Series: NOV 2013

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  • 6 Marks

CR – Nov 2014 – L3 – SB – Q2c – Revenue Recognition (IFRS 15)

Assess revenue recognition change for NIXAQ sales under IFRS 15 and calculate total revenue for the year.

Maidogo Limited sells NIXAQ, a product manufactured by it, from several retail outlets. In previous years, the company has undertaken responsibility for fitting the product in customers’ premises. Customers pay for the product at the time they are ordered. The average length of time it takes from ordering to its fitting is 14 days. In previous years, Maidogo Limited had not recognised a sale in its books until the product had been successfully fitted because the rectification costs of any fitting error would be expensive.
With effect from 1 April, 2013, Maidogo Limited changed its method of trading by sub-contracting the fitting to approved contractors. Under this policy, the sub-contractors are paid by Maidogo Limited, and they (the sub-contractors) are liable for any errors made in the fitting. Consequently, Maidogo Limited is proposing to recognise sales when customers order and pay for the goods rather than when they have been fitted. Details of the relevant sales figures are:

Sales Figures Amount (N’000)
Sales made in retail outlets for the year to 31 March 2014 69,000
Sales value of NIXAQ fitted in the 14 days to 14 April 2013 3,600
Sales value of NIXAQ fitted in the 14 days to 14 April 2014 4,800

Note: The sales value of NIXAQ in the 14 days to 14 April 2013 are not included in the annual sales figure of N69million, but those for 14 April 2014 are included.

Required:
Discuss whether or not the above represents a change of accounting policy, and calculate the amount that you would include in the revenue for NIXAQ in the year to 31 March 2014. (6 Marks)

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  • 7 Marks

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

Mr. Ojoowuro, the director of a grocery store, has noticed that the tax charge for his company is N15million on profits before tax of N105million. This is an effective rate of 14.3%. Another company, Irin Plc, has an income tax charge of N30million on profit before tax of N90million. This is an effective rate of tax of 33.3%, yet both companies state that the rate of income tax applicable to them is 25%. Mr. Ojoowuro has also noticed that in the statements of cash flows, each company has paid the same amount of tax of N24million.

Required:
Advise Mr. Ojoowuro on the possible reasons why the income tax charge in the financial statements as a percentage of the profit before tax may not be the same as the applicable income tax rate and why the tax paid in the statement of cash flows may not be the same as the tax charge in the statement of profit or loss and other comprehensive income. (7 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q5 – Review of Subsequent Events and Going Concern Assumptions

Outline audit procedures to identify material subsequent events and explain the purpose and importance of subsequent events review.

You have just concluded the audit of Roico Limited for the year ended 31 December, 2012. During the review of the working paper file, the partner in charge discovered that no information is available on activities after year-end. The partner instructed the team leader to carry out a review of the company’s activities after year-end. The team leader was not comfortable with the instruction and wants to know why it is necessary to examine accounting information relating to the next accounting period.

You are required to:

(a) Enumerate the audit procedures which would be carried out in order to identify any material subsequent events. (10 Marks)

(b) Discuss the purpose and importance of subsequent events review. (5 Marks)

(Total: 15 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q4 – Audit of IT Systems and Data Analytics

Discuss factors influencing the choice of audit testing methods in a computer environment and propose solutions to address the loss of audit trail.

The availability of computer-assisted audit techniques should be considered by the auditor when planning the nature, extent, and timing of tests in an audit. The auditor must determine his testing strategies which will depend on his choice of either using a manual testing method or computer-assisted method.

You are required to:

(a) Explain FIVE factors that will determine the auditor’s choice of method of testing in the planning of an audit in a computer environment. (10 Marks)

(b) Identify FIVE solutions to loss of audit trail. (5 Marks)

(Total: 15 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q3 – Audit of Specialized Industries

Identify seven key audit concerns in the extractive industry, focusing on labor issues, community impact, and compliance with regulations.

XYL Limited has been granted a license to operate in the extractive industry in the middle belt of the country, where there is an abundant mineral resource called Topaz. This mineral is in great demand in the manufacturing industries of Western Europe.

Due to the need for heavy equipment requiring intensive capital outlay, indigenous companies could not invest in the sector. Moreover, the technical expertise required in mining this product is not locally available.

The company was not only granted the license but also granted a pioneer status. The local community where operations take place supply the necessary labor, both skilled and unskilled. After a year, the workers’ union found out that they were paid far less than what the company is paying in similar operations in nearby countries. As a result of labor union activities, many workers were retrenched, and the company started making use of locals who had just completed secondary school education. Union activities were proscribed.

Being an extractive industry, the local people were affected as they could no longer carry out their economic activities as before.

Your firm has just been appointed as auditors of XYL Limited after three years of operation.

You are required to:

Explain SEVEN areas of concern that would be of interest to you as auditor and provide reasons for their importance. (15 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q2 – Audit Planning and Strategy

Outline reasons for audit planning and describe procedures for planning the audit of an existing client.

Planning an audit involves establishing the overall audit strategy for the engagement and development of an audit plan.

You are required to:

(a) Enumerate SEVEN reasons for audit planning. (7 Marks)

(b) Explain EIGHT audit procedures you would consider in planning the audit of an existing client. (8 Marks)

(Total: 15 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q1 – Ethical Issues in Auditing

Evaluate whether to comply with a former executive’s request for audit services while addressing confidentiality in auditor-client relationships.

Your firm acts as the auditors and advisers to Naija Seven Limited, and to its four directors. The company is owned 50% by Praise Caro, 25% by his wife Madame, and 10% by James Patrick. Braima is the Chief Executive, and Julius is the Finance Director. Julius’ sister, Mabel Mama, recently resigned from the executive board following a disagreement with Praise. Mabel Mama formed her own company, Nigeri Heaven, in competition with Naija Seven.

Currently, Mabel is negotiating with her former co-executives on the profit-related remuneration due to her and the sale of her 15% holding of shares in Naija Seven to one or all of them.

Mabel Mama has contacted you to find out Praise Caro’s current remuneration package since he refused to disclose it to her. She has also requested that your firm should continue to act as her personal adviser, financial adviser, and auditor to Nigeri Heaven.

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q19 – Ethical Issues in Auditing

Identify the term for codified moral rules and regulations guiding professional behavior.

The codified rules and regulations which are mainly based on moral duties and obligations on how professionals should carry out their duties and how to behave in the society are known as……………….

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q18 – Public Sector Audits

Identify the body responsible for reviewing the Auditor General's report for the Federation.

The report of the Auditor General for the Federation is reviewed by…………which has the power to invite any person indicted for public hearing.

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q17 – Environmental and Sustainability Audits

Define the audit conducted on a company's societal relationships.

An audit which is carried out on a company in respect of its relationship with shareholders, employees, customers, the community in which it operates, and the public at large is known as……………………..

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  • 1 Marks

BL – Nov 2013 – L1 – SA – Q4 – Law of Contract

Identifies the term used when an original offer is rejected.

The rejection of an original offer is called

A. Conditional offer
B. Conditional acceptance
C. Lack of consideration
D. Counter offer
E. Communication offer

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  • 1 Marks

BL – Nov 2013 – L1 – SA – Q3 – Law of Tort

Identifies the appropriate remedy for a tort or civil wrong.

A remedy for a tort or civil wrong is

A. Imprisonment
B. Punishment
C. Damages
D. Court fine
E. Court penalty

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  • 1 Marks

BL – Nov 2013 – L1 – SA – Q2 – The Nigerian Legal System

Identifies the term for a higher court's binding decision on a lower court.

The decision of a higher court which is binding on a lower court is called

A. Obiter dictum
B. The res
C. Res sua
D. Stare decisis
E. Judicial Lapse

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  • 1 Marks

BL – Nov 2013 – L1 – SA – Q1 – Sources of Nigerian Law

Identifies a type of received English law applicable in Nigeria.

Which of the following is a received English law?

A. Delegated legislation
B. The 1999 Constitution
C. Common law
D. International law
E. Customary law

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  • 15 Marks

FA – Nov 2013 – L1 – SB – Q6 – Accounting Concepts

Recording royalty and short-working transactions in the landlord's books.

Fatai leased his quarry site to EML Limited to mine granite at a dead rent of N2,000,000 per annum. The royalty payable per metric tonne was agreed at N100. Short-workings could be recovered in the first four years of the lease only, while irrecoverable short-workings are regarded as a loss.

The output of the granite for the first five years was as follows:

Year Output (Metric Tonnes)
2008 12,000
2009 15,000
2010 22,000
2011 26,000
2012 30,000

You are required to:
Record the above transactions in the landlord’s books for the first five years of the contract.
(15 Marks)

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  • 15 Marks

FA – Nov 2013 – L1 – SB – Q5 – Partnership Accounts

Preparation of journal entries for share issue, forfeiture, and reissue transactions.

Mosafejo Plc issued 200,000 Ordinary Shares of N1.00 each at N1.40 per share, payable as follows:

(i) 35 kobo on application
(ii) 65 kobo on allotment (including premium)
(iii) 40 kobo on first and final call

All the monies were received on due dates except for 20,000 shares not paid on first call. The holders of these shares failed to pay up, and after some reminders, the shares were forfeited. The shares were re-issued at 75 kobo per share, and all the monies received.

You are required to:
(a) Draw up journal entries to record the above transactions.
(11 Marks)

(b) The Share Premium Account may be used in certain circumstances. List any TWO circumstances in which the Share Premium Account may be used.
(4 Marks)

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  • 15 Marks

FA – Nov 2013 – L1 – SB – Q3 – Financial Statements Preparation

Preparation of a statement of profit or loss for Emeka's business.

Emeka produces and distributes “Zobo” and has provided you with the following information for the year ended 31 December 2012:

  • Office rent and rates: N681,000
  • Inventories at 1 January 2012:
    • Raw materials: N6,375,000
    • Work-in-progress: N3,750,000
    • Finished goods: N4,500,000
  • Manufacturing wages: N14,100,000
  • Revenue: N42,000,000
  • Carriage on raw materials: N210,000
  • General expenses: N3,375,000
  • Carriage on sales: N375,000
  • Discount allowed: N300,000
  • Discount received: N420,000
  • Depreciation of factory machinery: N675,000
  • Purchase of raw materials: N22,500,000
  • Factory overhead expenses: N6,000,000
  • Selling and distribution cost: N6,750,000
  • Office salaries: N3,975,000
  • Royalty: N1,500,000

Additional information:

  • Inventories at 31 December 2012:
    • Raw materials: N4,875,000
    • Work-in-progress: N5,235,000
    • Finished goods: N6,000,000

You are required to:
Prepare the statement of profit or loss for the year ended 31 December 2012.

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  • 7 Marks

FA – Nov 2013 – L1 – SB – Q2b – Accounting Concepts

Explanation of payroll fields and formulae with examples.

Payroll accounting packages process employees’ data and produce the net pay. In view of this, payroll fields and payroll formulae are very important in arriving at the net pay.

Explain the terms “payroll field” and “payroll formulae” and give any THREE examples in each case.

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  • 8 Marks

FA – Nov 2013 – L1 – SB – Q2a – Accounting Concepts

Explanation of the menu system and listing initial menu options in accounting packages.

Micro-computer accounting packages are used by personnel who are not computer programmers or system analysts. For this reason, the packages operate on a “menu system.”

(i) Explain the term “menu system.”
(2 Marks)

(ii) In order of preference, list the typical initial menu options in an accounting package to open and process fresh data in a new file.
(6 Marks)

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