May 2024 Pathfinder Skills Level

THE INSTITUTE OF CHARTERED
ACCOUNTANTS OF NIGERIA
PATHFINDER
MAY 2024 DIET
SKILLS LEVEL EXAMINATIONS
Question Papers
Suggested Solutions
Marking Guides
and
Examiners‟ Reports
FOREWARD
This issue of the PATHFINDER is published principally, in response to a growing

demand for an aid to:
(i) Candidates preparing to write future examinations of the Institute of Chartered

Accountants of Nigeria (ICAN);
(ii) Unsuccessful candidates in the identification of those areas in which they lost
marks and need to improve their knowledge and presentation;
(iii) Lecturers and students interested in acquisition of knowledge in the relevant

subject contained herein; and
(iv) The professional; in improving pre-examinations and screening processes, and

thus the professional performance of candidates.
The answers provided in this publication do not exhaust all possible alternative
approaches to solving these questions. Efforts had been made to use the methods,
which will save much of the scarce examination time. Also, in order to facilitate
teaching, questions may be edited so that some principles or their application may
be more clearly demonstrated.
It is hoped that the suggested answers will prove to be of tremendous assistance to

students and those who assist them in their preparations for the Institute‟s
Examinations.
NOTES
Although these suggested solutions have been published under the
Institute‟s name, they do not represent the views of the Council of the
Institute. The suggested solutions are entirely the responsibility of their
authors and the Institute will not enter into any correspondence on them.
1
TABLE OF CONTENTS
FOREWARD PAGE
FINANCIAL REPORTING 3 - 33
AUDIT AND ASSURANCE 34 - 54
PERFORMANCE MANAGEMENT 55 - 89
90 – 116
PUBLIC SECTOR ACCOUNTING & FINANCE
CORPORATE STRATEGIC MANAGEMENT & ETHICS 117 - 140
TAXATION 141 – 170
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ICAN/241/Q/B1 Examination No.....................
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
SKILLS LEVEL EXAMINATION – MAY 2024
FINANCIAL REPORTING
EXAMINATION INSTRUCTIONS
PLEASE READ THESE INSTRUCTIONS BEFORE THE COMMENCEMENT OF THE PAPER
1. Check your pockets, purse, mathematical set, etc. to ensure that you do not
have prohibited items such as telephone handset, electronic storage device,
programmable devices, wristwatches or any form of written material on you
in the examination hall. You will be stopped from continuing with the
examination and liable to further disciplinary actions including cancellation
of examination result if caught.
2. Write your EXAMINATION NUMBER in the space provided above.
3. Do NOT write anything on your question paper EXCEPT your
examination number.
4. Do NOT write anything on your docket.
5. Read all instructions in each section of the question paper carefully before
answering the questions.
6. Do NOT answer more than the number of questions required in each section,
otherwise, you will be penalised.
7. All solutions should be written in BLUE or BLACK INK. Any solution written
in PENCIL or RED INK will not be marked.
TUESDAY, MAY 14, 2024
DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO
3
FINANCIAL REPORTING
Time Allowed: 31/4 hours (including 15 minutes reading time)
INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT FIVE OUT OF SEVEN

QUESTIONS IN THIS PAPER
SECTION A: COMPULSORY QUESTION (30 MARKS)
QUESTION 1
Badary PLC statement of financial position as at March 31, 2021
Assets: 31-03-21 31-03-20

Non-current assets: N'000 N'000
Property, plant and equipment 350,000 110,000
Investments 60,000 30,000
410,000 140,000
Current assets:
Inventories 295,000 120,000
Trade receivables 90,000 60,000
Bank 15,000 40,000
400,000 220,000
Total assets 810,000 360,000
Equity and liabilities
Ordinary share capital of 80 kobo per share 220,000 120,000
Share premium 60,000 30,000
Retained earnings 280,000 119,000
560,000 269,000
Non-current liabilities:
10% Redeemable loan notes 50,000 10,000
Current liabilities:
Trade payables 65,000 14,000
Taxation 70,000 12,000
Bank overdraft 25,000 5,000
Accrued expenses 40,000 50,000
200,000 81,000
Total liabilities 250,000 91,000
Total equity and liabilities 810,000 360,000
4
Statement of profit or loss for the year ended March 31, 2021
N' 000
Revenue 490,000
Cost of sales (222,000)
Gross profit 268,000
Administrative expenses (90,000)
Distribution cost (40,000)
Finance cost (5,000)
Dividend received 153,500
18,500
Profit before taxation 286,500
Income tax expense (70,000)
Profit for the year 216,500
Additional Information
(i) During the year ended March 31, 2021 plant and equipment with a carrying
amount of N40,000,000 was sold for N55,000,000. The profit or loss on
disposal was charged to distribution expenses.
(ii) Dividend of 2 kobo per share was paid in the year ended March 31, 2021 and
there were also bonus issues.
(iii) Depreciation charged for the year was N10,000,000 on furniture and
N30,000,000 on plant and equipment.
(iv) During the year, an investment which cost N12,500,000 some years ago was
disposed for N20,000,000. The profit or loss on disposal was charged to
administrative expenses.
(v) Dividends received were from investment in shares and immediate disposal of
rights issue from the investment in shares in a blue-chip company.
You are required to:

a. Prepare statement of cash flows of Badary Plc for the year ended March 31,
2021 using direct method in accordance with IAS 7. (20 Marks)
b. Discuss the profitability, gearing and investors‟ stake in Badary Plc and
recommend strategies for improving or sustaining them. (10 Marks)
(Total 30 Marks)
5
SECTION B: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THREE
QUESTIONS IN THIS SECTION (40 MARKS)
QUESTION 2
The following are the statements of financial position of Sokoto Nig. PLC and Niger
Nig. LTD for the year ended October 31, 2023.
Sokoto Nig. PLC Niger Nig. LTD.

N’000 N’000
Non-current assets:
Plant and machinery 2,600 560
Furniture and fittings 1,600 400
4,200 960
Investment:
Shares in Niger. Nig. LTD at cost 1,600 -
Current assets:
Inventories at cost 1,760 560
Trade receivables 1,160 840
Cash and cash equivalents 800 -
3,720 1,400
Total assets 9,520 2,360
Equity and liabilities:
Equity:
N1 ordinary shares 5,600 1,360
Retained earnings 1,720 400
7,320 1,760
Trade payables 2,200 440
Bank overdraft - 160
2,200 600
Additional information:
i. Sokoto Nig. PLC purchased 70% of the issued ordinary share capital of Niger
Nig. LTD four years ago, when the retained earnings of Niger Nig. LTD were
N160,000. There had been no impairment of goodwill.
ii. For the purpose of the acquisition, plant and machinery in Niger Nig. LTD with
carrying amount of N400,000 was revalued to its fair value of N480,000. The
revaluation was not recorded in the accounts of Niger Nig. LTD. Depreciation is
charged at 20% using the straight-line method.
iii. Sokoto Nig. PLC sells goods to Niger Nig. LTD at a mark-up of 25%. At October
31, 2023 the inventories of Niger Nig. LTD included N360,000 of the goods
purchased from Sokoto Nig. PLC.
6
iv. Niger Nig. Ltd owes Sokoto Nig. PLC N280,000 for goods purchased and Sokoto
Nig. PLC owes Niger Nig. LTD N120,000.
v. It is the group policy to value non-controlling interests at fair value.
vi. The market price of the shares of the non-controlling shareholders just before
the acquisition was N1.50 per share.
Required:
a. Prepare consolidated statement of financial position of Sokoto group as at
October 31, 2023. (17 Marks)
b. Explain how investment in a subsidiary should be accounted for in the

separate financial statements of the parent. (3 Marks)
(20 Marks)
QUESTION 3
Lamido Limited is a courier service company which operates in Nigeria and West
Africa.
Initially, Lamido Limited experienced strong growth, but in recent periods the
company has been criticised for under investing in its non-current assets.
Lamido Limited statement of financial position as at December 31

2022 2021
₦’000 ₦’000
Non-current assets
Property, plant and equipment 317,000 174,000
Intangible assets 20,000 16,000
337,000 190,000
Current assets
Inventories 580 490
Trade and other receivables 6,100 6,300
Cash and equivalents 9,300 22,100
Total current assets 15,980 28,890
Total assets 352,980 218,890
Equity and Liabilities
Equity
Ordinary share capital 3,000 3,000
Retained earnings 44,100 41,800
Revaluation surplus 145,000 NIL
Total equity 192,100 44,800
Liabilities:
Non-current liabilities
6% loan notes 130,960 150,400
Current liabilities
7
Trade and other payables 10,480 4,250
6% loan notes 19,440 19,440
Total current liabilities 29,920 23,960
Other extracts from Lamido Limited financial statements for the years ended
December 31.
2022 2021
₦’000 ₦’000
Revenue 154,000 159,000
Profit from operations 12,300 18,600
Finance cost (9,200) (10,200)
Cash generated from operation 18,480 24,310
The following information is also relevant:

i. Lamido Limited had exactly the same delivery volumes in 2022 as in 2021 with
customers‟ base being the same in both years.
ii. In October 2022, Lamido Limited had to renegotiate its operating licenses in
three of its countries of operation. This led to increase in the fees Lamido
Limited had to pay to operate in these countries. The operating licenses in five
other countries are due to expire in December 2022 and Lamido Limited is
currently negotiating with the concerned authorities of these countries.
Required:
a. Calculate the following ratios for the years ended December 31, 2021 and 2022:
i. Operating profit margin
ii. Return on capital employed
iii. Net asset turnover
iv. Current ratio
v. Interest cover
vi. Gearing (Debt/equity)
(6 Marks)
Note:
For calculation purposes, all loan notes should be treated as debt.
b. Comment on the performance and position of Lamido Limited for the year ended
December 31, 2022 and highlight any issues which Lamido Limited should be
considering in the near future. (14 Marks)
(Total 20 Marks)
8
QUESTION 4
a. Differentiate between impairment and depreciation. (5 Marks)
b. Discuss the following as contained in IAS 36-Impairment of Assets.
i. Indicators of impairment.
ii. How to identify and account for impairment of assets. (6 Marks)
c. A non-current asset in the statement of financial position of Zamfara LTD, an

SME, at the beginning of the financial year had a carrying amount of ₦800,000.
The asset had previously been revalued, and there was a revaluation surplus of
₦50,000 relating to it in the revaluation reserve. At the end of the financial
year, Zamfara LTD suspected that the asset had been impaired. It therefore
estimated the recoverable amount of the asset and found this to be ₦600,000.
The depreciation charge on the asset for the year would be ₦80,000.
Required:
As the finance manager of Zamfara LTD, explain with relevant computation the
accounting treatments required in line with the provisions of IAS 36. (9 Marks)
(Total 20 Marks)
SECTION C: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THREE

QUESTION 5
a. Errors might happen when preparing financial statements. If such errors are
discovered quickly, they are corrected before the finalised financial statements
are published. When this happens, the correction of the error is of no
significance for the purpose of financial reporting.
However, when an error is discovered that relates to a prior accounting period,

a problem may arise.
Required:
Explain prior period errors giving examples and discuss how such errors are
corrected in accordance with IAS 8 – Accounting Policies, Changes in
Accounting Estimates and Errors. (7 Marks)
b. During year 2022, Lagos Company Nig. Limited discovered that certain items
had been erroneously included in inventory at December 31, 2021, the amount
was valued at N16.8million which had been sold before the year-end.
9
The following figures for year 2021 (as reported) and 2022 (draft) are
available as follows:
2022(Draft) 2021 (Published)

N’000 N’000
Revenue 268,800 189,600
Cost of sales (223,200) (138,280)
Profit before tax 45,600 51,320
Income tax expense (13,600) (15,520)
Profit for the year 32,000 35,800
The retained earnings at January 1, 2021 were N52million. The cost of sales
for year 2022 includes N16.8million error in the opening inventories.
Company income tax rate is 30%.
Required:
Prepare statement of profit or loss and other comprehensive income for the
year ended December 31, 2022 and retained earnings extracts showing
comparative figures. (8 Marks)
(Total 15 Marks)
QUESTION 6
Akwa Nig. Limited is a private limited company planning to be registered with the
Nigeria Exchange Limited (NGX). The company is engaged in the conversion of petrol
engine into compressed gas engine.
The following are the transaction of the company in respect of its debts and equity
instruments.
Transaction 1
Akwa Nig. Limited issued 40million non-redeemable N1 preference share at par
value. Under the terms relating to the preference shares, a dividend is payable on
the preference shares only if Akwa Nig. Limited also pays a dividend on its ordinary
shares for the same period. (5 Marks)
Transaction 2
Akwa Nig. Limited entered into a contract with a supplier to buy a significant item of
equipment. Under the terms of the agreement the supplier will receive ordinary
shares with an equivalent value of N5million one year after the equipment is
delivered. (5 Marks)
Transaction 3
The directors of Akwa Nig. Limited on becoming director are required to invest a
fixed agreed sum of money in a special class of N1 ordinary shares that only directors
hold. Dividend payments on the shares are discretionary and are ratified at the
Annual General Meeting (AGM) of the company. When a director‟s service contract
10
expires, Akwa Nig. Limited is required to repurchase the shares at their nominal
value. (5 Marks)
A senior accountant in your company (Akwa Nig. Limited) has asked for your advise
on how the above transactions should be treated in the financial statements of your
company in accordance with IAS 32 – Financial Instruments: Presentation.
Required:
Write a memo on the above request, discussing and justifying how each of the
transactions should be treated in the financial statements, in accordance with IAS 32
– Financial Instruments: Presentation. (Total 15 Marks)
QUESTION 7
a. IAS 38 - Intangible Assets allows a business to choose one of two measurement
models as its accounting policy for intangible assets after acquisition.
However, the same model should be applied to all assets in the same class.
Required:
Discuss the TWO measurement models for intangible assets (3 Marks)
b. Olumo-Taxi Limited‟s financial year ends on December 31. The company

adopted the revaluation model for its intangible assets and revalues them on a
regular three-year cycle.
However, for intangible assets with a finite life, Olumo-Taxi Limited transfers
the relevant amount from revaluation reserve to retained earnings each year.
During year 2019 Olumo-Taxi Limited incurred N700,000 on the process of

preparing an application for licences for 15 taxis to operate in an holiday
resort very close to Abeokuta, In order to prevent congestion and excessive
traffic pollution, the licencing authority only allowed a small number of taxi to
operate.
The outcome of the company‟s application was uncertain up to November 30,

2019 when the local government authority accepted its application. In
December 2019, Olumo-Taxi Limited incurred a cost of N90,000 in registering
its licences. The licences were for a period of 9 years from January 1, 2019.
The licences are freely transferable and an active market in them exists. The
fair value at December 31, 2019 was N94,500 per taxi and Olumo-Taxi Limited
carried them at fair value in its statement of financial position at December
31, 2019.
11
At December 31, 2022 Olumo Taxi Limited undertook its regular revaluation.
On that date the licensing authority announced that it would triple the
number of licences offered to taxi operators and there were transactions in the
active market for licences which has six years to run at N45,000.
Required:
Calculate, with explanations, the carrying amount and revaluation surplus of
the intangible assets of Olumo-Taxi Limited according to IAS 38 as at:
i. December 31, 2019

ii. December 31, 2022 (before regular revaluation)
iii. December 31, 2022 (after regular revaluation)
(12 Marks)
(Total 15 Marks)
SECTION A
SOLUTION 1
a. Badary Plc
Statement of Cash flows for the year ended March 31, 2021
Operating activities: N‟000 N‟000

Cash received from customers (Wk 3) 460,000
Cash paid to suppliers (Wk 11) (346,000)
Cash paid for other operating expenses (Wk 9) (122,500)
Cash flow from operation (8,500)
Finance cost paid (5,000)
Taxation paid (Wk 1) (12,000)
Net cash flows from operating activities (25,500)
Investing activities:
Dividend received 153,500
Purchase of plant and machinery by cash (Wk 4) (320,000)
Proceeds from disposal of investment (Wk 10) 20,000
Proceeds from disposal of plant (Wk 5) 55,000
Purchase of investment by cash (Wk 6) (42,500)
Net cash flows from investing activities (134,000)
Financing activities:
Proceeds from issue of shares (50,000 + 30,000) 80,000
Proceeds from issue of 10% Redeemable loan notes 40,000
Dividends paid by cash (5,500)
Net cash flows from financing activities 114,500
Net increase in cash and cash equivalents for the year (45,000)
Cash and cash equivalents at the beginning 35,000
Cash and cash equivalents at the end (10,000)
12
Working notes
Wk 1: Taxation paid N'000
Opening balance 12,000
Income tax expense (SOPL) 70,000
Expected closing balance 82,000
Actual closing balance 70,000
Taxation paid 12,000
Wk 2: Proceeds from issue of shares N'000
Opening balance (120,000 + 30,000) 150,000
Closing balance (220,000 + 60,000) 280,000
Proceeds from issue of shares 130,000
Less: Bonus issue (50,000)
80,000
Wk 3: Cash received from customers N‟000
Revenue for the year 490,000
Cash received from customers 460,000
Wk 4: Plant and machinery N‟000

Disposal (40,000)
Depreciation (10,000 + 30,000) (40,000)
Acquisition by cash (320,000)
Wk 5: Disposal of plant N'000

Carrying amount (40,000)
Proceeds from disposal 55,000
Profit on disposal of plant 15,000
Wk 6: Investments N'000
Disposal (12,500)
Acquisition by Cash (42,500)
Wk 7: Cash and cash equivalents 2021 2020

N‟000 N‟000
Bank 15,000 40,000
Bank overdraft (25,000) (5,000)
Cash and cash equivalent (10,000) 35,000
13
Wk 8: Retained earnings/bonus issue N'000
Profit for the year 216,500
55,500
Dividend declared and paid (5,500)
Bonus issue 50,000
Wk 9: Cash paid for other operating expenses N'000 N'000

Accrued expenses b/f 50,000
Administrative expenses 90,000
Distribution cost 40,000
180,000
Add(Less):
Profit of disposal 15,000
Depreciation on furniture (10,000)
Depreciation on plant and equipment (30,000)
Profit on disposal of Investment 7,500
Accrued expenses c/d (40,000) (57,500)
Cash paid 122,500
Wk 10: Disposal of investment N‟000

Carrying amount 12,500
Proceeds from disposal 20,000
Profit on disposal of plant (7,500)
Wk 11: Cash paid to suppliers N'000

Cost of sales 222,000
Closing inventories 295,000
Opening inventories (120,000)
Purchases for the year 397,000
Opening balance of trade payables 14,000
Actual closing balance of trade payables 65,000
Cash paid to suppliers 346,000
Wk 12: Dividend paid

Ordinary share capital = N 220,000,000 = 275,000,000 shares
0.8
= 275,000,000 shares × 0.02
= N 5,500,000
14
b. Analysis of the profitability, gearing and investor‟s stake in Badary Plc and
recommended strategies for improving or sustaining them
Profitability:
The profit for the year is N216,500,000, indicating strong profitability.
i) The company has a high gross profit margin of 54.7% (₦268,000/
₦490,000);
ii) A net profit margin of 44.2% (N216,500/₦490,000) to sustain the
profitability level;
iii) Badary Plc should continue to focus on cost control, particularly in
administrative and distribution expenses; and
iv) The company should explore new revenue streams and maintain its
investment in profitable ventures
Gearing:
The gearing ratio, measured as non-current liabilities to equity:
i) Is relatively low at 8.9% (₦50,000/₦560,000);
ii) Indicates low financial leverage and a conservative capital structure; and
iii) The company can consider taking an additional debt if needed for
expansion, given its low gearing ratio. However, it should ensure that any
new debt is manageable and contributes to revenue growth.
Investors' Stake:
The investors' stake is:
i) well-represented with a substantial share capital of N220,000,000 and
retained earnings of N280,000,000;
ii) The company paid dividends, indicating good returns for shareholders,
thus enhancing investors‟ confidence; and
iii) Badary Plc should maintain a consistent dividend policy and provide
transparent financial reporting.
Examiner’s report
The question tests candidates knowledge of preparation of statement of cash flows in
accordance with IAS 7 using direct method while Part B of the question is on
interpretation of financial statement with particular emphasis on profitability,
gearing and determination of investor‟s stake in the business.
Majority of the candidates attempted the question and their performance was
average.
The candidates pitfalls include the following:
- Some candidates used indirect method to prepare the statement of cash flows
when the question specifically requested for direct method;
- Most of them that used the direct method could not correctly calculate cash
received from customers and cash paid to suppliers under the operating
activities; and
15
- Others could not properly interpret the financial statement of the company
and make necessary recommendation for strategies required to improve or
sustain the company.
Candidates are advised to pay attention to all areas of preparation and interpretation
of published accounts and also be conscious of the fact that the examiner may
require the candidates to use a particular method to solve a problem, once the
method is in the syllabus and permitted by the financial reporting standards.
Marking guide Marks Marks

a. Preparation of statement of cash flows
- Correctly stating title of the statement ¼
- Stating operating activities items 1¾
- Workings for operating activities items 7¾
- Stating investing activities items 1½
- Workings for investing activities items 2
- Stating financing activities 1½
- Workings for financing activities items 3
- Stating cash and cash equivalents ¾
- Workings for cash and cash equivalents 1½ 20
b. Analysis of the profitability, gearing and

investors stake in Badary Plc
- Analysis of profitability
Four points at 1 mark each 4
- Analysis of gearing
Any three points at 1 mark each 3
- Analysis of investor‟s stake
Any three points at 1 mark each 3 10
Total 30
16
SECTION B
SOLUTION 2
a. SOKOTO NIG. PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT OCTOBER 31, 2023
Non-current assets: N‟000

Plant and machinery (2,600+560+80-64) 3,176
Furniture and fittings (1,600+400) 2,000
Goodwill (Wk3) 612
Total non-current assets 5,788
Current assets:
Inventories (1,760+560-72) 2,248
Trade receivables (1,160+840-280-120) 1,600
Cash and cash equivalents 800
Total current assets 4,648
Total assets 10,436
Equity:
Ordinary shares of N1 each 5,600
Retained earnings (Wk 6) 1,771
m 7,371
Non-controlling interests (Wk5) 665
Total equity 8,036
Trade payables (2,200+440-120-280) 2,240
Bank overdraft 160
Total current liabilities 2,400
Total equity and liabilities 10,436
Working notes
Wk 1: Group structure
Sokoto Nig. PLC ---------------70% --------------- Niger Nig. LTD
NCI = 30%
Wk 2: Net asset of subsidiary At rep. At acq. Post-

date date acq.
N'000 N'000 N'000
Ordinary shares 1,360 1,360
Retained earnings 400 160 240
Fair value adjustments:
Plant and machinery 80 80 -
Depreciation (80 x 20% x 4years) (64) - (64)
1,776 1,600 176
17
Wk 3: Determination of goodwill on acquisition
N'000 N'000
Fair value of consideration transfer:
Cost of investment 1,600
NCI at fair value (30% x 1,360 x N1.50) 612
2,212
Less: Net assets of subsidiary at acquisition (1,600)
Goodwill at acquisition 612
Wk 4: Unrealised profit N'000

URP = 360 × 25/125 72
Wk 5: Valuation of NCI N'000

NCI at acquisition (Wk 3) 612
Add: Share of Post-acquisition profit (30% x 176) 52.8
664.8
Wk 6: Consolidated retained earnings N'000
Sokoto Plc 1,720
Add: Share of post-acquisition profit (70% x 176) 123.2
Unrealised profit (72.0)
Consolidated retained earnings 1,771
b. Accounting for investment in subsidiary in parent‟s separate financial statements

i) Cost method: In accordance with IAS 27-Separate Financial Statements, the
investment in a subsidiary is recorded at cost in the parent's separate
financial statements. Dividends received from the subsidiary are
recognised as income.
ii) Fair value method: In accordance with IFRS 9-Financial Instruments, the
investment can also be measured at Fair Value through Profit or Loss
(FVTPL) or Fair Value Through Other Comprehensive Income (FVOCI)
depending on the parent's business model.
Examiner’s report
The question tests candidates knowledge of preparation of consolidated financial
statements and how to account for investment in subsidiary in the separate financial
statements of the parent.
Most of the candidates attempted the question and performance was above average.
The candidates that attempted the question were able to carry out the consolidation
of the subsidiary and the parent, however some of them could not correctly
determine the net assets of the subsidiary and the goodwill arising from
consolidation as well as the consolidated retained earnings. Also, others could not
explain how to account for the investment in subsidiary in the separate financial
statement of the parent.
18
Preparation of consolidated financial statements of simple group is a section of the
syllabus that is examined regularly at this level of the institute examination, hence
candidates are advised to pay special attention to the provisions of IFRS 10 –
Consolidated Financial Statements.

a. Preparation of consolidated statement of financial
position
- Correctly stating of the title of the statement ¼
- Presentation of consolidated non-current assets 1
- Determination of goodwill on acquisition 5
- Workings for consolidated non-current assets 1½
- Presentation of consolidated current assets 1
- Workings for consolidated current assets 1¾
- Stating consolidated total assets ¼
- Stating the equity ¾
- Workings for consolidated retained earnings 1¼
- Determination of non-controlling interests 1½
- Presentation of consolidated current liabilities ¾
- Workings for consolidated current liabilities 1
- Stating total equity and liabilities ¼
- Determination of unrealised profit in inventory ¾ 17
Accounting
b for investment in subsidiary‟s separate
) financial statements
- Stating cost method ½
- Explanation of cost method 1
- Stating fair value method ½
- Explanation of fair value method 1 3
Total 20
SOLUTION 3
Lamido Limited
a. Computation of relevant ratios for the year ended December 31, 2021 and 2022
Ratios Formula 2022 2021
Operating profit PBIT x 100 18,600 x 100
margin Revenue 159,000
= 7.99% = 11.7%
Return on capital PBIT x 100___ 12,300 x 100 18,600 x 100
employed Capital employed 342,500 214,640
= 3.6% = 8.7%
Net asset Revenue___ 154,000 159,000
turnover Net asset/equity 192,100 44,800
= 0.8 times = 3.55 times
19
Current ratio Current assets 15,980 28,890
Current liabilities 29,920 23,960
= 0.53:1 = 1.21:1
Interest cover PBIT___ 12,300 18,600
Fixed interest 9,200 10,200
= 1.34 times = 1.82 times
Gearing Ratio Debt equity (130,960+19,440)x100 (150,400+19,440)x100
192,100 44,800
= 78.3% = 379%
b. Comments on performance and position of Lamido Ltd for the year ended
December 31, 2022
Performance:
i) Lamido LTD‟S revenue has declined in the year. As Lamido has had exactly
the same delivery volumes in the year, the decline in revenue must be due
to company‟s reducing units prices of certain courier packages. To
substantiate this, it would be helpful to see the number of packages
delivered by Lamido LTD during the year.
ii) In addition to the decline in revenue, there has been a decline in the
operating profit margin in the year. As the volumes delivered by Lamido
LTD has remained the same, it would appear that some costs incurred by
Lamido LTD were relatively fixed and may not have changed significantly
during the year. It has been noted that there has been an increase in the
operating licence fees incurred by Lamido Ltd during the year. This would
again cause the operating profit margin to fall.
iii) Return on capital employed has declined significantly due to a decline in

the profit from operations, and the revaluation of non-current assets in the
year by the company. This means that there is a large revaluation surplus
in year 2022 which was not the case in year 2021. This will have the effect
of reducing the return on capital employed due to a much larger total
balance in equity. If the return on capital employed is calculated without
this, it would be 6.2%, which still represents a decline in performance.
iv) Net assets turnover declined from 3.55 times to 0. 8 times. This will again
be affected by the revaluation surplus, making the two years
incomparable. If this is removed from the calculation, the net asset
turnover will decrease slightly to 3.27 times, which is still a decrease in
performance.
Position:
i) The value of non-current assets rose significantly in the year by ₦147
million. A large proportion of that will be due to the revaluation which
took place, leading to an increase of ₦145 million. This suggests that
Lamido LTD acquired some new assets in the year, which was not defined.
20
ii) The level of debt in the business is a concern, as this forms a significant
portion of the company‟s financing, and appears to incur a large annual
repayment. The reduction in the current ratio can be attributed to the
large decrease in cash, which is likely to be due to the debt repayment
made.
iii) It is worth noting that Lamido LTD is almost completely funded by debt
with a relatively small amount held in share capital. Therefore, there is an
opportunity for a new investor to consider putting more money into the
business in a forms of shares, the investing company then repaying some
of the loans held by Lamido LTD. As the company is currently repaying
₦19.44 million a year on the loans, it may be more sensible to repay loan,
if possible, freeing up a lot more cash for growing the business or to be
returned annually in the form of dividends, also saving ₦9.2 million a year
in interest.
Areas of concern for the future:

There are a number of things to consider regarding the future performance of Lamido
LTD.
i) Operating licences in five countries which are due for renegotiation. If the fees
are raised, this will lead to reduction in profit being made by Lamido LTD.
ii) The debt appeared to being repaid in annual installments of N19.44 million,
meaning that Lamido LTD needs to generate sufficient cash to repay loan each
year before returning profit to the owner. In addition to this, ₦9.2 million
interest means that the business appears currently unable to return any cash to
investors.
Finally, Lamido LTD‟S business model is heavily depended on large expensive items
of non-current assets. There has been criticism of under-investment in these, which
could lead to large potential outlays in the near future to replace the assets.
Conclusion:
Lamido LTD has not shown a weakened performance in the current year, but appears
to be profitable business at its core. The major issue with the business is the level of
debt, which is resulting in ₦19.44 million annual repayments and ₦9.2 million
annual interest. A new investor who will be able to reduce these debts as part of any
future purchase, would be able to put the business in a much stronger cash position
and profit performance.
21
Examiner’s report
The question is on ratio analysis and interpretation of financial statements.
Candidates are required to calculate profitability, liquidity and long term financial
stability ratios, they are expected to comment on the financial performance and
highlight qualitative future consideration issues that may affect the company.
Most of the candidates attempted the question and performance was average.
The candidates were able to correctly calculate the ratios however, most of them
could not give correct interpretations to the ratios computed and they also failed to
identify the qualitative future considerations.
Candidates are advised to pay attention to all sections of the syllabus and make use
of the Institute Pathfinder and Study Text for better performance in future
examinations.

a. Computation of relevant ratios
- Calculation of operating profit margin 1
- Calculation of return on capital employed 1
- Calculation of net asset turnover 1
- Calculation of current ratio 1
- Calculation of interest cover 1
- Calculation of gearing ratio 1 6
b. Comments on performance and position Lamido

LTD
i) Comments on performance
- Identifying four correct points at ½ mark 2
each
- Explanation/Justification of the points at 2
½ mark each
ii) Comments on position
each
½ mark each
iii) Comments on areas of concern for the future
each
½ mark each
iv) Conclusion
- Stating any two correct conclusion at 1 2 14
mark each
Total 20
22
SOLUTION 4
a. Differences between impairment and depreciation

i. Impairment occurs when the carrying amount of an asset exceeds its
recoverable amount, resulting in an economic reduction in the value of
the asset.
ii. Impairment is recognised when there is evidence that an asset‟s value
has declined below its carrying amount, and the asset must be written
down to its recoverable amount.
iii. Impairment losses are typically unexpected and result from specific
events or circumstances, such as market declines, technological
obsolescence, or legal restrictions.
While
iv. Depreciation is the systematic allocation of the depreciable amount of
an item of property, plant and equipment over its estimated useful life.
v. It represents the estimated portion of the depreciable amount of an
asset consumed on a yearly basis over the number of years with which
the asset will generate economic benefit to the entity.
vi. Depreciation is accounted for annually, based on the asset‟s estimated
useful life and residual value.
b. Indicators of impairment:
IAS 36 requires that at each reporting date, an entity must assess
whether there are indicators of impairment. Indications that impairment
might have happened can come from external or internal sources:
Internal sources: External sources:

 Evidence of obsolescence or  Unexpected decrease in an
damage. asset‟s market value.
 There is, or about to be, a material  Significant adverse changes
reduction in the usage of an asset. have taken place, or are about
to take place, in the
technological market,
economic or legal environment.
 Evidence that the economic  An increase in interest rates
performance of an asset has been, affecting the value-in-use of the
or will be worse than expected. asset.
 There is a reduction in the assets  The carrying amount of the net
expected remaining useful life. assets of the entity is more
than its market capitalisation
i) Identifyi.ng and accounting for impairment of assets:

 At the end of each reporting period, the entity should assess whether
there are any indications that an asset may be impaired;
23
 If there are such indications, the entity should estimate the asset's
recoverable amounts;
 When the recoverable amount is less than the carrying amount of the
assets, the entity should reduce the assets' carrying amount to its
recoverable amount. The amount by which the value of the assets is
written down is an impairment loss;
 The impairment loss shall be recognised immediately in the
statement of profit or loss;
 However, an impairment loss on a revalued asset is recognised in
other comprehensive income to the extent that the impairment loss
does not exceed the amount in the revaluation surplus for that same
asset;
 Such an impairment loss on a revalued asset reduces the revaluation
surplus for that asset; and
 After the recognition of an impairment loss, the depreciation
(amortisation) charge for the asset shall be adjusted in future periods
to allocate the asset's revised carrying amount, less its residual value
(if any), on a systematic basis over its remaining useful life.
c. According to IAS 36, an asset is said to be impaired when its recoverable

amount is less than its carrying amount in the statement of financial
position. The recoverable amount of an asset is the higher of its fair value
less costs of disposal and its value-in-use.
Zamfara LTD non-current asset recoverable amount of N600,000 is less than

its carrying amount of N720,000 (wk 1) hence there is an impairment loss.
See computation below.
N
Carrying amount (wk. 1) 720,000
Recoverable amount (600,000)
Impairment loss 120,000
The non-current asset must still be written down by N120,000. However, N50,000
of this would be recognised in other comprehensive income and the remaining
N70,000 (N120,000 – N50,000) would be charged to the statement of profit or
loss as an impairment loss.
24
The accounting entry is as follows:
Debit Credit
N N
Impairment loss (Statement of profit or loss) 70,000
Revaluation surplus (other comprehensive income) 50,000
Non-current asset 120,000
The recoverable amount of the non-current asset of N600,000 will be subject

to depreciation going forward over the remaining useful life on a systematic
basis.
Working 1:
Calculation of carrying amount of non-current asset
N
Carrying amount at the beginning 800,000
Depreciation for the year (80,000)
Carrying amount at the end of the year 720,000
Examiner’s report
The question tests candidates knowledge of the provisions of IAS 36- Impairment of
Assets and the differences between depreciation and impairment.
Few candidates attempted the question and performance was below average.
Most candidates could not explain the accounting treatments of impairments and
others could not state the differences between impairment and depreciation.
Candidates are advised to pay more attention to the provisions of relevant

International Financial Reporting standards (IFRS) as well as its applications for
better performance in future examinations.

a. Differences between impairment and depreciation
- Stating any five differences at 1 mark each 5
b. Discussion of IAS 36- Impairment of Assets

i) Indicators of impairment
- Identifying any six indicators at ½ mark each 3
ii) How to identify and account for impairment
- Discussion of any six points on identification
and accounting for impairment at ½ mark each 3 6
c. Explanation with computation of accounting treatment

of the given scenario
- Any nine points at 1 mark each 9
Total 20
25
SOLUTION 5
a. Explanation of prior-period errors

Prior-period errors are omissions from, and misstatements in, the entity‟s
financial statements for one or more prior-periods arising from a failure to use,
or misuse of, reliable information that:
i. was available when financial statements for those periods were authorised
for issue; and
ii. could reasonably be expected to have been obtained and taken into account
in the preparation and presentation of those financial statements.
Correction of prior-period errors

i. According to the provision of IAS 8, an entity shall correct material prior-
period errors retrospectively in the first set of financial statements
authorised for issue after their discovery by:
 Restating the comparative amounts for the prior period(s) presented
in which the error occurred; or
 If the error occurred before the earliest prior period presented,
restating the opening balances of assets, liabilities, and equity for
the earliest prior period presented.
ii. The correction of a prior period is excluded from the statement of profit or
loss in the period when the error was discovered.
Examples of prior-period errors:

i. The effects of mathematical mistakes;
ii. Mistakes in applying accounting policies;
iii. Oversights or misinterpretations of facts; and
iv. Fraud.
b. Lagos Company Nigeria Limited
Statement of profits or loss and other comprehensive income for the year
ended December 31
2022 2021
N'000 N'000
Revenue 268,800 189,600
Cost of sales (Wk 1) (206,400) (155,080)
Profit before tax 62,400 34,520
Income tax expenses (Wk 2) (18,640) (10,480)
26
Statement of movement in retained earnings for the year ended December 31
2022 2021
N'000 N'000
Balance at January 1 (wk 3) 76,040 52,000
Balance at December 31, 2021 119,800 76,040
Working note
Wk 1: Cost of sales 2022 2021
N'000 N'000
Balance b/f 223,200 138,280
Adjustment for inventory overcast (16,800) 16,800
Balance to SOPL 206,400 155,080
Wk 2: Income tax expense 2022 2021

N'000 N'000
Balance b/f 13,600 15,520
Tax effect of Inventory overcast at 30% 5,040 (5,040)
Balance to SOPL 18,640 10,480
Wk 3: Opening retained earnings N'000

January 1, 2021 (per question) 52,000
Add: profit for the year 2021 35,800
87,800
Less: Error in inventory 2021 (16,800)
Add: Related tax at 30% 5,040
76,040
Examiner’s report
The question tests candidates knowledge of the provisions and applications of IAS 8-
Accounting Policies, Changes in Accounting Estimates and Errors. The part (a) of the
question requires candidates to explain prior period errors and to discuss how such
errors are corrected, giving examples. part (b) deals with the application of the
correction of prior period errors in the books of a company and disclosure of such
correction in the statements of profit or loss.
Most candidates attempted the question but performance was below average.
The candidates performance in part (a) of the question was fair, however, majority of
the candidate could not apply the provisions and principles in part (a) to solve the
question in part b and this led to loss of valuable marks.
Candidates are advised to pay special attention to relevant accounting standards at

this level of the Institute‟s examination for better performance in future.
27
a. Explanation, correction and examples of prior-period
errors
i) Explanation of prior-period errors
- Any three points at 1 mark each 3
ii) Correction of prior-period errors

- Any three points at 1 mark each 3
iii) Examples of prior-period errors

- Any two examples at ½ mark each 1 7
b. Preparation of statement of profit or loss and other
comprehensive income and retained earnings
Extracts with comparative figures
i) Presentation of statement of profit or loss
- Correct stating of the title ¼
- Stating of revenue ½
- Determination and stating the cost of sales 1½
- Stating profit income tax ½
- Computation of income tax expense 1½
- Stating the profit for the year ½
ii) Presentation of statement of movement in retained

earnings
- Correctly stating of the title ¼
- Stating the opening balances ½
- Workings for determination of opening balance
2022 1½
- Stating the profit for the year ½
- Stating closing balances of retained earnings ½ 8
Total 15
28
SOLUTION 6
MEMO
From: Accountant
To: Senior Accountant
Subject: Treatment of financial Instruments in accordance with IAS 32
Transaction 1
i. IAS 32 requires a financial instrument to be classified as a liability if there is a

contractual obligation to deliver cash or another financial assets to another
entity.
ii. In the case of the preference shares as they are non-redeemable, there is no
obligation to repay the principal.
iii. In the case of the dividends, because of the condition that preference dividend
will only be paid if ordinary dividend are paid in relation to the same period,
the preference shareholders has no contractual right to a dividend. Instead the
distributions to holders of the preference shares are at the discretion of the
issuer as Akwa Nig. Ltd. can choose whether or not to pay an ordinary dividend
and therefore a preference dividend. Therefore, there is no contractual
obligation in relation to the dividend.
iv. As there is no contractual obligation in relation to either dividend or principal,
the definition of a financial liability has not been met and the preference shares
should be treated as equity and initially recorded at fair value of N40million.
v. The treatment of dividends should be consistent with the classification of the
shares and should be charged directly to retained earnings in the statement of
changes in equity.
Transaction 2
i. The price of the equipment, a non-current asset is fixed at N5million one year
after delivery. In terms of recognition and measurement of the equipment, the
N5million price would be discounted back one year to its present value.
ii. The company is paying for the equipment by issuing shares. However, this is
outside the scope of IFRS 2-Share Based Payments because the payment is not
dependent on the value of its shares, it is fixed at N5million.
iii. This is an example of a contract that will be settled in an equity instruments
and is non-derivative for which the entity is or may be obliged to deliver a
variable number of equity‟s own equity instrument i.e. it is a Financial Liability.
iv. Therefore, it is a financial liability and initially measured at the present value of
the N5million.
v. Subsequently, as it is not measured at fair value through profit or loss (as it is
not held for a short-term profit making or a derivative) it should be measured at
amortise cost.
29
vi. As a result, interest will be applied to the discounted amount over the period
until payment are recognised in statement of profit or loss with corresponding
increase in the financial liability.
Transaction 3
i. Most ordinary shares are treated as equity as they do not contain contractual
obligation to deliver cash.
ii. However, in the case of the directors shares, a contractual obligation to deliver
cash exists on specific date as the share are redeemable at the end of service
contract of the directors.
iii. The redemption is not discretionary and Akwa LTD has no right to avoid it. The
mandatory of the repayment make the capital a Financial Liability.
iv. The dividend payment are discretionary as they must be ratified at the Annual
General Meeting (AGM). Therefore no liability should be recognised for any
dividend until it is ratified. When recognised the classification of the dividend
should be consistent with that of the shares and therefore, the dividends should
be classified as a finance cost rather than as a deduction from retained earnings
hence the dividend should be charged to the statement of profit or loss as
finance cost.
Conclusion
Hope the above explanation is clear. If you need further explanation do not hesitate
to contact me.
Thank you.
Accountant
Examiner’s report
The question tests candidates knowledge of the provisions of IAS 32 – Financial
Instruments: Presentation. Candidates are required to apply the provisions of this
standard to determine how various transactions should be disclosed and accounted
for in the financial statements of an entity.
Few candidates attempted the question and performance was poor.

Majority of the candidate did not understand the question and could therefore not
determine the nature of the type of financial instruments in the transactions, while
few that could identify it were unable to give any justifiable reason for the
identification of the financial instrument.
Most candidates appeared not to be familiar with this area of the syllabus, hence the
poor performance. They are therefore advised to cover all sections of the syllabus for
better performance in future examination of the Institute.
30
Treatment of Financial Instruments in accordance with
IAS 32
i) Transaction 1
- Any five points on justification of treatment of the
financial instrument at 1 mark each 5
ii) Transaction 2
- Any five points on justification of treatment of the
iii) Transaction 3
- Any four points on justification of treatment of the
- Memo format of presentation ½
- Conclusion of report ½ 1
Total 15
SOLUTION 7
a. (i) Cost model

• An intangible asset is carried at cost less accumulated amortisation and
any accumulated impairment losses after initial recognition.
(ii) Revaluation model

• Intangible assets can be revalued according to the same rules as those
applied to the revaluation of property, plant and equipment.
• An intangible asset is carried at a revalued amount (its fair value at the
date of the revaluation less any subsequent accumulated amortisation
and any accumulated impairment losses).
• This is only allowed if the fair value can be determined by reference to
an entire market in that type of intangible assets.
b. Calculation and explanation of the carrying amount and revaluation surplus of

the intangibles
i) Carrying amount as at December 31, 2019

N
Cost of registering licence 90,000
Revaluation surplus account [N94,500 x 15 – N90,000] 1,327,500
Carrying amount Dec 31, 2019 (Fair value) 1,417,500
Explanations:
- The initial cost of N700,000 incurred should be written off into the
statement of profit or loss because the generation of its future economic
benefits is not probable then.
- The fair value of the licence as at December 31, 2019 would be N1,417,500
31
[N 94,500 x 15 taxis] since the cost is N90,000 the revaluation reserve
account will be credited with N1,327,500 and intangible asset debited
with same amount.
ii) Calculation as at December 31, 2022 (Before regular revaluation)
Explanations:
- The accumulated amortisation on the revalued amount for 3 years will be;
(N1,417,500 x 3/9) = N472,500 whereas, the accumulated amortisation
would have been (N90,000 x 3/9) = N30,000
Carrying amount:
N
Bal. B/fwd (Jan 1. 2020) 1,417,500
Less: Amortisation (472,500)
Carrying amount 945,000
Revaluation surplus (Jan 1, 2020) 1,327,500
Transfer to retained earnings (N1,327,500 x 3/9) (442,500)
Revaluation surplus bal. Dec 31, 2022 885,000
iii) Calculation as at December 31 2022 (After regular revaluation)

- Carrying amount of the licence immediately before revaluation is
N945,000
(N1,417,500 – N472,500)
- The revalued carrying amount is N675,000 (N45,000 x 15)
:. There is a deficit of (N945,000 – N675,000) = N270,000 which should be
recognised in the revaluation reserve.
:. Revaluation reserve:
N
Bal. B/fwd regular revaluation 885,000
Less deficit (270,000)
Revaluation reserve Dec 31, 2022 615,000
Carrying amount N675,000
Examiner’s report
The part (a) of the question tests candidates knowledge of the measurement models
of intangible assets, while part b requires practical application of the measurement
of the intangible assets.
Few candidates attempted the question and performance was poor.
Some candidates were able to explain the two measurement models of intangible
assets but majority of them could not correctly answer the part (b) of the question
which requires practical application of the provisions of IAS 38 – Intangible Assets.
32
Candidates are advised to note that examiners will sometimes require practical
application of the provisions of relevant accounting standards, hence attention
should not only be placed on learning the provisions but also on its practical
applications for better performance in future examinations.

a. Discussion of two measurement models for
intangible assets
- Stating and discussing cost model 1
- Stating and discussing revaluation model 2 3
b. Calculation and explanation of the carrying

amount and revaluation surplus of the
Intangibles
i) Carrying amount at December 31, 2019
- Calculation of carrying amount 2
- Explanation of the calculation 1
ii) Carrying amount at December 31, 2022

(before regular revaluation)
- Calculation of carrying amount 1½
- Explanation of the calculation 2
- Calculation of revaluation surplus 1½
iii) Carrying amount at December 31, 2022

(after regular revaluation)
- Calculation of carrying amount 2
- Explanation of calculation 1
- Calculation of revaluation surplus 1 12
Total 15
33
ICAN/241/Q/B2 Examination No...........................
AUDIT AND ASSURANCE

3. Do NOT write anything on your question paper EXCEPT your examination

number.
WEDNESDAY, MAY 15, 2024
34

AUDIT AND ASSURANCE
INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT FIVE OUT OF THE SEVEN
QUESTION 1
FINPAY FINANCIAL SOLUTIONS LIMITED
FinPay, an innovative payment service bank, operates from its office on Lagos Island,
overseeing all financial transactions, customer interactions, and relationships
nationwide. The bank streamlines its processes for customer convenience, embracing
the digital age.
Customers' bank accounts are linked to their GSM phone numbers, with the initial
zero removed. All banking operations, from account creation and deposits to
withdrawals and account closure, are conducted seamlessly through the bank's
mobile App, which can be easily downloaded from popular App stores.
Access to the bank's mobile App is allowed using an account number and a private
six-digit PIN. A prospective customer completes the onboarding process by uploading
scanned passport photos, ID card, utility bill, alongside providing other essential
personal information, like name, NIN, telephone number, email address, and
residential address.
To facilitate transactions, a four-digit PIN linked to the customer's debit card is

activated at Automated Teller Machines (ATMs). Additionally, customers can leverage
USSD codes for payments. Customers are required to use their registered phone
numbers on their smartphones when transacting businesses with the bank.
In the event of a declined transaction, swift resolution is a priority. Debits are

promptly reversed, ensuring customer satisfaction. Customers can report issues
directly through the mobile App or via email, and FinPay's responsive support team
resolves matters without necessitating a visit to the bank's physical office. This
efficiency cements FinPay's reputation as a leading online bank in Nigeria.
FinPay expedites the delivery of debit cards to customers, ensuring they reach their
designated addresses within 48 hours of account creation. Furthermore, a proactive
follow-up call is made just 24 hours after opening an account, enhancing the overall
customer experience.
35
With a focus on catering for tech-savvy Nigerian youths, FinPay is steadily expanding
its customer base. The bank even offers small, easily accessible loans over a six-
month period, further attracting and retaining a young clientele. Some customers
instruct FinPay to pay monthly DStv subscriptions or send amounts to third parties on
regular basis, by activating a prompt on the mobile App.
For added convenience, FinPay features a responsive chatbot, named Bobo.

Customers can engage with Bobo through the bank's mobile App, website, and social
media channels, providing another layer of support and accessibility. This
comprehensive approach positions FinPay as a forward-thinking financial institution
at the forefront of digital banking in Nigeria.
Required:
a. Highlight FOUR of the benefits an online system offers to FinPay and its
customers. (8 Marks)
b. Identify and explain FIVE General controls and FIVE Application controls
embedded in FinPay‟s system. (10 Marks)
c. Explain THREE areas the auditors will give special considerations because of the
the audit risks associated with the online real-time system that dominates
FinPay‟s operations. (12 Marks)
(Total 30 Marks)

QUESTION 2
In the audit of organisations, auditors often place importance on cash and cash
equivalents because of the risk of misstatement associated with them. There have
been cases of unreported bank balances and bank accounts opened in the names of
organisations and operated secretly without the knowledge of management.
The audit work performed on cash balances will usually depend on materiality
considerations. In this context, materiality should be considered not only in terms of
the amount in the statement of financial position, but also in terms of the value of
individual transactions passing through the cash account during the period.
Required:
a. Explain THREE risks of misstatement associated with cash and cash balances.
(3 Marks)
b. Enumerate and explain SIX areas covered by a bank confirmation letter.
(6 Marks)
c. State and explain FIVE audit steps you will perform after obtaining the
confirmation replies from banks. (7 Marks)
36
c. State and explain FOUR main audit steps involved in a physical count in verifying
cash balances. (4 Marks)
(Total 20 Marks)
QUESTION 3
You are the Audit Senior-in-charge of the audit of Edinburg Nigeria Limited. The
management of the company made some representations to you, which include:
 Inventory worth ₦15 million in its only branch in Niger Republic, which you
couldn‟t visit because of the ongoing civil unrest in that country;
 A donation of ₦500,000 was made to a motherless babies home by the
Chairman but it was not receipted; and
 The chairman received medical treatment amounting to ₦600,000 during his
official visit to Germany to negotiate with equipment vendors, and he did not
come back with any documentary evidence.
You have reported these matters to the partner of your firm, Olumisi Oregun & Co.
Required:
a. Explain TWO reasons for obtaining letters of representation from clients‟
management. (4 Marks)
b. Explain THREE steps you will take if a representation by management is
contradicted by other audit evidence. (6 Marks)
c. Draft a letter of representation, which the management of Edinburg Nigeria
Limited will present to your firm. (10 Marks)
(Total 20 Marks)
QUESTION 4
MetroPower Limited, a major public utility company, was entrusted with providing
electricity to millions of residents and businesses. Mr. Mark, the Lead Technician, at
MetroPower for many years is responsible for maintaining the electrical grid to
ensure reliable supply of electricity to the city. MetroPower‟s financial statements
were subjected to annual audits.
When Mrs. Jennifer assumed her role as the department‟s supervisor, she
implemented cost-cutting measures aimed at reducing the budget allocated for
routine maintenance. This decision raised significant ethical concerns, as Mr. Mark
believed it would compromise the safety and reliability of the electrical grid. He
knew that such actions could lead to power outages and electrical hazards.
Mr. Mark found himself in a dilemma, torn between his responsibility to make
electricity available and the potential consequences of opposing his new supervisor‟s
cost-cutting measures. Mr. Mark documented his concerns, maintaining detailed
records of previous maintenance schedules and their impact on the grid‟s reliability.
37
The auditors came across the evidence of reduced costs of maintenance and
inspections in MetroPower.
Required:
a. Describe “public interest”, using MetroPower as example. (2 Marks)
b. Identify FIVE matters with which public interest can be associated. (5 Marks)
c. In setting codes of ethics, it is stated that principle-based ethics are better than
rule-based ethics. Justify this assertion. (5 Marks)
d. Explain why the concept of “due care” or “reasonable care” is important in a
contract for the provision of services. (4 Marks)
e. State TWO likely implications of the auditors‟ failing to act on the information
they got in relation to reduced costs of maintenance and inspections at
MetroPower. (4 Marks)
(Total 20 Marks)
SECTION C: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THREE QUESTIONS IN

THIS SECTION (30 MARKS)
QUESTION 5
The International Standards on Auditing 200 (ISA 200) made some important
pronouncements on the independent Auditor.
Required:
a. Explain TWO objectives of the Independent Auditor as specified in ISA 200.
(4 Marks)
b. Explain FOUR tasks ISA 200 requires the Independent Auditor to perform.
(8 Marks)
c. Explain the roles of auditing standards in the accounting profession. (3 Marks)
(Total 15 Marks)
QUESTION 6
Each assurance engagement is classified on two dimensions: It is either a reasonable
assurance engagement or a limited assurance engagement; and either it is an
attestation engagement or a direct engagement.
Required:
a. Specify the TWO channels through which an assurance can be provided.
(2 Marks)
b. Differentiate a reasonable assurance from a limited assurance. (3 Marks)
c. Explain the FIVE elements of an assurance engagement performed by a

practitioner. (10 Marks)
(Total 15 Marks)
38
QUESTION 7
Abati Quarries Limited was registered with the Corporate Affairs Commission in 2017
and it commenced operations in 2019. The beginning was rough, as the property,
plant and equipment costs were beyond the initial projections, and the company had
to make do with fairly used equipment, which kept breaking down along the line.
Products were meant for supply to its parent company, Abati Estates, which is into
large scale development of residential and commercial property in Lagos. As a result,
Abati Quarries Limited hardly had substantial finished goods (granites) as closing
inventory. The Audit Manager later insisted that boulder rocks blasted at the site
should be regarded as unfinished inventory or work-in-progress.
In addition, the performance of Abati Quarries Limited was at variance with the
performance of competitors in the industry, as the company had been returning
losses from inception. The Audit Manager then required that the audit team should
intimate the General Manager of the company of the decision to determine the cost of
the boulder rocks and include it in the financial statements as closing work-in-
progress. The General Manager, however, disagreed.
The Audit Manager therefore, instructed you, the Audit Senior, to draft appropriate
paragraph(s) on Key Audit Matters (KAMs), suitable for inclusion in the Independent
Auditor‟s report, to bring this matter to the attention of the company‟s shareholders.
Required:
a. Explain “Key Audit Matters” (KAMs) in relation to the Audit Report. (2 Marks)
b. Explain TWO types of audit in which the auditor is required to communicate Key
Audit Matters, in accordance with ISA 701. (3 Marks)
c. Draft the “Key Audit Matters” section for inclusion in the auditor‟s report of
Abati Quarries Limited to capture the “boulders” issue. (6 Marks)
d. Highlight TWO important matters the auditor will consider before determining if
a matter is a Key Audit Matter. (4 Marks)
(Total 15 Marks)
39
SOLUTION 1
a. The benefits an online system offers to Finpay and its customers include:
i.
Immediate entry of transactions into the system (for example, transfer to or
from the customer done on smart phones, electronic point of sale (POS)
terminals, ATMs, or direct from other banks);
ii. Immediate updating of the customers‟ accounts (such as the immediate
updating of the customer‟s records as soon as a transfer is made);
iii. Effective enquiry system (such as immediate answers to balance enquiries
from customers);
iv. Offer of uninterrupted banking services to customers round the clock, even
on public holidays and at night;
v. Enabling real-time engagement, with the use of its Bobo chatbot;
vi. Immediate access to credit, with the use of data analytics, without human
intervention;
vii. Enhancing automatic handling of routine transactions, for example,
payment of monthly utility bills and DStv subscriptions, regulate payments
to third parties;
viii. Cost effectiveness to customers and the bank;
ix. Provision of banking services at any location; and
x. Resolution of issues without physical attendance at bank‟s physical office.
b. Controls embedded in FinPay system

i. General controls include:
 Access controls: Customers‟ transactions are processed immediately
by the online systems. All unauthorised access to the programs and
data files are prevented since the customer has a six-digit
password;
 Programming controls are in-built to prevent or detect unauthorised
changes to standing data, like monthly loan deductions, or monthly
payments to DStv;
 Transaction logs are available on FinPay‟s General Ledger
Application System. This is even accessible on the customers‟
devices. This can be used to create an „audit trail‟;
 Firewalls are used. These protect FinPay‟s General Ledger
Application System from unauthorised access via the internet; and
 FinPay complies with regulatory KYC (Know You Customer)
requirement by collecting NIN, telephone number, passport
photograph, ID card, utility bill, and residential address.
ii. Application controls include:

 Before opening any account for any customer, FinPay‟s system
digitally verifies the customer‟s NIN information, telephone number,
ID card, and utility bill with issuing authorities;
 There is pre-processing authorisation. A customer is required to log
40
on to FinPay system with his/her telephone number and password
before s/he can use the mobile App;
 Program checks (for example confirmation of customer‟s account
balance and the transaction PIN before transactions are
consummated. This includes checking the number of digits in the
password and PIN);
 „Balancing‟. This is evident in the fact that when a transfer is
declined, the debit entry is reversed;
 Customer‟s account number is derived from his/her registered
telephone number; and
 FinPay links all transactions with the customer‟s registered
telephone number or the bank‟s debit card.
c. Areas the auditors will give special consideration because of audit

risks associated with Finpay’s operations
i. The skills and knowledge needed by auditor to understand Finpay‟s
fully automated banking system are very high. This knowledge is to
help in identifying the operational risks to which Finpay is exposed
and how to mitigate them.
ii. The Finpay‟s system covers a very broad geographical market (even
beyond Nigeria). The remote access granted customers exposes the
system to potential high cyber security risks. The auditor should be
aware of industry practices on how this risk is mitigated.
iii. Transaction integrity may be lost in the Finpay‟s system. The auditor
should obtain knowledge of CBN‟s regulatory sandbox and
guidelines and should examine that Finpay complies with these
laws and guidelines. This can result in reputational damages if it
occurs.
iv. There is the risk of inadequate audit trail. The auditor should test
and confirm that this risk is mitigated by adequate logs, backups
and a robust ERP system.
Examiner’s report
The question tests candidates‟ knowledge of computer-based information system as
applicable to on-line system in a banking environment.
Being a compulsory question, about 100% of the candidates attempted the question.
The general performance was below average.
The commonest pitfalls were the inability of the candidates to differentiate between
General controls and Application controls, and application of their knowledge of
audit risks to practical scenarios.
Candidates are advised not to shy away from the knowledge of Information
Technology (IT) and its unavoidable application to audit profession in the modern
dispensation.
41
Marking guide
Marks Marks
a. Benefits of an online system to Finpay and its
customers
2 marks each for a correct solutions subject to a
maximum of 4 points 8
b. (i) Identifying and explaining General controls for
in Finpay system
1 mark each for each point, subject to a maximum
of 5 points 5
(ii) Identifying and explaining Application controls
in the Finpay system
1 mark each for each point, subject to a maximum
of 5 points 5 10
c. Areas the auditor will give special
considerations because of the audit risks
associated with online real-time system of
Finpay operations.
4 marks for a correct explanation subject to a
Total 30
SOLUTION 2
a. Principal risks
The principal risks of misstatement of the bank and cash balances in the
financial statements are that:
i. Not all bank balances are disclosed (the rights and obligations, and
existence assertions);
ii. Reconciliation differences between bank statements and the client‟s
cash book balances are incorrectly dealt with (the valuation assertion);
and
iii. Material cash balances are omitted (the completeness assertion).
b. Typical areas covered by a confirmation letter include the following:

i. Confirmation of balances on all bank accounts at the end of the
reporting period;
ii. Details of any unpaid bank charges;
iii. Loans granted to the organisation;
iv. Details of any liens (charges) over assets of the client entity;
v. Details of any assets of the client entity held by the bank as security for
loans and advances;
vi. Details of accrued interests;
vii. Details of any other client bank accounts that are known to the bank but
not listed on the request to the bank for confirmation of balances; and
42
viii. Names of signatories and their mandates.
c. Audit work on the banks’ confirmation replies

i. Bank reconciliation statement: Obtain or prepare a bank
reconciliation statement for each bank account.
ii. Arithmetic accuracy of reconciliation: If the reconciliation is
prepared by the company, check it for arithmetical accuracy.
iii. Comparison with bank reconciliation: Check the bank balance
confirmed in the bank‟s confirmation letter against the balance used in
the bank reconciliation statement.
iv. Other information on the confirmation letter: Relate other

information contained in the confirmation letter to other areas of the
audit (for example, accrued bank charges must be provided for in the
financial statements).
v. Check the bank reconciliation against available evidence: Check

items appearing in the bank reconciliation statement against any
available supporting evidence (for example, unpresented cheques in the
bank reconciliation statement should be shown as having been
presented in a subsequent bank statement).
vi. Unusual items: Review the cash book and bank statements for unusual
items, including unusual delays between cash book and bank statement
entries. Investigate the reasons for any unusual item.
vii. Review of the confirmation letter in relation with disclosure on
the financial statements: Review the confirmation letter from the
bank for any other information to be disclosed in the financial
statements (for example, charges on assets and security for loans).
d. The main audit steps involved in verifying cash balances in a physical

count include the following:
i. The auditor should count cash at all locations simultaneously and in the
presence of a company official. (Simultaneous counting is necessary, to
prevent the client from moving cash that has been counted at one
location to another location ready for the next count);
ii. After the count, the auditor should obtain a signed receipt for the
amount of cash returned to the official, after the count;
iii. The auditor should check the cash balance obtained from the count
against the client‟s cash records and cash balance in the draft financial
statements; and
iv. The auditor should also investigate the treatment of any money
advanced to employees (for example, against wages or salary).
43
Examiner’s Report
The question tests candidates‟ knowledge of substantive audit procedures on cash
and cash equivalents.
About 20% of the candidates attempted thee question and their performance was
poor.
The commonest pitfall was the exhibition of poor knowledge even in the common
area of audit procedures, such as confirmation of bank balances.
Candidates are advised to adequately cover the syllabus and make use of the
Institute‟s Study Text for their preparations.
Marking Guide
MARKS MARKS
a. Explanation of risks of misstatement associated with
cash and cash balances
1 mark for each point, subject to a maximum of 3
points 3
b. Explanation of areas covered by bank confirmation
letter
1 mark for each point, subject to a maximum of 6
points 6
c. Stating and explaining steps to be performed after
obtaining confirmation replies from the banks
½ mark for each correct statement, subject to
1 mark each for explanation of a step, subject to a
maximum of 5 points 5 7
dExplanation of main audit steps involved in a
. physical count in verifying cash balances
1 mark each, subject to a maximum of 4 points 4
Total 20
SOLUTION 3
a. Reasons for obtaining letters of representation from client’s
management include:
i. To support the auditor‟s understanding of management‟s intention or
judgment (for example, in respect of future plans for the business or a
specific matter, such as the net realisable value of inventory);
ii. To support the completeness of a specific item (for example, that all
liabilities have been provided for); and
44
iii. To provide additional source of audit evidence in the overall auditing
process.
b. If a representation by management is contradicted by other audit

evidence, the auditor should:
i. Consider whether his risk assessment of that area is still appropriate;
ii. Consider whether additional audit procedures are needed; and
iii. If he has concerns about the integrity of management, document those
concerns and consider withdrawing from the audit.
c. Draft letter of representation
EDINBURG NIGERIA LIMITED

172, Idowu Taylor Street
Victoria Island, Lagos
18 April, 2024
The Managing Partner
Bim Abubakar & Co.
(Chartered Accountants)
432 Broad street
Lagos
Dear Sir,
RE: AUDIT OF OUR COMPANY’S ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2023
In addition to the disclosures in the financial statements and other information

presented to you for the audit of our company‟s accounts for the year ended
December 31, 2023, we wish to provide the following confirmations:
Financial statements
We have fulfilled our responsibilities for the preparation and presentation of the
financial statements as set out in the terms of the audit engagement dated
November 12, 2023 and, in particular, the financial statements are fairly
presented in accordance with International Financial Reporting Standards.
Significant assumptions used by us in making accounting estimates, including

those measured at fair value, are reasonable.
We have provided you with:

- All information, such as records and documentations, and other matters
that are relevant to the preparation and presentation of the financial
statements;
- Additional information that you have requested from us; and
- Unrestricted access to our staff.
45
All transactions have been recorded in the accounting records and are reflected
in the financial statements.
We have disclosed to you the results of our assessment of the risk that the
financial statements may be materially misstated as a result of fraud.
We have disclosed to you all known instances of non-compliance or suspected

non-compliance with laws and regulations, whose effects should be considered
when preparing financial statements.
We have disclosed to you the identity of the entity‟s related parties and all the
related party relationships and transactions of which we are aware.
Inventory worth N15 Million in Niger Republic

Your firm is unable to visit Niger Republic because of the ongoing civil unrest in
that country. We confirm to you that our inventory is safe and comprehensively
insured against all risks, hence no loss is expected on the inventory since the
inventory are tangible assets, not perishable or threatened by obsolescence.
Donation of N500,000.00 to Ojota Motherless Baby’s Home (The Home)

We were unable to obtain a receipt as the Home, we were informed, was currently
out of stock of receipt booklets. However, we confirm that the donation was
approved by our company‟s board and the receipt will be obtained once the
Home has stock of receipt booklets. The Home has already verbally confirmed to
your staff of the receipt of the donation.
Chairman’s medical treatment of N600,000.00

We confirm that our Chairman received medical treatment during his visit to
Germany, but did not come back with any documentary evidence. The amount is
relatively material, but still within the medical limit of the Chairman as approved
by the board. We have written to the hospital in Germany to send to us all
documents related to the treatment, We are positive that the documents will be
received very soon.
If you require confirmation on any item not included above, please do not
hesitate to contact us.
Thank you.
Yours faithfully,
For:- EDINBURG NIGERIA LIMITED
Edwin Olusoga
Managing Director/CEO
(NOTE: The letter should be on Edinburg Nigeria Limited‟s official letterhead)
46
Examiner’s Report
The question tests candidates‟ understanding of letter of representation, as a part in
the finalisation stage in an auditing process.
About 85% of the candidates attempted the question, but the performance was
average.
The commonest pitfalls of candidates were their failure to differentiate between

ordinary memorandum (memo) and official letters. Some candidates who attempted
to write a letter of representation did a poor job of it.
Candidates are advised to prepare well for the examinations and make good use of
the Institute‟s Study Texts. They should also endeavour to meet the requirements of
the questions.
Marking guide
Marks Marks
a. Explanation of reason for obtaining letters of
representation from client‟s management
2 marks each for a point, subject to a maximum of 2
points 4
b. Steps to be taken if a representation by
management is contradicted by other audit evidence
2 marks for each correct step, subject to a maximum
of 3 steps 6
c. Draft of a letter of representation
Introduction 2
Body of letter 2½
Special representation issues 4½
Conclusion & closing 1 10
Total 20
SOLUTION 4
a. Public interest
An obligation of professional bodies, which separates a profession from a
trade is that members of the profession are expected to act in the public
interest. It is, therefore, a responsibility of an accountant “not to act
exclusively to satisfy the needs of a particular client or employer”.
When the demands or needs of a client or employer appear to be contrary to
the public interest, accountants should consider the public interest. The
auditors should, therefore, report their observations on the reduced costs of
maintenance and inspections at MetroPower.
47
b. It is usual to associate the public interest with the following matters:
i. Detecting and reporting any serious misdemeanour or crime;
ii. Protecting health and public safety;
iii. Preventing the public from being misled by a statement or action by an
individual or an organisation;
iv. Exposing the misuse of public funds and corruption in government; and
v. Revealing the existence of any conflict of interests of those individuals
who are in positions of power or influence.
c. Principles-based versus rules-based code of ethics

A principles-based code of ethics for accountants is a code that specifies
general principles of ethical behaviour, and requires the professional
accountant to act in accordance with the principles. The accountant is
required to use his judgement in deciding whether in each case a particular
course of action is a „proper‟ or „ethical‟ one. Both the IFAC and ICAN codes of
ethics are principles-based codes.
The rules-based code of ethics is one in which a regulatory body issues a code
of ethics for accountants that contains specific rules about how they should act
in specific situations.
The principle-based codes of ethics are considered better than the rules-based
code of ethics, especially because of the several weaknesses of the rules-based
code of ethics, which include:
i. Complex and varied circumstances an accountant might face. It is

impossible to plan for all types of ethical problems that will arise, making
rules in advance, without knowing the exact details of the situations and
of what courses of action the accountant must take;
ii. Differences in situations (ethical dilemmas) that an accountant might face

over time could change as the business environment changes. It might,
therefore, be necessary to review and update the rule book regularly; and
iii. Differences in ethical views amongst countries and cultures. Behaviour or

disposition that might be considered unethical in one country might be
perfectly normal and acceptable in another country. A rule book cannot
easily make allowances for national and cultural differences in ethical
viewpoints.
d. Importance of the concept of “Due care” or “Reasonable care”

It is a fundamental principle that ICAN members should carry out their work
with professional competence and due care. This requirement reinforces a
basic principle of the law of contract as it operates in many countries – that a
contract for the provision of services should be performed with a reasonable
48
degree of skill and care. The concept of „due care‟ or „reasonable care‟ is
obviously important.
The implication is that audit work performed by an auditor for a client must be
adapted to the specific circumstances and characteristics of the client. Thus,
there is no such thing as a „standard‟ audit.
e. Likely implications of the auditors‟ failure to act on the information they got in
relation to the reduced costs of maintenance and inspections at MetroPower
i. There may be legal claims against the auditors in the law of contract or
the law of tort. There may also be disciplinary proceedings against the
auditor by ICAN.
ii. The audit firm may earn a reputation in the business community for poor
work and may, therefore, lose clients.
Examiner’s Report
The question test candidates‟ understanding of Professional Ethics and Code of
Conduct.
About 90% of the candidates attempted the question and the general performance
was above average.
The commonest pitfall was the failure of the candidates to describe “Public interest”
relating to matters of MetroPower.
Candidates should adequately cover the syllabus and make use of the Institute‟s
Study Text and Pathfinder.
Marking guide
Marks Marks
a. Description of “Public Interest” 2
b. Matters with which “Public Interest” can be
associated
1 mark for each point to a maximum of 5 points 5
c. Justification of “principles based ethics” being
better than “rule based ethics”
1 mark for each point, subject to a maximum of
5 points 5
d. Explanation why concept of “due care” or
“reasonable care” is important in the
contract for provision of services
- Why the concept is important
with reference to accounting 1
49
The Provision of the concept in the law of
-
contract 1
- Implication for the audit work 2 4
e. Likely implications of the auditor‟s failing to act
on the information on reduced maintenance and
inspection at Metropower
2 marks each for a point, subject to maximum of
2 points 4
Total 20
SOLUTION 5
a. The objectives of the independent auditor, as specified in ISA 200 are:
i. To obtain reasonable assurance that the financial statements are free
from material misstatement, whether due to fraud or error, thereby
enabling the auditor to express an opinion on whether the financial
statements are prepared, in all material respects, in accordance with
the applicable financial reporting framework; and
ii. To report on the financial statements, and communicate as required by

the ISAs, in accordance with the auditor‟s findings. Where the auditor is
unable to obtain reasonable assurance, and a qualified opinion is
insufficient, the auditor must disclaim an opinion or resign.
b. ISA 200 requires the Independent Auditor to:

i. Comply with all ISAs relevant to the audit;
ii. Comply with relevant ethical requirements;
iii. Plan and perform an audit with professional scepticism;
iv. Exercise professional judgement in planning and performing an audit;
and
v. Obtain sufficient and appropriate audit evidence to allow him to obtain
reasonable assurance.
c. Roles of auditing standards in the accounting profession

i. Auditing standards provide a framework that assures audits of financial
statements are conducted consistently and with a high level of quality
and established standards of practice.
ii. Auditing standards offer comprehensive guidance on the audit process
from planning to reporting.
iii. Auditing standards provide the benchmark against which auditors are
held accountable for their work.
iv. Auditing standards help in laying the rules and the guidelines for
protecting the public interest and promoting transparency.
v. The users of financial statements have confidence that the consistent
50
application of auditing standards give assurance of the quality and
integrity of the financial statements.
Examiner’s report
The question tests the understanding of candidates on auditing standards (ISAs).
About 95% of the candidates attempted the question and the performance was
generally above average.
The major pitfall was the inability of the candidates to state the tasks ISA 200
requires the Independent Auditor to perform.
Candidates are advised to understand the requirements of audit standards in their

study for the examination and make judicious use of the Institute‟s Study Text.
Marking guide
Marks
a. Objectives of the external auditor per ISA 200
2 marks for each point, subject to a maximum of 2 points 4
b. Tasks ISA 200 requires the auditor to perform.
2 marks for each point, subject to a maximum of 4 points 8
c. Role of auditing standards in the accounting profession.
1 mark for each point, subject to a maximum of 3 points 3
Total 15
SOLUTION 6
a. Assurance can be provided by:
i. An audit: this may be external audit, internal audit or a combination of

the two; and
ii. A review: this is a „voluntary‟ investigation into or review of an aspect
of the financial statements.
b. Differences between a reasonable assurance and a limited assurance
Reasonable assurance Limited assurance
Level High Moderate
Expression of Positive Negative
conclusion
Objective To provide reasonable To provide limited assurance
assurance
Time More time consuming Less time consuming
Cost More costly Less costly
Example “In our opinion the “Based on our review, nothing
financial statements give has come to our attention that
a true and fair view or causes us to believe that the
51
are presented fairly in all accompanying financial
material respects” statements do not give a true
and fair view”.
Evidence High level of audit Lower level of audit evidence
required evidence required required.
c. An assurance engagement performed by a practitioner will consist of the

following five elements:
i. A three-party relationship:
 Practitioner – the individual providing professional services that
will review the subject matter and provide the assurance, for
example, the audit firm in a statutory audit;
 Responsible party – the person(s) responsible for the subject
matter, for example, the directors are responsible for preparing
the financial statements to be audited; and
 Intended users – the person(s) or class of persons for whom the
practitioner prepares the assurance report, for example, the
shareholders in a statutory audit.
ii. Subject matter: This is the data such as the financial statements that
have been prepared by the responsible party for the practitioner to
evaluate. An example might be a cash flow forecast to be reviewed by
the practitioner;
iii. Suitable criteria: This can be referred to as „the rules‟ against which the
subject matter is evaluated to reach an opinion. In a statutory audit,
this would be the applicable reporting frameworks (for example, IFRS
and CAMA);
iv. Evidence: Information used by the practitioner in arriving at the

conclusion on which their opinion is based. This must be sufficient
(enough) and appropriate (relevant); and
v. Assurance report: The report (normally written) containing the

practitioner‟s opinion. This is issued to the intended user following the
collection of evidence.
Examiner’s report
The question tests candidates‟ knowledge of assurance engagements.
About 96% of the candidates attempted the question and the performance was good.
Candidates are advised to adequately cover the subject syllabus.
52
Marking guide
a. Channels through which an assurance can be provided Marks
1 mark each for a point, subject to a maximum of 2 points
2
b. Differences between a reasonable assurance and a
limited assurance
c. Elements of an assurance engagement
2 marks each for an element explained, subject to a
Total 15
SOLUTION 7
a. Key audit matters (KAMs) are, according to ISA 701, those matters that, in the
auditor‟s professional judgement were of most significance in the audit of the
financial statements of the current period. KAMs are selected from matters
communicated with those charged with governance.
b. Types of audits requiring KAM communication are:

i. Audits of all listed companies; and
ii. Audits of entities where KAMs are required by law or regulations to be
communicated in the auditor‟s report.
c. Key Audit Matter

Inventory
Our audit of the financial statements of Abati Quarries Limited for the year
ended (Date) included an evaluation of the company‟s accounting for
boulders. Boulders are a significant by-product of the company‟s quarrying
operations and their valuation and subsequent sale can materially affect the
financial statements. We believe non-recognition of the value of boulders as
work-in-progress could affect the profitability position of the company and its
overall state of affairs.
d. The matters which the auditor will consider before determining if a matter is a
Key Audit Matter, include:
i. Areas of higher assessed risk of material misstatement, or significant

risks;
ii. Significant auditor‟s judgements relating to areas in the financial
statements that involved significant management judgement, including
accounting estimates that have been identified as having high
estimated uncertainty; and
iii. The significant events or transactions that are capable of impacting on
the financial statements.
53
Examiner’s report
The question tests candidates‟ knowledge of “Key Audit Matters”.
About 10% of the candidates attempted the question and the performance was poor.
The candidates commonest pitfall was their display of a poor knowledge of
provisions of “Key Audit Matters” as per ISA 701.
Marking guide
a. What are “Key Audit Matters”? Marks
b. Two types of audit in which the auditor is required to
communicate “Key Audit Matters” according to ISA 701
1½ marks for each point, subject to a maximum of 2
points 3
c. Draft of “Key Audit Matters” to capture the „boulders”
issue (Abati Quarries Limited) 6
d. Important things the auditor would consider before
determining if a matter is a “Key Audit Matter”
2 marks each, subject to a maximum of 2 points 4
Total 15
54
ICAN/241/Q/B4 Examination No....................
PERFORMANCE MANAGEMENT

number.
8. A formula sheet and discount tables are provided with this examination
paper.
WEDNESDAY, MAY 15, 2024
55
PERFORMANCE MANAGEMENT

QUESTION 1
Tani Kamac (TK) makes three products A, B, and C. All the three products must be
offered for sale each month in order to be able to provide a complete market service.
The products are fragile and their quality deteriorates rapidly once they are
manufactured.
The products are produced on two types of machine and worked on by a single grade
of direct labour. Five direct employees are paid ₦80 per hour for a guaranteed
minimum of 160 hours each per month.
All the products are first moulded on machine type 1 and then finished and sealed on
a machine type 2.
The machine hours requirements for each of the products are as follows:
Product A Product B Product C

Hours per unit Hours per unit Hours per unit
Machine type 1 1.5 4.5 3.0
Machine type 2 1.0 2.5 2.0
The capacity of the available machines type 1 and 2 are 600 hours and 500 hours per
month respectively.
56
Details of the selling prices, unit costs and monthly demand for the three products
are as follows:
Product A Product B Product C
N per unit N per unit N per unit
Selling price 910 1,740 1,400
Component cost 220 190 160
Other direct material cost 230 110 140
Direct labour cost at ₦80 per hour 60 480 360
Overheads 240 620 520
Profit 160 340 220
Maximum monthly demand (units) 120 70 60
Although TK uses marginal costing and contribution analysis as the basis for its
decision making activities, profits are reported in the monthly management accounts
using the absorption costing basis. Finished goods inventories are valued in the
monthly management accounts at full absorption cost.
Required:
a. Calculate the machine utilisation rate per month for each machine and explain
which of the machines is the bottleneck/limiting factor. (4 Marks)
b. Using the current system of marginal and contribution analysis, calculate the
profit maximising monthly output of the three products. (4 Marks)
c. Explain why throughput accounting might provide more relevant information

in TK‟s circumstances. (6 Marks)
d. Using a throughput approach, calculate the throughput-maximising monthly

output of the three products. (5 Marks)
e. Explain the throughput accounting approach to optimising the level of

inventory and its valuation. Contrast this approach to the current system
employed by TK. (5 Marks)
f. Explain the importance of identifying scarce resources when preparing

budgets and the use of linear programming to determine the optimum use of
resources. (6 Marks)
(Total 30 Marks)
57
QUESTION 2
Kenny Katuma (KK) manufactures standard engine components. It operates a costing

system based on absorption costing and standard costs, and the management control
system is based on monthly variance analysis reports.
KK has recently appointed a new CEO, who has begun to introduce changes to the
manufacturing systems. He believes in lean manufacturing principles, and has begun
to establish a just-in-time manufacturing system, with a focus on reducing
inventories and production cycle times, and eliminating waste. Discussions are in
progress with major suppliers to introduce just-in-time purchasing arrangements.
The CEO has informed the management accountant that changes will be needed to
the company‟s internal accounting systems, he has also indicated that KK will need a
lean management accounting system to support its lean manufacturing system. The
CEO is dissatisfied with many of the features of the current management accounting
system. There are many errors in data capture for the cost accounting system, and
monthly variance reports are not produced until two weeks after the end of each
month. He also considers that wrong information is being reported.
Required:
a. Explain the main principles of a lean information system. (6 Marks)
b. Discuss the reasons why KK‟s current cost and management accounting
systems do not fulfil the requirements of lean information systems. (7 Marks)
c. Identify the changes that should be made to KK‟s management accounting
system in order to turn it into a lean information system. (7 Marks)
(Total 20 Marks)
QUESTION 3
Ogbunigwe Nigeria Limited is a big and reputable publishing firm established in the
early 1970‟s. The company has recently been taken over by Wisdom International
Publishing Company (WIPC) – a multinational company operating in several
countries of the world.
Mr. Pampam who is the Managing Director of WIPC has been sent from the
company‟s headquarters to review, among other things, the budgeting and reporting
system used by Ogbunigwe Nigeria Limited.
During his visit to all the departments, he discovered that monthly budgets are
prepared for each department in the company. Upon request, the newly acquired
company submitted the last budget statement for the note book production which
covered Quarter 3 of 2022 as shown below:
58
The budget statement presented was as shown below:
Budget statement for Quarter 3
Department: Note Book Production:
Particulars Actual results: Units produced 75,000

Labour hours: 212,100
ACTUAL BUDGET VARIANCES
RESULTS
N’000 N’000 N’000
Direct materials 1,512 1,440 (72)
Direct Labour 738 720 (18)
Variable production overhead 474 432 (42)
Fixed production overhead 354 336 (18)
Variable admin. Overhead 246 240 (6)
Fixed admin overhead 300 288 (12)
Total costs 3,624 3,456 (168)
Sales value of production 4,650 4,464 186
Profit 1,026 1,008 18
The Head of Department of Note book Production department - Mr. Josiah Okoli-in
his comment on the state of affairs of the department, revealed that the budget
statement presented was based on 72,000 units with a standard labour processing
time of 2.85 hours per unit.
Mr. Pampam observed that Mr. Josaih Okoli was not in any way enthusiastic about
the budget system. He saw it as a pressure system imposed by the company to
permit some Departmental Managers in bad light. He pointed out that the system
was hurriedly introduced by Dynamic Financial Konsult about twelve months ago.
The consultant did not take time to provide explanation that could assist users of the
budget to understand the budgeting system. The Head of Department of Note book
Production department who was very experienced doubt the competence of the
consultant. He was of the opinion that the system introduced in Ogbunigwe Nigeria
Limited was either a ready-made one developed for another company and not
suitable for the company or that the consultant did not understand the system well
enough to give him the needed confidence to educate the users. He concluded by
stating that he was sure his department made a loss as against the positive figure
recorded in the report and there was the possibility of reporting a loss at another
period when profit was actually made. The situation reported above cuts across
virtually all the departments and so the need to nip the issue in the bud became very
imperative and urgent.
The task of making budgeting system more useful and acceptable in a biased
environment like this, no doubt, seems difficult but your advice to Mr. Pampam will
assist tremendously in getting the company out of the quagmire resulting from
various contraception of this budget system.
59
a. Redraft the budget statement in a more informative manner, showing the
relevant variances. (12 Marks)
b. State the general behavioural problems associated with budgeting and in

particular, relate such issues with this situation. (4 Marks)
c. State the steps that Mr. Pampam should take in order to revitalise the budget
system. (4 Marks)
(Total 20 Marks)
QUESTION 4
Some time ago Robert launched a new product some years ago at first, sales were
good but now the figures are causing concern. Robert wants a more accurate sales
forecast to produce detailed cash forecasts.
Since there is some seasonality present in the raw data, the series for sales shown
below represents the underlying trend based on an averaging process:
Sales
Year Quarter Trend point (cartons)
X y
2016 3rd 1 10,000
2016 4th 2 10,790
2017 1st 3 10,920
2017 2nd 4 11,000
2017 3rd 5 11,050
2017 4th 6 11,080
2018 1st 7 11,085
2018 2nd 8 11,095
2018 3rd 9 11,120
2018 4th 10 11,130
On average, quarters, 1 and 3 are 5% and 6% respectively above trend whilst quarters
2 and 4 are respectively 2% and 9% below trend. Some preliminary calculations on
the above ten observations have been carried out and the results are summarised
below:
Results from ten periods’ observations:

Linear regression y = a + bx
Slope = 82.67
Intercept = 10,472.33
Coefficient of determination = 0.535
It is required to make forecasts of sales for quarters 3 and 4 in 2019 and for quarters
1 and 2 in 2020 but there is some discussion on whether the ten-period data shown
60
above are suitable for forecasting or whether only the last five periods would provide
a better basis for forecasting. Linear analysis of the last five periods only gives the
following intermediate results:
Results of last five periods’ observations:

y = 555.10
x2 = 330
y2 = 61,627.40
xy = 4,442.15
Note: the y values have been scaled down by 100 times for ease of calculation.
Required:
a. Forecast the sales of the four quarters required using the ten-period
observations results. (6 Marks)
b. Prepare similar forecasts based on the last five periods‟ observations.
(8 Marks)
c. Explain which forecasting basis produces the better forecast. (6 Marks)
(Total 20 Marks)
SECTION C: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THE THREE

QUESTION 5
Zona Tango (ZT) plc is a holding company with four divisions, including Alba and
Beta Divisions. Alba Division produces a component that it sells externally, and can
also transfer to other divisions within the group.
Beta Division uses the components from Alba Division as a raw material for its final
product. The division can also obtain the components from external suppliers. The
components, when obtained from Alba Division undergoes further processing at a
cost of N4.50 per unit, before it is sold to the external market.
The Board of Directors in order to implement a new Appraisal Review has set up a
performance scheme for the divisional managers. A performance target for the next
financial year has been set and the following budgeted information relating to the
two divisions has been prepared.
Alba Division Beta Division

Maximum production/Sales
capacity 900,000 units
Sales to external customers 700,000 units (no constraints)
(Selling price) N6.80 Variable Unit Cost N4.90
Divisional fixed cost N160,000 N140,000
Capital employed N4m N3m
Residue Income N700,000 N500,000
Divisional cost of capital 12% 10%
61
Beta Division has asked Alba Division to quote a transfer price for units of the
components.
Required:
a. Calculate the transfer price per unit which Alba Division should quote to Beta
division in order that its budgeted residual income target will be achieved.
(3 Marks)
b. Calculate the selling price per unit which Beta Division should quote to
external market in order that its budgeted residual income target will be
achieved, based on the transfer price quotation state clearly your assumptions
(3 Marks)
c. Explain why the transfer price calculated in (a) may lead to sub-optimal
decision making from the point of view of ZT plc, taken as a whole. (5 Marks)
d. In what circumstances will a negotiated transfer price be used instead of a
market based price? (4 Marks)
(Total 15 Marks)
QUESTION 6
Many firms still focus on profitability as their main measure of performance, despite
increasing evidence that non-financial measures are often more important.
Required:
a. Explain the arguments for using the profit measure as the all-encompassing
measure of the performance of a business. (5 Marks)
b. An insurance company is considering introducing a balanced scorecard.

State the FOUR perspectives of the balanced scorecard and recommend, with
explanations, two performance measures for each perspective. (10 Marks)
(Total 15 Marks)
QUESTION 7
Jumbo Tailors Nigeria Limited manufactures three unique wears for which the
maximum revenue for the coming year is estimated as follows:
N
Trousers 8,250,000
Jackets 9,880,000
Skirts 12,390,000
62
Summarised unit cost data are as follows:
Product Trousers Jackets Skirts

N N N
Direct material 1,000 900 700
Direct Labour 500 450 350
Variable costs 800 1,600 1,000
Fixed costs 250 500 400
Total costs 2,550 3,450 2,450
The allocation of fixed costs was derived from last year‟s production level and this
may be reviewed, if current output plans are different.
Estimated selling prices are:
Product Price
N
Trousers 3,300
Jackets 3,800
Skirts 2,950
The products are processed on sewing machines housed in a building of three blocks.
Block A contains type I machine which has an estimated maximum machine hour
capacity of 39,200 hours available in the forthcoming year with fixed overhead cost
of N1,960,000 per annum.
Block B contains type II machine of which 20,000 machine hours are estimated in the
forthcoming year with a fixed overhead cost of N1,500,000 per annum.
Block C also contains type II machine which also has an estimate of 16,000 machine
hours available in the forthcoming year. The fixed overhead cost of N740,000 is
estimated per annum for Block C.
The required machine hours for one unit of output for each Jeans on each type of
machine are as follows:
Product Trousers Jackets Skirts

Type I machine 2 hours 4 hours 6 hours
Type II machine 3 hours 6 hours 2 hours
63
a. Determine the optimal production plan which Jumbo Tailors Nigeria Limited
should adopt. (12 Marks)
b. Calculate the total profit that would be made, if the production plan in (a)
above is adopted. (3 Marks)
(Total 15 Marks)
64
Formulae
Learning curve
Y = axb
Where Y = cumulative average time per unit to produce x units
a = the time taken for the first unit of output
x = the cumulative number of units produced
b = the index of learning (log LR/log2)
LR = the learning rate as a decimal
Demand curve
P = a – bQ
change in price
b
change in quantity
a = price when Q = 0
MR = a – 2bQ
The linear regression equation of Y on X is given by:
Y = 𝑎 + 𝑏𝑋
𝑛 𝑋𝑌 − ( 𝑋)( 𝑌)
where b = 2
𝑛 𝑋 − 𝑋 2
𝑦 𝑏 𝑥
a = −
𝑛 𝑛
Coefficient of determination (r2)

2
𝑛 𝑋𝑌 − 𝑥 𝑌1
r2 = 2 2
(𝑛 𝑋 − 𝑋 2 (𝑛 𝑦 − 𝑋 2
65
The Miller-Orr Model
1
3 3
x Transaction Cost x Variance of Cash flows
4
𝑆𝑝𝑟𝑒𝑎𝑑 = 3 x
Interest rate as a proportion
Annuity Table
Present value of an annuity of 1 i.e. 1 - (1 + r)-n
r
Where r = discount rate
n = number of periods
Discount rate (r)

Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0·990 0·980 0·971 0·962 0·952 0·943 0·935 0·926 0·917 0·909 1
2 1·970 1·942 1·913 1·886 1·859 1·833 1·808 1·783 1·759 1·736 2
3 2·941 2·884 2·829 2·775 2·723 2·673 2·624 2·577 2·531 2.487 3
4 3·902 3·808 3.717 3·630 3.546 3.465 3·387 3·312 3·240 3·170 4
5 4·853 4·713 4·580 4·452 4·329 4·212 4·100 3·993 3.890 3·791 5
6 5·795 5·601 5·417 5·242 5·076 4·917 4·767 4·623 4.486 4·355 6
7 6·728 6.472 6·230 6·002 5·786 5·582 5·389 5·206 5·033 4·868 7
8 7·652 7·325 7·020 6·733 6·463 6·210 5·971 5·747 5·535 5·335 8
9 8·566 8·162 7·786 7.435 7·108 6·802 6·515 6·247 5·995 5·759 9
10 9·471 8·983 8·530 8·111 7·722 7·360 7·024 6·710 6.418 6·145 10
11 10·368 9·787 9·253 8·760 8·306 7·887 7.499 7·139 6·805 6.495 11
12 11·255 10·575 9·954 9·385 8·863 8·384 7·943 7·536 7'161 6·814 12
13 12·134 11·348 10·635 9·986 9·394 8·853 8·358 7·904 7·487 7·103 13
14 13·004 12·106 11·296 10·563 9·899 9·295 8·745 8·244 7·786 7·367 14
15 13·865 12·849 11·938 11·118 10·380 9·712 9·108 8·559 8·061 7·606 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0·901 0·893 0·885 0·877 0·870 0·862 0·855 0·847 0·840 0·833 1
2 1·713 1·690 1·668 1·647 1·626 1·605 1·585 1·566 1·547 1·528 2
3 2.444 2.402 2·361 2·322 2·283 2·246 2·210 2·174 2·140 2·106 3
4 3·102 3·037 2·974 2·914 2·855 2·798 2·743 2.690 2·639 2.589 4
5 3·696 3·605 3·517 3·433 3·352 3·274 3·199 3·127 3·058 2·991 5
6 4·231 4·111 3·998 3·889 3·784 3·685 3·589 3.498 3.410 3·326 6
7 4·712 4·564 4.423 4·288 4·160 4·039 3·922 3·812 3·706 3·605 7
8 5·146 4·968 4.799 4·639 4.487 4·344 4·207 4·078 3·954 3·837 8
9 5·537 5·328 5·132 4·946 4·772 4·607 4.451 4·303 4·163 4·031 9
10 5·889 5·650 5.426 5·216 5·019 4·833 4·659 4.494 4·339 4·192 10
11 6·207 5·938 5·687 5.453 5·234 5·029 4·836 4·656 4.486 4·327 11
12 6·492 6·194 5·918 5·660 5·421 5·197 4·988 4·793 4·611 4.439 12
13 6·750 6.424 6·122 5·842 5·583 5·342 5·118 4·910 4·715 4·533 13
14 6·982 6·628 6·302 6·002 5·724 5.468 5·229 5·008 4·802 4·611 14
15 7·191 6·811 6.462 6·142 5·847 5·575 5·324 5·092 4·876 4·675 15
66
PERFORMANCE MANAGEMENT SOLUTIONS
SOLUTION 1
Solution 1
a)
Product
Machine hours required A B C Total
Type 1 180 315 180 675
Type 2 120 175 120 415
Machine utilisation rate:

Machine type 1 = 675/600 = 112.5%
Machine type 2 = 415/500 = 83.0%
Machine type 1 has the highest utilisation rate and the rate is above 100.
Therefore, machine type 1 is the bottleneck/limiting factor.
b)
67
SOLUTION 1
a. Product
Machine hours required A B C Total
Type 1 180 315 180 675
Type 2 120 175 120 415
Machine utilisation rate:

Machine type 1 = 675/600 = 112.5%
Machine type 2 = 415/500 = 83.0%
Machine type 1 has the highest utilisation rate and the rate is above 100.
Therefore, machine type 1 is the bottleneck/limiting factor.
b. Product
A B C
Contribution per unit ₦400 ₦960 ₦740
Machine type 1 hours 1.5 4.5 3.0
Contribution per hour ₦266.67 ₦213.33 ₦246.67
Ranking 1 3 2
Allocation of machine type 1 hours according to this ranking:
Product A 120 units using 180 hours

Product C 60 units using 180 hours
360 hours used
Product B (240/4.5) 53 units using 238.5 hours
598.5 hours used
c. A major concept underlying throughput accounting is that the majority of costs,

with exception of material and component costs, are fixed.
In ABC‟s case it is clear that the labour cost, which is treated as a variable cost
in traditional marginal costing, is indeed a fixed cost. The employees are paid
for a guaranteed 800 hours (160 × 5) each month, whereas the number of
labour hours required to meet the maximum demand can be calculated as 780
hours as follows.
68
Product
A B C Total
Labour hours per unit 0.75 6 4.5
Maximum demand (units) 120 70 60
Total hours required per month 90 420 270 780
Therefore, labour is a fixed cost that will not alter within the relevant range of
activity. Throughput accounting recognises this in the calculation of throughput.
Furthermore, given the perishable nature of ABC‟s products, the throughput
accounting approach to inventory minimisation and maximisation of throughput
would be more appropriate.
d. Product
A B C
₦ per unit ₦ per unit ₦ per unit
Sales revenue 910 1,740 1,400
Component cost 220 190 160
Other direct material 230 110 140
Throughput per unit 460 1,440 1,100
Machine type 1 hours 1.5 4.5 3.0

Throughput per hour ₦306.67 ₦320.00 ₦366.67
Ranking 3 2 1
Allocation of machine type 1 hours according to this ranking:
Product C 60 units using 180 hours

Product B 70 units using 315 hours
495 hours used
Product A (105/1.5) 70 units using 105 hours
600 hours used
e. Throughput accounting approach

The conventional cost accounting approach used by ABC views inventory as an
asset.
In the throughput accounting approach inventory is not viewed as an asset, but

rather as a result of unsynchronised manufacturing. The existence of inventory
is thus viewed as a breakdown in synchronisation and a barrier to generating
profits.
In throughput accounting the ideal inventory level is zero, with the exception
that a buffer inventory should be held prior to the bottleneck machine.
69
As regards the valuation of inventory, the throughput philosophy is that no
value is added to inventory items and no profit is earned until the items are
actually sold. Thus inventory is valued at its material cost only until it is sold.
Contrast the approach

The marginal costing approach currently used in TK differs from throughput
accounting in the following areas:
This approach to inventory valuation is in contrast to the full absorption costing
system used by ABC. The latter approach encourages managers to produce
output just to add to work in progress or finished goods inventory, since this
helps with the absorption of overheads and boosts reported profits. This
behaviour will be avoided, and managers will be more likely to be willing to
minimise inventory if it is valued at material cost only.
Variable and fixed costs: Marginal costing divides costs into variable costs
(which vary with production volume and include materials, labour, and variable
overheads) and fixed costs (which remain constant regardless of production
volume).
Throughput accounting considers materials cost as the only variable cost. All
other costs, including labour are considered as factory cost of operating
expenses and are treated as costs for the period.
Contribution margin: The key metric in marginal costing is the contribution

margin, which is sales revenue minus variable costs. This margin contributes to
covering fixed costs and generating profit.
The key metric in throughput accounting is throughput contribution, which is
sales revenue minus material cost only. This margin contributes to covering the
operating expenses and generating a profit.
Inventory valuation: Inventory is valued based on variable costs only (as

defined above). Fixed costs are treated as period costs and are expensed in the
period they are incurred.
In throughput, inventory is valued based on variable costs only, specifically

direct material costs, avoiding complex overhead allocations.
f. The importance of identifying scarce resources when preparing budgets

i. If an organisation produces just one product, the budget for the scarce
resources is usually the starting point in the budget preparation process.
ii. If an organisation produces two or more products and there is only one
scarce resource, limiting factor analysis must be used to determine the most
profitable use of the scarce resource.
70
iii. When there is more than one scarce resource, linear programming must be
used to identify the most profitable use of resources.
iv. To optimise resource allocation to competing products
Prioritisation: By identifying scarce resources, companies can prioritise their
allocation to the most impactful activities, ensuring that these constraints do
not hinder overall production or service delivery.
v. To Enhance decision-making
Informed Planning: Knowing which resources are scarce allows for more
informed and strategic decision-making, enabling better planning and
utilisation of available resources to meet production targets and customer
demand.
vi. For cost efficiency
Minimised Waste: Effective management of scarce resources reduces waste
and inefficiencies, leading to cost savings and improved profitability.
vii. To improve bottleneck management
Focus on constraints: Identifying scarce resources helps in focusing efforts on
managing and alleviating bottlenecks, which can significantly enhance
throughput and overall system performance.
viii. Risk mitigation
Contingency Planning: Understanding resource limitations allows for better
risk management and the development of contingency plans to mitigate
potential disruptions.
ii. The use of linear programming to determine the optimum use of resources
 Linear programming is applicable when the scare resource is more than one
resource.
 Decisions about what mix of product should be manufactured and sold in
order to maximise profit or minimise costs are formulated and solved as linear
programming problem.
 It allows optimal solution that satisfy several constraints at once.
 It is used in many industries e.g. agriculture where farmers can generate more
revenue from their limited land; transportation (for cost and time efficiency)
etc.
 It is used to determine the price of a scarce resources.
 It is used to determine shadow prices.
 Linear programming is a technique which determines the most profitable
production mix, taking into account resources constraints and limitations.
faced by an organisation. All costs are assumed to be a either fixed or variable
in a relation to a single measure of activity (usually units of output).
The problem is formulated in terms of an objective function and constraints are

then graphed. This process highlights all possible output combinations given the
resources constraints and limitations and allows for the identification of the
output combination which would maximise contribution (the optimal solution). If
there are more than two types of output, the graphical approach is not possible
and the simplex method must be used instead.
71
Examiner’s report
This is a compulsory question which tests candidates‟ ability to determine a
company‟s machine utilisation rate for each machine and also establishes the
machine that is the bottleneck and limiting factor. The second part of the question is
on conventional marginal and contribution analysis to determine the profit
maximising output. The third part is on throughput accounting and throughput
maximising quantity while the final is on the importance of identifying scarce
resources for optimality in budgeting and linear programming activities.
The question being a compulsory question was well attempted.
The performance of the candidates was average.
The major pitfall inability of most candidates to differentiate between the use of
limiting factors in conventional marginal and contribution analysis and the
throughput analysis.
It is hereby recommended that candidates use ICAN study manual and other
Performance Management textbooks in preparing for future Institute‟s examination.
Marking guide
Section Description Mark Mark Total
a. Machine utilisation
Rate (8 ticks @ ½ mark = 4marks) 4
b. Profit maximisation quantity using
Marginal and contribution analysis.
12 ticks @ 1/3 mark = 4 marks) 4
c. Importance of throughput accounting.
(3 points @ 2marks) = 6marks)
6
d. Profit maximisation quantity using
throughput accounting.
15 ticks @ 1/3 mark = 5marks) 5
e. Importance of throughput in inventory
(Any two points @ 1 mark = 2marks)
Importance of throughput in inventory 2
valuation.
(Any two points @ 1½ marks =
3 marks) 3 5
72
f. Importance of identifying scarce
resources in budgeting
(Any 3 points @ 1 mark = 3 marks) 3
Importance of identifying scarce
resources on linear programming.
(Any 2 points @ 1½ marks= 3 marks) 3 6 30
SOLUTION 2
a. A lean information system should provide value to the users of the system. Key
principles are the elimination of waste, speed of information flow, and clarity.
Elimination of waste – A lean system seeks to eliminate all waste. In an

information system, waste is created by errors in the information, which means
that incorrect information is used and wrong decisions may be taken.
Alternatively the information has to be corrected when the error is identified, and
this results in a cost of correction. Correcting errors does not add value, because
the error should not have occurred, and correcting errors is a wasted effort.
Efficiency in the flow of information – A lean manufacturing system is one in

which there is an efficient flow of items though the manufacturing process. In a
lean information system, there should be an efficient flow of information.
Information should be available to individuals when they need it, and there
should not be unnecessary delays in providing it or making it available.
While efficiency in the flow of information means that information should be
available when it is needed, it should not be provided before it is needed.
Information should be available „just in time‟. This is the concept of pulling items
through the system rather than pushing them through. If information is provided
before individuals are ready to use it, it does not have value.
Clarity is also an element of lean information. Information must be clear to the

people who use it and should therefore be presented in a form that they can
understand and use. If information is presented in a form that is difficult to
understand, it will be difficult to use. Unless it is used for its intended purposes,
information has no value.
Together, the elimination of waste, efficiency of information flow, and clarity of

information are qualities of an information system that give value to the
information that the system produces.
b. There are several reasons why KK‟s current management accounting system does
not fulfil the requirements of a lean information system.
73
Errors – There are many errors in the data capture from the cost accounting
system. Errors represent waste in the system, by providing incorrect information
about costs, or requiring correction when the errors are found. Errors also reduce
the confidence of users in the information that the system provides.
„Push‟ system – Monthly variance reports are provided but not until two weeks
after the end of the month. There are two weaknesses in this reporting system.
The first is the delay in making information available if required. The information
about performance is being held by accountants and is not made available to the
managers who can use it.
The second problem is that the information is pushed out to management in the
form of monthly variance reports, when it would be more appropriate to make
the information available when management want to use if for monitoring and
control purposes. The information system is dictating how and when the
information should be used, whereas management should be doing this.
Not encouraging lean manufacturing – more fundamentally, it can be argued

that traditional cost and management accounting methods provide managers
with inappropriate information that encourages the wrong sorts of management
for an organisation that uses lean manufacturing methods. A key feature of lean
manufacturing is the elimination of inventory, because holding inventory is
wasteful. Absorption costing, however, encourages manufacturing at full
capacity, even if this means manufacturing items that are not yet needed by
customers, so that inventory will build up. This is because high volumes of
production reduce the unit costs of manufacture by spreading overhead costs
over a larger volume of output.
Variance reporting of efficiency also encourages greater volumes of output,

because greater efficiency means faster production. When the work force is paid
a fixed wage or salary, attempts to improve efficiency will result in greater
production quantities, and a build-up of inventory.
The current reporting systems therefore encourage managers to control
operations in a way that is inconsistent with lean manufacturing.
Error reduction – To create a lean management accounting system, waste must

be eliminated, and information flow improved. The causes of the data errors in
data capture are not known. The problem may be the use of manual
documentation for recording costs, or errors in input by inadequately trained
staff. Methods of recording costs should be investigated, and the target should be
to eliminate input errors entirely.
Flows of information – The flow of information must be improved, so that up-to-

date information is available to management when they want it. The speed of
74
entering data into the accounting system should be reviewed, and the aim
should be to minimise the delay between recording data and inputting it into the
accounting system. Automated methods of monitoring inventory movement or
recording labour times may be considered.
User access to information – The accounting system should also allow managers
on-line access to information about costs, so that they can obtain and use the
information they need at a time that they need it. This should apply to senior
management as well as to management at the operational level.
Cost allocation – The information provided by the accounting system should be

reviewed, and absorption costing should be abandoned. There may be some
value in using activity-based management to monitor and control overhead
costs, but the most important requirement should be to value inventory at direct
materials cost. This means that there will be no incentive to produce at high-
capacity volumes or operate at unnecessary levels of efficiency. Favourable
capacity and efficiency variances will not affect inventory costs and so will not
improve management performance.
Performance measures – Different items of information should be provided for

performance measurement purposes. Traditional performance measurement
methods for materials – price and usage variances – should be used to control
materials costs. For labour, however, non-financial measures of performance may
be appropriate, such as production cycle times of throughput times and the ratio
of idle time to active time for the work force. The company is considering JIT
purchasing for its main suppliers: if so, a suitable measure of performance may
be the order-to-delivery cycle time for purchase orders.
In a lean information system, information should have a practical use and

support the aims of management. The management accounting system should
be changed so that it provides value – a practical purpose, with no waste, rapid
information flow and clarity of meaning.
Examiner’s report
The question is on Lean Information System. This question is deduced from a broad
management information system. It tests candidates‟ knowledge of the principles
and importance of adopting a lean management information system.
The question was well attempted.
The Performance of the candidate was average.
The major pitfall observed was the inability of candidates to understand fully the
meaning of Lean Information System and the differences between it and what is
currently in use by KK.
75
It is recommended that candidates use the ICAN Study Text and other approved text
books on Performance Management when preparing for future Institute‟s
examination.
Marking guide
Section Description Marks Total
a. Principles of Lean information system.
( Any 3 points @ 2 marks = 6 marks)
6
b. Why the current system in KK is unable

to meet the lean information
requirements.
7
(Any 2 points @ 3½ marks = 7 marks)
c. What changes are required to adopt the

lean information system in KK.,
(2 points @ 3½ marks = 7 marks)

7 20
SOLUTION 3
a. Redraft budget using flexible budgeting concept
S/N Particulars Original Flexible Budget Actuals Variances

Budget
72,000 units 75,000 units 75,000 units
₦‟000 ₦‟000 ₦‟000 ₦‟000
1 Sales 4464 4650 4650 -
Less
Direct material 1440 1500 1512 (12)
Direct labour 720 750 738 12
Variable overhead:
Production 432 450 474 (24)
Administration 240 250 246 4
Total variable cost 2832 2950 2970 (20)
Contribution 1632 1700 1680 (20)
Less
Fixed cost:
Production 336 336 354 (18)
Administration 288 288 300 (12)
624 624 654 (30)
Net Profit 1008 1076 1026 (50)
76
Note:
Variances in bracket are adverse.
Computation of relevant variances:
Sales related variances (Sales department):
Sales Price variance = (ASP – SSP)AQ=(₦62 - ₦62 )75,000 = nil
Sales Quantity variance = (BQ - AQ) SSP = (75000 - 75,000) ₦62 = nil.
Direct material Variances (Purchases department):
Material Price variances= AQ (AC - SC) = 75,000(₦20.16-N20.00)= ₦12,000 A
Material Usage variance = (AQ - SQ) ₦20 = ₦20.00 (75,000 – ₦75,000)=Nil
Direct Labour Variances (Personnel departments):
Direct Labour rate variance = (AR - SR)x AH = (₦3.47949 - ₦3.50877) 212,100=
₦6210.29 F
Direct labour efficiency variance = (AH - SH )SR = (212100 - 213750) ₦3.50877
=₦5789.71F
Labour cost variance = ₦6210.29F + ₦5789.71F = ₦12,000F
Variance production overhead variance (Production department)
Expenditure variance = AH (AR - SR ) = 212,100 {(₦474,000/212100) –
(₦450,000/213750)} = 212100 (₦2.23479 - ₦2.10526) = ₦27,473.31A
Efficiency variance = SR ( AH - SH) = ₦2.10526 (212100 – 213750) = ₦3,473.31F
Variable Production Overhead variance = N24,000 A
Other variances:
S/N Particulars Actual Costs Flexed costs Variances
1 Variable Administration costs ₦246,000 ₦250,000 ₦4000F
2 Fixed Production Costs ₦354,000 ₦336,000 ₦18,000A
3 Fixed Administration costs ₦300,000 ₦288,000 ₦12,000A
b. State the general behavioural problems associated with budgeting and in

particular relate such issues with this situation. Such problems include:
 Use of past record to estimate is not realistic;
 Budget may contain slacks/dummies leading to over-bloated budget
estimates;
 Budget may be realistic or unrealistic due to source of data and
information;
 They may originate from incorrect or inaccurate records/data;
 It could be seen as a pressure device especially if prepared with
sentimental
Attachments;
 Personnel resistance, especially, if the budget preparation is top down driven;
 Lack of participation may introduce lack of acceptance to the budget;
 Sub optimisation where departments work for their individual goals not for
Company goal;
 Budget slack or budget bias; and
 Fundamental misunderstanding about cost cutting especially where
management see budget control as cost cutting.
77
c. Ways of addressing the negativities of behavioural issues in budgeting
 Introduce a realistic budgeting approach such as zero Based Budgetting
approach.
 Introduce incentive schemes like bonuses.
 Train and develop management and staff members in the application of
budget and budgeting control system and Total Quality Management
Techniques.
 Amend the reward system.
 Set up fair unit to resolve disputes emanating from petitions, disputes,
resentment and resistances.
 Ensure a change in management culture.
 Put in place a participative/negotiated approach to budgeting
Examiner’s report
The question tests candidates‟ ability to answer questions on flexible budgeting.
The Performance was above average.
The major pitfall observed was candidates‟ inability to decipher the flexible nature of
the budget required and interpretation of variances therefrom.
It is recommended that candidates use the ICAN Study Text on Performance

Management when preparing for future Institute‟s examination.
Marking guide
a. Re-drafted flexible budget
(24 ticks @ ½ mark = 12marks) 12
b. What are the behaviourial issues in the
budgeting system of the company. (Any 4
point @ 1mark = 4 marks) 4
c. Steps Pampam will take to address the
anomalies. (Any 4 points @ 1 mark = 4
marks) 4 20
78
SOLUTION 4
a. Year Quarter Trend point Sales trend (cartons)
x y = a + bx
2019 3 13 10,472.33 + (82.67 × 13) = 11,547
2019 4 14 10,472.33 + (82.67 × 14) = 11,630
2020 1 15 10,472.33 + (82.67 × 15) = 11,712
2020 2 16 10,472.33 + (82.67 × 16) = 11,795
The seasonally adjusted forecasts are therefore as follows:

Year Quarter Seasonally adjusted forecast sales (cartons)
2019 3 11,547 × 1.06 = 12,240
2019 4 11,630 × 0.91 = 10,583
2020 1 11,712 × 1.05 = 12,298
2020 2 11,795 × 0.98 = 11,559
b. We need to calculate the regression line of the last five periods' observations.
This line is
y = a + bx
n xy − x y
whereb =
n x2 − x 2
y 𝑏 x
anda = −
n n
5 × 4,442.15 − (40 × 555.1) 6.75

So b= = = 0.135
5 × 330 − 40 × 40 50
555.1 0.135 × 40
a= − = 111.02 − 1.08 = 109.94
5 5
We need to multiply the “a and b‟‟ values back up by 100 to compensate for the
fact that the y values were scaled down by 100 before the sigma calculations
were carried out.
So, the regression line is y = 10,994 + 13.5x

Year Quarter Trend point Sales trend (cartons)
x y = a + bx
2019 3 13 10,994 + (13.5 × 13) = 11,169.5
2019 4 14 10,994 + (13.5 × 14) = 11,183.0
2020 1 15 10,994 +(13.5 × 15) = 11,196.5
2020 2 16 10,994 + (13.5 × 16) = 11,210.0
79
The seasonally adjusted forecasts are therefore as follows:
Year Quarter Seasonally adjusted forecast sales (cartons)
2019 3 11,169.5 × 1.06 = 11,840
2019 4 11,183.0 × 0.91 = 10,177
2020 1 11,196.5 × 1.05 = 11,756
2020 2 11,210.0 × 0.98 = 10,986
c. One common method of deciding on which forecasting basis produces the better
result is to compare the coefficients of determination. With ten periods'
observations we are told that r2 = 0.535.
With five periods' observations we have to calculate the coefficient of determination

from the equation given in the tables provided.
2
n xy − x y 2
r =
n x2 − x 2 n 𝑦 2 − ( 𝑦)2
5 × 4,442.15 − 40 × 555.1 2 6.752

= =
5 × 330 − 40 × 40 5 × 61,627.4 − (555.1 × 555.1) 50 × 0.99
= 0.92
Prima facie the forecasting method using five periods' observations is much
better than the other using ten periods, since the coefficient of determination of
the former is 0.92 compared with 0.535 for the latter.
We can explain 92% of the variations in sales by the passage of time using the
former method but can explain only 53.5% of the variations in sales using the
latter method.
Examiner’s report
The question tests candidates‟ ability to answer questions on forecasting.
The question was well attempted since it is a popular statistical question.
The major pitfall observed was the candidate‟s inability to incorporate trend issues
that affect different quarters of the year.
It is hereby advised that candidates use the ICAN Study Text on Performance
80
Marking guide
Section Description Marks Marks Total
a. Quarterly Sales forecast using 10-

period observations.
Statistical observation:
( 4 ticks @ 1 mark = 4 marks) 4
Statistical variation:
(4 ticks @ ½ mark = 2 marks) 2 6
b. Quarterly Sales Forecast using 5 –
Period Observations
Regression formula computation
(4 ticks @ ½ mark = 2 marks) 2
Statistical Observation:
(4 ticks @ 1 mark = 4 marks) 4
Statistical variation:
( 4 ticks @ ½ mark = 2 marks) 2 8
c. Forecasting basis using Coefficient of
correlation
(4 ticks @ 1½ marks = 6marks) 6 20
SOLUTION 5
a. Zonal Tango (ZT) Plc
Transfer price per unit for Alba Division: ₦
Residual Income 700,000
Notional interest (12% x 4,000,000) 480,000
Net profit 1,180,000
Divisional fixed cost 160,000
Contribution 1,340,000
Variable cost (900,000 x 4.90) 4,410,000
Total revenue 5,750,000
Less: External revenue (700,000 x 6.80) (4,760,000)
Internal revenue (a) 990,000
Excess/idle capacity (900,000 – 700,000) (b) 200,000unit
Transfer price (a/b)/unit ₦4.95
Therefore the transfer price that Alba division should quote is ₦4.95/unit as
computed above.
81
b. Selling price of Beta Division: ₦
Residual income 500,000
Notional interest (10% x 3,000,000) 300,000
Net profit 800,000
Divisional fixed cost 140,000
Contribution 940,000
Plus Variable cost further of processing cost (200,000
x ₦4.50) 900,000
Plus Transfer price (200,000 x ₦4.95) - input cost 990,000
Total revenue (c) 2830,000
Quantity to sell (D) 200,000unit
External selling price (c/d) ₦14.15
c. Assumptions
i. Beta Division gets all inputs internally from Aba.
ii. The applicable variable costs for both Alba and Beta are the same.
iii.There is no transfer from Beta to Alba.
The transfer price to Beta Division will be sub-optimal for the company as a whole
because ₦6.80 is sold to other customers and ₦4. 95 is the price charged to the
division as required to provide ₦1.85 per unit. The sub-optimal decision making
also can be due to the buying division recognising the fixed cost of ₦160,000 and
mark-up (Profit –residual income and imputed capital cost) as selling division
variable cost of ₦4.95 when it should have been ₦4.90 regarding the transfer
price.
d. Circumstances in which a negotiated transfer price should be used instead of

market based price
Negotiated transfer prices are prices agreed between managers of profit centres.
Negotiatedtransfer prices are used in situations where profit centre managers are
given autonomy to agree transfer prices. This is usually in circumstances where an
external intermediate marketprice does not exist.
An advantage of this is that if the negotiations are fair and honest, the managers
should be willing to trade with each other on the basis of the transfer prices
agreed.
A negotiated transfer price can be used instead of a market-based price in the

following specific circumstances:
i. Absence of a market price: When there is no external market for the product or
service being transferred, or the market is not well-established, finding a
comparable market price can be difficult or impossible. In such cases,
negotiation between the divisions becomes necessary;
82
ii. Custom or unique products: When the product or service being transferred is
customised or unique to the company's operations, there may not be a
comparable product available in the market. This uniqueness necessitates a
negotiated price that reflects the specific characteristics and costs associated
with the item;
iii. Internal performance measurement: When a company uses transfer prices for
internal performance evaluation and management purposes. A negotiated
price can be tailored to better reflect the performance of the divisions
involved, aligning with the company's internal performance metrics and
incentive structures;
iv. Temporary market conditions: When external market prices are volatile or
influenced by temporary conditions that do not reflect the long-term value of
the product or service. A negotiated transfer price can provide stability and
predictability in such cases;
v. Capacity utilisation: When the supplying division has excess capacity, it may
be willing to negotiate a lower transfer price to utilize its resources more
effectively. Conversely, if the supplying division is at full capacity, it might
negotiate a higher price to reflect opportunity costs; and
vi. Regulatory and tax considerations: When there are tax implications, especially
in multinational corporations. Transfer pricing can affect the allocation of
income and expenses between different tax jurisdictions. Negotiating transfer
prices may help in compliance with international transfer pricing regulations
and in minimizing tax liabilities.
Examiner‟s report
The question tests candidates‟ ability to provide solutions on issues relating to
divisional transfer pricing and divisional performance appraisal.
The major pitfall observed was the candidates‟ inability to reconcile residual income
of each division to its generated revenue and net profit.
It is advised that candidates use the ICAN Study Text on Performance Management
when preparing for future Institute‟s examination.
83
Marking guide
a. Transfer price for ALBA

(12 ticks @1/4 mark = 3 marks) 3
b. Selling price for Beta
(12 ticks @ ¼ mark = 3 marks) 3
c. Sub-optimality in using transfer prices
(2 points @ 2½ marks = 5 marks) 5
d. Negotiated transfer price and market
based price
(Any 2 points @ 2 marks = 4 marks) 4 15
SOLUTION 6
Arguments in favour of using the profit measure in evaluating the performance of a

business
1. Profit (however calculated) is a generally accepted measure to evaluate a
business both internally and externally. Internal users of financial information
identify profit-as the reward for the skills of being a successful entrepreneur.
This measure is still a major determinant of the reward systems of managers of

decentralised units. If they meet certain quantified performance targets they
obtain the financial rewards that recognise their entrepreneurial skills.
2. External users of accounts recognise profit as a measure for identifying the

success or failure of the policies of the directors who, as stewards of the assets,
are entrusted with the task of increasing the wealth of shareholders. Why do
an investor invest? Generally to improve their financial position over time.
How do investors improve their financial position over time? Hopefully the
stock market's system of intelligence identifies the important factors in the
performance of a business and this is reflected in the share price. How do
market analysts identify performance? Certainly the measure of 'earnings' is a
major determinant in the influential commentaries that can influence
investor behaviour.
3. The concept of profit is intuitive. A street trader buys inventory at ₦100 and
sells it at the end of the day for ₦500. He makes a gain of ₦400 out of which
he replenishes his inventory, pays his living expenses and has a surplus to
demonstrate that his wealth has increased after meeting all necessary
expenditure.
84
4. 'Profit' is the maximum amount that the company can distribute during the
year and still expect to be as well off at the end of the year as at the
beginning. Consequently profit-based measures such as return on capital
employed and earnings per share recognise this all-encompassing need to
measure how wealth (or capital) grows or is maintained.
5. Simplicity and Clarity: Profit is a straightforward and easily understood metric.

It provides a clear and unambiguous indicator of financial success, making it
accessible for a wide range of stakeholders, including investors, employees,
and management.
6. Comprehensive Financial Performance: Profit encapsulates the overall

financial health of a business by reflecting revenues, costs, and expenses. It
shows the net effect of a company's operations and financial decisions,
providing a comprehensive view of its economic performance.
7. Stakeholder Focus: For shareholders and investors, profit is a primary concern

as it directly impacts dividends, stock prices, and returns on investment.
Focusing on profit aligns with the interests of these key stakeholders and can
drive investment and support.
8. Resource Allocation: Profitability indicates how efficiently a company is using
its resources. It helps management identify which areas of the business are
most productive and which may require improvement or divestment, thus
guiding strategic decisions on resource allocation.
9. Incentive Alignment: Profit as a performance measure can be a powerful

motivator for management and employees. Profit-linked incentives and
bonuses can drive behaviors that enhance overall business performance,
encouraging efficiency, innovation, and cost control.
b. Financial perspective
1. Meeting a key financial target such as Economic Value Added is regarded by
some as one of the best overall measures of performance.
2. Sales growth. Insurance companies are concerned with market share and
would like to see strong sales growth.
Customer perspective
1. Customer retention. This is the proportion of customers who renew their
policies from one year to the next. If the proportion is high, then it would
imply that the insurance company is keeping its customers happy; if low, it
would seem that the company is doing something wrong.
2. Number of complaints. This measure could be used for just about any
organisation. A high level of complaints would indicate that the company's
customers are not pleased with the service that they are receiving.
85
Learning and growth perspective or innovation and learning perspective
1. Labour turnover. Labour measures come within this perspective. A high labour
turnover would indicate that the workforce is not happy, which may then lead
to problems with their performance. It also means that those workers who
leave will have to be replaced and that their replacements will need training,
leading to extra cost and possibly initially poor performance.
2. The number of new types of policies issued each year. This would be a good
indication of innovation.
Internal business process perspective

1. The percentage of policies issued or claims processed with the target time.
This is an indication of how well the company performs its core functions.
2. Unit cost. The cost per policy issued, or per claim processed, would be an
indication of how well the business is performing its internal functions. Care
must be taken that if the cost is reducing so then the service to the customer is
not getting worse.
Examiner’s report
The question dwells on the importance of profitability measurement vis- a-viz other
non-financial measures. It also discusses the importance of the balance scorecard in
an insurance company.
The major pitfall observed was the candidates‟ inability to mention critical examples
of the 4 perspectives.
It is advised that candidates use the ICAN Study Text on Performance Management
when preparing for future Institute‟s examination.
Marking guide
a. Importance of Profit as a performance
measure
(Any 2 points @ 2½ marks = 5 marks) 5
b. Explanation and examples of 4
Perspectives of Balance scored card:
4 perspectives :
(Any 4 points @1½ marks = 6 marks) 6
Explanations:
(Any 4 explanations point@ 1 mark =
4 marks) 4 10 15
86
SOLUTION 7
a. Optimal Production Plan (Optimum Quantity) for Jumbo tailor

Computation of machine utilisation hours:
Machine hours required:

Products Workings/Calculations Machine 1 Machine 2
Hours Hours
Trousers Machine 1 = 2 x 2500 5,000
Machine 2 = 3 x 2500 7,500
Jackets Machine 1 = 4 x 2600 10,400
Machine 2 = 6 x 2600 15,600
Skirts Machine 1= 6 x 4200 25,200
Machine 2= 2 x 4200 8400
Total machine hours required 40600 31500
Total Machine hours available 39200 36000
Deficit /Surplus (1400) 4500
From the above analysis, Machine 1 is the Limiting factor.

Quantity Produced and Sold:
Trouser = Sales /Selling Price = ₦8,250,000/₦3300 = 2,500 units
Jackets = Sales /Selling Price = ₦9,880,000/ ₦3800 = 2,600 units
Skirts = Sales / Selling Price = ₦12,390,000 / ₦2950 = 4200 units
Contribution analysis and ranking

Particulars Trousers Jacket Skirts
₦ ₦ ₦
Selling Price 3800 2950
3300
Variable costs:
Direct Material 1000 900 700
Direct Labour 500 450 350
Variable overhead 800 1600 2950 1000 2050
2300
Contribution per 850 900
unit 1000
Machine 1 hours 2 4 6
Contribution / ₦500 ₦212.50 ₦150
machine 1 hours
Ranking 1st 2nd 3rd
Determination of production plan

Trouser = 5000 hours = 2500 units
Jacket = 10400 hours = 2600 units
Skirts (Balance) = 23800 hours = 23800/6 = 3967 units
Total Available 39200 hours
87
b. Total profit from production plan
Particulars Trousers Jackets Skirts Total
Units Produced /Sales 2500 2600 3967
Unit contribution 1000 850 900
Less Product fixed Cost 250 500 400
Net Profit 750 350 500
Total Gross Profit 1,875,000 910,000 1,983,500 4,768,500
Fixed cost Block A (1,960,000)
Fixed cost Block B (1,500,000)
Fixed cost Block C (740,000)
Total Company fixed cost (4,200,000)
Total Profit ₦568,500
Note: where the attribute fixed cost is not regarded as fixed cost and therefore
treated as relevant costs.
ALTERNATIVELY
Calculation of total profit
Product Trouser Jacket Skirt Total
Contribution /Unit(₦) 1000 850 900
Units Produced 2500 units 2600 units 3,967 units
Total contribution (₦) ₦2500000 ₦2,210,000 ₦3,570,300 ₦8,280,300
Fixed costs:
Block A
₦1,960,000
Block B
₦1,500,000
Block C ₦ 740,000 ₦4,200,000
Net Profit ₦4,080,300
Note: The attributable product fixed cost is regarded as sunk cost and not
relevant in view of the fact that it can be dropped in view of current output plan is
different.
Examiner’s report
This question is a popular question that tests candidates‟ knowledge of
determination of company‟s machine utilisation rate for each machine and
establishing the machine that is the bottleneck and limiting factor in part (a). The
part (b) of the question tests conventional marginal and contribution analysis to
determine the profit maximising output and finally the computation of the total profit
after considering the attributable fixed cost of each product (relevant costs) and the
company fixed overheads as deduced from the three blocks housing the machines.
88
However, performance was average.
The major pitfall observed was candidates‟ inability to treat the attributable product
fixed costs based on quantity produced and total company fixed cost appropriately
and separately.
It is hereby recommended that candidates use the ICAN Study Text on Performance
Marking guide
a. Machine utilisation Rate

(12 ticks @ ½ mark = 6 marks) 6
Profit maximisation quantity using
Marginal and contribution analysis
Optimal Production Plan
12 ticks @ ½ mark = 6 marks) 6 12
b. Computation of total Profit
(6 ticks @ ½ mark = 3 marks) 3 15
15
89


number.
THURSDAY, MAY 16, 2024
90

QUESTION 1
The University of Okoko Consultancy Unit (Uniko Consult) provides training courses
for staff, public and private individuals. The consultancy unit is currently collating
information for its budget for the six months ending December 31, 2021. The
following information is available:
(i) Provisional bookings for courses

July Aug. Sept. Oct. Nov. Dec.
Number of courses 0 2 4 3 4 4
Average number of
attendees per course 0 16 8 16 8 12
No courses are run during the month of July. Uniko Consult requires intending
participants to confirm their attendance in the week prior to the course, giving
their credit card number (first and last 4 digits) as a guarantee. On average,
75% of provisional bookings are confirmed and therefore result in fee payment.
(ii) Course prices

Each course lasts for three days, running from Friday to Sunday and the fee for
each course is N120,000 per attendee. All courses have to be paid for in full on
the first day of the course. Any returning participant will be given a 25%
discount on the fee. One in three of confirmed bookings is from a returning
participant.
(iii) Personnel costs

Experienced team of Professors led by Emeritus Professor Omopinleola deliver
Uniko Consult‟s courses. He is not a member of staff at Uniko Consult, but
rather an outsourced facilitator. Emeritus Professor Omopinleola charges
Uniko Consult N300,000 for each course and is supported by his assistant, Dr.
Chukwuma. Emeritus Professor Omopinleola pays his assistant a wage of
N50,000 per course. Uniko Consult has several part-time support staff. Wages
costs for July are only N100,000 per month, but every month thereafter
amounts to N400,000. However, the Consult is planning to increase wages by
5% from September. All staff are paid at the end of each month.
91
(iv) Property costs
The University owns a Researchers‟ Lodge, which includes an office, a large
kitchen and two conference rooms. Uniko Consult rents the Researchers‟ Lodge
at a rental cost of N2,400,000 per annum, with rents being paid quarterly in
advance on March 31, June 30, September 30 and December 31. However, the
Consultancy Unit has just received a notice from the Bursar of the University,
stating that, with effect from December 31, 2021, annual rental payments will
increase by 5%.
(v) Food costs (Tea break and lunch)

All food items purchased by the Researchers‟ Lodge is organic and delivered
weekly by Uniko Farms. On the 5th day of each month, Uniko Consult pays the
bill for the previous month‟s food deliveries. However, in December, Uniko
Consult is also required to settle its bill for December‟s food requirements due
to the two-week holiday taken by Uniko Farm in January. In recent months,
the cost for food on each training course has been N5,000 per attendee.
However, due to lower availability of organic produce, inflation of 2% per
month is expected to occur from September onwards. Food costs for June 2021
are expected to be N110,000.
(vi) General overheads

The running cost of Uniko Consult is N835,000 per annum, paid in ten equal
instalments from April to January each year. The consult‟s fuel cost of
N420,000 per annum is paid through equal monthly direct debits. However, it
has just come to the fuel supplier‟s attention that the direct debits from
January to April failed, due to systems error. Therefore, the direct debit
payment for July will include these outstandings.
(vii) Capital expenditure

Uniko Consult needs to replace its three air conditioners in one of the
conference rooms by August. The price is N180,000 each but Uniko Consult‟s
Managing Director is confident that he can obtain a 10% discount on this price.
The supplier is also allowing Uniko Consult to pay for the air conditioners in
two instalments – one in August and the other in October.
(viii) Bank account

The balance on the Consultancy‟s bank account is expected to be zero on June
30, 2021; it currently has a sufficient overdraft facility to cover any cash deficit
arising.
(ix) Remittances
The Consultancy Unit is expected to remit 50% of its cash balance to the
University‟s account on half-yearly basis.
92
Required:
a. Prepare a cash budget for each of the six months period ending December 31,
2021.
Note: All workings should be rounded to the nearest N000 (20 Marks)
b. Enumerate the steps involved in Planning, Programming and Budgeting

System (PPBS). (7 Marks)
c. State and explain THREE characteristics of performance budgeting system.
(3 Marks)
(Total 30 Marks)
SECTION B: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THE THREE

QUESTION 2
a. IPSAS 36 - Investments in Associates and Joint Ventures is a replacement of

IPSAS 7 on Accounting for Investments in Associates.

Identify and briefly explain FOUR disclosures that should be made in the
accounts on investments in associates. (8 Marks)
b. Interpretation of public sector financial statements is necessary in order to

take decisive action in the public sector activities.

Identify and briefly explain THREE ways through which comparison of figures
in respect of two or more years can be derived. (12 Marks)
(Total 20 Marks)
QUESTION 3
a. Differentiate between unapplied mandate and uncredited cheques. (5 Marks)
b. The Account Officer of University of Igbokuenu, Abia, supplied the following

information for Asejere Bank for the month ended March 31, 2020. On the same
date, the balance as per the bank statement was a credit balance of
N26,229,000,while, the cash book showed a debit balance of N12,063,000.
The investigation carried out by the accounts officer revealed the following:
 There was a bank charge amounting to N15,000 for administrative fee,
which had been deducted by the bank but no entry was made in the cash
book.
 A commission on turnover (COT) of N30,000 for the month of February
had not been recorded in the cash book.
93
 Interest of 2% was paid on an endowment fund of N127,500,000, which
was maintained in a fixed deposit account in Kazua Bank. This was paid
directly to Asejere Bank PLC, but has not been recorded in the cash book,
while an investment income amounting to N60,000 was also received
directly by the bank but has no entry in the cash book.
 A cheque of N24,000 was received from B-Engineering services as
registration fee on March 31, 2020 and was duly entered into the cash
book and taken to the bank same day but had not been credited as at the
time the bank statement was collected.
 Cheques amounting to N3,300,000, previously credited by the bank were
dishonoured.
 A sum of N10,200,000 which was paid directly to the bank was received
from the Abuja Alumni of the University in form of aid which the
accountant has not been recorded in the cash book while additional
N4,500,000 aid was received from USAID but not recorded in the cash
book.
 Mandate numbers, which were issued by the University to the bank for
payments to beneficiaries in March 2020 were yet to be applied with
details as follows:
Mandate No. Beneficiary Amount (N)

0671420 SolarTech 90,000
0002418 GreenLaud 120,000
0021462 S-Publishers 15,000
Required:
i. Prepare a bank reconciliation statement for the period ended March 31, 2020
(10 Marks)
ii. Identify and explain FIVE challenges of bank reconciliation under the e-
payment system. (5 Marks)
(Total 20 Marks)
QUESTION 4
National Chart of Accounts (NCOA) shows the complete list of budget and accounting
items for General Purpose Financial Reporting (GPFS) and budgeting.
a. State FOUR characteristics of National Chart of Accounts. (4 Marks)
b. Discuss the SIX structures of the National Chart of Accounts for budgeting.
(12 Marks)
c. Identify and briefly explain FOUR steps for budgeting with National Chart of
Accounts. (4 Marks)
(Total 20 Marks)
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QUESTION 5
In Nigeria, public revenue belongs to its citizenry and allocated to them through the
National Revenue Mobilisation, Allocation and Fiscal Commission.
a. State and explain FIVE principles that guide revenue allocation in Nigeria.
(7½ Marks)
b. Explain FIVE factors that led to the controversies surrounding revenue sharing in
Nigeria. (7½ Marks)
(Total 15 Marks)
QUESTION 6
a. Oyigbo Local Government is set to improve its internally generated revenue by
venturing into construction of an animal feedmill, which will cost N15million.
The mill, when constructed is projected to generate a net cash inflow of N3.8
million annually and the useful life is 6 years. The cost of borrowing from a
commercial bank for this purpose is 12%.
Required:
Advise the Chairman of Oyigbo Local Government whether or not to undertake
the project using the Profitability Index (PI) technique of investment appraisal.
The cumulative discount factor formula to use is:
where, r = discount rate

n = number of years (10 Marks)
b. Identify THREE advantages and TWO disadvantages of profitability index as a

technique for project appraisal. (5 Marks)
(Total 15 Marks)
QUESTION 7
Public finance is concerned with the income and expenditure of public authorities
and with the adjustment of one to the other. Also it opined that the subject matter of
public finance looks into the financial problems and policies of the government at
different levels and also studies the inter-governmental financial relations.
Required:
a. Identify and explain FIVE categories of public finance (7½ Marks)
b. Discuss FIVE rationale for public sector in the economy (7½ Marks)
(Total 15 Marks)
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SECTION A
SOLUTION 1
a. The University of Okoko Consultancy Unit
Cash budget for the six months period ended December 31, 2021.
July Aug Sept Oct Nov. Dec
N„000 N„000 N„000 N„000 N„000 N„000
Cash inflows (Wk.i – iii)
Course fees:
- New attendees - 1,920 1,920 2,880 1,920 2,880
- Returning attendees - 720 720 1,080 720 1,080
Total cash inflows (A) - 2,640 2,640 3,960 2,640 3,960
Cash out flows
Tutor costs (Wk.iv) - 600 1,200 900 1,200 1,200
Staff costs (Wk.v) 100 400 420 420 420 420
Property costs (Wk.vi) 600 630
Food costs (W VII) 110 - 120 122.4 187.2 321.6
General overheads 258.5 118.5 118.5 118.5 118.5 118.5
(Wk. viii)
Capital expenditure 243 243
(Wk. ix)
Total cash outflows (B) 468.5 1,361.5 2458.5 1,803.9 1,925.7 2,690.1
Net cash flows (A-B) (468.5) 1,278.5 181.5 2,156.1 714.3 1,269.9
Cash b/f - (468.5) 810 991.5 3,147.6 3,861.9
Cash balance before (468.5) 810 991.5 3.147.6 3,861.9 5,131.8
remittance
Remittance (Wk. x) - - - - - (2,565.9)
Cash c/f (468.5) 810 991.5 3.147.6 3,861.9 2,565.9
Working notes
i) Budgeted attendees
July Aug Sept Oct Nov Dec
Number of courses (A) - 2 4 3 4 4
Provisional attendees(B) - 16 8 16 8 12
Budgeted confirmed attendees per course (C) - 12 6 12 6 9
Budgeted total attendees per month (A multiply by C) - 24 24 36 24 36
ii) Budgeted fees from fully paid attendees

N„000 N„000 N„000 N„000 N„000 N„000
Standard fees (A) - 120 120 120 120 120
No. of attendees for month paying
standard fee (2/3 budgeted of total - 16 16 24 16 24
attendees per month) (B)
Total fully paid fees (A X B) - 1,920 1,920 2,880 1,920 2,880
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iii) Budgeted fees from returning attendees
N„000 N„000 N„000 N„000 N„000 N„000
Standard fees (A) - 90 90 90 90 90
No. of attendees for month paying
standard fee (1/3 of budgeted total - 8 8 12 8 12
attendees per month) (B)
Total fully paid fees (A X B) - 720 720 1,080 720 1,080
iv) Total tutor costs

No. of courses (A) - 2 4 3 4 4
Cost per course (N„000) (B) - 300 300 300 300 300
Total cost per month (N„000) (A X B) - 600 1,200 900 1,200 1,200
Note: Cost of assistant paid by Emeritus Professor Omopinleola is irrelevant because

he pays his assistant directly from his own course fee.
v) Staff costs
N„000 N„000 N„000 N„000 N„000 N„000
Increase in wages by 5% from
September 100 400 420 420 420 420
vi) Rental payments

Current quarterly payments = N2,400,000/4 = N600,000 per annum.
Annual rental payment from December = N2,400,000 x 1·05 = N2,520,000.
Therefore, quarterly rent is N2,520,000/4 = N630,000
vii) Food costs (Tea break and lunch)

Budgeted attendees (Wk.i) (A) - 24 24 36 24 36
Food cost per head (N‟000} (B) - 5 5.1 5.2 5.3 5.4
Total food cost per month (N„000)
(A X B) - 120 122.4 187.2 127.2 194.4
viii) General overheads

Business rates = N835,000/10 = N 83,500 per month.
Fuel = N420,000/12 = N35,000 per month.
Therefore, in July fuel cost = N35,000 + (4 x N 35,000) = N175,000.
Total = N258,500 for July and N118,500 for each month of August to December.
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ix) Capital expenditure
Total cost = 3 X (180,000 x 90%) = N486,000
Therefore amount payable in August and October = N486,000/2 = N243,000
x) Remittance
N
Balance b/f as at December 31, 2024 3,861,900.00
December net cash flows 1,2690,100.00
Total 5,131,800.00
Payable in December (N5,131,800/2) 2,565,900.00
b. Steps in Planning, Programming and Budgeting Systems (PPBS)

Steps in PPBS are as follows:
(i) Identification and enumeration of goals and objectives of the
organisation;
(ii) Defining the total system in detail, including objectives, environment,
available resources, the programmes and their objectives, etc;
(iii) Planning and analysis involve continuous process of developing,
comparing and analysing alternative programmes, so as to evolve the
most appropriate package for the organisation;
(iv) Development of the appropriate measures of performance for the
programmes of the organisation;
(v) The agreed package of “programmes” complete with resource
requirements and expected results are expressed in the form of
“programmed budgets”;
(vi) In reporting and controlling; planning, programming and budgeting
system requires sophisticated information service, which is able to
monitor the progress made towards meeting the organisational
objectives. Performance evaluation, therefore, emphasises the
attainment or non-attainment of the desired objectives, rather than the
amount spent, which is the focus in traditional budgeting system; and
(vii) The budgeting system requires development in each year, of a multi-
year programme and financial plan.
c. Characteristics of performance budgeting systems

The characteristics of performance budgeting are as follows:
(i) Classification of budgets in terms of functions and activities;
(ii) Measurement of work done or output provided by each activity;
(iii) Expression of the budget in a way which allows direct comparison
between a project‟s cost and the anticipated income or benefit; an
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(iv) Monitoring of actual cost and performance against the budgeted
results or expectations.
Examiner’s report
The question is in three parts. Part (a) of the question tests candidates‟ knowledge on
the preparation of cash budget. Part (b) requires the candidates to enumerate the
steps in Planning, Programming and Budgeting System (PPBS), while part (c)
requires the candidates to identify characteristics of performance budgeting system.
All the candidates attempted the question and their performance was below average.
The common pitfalls were the inability of the candidates to enumerate the steps in
Planning, Programming and Budgeting System (PPBS), Also, some candidates were
unable to calculate the 50% cash balance to be remitted to the University‟s account in
December, 31, 2021.
Candidates are advised to have adequate knowledge of the relevant provisions of the syllabus
and to make use of Pathfinder and the Study Text of the Institute for better performance
in the Institute‟s future examinations.
Marking guide
Marks Marks
a. Preparation of cash budget:
Calculation of total cash inflows 3¾
Calculation of total cash outflows 8
Calculation of net cashflows 1½
Calculation of cash balance carried forward 4¼
Workings:
Calculation of total fully paid fees by attendees 1¼
Calculation of fully paid from returning attendees 1¼ 20
b. Steps involved in PPBS.

Each of the 7 steps at 1 mark each 7
c. Characteristics of performance budgeting

Any three (3) features at 1 mark each 3
Total 30
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SECTION B
SOLUTION 2
a. Disclosure requirements for investment in associates
Disclosures that should be made in the accounts of investments in associate
are as follows:
(i) The fair value of investment in associate for which there are published
price quotations;
(ii) Summarised financial information of associates;
(iii) The reasons why investor holds less than 20% of voting power in
investee but concludes that it has significant influence;
(iv) The reasons why investor holds more than 20% of voting power in
investee but concludes that it does not have significant influence;
(v) The reporting date of the financial statements of an associate, which
such financial statements are used in applying the equity method and
are as of a reporting date, or for a period that is different from that of
the investor, and the reason for using a different reporting date or
different period;
(vi) The nature and extent of any significant restrictions (e.g. resulting from
borrowing arrangements or regulatory requirements) on the ability of
associates to transfer funds to the investor in the form of cash
dividends, or similar distributions, or repayment of loans or advances;
(vii) The unrecognised share of losses of an associate, both for the period
and cumulatively, if an investor has discontinued recognition of its
share of losses of an associate;
(viii) The fact that an associate is not accounted for using the equity method;
and
(ix) Summarised financial information of associates, either individually or in
groups that are not accounted for using the equity method, including
the amounts of total assets, total liabilities, revenues and surplus or
deficits.
b. Ways of comparison of figures in respect of two or more years
(i) Straight forward criticism or analytical review

Figures in respect of two or more years may be compared and percentage
differences obtained. Comparison of figures may be undertaken in any of the
following ways:
 Previous years‟ figures with those of the current year;
 The statistics of a period this year with those of a similar period last
year;
100
 Figures within the year‟s 1st quarter with those of the fourth quarter of
the same year; and
 It may be percentage representation within the year. For example,
salary expenses may be expressed as a ratio of total expenses.
The above stated methods are popular with public sector organisations.
Other ways of analysing financial statements under this method are:
 Share of capital expenditure as a percentage of non-debt
expenditure;
 Share of capital expenditure as a percentage of total expenditure;
 Share of recurrent expenditure as a percentage of total expenditure;
 Share of statutory allocation as a percentage of total revenue; and
 Share of internally generated revenue as a percentage of total
revenue.
(ii) Performance reports as per IPSAS 24
According to IPSAS 24, entities are required to present a comparison of the
budgeted amount for which it is held publicly accountable and actual
amount, either as a separate additional financial statement or as an
additional budget column in the financial statements currently presented
in accordance with IPSASs. The comparison of budgeted and actual
amounts shall be presented separately for each level of legislative
oversight:
 The original and final budget amounts;
 The actual amounts on a comparable basis; and
 By way of the note disclosure, an explanation of material differences
(variances) between the budget for which the entity is held publicly
accountable and actual amounts, unless such explanation is included in
other public documents issued in conjunction with the financial
statements and a cross reference to those documents is made in the
notes.
(iii) Cash flow statements

Neither the statement of profit or loss account not statement of financial
position gives a satisfactory explanation of how a business obtains and
uses its cash. The cash flow statement is very revealing of the core
operations of a Government, Parastatal or Board on the affordability or
otherwise of adequate liquid resources.
This is the statement that shows the amount of cash generated by an
organisation and the utilisation of such cash for that period.
The major sources of cash inflows and outflows into the public sector
according to IPSAS 2 are:
 Operating activities;
 Investing activities; and
 Financing activities
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(iv) Ratio analysis
Financial ratio analysis is the process of calculating financial ratios, which
are mathematical indicators calculated by comparing key financial
information appearing in financial statements of a public sector entity and
analysing them to find out reasons behind the entity‟s current financial
position and its recent financial performance and develop expectation
about its future outlook.
Ratio analysis involves expressing one figure as a ratio or percentage of

another, to bring out the weakness or strength in an organisation‟s affairs.
Examiner’s report
The question is in two parts. Part (a) of the question requires the candidates to
identify and explain disclosures that should be made in the accounts on investments
in associates, while part (b) requires the candidates to identify and explain ways
through which comparison of figures in respect of two or more years can be derived.
Few candidates attempted the question and their performance was below average.
The commonest pitfall was the inability of the candidates to properly identify and
explain ways through which comparison of figures in respect of two or more years
can be derived
Candidates are advised to make use of ICAN Pathfinders and the Study Text for better
performance in the Institute‟s future examinations.
Marking guide
Marks Marks
a. Disclosure requirements for investment in associates
Any four disclosures at 2 marks each 8
b. Ways of comparison figures in respect of two or more years:

Identification of any three ways at 1 mark each 3
Explanation of any three ways identified at 3 marks each 9 12
Total 20
SOLUTION 3
a. An unapplied mandate is when a payment is made through a mandate to a
bank which is reflected in the credit side of a cash book as being paid out but
not reflected in the bank statement as a result of the following reasons:
i) Delay arising from the failure of e-payment network put in place to
facilitate payment;
ii) Delay from the bank in posting the mandate; and
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iii) Failure of the bank to post according to the mandate instructions.
Whereas uncredited cheque is a cheque paid into the bank but has not been
cleared as at the date of the bank balance. Since the cheque has not been
cleared, the bank does not add the value of the cheque to the balance in the
account. However, in the cash book of the business the deposit would have
been included as part of the cash in the bank.
b. (i) University of Igbokuwenu, Abia

Bank reconciliation statement for the month ended March 31, 2020
N N
Cash book balance for the month ended March 31, 2020 12,063,000
Add:
Unpresented/unapplied mandates (Wk1) 225,000
Receipts in bank but not in cash book (Wk 2) 17,310,000 17,535,000
Less:
Receipts in cash book but not in bank (Wk 3) 3,324,000
Debits in bank not yet in cash book (Wk 4) 45,000 3,369,000
Balance as per bank statement 26,229,000
Workings notes:
i) Unpresented/unapplied mandates
Mandate No. Beneficiary N N
0671420 Solar Tech 90,000
0002428 Green Laud 120,000
0021462 S-Publishers 15,000 225,000
ii) Receipts in bank but not in cash book

N N
2% Interest on an endowment fund of N127,500,000 2,550,000
Investment income 60,000
Aid received by the alumni of the university 10,200,000
USAID donations 4,500,000 17,310,000
iii) Receipts in cash book but not in bank

N N
B-Engineering services registration fees 24,000
Dishonoured cheque 3,300,000 3,324,000
iv) Debits in bank not yet in cash book

N N
Bank charges 15,000
Commission on turnover (COT) 30,000 45,000
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(ii) Challenges of bank reconciliation statement under e-payment system.
The following are the challenges of bank reconciliation under the e-payment
system:
 Network failure which slows down the pace of reconciliation process;
 The mandate numbers in the cash book can be posted differently
from the ones of the bank statements resulting in difficulty in
matching items in the cash book with the ones in the bank
statements;
 Splitting of items on a mandate by the banks. For example, a
mandate for a total payment of N150,000 to three individuals
equally, can be split by the bank as three different payments of
N50,000 each in the bank;
 Absence or inadequate description of transactions in the bank
statement;
 Delay in obtaining bank statements from the banks;
 Posting errors on the part of the banks; and
 Posting errors from the schedule officers of the MDAs.
Examiner’s report
The question is in two parts. Part (a) of the question requires candidates to
differentiate between unapplied mandate and uncredited cheques. Part (bi) of the
question requires the candidates to prepare bank reconciliation statement of a
university, while part (bii) requires candidates to identify and explain the challenges
of bank reconciliation statement under the e-payment system.
Most of the candidates attempted the question and their performance was below
average.
The common pitfalls were the inability of the candidates to differentiate between
unapplied mandate and uncredited cheques. They were also unable to identify and
explain the challenges of bank reconciliation statement under the e-payment system.
Candidates are advised to read widely and ensure they have adequate knowledge of the
relevant sections of the syllabus. They should also make use of Pathfinders and the
Study Text of the Institute and other relevant learning materials on this aspect of the
syllabus for better performance in future examinations.
104
Marking guide
Marks Marks
a. Difference between unapplied mandate and uncredited cheque:
Explanation of unapplied mandate 2½
Explanation of uncredited cheque 2½ 5
b.i. Preparation of bank reconciliation statement

Correctly stating the title. ½
Calculation of balance as per bank statement. 4
Calculation of unpresented or unapplied mandates. 1½
Calculation of receipts in bank not in the cash book. 2
Calculation of receipts in the cash book not in the bank. 1
Calculation of debits in the bank but not in the cash book. 1 10
ii. Challenges of bank reconciliation under e-payment

Any five (5) challenges at 1 mark each 5
Total 20
SOLUTION 4
a. Characteristics of National Chart of Accounts (NCOA):
The NCOA is based on the following key characteristics:
(i) The NCOA was designed after due consultations with all the Local
Government Councils, States and Federal Government of Nigeria in
consideration with their peculiar needs;
(ii) It is expandable and flexible;
(iii) Each item has a unique code;
(iv) It is used for both budgeting and accounting;
(v) It is in compliance with IPSAS cash and accrual bases;
(vi) It is in compliance with Government Financial Statistics(GFS) 2001; and
(vii) It is incompliance with Classification by Functions of Government (COFOG).
b. Structure of National Chart of Accounts (NCOA)

(i) Administrative segment: The Administrative segment assigns
responsibility for each transaction whether revenue centre (receipt) or
cost centre (payment).
(ii) Economic segment: Every receipt must be from a particular source for
example, contractor‟s registration fee. Likewise, every expense must be
on a particular item or object for example, purchase of drugs and
medical supplies. It answers “What” question of every transaction.
(iii) Functional segment: Functional classification categorizes expenditure
according to the purposes and objectives for which they are intended.
Functional Classification or Classification by Functions of Government
(COFOG) is defined as a detailed classification of the functions, or socio-
105
economic objectives, that general government units aim to achieve
through various kinds of outlays. Functional classification organises
government activities according to their broad objectives or purposes
(for example, education, social security, housing, etc.). Government
expenditure is measured according to internationally recognised
functional categories. A functional classification is especially useful in
analysing the allocation of resources among sectors. Functions and sub-
functions will be assigned at the point of budget and planning for every
transaction or initial set up.
(iv) Programme segment: The programme classification identifies various
set of activities to meet specific policy objectives of the government for
example, pre-primary education, poverty alleviation and food security.
(v) Funds segment: The fund segment addresses the “Financed by”
element of a transaction. Fund refers to the various pools of resources
for financing government activities. It will fast track the
implementation of IPSAS particularly with respect to the full disclosure
of government revenue including external assistance.
(vi) Geographic segment: It addresses the “Where” (location/station)
element of every transaction. It is for location or physical existence of
transaction so that an analysis of government budget and expenditure
along the various geopolitical zones, states, and local government
councils in the country can be done. The use of geographic codes will
make it easier for agencies with over sight function like monitoring and
evaluation (M&E) mandates to locate projects across the country.
d. The steps for budgeting with National Chart of Accounts (NCOA)
All the six segments of the chart of accounts must be completed on the budget
entries, even if the value for a given segment is in active. Onynumeric values
can be budgeted. Meanwhile, the following steps should be taken to ensure
completeness of using the Chart of Accounts for budgeting:
(i) Identify the government institution(cost and revenue centre) from the
hierarchy of administrative andcodes provided in the chart of accounts;
(ii) Identify the economic items that would be executed during the fiscal year;
(iii) Identify the functions intended to be performed by government
institutions (revenue and cost centre);
(iv) Identify the programmes intended to be carried out by the government
institution;
(v) Determine the sources of financing the budgeted amount for each
budget line; and
(vi) Identify the planned location for the economic transactions or
government institution.
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Examiner’s report
The question is in two parts. Parts (a) and (b) of the question require the candidates
to state the characteristics of National Chart of Accounts (NCOA) and its structures for
budgeting. while part (c) of the question requires the candidates to identify and
explain four steps for budgeting with National Chart of Accounts.
Majority of the candidates attempted the question and performance was below
average.
The common pitfalls were the inability of the candidates to state the characteristics of
National Chart of Accounts (NCOA) and its structures for budgeting, while in part (c),
the candidates were unable to identify and explain four steps for budgeting with
National Chart of Accounts.
Candidates are advised to read widely and ensure they have adequate knowledge of
relevant regulations relating to public sector accounting for better performance in the
Institute‟s future examinations.
Marking guide
Marks Marks
a. Characteristics of National Chart of Accounts (NCOA):
Stating any four characteristics of NCCOA at 1 mark each 4
b. Structure of National Chart of Accounts:

Identification of the six structures at ½ mark each 3
Explanation of the six structures at 1½ marks each 9 12
c. The steps for budgeting with National Chartof Accounts:

Explanation of any four steps at 1mark each 4
Total 20
SECTION C
SOLUTION 5
a. Principles of revenue allocation.
(i) Derivation: This principle was originally applied to the proceeds of

export taxes on agricultural produce. The principle asserts that the
state from which the bulk of the revenue is obtained should receive
extra share over and above what other states receive.
(ii) Even development: The objective of government is that the Federation

itself should grow and develop at an optimum rate and that each of the
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constituent states should grow and develop at the optimum (not
necessarily equal) rate. The principle requires that growth and
development should be spread so that serious inequalities or
imbalances are reduced in the Federation. These may be achieved by
sacrificing efficiency in the form of a reduced overall growth.
(iii) Need: The rate of growth and development a state is able to achieve
depends on the revenue the state is able to generate. It requires
financial as well as other resources not only to maintain its existing
facilities but also to develop additional capacities. Given a set of these
other resources, a state requires funds to enable it realise its potential.
When the need of a state is compared with the need of others, it may be
necessary to transfer financial resources from one state to another in
the interest of efficiency.
(iv) National interest: This principle is used residually by the highest level
of government to intervene and transfer funds to lower levels or units in
the lower levels to serve various considerations. It lies therefore in the
sphere of discretionary grants to be administered by the highest tier,
that is, government of the Federation.
(v) Independent revenue: The principle is of the view that each level of
government should be able to raise and keep some revenue for its use.
The bulk of the revenue of the state revenue comes from what is raised
and collected by the Federal government. The main sources left to the
state governments are those on personal income taxes, capital gains tax
and stamp duties, which should be exploited.
(vi) Continuity of government services: The principle suggests that each

level of government has a certain minimum responsibility and that the
level of services provided should not be allowed to fall below a certain
standard. Where a state is unable to function effectively due to lack of
funds, such a state should be assisted with federally collected revenue.
(vii) Equality of state: All men are created equal but are endowed
differently. Similarly, states are created equally but they arrive, at
creation and through passages of time with different endowments of
economic, financial and political power. The principle asserts that
revenue sharing among the states should be done on equal basis.
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(viii) Equality of access to development opportunities: This was introduced
to correct unequal endowments of the states. The principle asserts that
preferential treatment should be given to those states which by some
measures of development lag behind others or fall below a certain
norm.
(ix) Absorptive capacity: It represents the capacity of the state to make

proper use of funds. It is on exceptional and efficiency grounds, that is,
funds should go to those states that are best able to utilise them.
(x) Population: This principle asserts that since government is about

people, that development is also about people and that the essence of
government should be the welfare of the people. Therefore, states with
larger populations should receive extra share above others with smaller
populations.
(xi) Tax effort: The principle, which applies in most federation, is designed
to encourage states to exploit their tax capacities. The realisation of a
state's potential in respect of tax revenues will widen its development
possibilities.
(xii) Fiscal efficiency: This principle asserts that states should minimise the
cost of fiscal administration or obtain maximum revenue from a given
cost. Fiscal efficiency reflects not only on the ability to raise taxes and
collect them, but it reflects also the structure of the tax base itself as
well as the overall administrative machinery of government.
b. Factors responsible for revenue sharing problems
(i) Over-dependence on oil revenue. The advent of oil in Nigeria and its high
yielding revenue generation tendency has continued to undermine the
development of the hitherto buoyant agricultural and other viable sectors
such as industry, mining and human capital development. Consequently, oil
revenue has become the major source on which the country critically
depends on thereby becoming a mono-product economy. The current
revenue sharing formula encourages laziness and idleness as states rely
heavily on the federal allocation- a situation that makes most states, with
the exception of Lagos parasitic in nature feeding voraciously on Federation
Account.
(ii) Politics of revenue sharing formular. Revenue sharing among the component
units of Nigerian federation has been, from the inception, replete with
agitations, controversies and outright rejections due to the nature of the
109
politics that is involved in it. The process of revenue sharing is inundated
with conflicting criteria that were, often times, rejected by majority of the
states. The determining factor in revenue allocation strongly revolved
around political rather than economic criteria, thereby making the revenue
allocation issue in Nigeria contentious and thorny.
(iii) Agitation for resource control. The historical facts of the use of the principle of
derivation (emphasised earlier and de-emphasised later) have been a source
of inter-regional or states conflict, rivalry and antagonism. The major fall out
of the down play of the principle of derivation, which stipulates that the
component units of a system should be able to control some of its own
resources as they desire, is the agitation for resource control that has taken
criminal dimensions in most of the oil producing communities and states of
the Niger Delta. There have been multifarious cases of kidnapping, vandalism
of oil pipes and installations, desperations and high scale violence.
(iv) Increasing fiscal units. The rapid changes in the number of fiscal units that is
not necessitated by guided economic and political philosophy led to creation
of states that are fiscally unviable and consequently increased demand for
increased share of "national cake". Many states in Nigeria will blame their
inactivity and ineffectiveness on low or lack of allocation from the federation
account rather than become inventive and innovative in ideas that will cause
increase in their revenue generation. The increase in the number of fiscal
units in Nigeria from 3 to 4, 12, 19, 21, 30 and 36 within a period of three
and a half decades is contrary to what obtains in older and other federations.
(v) Unstable constitutional framework. The absence of a permanent and

generally acceptable legal structure in the form constitution may result in
chaotic tendencies. For instance, the last constitutional conference in the
United States of America was in 1787 and only 27 amendments have been
made as at 1999 as opposed to Nigeria in which several constitutional
conferences had taken place since independence without general
acceptability. In addition, states in Nigeria do not really have the statutory
power to raise taxes and collect the proceeds and as such the problem had
centred not on who should raise but how the proceeds should be shared.
Therefore, expenditure and tax/revenue assignment is inundated with
ambiguity and inefficiency. A good example is the case of Lagos State
Ministry of Transportation (MOT), which became a legal tussle between the
government and some activists.
110
(vi) Lack of will. The absence of sincere desire on the part of the public office
holders to address the challenges of revenue sharing is aptly reflected in the
refusal to convoke a conference of leaders of various groups and ethnic
nationalities that may lead to design of acceptable resource allocation
scheme. Even where such conferences have been convoked in the past, the
will to implement suddenly disappears from the initiators.
Examiner’s report
The question is in two parts. Part (a) of the question requires the candidates to state
and explain principles that guide revenue allocation in Nigeria, while part (b)
requires the candidates to explain factors that led to the controversies surrounding
revenue sharing in Nigeria.
Majority of the candidates attempted the question and their performance was above
average.
The common pitfalls were the inability of the candidates to state and explain
principles that guide revenue allocation in Nigeria, while in part (b) few of the
candidates could not satisfactorily explain factors that led to the controversies
surrounding revenue sharing in Nigeria.
Candidates are advised to make use of Pathfinders and the Study Text of the Institute
for better performance in the Institute‟s future examinations.
Marking guide
Marks Marks
a. Principles of revenue allocation:
Identification of any five principles at ½ mark each 2½
Explanation of the five principles identified at 1mark each 5 7½
b. Factors responsible for revenue sharing:

Identification of any five factors at ½ mark each 2½
Explanation of the five factors identified at 1mark each 5 7½
Total 15
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SOLUTION 6
a. Investment appraisal under Profitability Index (PI)
Cash outflow = N15,000,000.

Annual cash inflows =N3,800,000
r = discount rate (Cost of borrowing) = 12%
n = number of years = 6 years
Cumulative discount factor formular = 1- (1+r)-n

r
= 1- (1 + 0.12)-6
0.12
= 4.11
Years Cash flow DF (12%) Present value

N N
0 (15,000,000) 1.0 (15,000,000)
1-6 3,800,000 4.11 15,618,000
Profitability Index (PI) = Future cash inflows

Cash outflow in year 0
Profitability Index (PI) = 15,618,000

15,000,000
= 1.041
Decision: Based on the above computation, the project should be accepted

because the PI is greater than one.
b. Profitability index (PI)

Advantages of profitability index
(i) It recognises time value of money.
(ii) It is a variant of the NPV method. It therefore requires the similar
computation as in NPV method.
(iii) It is a relative measure of a project‟s profitability since the present
value of cash inflows is divided by the present value of cash outflows.
(iv) It is generally consistent with the wealth maximisation principle.
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Disadvantages of Profitability index (PI)
(i) It can only be used to choose projects under simple, one period, capital
constraint situation.
(ii) It does not work with mutually exclusive projects as only dependent projects
are being considered.
(iii) The technique is not popular in public sector project appraisal.
Examiner’s report
The question is in two parts. Part (a) of the question requires candidates to calculate
and advice the Chairman of a Local Government whether or not to undertake a
project using Profitability Index (PI) technique of investment appraisal, while part (b)
asks the candidates to identify the advantages and disadvantages of profitability
index as a technique for project appraisal.
Majority of the candidates attempted the question and their performance was below
average.
The common pitfalls were the inability of the candidates to calculate and give advice
whether or not to undertake a project using Profitability Index (PI) technique of
investment appraisal. Some candidates could not correctly state the advantages and
disadvantages of profitability index technique.
for better performance in the future examinations.
Marking guide
Marks Marks
a. Investment appraisal under Profitability Index (PI)
Calculation of present value of cash outflow in year „0‟ 1½
Calculation of present value of future cash inflows using correct formular 4
Calculation of Profitability Index (PI) using correct formular 2½
Decision 2 10
b. Advantages and disadvantages of Profitability Index:

Identification of any three advantages at 1 mark each 3
Identification of any two disadvantages at 1 mark each 2 5
Total 15
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SOLUTION 7
a. Categories of public finance
(i) Public revenue: This deals with the various sources of revenue that is
available to the government, the comparative advantages and
disadvantages of each of the source of revenue as well as the principles that
govern them. Among the sources of revenue to the government are taxation,
non-tax revenue and others. Of all the sources of revenue, taxation is the
most important and deserves special treatment.
(ii) Public expenditure: This is an important tool in the hands of the policy makers
as it can be used to achieve various economic objectives of the government
such as allocation of resources, redistribution of income and wealth,
stabilisation of prices and employment as well as achieving optimum growth
rate. It is through public expenditure that government contributes to the
financial flows of the economy, regulates the patterns of demand and supply,
as well as implement welfare programmes.
(iii) Financial administration. This involves the budget, its formulation and
execution of the various objectives specified in the budget. It also includes
the government accounting, auditing as well as the other financial
operations of the public authorities.
(iv) Economic growth and stabilisation. The objective of economic growth and
stabilisation is usually the major focus of government policies. To that extent,
it is the concern of public finance that there should be prudent utilisation of
scarce resources to ensure the achievement of these objectives.
(v) Federal finance. The practice of fiscal federalism necessitates the assignment
of expenditure and revenue responsibilities among the multi-levels or tiers of
government and the attendant challenges and possible solutions of inter-
governmental financial flows.
(vi) Public debt management: This involves the borrowing, repayment and
management of government debt to finance budget deficits and fund
public investments. Governments issue debt securities (e.g. treasury bills,
bonds, notes) to raise funds from domestic and international capital markets.
b. Rationale for public sector in the economy

Government involvement in the economy can be explained by any or combinations
of these factors.
(i) Political and social ideologies: The need for government can be explained by
the existence of political and social ideologies which is different from the
principle of consumer‟s behaviour guided by utility satisfaction. More
114
importantly, market forces left alone cannot perform all economic functions.
Therefore, there is need to guide, regulate and supplement market forces
under certain circumstances.
(ii) Allocation of resources: The claim that market mechanism leads to efficient
allocation of resources is based on the conditions of perfect competition which
presupposes the existence of free entry and exit, perfect knowledge of the
market, mobility of factors, lack of preferential treatment among other factors.
Government regulations and other measures are required to ensure the
presence of these conditions as market on its own will not guarantee their
existence.
(iii) Healthy competition: It is the role of government to ensure that competition

exists in the production of goods and services. It is therefore expected to
improve quality and increase quantity of output. However, in the absence of
regulation, competition may become inefficient or at best reduced to
decreasing cost.
(iv) Legal structure: An important factor for effective and efficient market system
is the legal structure that guarantees punishment for violators of rules and
regulations. It is the responsibility of government to ensure strict adherence
to rules and regulations otherwise abuse becomes an albatross to economic
growth and development.
(v) Externalities: The case of externalities may be a potent factor to explain the
rationale for government intervention. Even if the legal structure is provided
and all barriers removed, certain goods and services cannot be provided
through the market system due to the presence of externalities that cause
distortion between private and public appraisal of projects. Externalities can
only be tackled through public policy.
(vi) Economic objectives: The economic objectives of full employment, general

price stability, optimum growth rate, equitable distribution of income as well
as soundness of foreign account cannot be brought about automatically, even
in the most highly developed financial economy. Therefore, government
policies and other measures are required to achieve these objectives.
Examiner’s report
The question is in two parts. Part (a) of the question requires candidates to identify
and explain categories of public finance, while part (b) of the question asks the
candidates to discuss rationale for public sector in the economy.
Majority of the candidates attempted the question and their performance was
average.
The commonest pitfall was the inability of few candidates to identify and explain
categories of public finance.
115
for better performance in the Institute‟s future examination.
Marking guide
Marks Marks
a. Categories of public finance
Identification of the five categories at ½ mark each 2½
Explanation of the five categories identified at 1mark each 5 7½
b. Rationale for public sector in the economy

Identification of the five rationale at ½ mark each 2½
Explanation of the five rationale identified at 1 mark each 5 7½
Total 15
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ICAN/241/Q/B6 Examination No.........................

CORPORATE STRATEGIC MANAGEMENT & ETHICS
programmable devices, wrist watches or any form of written material on you
examination and liable to further disciplinary actions including cancellation of
examination result if caught.
number.
7. All solutions should be written in BLUE or BLACK INK. Any solution written in
PENCIL or RED INK will not be marked.
THURSDAY, MAY 16, 2024
117
CORPORATE STRATEGIC MANAGEMENT & ETHICS
QUESTION 1
Bascon Foods Plc is a producer of fast-moving consumer goods in Nigeria. Since it
commenced business in 1960, the company has been providing Nigerians with high
quality food products, such as cereals, cocoa beverages, confectionaries, and soaps,
all at competitive prices. The following product brands had consistently commanded
10% of the market share in their respective segments: Bascon Cornflakes, Bascovite
chocolate beverage, Rave cream soap, and Bascon digestive biscuits; all of which
have grown to become household names among Nigerian consumers.
In 2021, the company launched Rave Ice-cream. This was done as part of its growth
strategy through diversification and in response to the growing demand for ice-
cream. Unfortunately, one year after the launch of Rave Ice-cream, sales have been
very low with Bascon Foods Plc., thereby, struggling to break-even on this product
line. The ice-cream market is said to be growing at the rate of 5%, but the market
share of Rave ice-cream has been less than 0.5%.
In addition, Bascon Cornflakes, the company‟s flagship product experienced a sharp

decline in total annual sales by 5% per annum between 2019 and 2021.
Investigations show that this is partially attributable to the intense competition in the
market, which resulted from the entry of a major global brand; Nekloggs to the
Nigerian market. The market share of Bascon Cornflakes currently stands at 2% in a
market that is growing at 16%. On the other hand, annual sales growth of Bascovite
chocolate beverage has consistently risen by 6% per annum between 2016 and 2021.
The market for chocolate beverages is believed to be growing at the rate of 8% per
annum. Also, the market shares of Rave cream soap and Bascon digestive biscuits
have been fairly stable in the last 7 years at 5%. Market growth rate for cream soap
and digestive biscuit market is 7%. Profits made from Bascovite Chocolate beverage,
Bascon digestive biscuits, and Rave cream soap have been high and stable. Despite
the challenges faced by the company in each business unit, all product brands enjoy
dominant positions in their respective markets, except Rave Ice-cream, whose market
share is currently negligible. Also, all of the company‟s products are in fast growing
markets.
As a strategy to reduce costs and thus, increase profits across all its product lines, the
Board of Directors of Bascon Foods Plc is also planning to outsource a number of its
non-core activities. It is hoped that within a short period of time, after the proposed
118
outsourcing strategy has been implemented, Bascon will become a low-cost producer
of household food items.
Required:
You have been engaged as a consultant to Bascon Foods Plc. To this end, advise the
company‟s management on:
a. The position of each of Bascon Food Plc‟s products in the product lifecycle.
(10 Marks)
b. The suitable strategy to adopt for each of Bascon Foods Plc‟s product brands,
using the life-cycle portfolio matrix. (5 Marks)
c. Classification of all of Bascon Food Plc‟s products, using the Boston Consulting
Group (BCG) model. (10 Marks)
d. Strategy for each of Bascon Food Plc‟s products, using the BCG framework.
(5 Marks)
(Total 30 Marks)

QUESTION 2
An oil exploration company is planning to overhaul its risk management
infrastructure. Prior to this time, there has been an upsurge in the number of oil
spillages and fire outbreaks at its production facilities. Preliminary investigation
narrowed the cause of these incidents to inadequate and ineffective risk
identification system. You have been appointed to head the newly constituted risk
committee, saddled with the responsibility of strengthening the company‟s risk
identification system.
Required:
Prepare a report detailing the following:
a. Meaning, purpose, and importance of risk identification. (7 Marks)
b. The risk management process. (8 Marks)
c. Responsibilities of a risk committee. (5 Marks)
(Total 20 Marks)
QUESTION 3
ZAAN Pharmaceuticals, is a public limited liability company currently confronted by

a severe crisis between the shareholders and the Board of Directors over how the
company is being managed.
Required:
As an expert in corporate governance,
a. Explain how the separation of ownership from the control of a company can
create problems. (2 Marks)
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b. Discuss TWO circumstances in which problems may arise with corporate
governance. (2 Marks)
c. What constitutes weak or poor corporate governance? (2 Marks)
d. Discuss the key issues covered by codes of corporate governance. (14 Marks)
(Total 20 Marks)
QUESTION 4
You work at a company that produces table water and you know that a colleague in
connivance with one of the company‟s drivers, steals packs of water from the store
and sells to customers. You are not sure if you should turn a blind eye to the ongoing
theft or report to your boss?
Required:
a. Identify the technical term for your current situation in the scenario and
briefly explain the term. (3 Marks)
b. Explain the consequential and non-consequential theories of ethics and specify
how these can be applied in decision making within the context of the brief
scenario presented above. (6 Marks)
c. What is the technical term for the decision to inform your boss about the theft
and what considerations should you take before making this decision, going
by the theory underpinning the technical term? (11 Marks)
(Total 20 Marks)

QUESTION 5
The Governing Council of Zeebeedee University reviewed the school‟s curriculum with
a view to making acquisition of „Soft Skills‟ a pre-requisite for graduation. This was
as a result of the feedback from various employers of their alumni across the globe,
pertaining to their graduates‟ weakness in this area.
Required:
a. Identify EIGHT importance of soft skills in the current global job market.
(12 Marks)
b. Highlight SIX of the top „soft skills‟ that relate to any employment. (3 Marks)
(Total 15 Marks)
QUESTION 6
The cultural web within an organisation shapes its corporate ethics, Edgar Schein
believed that organisations take time to develop a culture as employees go through
various changes and adapt to the external environment and solve organisational
problems.
120
Required:
a. Present Edgar Scheins‟ view about corporate culture. (6 Marks)
b. Identify and explain succinctly Edgar Scheins‟ THREE levels of culture. (9 Marks)
(Total 15 Marks)
QUESTION 7
At an in-house seminar for the top management staff of your organisation, you have
been appointed to present a report on the significant risks that have negatively
affected the profitability of the two lines of business as presented in the Annual
Report and Accounts of an insurance company with branches both within and outside
Nigeria.
Required:
Present a report to the Management as a consultant, detailing the „risks inherent in
an insurance company‟. (15 Marks)
121
SECTION A
SOLUTION 1
a. Bascon Food Plc, as indicated in the scenario has a total of five (5) products.
The positions of these products in the Product Life Cycle (PLC) are as follows:
PRODUCT S/No. PRODUCT BRAND NAME POSITION IN PLC

1 Bascon Cornflakes *GROWTH, or
*MATURITY, or
*DECLINE
2 Bascovite Chocolate Beverage GROWTH
3 Rave Cream Soap MATURITY
4 Bascon Digestive Biscuits MATURITY
5 Rave Ice Cream INTRODUCTION
*NOTE:
 In the case of Product Brand Bascon Cornflakes, given the nature of the data
and information presented in the question‟s scenario, a candidate may choose
amongst GROWTH, MATURITY or DECLINE positions in the life cycle.
 Any of the positions is correct, as long as the candidate is able to properly

justify the choice accordingly.
PRODUCT POSITION AND JUSTIFICATION OF BASCON FOODS PRODUCT BRANDS

IN THE PRODUCT LIFE CYCLE (PLC)
1. Rave ice cream is at the introduction stage of the PLC

Introduction Stage ─ This is characterised by:
 low sales;
 high running costs; and
 the products are not yet profitable.
2. Bascon cornflakes could be at the growth stage of the PLC because it has
the following characteristics:
 relatively fast sales growth;
 company begins to make profit; and
 due to increased prospect of making profits, new entrants are attracted
into the market.
OR
Maturity stage with the following characteristics
 Stable annual sales;
 Opportunity for sales growth no longer exists; and
 Stable profits.
OR
Decline Stage ─ because it has the following characteristics:
122
 Sales begin to decline;
 Profit also declines; and
 Companies gradually leave the market.
3. Bascon Chocolate Beverage: This product is at the growth stage because it

has the following characteristics:
 relatively faster sales growth;
 company begins to make profit; and
 and due to increased prospect of making profits, new entrants are
attracted into the market.
4. Rave Cream Soap: This product is at the maturity stage because it has the
following characteristics:
 Stable profits.
5. Bascon Digestive: This product is also at the maturity stage because it

possesses the following characteristics:
 Stable profits.
b. The table below provides insight into the appropriate strategies for each
product in the Product Life Cycle portfolio matrix.
PRODUCT BRAND NAME POSITION IN PLC STRATEGIES

Bascon Cornflakes *Growth  Cost leadership
 Differentiation
 Product quality improvement
 Product refinement
 Defend position
 Renew
*Maturity  Cost leadership
 Differentiation
 Defend position
 Fast growth
 Product modification
*Decline  Defend position
 Focus niche
 Renew
 Product innovation
 Harvest
 Divest
123
Bascovite Chocolate Growth  Cost leadership
Beverage  Differentiation
 Product quality improvement
 Product refinement
 Defend position
Rave Cream Soap Maturity  Cost leadership
 Differentiation
 Defend position
 Fast growth
Bascon Digestive Biscuits Maturity  Cost leadership
 Differentiation
 Defend position
 Fast growth
Rave Ice Cream Introduction  Niche
 Catch-Up
 Grow with the Industry
 Market penetration
Advertising and Sales
Promotion
c. The BCG model classifies products in the following way: Question Marks, Stars,
Cash Cows, and Dogs. The table below indicates the various categories into
which Bascon Product brands can be classified:
d. PRODUCT BRAND BCG CLASSIFICATION CHARACTERISTICS

Star (1 mark)OR (High market growth, High
Bascon Cornflakes market share)
Question Mark (High market growth, Low
market share)
Bascovite Chocolate Star (High market growth, High
Beverage market share)
Rave Cream Soap Cash Cow (Low market growth, High
market share)
Bascon Digestive Biscuits Cash Cow (Low market growth, High
market share)
Rave Ice Cream Dog (Low market growth, low
Market share)
Please note that this may be presented in tabular or prose/narrative format.
Justification for each appropriate BCG matrix positioning of the products
Star: This is a product that has a relative high market share in a high growth
market with the following features:
 Bascon chocolate is a star because it has:
124
 a high market share increasing by 6% p.a. in a market growing at 8%
OR
 Bascon Cornflake also shares characteristics that qualify the product to be
classified as a star
Cash cow: This is a product with a high relative market share in a market where
market growth is low. It has the following features:
 The rave cream soap and Bascon digestive biscuit are cash cows with
stable market share and market growth rate of 7%.
Question mark [problem child: This is a product with a relatively low market
share in a high growth market. It has the following features:
 Bascon cornflakes is a question mark product because it has a low market
share of 2% in a market that has 16% growth rate.
Dog: This is a product with a low relative market share in a low-growth market.
It has the following features:
 From the scenario, Rave Ice-cream is a dog product, that is, the market
growth rate is low and the market share of Rave Ice-cream is very low at
5% and 0.5%, respectively.
d. Strategies suggested by BCG analysis, based on product features are as follows:
PRODUCT BRAND BCG STRATEGY

CLASSIFICATION
Bascon Cornflakes Star  Aggressive marketing to
maintain and increase market
share
 Invest in R&D
 Innovation
 Capacity expansion
Question Mark  Invest in product refinement
 product modification
 divest from product brand
Bascovite Chocolate Star  Aggressive marketing to
Beverage maintain and increase market
share
 Invest in R&D
 Innovation
 Capacity expansion
Rave Cream Soap Cash Cow  Defend and maintain market
share
 Reduce Spending on R&D
 Maximise profits and use
surplus to fund other product
lines
125
 spin-off new businesses
Bascon Digestive Cash Cow  Defend and maintain market

Biscuits share
 Reduce spending on R&D
 Maximise profits and use
surplus to fund other product
lines
 spin-off new businesses
Rave Ice Cream Dog  Divest
 Reposition brand by
investment in production and
marketing initiatives to
expand marketshare
Examiner’s report
This compulsory strategic management question tests candidates‟ ability to apply

product life cycle and relevant strategies to a given scenario, and product
classification using the Boston Consulting Group (BCG) model and determining
appropriate strategies for the products.
Virtually all the candidates attempted this compulsory question.
Performance was about average, as about 50% of the candidates scored more than
half of the marks allotted to the question.
Commonest pitfall: This is very practical question. It did not require candidates to
reproduce the diagram of the product life cycle or the BCG model quadrant, but
placement of the products on the product life cycle and the BCG model quadrant.
Candidates who performed poorly in this question did not demonstrate detailed
knowledge of the characteristics of the products and the markets at each stage. This
knowledge is required to place the products in their appropriate stages.
Recommendations: Candidates are once more admonished to develop the skills

required for application of knowledge to simple scenarios, as this is distinction
between the Foundation and skills levels of the examination.
Marking guide
Section Number of Marks Per Total
Points point
a. Identification of market position
for each product in the Product
Life Cycle 5 1 5
Justification for the position 5 1 5
126
b. Mentioning of appropriate
strategy for each position
mentioned 5 1 5
c. Identification of classification of
each product in the BCG model 5 1 5
Justification for each 5 1 5
classification
d. Mentioning of appropriate
strategy for each classification
mentioned 5 1 5
Total 30
SOLUTION 2
a. Risk identification is the process of recognising, assessing and managing risks
to the achievement of organisational goals. It is the process where
organisations recognise the nature and extent of risks to its corporate goals.
 The purpose of risk identification is to recognise and catalogue a list of

potential risks that could negatively impact the organisation's ability to
achieve its objectives.
 Importance of risk identification are:
 It provides the foundation for all the other steps in the risk
management process;
 It provides information that is used in risk assessment to determine
the likelihood and impact of risks;
 It helps to prioritise risks for further analysis and action; and
 It provides information that can be used to develop risk response
plans.
b. The risk management process consists of the following steps:

i. Risk identification: this involves recognising and drawing up a list of
potential risks to the operations and achievement of the goals of the entity.
Such list must be drawn while recognising the dynamic nature of risks.
ii. Risk analysis (assessment): in this step, the following questions are
answered:
 What is the likelihood of these risks occurring?
 What will be the consequences of these risks to the organisation?
In the process of conducting risk analysis, probability of occurrence
of each risk is assessed with a view to prioritising them.
iii. Risk evaluation: At this stage, risks are prioritised in order of significance
in terms of severity of damage and probability of occurrence.
127
iv. Risk mitigation treatment. At this stage, steps are taken to mitigate the
occurrence. Activities here include, risk avoidance, risk reduction, risk
sharing or transfer and risk acceptance.
v. Risk implementation: At this stage, all the necessary activities are taken to
put the risk treatment plans into action. Such activities for this purpose,
include allocating resources, assigning responsibilities, and making sure
appropriate risk control mechanisms are in place.
vi. Risk monitoring and review: This involves regular risk reviews, tracking
risk indicators and updating risk management plans.
vii. Risk documentation, reporting and communication: This involves
comprehensive plans to document risk management outcomes and to
communicate the results to all stakeholders of the firm.
c. Responsibilities of the Risk Committee are:

i. Where the Risk Committee is a committee of the board, its responsibilities
will include the fulfilment of corporate governance obligations of the
board to review the effectiveness of the system of risk management.
ii. Where the Risk Committee is an inter-departmental committee, its
responsibilities will include identification and monitoring of specific risks
associated with each department and those involving multiple
departments.
iii. Risk identification.
iv. Risk monitoring.
v. Reporting of effectiveness of risk management to the board or senior
management.
vi. Oversight of the risk management infrastructure.
vii. Addressing risk management and strategy review and development
process of the firm.
viii. Collaborating with the Audit Committee for effective and efficient risk
management and internal controls.
ix. Review of the effectiveness of risk management and controls, at least
annually.
x. A risk management committee should be a source of information and
advice or recommendations for the board.
Examiner’s report
This question tests risk identification, risk management process and responsibilities
of a risk committee.
About 80% of the candidates attempted this question.
128
Performance was above average as more than half of the candidates that attempted
this question scored more than half of the marks allotted to the question.
Common pitfalls: Candidates who performed poorly in this question, lacked

understanding of the risk management process and the responsibilities of a risk
management committee.
Recommendation: This is a simple risk management question which should not give
a serious candidate any challenge. Candidates are therefore admonished to cover the
syllabus fully, when preparing for future examinations.
Marking guide
Number of Marks per Total
Points Point
a. Definition of risk identification 1 2 2

Purpose of risk identification 1 2 2
Importance of risk identification 3 1 3
b. Steps involved in risk management
process 4 2 8
c. Responsibilities of risk committee 5 1 5
Total 20
SOLUTION 3
a. Problems arising from the separation of ownership from control of an

organisation
The separation of ownership from control creates problems for good corporate
governance, because:
i. The directors of a company might manage and run the company in a way
that is not in the best interests of the shareholders, leading to conflict of
interests;
ii. Shareholders might not be able to prevent the directors from not running
the company in the best interest of shareholders, because the directors
have most of the powers to control what the company does;
iii. A breach in corporate governance codes and thresholds e.g. transparency,
accountability, integrity, openness and withholding of requisite
disclosures;
iv. Prevalence of unethical managerial practices, like embezzlement, fraud,
violation of the organisation‟s codes, values, mission and philosophy, and
other corporate misconducts;
v. Managers may resist changes and alterations to their management
approach, which threaten their positions in the organisation;
129
vi. Managers may focus on short-term goals and objectives, rather than long-
term goals and objectives, in a bid to promote their own management
interests;
vii. Managers may increase the principal-agent costs, as a result of costs
incurred in the process of mitigating principal-agency problems; and
viii. Managers may withhold strategic information, which makes it difficult for
shareholders to make informed decisions in their own interest and interest
of other stakeholders of the company, thus leading to information
asymmetry problems.
b. Problems with corporate governance generally arise:

i. When a company has many different shareholders, and there is no
majority shareholder. In these companies, the board of directors has
extensive powers for controlling the company, but the shareholders are
relatively weak;
ii. Directors ought to be accountable to shareholders for the way they are
running the company. However, in practice the shareholders might have
little or no influence and do not have the ability to prevent directors from
running the company in the way that the directors themselves consider to
be best;
iii. When in large companies, shareholders continually buy and sell their
shares, so that many shareholders are not long-term investors in the
company;
iv. When there are germane issues with board composition, like lack of
diversity, which can limit perspectives of the board of certain issues;
v. Insufficient number of independent directors who are needed to provide
oversight functions and challenge decision of managers with little or no
bias;
vi. Insider dominance, which leads to conflict of interests and reduced
objectivity of the dominant few;
vii. Corporate misconducts, perpetrated by managers with unethical practices
and behaviour that affect the organisation‟s reputation; and
viii. Inadequate risk management, regulatory and management information
systems for monitoring and ensuring compliance with extant laws,
regulations, policies, procedures and ethics.
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c. Bad governance occurs:
i. When an entity is governed in a way that is inconsistent with corporate

governance principles, concepts and practices;
ii. Often, bad governance means that a company is governed in the interests
of its directors personally, rather than in the best interests of its owners (or
other important interest groups);
iii. Lack of fairness principle. Corporate governance will be poor or weak
where all shareholders are not treated equitably;
iv. Lack of directors‟ independence. Directors must have independence in
making their judgments and opinions;
v. Lack of transparency and openness;
vi. Lack of honesty and integrity; and
vii. Lack of accountability and responsibility.
d. Key issues in Corporate Governance Code

Below are the main areas covered by codes of corporate governance.
i. The role and responsibilities of the board of directors
 The board of directors should have a clear understanding of its
responsibilities and it should fulfil these responsibilities and provide
suitable leadership to the company.
 Governance is concerned with establishing what the responsibilities
of the board should be, and ensuring that these are carried out
properly.
ii. The composition and balance of the board of directors

The board should not be dominated by a powerful chief executive and/or
chairman. It is therefore important that the board should have a suitable
balance, and consist of individuals with a range of backgrounds and
experience.
iii. Financial reporting, narrative reporting and auditing.

To make a board properly accountable, high standards of financial
reporting and narrative reporting, and external auditing must be
undertaken.
iv. Directors‟ remuneration

To encourage their commitment to achieving the objectives of their
company, directors should be given suitable incentives. Linking
remuneration to performance is considered essential for successful
corporate governance.
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v. Risk management and internal control
The directors should ensure that their company operates within acceptable
levels of risk, and should ensure through a system of internal control that
the resources of the company are properly used and its assets are
protected.
vi. Shareholders‟ rights

Another aspect of corporate governance is encouraging the involvement of
shareholders in the companies in which they invest, through more
dialogue with the directors and through greater use of shareholder
powers, such as voting powers at general meetings of the company.
vii. Corporate social responsibility

Corporate social responsibility is a business model by which companies
make concerted efforts to operate in ways that enhance rather than
degrade society and the environment.
viii. Business ethics

Business ethics refers to implementation of corporate business policies and
practices with regards to controversial issues, such as corporate
governance, insider trading, social responsibility, and fiduciary
responsibilities.
Examiner’s report
This question on corporate governance tests the following:
 How separation of ownership from the control of a company can create

problems;
 Circumstances in which problems may arise in with corporate governance;
 Weak or poor corporate governance; and
 Key issues covered by corporate governance codes.
About 90% of candidates attempted this question.
Performance was below average, as less than 40% of the candidates who attempted
this question scored up to 50% of the marks allotted.
Common pitfalls
A number of the candidates who provided poor responses to this question had
inadequate to address the various parts of the question, especially the effects of
separation of ownership from management of a company and contents of codes of
corporate governance.
Recommendation: To perform well in the examination, candidates need to effectively

cover the syllabus.
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Marking guide
Number of Marks per point Total
points
a. Problems arising from separation of
ownership from control 2 1 2
b. Problems with corporate 2 1 2
governance
c. When bad governance occurs 2 1 2
Mentioning 1
d. Key issues in corporate governance 7 Explanation 1 14
Total 20
SOLUTION 4
a. The Ethical term for the scenario described is Ethical /moral dilemma.
Ethical (Moral) dilemma involves a conflict between two moral principles,
whereby it can be argued that both perspectives are fair and reasonable.
Ethical or moral dilemmas typically arise in situation where a particular action
is likely to benefit one stakeholder while harming another.
b. i. Consequential theories of ethics are also known as teleological theories or

results-based theory. The theory in all its ramifications claim that, of all
the decisions that a person might take at any given moment, the morally
right decision is a decision with the best overall outcomes or
consequences.
ii. According to this view, no action or decision taken would be inherently
„wrong‟, it all depends on the outcomes or consequences.
iii. Faced with the scenario, either you decide to tell or not to tell your boss
about the theft because of the consequence of your choice, then you have
applied the consequential theory of ethics.
iv. Whatever decision taken on the scenario above, based on the
consequential theory would undermine (compromise) the principle of
integrity either to your colleague or the company.
v. Non-consequential or deontological theories of ethics are theories based
on the view that what is right or wrong does not depend at all on the
consequences of the action or decision. This approach to ethics is a duty-
based approach.
vi. The duty-based approach emphasises that we should always do the right
thing. Do the right thing because it is right, regardless of the
consequences.
From the scenario, if your decision is to tell your boss about the theft
because you believed it is the right thing to do, irrespective of the
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consequences of doing so, you have adopted the non-consequential
approach to ethics.
c. Whistle blowing is the technical term

The considerations that should be made before „blowing the whistle‟ include:
i. Are all the facts correct? Could you have misinterpreted something or
mistakenly drawn the wrong conclusion?
ii. Is there sufficient evidence to justify blowing the whistle?
iii. You should double-check that you have thought about the situation
objectively and with neutral emotion (rather than, say, at a time of anger).
iv. Consider discussing events in confidence with an independent confidential
third party e.g. a professional helpline or legal advisor.
v. Think about the impact that blowing the whistle may have on the
whistleblower‟s career.
vi. Is the risk of being victimised and bullied outweighed by the benefits of
proceeding with blowing the whistle?
vii. Double-check company policy and whistle blowing procedures in the staff
handbook. The whistleblower must ensure they follow company
procedures at all times.
viii. Establish whether there is scope to discuss events confidentially with the
human resources department.
ix. Is there an internal audit department who could be made aware of
relevant events and take ownership of reporting the issue?
x. Consider if there is a legal obligation to report – for example in many
countries there is a legal obligation to report the discovery of money-
laundering or terrorism activities
Examiner’s report
This ethics question tests candidates‟ ability to

 Identify ethical (moral) threat/dilemma;
 Application of consequential and non-consequential theories of ethics; and
 Whistle-blowing considerations.
Attempt: More than half of the candidates attempted this question, but performance
was poor.
Common pitfall was the candidates‟ lack of understanding of the considerations for
whistle-blowing.
Recommendation: Skills level candidates are admonished to master application of

knowledge to practical scenarios. This is akey requirement for this level of the
examination.
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Marking guide
No. of Marks Total
points per point
a. Identification of term 1 1 1
Explanation of term 1 2 2
b. Consequential and non-consequential theories 6 1 6
c. Identification of technical term 1 2 2
Consideration that must be given before 6 11/2 9
blowing whistle
Total 20
SOLUTION 5
a. Importance of soft skills in the current global job market

It helps in:
i) Solving organisational problems and demonstrate positive work ethics;
ii) Handling interpersonal relations;
iii) Taking appropriate decisions;
iv) Effective communication;
v) Encouraging good impression and impacting professional development;
vi) Building stronger customer relationship;
vii) Building more cohesive and creative teams;
viii) Building greater organisational productivity and effectiveness;
ix) Building more engaged and motivated employees;
x) Building deeper commitment to shared goals; and
xi) Facilitating the growth of the employees and employer.
b. Top soft skills that relate to any employment are:

i) Communication;
ii) Self–motivation;
iii) Leadership;
iv) Responsibility;
v) Teamwork;
vi) Problem-solving;
vii) Decisiveness;
viii) Ability to work under pressure;
ix) Time management;
x) Flexibility;
xi) Critical thinking;
xii) Leadership;
xiii) Digital literacy;
xiv) Negotiation;
xv) Conflict management and resolution;
xvi) Networking;
xvii) Self-management;
xviii) Self-awareness;
xix) Diversity awareness;
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xx) Global mindset;
xxi) Active listening;
xxii) Collaboration;
xxiii) Ability to build positive relationships;
xxiv) Agility;
xxv) Resilience;
xxvi) Open-mindedness;
xxvii) Coping strategies;
xxviii) Empathy;
xxix) Work-Life balance; and
xxx) Emotional intelligence.
Examiner’s report
This question tests importance of soft skills and identification of top soft skills in
employment.
More than 90% of the candidates attempted this question, and the general
performance was above average.
Pitfall: Those candidates who did not perform well in this question were unable to
state the importance of soft skills.
Recommendation: Soft skills have assumed great importance in management and the
future of work, hence candidates are advised to pay particular attention to them.
Marking guide
No. of Marks per Total
points point
a. Importance of soft skills 8 11/2 12
b. Top soft skills that relates to any
employment 6 ½ 3
Total 15
SOLUTION 6
a. Edgar Schein‟ view about Corporate Culture
He suggested that employees working within a company have:
i) Shared values, beliefs and ways of thinking;

ii) Interact with the policies, organisation‟s structure and politics of the
company‟s management system to create a corporate culture;
iii) That organisational/corporate culture is strong because it is regarded as
something that helps the company to succeed;
iv) He sees the organisation‟s culture as a set of assumptions that a group of
people working together have invented or discovered by learning how to
deal with problems that the organisation faces, internally and externally;
136
v) Assumptions underlying organisational/corporate culture are valid, and
should be taught to individuals who join the organisation;
vi) New employees should learn the culture of the organisation and become
part of that culture;
vii) Organisational/corporate culture provides a mechanism for social control
in an organisation;
viii) Organisational/corporate culture helps to strengthen organisational
identity across the firm;
ix) Organisational/corporate culture helps members of a firm to make sense of
their social, work and business environments, and thus equips them with
stability and meaning; and
x) Organisational/corporate culture requires commitment of leadership and
strategic steps to be altered due to its deep-rooted nature in the
organisation‟s psyche.
b. Edgar Schien‟s three levels of culture

i. Outer skin/Artefacts
 Outer skin can also be referred as Artefacts.
 This is the first level where the culture of an organisation is visible
and tangible.
 but which do not fully explain the cultural dynamics across the firm.
 They can be easily seen, heard, and perceived by individuals inside
and outside an organisation.
Examples: Physical environment, language, communication, rituals,
ceremonies, decoration, employees‟ dress code, logos, symbols, etc.
ii. Inner layer/Espoused values:

● Inner layer can also be referred to as espoused values of a firm‟s
corporate culture.
● The inner layer is the explicitly stated values, norms, beliefs and
attitudes that are preferred by the organisation, and which guide the
members of the organisation on expected patterns of behaviour, and
on what is important to the organisation.
● Company presents an outlook that it provides service to the
community and the best quality of service to customers.
Examples: Mission statement, vision statement, values statement, patterns
of strategy, dominant logic, philosophy of the firm, code of conduct,
policies and procedures, etc.
137
iii The Heart / Basic underlying assumptions:
● The heart which also refers to the basic underlying assumptions of a
firm‟s corporate culture is the deeply embedded, unconscious beliefs,
perception, thoughts and feelings that are the ultimate source of
values and actions within the organisation.
● The heart (basic underlying assumptions) provides the foundation for
how members of a firm perceive, think, and feel about their works
and organisation.
● The heart or shared assumptions is concerned with what really
matter, that are taken for granted and rarely discussed. These affect
the way that the organisation sees itself and the environment in
which it operates.
Examples: Beliefs about human nature, work ethics, interpersonal
relationships, approach to change etc.
Examiner’s report
This question tests candidates‟ understanding of Edgar Schein‟s views on corporate
culture and the three levels of the model.
About 60% of the candidates attempted the question, but performance was below
average, as less than 40% of the candidates who attempted the question scored up to
50% of the marks allotted to it.
Many of the candidates who performed poorly displayed lack of understanding of

Edgar Schein‟s views on corporate culture, while some others could not identify the
three levels of the Schein model.
Recommendations: Candidates should endeavour to fully understand the components

of the various models in the syllabus.
Marking guide
No. of Marks per Total
points point
a. Edgar Schein‟s view of corporate culture 3 2 6
b. Identification of three levels of culture 1 1 3
Two Explanation/ examples for each level 2x3=6 1 6
Total 15
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SOLUTION 7
From: The Consultant

To: Management
Date:
Subject: Presentation on Risk Inherent in Insurance Companies
The above subject matter refers;
The risk inherent in insurance companies includes but is not limited to the following:
i) Strategy risk: This risk of choosing strategies that do not maximise shareholders
value;
ii) Product/Service risk: The risk of developing products or services for customers
that do not meet customers‟ requirements and are worse than the products or
services offered by competitors;
iii) Credit risk: A risk of default on a debt that may arise from a borrower failing to
make required payments. It includes default on payment of premium due;
iv) Market risk: The risk from variation in interest rates (or interest rate risk and
currency exchange risk (currency risk) and the risk of changes in market prices
of financial products like shares and stocks. This is important an insurance
company as it would usually invest a significant part of the premium collected;
v) Operational risks: Risks of losses due to human error or fraud, failures in
systems, like IT systems.
vi) Security risks: Is a risk that involves the potential for loss or damage to an
organisation‟s assets, data or reputation due to malicious activities. For
example, unforeseen external events like terrorism and natural disasters;
vii) Human capital risk or People capability risk: The risk of failing to attract the
best people to work for the company;
viii) Liquidity risk: Risk of inadequate liquidity;
ix) Legal/Regulatory risk: Risk that a change in laws and regulations will
significantly impact an Institution;
x) Technology risk: Risk that could result from technology related events which
could have adverse effects on a firm. For example, cyber-attacks, data breaches,
inadequate technology management practices, etc.;
xi) Business probity risk: This is the risk resulting from failure to act in an honest
way. This can include unethical practices, lack of integrity, and other sharp
practices. This is accentuated in an insurance company, as insurance is based
on ultimate good faith;
139
xii) Reputation risk: This is risk resulting from events which damage the reputation
of a firm and consequently lead to a loss of trust and confidence on the part of
customers, clients and other stakeholders;
xiii) Currency risk (Financial risk): This is a kind of risk that could occur as a result of
a drop in the valuation of one currency via-a-vis its exchange rate with other
major global currencies. It is sometimes associated with „hedging risk‟. This is
important in this case as the company is said to engage in foreign operations,
which will involve foreign exchange; and
xiv) Derivative risk: this refers to the financial, hedging and operational risks
pertaining to the use of derivatives, which are financial contracts whose value is
derived from the performance of assets like stocks, bonds, interest rates,
currencies, commodities, futures, options, and swaps.
Examiner’s report
This question tests candidates‟ understanding of risks inherent in an insurance

company.
More than 80% of the candidates attempted this question, but performance was poor.
The common pitfall was the inability of most the candidates to relate the concept of
inherent risk to an insurance company.
Recommendation: Skills level candidates should appreciate the need to develop the
skill of applying concepts and theories to simple scenarios as stated in the syllabus.
Marking guide
No. of Marks Total
Points per point
Risks inherent in insurance companies
Presentation format 3 ½ 1½
Risks inherent in insurance companies –
mentioning 9 ½ 4½
Risks inherent in insurance companies –
explanation 9 1 9
Total 15
140
TAXATION

number.
8. Tax and Capital Allowances rates are provided with this examination paper.
TUESDAY, MAY 14, 2024
141
TAXATION

QUESTION 1
1. Mr. Ola Alao works as the manager of XYZ Limited which has its office located at
Ikeja, Lagos. He lived with his family in Ibafo, Ogun State, and he provided the
following information in respect of his 2021 assessment year:
(i) He was paid a gross monthly income of N 204,000;
(ii) In addition to his salary, he was paid the following bonuses;
Date of payment Date of Amount
Entitlement
N
May 29, 2021 April 4, 2021 92,000
September 24, 2021 August 7, 2021 162,000
May 7, 2022 May 19, 2021 58,000
(iii) He attended a workshop outside his station for a period of ten days and
was paid a daily allowance of N45,000, to cover hotel expenses,
transportation and other incidental expenses;
(iv) As a senior sales staff of the establishment, he was given non – assignable
luncheon vouchers to the tune of N120,000 in year 2021;
(v) He was assigned an official vehicle for his exclusive use which was
purchased at the cost of N8,000,000 by the company;
(vi) He enjoyed the services of a night guard and a domestic staff fully paid for
by the company. Domestic servant (staff of the company) was paid
N360,000 per annum and the night guard received N480,000 per annum
but was hired from a company offering security services;
(vii) He was transferred to the Port-Harcourt office on November 1, 2021 and

was paid the sum of N2,000,000 for the purpose of relocating to his new
station;
142
(viii) He lived in a rented apartment fully paid for by company for N600,000 per
annum;
(ix) He contributes to an approved pension scheme at the rate of 8% of his

salary and has a life insurance policy with a capital sum assured of
N5,000,000, paying a premium of N20,000 per month;
(x) He subscribed to National health insurance and National housing fund

schemes making contributions of N35,000 and N40,000, respectively on a
monthly basis.
Required:
a. For the relevant assessment year,
i. Identify the relevant tax authority of Mr. Ola Alao (2 Marks)
ii. Compute the chargeable income of Mr. Alao (19 Marks)
iii. Compute income tax payable by Mr. Alao (5 Marks)
b. Differentiate between a contract of employment and contract for employment.

(4 Marks)
(Total 30 Marks)
SECTION B: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THE THREE

QUESTION 2
Adidas Nigeria Limited has been in business for so many years. The company is into
supply of furniture, fixtures and fittings.
Since the date of commencement of business to the accounting year ended October
31, 2018, it had posted reasonable profits. In year 2019, a competitor, ABC Limited,
was able to introduce a new brand of furniture into the market, which boosted the
sales of the company. Unfortunately, this had an adverse effect on the gross turnover
of Adidas Nigeria Limited. Despite concerted efforts made by Adidas Nigeria Limited
to compete favourably with ABC Limited, its fortunes continued to dwindle.
To allow for capital injection, the directors of Adidas Nigeria Limited, decided on
February 1, 2020, to change its accounting date to be in line with one of its foreign
partners. The board, therefore, decided that the accounting year-end be changed to
December 31, every year.
143
You are provided with the following additional information:
N
(i) Adjusted profits
Year ended October 31, 2019 24,500,000
Period ended December 31, 2020 (14 months) 38,200,000
Year ended December 31, 2021 44,100.000
(ii) Gross turnover

Year ended October 31, 2019 49,100,200
Period ended December 31, 2020 75,200,500
Year ended December 31, 2021 101,300,000
(iii) Capital allowances

Assessment year 2020 850,000
Required:
For the relevant assessment years:
a. Compute the assessable profits (14 Marks)
b. Compute the company‟s income tax liabilities (6 Marks)
(Ignore minimum tax computation) (Total 20 Marks)
QUESTION 3
a. Section 6 (6A) of Personal Income Tax Act Cap P8 LFN 2004 as amended by
Finance Act 2020, states that the Minister by Order can determine what
constitutes the significant economic presence of a non-resident, executor or
trustee.
Required:
In relation to what constitutes a significant economic presence, discuss:
i. Digital transactions (4 Marks)
ii. Services (4 Marks)
b. Alhaji Yanko Abdulahi was a successful businessman in Kano before he died.

He is survived by two children, namely: Yahaya and Binta.
A trust was created for the benefit of his two children. The records of the trustee
for the year ended December 31, 2021, revealed the following information:
144
N
Rental income (gross) 2,400,000
Profit from trading activities 32,160,800
Interest received (gross) 840,000
Other income 630,500
Additional information provided
(i) Yahaya is entitled to a fixed annuity of N148,000 per annum.
(ii) Allowance for expenses of the trustee amounted to N62,000.
(iii) Capital allowance agreed with the Revenue amounted to N1,260,000.
(iv) Trustee remuneration per trust deed:
Fixed – N25,000 per annum
Variable – 2% of computed income.
(v) The trust has made provision for the payment of N150,000 as discretionary
payments to each of the children.
(vi) 60% of the distributable income is to be shared between Yahaya and Binta
in the ratio 55:45, respectively.
Required:
Compute the income of the trust assessable to tax in the hands of the trustee.
(12 Marks)
(Total 20 Marks)
QUESTION 4
Pkikan Nigeria Limited has been in business for several years preparing accounts to
December 31 annually.
You are given the following information about the company‟s activities for the year
ended December 31, 2021.
N’000
Turnover 1,300
Cost of sales (400)
Gross profit 900
Less: Total expenses (1,100)
Net loss for the year (200)
Additional information provided:

(i) Total expenses included: N
- Cost of stamping documents 50,000
- Depreciation charges 20,000
- Withholding tax paid on rental income 30,000
- General and administrative expenses 550,000
- Refurbishing of equipment 60,000
- Repainting of premises 80,000
- Pre-incorporation expenses written off 10,000
- Acquisition of plant 100,000
- Transfer to capital redemption reserve fund
For the future development of the business 200,000
1,100,000
145
You were informed that:
(ii) After the review of the company‟s accounting records, N400,000 meant for the
Managing Director of the company was erroneously included in the turnover
for the year.
(iii) The issued share capital of the business was N1.8 million, out of which, the
shareholders representing N300,000 are yet to pay the final call.
(iv) The net assets of the company was N850,000.
(v) There was a loss brought forward of N210,000 relating to the previous year of
assessment and the agreed capital allowance with the Revenue was N385,000.

a. Compute the minimum tax liability for the relevant year of assessment.
(14 Marks)
b. State the reasons behind the computation of minimum tax liability.
(3 Marks)
c. State the companies exempted from the computation of minimum tax liability.
(3 Marks)
(Total 20 Marks)

QUESTION 5
Havillah Manufacturing Limited is a company that is engaged in the manufacture of

different kinds of perfume, body lotions and other cosmetic products.
The statement of profit or loss of the company for the year ended September 30,
2021, is as follows:
N’000 N’000
Turnover 206,250
Less cost of sales (112,750)
Gross profit 93,500
Other income 34,375
127,875
Less operating costs:
Operating expenses 62,975
Interest and similar charges 3,520 (66,495)
Profit before tax 61,380
Taxation (6,875)
Profit after tax 54,505
Dividend (42,350)
Retained profit for the year 12,155
146
You are provided with the following additional information:
(i) Turnover is made up of N64,350,000 export sales and N141,900,000 local sales.
(ii) Cost of sales comprises:
N‟000
Opening inventory (VAT inclusive) 24,915
Closing inventory (VAT inclusive) 40,865
Purchase of raw materials 94,600
Freight charges 20,570
Other direct materials 13,530
(iii) The company purchased plant and machinery which cost N24,750,000. This
amount was included in opening inventory, VAT inclusive.
(iv) Value added tax and withholding tax remitted during the year amounted to
N2,173,180 and N1,787,500, respectively.

a. Compute the net VAT payable by Havillah Manufacturing Limited for the year.
(10 Marks)
b. State FIVE VAT exempt goods. (2½ Marks)
c. State FIVE VAT exempt services (2½ Marks)
(Total 15 Marks)
QUESTION 6
Mr. Abiodun James returned to Nigeria after a long sojourn in America. In 2018, he
incorporated James and Sons Nigeria Limited.
At the company‟s board meeting held in August 2021, the accountant of the company
presented the tax query letter received from the Federal Inland Revenue Service
(FIRS) for the consideration of the directors. Some of the directors thought that
having engaged the services of external auditors, the FIRS should rely on the
technical competence of the auditors in ascertaining the correctness of the audited
financial statements submitted to them for their review.
The Managing Director explained to the other directors that the administration of
taxation on the profits of incorporated companies is vested in the FIRS whose
management board is known as Federal Inland Revenue Service Board (FIRSB).
The Federal Inland Revenue Services (Establishment) Act, 2007 (as amended) is relevant.
Required:
a. State FIVE members of the Federal Inland Revenue Service Board. (5 Marks)
b. State and briefly explain FIVE duties and functions of the Federal Inland
Revenue Service. (5 Marks)
c. State the basis for tax dispute that may arise with the Revenue. (5 Marks)
(Total 15 Marks)
147
QUESTION 7
Kanbus Nigeria Plc is a company incorporated to manufacture and distribute food

products that are widely accepted in many homes in Nigeria. It has operated for over
15 years since taking over the business of JHN Nigeria Limited. The main business of
JHN Nigeria Limited was distribution of food items and other agricultural produce in
the South-West geographical zone of Nigeria.
The Chief Executive Officer (CEO) of Kanbus Nigeria Plc, Mr. Babadada, was a former
staff of Collinson India Limited for several years and thus brought into Kanbus
Nigeria Plc a wealth of experience. Earlier in his working career, Mr. Babadada, had
worked with Kong Manufacturing Limited, a Chinese company, where he imbibed the
culture of collaboration with staff in the decision making process. Mr. Babadada, is
assisted by a formidable team of managers recruited from major food and beverage
companies in the country.
The management of Kanbus Nigeria Plc. engaged different consultants to handle
professional issues, including consultancy matters in respect of law, medical, finance,
tax, accounting, etc. which were outsourced to different, well-known and competent
hands.
Your firm, Kassman and Co. (Chartered Accountants), were engaged to handle both
corporate and personal income tax matters.
Required:
As the consultant, you have been requested by the Managing Partner, Kassman and
Associate, to explain to the Chief Executive Officer of Kanbus Nigeria Plc., the
following:
a. Professional issues that can be handled by your firm (5 Marks)
b. FIVE main sources of Nigerian tax laws (5 Marks)
c. FIVE allowable expenses in the ascertainment of assessable profits of companies
(5 Marks)
(Total 15 Marks)
148
NIGERIAN TAX RATES
1. CAPITAL ALLOWANCES
Initial % Annual %
Building Expenditure 15 10
Industrial Building Expenditure 15 10
Mining Expenditure 95 Nil
Plant Expenditure (excluding Furniture & Fittings) 50 25
Manufacturing Industrial Plant Expenditure 50 25
Construction Plant expenditure (excluding Furniture and Fittings) 50 Nil
Public Transportation Motor Vehicle 95 Nil
Ranching and Plantation Expenditure 30 50
Plantation Equipment Expenditure 95 Nil
Research and Development Expenditure 95 Nil
Housing Estate Expenditure 50 25
Motor Vehicle Expenditure 50 25
Agricultural Plant Expenditure 95 Nil
Furniture and Fittings Expenditure 25 20
2. INVESTMENT ALLOWANCE Up to August 31, 2023 (10%); and Finance Act 2023 (NIL)
3. RATES OF PERSONAL INCOME TAX
Graduated tax rates and consolidated relief allowance of N200,000 or 1% of Gross
Income, whichever is higher + 20% of Gross Income.
Taxable Income (N) Rate of Tax (%)
First 300,000 7
Next 300,000 11
Next 500,000 15
Next 500,000 19
Next 1,600,000 21
Over 3,200,000 24
After the relief allowance and exemption had been granted, the balance of income
shall be taxed as specified in the tax table above.
4. COMPANIES INCOME TAX RATE: Finance Act 2019 specifies:
30% (Large Company)
20% (Medium-Sized Company)
0% (Small Company)
5. TERTIARY EDUCATION TAX: 2% of assessable profit (up to December 31, 2021)
2.5% of assessable profit (with effect from January 1,
2022) and 3% of assessable profit, with effect from
September 1, 2023 (Finance Act 2023)
6. CAPITAL GAINS TAX 10%
7. VALUE ADDED TAX 7.5%
8. HYDROCARBON TAX 15% (Petroleum prospecting
Licence and Marginal Fields Companies)
30% (Petroleum Mining Lease Companies)
149
SECTION A
SOLUTION 1
a. (i) The relevant tax authority of Mr. Ola Alao is Ogun State Internal Revenue
Service.
(ii) MR. OLA ALAO

INCOME TAX COMPUTATION
FOR ASSESSMENT YEAR 2021
N N
Gross salary 2,448,000
Bonuses - May 29, 2021 92,000
- September 24, 2021 162,000 254,000
Add benefits in kind:
Cost of using car (N8,000,000 x 5%) 400,000
Night guard 480,000
Rent paid for Alao 600,000 1,480,000
Total earned income 4,182,000
Tax exempt items:
Pension contribution (N8% of 2,448,000) 195,840
Life assurance premium 240,000
National insurance health contribution 420.000
National housing fund contribution 480,000 (1,335,840)
Gross income 2,846,160
Consolidated relief allowance
(N200,000 + 20% of N2,846,160) (769,232)
Chargeable income 2,076,928
(iii) Tax payable

N:K
First N300,000 at 7% 21,000.00
Next N300,000 at 11% 33,000.00
Next N500,000 at 15% 75,000.00
Next N500,000 at 19% 95,000.00
Next N476,928 at 21% 100,154.88
2,076,928
Tax payable 324,154.88
150
b. The Personal Income Tax Act CAP P8 LFN 2004 (as amended) defines
employment to include any appointment or office whether public or otherwise
for which remuneration is payable, and “employee” and employer” shall be
construed accordingly.
However, the Labour Act 1994, defines a contract of employment as any

agreement whether written or verbal, expressed or implied, whereby one
person agrees to serve the employer as a worker”.
A contract for employment is an agreement whereby a person is engaged as

an independent contractor, such as a self-employed person or vendor engaged
for a fee to carry out an assignment or a project for the company. In a contract
for employment, there is no employer-employee relationship in the contract
and the self-employed person is not covered by the Labour Act.
An individual under a contract of employment is commonly referred to as an

employee, while an individual under a contract for employment is referred to
as an independent contractor or self-employed person. The following
distinctions can be drawn between a contract of employment and a contract
for employment:
(i) An individual under a contract of employment earns remuneration (that

is, salary) while an individual under a contract for employment earns
profit;
(ii) An individual under a contract of employment is assessed to tax on

actual year basis, while an individual under a contract for employment
is assessed to tax on preceding year basis;
(iii) A self-employed person is required to register for value added tax,

while an employee is not required to do so; and
(iv) An employee has the right not to be unlawfully dismissed and to receive
redundancy payment and other employment rights, while a self-
employed person does not have such rights.
Examiner’s report
The question tests the candidates‟ knowledge of the identification of the relevant tax
authority, computation of personal income tax, and differentiation between contract
of employment and contract for employment.
This being a compulsory question, about 100% of the candidates attempted the
question and their performance was above average.
The common pitfalls of the candidates were their inability to:
i) State the correct relevant tax authority of the taxpayer based on his residence as
some even referred to FIRS as the relevant tax authority of the individual;
151
ii) Annualise the tax exempt items;
iii) Take into consideration the date of payment in the determination of each of the
bonuses to be treated as part of income; and
iv) Differentiate between “contract of employment” and “contract for employment”.
Candidates are advised to read widely and be conversant with the provisions of the
Personal Income Tax Act Cap. P8 LFN 2004 (as amended) and other tax laws before
sitting for subsequent examinations to enhance better performance.
Marking guide
Marks Marks
a. Identification of the relevant tax authority
2
(i) Ogun State Internal Revenue Service
(ii) Computation of the chargeable income of Mr. Alao
Name 1
Income tax computation ½
For assessment year 2019 ½
Total earned Income:
Gross salary 1
Bonuses - May 29, 2021 1
- September 24, 2021 1
Add: benefits-in-kind:
Cost of using car 1
Night guard 1
Rent for Alao 1
Tax exempt items:
Approved pension scheme contribution 2
Life assurance premium 2
National and insurance health contribution 2
National housing fund contribution 2
Consolidated relief allowance:
N200,000 1
N2,146,160 1
Chargeable income 1 19
(iii) Computation of income tax payable by Mr. Alao
First N300,000 @ 7% - N21,000 1
Next N300,000 @ 11% - N33,000 1
Next N500,000 @ 15% - N75,000 1
Next N500,000 @ 19% - N95,000 1
Next N676,928 @ 21% - N142,154.88 1 5
152
b. Differentiation between a contract of employment and contract
for employment
(i) Definition of employment 1
(ii) Definition for employment 1
(iii) 1 mark each for any distinction subject to a maximum of 2
points 2 4
Total 30
SOLUTION 2
a. Adidas Nigeria Limited

Computation of assessable profits
For assessment years 2020, 2021 and 2022
Old basis New basis
Assessment Assessable Assessable
year Basis period profit Basis period profit
N N
2020 1/11/2018 – 31/10/2019 24,500,000 1/1/2019 – 31/12/2019 25,873,810
2021 1/11/2019 –31/10/2020 32,742,857 1/1//2020 – 31/12/2020 32,742,857
(wi)
2022 1/11/2020 – 31/10/2021 (wii) 42,207,143 1/1/2021 – 31/12/2021 44,100,000
99,450,000 102,716,667
Based on the foregoing, the Revenue would assess on the new basis, since this
would produce higher assessable profits for 2020 – 2022 assessment years.
Consequently, final assessable profits will be as follows:
Assessment year Basis period Assessable
Profits
N
2020 1/1/19 – 31/12/19 25,873,810
2021 1/1/20 – 31/12/20 32,742,857
2022 1/1/21 – 31/12/21 44,100,000
102,716,667
Workings:
Old basis Assessable profits
i) 2021 assessment year N N
- 1/11/2019 – 31/10/2020 = 12
/14 x N38,200,000 32,742,857
ii) 2022 assessment year

- 1/11/2020 – 31/12/2021 = 2
/ x N38,200,000
14 5,457,143
- 1/11/2021 – 31/10/2021 = 10
/ x N44,100,00
12 36,750,000 42,207,143
74,950,000
153
New basis
iii) 2020 assessment year
1/1/2019 – 31/10/2019 = 10
/12 x N24,500,000 20,416,667
1/11/2019 – 31/12/2019 = 2
/14 x N38,200,000 5,457,143 25,873,810
iv) 2021 assessment year

1/1/2020 – 31/12/2020 = 12
/14 x N38,200,000 32,742,857
58,616,667
b. Adidas Nigeria Limited

Computation of tax liabilities
For assessment years 2020, 2021 and 2022
Assessment year 2020 N

Assessable profit 25,873,810
Capital allowances (850,000)
Total profit 25,023,810
Companies income tax payable (20% of total profit) N5,004,762.00
Tertiary education tax payable (2% of assessable profit) N517,476.20

Companies income tax payable (20% of total profit) N 6,404,571.40
Tertiary education tax payable (2% of assessable profit) N654,857.14

Companies income tax payable (30% of total profit) N13,050,000.00
Tertiary education tax payable (2.5% of assessable profit)

N1,102,500.00
Note
The Finance Act, 2021, became effective on January 1, 2022, but based on the
circular issued by the Federal Inland Revenue Service, all audited financial
statements with accounting years ended from July 1, 2021 to December 31, 2021,
should reflect the provisions of the Act, hence the application of tertiary education
tax rate of 2½% for A.Y. 2022.
154
Examiner’s report
The question tests the candidates‟ knowledge of the computation of assessable
profits and income tax liabilities of companies based on change in accounting date.
About 70% of the candidates attempted the question but the performance was
average.
The common pitfalls of the candidates were their inability to ascertain the relevant
assessment years based on the rules of change in accounting date. In addition to the
foregoing, some of the candidates could not compute the assessable profits and
apply the correct rates of tax, taking into consideration the turnover, in the
determination of companies income tax liabilities for all the relevant assessment
years.
Candidates are advised to read relevant texts on taxation, ICAN Pathfinders and
Study Text.
Marking guide
Marks Marks
a. Computation of assessable profits
Heading - Name of enterprise 1
- Computation of assessable profit ½
- Assessment years ½
Assessment years (correct identification of the assessment years)
(½ mark for each assessment year) 1½
Basis periods
(¼ mark for each correct basis period) 1½
Assessable profits:
Old basis – (1 mark for each correct profit) 3
New basis – (1 mark for each correct profit) 3
Final assessable profits:
(1 mark for each correct profit) 3 14
b. Computation of tax liabilities

Assessment year 2020
Assessable profit ½
Capital allowances ½
CIT payable ½
TET payable ½
CIT payable ½
TET payable ½
155
CIT payable ½
TET payable ½ 6
Total 20
SOLUTION 3
a. (i) Digital transactions

Section 6 (6A) of PITA as amended by Finance Act, 2020, states that the
Minister by Order can determine what constitutes the significant economic
presence of a non-resident individual, executor or trustee.
For the purpose of section 13(2)(c) of CITA, a company, other than a Nigerian
company, shall have a significant economic presence in Nigeria in any
accounting year, where it derives gross turnover, or income of more than N25
million or its equivalent in other currencies, in that year, from any or
combination of the following:
 Streaming or downloading services of digital contents, including but not
limited to movies, videos, music, applications, games and e-books to any
person in Nigeria;
 Transmission of data collected about Nigerian users which has been
generated from such users‟ activities on a digital interface, including
website or mobile applications;
 Provision of intermediation services through a digital platform, website or
other online applications that link suppliers and customers in Nigeria;
 Provision of goods or services directly or through a digital platform;
 Uses Nigeria domain name (ng) or registers a website address in Nigeria;
or
 Has a purposeful and sustained interaction with persons in Nigeria by
customising its digital page or platform to target persons in Nigeria,
including reflecting the prices of its products or services in Nigerian
currency or providing options for billing or payment in Nigerian currency.
156
The activities carried out by connected persons shall be aggregated in
determining the N25 million threshold, where necessary.
Any company, other than a Nigerian company, covered under a multilateral
agreement to address the tax challenges arising from the digitalisation of the
economy, to which Nigeria is a party, shall be treated in accordance with that
agreement or arrangement.
(ii) Services
A company other than a Nigerian company (foreign entity), carrying on a
trade or business comprising the furnishing of services of technical,
professional, management or consultancy nature, shall have a significant
economic presence in Nigeria in any accounting year, where it earns any
income or receives any payment from:
 A person resident in Nigeria; or
 A fixed based or agent of a company, other than a Nigeria company
(foreign entity).
Services of a technical nature means any services of a specialised nature

(including advertising services, training or the provision of personnel) that
are not professional, management or consultancy services.
It should be noted, however, that a company shall not have a significant

economic presence in Nigeria in relation to a payment, where the payment is
made:
 To an employee of the person making the payment under a contract of
employment; or
 For teaching in an educational institution or for teaching by an
educational institution; or
 By a foreign fixed base of a Nigerian company.
In addition to the above, where an individual, executor, or trustee outside
Nigeria carries on a trade or business that includes the furnishing of
technical, management, consultancy or professional services to a person
resident in Nigeria, the gains or profits of the trade or business shall be
deemed to be derived from and taxable in Nigeria to the extent that the
individual, executor or trustee has significant economic presence in Nigeria.
157
b. The trust of Alhaji Yanko Abdulahi
Computation of income assessable to tax in the hands of the trustee
For assessment year 2022
N N
Rental income (gross) 2,400,000
Profit from trading activities 32,160,800
Capital allowances (1,260,000) 30,900,800
Interest received (gross) 840,000
Other income 630,500
Total income 34,771,300
Deduct: Allowable expenses:

Yahaya‟s fixed annuity 148,000
Allowable expenses 62,000
Trustee‟s remuneration:
Fixed 25,000
Variable (2/102 of N34,771,300 – N148,000 –
N62,000 – N25,000) 677,182 912,182
Computed income 33,859,118
Less: discretionary payments 300,000
Distributable income 33,559,118
Deduct: 60% of the distributable income between
Yahaya and Binta in the ratio of 3:2, respectively 20,135,471
Amount assessable to tax in the hands of the
trustee 13,423,647
Examiner’s report
The question tests candidates‟ knowledge of what constitutes a significant economic
presence in respect of digital transactions and services, and the computation of the
income of a trust that is assessable to tax in the hands of a trustee.
About 50% of the candidates attempted the question but the performance was poor.
The commonest pitfall of the candidates was their inability to explain what
constitutes a significant economic presence in relation to digital transactions and
services.
Candidates are advised to read Finance Acts, make use of the Institute‟s Pathfinders,
and Study Text in their preparations for subsequent examinations.
158
Marking guide
Marks Marks
a. What constitutes a significant economic presence
(i) Digital transactions
(1 mark for each correct answer) 4
(ii) Services
(1 mark for each correct answer) 4 8
b. Computation of the income of the trust assessable to tax in the
hands of the trustee
Heading - Name ½
- Computation of income assessable to tax ½
Profit from trading activities 1
Capital allowances 1
Interest received gross 1
Other Income 1
Allowable expenses:
(1 mark for each correct answer) 4
Discretionary payments 1
Share of the beneficiaries 1
Amount assessable to tax in the hands of the trustee 1 12
Total 20
SOLUTION 4
a. Pkikan Nigeria Limited

Computation of minimum tax liability
For assessment year 2022 N
Gross turnover 1,300,000
Managing Director (400,000)
Net turnover 900,000
Minimum tax liability is 0.5% of turnover.
Therefore, the minimum tax liability is 0.5% of N900,000 = N4,500
b. The main reason that has informed the computation of minimum tax liability of
a company in any relevant assessment year is to ensure that no company
escapes the payment of tax except those specifically exempted.
The computation of minimum tax liability could arise when a company:
i) Makes loss or no total profit;
ii) Has a total profit which results in no tax payable;
iii) Has a tax payable that is less than the minimum tax payable; and
iv) Makes a turnover of N25 million and above.
159
c. The companies exempted from the computation of minimum tax liability are:
- A company in agricultural trade or business;
- Any company that has not been in business up to four (4) calendar years;
and
- A company that earns a gross turnover of less than N25 million in the
relevant year of assessment.
Examiner’s report
The question tests the candidates‟ knowledge of the computation of minimum tax
liability, reasons that informed the computation, and companies that are exempted
from this computation.
About 50% of the candidates attempted the question and performance was fair.
Most of the candidates computed minimum tax liability using the old method and
displayed poor knowledge of the reasons behind the computation of minimum tax
liability.
Candidates are advised to read Finance Acts, ICAN Study Text and Pathfinders as this
topic is adequately covered in them.
Marking guide
Marks Marks
a. Computation of minimum tax liability
Heading - Income 1
- Computation of minimum tax liability 1
- For assessment year 2022 1
Gross turnover 2
Managing Director 2
Net turnover 2
Computation of minimum tax liability
0.5% 1
N900,000 2
N4,500 2 14
b. Reasons behind the computation of minimum tax liability
1 mark for the main reason 1
1 mark each for any correct reason subject to a maximum of 2
reasons 2 3
c. Companies exempted from the computation of minimum tax
liability
1 mark each for any correct answer 3
Total 20
160
SOLUTION 5
a. Havillah Manufacturing Limited

Computation of net VAT payable to FIRS
For the year ended September 30, 2021
N N
Output VAT
Local sales (N141,900,000 @ 7.5%) 10,642,500
Input VAT
Opening inventory
(N24,915,000 - N24,750,000) x 100/107.5 153,488
Purchase of raw materials 94,600,000
Freight charges 20,570,000
Other direct materials 13,530,000
128,853,488
Closing inventory (N40,865,000 x 100/107.5) (38,013,953)
Cost of goods 90,839,535
Input VAT (N90,839,535 @ 7.5%) (6,812,965)

VAT payable 3,829,535
VAT remitted (2,173,180)
Net VAT payable 1,656,355
NOTE – The export sales were excluded from the computation because export
sales are VAT exempt items.
b. VAT exempt goods include:

i. All medical and pharmaceutical products;
ii. Basic food items;
iii. Books and educational materials;
iv. Baby products;
v. Plant, machinery and goods imported for use in the Export Processing
Zone or Free Trade Zone; provided that 100% production of such company
is for export, otherwise tax shall accrue proportionately or the profits of the
company;
vi. Plant, machinery and equipment purchased for utilisation of gas in
downstream petroleum operations;
vii. Tractors, ploughs and agricultural equipment and implements purchased
for agricultural purposes;
viii. Oil export wrongly written as all exports;
ix. Fertilizers locally produced, agricultural and veterinary medicine, farming
machinery and farming transportation equipment;
x. Vegetable oil;
xi. Motorcycle (CKD)/Bicycle (SKDs) and their spare parts;
xii. Life insurance;
161
xiii. Locally manufactured sanitary towels, pads or tampoons;
xiv. Commercial aircrafts, commercial aircraft engines and commercial aircraft
spare parts;
xv. Residential rent; and
xvi. Petroleum products, including aviation and motor spirit, kerosene, natural
gas, other liquid petroleum gases and gaseous hydrocarbons.
c. VAT exempt services include:

i. Medical services;
ii. Services rendered by micro-finance banks and mortgage institutions;
iii. Tuition relating to nursery, primary, secondary and tertiary education;
iv. Airline transportation tickets issued and sold by commercial airlines
registered in Nigeria;
v. Hire, rental or lease of tractors, ploughs and other agricultural equipment
for agricultural purpose;
vi. Plays and performances conducted by educational institutions as part of
learning;
vii. All exported services;
viii. Shared passenger transport service which is made available for public use
but this does not include hired or rented vehicles;
ix. Training and education organised by not-for-profit or public educational
institutions;
x. Interest on loans, advances, overdrafts. and savings;
xi. Interest on bank deposits; and
xii. Renewable energy.
Examiner’s report
The question tests the candidates‟ knowledge of the computation of net VAT payable
to FIRS, goods and services that are VAT exempt.
About 50% of the candidates attempted the question and performance was fair.
Many candidates could not ascertain the VAT included in opening and closing
inventories and considered the input VAT on capital expenditure as part of allowable
input VAT instead of adjusting for it, hence their inability to compute correctly the net
VAT payable by the company.
Candidates are advised to be conversant with the provisions of Value Added Tax Act
Cap. V1 LFN 2004 (as amended), and other relevant Finance Acts.
162
Marking guide
Marks Marks
a. Computation of net VAT payable by Havillah manufacturing
Limited
Heading - Name ½
- Computation of net VAT payable to FIRS ½
- For the year ended September 30, 2021 ½
Local rates 1
Opening inventory 1
Workings of opening inventory:
N24,915,000 ½
N24,750,000 ½
100/107.5 ½
Purchase of raw materials ½
Freight charges ½
Other direct materials ½
Closing inventory 1
Input VAT 1
VAT remitted 1
Net VAT payable ½ 10
Identification of VAT exempt goods
b.
(½ mark each for any correct answer subject to a maximum of
5 (five) points)
2½
c. Identification of VAT exempt goods
(½ mark each for any correct answer subject to a maximum of
5 (five) points) 2½
Total 15
SOLUTION 6
a. The Federal Inland Revenue Service Board comprises:
(i) Executive Chairman, who shall be a person experienced in taxation, to be
appointed by the President and subject to the confirmation of the Senate;
(ii) Six members with relevant qualifications and expertise, to be appointed by
the President to represent each of the six geo-political zones;
(iii) A representative of the Attorney General of the Federation;
(iv) The Governor of the Central Bank of Nigeria or his representative;
(v) The representative of the Minister of Finance not below the rank of a
Director;
(vi) The Chairman of the Revenue Mobilisation Allocation and Fiscal
Commission or his representative who shall be any of the Commissioners
representing the 36 states of the Federation;
(vii) The Group Managing Director of the NNPC or his representative who shall
not be below the rank of a Group Executive Director of the corporation or
its equivalent;
163
(viii) The Comptroller-General of the Nigeria Customs Service or his
representative, not below the rank of Deputy Comptroller-General;
(ix) Registrar-General of the Corporate Affairs Commission or his representative
not below the rank of a Director; and
(x) The Chief Executive Officer of the National Planning Commission or his
representative not below the rank of a Director.
b. The Federal Inland Revenue Service shall:

(i) Assess persons, including companies, enterprises chargeable with tax;
(ii) Assess, collect, account and enforce payment of taxes as may be due to the
government or any of its agencies;
(iii) Collect, recover and pay to the designated account any tax under any
provision of this act or any other enactment or law;
(iv) In collaboration with the relevant ministries and agencies, review the tax
regimes and promote the application of tax revenue to stimulate economic
activities and development;
(v) In collaboration with the relevant law enforcement agencies, carry out the
examination and investigation with a view to enforcing compliance with
the provisions of the Act;
(vi) Make from time to time, a determination of the extent of financial loss and
such other losses by government arising from tax fraud, evasion and such
other losses (or revenue forgone) arising from tax waivers and other
related matters;
(vii) Adopt measures to identify, trace, freeze, confiscate or seize proceeds
derived from tax fraud or evasion;
(viii) Adopt measures which include compliance and regulatory actions,
introduction and maintenance of investigation and control techniques on
the detection and prevention of non-compliance;
(ix) Collaborate and facilitate rapid exchange of information with relevant
national or international agencies or bodies on tax matters;
(x) Undertake exchange of personnel or other expert with complementary
agencies for purposes of comparative experience and capacity building;
(xi) Establish and maintain a system for monitoring international dynamics of
taxation in order to identify suspicious transactions and the perpetrators
and other persons involved;
(xii) Provide and maintain access up-to-date and adequate data and
information on all taxable persons, individuals, corporate bodies or all
agencies of government involved in the collection of revenue for the
purposes of efficient, effective and correct tax administration and to
prevent tax evasion or fraud;
164
(xiii) Maintain database, statistics, records and reports on persons,
organisations, proceeds, properties, documents or other items or assets
relating to tax administration including matters relating to waivers, fraud
or evasion;
(xiv) Undertake and support research on similar measures with a view to
stimulating economic development and determine the manifestation,
extent, magnitude and effects of tax fraud, evasion and other matters that
affect effective tax administration and make recommendations to the
Government on appropriate intervention and prevention measures;
(xv) Collate and continually review all policies of the Federal Government
relating to taxation and revenue generation and undertake a systematic
and progressive implementation of such policies;
(xvi) Liaise with the office of the Attorney-General of the Federation, all
government security and law enforcement agencies and such other
financial supervisory institutions in the enforcement and eradication of tax
related offences;
(xvii) Issue taxpayer identification number to every taxable person in Nigeria in
collaboration with State Boards of Internal Revenue and Local Government
Councils;
(xviii) Carry out and sustain rigorous public awareness and enlightenment
campaign on the benefits of tax compliance within and outside Nigeria;
(xix) Carry out oversight functions over all taxes and levies accruable to the
Government of the Federation and as may be required, query, subpoena,
sanction and reward any activities pertaining to the assessment, collection
of and accounting for revenues accruable to the Federation;
(xx) Provide assistance in the collection of revenue claims or any other
administrative assistance in tax matters with respect to any agreement or
arrangement made between the Government of the Federal Republic of
Nigeria and the Government of any country or other persons or bodies as
may be deemed necessary in that regard; and
(xxi) Carry out such other activities as are necessary or expedient for the full
discharge of all or any of the functions under this Act.
c. The following could result in tax disputes with the Revenue:

(i) Taxpayer‟s inability to submit acceptance certificate relating to property,
plant and equipment;
(ii) Inadequate documentation of allowable expenses for tax purposes;
(iii) Understatement or splitting of income;
(iv) Non/late filing of tax returns;
(v) Inability of the taxpayers to submit documents relating to Output and
Input VAT;
(vi) Non remittance of withholding tax deducted at source;
165
(vii) Delay in the payment of refunds relating to excess withholding tax
deducted at source;
(viii) Non-recognition of allowable expenses by the tax officials; and
(ix) Inability of the relevant tax authority to grant tax exempt items, etc.
Examiner’s report
The question tests the candidates‟ knowledge of the composition, duties and
functions of the Federal Inland Revenue Service, and the explanation of the basis for
tax dispute that may arise with the Revenue.
About 80% of the candidates attempted the question but performance was average.
The commonest pitfall was the candidates‟ inability to explain the composition,
functions and duties of the Federal Inland Revenue Service (FIRS).
Candidates are advised to be conversant with the provisions of the Federal Inland
Revenue Service (Establishment) Act, 2007 (as amended).
Marking guide
Marks
a. Composition of the Federal Inland Revenue Service Board
(1 mark each for any correct member subject to a maximum of 5
(five) members) 5
b. Duties and functions of the Federal Inland Revenue Service
(1 mark each for any correct answer subject to a maximum of 5 (five)
points) 5
c. Basis of tax dispute with the Revenue
(1 mark each for any correct answer subject to a maximum of 5
points) 5
Total 15
SOLUTION 7
a. Professional issues that can be handled by a firm of Chartered Accountants
include:
(i) Filing of tax returns;

(ii) Tax planning and management;
(iii) Ensuring compliance with the tax laws;
(iv) Tax dispute resolution;
(v) Registration of a company with both FIRS and SIRS;
(vi) Computation of taxes according to the relevant tax laws;
(vii) Computation of personal income tax liability for a taxpayer;
(viii) Tax advisory services;
(ix) Obtaining tax clearance certificates for employees and companies;
(x) Attending to tax queries, audit and investigation;
(xi) Obtaining acceptance certificates in respect of capital expenditure;
166
(xii) Internal audit risk and compliance services;
(xiii) Forensic audit;
(xiv) Accounting advisory services;
(xv) Financial risk management;
(xvi) IT assurance;
(xvii) Cyber investigation;
(xviii) Assets verification services;
(xix) Training and capacity building;
(xx) Management consultancy;
(xxi) Receivership and bankruptcy;
(xxii) Registration of businesses and incorporation of companies;
(xxiii) Provision of company secretarial services;
(xxiv) Statutory audits and assurance;
(xxv) Consultancy services relating to offer for sale;
(xxvi) Mergers and acquisitions;
(xxvii) Corporate financing;
(xxviii) IT consulting services;
(xxix) Business advisory; and
(xxx) Audit advisory services.
b. Sources of Nigerian tax laws

The tax system in Nigeria is administered through statutes rather than common
law. The sources of Nigerian tax laws are:
(i) Customary laws

These are the native laws and customs, governing the taxation of incomes,
goods and properties of persons or communities within an ethnic group.
Included under this heading, is the Islamic law, which is the basis of
moslem laws that are usually applicable in the Northern part of Nigeria.
Examples of taxes collected under the customary laws are:

 Ishakole: Payable in Yoruba land, to titular heads of communities or
obas on the produce from farmland;
 Osusu-nkwu: Applicable in the Eastern part of Nigeria;
 Zakkat tax payable by adherents of the Islamic faith, on their wealth,
which has been in their possession for a full year. Such wealth includes
money, properties, etc.
The Islamic law provides the basis for determining the amount of tax
payable and to whom payable.
(ii) Statute laws

These are tax legislations passed by Acts of the National and State
assemblies and bye-laws by local government authorities in a democratic
government or decrees or edicts under a military government. These
legislations confer necessary powers on the taxing authorities to impose
taxes on the citizens that is, individuals, companies, trusts, settlements,
etc.
167
Examples of such tax legislations are:
Personal Income Tax Act P8 LFN 2004 (as amended);
Companies Income Tax Act Cap C21 LFN 2004 (as amended);
Value Added Tax Act Cap VI LFN 2004 (as amended);
Petroleum Industry Act, 2021; and Various Finance Acts.
(iii) Case laws

This is the doctrine of stare decisis, that is, judicial precedents. Under this
doctrine, judgements pronounced by superior courts of records, namely:
High Courts, Appeal Courts, and the Supreme Court, on principles of tax
laws and their interpretations of the provisions of tax statutes, are binding
on the lower courts.
In view of the fact that Nigerian tax laws had their origin from the English
tax laws, it would not be out of place to state that the principles of English
common law pronounced upon by the judges in England and interpreted
by them, also form another source of Nigerian tax laws.
This position is buttressed by the decision in the case of Aderawos Timbers

Trading Co. Limited v Federal Inland Revenue Service Board (1966) LL.R
195, (1969) ALL NLR 247.
In this case, it was held that the decisions of English courts can be invoked
for the purpose of interpreting Nigerian tax statutes where the expression
and terms used are similar and substantially the same as those used in
English Statutes.
(iv) Circulars issued by and practices of the Inland Revenue.
(v) Opinions of tax experts and authors insofar as the courts take judicial
notice of them.
(vi) Budget and pronouncement of relevant ministries.
(vii) The Constitution of the Federal Republic.
c. Allowable expenses
The allowable expenses in the ascertainment of assessable profits of companies
include:
i. A sum payable by way of interest on money borrowed and employed as
capital in acquiring the income;
ii. Interest on loan for developing an owner occupier residential house;
iii. Rents payable in respect of land and buildings occupied for the purpose of
acquiring the income;
iv. Expenses for repairs of premises, plant, machinery or fixtures employed in
acquiring the income, or for the renewal, repair, or alteration of any
implement, utensil or article so employed:
Provided that, if the premises, plant, machinery, fixtures, implement,
utensils or articles are used in part for domestic or private purposes, so
much of the expenses as relates to such use shall not be so deducted;
168
v. Bad debts incurred in any trade, business, profession or vocation, proved to
have become bad during the period for which the income is being
ascertained and doubtful debts to the extent that they have become bad
during the said period and notwithstanding that such bad or doubtful debt
were due and payable prior to the commencement of such period:
Provided that:
All sums recovered during the said period on account of amounts
previously written off or allowed in respect of bad or doubtful debts shall
for the purpose of this Act be deemed to be income of the trade, business,
profession or vocation of that period;
vi. A contributory pension or an abatement deducted from the salary or
pension of a public officer under the Pension Act or any approved scheme
within the meaning of the Act, and any contribution, other than penalty,
made under the provisions of any Act establishing a National Provident
Fund or other retirement benefit schemes for employees throughout
Nigeria;
vii. Contributions to approved pension, provident or other retirement benefits,

funds under the Pension Reform Act 2004. (now Pension Reform Act 2014);
viii. In the case of income from trade, business, profession or vocation, any
expenses or part thereon, incurred for that period wholly and exclusively
for the purpose of trade, business, profession or vocation;
ix. Any expense which is proved to the satisfaction of the relevant tax
authority, to have been incurred by the individual on research, for the
period, including the amount of levy paid by him to the National Science
and Technology Fund;
x. Where the income is chargeable, only by reason of it being brought into or
received in Nigeria, nothing in this section shall confer a right to any
deduction from the amount of that income so brought into or received in
Nigeria.
xi. Legal expenses relating to:

 General legal advisory services;
 Retainer‟s fees;
 Renewal of short-term lease; and
 Any legal cost incurred in protecting or defending the business.
xii. Specific allowance for bad and doubtful debts; and

xiii. Donations to accredited bodies, taking the relevant restrictions into
consideration.
169
Examiner’s report
The question tests the candidates‟ knowledge of tax and other professional issues
that are handled by firms of chartered accountants, main sources of Nigerian tax
laws, and allowable expenses in the ascertainment of assessable profits of
companies.
About 90% of the candidates attempted the question but the performance was
average.
Many of the candidates could not state professional issues that are handled by a firm
of chartered accountants whilst some could not explain the sources of Nigerian tax
laws.
Candidates are advised to adequately cover the syllabus and read the Institute‟s
Pathfinders and Study Texts when preparing for future examinations.
Marking guide
Marks
a. Stating professional issues that can be handled by a firm of Chartered
Accountants
(1 mark each for any correct point subject to a maximum of 5 (five)
points) 5
b. Stating main sources of Nigerian tax laws
(1 mark each for any correct point subject to a maximum of 5 (five)
points) 5
Stating allowable expenses in the ascertainment of assessable profits
c.
of companies
(1 mark each for any correct allowable expense subject to a
maximum of 5 (five) expenses) 5
Total 15
170

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THE INSTITUTE OF CHARTERED

This issue of the PATHFINDER is published principally, in response to a growing

(i) Candidates preparing to write future examinations of the Institute of Chartered

(iii) Lecturers and students interested in acquisition of knowledge in the relevant

(iv) The professional; in improving pre-examinations and screening processes, and

It is hoped that the suggested answers will prove to be of tremendous assistance to

AUDIT AND ASSURANCE 34 - 54

CORPORATE STRATEGIC MANAGEMENT & ETHICS 117 - 140

TAXATION 141 – 170

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

SKILLS LEVEL EXAMINATION – MAY 2024

TUESDAY, MAY 14, 2024

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT FIVE OUT OF SEVEN

Assets: 31-03-21 31-03-20

You are required to:

Sokoto Nig. PLC Niger Nig. LTD.

v. It is the group policy to value non-controlling interests at fair value.

b. Explain how investment in a subsidiary should be accounted for in the

Lamido Limited statement of financial position as at December 31

The following information is also relevant:

b. Discuss the following as contained in IAS 36-Impairment of Assets.

ii. How to identify and account for impairment of assets. (6 Marks)

c. A non-current asset in the statement of financial position of Zamfara LTD, an

SECTION C: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THREE

However, when an error is discovered that relates to a prior accounting period,

2022(Draft) 2021 (Published)

b. Olumo-Taxi Limited‟s financial year ends on December 31. The company

During year 2019 Olumo-Taxi Limited incurred N700,000 on the process of

The outcome of the company‟s application was uncertain up to November 30,

i. December 31, 2019

Operating activities: N‟000 N‟000

Wk 4: Plant and machinery N‟000

Wk 5: Disposal of plant N'000

Wk 7: Cash and cash equivalents 2021 2020

Wk 9: Cash paid for other operating expenses N'000 N'000

Wk 10: Disposal of investment N‟000

Wk 11: Cash paid to suppliers N'000

Wk 12: Dividend paid

The candidates pitfalls include the following:

Marking guide Marks Marks

b. Analysis of the profitability, gearing and

a. SOKOTO NIG. PLC

Non-current assets: N‟000

Wk 2: Net asset of subsidiary At rep. At acq. Post-

Wk 4: Unrealised profit N'000

Wk 5: Valuation of NCI N'000

b. Accounting for investment in subsidiary in parent‟s separate financial statements

Marking guide Marks Marks

iii) Return on capital employed has declined significantly due to a decline in

Areas of concern for the future:

Marking guide Marks Marks

b. Comments on performance and position Lamido

a. Differences between impairment and depreciation

Internal sources: External sources:

i) Identifyi.ng and accounting for impairment of assets:

c. According to IAS 36, an asset is said to be impaired when its recoverable

Zamfara LTD non-current asset recoverable amount of N600,000 is less than