Series: NOV 2015

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  • 15 Marks

CSME – Nov 2015 – L2 – Q7 – Corporate Strategy Formulation

Analyzes reasons for slow growth in DAB phone sales, uses the S-shaped growth curve to evaluate market stages, and suggests sales improvement strategies.

Ade John is a graduate of XYZ University. For his final project work in the Department of
Electronics and Electrical Engineering, he designed a cell-phone that is rugged, cheap,
handy and not sophisticated.
During his national service year, he kept toying with the idea of manufacturing the cellphone. To ascertain that there is a market for the phone, he carried out a series of market surveys among rural farmers, artisans, market women, etc. Each time, he was convinced that a market actually exists for his design. He also made contact with some manufacturers of cell-phone components. He entered
into an agreement with CKT Japan to import cell-phone accessories to enable him
assemble them in Nigeria. DAB phone is the first of its kind in the Nigerian market and
production and assembly commenced in a small room in his uncle‟s house at Ikare.
The first batch of phones manufactured by DAB Company was supplied to cell-phone
vendors in cities on „sale or return‟ basis. To encourage distributors to accept the
phones, a 15% margin was allowed. In addition, independent sales persons (hawkers)
were given between 10 -12% margin to sell the product. In spite of the low price of DAB
phones, demand was disappointing at the end of the first year. Nevertheless, Ade John is
still optimistic about the commercial viability of the phone if only he could develop an
effective strategy to market the DAB phones

Required:
a. Identify and explain TWO reasons for the slow growth of sales of DAB phones. (4 Marks)
b. With the aid of an S-shaped growth curve, evaluate market development of DAB phones. (6 Marks)
c. Recommend the strategies that Ade John can use to improve sales. (5 Marks)

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  • 15 Marks

CSME – Nov 2015 – L2 – Q6 – Corporate Governance

Evaluates how specific corporate governance issues impact the effectiveness of a company's governance.

Explain briefly how the following key issues in corporate governance establish how well or badly a company is governed:

a. The role and responsibilities of the board of directors
b. The composition and balance of the board of directors
c. Financial reporting, narrative reporting, and auditing
d. Directors’ remuneration
e. Risk management and internal control

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  • 15 Marks

CSME – Nov 2015 – L2 – Q5 – Corporate Governance

Outlines key responsibilities and duties of the board in corporate governance, relevant for improving corporate structure and performance.

The owner of ABC Company learned from a conference and a professional magazine that weak corporate governance accounted for recent corporate failures in Nigeria. Many board members were found lacking a clear understanding of board responsibilities and duties.

Required:
The Managing Director will soon address the board and has requested a paper detailing the board’s responsibilities and duties.

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  • 20 Marks

CSME – Nov 2015 – L2 – Q4 – Risk Management and Corporate Strategy

Analyzes strengths and weaknesses of Toyin Trust Insurance Plc pre- and post-2000 ownership changes, and suggests strategies for sustaining the company.

Toyin Trust Insurance Company is one of the duly registered insurance companies in Nigeria. Ten years after it started operations in 1990, the company had become a household name in the market. Its strengths included timely payment of claims and introduction of quality products that captured changing customers’ needs.

At inception, the company was 100% foreign-owned, with five of the seven directors being experienced expatriate insurance practitioners. However, by 2000, over 90% of the equity had been transferred to Nigerian investors. In 2009, following reorganization, many experienced senior managers resigned, and inexperienced staff took over key positions, leading to a decline in service quality and a 40% drop in premium collection.

Required:

a. Analyze the strengths of Toyin Trust Insurance Plc before 2000. (5 Marks)
b. Analyze the strengths and weaknesses of Toyin Trust Insurance Plc after 2000. (5 Marks)
c. Suggest essential strategies to sustain Toyin Trust Insurance Plc. (10 Marks)

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  • 20 Marks

CSME – Nov 2015 – L2 – Q3 – Ethics in Business

Describes the nature of business and professional ethics, Kohlberg’s theory of moral development, and criticisms of the theory.

Kalu, a competent consultant and accountant, works in Bosun and Company Limited. The company realized that almost all of its newly employed entry-level staff are deficient in business and professional ethics. Consequently, the Human Resources Manager recommended to the CEO that a training program on business and professional ethics should be organized. Kalu is nominated as a resource person to speak at the training program.

Required:
a. How should Kalu explain the nature and importance of business ethics and professional ethics? (6 Marks)
b. Advise Kalu on how he should analyze Kohlberg’s theory of moral development in an attempt to explain to the trainee participants how people generally develop a sense of morality both in personal and professional life. (10 Marks)
c. Discuss any TWO of the criticisms of Kohlberg’s theory. (4 Marks)

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  • 20 Marks

CSME – Nov 2015 – L2 – Q2 – Risk Management and Corporate Strategy

Develops a risk management program for theft, diversion, and safety issues; includes risk reduction and financing techniques.

Dolly Homes Plc is a real estate firm based in Abuja. The firm builds residential apartments and office blocks in five states of the federation. The objective of Dolly Homes Plc is to deliver high-quality, aesthetically designed, and professionally built homes/offices to its customers at competitive prices. It employs several skilled and casual workers, construction supervisors, construction engineers, architects, and quantity surveyors.

The company maintains a store at each of its building sites, each manned by a storekeeper and an assistant. Building materials are purchased centrally and delivered to sites per material schedules prepared by the quantity surveyor.

Patronage from middle and high-income brackets has been impressive; however, recently, the company has been receiving complaints about poor quality. The most alarming complaint involved a legal threat for injuries sustained when a kitchen cabinet collapsed in a client’s home.

Management’s investigation revealed theft of materials, diversion, and re-work waste due to poor finishing. There were also job site accidents, leading to employee injuries, lost hours, and increased medical claims.

Management decided to establish a risk management program to address theft, diversion, and health/safety issues.

Required:
a. As an Accountant, develop a risk management program to address Dolly Homes Plc’s problems. (8 Marks)
b. Advise management on techniques to reduce the frequency of risk exposures in the future. (6 Marks)
c. Suggest risk financing techniques to protect the company’s staff from injuries and accidents. (6 Marks)

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  • 5 Marks

CSME – Nov 2015 – L2 – Q1c – Corporate Governance

Discusses the difference between rules-based and principles-based professional ethics in accountancy.

What is the main difference between a rules-based and a principles-based code of professional ethics for accountants?

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  • 15 Marks

CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

There are different methods of managing and controlling risks. Explain and illustrate any THREE of the following approaches to risk management:
i. Risk Diversification
ii. Risk Transfer
iii. Risk Sharing
iv. Risk Hedging (15 Marks)

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  • 10 Marks

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

The finance director of Basket Company is preparing a proposal to present to the board of directors. He believes that the company is much too cautious in its policy of giving credit to customers. At the moment all customers are given 30 days’ credit. He believes that by increasing its exposure to credit risk, and increasing credit terms to 60 days, the company will achieve an increase in annual sales of up to 20%. He also thinks that some improvements in debt collection procedures will reduce the level of bad debts, although some bad debts cannot be avoided. He thinks that the value of sales where there is a default will fall each year from 2% of sales to 1.8% of sales. He proposes that in order to increase annual sales and profits, the company should be willing to increase its risk appetite and accept the risk of higher bad debts.

Required:

  1. Using this example of managing credit risk, explain and illustrate the meaning of:
    i. Exposure to risk
    ii. Risk of losses
    iii. Residual risk
    iv. Risk appetite

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  • 15 Marks

PSAF – Nov 2015 – L2 – Q7 – Public Sector Reforms

Distinguish between basic infrastructure and development projects with examples and identify funding sources and characteristics.

In order to achieve some development objectives, nations place emphasis on priority programmes like the provision of basic infrastructure and development projects, all of which require appropriate funding.

Required:

a. By means of specific relevant examples, distinguish between “basic infrastructure” and “development projects”. (3 Marks)

b. Discuss TWO development objectives which the priority programmes you refer to in (a) above are planned to achieve. (4 Marks)

c. Identify TWO sources of funding for these priority projects stating TWO distinct characteristics of each source identified and TWO factors that facilitate the commercial viability of the projects. (8 Marks)

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q5b – Partnership Accounts

Prepare a statement showing the sharing of profit in a partnership.

Question:
b. Biggy and Smallie were in partnership, sharing profits and losses in the ratio 2:1. They agreed to admit Fanny into the partnership from January 1, 2014. Fanny is to introduce N140,000 out of which N130,000 is to be his fixed capital. He is to receive a commission of N30,000 per annum in addition to a share of profit. The new profit-sharing ratio is 2:2:1 to Biggy, Smallie, and Fanny, respectively. Other provisions of the Partnership Deed are:

i. Debit balance in current accounts at the beginning of the year is to attract 5% interest.
ii. Goodwill is valued at N150,000. Goodwill is not to be retained in the partnership books.
iii. Details of the existing partners’ fixed capital and current accounts for the purpose of the agreement are:

Partner Fixed Capital (N) Current Account (N)
Biggy 360,000 100,000
Smallie 240,000 60,000 (DR)

iv. The draft final accounts for the year ended December 31, 2014, before taking into account Fanny’s commission and interest on partners’ current accounts, revealed a profit of N347,000.
v. The drawings made by the partners are:

Partner Drawings (N)
Biggy 95,000
Smallie 45,000
Fanny 73,900 (including commission)

Required:
Prepare a statement showing the sharing of profit of the partnership for the year ended December 31, 2014.

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  • 2 Marks

FA – Nov 2015 – L1 – SB – Q5a – Elements of Financial Statements

Define an intangible non-current asset and provide an example.

a. Define intangible non-current asset and give one example. (2 Marks)

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  • 20 Marks

FA – Nov 2015 – L1 – SB – Q4 – Financial Statements Preparation

Determine total acquisition cost and prepare journals for share issue transactions.

a. The information below shows the analysis of costs of a newly purchased equipment by JONAK Nig. Ltd.

Description N
Cost of equipment 3,000,000
2% cash discount for payment within 30 days (enjoyed) 60,000
Transport cost 100,000
Hospitality cost for factory workers during installation 25,000
Installation cost 150,000
Repair cost prior to use 65,000
Salaries of operators 125,000

Determine the total acquisition cost of the equipment. (5 Marks)

b. MEMORY Nigeria Limited decided to issue 100,000,000 N1 ordinary shares. The terms of issue are stated below:

  • (i) 30k on application
  • (ii) 45k (including premium) on allotment
  • (iii) 20k to be called one month after allotment
  • (iv) 25k final call made four months later after allotment.

On December 29, applications were received for 120,000,000 shares. On January 1, the shares were allotted so that every applicant received two-thirds of the number of shares applied for. Excess application monies were held against the amount due on allotment. On January 4, the cash due on allotment was received. On February 1, the first call was made and on February 3, cash was received. On May 1, the second call was made and cash was received on May 3.

Required: b. Raise the necessary Journals to record these transactions. (11 Marks) c. State the difference between authorised share capital and called-up share capital (4 Marks)

(Total 20 Marks)

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  • 20 Marks

FA – Nov 2015 – L1 – SB – Q3 – Depreciation Methods and Accounting for Disposals

Calculate depreciation rate and amounts, then post transactions to relevant ledger accounts.

a. On January 1, 2013, Ajanaku Enterprises bought a motor vehicle for N1,850,000 with an estimated life span of four years and a residual value of N50,000.

i. Determine the depreciation rate, using the reducing balance method. (2 Marks)
ii. Using the rate of depreciation derived in (i) above, calculate the amount of depreciation for the years 2013 and 2014 respectively. Also, disclose the carrying amount of the asset at the end of December 31, 2014. (3 Marks)

b. The following transactions were recorded in the books of Lexus Enterprises for the three months ended March 31, 2014.

Date Description
Jan. 1 Commenced business by introducing N250,000 into a bank.
Jan. 5 Bought N50,000 furniture from Adam Enterprises on credit.
Jan. 15 Bought office stationery for N1,000 paying by cheque.
Jan. 28 Bought goods for resale worth N25,000 paying by cheque.
Feb. 2 Paid Adam Enterprises a cheque of N35,000.
Feb. 3 Rent of N30,000 for business premises was paid by cheque.
Mar. 5 Bought goods on credit from Jay Enterprises for N35,000.
Mar. 8 Bought office stationery for N500 paying by cheque.

Required:
i. Post the above transactions in the relevant ledger accounts and balance the accounts. (15 Marks)

(Total 20 Marks)

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  • 20 Marks

FA – Nov 2015 – L1 – SB – Q2 – Bank Reconciliation

Preparing an adjusted cash book and bank reconciliation for a club with discrepancies.

a. Bank Statement is a mirror of any entity’s cash book, and they are expected to have equal balances at any point in time. However, this is not usually the case. Based on the ongoing statement, state five reasons that could cause the bank statement balance to differ from the cash book balance. (5 Marks)

b. The Treasurer of Young Star Social Club (YSSC) did not keep proper records for receipts and payments for the month of December 2014, causing mistrust among members. He has decided to seek your assistance to prepare a bank reconciliation statement before presenting the account to the club members.

The bank statement and the receipts and payments cash book of the club on December 31, 2014, showed a credit balance of N205,000 and N2,078,000, respectively. A comparison of the bank statement with the receipts and payment cash book of the club revealed the following:

i. Cheque drawn but not presented N3,160,000
ii. Amount lodged in the bank but not credited N725,000
iii. Entries in bank statement not recorded in receipts and payments cash book:

  • Standing order for loan refund N35,000
  • Interest received on deposit account N18,000
  • Bank charges N15,000
  • Cheque paid-in but returned with “refer to drawer” N120,000

Required:
i. Prepare an adjusted cash book as at December 31, 2014; (8 Marks)
ii. Prepare the Bank Reconciliation Statement showing the balance on December 31, 2014. (7 Marks)

(Total 20 Marks)

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  • 20 Marks

FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation

Prepare financial statements for a company, including income and balance sheet, with adjustments for accruals and depreciation.

The following balances remained in the books of Lagbaja Plc at December 31, 2014 after determining the gross profit:

Item N’000
Share capital, authorised and issued 200,000
Cash at bank and in hand 500
Inventory at December 31, 2014 61,200
Trade receivables 18,005
Trade payables 15,009
Gross profit at December 31, 2014 128,942
Retained earnings 25,000
Salaries & Wages 28,430
Prepayments 600
Bad debts 500
Accrued expenses 526
Director’s account (credit) 2,500
Finance cost on loan note 600
Sundry expenses 4,100
Rates & insurance 1,520
6% Loan notes 20,000
Lighting & cooling 1,310
Postage, telephone and telegrams 800
Motor vehicle (cost N25 million) 15,000
Office fittings and equipment 42,350
Profit at January 1, 2014 22,300
Land and buildings at cost 239,362

The following additional information is relevant:

  1. Office fittings and equipment are to be depreciated at 15% of cost, and Motor vehicles at 20% of cost.
  2. Provisions are to be made for:
    • Directors’ Fees N6,000,000
    • Audit Fees N2,500,000
  3. The amount of insurance includes a premium of N600,000 paid in September 2014 to cover the company against fire for the period September 1, 2014, to August 31, 2015.
  4. A bill for N548,000 in respect of electricity consumed up to December 31, 2014, has not been posted to the ledger.

Required: a. Prepare the Statement of profit or loss for the year ended December 31, 2014; (10 Marks)
b. Prepare the Statement of financial position as at December 31, 2014. (10 Marks)

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  • 1 Marks

FA – Nov 2015 – L1 – SA – Q20 – Accounting Treatment for Accruals and Prepayments

This question calculates the total rent expense to be charged to the profit or loss statement for the year.

The information below relates to the accounting period ended December 31, 2013.
N
Prepaid rent brought forward: 22,000
Rent paid during the period: 216,000
Accrued rent carried forward: 26,000

In line with the accrual concept, what should be the amount of rent to be charged to the statement of profit or loss in the year ended December 31, 2013?
A. N264,000
B. N242,000
C. N238,000
D. N216,000
E. N48,000

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  • 1 Marks

FA – Nov 2015 – L1 – SA – Q19 – Accounting for Property, Plant, and Equipment (IAS 16)

This question identifies which cost should not be included in the initial measurement of property, plant, and equipment.

Which of the following costs should NOT be included in the initial measurement of property, plant and equipment?
A. Purchase price
B. Site preparation cost
C. Professional fees
D. Installation cost
E. Site administration and general overhead costs

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  • 1 Marks

FA – Nov 2015 – L1 – SA – Q18 – Trial Balance: Usefulness and Limitations

This question identifies which item is NOT expected on the debit column of a trial balance.

Which of the following items is NOT found on the debit column of a trial balance?
A. Capital
B. Motor vehicle
C. Rent
D. Salaries and wages
E. Postage and stationery

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