Series: NOV 2020

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  • 20 Marks

AT- Nov 2022 – L3 – Q4 – Regulatory Environment for Corporate Reporting

Discuss the significance, guiding actions, inconsistencies, compliance areas, and dispute resolution in transfer pricing under Nigeria’s 2018 regulations.

Transfer pricing has become a topical issue in the world of taxation in recent years. This trend is partly driven by the need to prevent fiscal evasion and avoid economic double taxation. Various governments, both in developed and emerging countries, have continued to issue regulations to guide the operations of transfer pricing systems within their jurisdictions.

In Nigeria, the first step toward establishing a legal framework for regulating transfer pricing took place in August 2012, with the enactment of Income Tax (Transfer Pricing) Regulations Number 1, 2012. Due to shortcomings in the implementation of this regulation, it was revoked, and the Income Tax (Transfer Pricing) Regulations 2018 was subsequently enacted.

One critical principle, enshrined in various transfer pricing regulations, that every taxpayer must comply with when dealing with transactions between related entities is the arm’s length principle. This principle has gained significant attention among academics, regulatory institutions, and professionals, with ongoing debate surrounding its application.

Required:

a. Explain the significance of transfer pricing to both the taxpayers and tax authorities. (2 Marks)

b. In complying with the arm’s length principle, discuss two guiding actions which enterprises and multinationals must follow in their intercompany dealings. (3 Marks)

c. Identify and explain four methods multinational companies might use in financial dealings with associated or subsidiary entities that deviate from the arm’s length principle. (6 Marks)

d. In the administration of the Transfer Pricing Regulations 2018, highlight and discuss three fundamental compliance areas for taxpayers and tax practitioners. (6 Marks)

e. Explain the resolution process for disputes that arise between a taxpayer and tax authorities under the Transfer Pricing Regulations 2018. (3 Marks)

(Total: 20 Marks)

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  • 20 Marks

CR – Nov 2017 – L3 – Q3 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Evaluate Funda Plc's accounting policies for specific transactions, recommending adjustments as per IFRS where appropriate.

Funda Plc. is a listed utility service company in Nigeria providing water, electricity, and cable services. The directors prepared draft financial statements for the year ended June 30, 2017, following IFRS guidelines to support a loan application. Employees, owning 5% of ordinary shares, raised concerns about certain accounting policies applied by Funda Plc.

The draft income statement for the year ended June 30, 2017, is as follows:

N’m
Revenue 410.0
Cost of Sales (275.0)
Gross Profit 135.0
Other Operating Costs (65.0)
Profit Before Taxation 70.0

Employee Representatives’ Queries on Accounting Policies:

  1. Sale of Water Filters
    Funda Plc. sold 30 industrial water filters to a steelmaker, offering a 20% discount and granting the steelmaker a put option to repurchase the filters at 35% of the purchase price after six years, despite the filters’ expected ten-year life. Funda Plc. has recognized the entire revenue upfront.
  2. Connection Fees
    A refundable connection fee is charged for electricity connections, to be returned upon customer disconnection. No minimum notice is required, and costs can be deducted from refunds. The fee was fully recognized in the year as revenue.
  3. Activation Fees
    Non-refundable activation fees for digital cable services were fully recognized in revenue.
  4. Deposits for Domestic Electrical Goods
    Customers place a 25% deposit on orders, with the balance payable on delivery. Deposits are retained if orders are canceled but refunded if Funda Plc. fails to deliver. Revenue includes N10 million from deposits, with 90% of orders fulfilled.

Required:
Prepare a report explaining the suitability of Funda Plc.’s accounting policies for each transaction and recommend the appropriate IFRS treatment where necessary.

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  • 6 Marks

BL – Nov 2020 – L1 – SB – Q1d – Company Law

List powers exercised by the Annual General Meeting (AGM) of a company.

One of the two organs of a company is the general meeting of members.

Required:
State FOUR powers of the Annual General Meeting.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q6c – Partnership Law

Assess the legality of different partnership arrangements.

Comment on the legality of the following relationships operating as partnerships:

i. A partnership of 16 persons established for charitable purposes
ii. Adex cooperative society consisting of 500 members
iii. Black and Blue law firm consisting of 31 lawyers
iv. Stone Partnership firm comprising Segun aged 28, Tunde aged 17
v. A partnership of volunteers for the purpose of helping persons displaced by flood.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q6b – Law of Contract

Define express terms, implied terms, conditions, and warranties in a contract.

Contractual agreements usually contain terms that are different in nature and importance.

Required:
Define the following terms:
i. Express terms
ii. Implied terms
iii. Conditions
iv. Warranties

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q6a – The Nigerian Legal System

List tests to determine intent to steal during taking or conversion.

Taking or conversion with intent to defraud is an element of stealing.

Required:
State FIVE tests of determining whether or not an accused has an intention to steal at the time of taking or converting a thing.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q5d – Negotiable Instruments

Explain different cheque crossing types and define negotiable instruments.

Crossing of cheques has legal implications in banking transactions, and a cheque is a type of negotiable instrument.

Required:
i. A cheque instruction to “pay Ronke the sum of N50,000.00” without crossing the face of the cheque with two parallel lines.
ii. “Pay Andrew N100,000” with two parallel lines traversing the face of the cheque.
iii. “Pay Mary N150,000” with two parallel lines with Congo Bank written in between the two parallel lines on the face of the cheque.
iv. “Pay Ngozi N200,000” and by cheque with two parallel lines and the words “account payee only” written in between the two parallel lines.
v. Define negotiable instruments.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q5c – Agency Law

List the duties of an agent in an agency contract.

Parties under a contract of agency have certain rights and duties.

Required:
State FIVE duties of an agent under a contract of agency.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q5b – Employment Law

Define an employment contract and list grounds for dismissal by an employer.

Contracts of employment may be created and brought to an end in different ways.

Required:
i. Explain contract of employment.
ii. State THREE reasons for which an employer could dismiss an employee.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q5a – Alternative Dispute Resolution

Define arbitration and describe an arbitral award.

Arbitration is a type of alternative dispute resolution mechanism.

Required:
Explain arbitration and arbitral award.

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q5b – Performance Measurement in the Public Sector

Explain the steps for conducting Cost Benefit Analysis and Cost Effectiveness Analysis in public sector investment appraisal.

Investment appraisal is a technique aimed at finding out the least possible costs of an investment and the maximum economic benefits, which may accrue from the commitment of resources into it. Cost Benefit Analysis and Cost Effectiveness Analysis are among the techniques used for investment appraisal in the public sector.

Required:
Explain the five steps to be followed in conducting Cost Benefit Analysis and Cost Effectiveness Analysis. (10 Marks)

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q5a – Accounting for Government Assets and Liabilities

Calculate the gain or loss on the disposal of old equipment and explain five IPSAS 17 disclosure requirements.

Odeda Agricultural Corporation, a parastatal under Waso State Ministry of Agriculture, operates its business with plant and equipment that qualifies under IPSAS 17 on property, plant, and equipment. On January 1, 2020, the cost of the corporation’s plant was N100,000,000, and the accumulated depreciation was N40,000,000. On January 2, 2020, the corporation bought new equipment at the cost of N100,000,000. The equipment supplier accepted an old piece of equipment owned by the corporation in part exchange for a value of N2,500,000. The old equipment originally cost N8,000,000 and had accumulated depreciation of N5,500,000.

Required:

i. Calculate the gain or loss on the disposal of the old equipment. (5 Marks)
ii. Explain five disclosure requirements of property, plant, and equipment stated at revalued amount in accordance with IPSAS 17. (5 Marks)

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q4b – Fiscal Policy and Public Finance

Explain five principles that should guide the design of grants for effective fiscal federalism.

The growth of the grant system is an important factor in the development of fiscal federalism. The grant system is concerned not only with the level of grants and the programme areas, which should be supported, but also the form in which the grants are to be given.

You are required to explain five principles that should guide grant design.

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q4a – The Budgeting Process in the Public Sector

Prepare a monthly cash budget for the fishpond from January to March 2020, considering expected sales, purchases, and allocation.

The Chairman of Okoko Local Government set up pond farming to fulfill a campaign promise. However, the Chairman is concerned about the project’s viability and its ability to finance itself due to increasing production costs. The expected cash-in-hand as of January 1, 2020, is N3,300,000.

The following information concerns the budgeted sales and purchases of the fish farm.

Month Sales (N’000) Purchases (N’000)
November 2019 55,000 35,000
December 2019 100,000 55,000
January 2020 114,000 75,000
February 2020 142,000 95,000
March 2020 145,000 80,000

Analysis of records shows that debtors settle according to the following pattern:

  • 70% within the month of sale
  • 30% in the following month

All purchases are on credit. Past experience shows that 80% of the purchase costs are settled in the month of the transaction, and the balance is settled in the subsequent month. Overhead costs amounting to 65% of the purchases of the month are to be paid monthly. Additionally, the Local Government will receive a monthly allocation of N15,000,000.

Required:

Prepare for the Chairman of Okoko Local Government a monthly cash budget for the fish pond for the first quarter (January to March) of 2020. (10 Marks)

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q3b – Public Sector Audit

Discuss five domestic borrowing instruments used by the government to raise capital.

There are various instruments that can be employed for the purpose of raising capital within the domestic economy by government.

Required:
Discuss five of these instruments.

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q3a – The Budgeting Process in the Public Sector

Explain the factors militating against the budgeting system in the public sector.

The budgeting process is a cycle of events which occur sequentially every
year and which results in the approved budgets in ministries and extra ministerial departments.

Required:
Explain five factors militating against the budgeting system in the public sector.

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q2b – Government Expenditure

Identify and explain reasons for the steady rise in public expenditure in Nigeria.

Globally, there has been a steady increase in the level of government expenditure in different areas of activities. In Nigeria, there is a steady growth of expenditure over the years which requires explanation.

Required:
Identify and explain five reasons for the rise in public expenditure in Nigeria.
(10 Marks)

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q2a – Public Sector Audit

Discuss the external auditors' reliance on internal audit functions and reasons for rising public expenditure.

An internal audit is an independent appraisal activity within an organisation for the review of accounting, financial, and other operations with the objective of assisting members of the organisation to discharge their responsibilities effectively. It is a sound policy to establish constructive working relationships with internal audit units to foster the development, promote coordinated coverage, and avoid duplication.

Required:
Explain the five criteria employed by the external auditors to assess the likely effectiveness and relevance of the internal audit functions and five areas where the internal audit functions can be of assistance to the external audit.

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  • 40 Marks

PSAF – Nov 2020 – L2 – Q1 – International Public Sector Accounting Standards (IPSAS)

Discuss IPSAS transition exemptions and prepare financial statements for Oranta State Government using IPSAS accrual.

IPSAS 33, gives a transition relief (exemption) of up to three years within which to develop models for transiting to IPSAS accrual. However, the government of Nigeria adopted accrual IPSAS on revenue from exchange transactions effective January 1, 2016.

Oranta State Government mandated the Accountant-General of the State to implement the IPSAS accrual in the preparation of their financial statements with effect from January 2018 which was complied with accordingly.

For the smooth implementation of IPSAS accrual, the State Executive Council approved the following:

(i) Asset valuation committee to be chaired by the Deputy Governor with the Commissioner of Finance, Commissioner of Budget and Planning, Chairman State Internal Revenue Service, Accountant-General of the State, and Head of Service as members while a Director in the Office of the Secretary to the State Government was appointed as the Secretary.
(ii) The Committee was mandated to value all the State assets and liabilities on or before the implementation of IPSAS accrual.
(iii) The Committee was allowed to engage the services of competent valuers for the job.
(iv) The valuation of the assets and liabilities should be on a continuous basis and any value agreed and approved by the State Executive Council should be brought into the books in the year of valuation.
(v) All assets and liabilities incurred after implementation of IPSAS accrual should be recognized in the year they occurred.

The consolidated trial balance for the year ended December 31, 2017, based on IPSAS cash is as follows:

Extracted consolidated cashbook for the year 2018:

The following information is relevant:
(i) The employees‟ salaries and wages bill for the month of December 2018
amounting to N6.5billion was outstanding at the end of the year.
(ii) The following information was extracted from the unit in charge of
accounting for property, plant and equipment (PPE): 100 sets of HP
computers were received from Koko Computers Limited to assist the State
government to eradicate ghost workers from the payroll- the HP series
P1120, 2016 model. Based on this information, a call was made to three of
their computer suppliers to find out the current price of the HP P1120. Two of
the suppliers quoted N450,000 each, while one quoted N500,500 each.
Based on this information, the fair value of the computers, were taken as
N500,000 each.
(iii) The government during the year received an asset valuation report from the
Asset Valuation Committee that was set up to carry out the valuation of the
old assets and liabilities of the State.
(iv) The following values were recommended and approved by the State
Executive Council respectively:

(v) Pension and gratuity of N15 billion was outstanding at the end of the year
(vi) Some of the accounting policies adopted by the government for depreciation
include the following rates;

(vii) During the year, one of the contractors took the State to court for breach of
contract. The case was still in court as at the end of the year and from all
indications, judgment will eventually be in his favour. The legal adviser
estimated the judgment debt to be N50million.
(viii) Value of office consumables based on inventory sheet as at December 31,
2018 was N550million.
(ix) The following expenses were incurred but not settled as at end of the year.

(x) An extract from the foreign loan amortisation schedule indicates that a total
sum of N32billion comprising principal and interest of N2billion was due
and paid during the year. Also domestic loan of N13billion comprising
principal and interest of N1billion was paid during the year. The interest
payable on domestic and external loans at the end of the year amounted to
N3billion and N5 billion respectively.
(xi) The investment of 10% treasury bills for 360 days was due to mature on
January 1, 2018 and reinvested immediately for another term.
(xii) The revolving loan attracts interest of 4% per annum and it is paid along
with the principal.
Required:
a. In line with the provisions of IPSAS 33, explain how the following revenue
from exchange transactions should be recognised:
i. Aid and grants receivable as at December 31, 2015 (2 Marks)

ii. Debt forgiveness approved on or after January 1, 2016 (2 Marks)
iii. Personal income tax on or after January 1, 2016 (2 Marks)
b. Prepare in vertical form:
i. Statement of financial performance for the year December 31, 2018.
(17 Marks)
ii. Statement of financial position for the year December 31, 2018.
(17 Marks)
(Total 40 Marks)

 

 

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  • 20 Marks

PM – Nov 2020 – L2 – Q6 – Divisional Performance Measurement

Evaluate the performance of Lapez's divisions using ROCE and other performance measures and calculate the NPV of the proposed investment.

Lapez operates a chain of health and fitness clubs, located in state capitals in Nigeria. For easy administration, the clubs are structured into two divisions, the Northern and the Southern divisions. Each division has a General Manager who is responsible for revenue, cost, and investment decisions at their clubs. A bonus is awarded each year to the General Manager that generates the higher return on capital employed (ROCE).

The following summary information shows the results of the divisions for the past two years:

Year Ending 31st December Northern (2018) Southern (2018) Northern (2017) Southern (2017)
Revenue (N000) 2,700 3,720 2,850 3,375
Staff Costs (N000) 1,725 2,145 1,770 1,965
Other Operating Costs (N000) 690 1,012 750 930
Operating Profit (N000) 285 563 330 480
Capital Employed (N000) 750 1,350 1,125 1,800
Avg. Number of Members 6,880 9,425 7,050 8,320

Notes:

  1. Revenue is largely comprised of income from membership fees.
  2. Lapez uses the net book value of non-current assets as the capital employed. The capital employed figures in the table are the net book value of non-current assets for each division at the end of the year.
  3. Non-current assets are depreciated on a straight-line basis over five years with no residual value. No additions or disposals of non-current assets occurred in 2017 and 2018.
  4. Both divisions have a cost of capital of 15%.
  5. Ignore taxation and inflation.

However, investigations by Lapez’s management revealed that at the end of 2017, the General Manager of the Southern division rejected the opportunity to acquire a new building and equipment to set up a new fitness club at a total cost of ₦1,200,000. The building could have been purchased for ₦525,000, and it is assumed that the building would retain its value for five years, with no depreciation charged. The equipment would have cost ₦675,000 and would have been depreciated over five years according to Lapez’s policy. The investment would have occurred on January 1, 2018.

The forecasted annual profit and number of members for the proposed new club were as follows:

Description N000
Revenue 1,012.5
Staff Costs (556.5)
Other Operating Costs (incl. depreciation) (240.0)
Operating Profit 216.0
Avg. Number of Members 2,100

It is Lapez’s policy that investments of this type be appraised over five years using net present value (NPV).

Required:

a. Discuss the relative performance of the two divisions using Return on Capital Employed (ROCE) and TWO other performance measures that you think are appropriate. (15 Marks)

b. Calculate the net present value (NPV) of the investment. Ignore taxation and inflation. (5 Marks)

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