THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
OCTOBER 2012: PROFESSIONAL EXAMINATION
FOUNDATION:MANAGEMENT INFORMATION SYSTEM
ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS. TIME: 3 HOURS
1. Project Management has been said to be the key to success of business
management.
a. What do you understand by “Project Management”?
(2 Marks)
b. What is project organization?
(3 Marks)
c. Briefly describe one type of project organization.
(5 Marks)
d. Outline five (5) contents of a formal project plan.
(10 Marks)
(Total 20 Marks)
SOULTION
1
(a)
Project management refers to the administration of ongoing projects.
(b)
Project organization refers to temporary task entity created within a parent
organization to accomplish specific task. The understanding is that the
entity will be dissolved upon completion of its objectives. It is usual for
project organization to be multi – disciplinary in nature.
(c)
There are two types of project organizations
i.
Pure project – There is an organization structure with its various
departments existing specifically for the project. The department
may continue after the completion of the project, but if no further
project is started, the department will be dissolved.
ii.
Matrix – Involves people from various departments unlike pure
project type. On completion of the project, the people are
transferred back to their departments.
There will be two reporting lines. One line of reporting to their
superior in their primary department and secondly to the project
manager.
(d)
The contents of formal project plan include
(i)
A brief descriptive title
Page 1 of 41
(ii)
A concise description of project goals
(iii)
Estimate of cost and benefit
(iv)
Plan of work
(v)
Time estimate
(vi)
Designation of personnel
(vii)
Procedures for conflict resolution
(viii)
Provision for periodic reporting
(ix)
Provision for periodic project review
(x)
Brief reference to subsequent stages of the project
(xi)
Provision for project determination and wind down.
2. Many businesses believe they practice a centralized data processing system.
a. What is a Centralized data processing system?
(2 Marks)
b. Outline three (3) advantages and two (2) disadvantages of a centralised data
processing system
(10 Marks)
c. List four (4) devices of each of (i) soft wares, (ii) hard wares and(iii)
telecommunication equipment that are installed to make centralized data
processing work
(8 Marks)
(Total 20 Marks)
SOLUTION
2.
(a)
A centralized data processing system is a processing system where
one large central computer connects all the users in all the unit in an
organization together.
(2 Marks)
(b)
i.
1.
Economy of capital expenditure as one large computer is
purchased instead of several computers in different units.
2.
Higher storage and processing capability
3.
Centralization facilitates the standardization of
Page 2 of 41
procedures.
ii.
4.
Standardization of applications
5.
Staff cost reduced by having a central pool of IT staff
The disadvantages of a central system include
1. Specialized skills required for database maintenance
2. Special environment with adequate security, air-conditions to be
provided
3. Risk of system down time to the entire organization.
4. Does not facilitate end use involvement.
(10 Marks)
c.
Various software, hardware and telecommunication equipment are
installed to make centralize data processing possible and they include:
Hardware
Desktop
Telecommunication
Equipment
Modem
Laptop
Server
Renter/ Switch Internet
Local Area Network (LAN)
Scanner
Printer
Metro Area Network (MAN)
Wide Area Network (WAN)
UPS
Mast
Widest Area Point (WAP)
Telephone
Software
Operating System e.g Linux,
Android,
Unix,
Window
Server
Database
- My SQL
- Oracle
Application
Financial- packages, Excel,
Power point e.g Sage,
Peachtree, MS office,
Oracle, SAP,
Flexcube, Finacle
(8 Marks)
3. The following terms are freely used in a computerized environment. Briefly describe
each of them to the understanding of a new entrant.
Page 3 of 41
a. Password
Marks)
b. RAM
Marks)
c. Virus
Marks)
d. Bug
Marks)
e. Kilobyte
Marks)
(5
(5
(5
(5
(5
(Total
20
Marks)
SOLUTION
3.
a.
b.
Password – a password is a set of characters used to control access
into a computer system and also applications. They can be used to
determine what information is available to a user.
RAM – Ram stands for Random Access Memory. Ram is the temporary
storage area used by the computer to store items temporarily. It can also
be said to be a temporary working storage. It is volatile and does not
retain information.
c.
Virus - A nuisance data can cause damage and corrupt files on the
system. Examples include Melissa, Jamsalam virus.
d.
A Bug is an error in a computer programme that will not allow a computer
programme to run properly and accomplish the task at hand.
e.
Kilobyte. This is the units of measuring computer storage. One byte is
used to store one character. A thousand byte is referred to as a kilobyte or
data.
4. A Revenue Authority has just computerised its tax records management system
using data base. You are required to:
a. Define Data base and outline its features
(6 Marks)
b. Define DBMS and state its advantages
(10 Marks)
Page 4 of 41
c. State two types of data base structure
(4 Marks)
(Total 20 Marks)
SSOLUTION
4.
a.
(i)
A data base is an organized collection of related data for
storage, access, retrieval and management.
(2 Marks)
(ii)
Four features of data base:
i.
ii.
iii.
iv.
v.
vi.
vii.
b.
ease of data input
report generation
index Information
complex querying
perform global update
incorporates graphics
relate data to create information.
(4 Marks)
DBMS – Database Management System is software that ensures the
workings of a data base.
(2Marks)
Four Advantages
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
c.
enables the design of the structure of data base
creates data entry forms so as to get information into the data base
validates data entry and check for inconsistencies
sorting and manipulation of data in the data base
eliminates problems of data duplication and redundancy
enables data sharing between users
facilitates uniform development and maintenance of application
program.
(8 Marks)
Two types of Data base structure
i.
Relational data base
ii.
Network data base
Page 5 of 41
iii.
Hierarchical data base
iv.
Object oriented data base
(4 Marks)
5. a. Feasibility study is usually conducted when a new system is to be developed so
as to ensure
optimal benefits.
What do you understand by the term “Feasibility Study”? Briefly itemize the
content of a good feasibility study.
(10 Marks)
b. As part of the IT Governance Structure, your organization has just proposed to
set up an IT Steering Committee.
Outline five (5) functions of this steering committee
(10 Marks)
(Total 20 Marks)
5.
a.
Feasibility study is conducted to justify the basis for developing a
new system. It answers the question of whether or not to adopt a new
system in term of its costs and benefits. Data are collected and subjected
to scientific analysis to guide in the choice of the system. The feasibility
study is handling by a feasibility study team usually including system
analysts.
(2Marks)
Contents of a feasibility study
i.
Terms of reference
ii.
Composition of members
iii.
Outline of present system
iv.
Outline of proposed system
v.
Stages in carrying out the report
vi.
Fact finding / Investigation
vii.
Fact recording
viii.
Analysis of facts using cost benefit approach
ix.
Recommendation and conclusion
(8 Marks)
b.
The functions of an IT steering committee include
i.
Appointing members of the feasibility study group
ii.
Ensure cost benefit analysis of IT projects
iii.
Make recommendations to the management
iv.
Monitor progress of IT projects
Page 6 of 41
v.
Approve commencement of IT projects
vi.
Ranking project, in order of priority and assigning resources
vii.
Take decision to defer projects
viii.
Selecting system development staff.
(10 Marks)
THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
OCTOBER 2012: PROFESSIONAL EXAMINATION
Page 7 of 41
FOUNDATION: ACCOUNTING
ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS. TIME: 3 HOURS
1.
a. Explain the term Accounting Concepts
(5
Marks)
b. Briefly explain the following assumptions underlying the preparation of financial
statements:
i. Going concern concept
(3
Marks)
ii. Accrual concept
(3
Marks)
iii. Consistency concept
(3 Marks)
iv. Materiality concept
(3 Marks)
v. Conservatism concept
(3
Marks)
(Total 20 Marks)
SOLUTION
1
(a)
(b)
ACCOUNTING CONCEPT
Accounting Concepts are broad basic assumptions underlying the
preparation of periodic financial statements. They are not specifically
stated because their acceptance and use are assumed. The disclosure of
such concepts is necessary, only if they are not followed and the reasons
for doing so must be stated.
(i)
GOING CONCERN CONCEPT
This concept is sometimes referred to as the “continuity of
existence assumption”. In other words, in the absence of
information to the contrary, it is assumed that the business has an
indefinite life, that is, as continuing in operation for the foreseeable
future.
The assumption is that the business unit will operate in perpetuity,
which is the business is not expected to be liquidated or curtailed
materially the scale of its operations in the foreseeable future.
A business is considered a going concern if it is capable of earning
reasonable net income and there is no intention or threat from any
source to curtail significantly its line of business in the foreseeable
future.
(ii)
ACCRUALS CONCEPT
Page 8 of 41
Revenues and costs are accrued, that is recognized as they are
earned or incurred (and not as money is received or paid), and
recorded in the financial statements of the period to which they
relate.
(iii)
CONSISTENCY CONCEPT
Usually, there is more than one way in which an item may be
treated in the accounts without violating accounting principles. For
instance, a business may use the straight line method, the reducing
balance or any other method in computing depreciation charges in
its account.
The concept of consistency holds that when a company selects a
method, it should continue to use that method in subsequent
periods (unless conditions warrant a change) so that a comparison
of accounting figures overtime is meaningful.
The concept ensures that the accounting treatment of like items is
consistent from one period to another.
(iv)
MATERIALITY CONCEPT
The principle holds that only items of material values are accorded
their strict accounting treatment.
An item will be considered material if its omission or misstatement
could distort the financial statement such that it influences the
economic decisions of users taken on the basis of the financial
statements.
However, the size of an organization may contribute or determine
the materiality of some items. For instance cost of some items like
calculators may be material to a sole trader whereas it will not to a
big company like Mobil.
Clearly it would be absurd to capitalize the cost of a calculator by
Mobil and begin to change depreciation on it every year. It would
therefore not be inappropriate if the cost of the calculator because
of its immateriality is expensed to profit and loss account in the year
of its purchase.
Page 9 of 41
(v)
2.
CONSERVATISM CONCEPT
It is also known as prudence concept and recognizes that
uncertainty surrounds many transactions by exercising prudence
i.e. caution in preparing financial statements.
To this end, revenue and profits are not anticipated, but are
recognized by inclusion in the profit and has account only when
realized in the form of cash or of other assets, the ultimate cash
realization of which can be assessed with reasonable certainty.
Provision is also made for all known liabilities whether the amount
of this is known with certainty or is just an estimate in the light of
the information available.
BKL Logistics Limited’s bank Statement showed an overdraft figure of ₦235,600 as
at 31 December, 2010. This did not agree with the cash book balance of ₦31,445.
On investigation you discovered that:
i. Bank charges of ₦665 shown on the bank statement have not been entered in
the cash book
ii. A cheque drawn for ₦8,930 has been entered in error as a receipt
iii. A cheque of ₦3,420 has been returned by the bank marked “ refer to drawer” but
it has not been written back in cash book
iv. A cheque with serial number 007 of December 15, 2010 issued to Mr. Ologbon
for ₦25,060 and another cheque with serial number 010 of the same day
issued to Mrs. Taylor for ₦15,600 have not been presented to the bank
v. The debit side of the cash book was under cast by ₦1,900
vi. A cheque with serial number 015 dated December 18, 2010 issued to Mr.
Olumilua for ₦13,300 was yet to be presented as at December 31, 2010
vii.The bank has debited a cheque for ₦13,680 in error to the company’s account
viii. The last page of the paying-in book showed a deposit of ₦292,980 as at
December 31, 2010 but yet to appear in the bank statement
ix. A cheque with serial number 021 dated December 21, 2010 issued for electricity
bill in favour of PHCN for ₦5,700 was yet to be presented
You are required to:
a. Prepare the adjusted cash book
b. Prepare a bank reconciliation statement as at 31 December 2010
Marks)
(8 Marks)
(12
(Total20 Marks)
SOLUTION
Page 10 of 41
2.
BKL Logistics
Balance
31445
Under
1900
ADJUSTED CASH BOOK
₦
b/d
cast
₦
Bank Charges
665
error Cheque wrongly debited
( 8930 x 2)
17860
Returned Cheque
3420
Balance c/d
11400
33345
Balance
11400
33345
b/d
WAZOBIA NIGERIA LTD
BANK RECONCILIATION STATEMENT AS AT 31 DEC. 2010
₦
Balance as per bank statement
(235600)
Add: Uncredited Cheque of 31/12/10
292980
57380
Less:Unpresented Cheques:
40660 + 13300 + 5700 (see note 1)
59660
2280
Add: Cheque wrongly debited to the
account of Wazobia Nig. Ltd by bank
Balance as per adjusted cash book
13680
11400
Note 1: Unpresented Cheques.
Page 11 of 41
3.
Date
Name
15/12/10
15/12/10
18/12/10
21/12/10
Mr. Ologbon
Mrs. Taylor
Olumilua
PHCN
Cheque
No
007
010
015
021
Amount
25,060
15,600
13,300
5,700
The summarized balance sheet and operating results of ABC Limited for the two
years ended 31st December, were shown as follows:
2010
₦ ’000
811,100
Fixed Asset (net)
Current Assets:
Stocks
Debtors
Bank
Less Current Liabilities:
Creditors
Taxation
Dividends
Net Current Assets
Net Asset
Financed by:
2009
₦ ’000
347,050
3,114,700 2,609,800
2,742,950 2,502,600
361,700
728,250
6,219,350 5,840,650
2,352,750 2,144,250
207, 700
160,950
125,000
112,500
2,685,450 2,417,700
3,533,900 3,422,950
4,345,000 3,770,000
Ordinary Shares of ₦1.00
625,000
625,000
each
1,793,700 1,489,350
Revenue reserves
676,300
405,650
Deferred taxation
1,250,000 1,250,000
10% debenture (2015)
4,345,000 3,770,000
Operating Result for the year ended 31st December
Sales
Profit before
Taxation
Interest
&
2010
₦ ’000
33,647,2
00
1,170,60
0
Page 12 of 41
2009
₦ ’000
27,953,5
50
1,044,10
0
Interest payable
Debenture
Taxation
on
10%
Dividends
125,000
125,000
525,300
187,500
437,350
175,000
Notes: The shares of the company were quoted at ₦1.20 at 31st December, 2008
You are required to calculate for the two years:
a. Quick ratio
b. Working Capital ratio
Marks)
c. Profit margin
d. Return on Capital employed
Marks)
e. Earnings per share
(4 Marks)
(4
(4 Marks)
(4
(4 Marks)
(Total 20 Marks)
3. SOLUTION
2008
(a) Quick ratio
= Current Assets
Stock
Current Liabilities
– 6,219,350 – 3,114,700
2,685,450
2007
5,840,650
2,609,800
2,417,700
–
1.16: 1
1.34: 1
(b) Working
Capital
Ratio
= Current Assets
6,219,350
Current Liabilities
2,685,450
(c)Profit Margin
=Profit Before Interest &
Tax x 100
Turnover
1
(d) Return on Capital
Employed
ROCE
=
EBIT
x 100
5,840,650
2,417,700
= 2.32 : 1
= 2.42: 1
= 1,170,600 x 100
33,647,200
1,044,100 x 100
27,953,550 1
= 3.48%
=3.74%
1,170,600
x 100
3,095,000 + 1,250,000
1,044,100
2,520,000
Page 13 of 41
x 100
+
Capital
Employed
1
1,250,000
1,170,600 x 100
4,345,000
1
1,044,100 x 100
3,770,000
1
= 26.95%
(e) Earning
Per PAT = 1,170,600
Share(EPS)
Less: (125,000)
=
PAT
(525,000)
x 100
PAT = 520,600
NO
of
ordinary
shares
= 520,600 x 100
625,000
= 83 Kobo
EPS
=
4.
= 27.70%
= 1,044,100
(125,000)
(437,350)
481,750
481,750 x 100
625,000
= 77 Kobo
The assets and liabilities of City club on the 1st of January, 2011 were:
Furniture & Fittings
Games equipment
Tools
and
hobbies
equipment
Subscription in arrears
Insurance prepaid
Subscription in advance
₦
132,000
56,320
36,520
2,640
1,760
7,040
The Club Treasurer prepared the following summary of the receipts and payments
for the year ended 31 December 2011
Receipts
Balance b/fwd 01/01/11
Subscriptions
Donations
Sales of Tickets-Annual
Dinner
Sales of dance Ticket
Payment
₦
40,480 Electricity
45,760 Expenses – Annual
dinner
44,000 New Tools
51,920 New games equipment
₦
23,760
27,280
58,960 Expenses – Dance
Cleaners’ wages
Printing & Stationery
Repairs
23,760
45,760
4,400
12,320
Page 14 of 41
7,920
5,280
Insurance
Balance c/fwd
Balance b/fwd
241,12
0
80,080
10,560
80,080
241,12
0
The following additional information were further provided:
i. Subscription received included the amount in arrears for the previous year;
₦1,760 was in arrears for the current year
ii. Repairs outstanding amounted to ₦2,640
iii. Annual Insurance premium ₦10,560 to 31st March, 2012
iv. 10% depreciation is to be written off the balance as at 31 st December, 2011 of
Furniture and Fittings, Games Equipment, Tools and Hobbies equipment
You are required to prepare:
a. A Statement showing the Accumulated Fund as at 1st of January, 2011.
(4 Marks)
b. The income and Expenditure Account for the year ended 31 st December, 2011.
(12 Marks)
c. A Balance Sheet as at 31st December, 2011
(4
Marks)
(Total 20 Marks)
SOLUTION
4.
CITY CLUB
Statement of Affairs as at 1st January, 2011
₦
Assets
Furniture and fittings
Games Equipment
Tools and hobbies Equipment
Subscription in arrears
Insurance Prepaid
Cash
Less Liabilities
Subscription
in
advance
(01/01/11)
Accumulated fund as at
01/01/11
Page 15 of 41
₦
132,00
56,320
36,520
2,640
1,760
40,480
269,720
(7,040)
262,680
CITY CLUB
INCOME & EXPENDITURE ACCOUNTS FOR THE YEAR ENDED 31/12/11
₦
₦
INCOME
Subscription
51,920
Donation
44,000
Annual Dinner
24,640
Dance
35,200
155,760
Expenditure
Insurance
9,680
Electricity
23,760
Cleaner’s wage
45,760
Printing & Stationery
4,400
Repairs
14,960
Depression – Furniture & Fitting
13,200
- Games Equipment
6,160
- Tools & Hobbies Equipment
4,444
Surplus
(122,364)
33,396
CITY CLUB
Balance Sheet as at 31st December, 2008
₦
₦
Fixed Assets
Cost
Acc Dep
Furniture & Fittings
132,000
(13,200)
Games Equipment
61,600
(6,160)
Tools & Hobbies Equipment
44,440
(4,444)
238,040
(23,804)
CURRENT ASSETS
Subscription in Arrears
1,760
Prepaid Insurance
2,640
Cash at Bank
80,080
84,480
Current Liabilities
Accrued expenses
(2,640)
Net Current Asset
Net Assests
Financed b4
Page 16 of 41
₦
NBV
118,800
55,440
39,996
214,236
81,840
296,076
Accumulated fund (01/01/08)
Surplus for the year
Accumulated fund (31/12/08
(1)
262,680
33,396
296,076
Games Equipment A/C.
Bal
56,320
Bank
5,280
b/fwd Bal
61,600
61,600
61,600
(2)
c/d
Tools & Hobbies Equipment A/C
Bal b/d
36,520
Bank
7,920
Bal
44,440
44,440
44,440
(3)
c/d
Subscription Account
Bal b/d
2,640
I & E Accounts
51,920
Bal
7,040
Cash
45,760
Bal
1,760
b/d
Book
c/d
54,560
54,560
(4)
Insurance A/C
Bal b/d
1,760
5.
I
9,680
10,560 Bal
2,640
12,320
Annual Dinner A/C
Bank
27,280
Bank
51,920
Page 17 of 41
&
E
c/d
12,320
I & E Accounts
24,640
51,920
6.
Bal b/d
132,000
7.
51,920
Furniture & Fittings A/C
Bal
132,000
c/d
Dance Account
Dance
23,760
I&E
35,200
58,960
58,960
58,960
8.
Donation A/C
I&E
44,000
9.
Bank
44,000
Electricity A/C
Bank
23,760
I
23,760
&
E
&
E
10.
Repairs A/C
Bank
12,320
Bal
2,640
c/d
14,960
11.
14,960
Printing & Stationery A/C
Bank
I
Page 18 of 41
4,400
12.
4,400
Cleaners wages
Bank
45,760
I
45,760
E
&
E
&
E
Account Depreciation A/C – Furniture & Fittings
13.
Bal c/d
13,200
I
13,200
Account Depreciation A/C – Games Equipment
14.
Bal
6,160
c/d I
6,160
Accumulated Depreciation – Tools & Hobbies Equipment
15.
Bal
4,444
16.
&
c/d I
4,444
&
E
Cash Book – (Bank Statement)
Bal
40,480
Subscription
45,760
Donation
44,000
Sales Ticket – Annual
51,920
Sales
Dance
58,960
b/d Electricity
23,760
Expenses
–
Annual
Dinner
27,280
New
Tools
7,920
Dinner New
Games
Equipment
5,280
Ticket Expense
–
Dance
23,760
Cleaners
wages
45,760
Printing
&
Stationery
4,400
Repairs
12,320
Insurance
10,560
Page 19 of 41
Bal
80,000
241,120
Page 20 of 41
c/d
241,120
THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
OCTOBER 2012: PROFESSIONAL EXAMINATION
FOUNDATION: BUSINESS LAW
ATTEMPT ALL QUESTIONS.
1.
a.
TIME: 3 HOURS
State five fundamental elements of a valid simple contract
(10 Marks)
b.
There was an agreement between a father and his son to the effect
that the father gives his son a Toyota Camry as gift if the son makes a first class
degree in his final year examination. The son passed his examination with
honours in the first class. The father has now refused to buy the car. Does the
son has a right of action against the father? Would your answer be different if the
agreement had been made under seal?
(10
Marks)
(Total
20 Marks)
FOUNDATION – BUSINESS LAW- SOLUTION
1.
a.
The essential elements or ingredients that must be present to turn
simple agreement into a binding and enforceable contract are as follows:
i.
Capacity
ii.
Intention to create legal relation
iii.
Offer and Acceptance
iv.
Consideration
v.
Lawful Object
vi.
Formalities and
vii.
Genuine consent.
2 marks each for any 5
(10 Marks)
b.
Where a party neglects or refuses to honour a contractual
Page 21 of 41
obligation, there is a breach of contract. A breach by one party causes a
right of action to accrue to the other party. The usual remedy for breach of
contract is damages. i.e. the award of a some money to put the aggrieved
party in the position he would have enjoyed had the contract not been
broken.
The intention to create legal relations is an essential element in contract.
Where no intention to be bound is attributed to the parties, there is no
contract. The test of intention is objective. The court seeks to give effect to
the intention of the parties whether expressed or presumed.
In the case under consideration, father and son do not intend to enter into
legal obligations, mutually communicated expressly or impliedly. This
intention may be implied from the subject’s matter of the agreement, but it
may also be expressed by the parties. In some family relations such an
intention is readily implied, while in business matter the opposite result
would ordinarily follow.
The terms of some contract are embodied in a document which is then
signed, sealed and delivered by the parties. A promise given under seal
does not need to be supported by consideration; the father would have
been liable under the agreement.
(10 Marks)
20 Marks
QUESTION 2
a. What is a contract of sale of goods and how is it different from a hire
purchase.? (10 Marks)
b. Discuss the classification of the various types of goods recognized by Section
62 of the
Sale of Goods Act, 1893.
(10 Marks)
(Total
20Marks)
SOLUTION
2.
a.
A contract of the sales of good is a contract whereby the seller transfer
Page 22 of 41
or agreed to transfer the property in the goods to the buyer for a money
consideration called the price.
Whereas a hire - purchase agreement under the hire – purchase Act 1965
(as amended) differs from the sales of goods. In hire- purchase contracts:
a.
The goods are initially bailed, not sold to the hirer. The hirer at that
stage has only possession not title to the goods. The owner is
therefore allowed in some circumstances to seize the goods from
the hirer
b.
The hirer is not bound to buy the goods hired. He can return the
goods to the owner at any time and discontinue Payment of
installments.
c.
The (hire- purchase) agreement gives the hirer an option to
purchase the goods (for a very nominal amount) after paying all the
agreed installments.
(10 Marks)
b.
Goods may be classified into specific goods, unascertained goods,
existing goods and future goods. This classification is important especially
in relation to the rules for determining when property in goods (and risk) is
transferred from the seller to the buyer.
i.
Specific Goods: these are goods which are identified clearly and
agreed upon at the time of the contract.
ii.
Unascertained Goods: these are goods which are not clearly
identified in the contract.
iii.
Existing Goods: These are goods which the seller already possess
or owns at the time of the contract.
iv.
Future Goods: these are goods which the seller is to manufacture,
grow or acquire in future, after the contract is made. If the goods
are in existence, but the seller will acquire it later on it will be
classified as future goods. Future goods cannot be specific goods
Page 23 of 41
since a seller cannot bind himself to sell.
(10 Marks)
QUESTION 3
3. a. Examine the importance of promoter in the formation of a limited liability
company and the effect of Common Law and Statute on the pre-incorporation
contract entered into by the promoters.
(10 Marks)
b.
Peter, Smith and Jonathan were childhood friends and promoted a company
Travellers Limited to engage in transportation business between Lagos and
the Federal Capital Territory, Abuja. Before the company was incorporated,
Peter employed James to carry out a construction work for the company for
the sum of N80,000.00. After the incorporation, Smith sold to Travellers
Limited. for N100,000.00, a plot of land at Maryland Estate in Lagos which he
bought for himself previously for the sum of N60,000.00 without disclosing
that the land belonged to him and the profit he made on the sale. The
company later discovered the profit made by Smith and refused to pay him.
Examine the legality of the two transactions and advise the company.
(10 Marks)
(Total
20
Marks)
SOLUTION
3.
a.
A limited liability company like a human being does not drop from
the sky. It is brought into legal existence through the activities and efforts
of persons called promoters who take the various steps necessary for the
establishment of the company. Those steps include acquisition of
property, supply of goods and services, engagement of staff and
negotiation for loans, all for the proposed company. That is to say in
promoting a company, promoters must necessarily enter into contract with
third parties and sometimes they purport to do so on behalf of the
incorporated company.
(5 Marks)
The position at common law was that an unincorporated company has no
capacity to contract or to acquire any rights or incur any obligations before
the date of its incorporation. Thus the company when formed could not be
Page 24 of 41
bound by any pre-incorporation contracts. It could neither ratify or adopt it
in equity nor obtain any equitable relief or claim thereon.
The rigid common law position has been taken care of by the statute to
the effect that any contract or other transaction purporting to be entered
into by the company prior to its incorporation may be ratified by the
company after its formation and thereupon the company shall become
bound by and entitled to the benefit thereof as if it has been in existence
on the date of such contract or other transaction and had been a party
thereto.
Prior to ratification by the company, the person who purported to act in the
name of or on behalf of the company shall in the absence of express
agreement to the contrary be personally bound by the contract or other
transaction and entitled to the benefit thereof. In effect the statute, the
Companies and Allied matters Act 1990 has prevented a pre-incorporation
contract from ever becoming a nullity. In other words, a pre- incorporation
can under the Act, never become a nullity because where the company
elects to ratify the contract, it takes over the burdens and benefits.
(5 Marks)
b.
In view of the provision of the Act ratification is now possible unlike the
common law position. But ratification is not an automatic neither is it
compulsory. It is entirely at the discretion of the company. Upon
ratification, however, the company becomes subject to the liabilities and
entitled to the benefits of the contract.
Peter employed James to do some construction work for the company. the
company has the option to ratify the contract and take over the burden
and benefits, if It is found to be at the advantage of the company and pay
the N80,000.
Page 25 of 41
After incorporation Smith sold to Travellers Limited, a plot of land for
N100,000 which he previously bought for himself for N60,000. He did not
disclose that he is the owner of the land and the ill-gotten gain of N40,000.
The promoter has breach the fiduciary duties and the company may not
ratify, the transaction
(10 Marks)
20 Marks
4.
a.
Nigerian courts are structured into two broad categories, Superior
Court of records are courts established by the constitution as Superior
Courts. They are:
i.
Supreme Courts
ii.
Court of Appeal
iii.
Federal High Courts
iv.
State High Courts
v.
Customary Court of Appeal
vi.
Sharia Court of Appeal
(6 Marks)
The inferior courts consist of minor courts like Magistrate Courts, District
Court and Alkhali Courts. These are established by the State Government
and vested with powers and jurisdiction inferior to the constitutionally
mandated superior courts of judicature.
(3 Marks)
The Federal high Court exercises original jurisdiction in all criminal and
civil matters touching on the revenue of the Federation.
(1 Marks)
Total 10 Marks
b.
i.
Battery. This is the direct and intentional application of either
harmful or offensive physical force to the injured party.
(2 Marks)
Page 26 of 41
ii.
Assault. This is intentionally creating in another person a
reasonable apprehension of imminent harmful and offensive
contact. Apprehension and not contact is important and mere words
may constitute assault.
iii.
(2 Marks)
False Imprisonment. This means unauthorized bodily restraint
without lawful justification. It may be in a room, a vehicle or open
space so long as the movement of the plaintiff is wrongly
restrained. The person imprisoned need not know at the time.
However if there is another way to move, there is no false
imprisonment.
iv.
(2 Marks)
Conversion. This is intentional exercise of control over a chattel
which so seriously interferes with the right of another person (the
owner) to control it in such a way that the intermeddler may
justifybly be asked to pay the full price for it. The plaintiff must
either be in conversion or he must have the right of immediate
possession. Ownership alone is not enough.
(2 Marks)
v.
Detinue. This is refusal to give up possession on demand having
come into possession legally, for example, giving clothes to tailor or
a dry cleaner for sowing and cleaning respectively. On payment of
the agreed amount, failure to return the clothes on the agreed date
is detinue and defendant may be ordered to pay damages and or to
return the goods.
2 Marks each = (10 marks)
Total 20 Marks
5.
a.
The bank, as the debtor, owes the following duties to his customers.
Page 27 of 41
i.
To honours the customers’ cheques
ii.
To pay cheques only on the customers authority or mandate
iii.
To keep the customers account secret.
iv.
To operate the account without negligence
2 Marks each
Total 8 Marks
b.
The most common grounds for dismissal of an employee are
i.
Disobedience
ii.
Incompetence
iii.
Commission Of Crime
iv.
Gross Misconduct
v.
Gross Insubordination
vi.
Gross immorality
vii.
Protracted illness leading to frustration of the contract.
1 Mark each = 7 Marks
Total 15 Marks
c.
Cheques can be dishonoured on the following ground
i.
Insufficient of fund
ii.
Irregular Signature
iii.
Amount in words is different from amount in figures.
iv.
The Cheque is mutilated.
v.
If the cheque is stale. The bank that dishonoured cheques on the
foregoing ground cannot be successfully sued.
However where bank dishonoured a cheque on reasons outside the
point mentioned is not justifiable, the bank can be sued.
1 mark for the points on dishonoured cheque
3 marks on reasons where bank can be sued successfully
dishourned cheque.
Page 28 of 41
on
Total 100
THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
OCTOBER 2012: PROFESSIONAL EXAMINATION
FOUNDATION: MANAGERIAL ECONOMICS
ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS. TIME: 3 HOURS
1.
a. Monopolist demand and total cost functions are given as:
Q = 720 – 40P
TC = 12Q + 0.1Q2 respectively
Find how many (in units) he will produce and at what price (in thousands of
Naira)
(6 marks)
b.
The following respective linear demand and cost functions belong to NNPC, a
monopolist petroleum corporation show that NNPC will produce half the output
(in barrels) under perfect competition.
Q = 150 – P
TC = 75 + 5Q
c.
(9 marks)
State five similarities between Monopoly and Monopolistic competition
(5 marks)
(Total 20 marks)
SOLUTION
1.
a.
We need to first derive the Marginal Revenue ( MR) and Marginal
Cost (MC) from the function given and to find the TR for profit
maximizing.
Solution:
Q = 720 – 40p
40p = 720 - Q
P = 18 -0.025Q
(1 Mark)
.: TR = P X Q = (18 – 0.025Q) X Q = 18Q -0.025Q2
Page 29 of 41
i.e TR = 18Q – 0.025Q2
(1 Mark)
Now MR = dTR/dQ = 18 – 0.05q
(1
Also MC = dTC /Dq = 12+ 0.2Q
Monopolist profit will be maximised when MR = MC
.:
18 – 0.05Q
=
12 + 0.2Q
- 0.05Q – 0.2Q
=
12 – 18
:.
0.25Q
=
6
i.e
Q
=
24
In the demand function, p = 18 – 0.025Q substitute for Q
.: P = 18 – 0.025 (24) =
18 – 0.6 = 17.4
.: Price = N17, 400 and Q = 24 Units
b.
TC = 75 + 5Q = MC = dTC/dQ = 5
Now from the linear demand function Q = 150 – p
Q – 150 = -P
i.e
P = 150 – Q
.: TR = P X Q = (150 – Q) X Q = 150Q – Q2
.: MR = dTR/dQ = 150 – 2Q
Mark)
(1 Mark)
(1 Mark)
(1 Mark)
(1 Mark)
(1 Mark)
Under perfect competition, price (P) = Marginal cost (MC)
(1 Mark)
.: 150 – Q = 5
-Q = 5 - 150
i.e Q = 150 – 5 = 145
Qpc = 145 barrels
c.
(1 Mark)
Also in equilibrium under monopoly MR = MC
.: 150 – 2Q = 5
-2Q = 5 – 150
2Q = 150 – 5 = 145
i.e Qm = 145/2
72.5
(1 Mark)
.:
Qm = 72.5 barrels
(1 Mark)
Therefore output (production) under monopoly (Qm) is half of output
(production) under perfect competition (Qpc)
Monopoly and Monopolistic Competition (similarities)
I.
II.
III.
IV.
There are many buyers in both markets
There is free exit of firms In both markets
In both markets MC =MR for profit maximization
Transportation cost are incurred in both market
Page 30 of 41
V.
VI.
VII.
VIII.
2.
a.
There is inadequate market information in both markets
Preferential treatment exist in both markets
There is lack of uniform prices in both markets
There is lack of uniform prices in both markets
(1 mark for each of 5 similarities)
(5 Marks)
What is Merchant Bank?
(2
marks)
b.
State and briefly discuss four function of Merchant Bank
(6
marks)
c.
The Chartered Institute of Taxation of Nigeria bought stock worth N25million
from the Stock Exchange Market which it deposited with a merchant bank. It
has been argued that there is a reserve ratio of 12.5% and there is no cash
drain in the banking system and no initial excess reserves.
Required:
i.
Define reserve ratio.
(2
marks)
ii.
What is the meaning of excess reserve?
(2 marks)
iii.
Calculate the total credit that the banking system can create if the cash
ratio is increased to 15%.
(3
marks)
d.
State four of the assumptions that have to be in place before the creation of
money.
(5 marks)
(Total 20 marks)
SOLUTION
2.
a.
b.
Merchant bank is a wholesale bank and it deals with bulk
purchases/ transaction
Functions of Merchant Banks
I.
Acting as issuing houses in the capital market
II. Granting loans and advances
Page 31 of 41
(2 Marks)
III.
IV.
V.
VI.
VII.
VIII.
Project Financing
Accepting Deposit
Providing advisory services
Equipment leasing
Providing foreign exchange services
Accepting Deposits
(11/2 for 4 points)
(6 Marks)
c.
i.
ii.
iii.
Reserved Ratio is the ratio at which bank can create credit. It
is always stipulated or dictated by the CBN at any particular point in
time.
(2 Marks)
Excess reserve is the reserve obtained through the original
reserve ratio and the new higher reserve ratio.
(2 Marks)
Total credit =Deposits
Cash reserve
Thus Mdep = A/r, where Mdep = deposit
A = Initial or first deposit and r = cash reserve ratio
Where Mdep = N25m, r = 12.5%, r = 15%
.: 25 = Ai/0.125
i.e
A1 = 3.125
.: Initial credit = 25 – 3.125 = N 21. 875
Also
(1 Mark)
25 = Af/0.15
i.e Af = 3.75
.:Final credit = 25 – 3.75 = N21.25
(1 Mark)
.: The total credit that will be created is N21. 25m
(1 Mark)
d.
Assumption of credit creation.
I.
II.
That the banking system is comprised of many banks
That there is no cash leakage in the system
Page 32 of 41
III.
IV.
V.
3.
a.
The statutory cash reserve ratio is 10% (or nay rate that is required
at a particular point. That is, all banks are legally required to keep
10% of their total deposit liabilities in cash with CBN.
All banks in the system are willing and able to make loan (credit) up
to the limit set by cash reserve requirement.
A customer deposit (total reserve) in his current account with one of
the banks.
(11/4 for 4 point)
The Managing Director of your company is seeking your advice and
experience about the economic, financial and social costs and benefits of the
company. He, in addition, presented you with the following streams of costs
and benefits for the
last five years.
Year
2006
2007
2008
2009
2010
N’ 000
N
N
N ‘000
N ‘000
‘000
‘000
Cost streams
2,500
5,000
3,000
6,000
7,500
Benefit streams
6,250
5,500
5,000
6,500
9,000
You are expected to:
i. Define Cost- Benefit Analysis (CBA) –
b.
(2½ marks)
ii. Calculate the Benefit/Cost ratio
(5 marks)
iii. Calculate the Net Benefit/Cost ratio
(5 marks)
State and briefly discuss any five factors affecting the volume of production in
a free-market economy.
(7½
marks)
(Total 20 marks)
Page 33 of 41
SOLUTION
3
a.
i. CBA is an appraisal technique in which public projects are
assessed in terms of their expected and (discounted) costs and benefits
which may arise from the implementation of such projects. The CBA is
normally conducted to aid in decision making either to determine the
economic viability of a project or to rank competing projects for
implementation
(21/2 Marks)
Year
2006
2007
2008
2009 2010
Benefit
6,250
5,500
5,000
6,500 9,000
streams (B)
Cost
2,500
5,000
3,000
6,000 7,500
streams (C)
Net Benefit
3,750
500
2,000
500
1,500
(B-C)
ii.
Benefit/cost ratio (B/C)
Year 2006
B/C 2.5
iii.
2007
1.1
2009
1.08
2010
1.2
Net Benefit/Cost ratio
Year
2006
NBCR = (B-C)/C 1.5
b.
2008
1.67
2007
0.1
2008
0.67
2009
0.08
2010
0.2
Factors affecting volume of production in a free market economy.
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
Quality and quantity of available factors of production
Level of efficiency in the use of factors of production
Level of social economic and political stability in the economy
Availability of economic infrastructure e.g transportation, electricity, banks
etc.
Provision of social amenities (e.g recreational facilities) and type of
working condition provided by employees
Type of economic policies undertaken by the government with respect to
the utilization of resources
Weather and other natural phenomena
Level of technology in the country.
Page 34 of 41
(11/2 marks for each of 5 points)
(71/2Marks)
4.
a.
Demand function for a commodity is given by Q = 500-P2
You are required to calculate the price elasticity of demand at
i. P = N10 and
ii. P = N20 (Interprete your result)
b.
(3 marks)
The demand and supply functions for a product are given below:
Qd =
497 – 2p
Qs =
P - 34
Where Qd
= Quantity demanded
Qs = Quantity Supplied
P = Price of the product
i.
Determine the equilibrium price and quantity of the product. (4 marks)
ii.
If the government imposes a specific tax of N6 on the producer,
determine the resulting equilibrium price and quantity.
(4 marks)
iii.
What will be the market price and quantity traded on the market, if the
producer received a subsidy of N3.00 per unit?
(4
marks)
iv.
What is the price elasticity of supply at point (iii) above?
(2 marks)
(Total 20 marks)
SOLUTION
4.
a.
i.
The demand function is given as
Q = 500 – (10)2
Q = 500 – 100
= 400
(1 Mark)
From differential calculus, differentiation of Q with respect
to P
i.e dQ/dP
= -2p
Page 35 of 41
: Ed
= (dQ)/dP, P/Q
Since dQ/Dp = -2p, substitute for dq/dp, p and Q
Ed = dQ/dP,
P/Q
Ed = -2p x 10/400
= - 2 (10) x 10/400
. : Ed = 0.5
(1 Mark)
The co-efficient of elasticity of demand is less than 1, hence demand is
said to be in elastic.
(1 Mark)
Expectation:
To test candidates understanding of elasticity of demand and its
computation.
Ed = dq/dp x PQ
Q = 500 – (200)2
= 500 – 400
(1 Mark)
= 100
.: Ed = -2p x P/Q
= 40 X 20/100
Ed = 8
(1 Mark)
The co- efficient of elasticity of demand is greater than 1, hence demand
is said to be elastic.
Comments:
To test candidates understanding of demand function, supply function and
their elasticities.
b.
The demand and supply function is given as
Qd = 497 – 2p
Qs = p – 34
Equilibrium Qd = Qs
Page 36 of 41
497 - 2p = p - 34
497 + 34 = p + 2p
531 = 3p
P = 531/3
i.
ii.
N177 (equilibrium price)
(2 Marks)
Hence equilibrium quantity
497 – 2 (177)
497 – 354
= 143 (equilibrium quantity)
(2 Marks)
With a specific tax of N6 per unit on product, then supply function
becomes:
Qs = p – 34 – 6
= p – 40
The resulting equilibrium price and equilibrium quantity is computed
as:
Qd = Qs
497 - 2p = p – 40
497 + 40 = p + 2p
537 = 3p
P = N179 (equilibrium price)
iii.
(2 Marks)
For equilibrium quantity
Qs
= p -34 – 6
= p – 40
Qs
= 179 - 40
Qs
= 139 (equilibrium)
With a subsidy of N3 per unit on products, then supply function
becomes
Qs = p – 34 + 3
Qs = p -31
Then resulting equilibrium price and equilibrium quantity is shown
as
Qd = Qs
497 - 2p = p – 31
497 + 31 = p + 2p
.: P = 528 /3
P = N176 (equilibrium price)
(2 Marks)
Page 37 of 41
Equilibrium Qty
Qs = p -31
Qs = 176 – 31
Qs = 145 (equilibrium quantity)
(2 Marks)
The price elasticity of supply at point (iii) is shown as follows
Qs = p – 31
dQ/dp
= 1
Es = dQ/dp x P/Q
= 1 x 176/145
= 1,2
(1 Mark)
iv.
Supply is price elastic
5.
a.
(1 Mark)
The following data relate to a closed economy of a country where all
production takes place in two firms.
Use the information in the table to answer the question.
Items
Firm A
Firm B
N’ m
N’ m
Sales
200
400
Raw materials
100
60
Labour costs
80
160
Depreciation
16
40
4
140
Profit
i. Which of the items listed is an intermediate input?
(1 mark)
ii. What happens to intermediate inputs in the computation of the national
income?
(2 marks)
iii. Calculate the Gross Domestic Product (GDP) of the country. (3 marks)
iv. Calculate the total amount of depreciation of the country
(2
marks)
v. Compute the Net Domestic Product of the country
Page 38 of 41
(2 marks)
b.
i.
Explain the term Economic integration
(2
marks)
ii.
List any four (4) ways that Nigeria will benefit from economic integration
and highlight four problems of economic integration in Nigeria.
(8
marks)
(Total 20 marks)
SOLUTION
5.
a.
i.
Raw materials
(1 Mark)
ii.
The value of intermediate input is NOT added using the value
added approach. However, if any other approach is used, the
value of intermediate input is deducted.
(2 Marks)
iii.
GDP
= Total value of sales – value of intermediate inputs
(1 Mark)
= (200m + 400m) - (N100m + N60m)
= N600m – N 160m
(1 Mark)
= N440m
(1 Mark)
OR
Using the value Added Approach
GDP = firm A`S total + firms B`s total
.: Firm A = N80m + N16m + N4m = N100m
: Firm B = N 160m + N40m +N140m = N340m
GDP = N100m + N 340m =N 440m
Iv.
Total amount of depreciation
N16m + N40m = N56m
v.
(1 Mark)
Net Domestic product = GDP – Depreciation
(1 Mark)
N440m - N56m = N384m
b.
a.
Economic integration is a form of cooperation
Page 39 of 41
(1 Mark)
among two or more nations to foster their economic interests. It
may operate at various levels such as free trade area, customs`
union, common market and economic union.
(2 Marks)
b.
i.
Enlarged market: This will encourage large scale
ii.
Efficiency: There will be greater competition and as
such there will be operational efficiency
iii.
Job opportunity: more jobs can be created in the
process of economic integration
iv.
Resource Mobility: Resources such as labour and
capital can easily be mobilized from area of abundance to
area of scarcity through economic integration.
v.
Improvement of welfare : A wide range of economic
activities induced by economic integration is capable of
ensuring improved quality of life.
vi.
Greater bargaining powers: Economic integration can
lead to greater participation in the world market through
collective bargaining.
vii.
Faster Economic Development: It brings about faster
and sustainable economic growth and development in
Nigeria.
(any 4 points x 1mark)
(4 Marks)
Problems of Economic integration
i.
Ideological differences: This leads to sharp differences in
opinion and delay in decision making.
ii.
Divided loyalty: Nigeria still hold her loyalty to her former
colonial masters, thereby affecting her loyalty to the union.
iii.
Political instability: frequent change of government coupled
with military rule has slowed down the process of integration.
With the new political dispensation, the trend of military coup
is fast fading away.
Page 40 of 41
iv.
Inadequate capital: The dearth of capital to carry out or
execute agreed projects has delayed the process of
integration
v.
Inadequate Infrastructures: Shortages of
Infrastructural facilities such as good roads, electricity, etc
hinders integration.
(Any 4 points x 1 mark)
(4 Marks)
Expectation:
To test candidates understanding of international economic
organs especially economic integration
Page 41 of 41