Series: MAY 2017

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  • 15 Marks

CSME – May 2017 – L2 – SC – Q7 – Corporate Governance

Explain the Nolan principles guiding public life and discuss standards for ethical conduct in the public sector.

Nolan Committee on standards in public life was set up to report on standards of behaviour amongst politicians, civil servants and public bodies. Provide an analysis of Nolan‟s‟ SEVEN Principles of Public Life. (15 Marks)

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  • 15 Marks

CSME – May 2017 – L2 – SC – Q6 – Ethics in Business

Explain agency problems and Tucker's model to guide ethical decisions for accountants.

a. Agency problems and conflicts are common in all organisations.
Required:
Explain the concept of agency problems and discuss FIVE types of agency conflicts that might exist in an organisation. (8 Marks)

b. Tucker‟s Five Question Model can be employed in training new professional accountants in ethics.
Required:
Explain the issues covered by the Tucker‟s Five Question Model. (7 Marks)

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  • 15 Marks

CSME – May 2017 – L2 – SC – Q5 – Risk Management and Corporate Strategy

Show how organizations can address risk management challenges using ISO 31000.

a. Using the ISO 31000 framework, show what an organization might do to address risk management challenges. (9 Marks)

b. Explain THREE main elements of risk management contained in the ISO 31000 framework. (6 Marks)

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  • 20 Marks

CSME – May 2017 – L2 – SB – Q4 – Strategic Management in the Public Sector

Explain organizational growth through Greiner's model and discuss board diversity benefits and limitations.

a. With the aid of an appropriate diagram, explain how organisations and management structures might change as a business grows using Greiner’s growth model. (10 Marks)

b. Explain briefly the concept of board diversity giving THREE examples of categories of diversity. (5 Marks)

c. Explain THREE benefits of the diversity of the board of a large company. (3 Marks)

d. Discuss TWO limitations of board diversity. (2 Marks)

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  • 20 Marks

CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy

Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.

Mallam Danladi is a civil servant who has won a sum of one hundred million Naira in a lottery. Being a very conservative person who is averse to risks, Mallam Danladi is contemplating putting the money in a fixed deposit account at an interest rate of 14% per annum or into treasury bills at an interest rate of 18.5% per annum. These two options are considered to be virtually risk-free. Mr. Madoff, a risk consultant, advised him to invest in the production of shea butter, coconut oil, and black soap, with a promise of 52% profit per annum. In an attempt to convince Mallam Danladi to invest in the production of these items, Mr. Madoff tried to educate him on the nature of risks and how to effectively monitor and control them in ways that will ensure that business remains highly profitable.

Required:

a. Explain briefly the nature of risk in business to Mallam Danladi. (2½ Marks)

b. Discuss FOUR distinct means of controlling business risk. (10 Marks)

c. Explain briefly the purpose of monitoring risks in business. (3 Marks)

d. Discuss THREE ways of monitoring risks in business. (4½ Marks)

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  • 20 Marks

CSME – May 2017 – L2 – SB – Q2 – Corporate Culture and Strategy

Discuss the cultural web and the ethical principles for maintaining client confidentiality.

Johnson and Scholes suggested that there is a cultural web within an organization.

Required:

a. Discuss the idea of the cultural web and its interrelated elements in a way that would assist a new employee to understand this concept in a business organization. (15 Marks)

b. As a professional accountant, explain any TWO ethical principles or requirements you would consider in deciding whether or not to keep a promise to maintain confidentiality with regards to information acquired from a client in the ordinary course of business. (5 Marks)

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  • 30 Marks

CSME – May 2017 – L2 – SA – Q1 – Strategic Planning Process

Develop a business plan for a fast-food franchise and explain the product life cycle with stakeholder analysis.

Gbenga Alimi wants to establish a fast food restaurant in Koko, a state in Naijaland. A well-known global fast-food outfit in Naijaland has agreed to give him a franchise to operate the business in the state. However, the franchisor has requested Gbenga to present a viable business plan for assessment.

Required:

a. Outline the contents of a business plan addressing the proposed franchise’s viability. (20 Marks)

b. Use a graphical representation to educate Gbenga on the four stages of the classical product life cycle. (6 Marks)

c. Within an organizational context, distinguish between:

i. Narrow and wide stakeholders
ii. Active and passive stakeholders

(4 Marks)

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  • 15 Marks

PSAF – May 2017 – L2 – SC – Q7 – Government Expenditure

Identify and explain factors contributing to the rapid growth in Nigeria's government spending.

A number of factors have been identified as inevitably leading to rapid growth in government spending in many countries over time.

Required:

Identify and explain FIVE of these factors as they apply to Nigeria.

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  • 15 Marks

PSAF – May 2017 – L2 – SC – Q6 – Fiscal Policy and Public Finance

Outline and explain the macroeconomic objectives of Nigeria’s federal government.

State and explain FIVE macroeconomic objectives of the Federal Government of Nigeria.

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  • 15 Marks

PSAF – May 2017 – L2 – SC – Q5 – Fiscal Policy and Public Finance

Define external debt and discuss causes and adverse consequences of Nigeria's rising debt levels.

The accumulation of external debt is a common phenomenon in developing countries at the stage of development where external resources are needed to bridge budgetary gap.

Required:

a. Explain what is meant by External Debt. (3 Marks)

b. Discuss the causes and likely adverse consequences of the rising level of Nigeria’s total external debt stock. (12 Marks)

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  • 30 Marks

AA – May 2017 – L2 – SA – Q1 – Audit Evidence

Analysis and identification of unusual features in Abricon Nigeria Ltd.'s profit and loss for audit purposes.

The following is the statement of Profit or Loss and other comprehensive income of ABRICON NIGERIA LIMITED for the year ended December 31, 2016.

ABRICON NIGERIA LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2016

Requirements:

(a) Perform analytical tests on the figures given. (16 Marks)

(b) Identify unusual features. (8 Marks)

(c) Provide possible explanations why some apparently unusual items were not selected in (b) above. (6 Marks)

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  • 15 Marks

PM – May 2017 – L2 – SA – Q7 – Transfer Pricing

Discuss transfer pricing and recommend pricing structure for internal divisions of Adebel Nigeria Limited.

  1. Adebel Nigeria Limited manufactures motorcycles, operating through two divisions: the assembling division (Division A) and the engine division (Division E). Division E supplies engines to both Division A and external customers. The company’s policy requires that Division E prioritize internal sales to Division A over external sales, while Division A is mandated to purchase exclusively from Division E. However, this policy, along with the transfer price set by Division E, is under review.

    Division Details:

    • Division A anticipates a need for 45,000 engines in the coming year, with an external supplier price of N80,000 per engine.
    • Division E can produce up to 70,000 engines per year, with the following budgeted details:
      • Budgeted sales volume: 70,000 units
      • External selling price: N85,000 per engine
      • Variable cost per unit for external sales: N77,000
      • Variable cost per unit for internal sales to Division A: N3,000 less due to distribution and packaging savings.
      • Maximum external demand: 35,000 units per year.

Requirements:

a. Recommend the transfer price(s) for internal sales, considering the conditions. (5 marks)

b. Using calculations, advise the number of engines Division E should supply to Division A to maximize group profits, assuming a flexible policy. (5 marks)

c. Discuss two performance measures suitable for evaluating divisional performance of autonomous divisions operating as investment centers. (5 marks)

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  • 15 Marks

PM – May 2017 – L2 – SA – Q6 – Standard Costing and Variance Analysis

Advise on optimal replacement timing for AL Limited's machine based on cost-benefit analysis.

AL Limited, a manufacturing company based in Aba, produces a popular mortar coloring agent called Hadtone. Hadtone is packaged in five-litre cartons, sold at ₦300 each. Estimated maximum annual demand is 300,000 cartons, justifying one processing machine, replaced every three years though it has a four-year productive life.

  • Machine Details: Initial productive capacity aligns with maximum demand, decreasing by 15,000 units per annum. Maintenance costs in year one are ₦300,000, rising by ₦50,000 each subsequent year. Variable costs per carton (excluding maintenance) are ₦200.
  • Machine Depreciation: Straight-line method. Sale proceeds after one year are ₦8,000,000, reducing by ₦3,000,000 each following year.
  • Machine Cost Increase: Recent machine cost rise to ₦12,000,000 prompts reconsideration of replacement policy to optimize cash flow. Assume all costs/revenues except initial payment occur year-end; initial cost paid at purchase.

Requirements:

a. Calculate replacement frequency based on maximum capacity usage, including supporting calculations. Assume a 10% cost of capital. (12 Marks)

b. Itemize key assumptions made in the calculations. (3 Marks)

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  • 20 Marks

PM – May 2017 – L2 – SA – Q4 – Standard Costing and Variance Analysis

Calculate budgeted profit and perform variance analysis for Dabens Nigeria's job costing system.

  1. Dabens Nigeria Limited’s job costing system includes two direct cost categories: direct materials and direct manufacturing labor. Manufacturing overhead (both variable and fixed) is allocated to products based on standard direct manufacturing labor hours (SDMLH). At the beginning of 2016, Dabens adopted the following standards for manufacturing costs and sales:
    S/N Cost Details Input Cost per Output Unit (N)
    1 Direct Materials 3 kg at N500 1,500
    2 Direct Manufacturing Labor 5 hours at N200 1,000
    3 Manufacturing Overhead: Variable N120 per SDMLH 600
    Manufacturing Overhead: Fixed N160 per SDMLH 800
    4 Unit Manufacturing Cost 3,900
    5 Standard Profit Margin 1,300
    6 Standard Selling Price 5,200

    The denominator level for total manufacturing overhead per month in 2016 is 40,000 direct manufacturing labor hours. Dabens’ flexible budget for January 2016 was based on this denominator level. January records show the following data:

    • Direct materials purchased: 25,000 kg at N520 per kg
    • Direct materials used: 23,100 kg
    • Direct manufacturing labor: 40,100 hours at N190 per hour
    • Total actual manufacturing overhead (fixed and variable): N12,000,000
    • Actual production/sales: 7,800 output units
    • Actual selling price: N5,350

    The proportion of actual variable and fixed overhead costs is consistent with the standard.

    Required:

    a. Calculate the budgeted profit of the company for January 2016.
    (2 Marks)

    b. Calculate the following variances for January 2016:

    • i. Direct material variances
    • ii. Direct manufacturing labor variances
    • iii. Variable manufacturing overhead variances
    • iv. Fixed manufacturing overhead variances
    • v. Sales variances
      (10 Marks)

    c. Prepare a statement reconciling the actual profit with the budgeted profit.
    (8 Marks)

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  • 20 Marks

PM – May 2017 – L2 – SA – Q3 – Cost Management Strategies

Calculate relevant cost for engine production for Tadex and factors influencing component opportunity cost.

  1. Tadex Nigeria Limited is an engineering company specializing in building engines for grinding machines. One of the components for building these engines is sourced from Toka Nigeria Limited, a company in the same group as Tadex Nigeria Limited. Each component is transferred to Tadex, taking into account Toka’s opportunity cost of the component. The variable cost for Toka is N280 per component.

    A prospective customer has approached Tadex to submit a quotation for a contract to build a new engine. This is a new customer for Tadex, but the directors of Tadex are keen on winning this contract, as they believe it may lead to more contracts in the future. As a result, they intend to price the contract using relevant costs.

    The following cost data is provided for the contract:

    (i) Production Director’s Salary: Annual salary equivalent to N15,000 per 8-hour day.

    (ii) Materials for the Contract:

    • Material A: 110 square meters needed, with 200 square meters in stock, bought at N120 per square meter. Resale value: N105 per square meter; Replacement cost: N125 per square meter.
    • Material B: 30 liters needed, must purchase a minimum of 40 liters at N90 per liter, with no future use after the contract.
    • Components from Toka: 60 units at N500 per unit.

    (iii) Direct Labor Hours: 240 hours required; 75 hours available as spare capacity. Additional hours are sourced at overtime cost of N140/hour or temporary staff at N120/hour (10 hours supervision by an existing supervisor at N180/hour).

    (iv) Machine Hours: 25 hours needed, with the machine leased weekly at N6,000 and sufficient spare capacity. Running cost: N70 per hour.

    (v) Fixed Overhead Absorption Rate: N200 per direct labor hour.

Requirements:

a. Calculate the relevant cost of building the new engine and explain why you have included or excluded any costs in your calculations.
(15 marks)

b. Discuss the factors that would be considered by Toka to determine the opportunity cost of the component.
(5 marks)

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  • 20 Marks

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

Sadet Nigeria Limited assembles three types of motorcycles at the same factory: the 50cc Prelude, the 100cc Roadmaster, and the 150cc Roadstar. Sadet has invested in manufacturing technology to reduce labor costs in response to market demands.

Historically, Sadet used direct labor hours to allocate overhead costs. Now, they are considering activity-based costing (ABC).

Motorcycle Data:

Requirements:

a. Calculate the total profit for each of Sadet’s three motorcycle types, using:

  • i. The existing overhead allocation method based on labor hours.
  • ii. Activity-Based Costing (ABC).
    (14 Marks)

b. Write a report for Sadet’s directors as a Management Accountant, evaluating the labor hours versus activity-based costing methods in Sadet’s circumstances.
(6 Marks)

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  • 30 Marks

PM – May 2017 – L2 – SA – Q1 – Working Capital Management

Calculate KPIs for Kardex’s products, perform a PEST analysis, and comment on KPI effectiveness in external conditions.

  1. Kardex Industries Nigeria Limited is a subsidiary of a large manufacturing company based in China (Kardex International). The company manufactures washing machines, table gas cookers, and refrigerators which are being sold by the subsidiary in Nigeria. Demand for the company’s product is growing, especially among the growing middle-class population, until recently when the company started experiencing some hiccups due to the economic recession and stiff competition.
    • The company currently sells two types of washing machines in Nigeria:
      • Wash Up: A basic product comparable to local competitors.
      • Perfect Wash: A premium product similar to Kardex’s offerings in developed countries.
    • The competitive environment in Nigeria is evolving quickly. Apart from Kardex, two other companies offer similar machines in the market. One competitor produces machines similar to “Wash Up” locally with tax incentives, while the other is planning to set up a plant for specialized washing machines akin to Kardex’s “Perfect Wash.”
    • Kardex International’s mission is to be the “industry leader.” The Kardex Board has identified critical success factors (CSFs) for the Nigerian subsidiary:
      • Market leadership.
      • Profit maximization and shareholder wealth within acceptable risk.
      • Brand image maintenance as a top-of-the-range product.
    • The Board suggests using the following KPIs for each product:
      • Total profit, average sales price per unit, contribution per unit, market share, margin of safety, return on capital employed (ROCE), and total quality costs.

Appendix 1
Financial Year Data for Nigerian Subsidiary:

Requirements:

a. Calculate the Key Performance Indicators (KPIs) for Kardex, including:

  • Total Profit
  • Average Sales Price per Unit
  • Contribution per Unit
  • Market Share
  • Margin of Safety
  • Return on Capital Employed (ROCE)
  • Quality Costs (20 Marks)

b. Use a PEST Analysis to identify external environmental issues affecting Kardex and discuss the effectiveness of the KPIs in addressing these issues.

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  • 15 Marks

TAX – May 2017 – L2 – SC – Q7 – Withholding Tax

Explanation of the peculiarities of withholding tax, rates for international transactions, and required particulars for a tax payment schedule.

The recently employed Accounts Officer of Oriade Limited understands that the company must report Withholding Tax information to the Revenue Authority according to the provisions of the law. Being a fresh graduate, he does not know how Withholding Tax is reported to the Revenue Authority.

Required:

a. Explain the peculiarities of Withholding Tax. (3 Marks)

b. Where international transactions are involved:

  • i. State the rate of Withholding Tax. (1 Mark)
  • ii. List the types of income involved. (3 Marks)

c. Specify the currency of payment where the currency of the transaction is not in Naira. (3 Marks)

d. List FIVE particulars contained in the Withholding Tax Payment Schedule. (5 Marks)

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  • 15 Marks

TAX – May 2017 – L2 – SC – Q6 – Companies Income Tax

Compute capital allowances and determine total profits, CIT, and TET for a manufacturing company.

Campbell Limited, located in Arama Town, has been in business since 1994 and manufactures plastic containers. The company’s accounts for the year ended December 31, 2014, showed the following results:

Additional Information:

  1. Unutilised Capital Allowance brought forward: N70,000
  2. Tax Written Down Values of assets purchased in 2011:
    • Motor vehicles: N40,000
    • Furniture and Fittings: N60,000
    • Plant: N70,000
  3. In 2014, the company purchased the following assets:
    • 2 Motor vehicles: N840,000
    • 4 Furniture and Fittings: N160,000
    • 1 Generating set: N300,000

Required:

a. Compute Capital Allowances assuming assets purchased in 2011 have been used for two years. (7 Marks)
b. Compute the Total Profits, Companies Income Tax (CIT), and Tertiary Education Tax (TET) for the relevant year of assessment. (8 Marks)

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  • 15 Marks

TAX – May 2017 – L2 – SC – Q5 – Taxation of Trusts and Estates

Computation of assessable income for trust beneficiaries and net assessable income in the hands of the trustee.

Alhaji Oluwambe is the trustee of a Settlement created by late Chief Jongbo in favor of his four children, grandchildren, and others. He submitted the following information to Okun State Board of Internal Revenue for assessment purposes for the fiscal year ended December 31, 2014:

ii. Each beneficiary is entitled to 1/6 share of 1/3 of the distributable income.
iii. Capital allowance agreed with the tax authority was N7,350,000.

Required:

a. Compute the assessable income in the hands of each beneficiary. (14 Marks)
b. Determine the Net Assessable Income in the hands of the Trustee. (1 Mark)

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