· web view(2marks) four advantages enables the design of the structure of data base creates data...

THE CHARTERED INSTITUTE OF TAXATION OF NIGERIAOCTOBER 2012: PROFESSIONAL EXAMINATION

FOUNDATION:MANAGEMENT INFORMATION SYSTEMATTEMPT 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

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(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

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procedures.

4. Standardization of applications

5. Staff cost reduced by having a central pool of IT staff

ii. The disadvantages of a central system include

1. Specialized skills required for database maintenance2. Special environment with adequate security, air-conditions to be

provided3. 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 Telecommunication Equipment

Software

Desktop

LaptopServer

ScannerPrinter

UPS

Modem

Renter/ Switch InternetLocal Area Network (LAN)

Metro Area Network (MAN)Wide Area Network (WAN)

MastWidest Area Point (WAP)Telephone

Operating System e.g Linux, Android, Unix, Window ServerDatabase- My SQL- Oracle

ApplicationFinancial- 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.

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a. Password (5 Marks)

b. RAM (5 Marks)

c. Virus (5 Marks)

d. Bug (5 Marks)

e. Kilobyte (5 Marks)

(Total 20 Marks)

SOLUTION

3. a. Password – a password is a set of characters used to control accessinto a computer system and also applications. They can be used to

determine what information is available to a user.b. 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)

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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. ease of data inputii. report generationiii. index Informationiv. complex queryingv. perform global updatevi. incorporates graphicsvii. relate data to create information. (4 Marks)

b. DBMS – Database Management System is software that ensures the workings of a data base. (2Marks)

Four Advantages

(i) enables the design of the structure of data base(ii) creates data entry forms so as to get information into the data base(iii) validates data entry and check for inconsistencies(iv) sorting and manipulation of data in the data base (v) eliminates problems of data duplication and redundancy(vi) enables data sharing between users(vii) facilitates uniform development and maintenance of application

program. (8 Marks)

c. Two types of Data base structure

i. Relational data base

ii. Network data base

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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 ensureoptimal 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 studyi. Terms of referenceii. Composition of membersiii. Outline of present systemiv. Outline of proposed systemv. Stages in carrying out the reportvi. Fact finding / Investigationvii. Fact recordingviii. 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

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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 NIGERIAOCTOBER 2012: PROFESSIONAL EXAMINATION

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FOUNDATION: ACCOUNTINGATTEMPT 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) ACCOUNTING CONCEPTAccounting 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.

(b) (i) GOING CONCERN CONCEPTThis 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

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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.

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(v) CONSERVATISM CONCEPTIt 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.

2. 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 bookiv. 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 ₦1,900vi. 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, 2010vii. The bank has debited a cheque for ₦13,680 in error to the company’s accountviii. 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 statementix. 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 (8 Marks)

b. Prepare a bank reconciliation statement as at 31 December 2010 (12 Marks)

(Total20 Marks)

SOLUTION

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2. BKL Logistics

ADJUSTED CASH BOOK

₦ ₦Balance b/d 31445

Bank Charges 665

Under cast error 1900

Cheque wrongly debited

( 8930 x 2) 17860

Returned Cheque 3420

Balance c/d 11400

33345

33345

Balance b/d 11400

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

2280Add: Cheque wrongly debited to the account of Wazobia Nig. Ltd by bank

13680

Balance as per adjusted cash book 11400

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Note 1: Unpresented Cheques.

Date Name Cheque No

Amount

15/12/10 Mr. Ologbon 007 25,06015/12/10 Mrs. Taylor 010 15,60018/12/10 Olumilua 015 13,30021/12/10 PHCN 021 5,700

3. The summarized balance sheet and operating results of ABC Limited for the two

years ended 31st December, were shown as follows:

2010 2009₦ ’000 ₦ ’000

Fixed Asset (net) 811,100 347,050Current Assets:

StocksDebtorsBank

3,114,7002,742,950

361,7006,219,350

2,609,8002,502,600

728,2505,840,650

Less Current Liabilities:CreditorsTaxationDividends

2,352,750207, 700

125,000 2,685,450

2,144,250 160,950

112,5002,417,700

Net Current Assets 3,533,900 3,422,950

Net Asset 4,345,000 3,770,000Financed by:

Ordinary Shares of ₦1.00 each Revenue reservesDeferred taxation10% debenture (2015)

625,0001,793,700

676,3001,250,0004,345,000

625,0001,489,350 405,6501,250,0003,770,000

Operating Result for the year ended 31st December

2010 2009₦ ’000 ₦ ’000

Sales 33,647,200

27,953,550

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Profit before Interest & Taxation

1,170,600

1,044,100

Interest payable on 10% Debenture

125,000

125,000

Taxation 525,300

437,350

Dividends 187,500 175,000

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 (4 Marks)b. Working Capital ratio (4 Marks)c. Profit margin (4 Marks)d. Return on Capital employed (4 Marks)e. Earnings per share (4 Marks)

(Total 20 Marks)

3. SOLUTION

2008 2007(a) Quick ratio

= Current Assets – Stock Current Liabilities

6,219,350 – 3,114,700 2,685,450

1.16: 1

5,840,650 – 2,609,800 2,417,700

1.34: 1

(b) Working Capital Ratio

= Current Assets Current Liabilities

6,219,3502,685,450

= 2.32 : 1

5,840,6502,417,700

= 2.42: 1

(c)Profit Margin =Profit Before Interest & Tax x 100 Turnover 1

= 1,170,600 x 100 33,647,200

= 3.48%

1,044,100 x 10027,953,550 1

=3.74%(d) Return on Capital

Employed

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ROCE = EBIT x 100 Capital Employed 1

1,170,600 x 1003,095,000 + 1,250,000

1,170,600 x 1004,345,000 1

= 26.95%

1,044,100 x 1002,520,000 + 1,250,000

1,044,100 x 1003,770,000 1

= 27.70%(e) Earning Per

Share(EPS)= PAT x 100NO of ordinary shares

EPS =

PAT = 1,170,600Less: (125,000) (525,000)PAT = 520,600

= 520,600 x 100 625,000= 83 Kobo

= 1,044,100 (125,000) (437,350) 481,750

481,750 x 100625,000= 77 Kobo

4. The assets and liabilities of City club on the 1st of January, 2011 were:

₦Furniture & Fittings 132,000Games equipment 56,320Tools and hobbies equipment

36,520

Subscription in arrears 2,640Insurance prepaid 1,760Subscription in advance 7,040

The Club Treasurer prepared the following summary of the receipts and payments for the year ended 31 December 2011

Receipts Payment₦ ₦

Balance b/fwd 01/01/11 40,480 Electricity 23,760Subscriptions 45,760 Expenses – Annual

dinner27,280

Donations 44,000 New Tools 7,920Sales of Tickets-Annual Dinner

51,920 New games equipment 5,280

Sales of dance Ticket 58,960 Expenses – Dance 23,760Cleaners’ wages 45,760

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Printing & Stationery 4,400Repairs 12,320Insurance 10,560Balance c/fwd 80,080

241,120

241,120

Balance b/fwd 80,080

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 ₦2,640iii. Annual Insurance premium ₦10,560 to 31st March, 2012iv. 10% depreciation is to be written off the balance as at 31st 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 31st 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

₦ ₦AssetsFurniture and fittings 132,00Games Equipment 56,320Tools and hobbies Equipment 36,520Subscription in arrears 2,640Insurance Prepaid 1,760Cash 40,480

269,720Less LiabilitiesSubscription in advance (01/01/11)

(7,040)262,680

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Accumulated fund as at 01/01/11

CITY CLUBINCOME & EXPENDITURE ACCOUNTS FOR THE YEAR ENDED 31/12/11

₦ ₦INCOMESubscription 51,920Donation 44,000Annual Dinner 24,640Dance 35,200

155,760ExpenditureInsurance 9,680Electricity 23,760Cleaner’s wage 45,760Printing & Stationery 4,400Repairs 14,960Depression – Furniture & Fitting

- Games Equipment- Tools & Hobbies Equipment

Surplus

13,2006,1604,444 (

122,364)33,396

CITY CLUB Balance Sheet as at 31st December, 2008

₦ ₦ ₦Fixed Assets Cost Acc Dep NBVFurniture & Fittings 132,000 (13,200) 118,800Games Equipment 61,600 (6,160) 55,440Tools & Hobbies Equipment 44,440

238,040(4,444)

(23,804)39,996

214,236CURRENT ASSETSSubscription in Arrears 1,760Prepaid Insurance 2,640Cash at Bank 80,080

84,480Current Liabilities

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Accrued expenses (2,640)Net Current AssetNet Assests

81,840296,076

Financed b4Accumulated fund (01/01/08) 262,680Surplus for the year 33,396Accumulated fund (31/12/08 296,076

(1) Games Equipment A/C.

Bal b/fwd 56,320

Bal c/d 61,600

Bank 5,280

61,600

61,600

(2) Tools & Hobbies Equipment A/C

Bal b/d 36,520

Bal c/d 44,440

Bank 7,920 44,440

44,440

(3) Subscription Account

Bal b/d 2,640

Bal b/d 7,040

I & E Accounts 51,920

Cash Book 45,760Bal c/d 1,760

54,560

54,560

(4) Insurance A/C

Bal b/d 1,760

I & E 9,680

10,560 Bal c/d

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2,64012,320 12,320

5. Annual Dinner A/C

Bank 27,280

Bank 51,920

I & E Accounts 24,640

51,920 51,920

6. Furniture & Fittings A/C

Bal b/d 132,000

Bal c/d 132,000

7. Dance Account

Dance 23,760

58,960

I & E 35,200 58,960

58,960

8. Donation A/C

I & E 44,000

Bank 44,000

9. Electricity A/C

Bank 23,760

I & E 23,760

10.

Repairs A/C

Bank 12,320

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Bal c/d 2,640 14, 960

14, 960

11. Printing & Stationery A/C

Bank 4,400

I & E 4,400

12. Cleaners wages

Bank 45,760

I & E 45,760

13. Account Depreciation A/C – Furniture & Fittings

Bal c/d 13,200

I & E 13,200

14. Account Depreciation A/C – Games Equipment

Bal c/d 6,160

I & E 6,160

15. Accumulated Depreciation – Tools & Hobbies Equipment

Bal c/d 4,444

I & E 4,444

16. Cash Book – (Bank Statement)

Bal b/d 40,480

Electricity 23,760

Subscription 45,760

Expenses – Annual Dinner 27,280

Donation 44,000

New Tools 7,920

Sales Ticket – Annual Dinner 51,920

New Games Equipment 5,280

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Sales - Dance Ticket 58,960

Expense – Dance 23,760Cleaners wages 45,760Printing & Stationery 4,400Repairs 12,320Insurance 10,560Bal c/d 80,000

241,120 241,120

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THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA

OCTOBER 2012: PROFESSIONAL EXAMINATION

FOUNDATION: BUSINESS LAW

ATTEMPT ALL QUESTIONS. TIME: 3 HOURS

1. a. 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

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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

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

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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

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.

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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

since a seller cannot bind himself to sell.

(10 Marks)

QUESTION 33. 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)

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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

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.

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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.

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

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b. i. Battery. This is the direct and intentional application of either

harmful or offensive physical force to the injured party.

(2 Marks)

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. (2 Marks)

iii. 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. (2 Marks)

iv. 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.

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2 Marks each = (10 marks)

Total 20 Marks

5. a. The bank, as the debtor, owes the following duties to his customers.

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.

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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 on

dishourned cheque.

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 (9 marks)

c. 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 MarginalCost (MC) from the function given and to find the TR for profit maximizing.

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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

i.e TR = 18Q – 0.025Q2 (1 Mark)

Now MR = dTR/dQ = 18 – 0.05q (1 Mark)

Also MC = dTC /Dq = 12+ 0.2Q (1 Mark)

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 = 24In 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 (1 Mark)

b. TC = 75 + 5Q = MC = dTC/dQ = 5 (1 Mark)

Now from the linear demand function Q = 150 – pQ – 150 = -P

i.e P = 150 – Q (1 Mark)

.: TR = P X Q = (150 – Q) X Q = 150Q – Q2

.: MR = dTR/dQ = 150 – 2Q (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 (1 Mark)

Also in equilibrium under monopoly MR = MC .: 150 – 2Q = 5-2Q = 5 – 1502Q = 150 – 5 = 145 i.e Qm = 145/2 72.5 (1 Mark) .: Qm = 72.5 barrels (1 Mark)

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Therefore output (production) under monopoly (Qm) is half of output (production) under perfect competition (Qpc)

c. Monopoly and Monopolistic Competition (similarities)

I. There are many buyers in both marketsII. There is free exit of firms In both marketsIII. In both markets MC =MR for profit maximizationIV. Transportation cost are incurred in both marketV. There is inadequate market information in both marketsVI. Preferential treatment exist in both markets

VII. There is lack of uniform prices in both marketsVIII. There is lack of uniform prices in both markets

(1 mark for each of 5 similarities) (5 Marks)

2. a. 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

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2. a. Merchant bank is a wholesale bank and it deals with bulkpurchases/ transaction (2 Marks)

b. Functions of Merchant BanksI. Acting as issuing houses in the capital marketII. Granting loans and advancesIII. Project FinancingIV. Accepting DepositV. Providing advisory servicesVI. Equipment leasing

VII. Providing foreign exchange servicesVIII. Accepting Deposits (11/2 for 4 points)

(6 Marks)

c. i. 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)

ii. Excess reserve is the reserve obtained through the original reserve ratio and the new higher reserve ratio.

(2 Marks)iii. 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 (1 Mark)

Also 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)

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d. Assumption of credit creation.

I. That the banking system is comprised of many banksII. That there is no cash leakage in the systemIII. 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.

IV. All banks in the system are willing and able to make loan (credit) up to the limit set by cash reserve requirement.

V. A customer deposit (total reserve) in his current account with one of the banks.

(11/4 for 4 point)

3. a. 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

‘000

N

‘000

N ‘000 N ‘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) – (2½ marks)

ii. Calculate the Benefit/Cost ratio (5 marks)

iii. Calculate the Net Benefit/Cost ratio (5 marks)

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b. State and briefly discuss any five factors affecting the volume of production in

a free-market economy. (7½

marks)

(Total 20 marks)

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 2010Benefit streams (B)

6,250 5,500 5,000 6,500 9,000

Cost streams (C)

2,500 5,000 3,000 6,000 7,500

Net Benefit (B-C)

3,750 500 2,000 500 1,500

ii. Benefit/cost ratio (B/C)

Year 2006 2007 2008 2009 2010B/C 2.5 1.1 1.67 1.08 1.2

iii. Net Benefit/Cost ratio

Year 2006 2007 2008 2009 2010NBCR = (B-C)/C 1.5 0.1 0.67 0.08 0.2

b. Factors affecting volume of production in a free market economy.

I. Quality and quantity of available factors of productionII. Level of efficiency in the use of factors of productionIII. Level of social economic and political stability in the economy

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IV. Availability of economic infrastructure e.g transportation, electricity, banks etc.

V. Provision of social amenities (e.g recreational facilities) and type of working condition provided by employees

VI. Type of economic policies undertaken by the government with respect to the utilization of resources

VII. Weather and other natural phenomenaVIII. Level of technology in the country.

(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) (3 marks)

b. 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

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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 Pi.e dQ/dP = -2p

: 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.

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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

497 - 2p = p - 34

497 + 34 = p + 2p

531 = 3p

P = 531/3

i. N177 (equilibrium price) (2 Marks)Hence equilibrium quantity 497 – 2 (177)497 – 354 = 143 (equilibrium quantity) (2 Marks)

ii. With a specific tax of N6 per unit on product, then supply function becomes: Qs = p – 34 – 6

= p – 40The resulting equilibrium price and equilibrium quantity is computed as:

Qd = Qs497 - 2p = p – 40497 + 40 = p + 2p537 = 3pP = N179 (equilibrium price) (2 Marks)

For equilibrium quantityQs = p -34 – 6

= p – 40Qs = 179 - 40Qs = 139 (equilibrium)

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iii. With a subsidy of N3 per unit on products, then supply function becomesQs = p – 34 + 3Qs = p -31Then resulting equilibrium price and equilibrium quantity is shown asQd = Qs497 - 2p = p – 31497 + 31 = p + 2p

.: P = 528 /3P = N176 (equilibrium price) (2 Marks)

Equilibrium Qty Qs = p -31

Qs = 176 – 31Qs = 145 (equilibrium quantity) (2 Marks)

iv. The price elasticity of supply at point (iii) is shown as followsQs = p – 31dQ/dp = 1Es = dQ/dp x P/Q = 1 x 176/145 = 1,2 (1 Mark)

Supply is price elastic (1 Mark)

5. a. 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

Profit 4 140

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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 (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)

SOLUTION5. 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

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: Firm B = N 160m + N40m +N140m = N340m

GDP = N100m + N 340m =N 440m

Iv. Total amount of depreciation

N16m + N40m = N56m (1 Mark)

v. Net Domestic product = GDP – Depreciation

(1 Mark)

N440m - N56m = N384m (1 Mark)

b. a. Economic integration is a form of cooperationamong 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)

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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.

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

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· web view(2marks) four advantages enables the design of the structure of data base creates data...

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