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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  • 6 Marks

TAX – Nov 2015 – L2 – Q5a – Withholding Tax (WHT)

This question involves highlighting the features of withholding tax and determining relevant tax authorities.

i. Briefly highlight the main features of Withholding Tax.
ii. State the relevant tax authorities in relation to Withholding Tax in Nigeria.
iii. Enumerate the contents of a Payment Schedule for the remittance of Withholding Tax.

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  • 10 Marks

TAX – Nov 2015 – L2 – Q4c – Personal Income Tax (PIT)

This question requires explaining key terms related to tax residence and nationality under the Personal Income Tax Act (as amended).

Explain the following terms in relation to the First Schedule to the Personal Income Tax Act 2011 (as amended):
i. Resident individual
ii. Non-resident individual
iii. Residence and nationality
iv. Place of residence
v. Principal place of residence

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  • 5 Marks

TAX – Nov 2015 – L2 – Q4b – Personal Income Tax (PIT)

This question requires determining the appropriate tax authority for an individual with multiple places of residence.

Mr. Abass works with the Federal Ministry of Works, Abuja. He lives in a self-contained flat in Gwagwalada and travels every weekend to see his first wife and children in Kaduna. He also visits and stays with his second wife and children in Nyanya, Nassarawa State on Thursdays and Fridays of every week.

Required:
Determine the tax authority to which Mr. Abass would be liable to tax in any year of assessment.

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  • 5 Marks

TAX – Nov 2015 – L2 – Q4a – International Taxation

This question explains the tax treatment of income earned by a non-resident individual who has spent time in Nigeria.

Mr. Alexis Sanchez was employed by Zenon Ltd as Director Commercial, West and Central Africa with effect from 1 March 2011. He entered Nigeria on the date his employment became effective and remained in Nigeria till 25 August 2011. He returned to Nigeria on 15 January 2012, and remained in Nigeria till 31 July 2012.

Required:
Explain the basis for the taxation of income earned by Mr. Alexis Sanchez in Nigeria for the relevant tax years.

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  • 20 Marks

TAX – Nov 2015 – L2 – Q3 – Personal Income Tax (PIT)

This question involves computing the personal income tax liability of an employee for two consecutive years.

Mr. Babangida Muhammed was employed as General Manager by Casio Nigeria Limited, a subsidiary of a United Kingdom-based holding company. He commenced the employment on 1 January 2013. He has provided the following details:

2013 (₦’000) 2014 (₦’000)
Basic salary 5,400 6,000
Rent subsidy 1,800 1,800
Furniture grant 600 600
Entertainment allowance 660 660
Other benefits
– Brand new car (valued at) 3,800,000
– Scholarship for children 500 500

Mr. Babangida Muhammed has approached your firm to assist him in determining his personal income tax liability for the last two years and assist in obtaining a current Tax Clearance Certificate on his behalf from his relevant tax authority. Your firm is also to determine whether he had underpaid his tax for the previous two years and if so, how much additional tax he may be required to pay.

Additional information provided:

Income/Expense Category 2013 (₦’000) 2014 (₦’000)
Gratuity from former employment 240 –
Rental income (Gross) 600 600
Interest on Fixed Deposit 75 90
Life Assurance Premium 100 100
Contribution to NHF (2.5% of Basic Salary) 2.5% 2.5%
Contribution to National Pension Scheme (7.5% of Total Emoluments) 7.5% 7.5%
Repair expenses for property – 45
Maintenance of aged parents 480 –
Personal Income Tax paid 850 960

Required:
a. The Personal Income Tax payable in 2013 and 2014 Years of Assessment.
(16 Marks)
b. The effect of previous payments on the tax payable.
(4 Marks)
(Total: 20 Marks)

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  • 10 Marks

TAX – Nov 2015 – L2 – Q2c – Tax Administration and Enforcement

This question involves advising on the proper procedure to challenge an outrageous tax assessment served by FIRS.

As a Tax Consultant, the Managing Director of your client brought an Assessment Notice served on the company by the Federal Inland Revenue Service complaining that the assessment was outrageous. You observed that the amount assessed was higher than the assessment based on the documents submitted by you.

Required:
State what you would advise your client to do under this circumstance.

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  • 5 Marks

TAX – Nov 2015 – L2 – Q2b – Tax Dispute Resolution

Explaining the procedure for an appeal against the decision of a Tax Appeal Tribunal.

Explain the procedure for an appeal against the decision of a Tax Appeal Tribunal.

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  • 5 Marks

TAX – Nov 2015 – L2 – Q2a – Tax Dispute Resolution

Discussing the required particulars to be included in a Notice of Appeal against an assessment pending before a Tax Appeal Tribunal.

What are the specific particulars to be included in a Notice of Appeal against an assessment pending before a Tax Appeal Tribunal?

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  • 30 Marks

TAX – Nov 2015 – L2 – Q1 – Companies Income Tax (CIT)

Discussing taxation and capital allowance claims of Quickfix Limited for several years of assessment and computation of total profits and tax payable.

Quickfix Limited deals in the sale of Sweetmilk brand of drink. The company commenced business on 1 May 2000. Due to the prohibitive cost of doing business in Nigeria, it decided to cease business on 1 July 2012. The following information was extracted from its records:

Year of Assessment Assessable Profit/(Loss) Capital Allowance Total Profit Tax Paid
2007 (1,921,400) 4,681,450 – –
2008 3,942,000 5,817,000 1,314,000 394,200
2009 9,201,750 4,168,500 3,067,250 920,175
2010 7,581,750 6,633,000 2,527,250 758,175
2011 11,580,750 9,058,000 3,860,250 1,158,075
2012 4,664,375 4,190,500 1,554,790 466,438

The company made a claim for unutilized capital allowances to be carried back. During the period, 1 January to 30 June 2013, the adjusted loss of the company was N1,614,500. Capital Allowance due was N2,561,250.

The tax computations as agreed are as follows:

Required:
a. Compute the revised assessment of Quickfix Limited on cessation basis, taking into account unutilized capital allowances.
b. Determine the tax refundable by the Federal Inland Revenue Service (FIRS) for the relevant years of assessment.

 

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  • 15 Marks

AA – Nov 2015 – L2 – Q7 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Discussing ethical considerations in providing non-audit services to an audit client and fundamental principles of professional ethics.

Ade, Bala, Chris and Co. are the auditors to Victory Ventures Limited, a chemical manufacturing company. The firm has been carrying out statutory audits for this client for several years. Recently, the company asked the firm to carry out tax planning and compliance advisory services and also perform financial reporting valuation services for the company.

Required:
a. Discuss ethical issues the firm will need to take into consideration in accepting to carry out the new assignments for the client. (5 Marks)
b. Describe the FIVE fundamental ethical principles according to ICAN Professional Code of Conduct and Guide for Members and IFAC Code of Ethics. (5 Marks)
c. Describe the differences between rules-based and principles-based approaches to professional ethics. (5 Marks)

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