Series: MAY 2019

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CSME – May 2019 – L2 – Q7 – Corporate Culture and Strategy

Advise management trainees on the role of culture in organizations and analyze stakeholder theory with underpinning considerations.

a) In an attempt to establish the link between culture and ethics as well as between culture and social responsibility, advise a set of management trainees on:
i. The role of culture in an organization or company. (2 Marks)
ii. Outline any FOUR of the SIX inter-related elements of culture suggested by Johnson and Scholes in their idea of the cultural context of ethics. (8 Marks)

b) Since business entities operate within society, the professional accountant is required to know the theories on the responsibilities of a business entity towards the society in which it operates.
Analyse the stakeholder theory of corporate governance and advise on any TWO considerations underpinning this theory. (5 Marks)

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CSME – May 2019 – L2 – Q6 – Corporate Governance

Advise on the importance of transparency and disclosure in corporate governance and explain the principles for a new board member.

The need for transparency and disclosure in financial markets is recognised in codes and statements of principles of corporate governance.

a) Advise the Board of a company on the importance of ‘Transparency and Disclosure’ in corporate governance. (5 Marks)

b) Present the principles of disclosure and communication of information in Corporate Governance in a lucid manner that will be comprehensible to a new Board member. (10 Marks)

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CSME – May 2019 – L2 – Q5 – Corporate Strategy Formulation

Explain diversification strategy and advise Shacks Limited on factors favoring concentric diversification.

Shacks Limited is a company involved in the production of radio cassettes and photographic films. In the past two decades, the company had the greatest share of the market for these products. However, technological advancements resulting in the development of DVDs and digital photographs have greatly eroded the competitiveness of the company. To reposition Shacks Limited and make it more competitive, the management is considering concentric diversification as the strategy to pursue.

(a) Explain the term ‘diversification strategy’. (5 Marks)

(b) From the given scenario, advise the management of Shacks Limited on the key factors that indicate preference for concentric diversification strategy. (10 Marks)

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CSME – May 2019 – L2 – Q4 – Ethics in Business

Advise on the nature of a corporate code of ethics, reasons for developing it, and provisions for employees and customers.

Drewal and Taiwo jointly established a plastic company after a long period of economic recession. The Board of Directors is in the process of drawing out the corporate code of ethics for the company. Advise it on:
a) The nature of a corporate code of ethics. (2 Marks)
b) THREE basic reasons for developing a company’s code of ethics. (6 Marks)
c) Any FIVE general provisions that a corporate code of ethics should specify. (5 Marks)
d) FOUR provisions or statements the corporate code of ethics should have in respect of employees and any THREE in respect of customers. (7 Marks)

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CSME – May 2019 – L2 – Q3b – Corporate Social Responsibility (CSR)

Draft CSR implementation steps and highlight the importance of sustainable development to society.

i) Draft a recommendation on the steps to be taken by a company in the implementation of a Corporate Social Responsibility (CSR) policy. (12 Marks)
ii) Present ‘Sustainable Development’ in a way that highlights its importance to society. (3 Marks)

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CSME – May 2019 – L2 – Q3a – Risk Management and Corporate Strategy

Distinguish five types of risk that a Risk Manager is expected to oversee.

Distinguish FIVE (5) types of risk that a Risk Manager is expected to oversee.

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CSME – May 2019 – L2 – Q2 – Risk Management and Corporate Strategy

Discuss the elements of a risk management system, Board committee functions in risk management, and six categories of business risks from the Turnbull Report.

The Code of Corporate Governance in Nigeria states that “the Board of Directors may establish a Risk Management Committee to review the adequacy and effectiveness of risk management and controls at least annually and the Board has responsibility to report on the effectiveness of the controls to shareholders.”

a) In line with the requirements above, discuss the elements of a risk management system. (8 Marks)

b)
(i) Advise an executive director on the functions of the Board Committee in relation to enterprise risk management. (6 Marks)
(ii) Extract from the Turnbull Report, the six (6) categories of risk common to business. (6 Marks)

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CSME – May 2019 – L2 – Q1 – Environmental Analysis

Prepare a business environment and competitive analysis for UBC Plc's intended investment in GSM phone manufacturing using SWOT, PESTEL, Porter’s Five Forces, and Kant’s categorical imperative.

a. You have just been contracted by UBC Plc to prepare a business plan on the company’s intended investment in the manufacture of GSM phones in the country. The following is a summary of the brief given to you and your own research:

  • UBC Plc is a multinational conglomerate involved in the manufacture and distribution of computer hardware accessories, networking hardware and allied products. With experience spanning four decades in the industry, the company’s products enjoy a lion’s share of the market. As part of its diversification strategy aimed at sustaining its competitive advantage, the company intends to start the production of GSM phones, targeting the mass market in the country.
  • The company plans to control at least 40% of the low-end GSM phone market in the country in the next five years.
  • UBC Plc possesses the requisite human resources and physical facilities necessary for the successful takeoff and growth of the new venture. The company also intends to leverage its extensive distribution network for its IT products covering major cities within the West African sub-region to distribute its new GSM phones.
  • The company also has modern equipment which can easily be converted into the production of GSM phones at little cost without significantly affecting the current production levels of other products. When this is done, the equipment will be able to produce more than 5 million GSM phones per annum.
  • While the company intends to expand its production capacity radically within the first few years of manufacturing GSM phones, it is still struggling to cope with the country’s incessant electric power failure which has made the company rely almost exclusively on the use of generators to power its equipment. This constitutes the bulk of its overhead costs.
  • The firm has signed a Memorandum of Understanding with a group of reputable firms abroad, which guarantees a steady supply of all required components and inputs.
  • The current value of the annual GSM phone demand in the country is estimated at N520 billion. Estimated demand growth rate is put at 5%. There is currently no local producer, as all of the GSM phones in the market are imported. However, there is currently a large number of local firms that act as distributors to foreign producers.
  • Except for regulations aimed at ensuring that only high-quality products are manufactured, there are currently no legal restrictions on local production of GSM phones. Furthermore, to encourage manufacturing, the government offers tax holidays to all manufacturers in the first five years of operation.
  • The estimated cost per unit of GSM phones designed for the mass market in the country is put at N8,000 while the current average price stands at N10,000.

Required:
a.
(i) A business environment analysis using SWOT and PESTEL analyses. (10 Marks)
(ii) A competitive analysis using the Porter’s Five Forces Model. (15 Marks)

b. Advise on Kant’s categorical imperative. (5 Marks)

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PSAF – MAY 2019 – L2 – Q7 – Performance Measurement in the Public Sector

Compare NPV and IRR methods, state decision rules, and apply NPV to evaluate two investment projects for selection.

a. Distinguish between net present value (NPV) and internal rate of return (IRR) and state the decision rule under both criteria. (8 Marks)

b. Two projects A and B have initial capital investment of N900,000 each. The cash inflows of the two projects are as follows:

Required:
i. As a financial analyst, calculate the net present value (NPV) of the two projects given a cost of capital of 12%. (6 Marks)
ii. Based on the results obtained in (i), which of the projects should be chosen? (1 Mark)

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PSAF – MAY 2019 – L2 – Q5 – Performance Measurement in the Public Sector

Explain cost-benefit analysis, its evaluation methods, and justify its preference as a public project appraisal technique.

The cost-benefit analysis (CBA) has been described as the most popular technique for investment project appraisal in the public sector, especially in the developing world.

Required:

a. Describe the term cost-benefit analysis (CBA). (5 Marks)

b. Identify and explain the two methods usually adopted in the evaluation of projects under CBA. (4 Marks)

c. Justify the preference for CBA as a public project appraisal technique. (6 Marks)

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PM – May 2019 – L2 – Q2 – Divisional Performance Measurement

Discuss the benefits of EVA and calculate it for Tees Nigeria Ltd based on provided financial data.

Peter Drucker opined that “until a business returns a profit that is greater than its cost of capital, it operates at a loss.” Therefore, experts have challenged accounting profit as a good measure of business value increase and proposed economic value added (EVA) as a better measure.

Tees Nigeria Limited has presented the following financial data for the year ended 31 December 2018:

Income Statement 2018:

Item ₦000
Profit before interest and tax 75,000
Interest cost (9,000)
Profit before tax 66,000
Tax at 30% (19,800)
Profit after tax 46,200
Dividends paid (30,000)
Retained profit 16,200

Statement of Financial Position 2018:

Item ₦000
Non-current assets 305,000
Net current assets 190,000
Total assets 495,000
Shareholders’ funds 395,000
Long-term debt 100,000
Capital employed 495,000

Notes:
(i) Capital employed at the beginning of the year was ₦420 million.
(ii) The company had non-capitalised leased assets of ₦24 million.
(iii) The estimated cost of equity was 10%, and the cost of debt was 7%.
(iv) The company’s target capital structure is 60% equity and 40% debt.
(v) Other non-cash expenses were ₦16 million.
(vi) Depreciation is equal to economic depreciation.

Required:
a. Discuss the perceived benefits of using EVA to measure business performance. (10 Marks)
b. Calculate the real economic profit of Tees Nigeria Limited using EVA. (10 Marks)

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PM – May 2019 – L2 – Q1 – Standard Costing and Variance Analysis

Analyze variances, reconcile budgeted and actual profit, and evaluate pricing strategy success for KK Plc.

KK Plc. buys small tablet computers which it customizes for the Nigerian market and then resells to electronics retailers. Although a detailed variance analysis is carried out each month, the CEO John, T, has become concerned that no one has a clear responsibility for taking action in response to this analysis or for using it to carry out an ex-post analysis of the outcome of important decisions.

The following is an extract from last month’s budget:

Model A B C
Selling price/unit (N) 1,000 1,250 1,500
Variable cost/unit (N) 400 500 600
Sales (units) 25,000 40,000 15,000

The budgeted fixed costs were N12,500,000 for the month, which were not dependent on the mix or quantities of products sold. When the budget was being prepared, it was estimated that the total size of the market (including sales by the company and the competitors) would be 400,000 units.

Shortly after the beginning of the month, the marketing director, Okon Nelson, decided that a change of pricing strategy was necessary in response to the recessionary economic conditions. The price of Model A was reduced by 10%, and the prices of Models B and C were each reduced by 20%. The company was partly successful in passing on the impact of these price reductions to its suppliers, and as a consequence, the variable cost per unit for all three models was reduced by 5%. Actual fixed costs were 5% higher than budgeted because of the marketing costs associated with publishing the price reductions.

As a result of the recessionary conditions, the actual total market size was just 200,000 units. The actual quantities sold by the company were as follows:

Actual quantities sold by the company were as follows:

Model Sales (units)
A 14,800
B 29,500
C 11,700

Required:
a. Present a comprehensive analysis of variances, reconciling the budgeted and actual profit for last month in as much detail as possible from the information provided. (25 Marks)
b. Evaluate the financial success (or otherwise) of the decision to change the pricing strategy and assess whether the difference between the budgeted and actual performance was attributable mainly to luck or to factors within the company’s control. (5 Marks)

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TAX – May 2019 – L2 – Q7b – Tax Administration and Enforcement

Identify the types of information disclosed in a tax clearance certificate.

Identify four types of information that are expected to be disclosed in a tax clearance certificate.

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TAX – May 2019 – L2 – Q7a – Introduction to Taxation

Explain key tax terminologies to help Mr. Adele understand business-related taxes.

Mr. Adele has just retired from the public service and is trying to venture into business. He is, however, concerned about the taxes that may affect his new business. As the tax consultant to Mr. Adele, he wants you to explain some terminologies to enable him to have a better understanding of them.

Required:

Explain the following:

(i) Proportional tax and progressive tax (2 Marks)
(ii) Direct tax and indirect tax (2 Marks)
(iii) Statute laws and case laws (2 Marks)
(iv) Franked investment income (3 Marks)
(v) Taxes collectible by local governments (4 Marks)

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TAX – May 2019 – L2 – Q6 – Companies Income Tax (CIT)

Compute total profit and tax liabilities, describe zero-rated VAT items, and discuss penalties for non-registration for VAT.

Duru Cobbler Limited has been in the business of shoe manufacturing for many years. Information contained in the company’s statement of profit or loss for the year ended November 30, 2018, is as follows:

Details Amount (N)
Revenue 18,546,000
Other income:
– Rental income (gross) 240,000
– Profit on sale of property, plant, and equipment 120,000
– Interest on bank deposits (net) 234,000
Total Other Income 594,000
Total Revenue 19,140,000
Less:
Staff salaries and wages 6,180,300
Finance cost 1,144,000
General administration expenses 10,585,190
Impairment loss 420,000
Depreciation and amortization 1,690,000
Total Expenses 20,019,490
Loss before tax (879,490)
Income tax expense
Deferred tax provision (64,380)
Loss after tax (943,870)

Additional notes provided by the accountant:

  1. Finance costs include bank charges and interest on overdrafts.
  2. General administration expenses include:
    • Bad debts of N655,000 from bulk sales of shoes to the managing director’s relations.
    • Value added tax of N985,000 not imposed on some invoices.
  3. Capital allowances for the relevant year amount to N1,294,000.

Required:
(a) Compute the total profit and tax liabilities payable by Duru Cobbler Limited for the relevant year of assessment. (10 Marks)
(b) Describe zero-rated goods and services under the Value Added Tax Act Cap VI LFN 2004 (as amended) and identify two transactions that may fall under this category. (3 Marks)
(c) Identify the penalties for non-registration for VAT. (2 Marks)

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TAX – May 2019 – L2 – Q5 – Withholding Tax (WHT)

Calculate withholding tax credits, determine claim periods, and discuss compliance requirements.

Oloriogun Logistics Limited renders consultancy services to newspaper publishing companies in Nigeria. All the publishers are limited liability companies which deduct appropriate withholding taxes from all consultancies and remit to relevant tax authorities within the time limit specified by the law. Oloriogun Logistics Limited makes up its accounts to December 31 each year and suffered withholding tax on the invoices raised for specific dates as follows:

Date of Remittance Month of Transaction Invoice Number Amount (N)
19/2/2015 Jan. 2015 002/01 350,000
19/3/2015 Feb. 2015 003/02 670,000
20/4/2015 March 2015 004/03 810,000
20/5/2015 April 2015 005/04 305,000
19/6/2015 May 2015 006/05 295,000
20/8/2015 June 2015 008/07 922,000
21/9/2015 Aug. 2015 009/08 270,000
21/10/2015 Sept. 2015 010/09 195,000
20/11/2015 Oct. 2015 011/10 408,000
21/12/2015 Nov. 2015 012/11 495,000
21/01/2016 Dec. 2015 012/12 396,000
21/03/2016 Jan. & Feb. 2016 01/02 1,649,000

Withholding tax credit notes on the above invoices were forwarded to Diederik Logistics Limited, but the accountant was confused as to which year of assessment to claim these tax credits.

Required:
(a) Calculate the withholding tax credits for each of the above invoices. (6 Marks)
(b) Determine the total amount of withholding tax credits to be claimed for each year of assessment. (3 Marks)
(c) What is the due date for remitting withholding tax returns to the tax authority mentioned in (b) above? (1 Mark)
(d) State three transactions exempted from withholding tax in Nigeria. (3 Marks)
(e) List four distinct groups referred to as agents of the government for the collection and remittance of withholding tax in Nigeria. (2 Marks)

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TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

Mr. Bulamoyoh who lived in the Eastern part of Nigeria died testate in January 2015. He had three children: Moses, Peter, and Nana, but left his business with the trustees. Moses, the eldest son, thought he should be fully in charge of his father’s entire business and told the trustees not to bother about the payment of tax. The trustees claimed that they had a statutory obligation to render yearly tax returns for the estate to the relevant tax authority.

You are provided with the following information:
(i) Net profit of the business as adjusted for tax purposes for the year ended June 30, 2018 was N10,270,000.
(ii) Qualifying property, plant, and equipment acquired during the year ended June 30, 2018 were:

  • Motor vehicles: N3,650,000
  • Plant and machinery: N1,250,000
  • Furniture: N220,000
    (iii) The tax written down value of motor vehicles acquired prior to the current year was N345,000, out of which N315,000 is to be allowed as an annual allowance in the current assessment year.
    (iv) Moses, Peter, and Nana are entitled to ¼ each of the net distributable income.
    (v) Fixed annuity paid to a beneficiary was N250,000.
    (vi) Interest on debt repayment by the trustees was N120,000.
    (vii) Trustees’ fixed remuneration was N260,000 per annum.
    (viii) Administration and other expenses by the trustee amounted to N45,000.
    (ix) The trustees, in line with the terms of the trust deed, made the following discretionary payments to the children:
  • Moses: N310,000
  • Peter: N225,000
  • Nana: N460,000

Required:
(a) Explain the following terminologies:
(i) Trust (1 Mark)
(ii) Beneficiary (1 Mark)
(iii) Life tenant (1 Mark)
(b) Compute capital allowances for the relevant year of assessment. (8 Marks)
(c) Compute the income tax payable by the trustees on the income for the relevant year of assessment. (9 Marks)
(Total 20 Marks)

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TAX – May 2019 – L2 – Q3b – Personal Income Tax (PIT)

Identify the tax authority for Mr. Muhammed and calculate his income tax liability based on salary and deductions.

In 2016, Mr. James Muhammed lived at Ojodu Abiodun village, Ogun State and worked for the Federal High Court, Ikeja, Lagos State, on an annual salary of N1,600,000. Mr. Muhammed contributes to an approved pension scheme at the appropriate rate of 8% and also pays a life assurance premium equivalent to 5% of his annual salary.

Required:
(i) Identify the relevant tax authority to which he will be subjected to tax. (2 Marks)
(ii) Compute his personal income tax liability for the relevant assessment year. (6 Marks)

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TAX – May 2019 – L2 – Q3a – The Nigerian Tax System

Explain tax collection responsibilities of different government tiers and define residency rules for tax purposes in Nigeria.

Mr. Chukwudi, your mentee from childhood, has always been guided by your advice. He travelled to the United States to actualise his dreams. He subsequently obtained a degree in accountancy/taxation from a leading University and worked in the United States until November 30, 2016, when he returned to Nigeria. In January 2017, he attended a written interview for a post of a tax manager at the Federal Inland Revenue Service but failed the interview because of his poor knowledge of the Nigerian tax laws. Mr. Chukwudi is likely to be shortlisted for the position of inspector of taxes in his state of origin and has sought your advice on some areas of the Nigerian tax laws.

You are required to provide explanations on the following:

(a) (i) The various tiers of government and their revenue authorities, responsible for the collection of levies and taxes in Nigeria. (3 Marks)
(ii) Four specific taxes and levies collectible by different tiers of government. (6 Marks)
(iii) A resident individual in Nigeria, for a particular year of assessment. (3 Marks)

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TAX – May 2019 – L2 – Q2 – Introduction to Taxation

Explain the objectives of taxation, compare direct and indirect taxes, and outline tax filing requirements for Nigerian companies.

Mr. Ade is a Nigerian who has lived in Europe for a very long time. He is now planning to return to Nigeria to set up a business which he considers to be profitable in a developing country like Nigeria. Despite the appeal of the business in terms of profitability, he is skeptical about the perceived harsh tax environment in the country. He has approached you to explain some fundamental areas of taxation in Nigeria.

You are required to:

(a) Identify five major objectives and purposes of taxation. (5 Marks)
(b) Compare direct and indirect taxes, giving four examples of each. (6 Marks)
(c) In relation to an incorporated company carrying on business in Nigeria, explain to Mr. Ade the:
(i) Documents to be filed as annual returns to the Federal Inland Revenue Services (FIRS). (3 Marks)
(ii) Time limit for filing annual tax returns. (3 Marks)
(iii) Penalties prescribed by law for a company which failed to file its income tax returns on the due date. (3 Marks)

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