESTION 2

a. The shares of a Public Company are freely transferable.

Required:
State FOUR reasons for which a company may refuse to register a share
transfer. (4 Marks)

b. Ade and Bola are partners in a firm consisting of ten other partners. Ade solely
manages the business of the firm while Bola is interested only in the profits of
the business. In the course of managing the business of the firm, Ade made a
payment of N10,000.00 for electricity and also incurred expenses on hotel bills
while representing the firm in Tema, Ghana. Ade, who is now overwhelmed by
the running of the firm, intends to introduce a friend into the business as a
partner. In addition, Ade wants the business of the firm to be changed in order
to attract more profit.

125
 Required:
i. What type of partners are Ade and Bola? Give reasons for your answer.
(3 Mark)
ii. Advise Ade on the money he paid for the electricity, the hotel bills as well
as the plan to introduce a new partner. (4 Marks)

iii. What must be done to change the business of the firm? (3 Marks)

c. State the implication of the following in a contract of insurance:

i. An applicant gives a proposal form to an insurance agent to complete for
him. (2 Marks)

ii. The insurer gives the proposal form to the applicant to complete;
(2 Marks)
iii. The applicant completes and submits the proposal form to the insurer.
(2 Marks)
(Total 20 Marks)

QUESTION 3

a. There are various tests of determining if a company is insolvent.

Required:
List and explain briefly THREE of these tests specified by the Companies and
Allied Matters Act (CAMA 1990). (6 Marks)

b. Company indebtedness could be by way of debentures.

Required:
State THREE types of debentures. (3 Marks)

c. Adex Plc employed „A‟ as a Company Secretary. „A‟ hired luxury cars from
Bee Enterprises, giving the impression that they were for the use of Adex Plc,
but he used the cars for his own purpose. Bee Enterprises has sued Adex Plc.

Required:
i. Advise Adex Plc. (5 Marks)

ii. Assuming that the Board of Directors of Adex Plc intends to remove
„A‟ as the Company Secretary, state THREE matters which the notice of
removal must contain. (3 Marks)

d. By S.401 of CAMA, the legal way to terminate the life of a company is by

winding up.

126
 Required:
State THREE ways by which a company may be wound up. (3 Marks)
(Total 20 Marks)

QUESTION 4

a. Beny Limited was incorporated six months ago. The company is in real
estate business. While preparing for incorporation, Ben and Nyom, who are
now shareholders of the company, bought prime landed properties on behalf
of the proposed company. They owe the vendors N100 million as the
balance of the purchase price. The vendors are demanding for payment.

Required:
i. Advise Ben and Nyom on their status in the transaction; (4 Marks)

ii. Advise Beny Limited on the liability for the sum of N100 million.
(8 Marks)

b. An accountant may be an expert witness in a computer fraud case.

Required:
State TWO matters on which an accountant must satisfy the court in such a
case. (4 Marks)

c. State FOUR courts of coordinate jurisdiction (4 Marks)

(Total 20 Marks)

QUESTION 5

a. A bill of exchange must conform with the requirements of the law (the Bills of
Exchange Act 1990) before it could be valid.

Required:
Comment on the validity of the following Bills of Exchange:
i. Please pay Kwame the sum of N1,000,000.00; (2 Marks)
ii. Pay James N5,000.00, provided the receipt form at the foot
hereof is duly signed; (2 Marks)
iii. Pay Jossy N10,000.00 ten days after the death of his father. (2 Marks)

b. An unpaid seller under a contract of sale of goods has two classes of rights,
namely: rights against the goods and rights against the buyer.

127
 Required:
State THREE rights of an unpaid seller over the goods. (6 Marks)

c. As a general rule, all persons of full age may sue or be sued in tort.

Required:
State FOUR exceptions to the above mentioned general rule. (4 Marks)

d. James, a Nigerian who is resident in U.S.A, intends to transfer a sum of

100,000 dollars to Nigeria for investment.

Required:
Advise James on the steps to be taken to avoid breaching the provisions of the
Money Laundering (Prohibition) Act of 2011. (4 Marks)
(Total 20 Marks)

QUESTION 6

a. The beneficiaries under a Trust have certain rights in a situation where the
trustee does not administer the trust diligently.

Required:
State FOUR rights of a beneficiary against abuse of powers of a trustee.
(6 Marks)

b. One of the ways by which a contract of employment could be terminated is

by dismissal of the employee.

Required:
(i) Differentiate between dismissal and interdiction. (4 Marks)

(ii) State FOUR reasons for the dismissal of an employee.

(4 Marks)

c. The owner of the goods in a contract of hire purchase has some rights
against a third party who has acquired no good title to the goods under the
agreement.

Required:

State THREE rights of the owner against a third party that has acquired no
good title to the goods under a hire purchase contract. (6 Marks)
(Total 20 Marks)

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SOLUTIONS - SECTION A

1. B

2. A

3. C

4. B

5. C

6. D

7. B

8. D

9. E

10. A

11. C

12. B

13. A

14. B

15. A

16. A

17. A

18. D

19. A

20. C

EXAMINER‟S REPORT
SECTION A: MULTIPLE CHOICE QUESTIONS
The questions have a good spread over of the syllabus. All candidates attempted
them and their performance was good.

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SECTION B: OPEN –ENDED QUESTIONS
SOLUTION 1

a. i The THREE types of Received English Law are:

 The Common Law of England;

 Statutes of General Application; and
 Doctrines of Equity
ii. The parties to criminal proceedings are the State and the
Defendant/Accused. The parties to civil proceedings are the Plaintiff
and the Defendant.

b. i A misrepresentation is an untrue statement made by one of the

parties to a contract, which induced the party to whom it is made to
enter into the agreement.

ii. There are three types of misrepresentation namely:

 Fraudulent Misrepresentation;
 Innocent Misrepresentation; and
 Negligent Misrepresentation.

c. i. The question relates to the type of misrepresentation in the statement

Adjua made to Kofi that the mobile phone is in a perfect condition
while he knew that this was untrue. Since Adjua made the statement
with the knowledge of its falsity, it is a fraudulent misrepresentation.
Therefore Kofi may ask for rescission of the contract.

ii. The statement by Adjua that the mobile phone was in a perfect
condition, based on the literature contained in the packet of the
phone, is an innocent misrepresentation; This is so because Adjua did
not know that the phone was not in good working condiditon.

iii. Adjua, an engineer, offered professional advice to Kofi. He was under

a duty to give an expert advice that would not cause a loss to Kofi.
Since Adjua‟s statement turned out to be untrue, Adjua is liable for
negligent misrepresentation. (2 Marks)

d. Agency of necessity arises in emergency situations in which it is obligatory to

prevent irreparable loss to the principal. The conditions are:

i. It must be impossible to communicate with the owner of the goods to get

his instructions;

ii. There must be real or imminent commercial necessity; and

iii. The agent must act in the best interest of the Principal.

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EXAMINER‟S REPORT

The question is on types of Received English Law; parties to Civil Criminal

proceedings; misrepresentation; and types as well as agency of necessity.

80% of the candidates attempted the question, but about 60% passed.

Marking Guide Marks Total

a. i. State three types of English Law 3
ii. State the parties to criminal proceedings and civil
proceedings 3 6
b. i. Define misrepresentation 2
ii. State two types of misrepresentation 2 4

c. i. Legal issue involved in fraudulent misrepresentation 2

ii. Adjua‟s statement in negligent misrepresentation 2
iii. Adjua is liable for negligent misrepresentation 2 6

d. State two conditions for agency of necessity 4

Total 20

SOLUTION 2

a. A company may refuse to register a share transfer where:

i. the shares are not fully paid-up;

ii. the company disapproves of the transfer;
iii. the company has a lien on the shares; or
iv. a proper share transfer instrument has not been delivered to the
company.

b. i. Ade is a general/active partner. A general partner is that partner that

is involved in the day to day management of the business as Ade.
Bola is a dormant/sleeping partner. A dormant partner is interested
only in the profits of the business. He does not participate in the
management of the business as in the case of Bola.

ii. The question relates to the right and duties of partners to one another.
Ade should be indemnified by the other partners for the money he
paid for both electricity and the hotel bills he incurred in Tema,
Ghana. This is so because he made the payments in the ordinary and

131
 proper conduct of the business of the firm. In addition, the payments
are necessary for the preservation of the business of the firm.

On the plan to introduce a new partner by Ade, the position of the law
is that no person may be introduced as a partner without the consent
of all existing partners. Therefore, before Ade introduces a new
partner, all the partners in the firm must give their consent.

iii. On the desire of Ade to change the business of the firm, the position of
the law is that no change may be made in the nature of the
partnership business without the consent of all existing partners. This
being so, the business of the firm could be changed only if Bola and
the other ten partners give their consent.

C i. Where an applicant gives a proposal form to an insurance agent to

complete on his behalf, the insurance agent is deemed in law to be
the agent of the applicant.

ii. Where the insurer gives the proposal form to the applicant to
complete, the insurer is deemed in law to make an invitation to treat.

iii. Where the applicant completes and submits the proposal form to the
insurer, the applicant is deemed to have made an offer for insurance
contract to the insurer.

EXAMINER‟S REPORT
The question covers areas for which a company may refuse share transfer; types of
partners; liability for partner debts; change of partnership business; and formation
of insurance contract.

60% of the candidates attempted the question and about 60% of them passed.

S/No. Marking Guide Marks Total

a. State four reasons for refusal of transfer of shares 4

b. i. Ade is general partner involved in the firm‟s management 11/2

Bola is a dormant/sleeping partner sharing in profits only 11/2 3
ii. Ade shall be indemnified for the firm‟s expenses 2
All partners must consent to admission of new partners 2 4

Iii All partners must consent to change in the firm‟s business 3

c. i. Insurance agent is agent of the applicant 2

ii. Insurance proposal form is invitation to treat 2
iii. Applicant is offeror to the insurer 2 6
Total 20

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SOLUTION 3

a. The tests for insolvency of a company are:

i. Inability to pay its debt exceeding N2,000:00 within three weeks after
a demand for payment has been made;

ii. The issuance by a court of a certified court process in respect of a

judgment debt;

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 types of debentures are:

i. Perpetual Debenture;
ii. Convertible Debenture;
iii. Secured Debenture;
iv. Naked Debenture; and
v. Redeemable Debenture.

c. i. The position of the law is that a Company Secretary has ostensible

authority to bind the company in all matters of administration.

In this case, Ade who is the Company Secretary of Adex Plc has
ostensible or apparent authority to enter into a contract and the contract
will be binding on the company.

Therefore, by hiring cars from Bee Enterprises and giving the impression
that the cars were for the use of Adex Plc, Adex Plc is liable to Bee
Enterprises for the cost of the hire. See: Panorama Development
(Guildford) Ltd v Fidelis Furnishing Fabrics Ltd.

ii. The matters which the notice to remove ‟A‟ as the Company Secretary of
Adex Plc. must contain are:

 That the board intends to remove „A‟ as the Company Secretary;

 The grounds on which it intends to remove „A‟ as the Company
Secretary;
 That „A‟ as Company Secretary has at least 7 working days to make
his defence; and
 That „A‟, as Company Secretary, has an option to resign his office
within a period of 7 working days.

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d. A Company may be wound up in any of the following ways:

 By the Federal High Court;

 Voluntarily by the Company via a resolution; and
 Subject to the supervision of the Court

EXAMINER‟S REPORT
The question tests candidates‟ understanding of corporate insolvency; types of
debentures; ostensible authority of a company secretary; removal of company
secretary; and types of winding up of a company.
75% of the candidates attempted the question of which about 65% passed.

Marking Guide Marks Total

(a) State and explain three tests of company insolvency 6
(b) State three types of debenture 3
(c)i. Legal issue involved is company secretary‟s ostensible or 4
apparent authority
Advice: Bees Enterprises will succeed in suit 1 5
ii. State three matters on notice to remove company secretary 3
(d) State three ways to wind up a company 3
Total 20

SOLUTION 4

a. i. Ben and Nyom were promoters. This is because they undertook the
formation of Beny Limited “with reference to a given project and set it
going” by taking the necessary steps to buy landed properties for it to
facilitate its business of real estate - S.61, Companies and Allied
Matters Act.

ii. Beny Limited will be liable for the balance of the purchase price of
N100 million if it ratifies the purchase contract which Ben and Nyom
entered into on its behalf prior to its formation.

However, prior to ratification by the company, Ben and Nyom who

acted on behalf of the company shall be liable to pay the money and
be entitled to the benefits of the property.

b. As an expert witness in a computer fraud case, an accountant must satisfy the

court that:

i. He is an expert on the subject matter;

ii. The document sought to be tendered was generated in the ordinary

course of the business, that is, the issue in the case; and

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 iii. The document is either the original or the certified true copy of the
computer generated printout.

c. Four courts of coordinate jurisdiction are:

i. Federal High Court;

ii. High Court of a State or High Court of the Federal Capital Territory;
iii. Sharia Court of Appeal;
ii. Customary Court of Appeal; and
iii. The National Industrial Court

EXAMINER‟S REPORT
The question covers promoters and liability for pre-incorporation contract;
accountants‟ satisfaction of court in computer fraud cases and courts of coordinate
jurisdiction.
70% of the candidates attempted the question of which only 30% passed.

Candidates‟ commonest pitfall was lack of knowledge of the law on computer fraud
cases.

Marking Guide Marks Total

(a) i. Ben and Nyom were promoters of the company 4
ii. Beny Limited will be liable for the debt of N100million if it
ratifies the pre-incorporation contract
4
Prior to ratification by the company, Ben and Nyom will
be liable to pay the debt 4 8
(b) State two matters an Accountant must satisfy as an expert
witness in court 4
(c) State four courts of coordinate jurisdiction 4
Total 20

SOLUTION 5

c. i. One of the requirements of a valid bill is that the instruction to pay

must be couched in an imperative tone. It should not be a request but
a command.

The instruction to pay Kwame is valid notwithstanding the word

„please‟, which is a word of courtesy. The instruction is a command.

ii. The instruction to pay in a valid bill should not be conditional. In this
instance, since instruction to pay James is based on a condition that
James should sign a receipt, the bill is invalid.

135
 iii. A valid bill should set a definite time for payment or a determinable
future time.

In this question, the time for payment is indeterminable because the

time Jossy‟s father will die is indeterminable.

Therefore, this is not a valid bill.

b. An unpaid seller has the following rights against the goods:

i. Right of Lien: A seller‟s right of lien is a right in equity to withhold

goods until the price is paid. This right exists only when the seller has
actual possession of the goods either as principal or as agent. This
right can be exercised when the goods are sold without any
stipulation as to credit.

ii. Right of Withholding Delivery: A seller may withhold delivery of the

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

iii. Stoppage of goods in transit: An unpaid seller has the right to stop
goods in transitu before they are actually received by the buyer.
(6 Marks)

c. The exceptions to the general rule that all persons of full age can sue and be
sued in tort are:

i. The President or Governor of a State cannot be sued in their private

capacity whilst in office;

ii. Judges have judicial immunity for acts done in their judicial capacities;

iii. Corporations – companies can sue and be sued in their corporate names
and can be held vicariously liable;

iv. Ambassadors and High Commissioners;

v. Husband and wife or master/servant relationship: There is presumed

vicarious liability and they are not expected to sue each other; and

vi. Insane persons or persons with mental disability.

d. The money Laundering (Prohibition) Act 2011 allows the transfer of up to

10,000 dollars without declaration. Since James intends to transfer a sum of
10,000 dollars, to Nigeria from the United States, James must transfer the
money through a financial institution who must make a report in writing to
the Central Bank of Nigeria and Securities and Exchange Commission.

136
EXAMINER‟S REPORT
The question covers tests for validity of Bills of Exchange, the right of an unpaid
seller of goods; liability for torts and exemption thereto; and procedures for transfer
of foreign currency under Money Laundering (Prohibition) Act.
About 55% of the candidates attempted the question and passed rate was 40%.
Candidates missed the law on transfer of money under Money Laundering
(Prohibition) Act. They are advised to study ICAN Study Text.

Marking Guide Marks Total

(a)i Valid bill must be an instruction or command 1
Kwame‟s request is a command and thus valid, notwithstanding
the word „please‟ 1 2
ii. Conditional instruction to pay James is invalid 1
iii. Valid bill must be time-bound 1 2
Instruction to pay Jossy is invalid because it is not time bound 2
(b) State three rights of unpaid seller (2 marks each) 6
(c) State four exceptions to persons that may sue or be sued in tort 4
(d) Legal issue is limit to transfer of funds under Money
Laundering (Prohibition) Act; and 1
Notice to regulatory bodies for approval to transfer funds 3 4
Total 20

SOLUTION 6

a. The rights of the beneficiary against the abuse of power of a trustee are the
rights

 of action for accounts of money had and received.

 to compel tracing of trust property.
 to apply for an order of injunction in situations where there is evidence
that a trustee is about to become bankrupt or insolvent.
 of personal action where trust property has been fraudulently
transferred from the trust.

b. i. A contract of employment can be terminated by dismissal in a

situation where the employee commits a serious and grave offence.
Dismissal is the removal of an employee without formalities by the
employer.

Interdiction, on the other hand, is the suspension of an employee

pending the determination of the allegation against him. If at the end
of the matter, the employee is found not culpable, he will be
reinstated.

137
 ii. Reasons for an employee‟s dismissal are:

 Act or conduct likely to bring the employer into disrepute;

 Where the servant‟s practices or conduct expose the master to
loss of public confidence;
 Gross immorality;
 Absenteeism without leave or permission, which amounts to an
abandonment of duties; and
 Gross misconduct, which may include insubordination, habitual
drunkenness, gross negligence, willful disobedience of lawful
orders and so on.

c. The owner of the goods in a contract of hire purchase has the following
rights against the third party who has no good title to the goods under
the hire purchase agreement:

i. Recovery of the goods through peaceful means or by an action

for detinue i.e. a demand for its return and the subsequent
refusal to do so by the third party;

ii. Recovery of the goods or a right to sue for conversion or

damages;

iii. Damages for conversion of the goods where a third party has
interfered with the owner or the hirer‟s possession or use of the
goods; and

iv. An action for negligence against the third party and

consequent recovery of damages.

EXAMINER‟S REPORT

The question covers the remedies of beneficiaries against trustees for abuse of
powers, distinctions between dismissal and interdiction, reasons for dismissal of an
employee; and the rights of an owner against third parties without title to goods in
hire purchase transactions.

About 50% of the candidates attempted the question, but only 30% of them passed.

The candidates did not have sufficient knowledge of Trusteeship and Hire
Purchase. They are advised to study ICAN Study Text.

Marking Guide Marks Total

(a) State four rights against abuse of power by Trustee (11/2
marks each) 6
(b)i. Dismissal is removal of employee by employer from
office for grievous offence without formalities 2

138
 ii. Interdiction is temporary suspension of employee
by employer for pending issue 2
4
iii. State four reasons for employee dismissal 4

(c) State three rights of owner against third party with

defective title under Hire Purchase (2 marks each) 6
Total 20

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