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CR – Nov 2018 – L3 – SB – Q4 – Statement of Cash Flows (IAS 7)

Preparation of Happy Plc’s statement of cash flows and analysis of revaluation and financing adjustments.

Question

Happy is a publicly listed company. Its financial statements for the year ended July 31, 2017, including comparatives, are shown below:

Notes:

On November 1, 2016, Happy acquired an additional plant under a finance lease with a fair value of ₦3 million. The property was also revalued upward by ₦4 million, with ₦1.3 million of the revaluation reserve transferred to deferred tax. No disposals occurred during the period.
Depreciation on property, plant, and equipment amounted to ₦1.8 million, and amortization of deferred development expenditure was ₦0.4 million.

Required:

Prepare the statement of cash flows of Happy Plc for the year ended July 31, 2017, in accordance with IAS 7, using the indirect method. (20 Marks)

Answer

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Tags: Cash Flow, Financing Activities, Investing Activities, Operating Activities, Revaluation Surplus, Working Capital
Level: Level 2

Topic: Statement of Cash Flows (IAS 7)

CR – Nov 2018 – L3 – SA – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Adegaga Laboratories Plc., including the effects of an acquisition and goodwill impairment.

Question

Adegaga Laboratories Plc (“AdeLabs”) is one of the largest companies in Nigeria engaged in cosmetic development and manufacturing. Its largest customer base is in the healthcare sector for post-surgery patients and the Nigeria movie industry (aka Nollywood). In the prior financial period, AdeLabs’ expansion strategy has been largely focused on growth by acquisition and joint ventures.

Additional Information:

As part of this, AdeLabs acquired 80% of the equity share capital of Bodegas Limited (“Bodegas”) on January 1, 2015, when the retained earnings of Bodegas was N93.75 million. Following the share acquisition, AdeLabs had control over Bodegas – no shares have been issued by Bodegas following the acquisition. The non-controlling interest in Bodegas was measured at its fair value of N20 million at the date of acquisition.
On January 1, 2016, AdeLabs acquired 50% of the equity share capital of ChidePlastics Limited (“ChidePlast”) when the retained earnings of ChidePlast was N41.25 million. This acquisition was classified as a joint venture in accordance with IFRS 11 Joint Arrangements. ChidePlast has not issued any shares since the acquisition date.
The balance on “other reserves” relates to movements in the values of investments in Bodegas and ChidePlast in the books of AdeLabs. N18.75 million relates to Bodegas, and the remainder to ChidePlast.
AdeLabs’ non-current liabilities relate to a borrowing (long-term) taken out on January 1, 2017. This borrowing has an agreed coupon rate of 4% p.a., and the interest expense due in respect of 2017 has been paid and accounted for in profit for the year. The effective interest rate estimated with this financial liability is 8% p.a.
As part of its annual impairment review, AdeLabs concluded that the goodwill on the acquisition of Bodegas was impaired by 20% at December 31, 2017. No other impairments of goodwill have arisen.
AdeLabs sold goods to ChidePlast with a value of N75 million and a selling margin of 40% in November 2017. As at year-end December 31, 2017, 75% of these items are unsold.

Accounts for all companies are made up to December 31 annually.

Required:

Prepare for Adegaga Laboratories Plc:

A consolidated statement of financial position as at December 31, 2017. (20 Marks)
On January 1, 2018, AdeLabs acquired an additional 10% of the equity shares of Bodegas. The purchase consideration for this additional acquisition was N52,500,000.
i. Briefly explain how this additional acquisition will impact the preparation of AdeLabs’ consolidated financial statements for the year ended December 31, 2017. (4 Marks)

ii. Calculate the adjustment that will be required to be made to AdeLabs’ statement of financial position as a result of this acquisition. (6 Marks)

Answer

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Tags: Acquisition, Consolidated Statement, Equity Method, Financial Position, Impairment, Joint Venture, Non-Controlling Interest
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)

TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

Question

Raposa Nigeria Limited, a company located in Sambisa Forest, Kutunwegi State of Nigeria, commenced operations on November 1, 2017. The accounting year-end was September 30. Due to government policy restricting rice importation, the business’s going concern was threatened, leading the Board of Directors to decide to cease operations on December 31, 2022.

The adjusted profits for the relevant periods are as follows:

Period	Adjusted Profit (N)
Period to September 30, 2019	2,100,000
Year ended September 30, 2020	2,400,000
Year ended September 30, 2021	3,640,000
Year ended September 30, 2022	6,300,000
Period to December 31, 2022	500,000

Additional Information:

A bad debt of N120,000, written off in the 2020 assessment year, was recovered in October 2021.
N20,000 was spent to recover this debt.
An expenditure of N350,000 incurred in the 2020 assessment year was accounted for in the profit or loss but was not paid until August 2022.

Upon cessation, the revenue authority planned a back-duty investigation and informed the taxpayer accordingly. As a tax consultant, you are invited to determine the assessable profits for the relevant periods from the commencement of trade to business cessation.

Required: a. State THREE reasons why a business may cease trading. (3 Marks)
b. Compute net terminal adjusted profit. (6 Marks)
c. Compute assessable profits for all the relevant years of assessment. (6 Marks)

Answer

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Tags: Assessable Profits, Back-Duty Investigation, Business Cessation, Tax adjustment, Terminal Profit
Level: Level 2

Topic: Tax Administration and Enforcement

TAX – Nov 2023 – L2 – Q6b – Tax Administration and Enforcement

Explain five key contents required in a Withholding Tax returns/payment schedule.

Question

It is expected that a schedule of Withholding Tax (WHT) payable should be prepared by applying the correct WHT rate on each transaction/payment made during the month. Thereafter, a cheque for the amount due to the Federal Inland Revenue Service is raised and forwarded together with the WHT schedule to one of the approved collecting banks for processing.

Required:
Explain FIVE contents of a WHT returns/payment schedule. (10 Marks)

Answer

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Tags: Federal Inland Revenue Service, Tax Returns, WHT Compliance, WHT Schedule, Withholding Tax
Level: Level 2

Topic: Tax Administration and Enforcement

TAX – Nov 2023 – L2 – Q6a – Tax Administration and Enforcement

Explain the functions and powers of the Nigerian Customs Service Board.

Question

The Nigeria Customs Service (NCS) is one of the major revenue-generating agencies for the Federal Government of Nigeria. The establishment of the Nigerian Customs Service Board, which is under the control of the Federal Ministry of Finance, is contained in section 1 of the Nigerian Customs Service Board Act Cap.C45 LFN 2004 (as amended). The Board is responsible for the administration of the Customs and Excise Management Act.

Required:
Explain the functions and powers of the Board. (5 Marks)

Answer

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Tags: Customs and Excise Management Act, Federal Ministry of Finance, Nigeria Customs Service, Revenue Generation
Level: Level 2

Topic: Tax Administration and Enforcement

TAX – Nov 2023 – L2 – Q5 – Tax Administration and Enforcement

Explain stamp duty exemptions, electronic document receipt, duties on contracts, and electronic money transfer levies.

Question

Stamp duties are duties basically on instruments (defined to include written document). Stamp duties are governed by Stamp Duties Act Cap. S8 LFN 2004 (as amended), which provides for the levying of duties on certain matters specified in the Act, effective April 1, 1993.

a. Explain THREE instruments exempted from stamp duties. (3 Marks)
b. Describe when electronic documents are considered received in Nigeria. (3 Marks)
c. Discuss duty on contracts. (3 Marks)
d. Explain the electronic money transfer levy. (6 Marks)

Answer

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Tags: Contracts, Electronic Documents, Exemptions, Money Transfer Levy, Stamp Duties
Level: Level 2

TAX – Nov 2023 – L2 – Q4 – Taxation of Trusts and Estates

Compute the net income assessable in the hands of trustees and assessable income of each beneficiary.

Question

The records of the two trustees of Olalomi Children Settlement created in favor of the three children—Olami, Olambe, and Olaide—revealed the following as of December 31, 2020:

Income Type	Amount (N)
Rental income (gross)	398,900
Trading income	210,000
Dividend (gross)	196,000
Profit on sale of non-current assets	600,000

Additional Information:

The interest received was from Gbogbo-Ero Commercial Bank Limited.
Other allowable expenses amounted to N23,000.
Each beneficiary was entitled to a quarter of the net distributable income.
Fixed annuity to the beneficiaries was N42,000 (gross) to be shared equally.
Trustee’s remuneration per trust deed was fixed at N25,000 each, plus 2.5% of the total computed income.
Discretionary payments were made to Olami (N10,000), Olambe (N34,000), and Olaide (N29,000).
Agreed capital allowance was N87,600.
Administrative and other expenses amounted to N106,000.

Required: a. Compute the net income assessable in the hands of the trustees. (14 Marks)
b. Compute the assessable income in the hands of each beneficiary. (6 Marks)

Answer

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Tags: Allowable expenses, Beneficiaries Income, Settlement Trust, Tax computation, Trustees Income
Level: Level 2

Topic: Taxation of Trusts and Estates

TAX – Nov 2023 – L2 – Q3b – Tax Administration and Enforcement

Explain the roles and responsibilities of government, taxpayers, and revenue agencies in Nigeria’s National Tax Policy.

Question

In line with the provisions of the revised National Tax Policy (NTP) in 2017, explain the roles and responsibilities of the following stakeholders:

i. The government (3 Marks)
ii. The taxpayers (3 Marks)
iii. Revenue agencies (3 Marks)

Answer

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Tags: Government Roles, National Tax Policy, Revenue Agency Duties, Tax Administration, Taxpayer Responsibilities
Level: Level 2

Topic: Tax Administration and Enforcement

TAX – Nov 2023 – L2 – Q3a – Tax Administration and Enforcement

Describe the composition and functions of Nigeria’s tax administration bodies, including the Joint Tax Board and State Board of Internal Revenue.

Question

a. Tax administration in Nigeria involves the practical interpretations and application of the tax laws. The bodies charged with the administration of tax in Nigeria are the Federal, State, and Local Governments. The tax authorities of these tiers of government derive their power from Federal laws.

i. State the composition of the Joint Tax Board. (3 Marks)

ii. Outline FOUR functions of the State Board of Internal Revenue. (3 Marks)

iii. State FIVE levies and taxes collectible by the Local Government Revenue Committee. (5 Marks)

Answer

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Tags: Joint Tax Board, Local Government Taxes, Nigeria Tax Administration, State Board of Internal Revenue, Tax Collection
Level: Level 2

Topic: Tax Administration and Enforcement

TAX – Nov 2023 – L2 – Q2 – Tax Administration and Enforcement

Discuss the tax law provisions for a change in accounting year end, revenue practice, and compute assessable profits.

Question

Forward Nigeria Limited, a Nigerian manufacturing company, has been operating for several years with an accounting year-end on June 30. The company recently decided to change its year-end to September 30. The adjusted profits for the relevant periods are as follows:

Period	Adjusted Profit (N)
Year ended June 30, 2014	2,700,000
Year ended June 30, 2015	3,300,000
Period ended September 30, 2015	1,500,000
Year ended September 30, 2016	4,200,000
Year ended September 30, 2017	3,600,000

Additional Information:

Income overstated:
- June 30, 2015: N250,000
- September 30, 2016: N280,000
Expenditure understated:
- June 30, 2014: N160,000
- September 30, 2017: N150,000

Required: a. Explain the tax law provisions for a business changing its accounting year-end. (5 Marks)

b. Describe the Revenue practice related to these provisions. (3 Marks)

c. Compute the assessable profits for all affected years of assessment, considering the tax law and Revenue practice. (12 Marks)

Answer

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Tags: Accounting Year-End, Adjusted Profits, Assessable Profits, Revenue Practice, Tax law
Level: Level 2

Topic: Tax Administration and Enforcement

PSAF – May 2021 – L2 – Q4a – The Budgeting Process in the Public Sector

Explanation of MTEF, Budget Call Circular, and their main differences for public sector budgeting.

Question

As the Accountant in charge of the expenditure division, you are to assist the Director of Finance in the ministry to set up a budget committee. You have also been asked to review the recently issued 2020 Budget Call Circular.

Required:

Explain briefly the following:

Medium Term Expenditure Framework (MTEF) including FOUR of its objectives (6 Marks)
Budget Call Circular (2 Marks)
The main difference between MTEF and Budget Call Circular (2 Marks)

Answer

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Tags: Budget Call Circular, Budgeting Process, Fiscal Policy, Government Expenditure, MTEF
Level: Level 2

Topic: Government Expenditure, Regulatory and Institutional Framework, The Budgeting Process in the Public Sector
Series: MAY 2021

PSAF – May 2021 – L2 – Q3b – Fiscal Policy and Public Finance

NPV-based investment recommendation for Omidan Local Government among three projects and a risk-free security alternative.

Question

Omidan Local Government Council has N20,000,000 to invest, if there is an assurance that the investment will earn at least 12% p.a. In view of this, the following projects are being considered:

Project A will earn N21,800,000 at the end of year one with a residual value of N1,500,000;
Project B will earn N24,000,000 at the end of year two with a residual value of N500,000; and
Project C will earn N14,000,000 at the end of year one and another N10,000,000 at the end of year two with no residual value.

If none of the projects is undertaken, Omidan Local Government Council will invest the N20,000,000 in a risk-free security that will earn interest of 12% p.a.

Required:

Assess and advise Omidan Local Government Council on which of the projects to be undertaken using Net Present Value (NPV) method.

Answer

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Tags: Capital Budgeting, Investment Decision, NPV Analysis, Public Sector Finance, Risk-Free Investment
Level: Level 2

Topic: Government Revenue
Series: MAY 2021

PSAF – May 2021 – L2 – Q3a – Treasury Management in the Public Sector

Explain strategies to enhance cash management and factors affecting its effectiveness in public finance.

Question

Cash management implemented by the Budget Office of the Federation (BoF) was to ensure that the right amount of money is made available to fund government expenditure in a timely manner as well as meeting its obligations as they fall due.

Required:
Explain FIVE strategies to enhance cash management control and FIVE factors militating against effective cash management. (10 Marks)

Answer

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Tags: Budget Office, Cash Management, Financial Control, Public Expenditure, Treasury Management
Level: Level 2

Topic: Treasury Management in the Public Sector
Series: MAY 2021

PSAF – May 2021 – L2 – Q2b – International Public Sector Accounting Standards (IPSAS)

Explain differences between accrual and cash accounting, justify IPSAS adoption, and describe commitment accounting benefits.

Question

You have received an official memo from your Permanent Secretary, which reads:

Director of Account and Finance: Hope you are doing well. We have just closed from a workshop organised by the Ministry of Finance on public finance management not long ago, and the discussion was all about the adoption of IPSAS accrual accounting in the public sector. It was emphasised that migration from IPSAS Cash Basis to IPSAS Accrual Basis is necessary to improve financial reporting and transparency in the public sector. You know I have little knowledge in accounting, so I was completely lost in the discussions and I wished you had attended the workshop with me.

Another issue discussed was commitment accounting. We were made to understand that commitment accounting strengthens public finance management and therefore all Ministries, Departments and Agencies (MDAs) must ensure that every expenditure is committed in accordance with the appropriation prior to spending.

Please could you help me with some information on these issues?

Required:
Explain to the Permanent Secretary:
i. THREE differences between accrual accounting and cash accounting. (3 Marks)
ii. THREE justifications for adopting IPSAS accrual accounting in the public sector. (3 Marks)
iii. The term “commitment accounting” and illustrate THREE ways it could strengthen public financial management. (4 Marks)

Answer

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Tags: Accrual Basis, Cash Basis, Financial Transparency, IPSAS, Public Finance Management
Level: Level 2

Topic: International public sector accounting standards
Series: MAY 2021

PSAF – May 2021 – L2 – Q2a – Fiscal Policy and Public Finance

Define debt sustainability analysis, outlining objectives and benefits.

Question

Debt management is a key component of public finance management that enables the government to meet its financing needs at minimum costs and within acceptable levels of risk. One of the diagnostic tools that the government uses in managing its debt portfolio is to conduct an annual Debt Sustainability Analysis (DSA).

Required:
Explain the term “Debt Sustainability Analysis,” identifying its THREE objectives and FIVE benefits.

Answer

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Tags: Debt Management, Debt Sustainability, Economic Analysis, Public Finance
Level: Level 2

Topic: Fiscal Policy and Public Finance
Series: MAY 2021

PSAF – May 2021 – L2 – Q1 – Public Sector Financial Statements

Apply IPSAS standards to adjust and analyze financial information for Okuku State University.

Question

Okuku State University is a parastatal under Okuku State, not classified as a Government Business Enterprise (GBE). The following is the statement of financial position for the University as of December 31, 2018:

Statement of Financial Position (as at Dec 31, 2018)

Item	Cost (₦’million)	Accumulated Depreciation (₦’million)	Carrying Amount (₦’million)
Land and Buildings	15,000	250	14,750
Equipment	1,000	100	900
Furniture	800	80	720
Plant & Machinery	550	50	500
Motor Vehicles	450	45	405
Total Non-Current Assets	17,800	525	17,275
Inventories	11,000	–	–
Receivables	15,000	–	–
Bank	3,000	–	–
Total Current Assets	–	–	29,000
Total Assets	–	–	46,275
Non-Current Liabilities	–	–	30,000
Current Liabilities	–	–	8,000
Total Liabilities	–	–	38,000
Net Assets	–	–	8,275
Reserves	–	–	8,275

Additional Information:

Office equipment was purchased for ₦150,000,000 from Joko Nigeria Limited, with installation and transportation costing ₦3,000,000. Half was paid during the year, with the remainder in January 2019. The University also acquired a building valued at ₦500,000,000 from a defunct State College.
The University Teaching Hospital received motor vehicles and laboratory equipment donations worth ₦20,000,000 and ₦50,000,000, respectively, from a UK-based research institute.
A motor vehicle bought on January 1, 2017, for ₦8,000,000 with a five-year life was sold for ₦4,000,000 at year-end.
Computers bought in 2017 for ₦1,000,000, with an expected five-year lifespan, were damaged in a fire and written off.
Land was bought for ₦50,000,000 for constructing a plaza valued at ₦250,000,000, with an estimated 25-year life.
One building, valued at ₦160,000,000, was damaged by fire, with a post-fire valuation of ₦130,000,000.
A motor vehicle was acquired on January 1, 2018, for ₦150,000,000.
The University’s depreciation policy includes full-year depreciation with rates: Motor Vehicle 20%, Building 4%, Furniture 10%, Equipment (including Lab and Computers) 20%, and Plant and Machinery 15%.

Required:
a. Identify FOUR characteristics of Government Business Enterprises (GBEs) as
stated in IPSAS 1 on presentation of financial statements. (2 Marks)
b. Prepare the necessary journal entries to record the above transactions for
the year ended December 31, 2018. (10 Marks)
c. Prepare the adjusted statement of financial position as at December 31,
2018. (20 Marks)
d. Identify and explain FOUR qualitative characteristics of financial reporting as
required by appendix 2 of IPSAS 1 on presentation of financial statements.
(8 Marks)

Answer

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Tags: Financial Position Adjustments, Government Business Enterprises, IPSAS Standards, Journal Entries, Qualitative Characteristics
Level: Level 2

Topic: Public Sector Financial Statements
Series: MAY 2021

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

Question

Chukwukah Nigeria Limited manufactures three products, JEL, JET and JAL. Demand for
products JEL and JET is relatively elastic whilst demand for product JAL is relatively
inelastic. Each product uses the same materials and the same type of direct labour but
in different quantities. For many years, the company has been using full absorption
costing and absorbing overheads on the basis of direct labour hours. Selling prices are
then determined using cost plus pricing. This is common in the company‟s industry with
most competitors applying a standard mark-up.
Budgeted production and sales volumes for JEL, JET and JAL for the next year are
25,000, 20,000 and 27,600 units respectively.
The budgeted direct costs of the three products are shown below:

In the coming year, Chukwukah also expects to incur indirect production costs of
N6,887,000, which are analysed as follows:

The following additional data relates to each product:

The management of Chukwukah Nigeria Limited wants to boost sales revenue in order to
increase profits but its capacity to do this is limited because of its use of cost plus
pricing and the application of standard mark-up. The management accountant has
suggested using activity based costing (ABC) instead of full absorption costing, since
this will alter the cost of the products and may therefore enable a different price to be
charged.

Required:
a. Calculate the budgeted full production cost per unit of each product using absorption costing, rounded to two decimal places. (6 Marks)

b. Calculate the budgeted full production cost per unit of each product using activity-based costing (ABC), rounded to two decimal places. (8 Marks)

c. Discuss the impact on selling prices and sales volumes of each product that could result from changing to activity-based costing. (6 Marks)

Answer

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Tags: Absorption Costing, Activity-Based Costing, Direct Costs, Elasticity of Demand, Pricing
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2021

PM – May 2021 – L2 – Q5 – Decision-Making Techniques

Calculate the optimal order quantity to maximize expected profits considering ordering constraints and probability distribution of demand.

Question

A national boutique chain sells a wide range of high-quality customized fashion goods. One particular outfit is bought at ₦8,000 and sold at ₦13,000. Mean holding costs per season per outfit are ₦500, and it costs ₦80,000 to order and receive goods in stock. The manufacturers require orders in advance, and once a batch is made, it is impossible to place a repeat order. Additionally, delivery cannot be staggered over the fashion season.

When a customer buys an outfit that requires adjustments, alterations are made, and the customer collects it later. Generally, if an outfit is out of stock at one boutique, it can be obtained from another branch within hours. However, if the chain as a whole runs out of stock, it loses both the outfit’s profit and an estimated ₦2,000 profit from additional items customers typically buy. If excess stock remains at season’s end, it is disposed of at ₦5,000 per outfit.

The sales pattern for a comparable outfit indicates the following probability distribution for total chain sales:

Outfits Sold	Probability
1,100	0.30
1,200	0.40
1,300	0.20
1,400	0.10

The management accountant must determine the optimal order quantity for the upcoming season to maximize expected profit, factoring in overstocking and understocking costs.

Required:
a) Determine the number of outfits to order to maximize expected profits.
(17 Marks)

b) Compare and contrast the model developed with the classical Economic Order Quantity (EOQ) model.
(3 Marks)

Answer

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Tags: Economic Order Quantity, Fashion Retail, Holding Cost, Inventory Management, Ordering Cost
Level: Level 2

Topic: Decision-making techniques
Series: MAY 2021

PM – May 2021 – L2 – Q4 – Budgeting and Budgetary Control

Develop a redrafted budget based on probability-based revenue and assess incremental versus zero-based budgeting.

Question

Adrac Community School was founded by Adrac Community Resident Association of
Garki, Abuja, Nigeria. The school is being supervised by a board of governors made up
of selected experienced members of the community. The school is not allowed to charge
the pupils any fee as it is a community project donated to assist members of the
community.
Adrac Community Residents Association pays the school ₦21,000 for each child
registered at the beginning of the school year, which is September 1, and ₦18,000 for
any child joining the school part-way through the year. The school does not have to
refund the money to the association if a child leaves the school part-way through the
year. The number of pupils registered at the school on September 1, 2019 is 720, which
is 10% lower than the previous year. Based on past experience, the probabilities for the
number of pupils starting the school part-way through the year is as follows:
The school‟s headmistress normally prepares annual budget for consideration of the
board of governors. Since she is not too comfortable with figures, she does not
understand how to use the probability distribution provided for her annual budget.
Therefore, she just used simple average for her calculation of number of pupils expected
to join late. The revenue budget for 2019/2020 submitted by the headmistress is as
follows:

The headmistress uses incremental budgeting to budget for her expenditure, taking
actual expenditure for the previous year as a starting point and simply adjusting it for
inflation, as shown below

Notes
i. N600,000 of the costs for the year ended 30 June 2019 related to standard
maintenance checks and repairs that have to be carried out by the school every
year in order to comply with the local government health and safety standards.
These are expected to increase by 3% in the coming year. In the year ended 30
June 2019, N280,000 was also spent on redecorating some of the classrooms. There will be no redecoration in the coming year.

ii. One teacher earning a salary of N520,000 left the school on 30 June 2019 and
there are no plans to replace her. However, a 2% pay rise will be given to all staff
with effect from 1 December 2019.

iii. The full N1,300,000 actual costs for the year ended 30 June 2019 related to
improvements made to the school building. This year, the canteen is going to be
substantially improved, although the extent of the improvements and level of
service to be offered to pupils is still under discussion. There is a 0·7 probability
that the cost will be N1,450,000 and a 0·3 probability that it will be N800,000.
These costs must be paid in full before the end of the year ending 30 June 2020.

The school‟s board of governors, who review the budget, are concerned that the budget
surplus has been calculated incorrectly. They believe that it should have been calculated
using expected income, based on the probabilities provided, and using expected expenditure, based on the information provided in notes i to iii. They believe that incremental budgeting is not a reliable tool for budget setting in the school since, for
the last three years, there have been shortfalls of cash despite a budget surplus being
predicted. Since the school has no other source of funding available to it, these
shortfalls have had serious consequences, such as the closure of the school kitchen for a considerable period in the last school year, meaning that no meals were available to pupils. This is thought to have been the cause of the 10% fall in the number of pupils registered at the school on 1 September 2019.

Required:
a. Redraft the school’s budget for the year ending June 30, 2020, per the board’s recommendations. (6 Marks)
b. Discuss the advantages and disadvantages of using incremental budgeting. (4 Marks)
c. Describe the three main steps in preparing a zero-based budget. (6 Marks)
d. Discuss the extent to which zero-based budgeting could improve the budgeting process for Adrac Community School. (4 Marks)

Answer

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Tags: Budgeting, Community Funding, Incremental Budgeting, Revenue Projection, Zero-Based Budgeting
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: MAY 2021

PM – May 2021 – L2 – Q2 – Budgeting and Budgetary Control

Recommend the appropriate forecast for PQR Plc, analyze the limiting factor, and explain the budgeting process.

Question

PQR Plc is preparing its budgets for the upcoming year and has forecasted two demand scenarios for its product range:

You are to assume only one forecast (either Forecast 1 or Forecast 2) will be selected. The expected variable unit costs for each product are:

The general fixed costs are budgeted at ₦20,000 for the year, with no specific fixed costs expected per product. Additionally, all three products use the same direct material, with a limited supply of 22,020 kgs available for the budget year.

Required:
a. Recommend, with supporting calculations, whether forecast 1 or forecast 2 should be adopted for the budget period. (11 Marks)
b. Prepare a report, addressed to the managing director, to explain the budget preparation process, with particular reference to: i. The principal budget factor (3 Marks)
ii. The budget manual (3 Marks)
iii. The role of the budget committee (3 Marks)

Answer

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Tags: Budgeting, Contribution analysis, Forecast Selection, Limiting Factor, Production Optimization
Level: Level 2

Topic: Budgeting and Budgetary Control, Decision-making techniques
Series: MAY 2021

Level: Level 2

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CR – Nov 2018 – L3 – SB – Q4 – Statement of Cash Flows (IAS 7)

Preparation of Happy Plc’s statement of cash flows and analysis of revaluation and financing adjustments.

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CR – Nov 2018 – L3 – SA – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Adegaga Laboratories Plc., including the effects of an acquisition and goodwill impairment.

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TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

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TAX – Nov 2023 – L2 – Q6b – Tax Administration and Enforcement

Explain five key contents required in a Withholding Tax returns/payment schedule.

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TAX – Nov 2023 – L2 – Q6a – Tax Administration and Enforcement

Explain the functions and powers of the Nigerian Customs Service Board.

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TAX – Nov 2023 – L2 – Q5 – Tax Administration and Enforcement

Explain stamp duty exemptions, electronic document receipt, duties on contracts, and electronic money transfer levies.

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TAX – Nov 2023 – L2 – Q4 – Taxation of Trusts and Estates

Compute the net income assessable in the hands of trustees and assessable income of each beneficiary.

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TAX – Nov 2023 – L2 – Q3b – Tax Administration and Enforcement

Explain the roles and responsibilities of government, taxpayers, and revenue agencies in Nigeria’s National Tax Policy.

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TAX – Nov 2023 – L2 – Q3a – Tax Administration and Enforcement

Describe the composition and functions of Nigeria’s tax administration bodies, including the Joint Tax Board and State Board of Internal Revenue.

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TAX – Nov 2023 – L2 – Q2 – Tax Administration and Enforcement

Discuss the tax law provisions for a change in accounting year end, revenue practice, and compute assessable profits.

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PSAF – May 2021 – L2 – Q4a – The Budgeting Process in the Public Sector

Explanation of MTEF, Budget Call Circular, and their main differences for public sector budgeting.

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PSAF – May 2021 – L2 – Q3b – Fiscal Policy and Public Finance

NPV-based investment recommendation for Omidan Local Government among three projects and a risk-free security alternative.

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PSAF – May 2021 – L2 – Q3a – Treasury Management in the Public Sector

Explain strategies to enhance cash management and factors affecting its effectiveness in public finance.

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PSAF – May 2021 – L2 – Q2b – International Public Sector Accounting Standards (IPSAS)

Explain differences between accrual and cash accounting, justify IPSAS adoption, and describe commitment accounting benefits.

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PSAF – May 2021 – L2 – Q2a – Fiscal Policy and Public Finance

Define debt sustainability analysis, outlining objectives and benefits.

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PSAF – May 2021 – L2 – Q1 – Public Sector Financial Statements

Apply IPSAS standards to adjust and analyze financial information for Okuku State University.

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PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

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PM – May 2021 – L2 – Q5 – Decision-Making Techniques

Calculate the optimal order quantity to maximize expected profits considering ordering constraints and probability distribution of demand.

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PM – May 2021 – L2 – Q4 – Budgeting and Budgetary Control

Develop a redrafted budget based on probability-based revenue and assess incremental versus zero-based budgeting.

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PM – May 2021 – L2 – Q2 – Budgeting and Budgetary Control

Recommend the appropriate forecast for PQR Plc, analyze the limiting factor, and explain the budgeting process.

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