THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA OCTOBER 2012: PROFESSIONAL EXAMINATION FOUNDATION:MANAGEMENT INFORMATION SYSTEM ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS. TIME: 3 HOURS

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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
ma
nagement.

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 p
lan.





(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 un
derstanding is that the
entity will be dissolved upon completion of its objectives.

It is usu
al for
project organization to be

multi


disciplinary in nature.

(c)

There are two types of project organization
s

i
.

Pure project


There is an organization struc
ture with its various
departments existing specifically for the project.

The department
may continue after the c
ompletion of the project, but if

no further
project is

started, the department will be dissolved
.

ii
.

Matrix


Involves people from various depa
rtments 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 the
ir

primary
department and secondly

to the project
manag
er.


(d)

The contents of formal project plan include


(i)

A brief descriptive title


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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)

P
rocedures 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 practic
e 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

syste
m where

one
large central computer connect
s

all

the

users

in all the unit

in an
organization together.






(
2

M
arks
)


(b)

i.

1.

Economy of capital expenditure as one large computer is




purchased instead of s
e
veral

computers in different units.



2.

Hig
her 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 o
f

a central system include

1.

Specialized skills

required for database maintenance

2.

Special environment with adequate security
,

air
-
condition
s

to be
provided

3.

Risk of system down time to the entire organization.

4.

Does not facilitate end use involvement.




(10
M
arks)

c.

Various software,
hardware and telecommunication equipment are
installed to make centralize data processing possible and they include:

Hardware

Telecommunication


Equipment

Software

Desktop



Laptop

Server


Scanner

Printer



UPS

Modem



Renter/ Switch Internet

Local Area

Network (LAN)


Metro Area Network (MAN)

Wide Area Network (WAN)



Mast

Widest Area Point (WAP)

Telephone

Operating System e.g Linux,
Android, Unix, Window
Server

Database

-

My SQL

-

Oracle

Application

Financial
-

packages, Excel,
Power point e.g Sage,

Peach
tre
e
, MS office,

Oracle
, SAP,

Flexcube, Finacle











(8 M
arks)




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
a
ccess

into a computer system

a
nd 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
storag
e area
used by the computer

to store items temporarily.
It can also

be

said to be a tempor
ary 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 c
omputer
programme to

run properly and accomplish the task at hand.

e.

Kilobyte. This is the units of measuring computer storage. On
e

byte is
used to store one character.

A thousand byte is referred to as a kilobyte or
data.



4.

A Revenue Authority has just c
omputerised 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 m
anagement.




(2 M
arks)



(ii)

Four features of data base:

i.

e
ase of data input

ii.

r
eport generation

iii.

i
ndex Info
rmation

iv.

c
omplex querying

v.

p
erform global update

vi.

i
ncorporate
s

graphics

vii.

r
elate data to create information.


(4 M
arks)

b.

DBMS


Database Management

System is
software

that ensures the
workings of a data base.






(2M
arks)


Four Advantages

(i)

e
nables the design

of the structure of data base

(ii)

c
reate
s

data entry forms so as to get information into the data base

(iii)

v
alidate
s

data entry and check for inconsistencies

(iv)

s
orting and manipulation of data in the data base

(v)

e
liminate
s

problems of data duplication and redundancy

(vi)

e
nables data sharing between users

(vii)

f
acilitates uniform development and maintenance of application
progr
a
m.







(8 M
arks)



c.

Two types of Data base structure


i.

Relational data base


ii.

Network data base

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iii.

Hierar
chical data base


iv.

Object orien
ted data base




(4 M
arks)


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.

Feasibilit
y st
udy 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 sys
tem.

The feasibility
study is
handling

by a feasibility study team usually including system
analysts.





(2M
arks)

Contents of

a feasibility study

i.

Term
s

of reference

ii.

Composition of members

iii.

Outline of present system

iv.

Outline of proposed system

v.

Stages in carr
ying out the rep
ort

vi.

Fact finding / Investigation

vii.

Fact recording

viii.

Analysis of fact
s

using cost benefit approach

ix.

Recommendation and
c
onclusion



(8 M
arks)

b.

The function
s

of an IT steering

committee

include


i.

Appointi
n
g

members of the feasibility study gr
oup


ii.

Ensure cost benefit analysis of IT projects


iii.

M
ake recommendations to the management


iv.

Monitor progress of IT projects

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v.

Approve commencement of IT projects


vi.

R
anking project
,

in order of priority and assigning resources


vii.

T
ake dec
ision to defer project
s

viii.

Selecting system development staff.













(10
M
arks)




















THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA

OCTOBER 2012: PROFESSIONAL EXAMINATION

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FOUNDATION: ACCOUNTING

ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS. T
IME: 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.

Consis
tency concept








(3 Marks)

iv.

Materiality concept








(3 Marks)

v.

Conservatism concept








(3
Marks)

(Total 20 Marks)

SOLUTION

1

(a)

ACCOUNTING CONCEPT

Accounting Concepts are broad basic assumptions underlying the
preparation of periodic fin
ancial 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 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
fu
ture.

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 mater
ial 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 c
alculator because
of its immateriality is expensed to profit and loss account in the year
of its purchase.


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(v)


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 wh
ich 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 sho
wed 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 dr
awn 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 t
o 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 appea
r 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







(8 Marks)

b.

Prepare a bank reconcil
iation statement as at 31 December 2010



(12
Marks)

(Total20 Marks)

SOLUTION

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2.







BKL Logistics




ADJUSTED CASH BOOK



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Page
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Date

Name

Cheque
No

Amount

15/12/10

Mr. Ologbon

007

25,060

15/12/10

Mrs. Taylor

010

15,600

18/12/10

Olumilua

015

13,300

21/12/10

PHCN

021


5,700




3.

The summarized balance sheet

and operating results of ABC Limited for the two
years ended 31
st

December, were shown as follows:


2010

2009




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Page
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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 31
st

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 Ass
ets


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Page
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41



Capital Employed
1


1,170,600 x 100

4,345,000 1


=

26.95%

1,250,000


1,044,100 x 100

3,770,000 1


=

27.70%

(e)

Earning Per
Share(EPS)

=

PAT
x 100

NO of ordinary
shares




EPS
=

PAT = 1,170,600

Less: (125,000)


(525,000)

PAT =
520,600


=
520,600 x 100


625,000

= 83 Kobo


= 1,044,100


(1
25,000)


(437,350)



481,750


481,750 x 100

625,000

= 77 Kobo



4.

The assets and liabilities of City club on the 1
st

of January, 2011 were:




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Page
15

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41




Insurance

10,560



Balance c/fwd

80,080


241,12
0


241,12
0

Balance b/fwd

80,080




The f
ollowing 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 31
st

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 1
st

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 31
st

D
ecember, 2011






(4
Marks)


(Total 20 Marks)

SOLUTION

4. CITY CLUB


Statement of Affairs as at 1
st

January, 2011






A獳s瑳



䙵牮楴r牥⁡nd fi瑴楮is


NPOIMM

䝡me猠squ楰ment


RSⰳOM

qoo汳⁡nd⁨obb楥猠bqu楰ient


PSⰵOM

pub獣物p瑩tn⁩ a牲ea牳


Oⰶ4M

䥮獵牡rce⁐牥pa楤


NⰷSM

䍡獨


4Mⰴ8M

OS9ITOM

ie獳⁌iab楬楴楥i



pub獣物p瑩tn 楮i advan捥
⠰(⼰N⼱NF

A捣cmu污led
fund a猠 at
MN⼰N⼱N



⠷ⰰ4MF

OSOIS8M

Page
16

of
41






CITY CLUB

INCOME & EXPENDITURE ACCOUNTS FOR THE YEAR ENDED 31/12/11






䥎䍏fb



pub獣物p瑩tn


RNⰹOM

䑯aa瑩tn


44ⰰMM

Annua氠䑩nner


O4ⰶ4M

䑡a捥


PRⰲMM

NRRITSM

bxpend
楴i牥



䥮獵牡rce

9ⰶ8M


b汥捴物捩瑹

OPⰷSM


Cleaner’s wage

4RⰷSM


m物n瑩tg…⁓ta瑩tne特

4ⰴMM


剥oa楲猠


N4I9SM


䑥a牥獳楯r


䙵牮楴u牥…⁆楴瑩 g

-

Games Equipment

-

Tools & Hobbies Equipment

Surplus

13,200

6,160

4,444




(122,3
64)

33,396





CITY CLUB


Balance Sheet as at 31
st

December, 2008








䙩xed⁁獳s瑳

䍯獴

A捣⁄cp

乂k

䙵牮楴r牥…⁆楴瑩 gs

NPOIMMM

⠱(ⰲMMF

NN8I8MM

䝡me猠squ楰ment

SNⰶMM

⠶ⰱSMF

RRⰴ4M

qoo汳…⁈ bb楥猠bqu楰ment

44ⰴ4M

OP8IM4M

⠴ⰴ44F

⠲(ⰸM4F

P9ⰹ9S

ON4IOPS

䍕剒b乔⁁ppb呓




pub獣物p瑩tn⁩ A牲ea牳


NⰷSM


m牥ra
楤⁉n獵ran捥


Oⰶ4M


䍡獨⁡t⁂ank


8Mⰰ8M

84ⰴ8M


䍵牲en琠i楡b楬楴楥i




A捣牵cd expen獥s


⠲ⰶ4MF


乥k⁃ 牲en琠A獳st

乥k⁁獳s獴s



8Nⰸ4M

O9SIMTS

䙩nan捥d⁢4




Page
17

of
41


Accumulated fund (01/01/08)



262,680

Surplus for the year



33,396

Accumulated 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 & Ho
bbies 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
45,760


Bal 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
2,640

12,320

12,320



5. Annual Dinner A/C

Bank

27,280

Bank
51,920

Page
18

of
41


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


Bal c/d
2,640





14,960



14,960



11. Printing &

Stationery A/C

Bank
I & E

Page
19

of
41


4,400

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 Equi
pment

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


Annua氠 䑩nner †† ††
OTⰲ8M

䑯aa瑩tn† †† †† †††† ††††† †† †
44ⰰMM

乥眠 qoo汳†††† †† †††† †† †††††
TⰹOM

pa汥猠 q楣步i



nua氠 䑩nner† ††
RNⰹOM

乥k 䝡mes bqu楰ient††† †††††
Rⰲ8M

pa汥猠
-

䑡a捥 q楣iet† †† † †††††
R8ⰹSM

bxpen獥


䑡a捥† †† ††††† †† †
OPⰷSM


䍬eane牳 wages†††††††††† †† ††
4RⰷSM


m物n瑩tg C p瑡瑩tne特†† †††
†† †† †
4ⰴMM


剥oa楲猠s† †††† †† †† ††††† †† †
NOⰳOM


䥮獵牡rce† †††† †† ††††††† †† †
NMⰵSM

Page
20

of
41



Bal c/d
80,000


241,120

241,120
























Page
21

of
41


THE CHARTERED INSTI
TUTE 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 t
he 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 Obje
ct



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
22

of
41


obligation, there is a breach of contract. A breach by one party causes a
right of action to accru
e 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 essen
tial 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 famil
y 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 s
eal
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 transf
er

Page
23

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 h
ired. 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 se
ller 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 i
t later on it will be
classified as future goods. Future goods cannot be specific goods
Page
24

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 th
e 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
N
80,000.00. After the incorporation, Smith sold to Travellers
Limited. for
N
1
00,000.00, a plot of land at Maryland Estate in Lagos which he
bought for himself previously for the sum of
N
60,000.00 without disclosing
that the land belonged to him and the profit he made on the sale. The
company later discovered the profit made by Smit
h 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 broug
ht 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
25

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 h
ad 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 becau
se 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
N
80,000.

Page
26

of
41



After incorporation Smith sold to Travellers Limited, a plot of land for
N
100,000 which he p
reviously bought for himself for
N
60,000. He did not
disclose that he is the owner of the land and the ill
-
gotten gain of
N
40,000.


The promoter has breach the fiduciary duties and the company may not
ratify, the transaction






(10 Marks)











20 Ma
rks


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 const
itutionally
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
2
7

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.




(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 p
laintiff 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 seriou
sly 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
28

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 s
tale. 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 che
que


3 marks on reasons where bank can be sued successfully

on
dishourned cheque.

Page
29

of
41


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 + 0.1Q
2
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 Monopol
istic 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
-
0.025Q
2

Page
30

of
41





i.e

TR = 18Q


0.025Q
2






(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



=

24



In

the demand function, p = 18


0.025Q substitute for Q


.: P = 18


0.025 (24) =

18


0.6 = 17.4




.: Price =
N
17, 400 and Q = 24 Units




(1 Mark)



b.

TC = 75 + 5Q = MC = dTC/dQ = 5




(1 Mark)



Now from the linea
r demand function Q = 150


p



Q


150 =
-
P




i.e

P = 150


Q







(1 Mark)




.: TR = P X Q = (150


Q) X Q = 150Q


Q
2



.
: 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


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)




c.

Monopoly and
Monopolistic Competition (similarities)

I.

There are many buyers in both markets

II.

There is free exit of firms In both markets

III.

In both markets MC =MR for profit maximization

IV.

Transportation cost are incurred in both market

Page
31

of
41


V.

There is inadequate market information
in both markets

VI.

Preferential treatment exist in both markets

VII.

There is lack of uniform prices in both markets

VIII.

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


2.

a.

Merchant

bank is a wholesale bank and it deals with bulk



purchases/ transaction







(2 Marks)




b.

Functions of Merchant Banks

I.

Acting as issuing houses in the capital market

II.

Granting loans and advances

Page
32

of
41


III.

Project Financing

IV.

Accepting Deposit

V.

Providing
advisory services

VI.

Equipment leasing

VII.

Providing foreign exchange services

VIII.

Accepting Deposits











(1
1
/
2

for 4 points)











(6 Marks)

c. i.

Reserved Ratio is the ratio at which bank can create credit. It
is always s
tipulated 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 cre
dit =Deposits

-

Cash reserve


Thus M
dep
= A/r
,
where M
dep
= deposit


A = Initial or first deposit and r = cash reserve ratio


Where M
dep
= N25m, r = 12.5%, r

= 15%


.: 25 = Ai/0.125



i.e A
1

= 3.125


.: Initial credit = 25


3.
125 =
N

21. 875



(1 Mark)


Also 25 = A
f
/0.15


i.e A
f

= 3.75






.:Final credit = 25


3.75 =
N
21.25




(1 Mark)







.: The total credit that will be created is
N
21. 25m
















(1 Mark)


d.

Assumption of credit creation.

I.

That the banking system is comprised of many banks

II.

That there is no cash leakage in the system

Page
33

of
41


III.

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.










(1
1
/
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

k

‘000

k

‘000

k

‘000

k

‘000

䍯獴⁳ 牥rms

OⰵMM

RⰰMM

PⰰMM

SⰰMM

TⰵMM

Benefi琠獴牥ams

SⰲRM

RⰵMM

RⰰMM

SⰵMM

9ⰰMM


vou⁡牥⁥xpe捴ed⁴oW



䑥aine⁃ 獴
-

Benef楴iAna汹獩猠⡃BA⤠






(2½ marks)

ii.

Calculate the Benefit/Cost ratio






(5 marks)

iii.

Calculate the Net Benefit/Cost ratio





(5 marks)


b.

State and briefly discuss any five factors affecting the volume of production in
a free
-
market economy.







(7½
marks)


(Total
20 marks)


Page
34

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











(2
1
/
2

Marks)

Year

2006

2007

2008

2009

2010

Benefit
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

2010

B/C

2.5

1.1

1.67

1.08

1.2





iii. Net Benefit/Cost ratio

Year

2006

2007

2008

2009

2010

NBCR = (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 production

II.

Level of efficiency in the use of factors of production

III.

Level of social economic and political stabilit
y in the economy

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 th
e government with respect to
the utilization of resources

VII.

Weather and other natural phenomena

VIII.

Level of technology in the country.

Page
35

of
41









(1
1
/
2
marks for each of 5 points)










(7
1
/
2
Marks)


4.

a.

Demand function for a commodity is given by Q =

500
-
P
2

You are required to calculate the price elasticity of demand at

i.

P =
N
10 and

ii.

P =
N
20 (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 dema
nded

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
N
6 on the producer,
determine the resulting equilibrium price and quantity.




(4 ma
rks)

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
36

of
41






: Ed

= (dQ)/dP, P/Q






Sinc
e 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 ela
stic.





(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
37

of
41



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


40

The resulting equilibrium price and equilibrium quantity is computed
as:








Qd

= Qs




497
-

2
p = p


40




497 + 40 = p + 2p




537 = 3p




P = N179 (equilibrium price)




(2 Marks)






For equilibrium quantity




Qs

= p
-
34


6





= p


40




Qs

= 179
-

40




Qs

= 139 (equilibrium)

iii.

With a subsidy of N3 per unit on product
s, 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 M
arks)

Page
38

of
41






Equilibrium Qty





Qs = p
-
31




Qs = 176


31




Qs = 145 (equilibrium quantity)



(2 Marks)

iv.

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)






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


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Page
39

of
41


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)


=

N
600m


N 160m






(1 Mark)


=

N
440m








(1 Mark)




OR





Using the value Added Approach






GDP = firm A`
S
t
otal

+ 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





(1 Mark)




v. Net Dome
stic product = GDP


Depreciation













(1 Mark)





N
440m
-

N
56m =
N
384m




(1 Mark)


b.


a.

Economic integration is a form of cooperation

Page
40

of
41


among two or more nations to foster their economic interests. It
may operate at various levels such as f
ree 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. J
ob 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. Im
provement 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 th
rough
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 differen
ces: 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 c
oupled
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
41

of
41


iv.

Inadequate capital: The dearth of capital to carry out or
execute agreed projects has delayed th
e 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 candi
dates understanding of international economic
organs especially economic integration