Series: MAR/JULY 2020

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FR – March 2020 – L2 – Q4b – Financial Statement Presentation of Government Grants

Prepare financial statement extracts using two methods of presenting government grants under IAS 20

Question

b. During the year ended June 30, 2019, Gbogbonise Enterprises having qualified for the 25% local equity participation, received the following grants from Central Bank of Nigeria (CBN).

(i) On September 1, 2018, a grant of N1 million was received from CBN. The grant was in respect of training casual workers. The training cost incurred by Gbogbonise Enterprises in this respect, was N1.75 million.

(ii) On November 1, 2018, Gbogbonise Enterprises acquired plant and equipment costing N8.75 million and received a grant of N2.5 million from Central Bank of Nigeria (CBN) in respect of the purchase. The plant and equipment which has a residual value of N1.25 million is depreciated on straight-line basis over its useful life of 5 years.

(iii) On June 1, 2019, a grant of N2.5 million was made by CBN. The grant was in respect of relocation costs that Gbogbonise Enterprises had incurred for movement of its business to a free trade zone allocated to Medium, Small and Micro Enterprises (MSME). The grant is repayable in full unless Gbogbonise Enterprises recruits at least one hundred (100) employees from the free trade zone local area by the end of the month of June 2019. Gbogbonise is finding it difficult to recruit this number of employees in the local area.

Required:
Prepare extracts of the statement of financial position and statement of profit or loss of Gbogbonise Enterprises for the year ended June 30, 2019 using the two methods of presenting grants in the financial statement of business entities. (12 Marks)

Answer

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Level: Level 2

Topic: Accounting for Government Grants
Series: MAR/JULY 2020

FR – March 2020 – L2 – Q6b – Financial Reporting

Discuss objectives of FRCON and ethical issues in reporting.

Question

b. The regulatory body responsible for issuing accounting standards in accordance with local and international regulations in Nigeria is the Financial Reporting Council of Nigeria (FRCON).
Required:
Explain briefly THREE main objectives of setting up the Financial Reporting Council of Nigeria (FRCON) and identify TWO ethical issues in financial reporting which companies may be sanctioned for by this body.
(10 Marks)

Answer

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Tags: Conceptual Framework, Economic Decisions, Financial Reporting
Level: Level 2

Topic: Conceptual Framework for Financial Reporting
Series: MAR/JULY 2020

CSME – Mar/Jul 2020 – L2 – Q4b – Board Diversity Categories and Benefits

Explain six categories of board diversity and evaluate its benefits.

Question

b. i. What is Board Diversity and explain SIX categories of Board Diversity? (5 Marks)
ii. Evaluate the benefits of Board Diversity. (5 Marks)

Answer

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Tags: Board Diversity, Corporate Governance, Decision Making, Ethical Business Practices
Level: Level 2

Topic: Board Diversity, Corporate Governance
Series: MAR/JULY 2020

CSME – Mar/July 2020 – L2 – Q2b – Ethical Absolutism vs Relativism in Accounting

Distinguish between ethical absolutism and ethical relativism and identify types of ethical relativism.

Question

b. An adequate understanding of basic concepts and theories of ethics is a prerequisite for the evolution of the skills needed to address ethical issues that could arise while carrying out your duty as a professional accountant. Distinguish between ethical absolutism and ethical relativism. Also, identify THREE types of ethical relativism. (10 Marks)

Answer

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Tags: Business Ethics, Ethical Absolutism, Ethical Relativism, Professional Ethics
Level: Level 2

Topic: Ethics in Business, Professional Ethics
Series: MAR/JULY 2020

AA – Mar/July 2020 – L2 – Q5 – Assurance Services and Due Diligence for Hallmark Ltd

List control objectives and activities for cash sales and bank lodgments.

Question

List TWO control objectives and THREE control activities that should be put in place for each of the following:
i. Cash sales. (5 Marks)
ii. Lodgments into bank. (5 Marks)

Answer

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Tags: Bank Lodgments, Cash Sales, Control Activities, Control Objectives, Internal Control
Level: Level 2

Topic: Internal Control Systems
Series: MAR/JULY 2020

PSAF – Mar/July 2020 – L2 – Q4 – Responsibilities of EFCC and Debt Burden Transfer

This question requires the preparation of financial statements for Amotekun State University of Education, Ode, for 2018.

Question

b. Amotekun State University of Education, Ode, was the second university established by the Amotekun State of Nigeria. The government, as a mark of its commitment towards the survival of this young institution, has continued to support the University Senate in all its efforts. At the last meeting of the stakeholders, held at the state hotel, Igbo, on June 30, 2019, the Bursar presented the following financial statements for discussion and approval:
Amotekun State University of Education
Statement of Financial Position as at December 31, 2018

The following notes form an integral part of these accounts.
Amotekun State University of Education
Statement of financial performance for the year ended December 31, 2018

The following notes which form an integral part of the accounts, were also provided

2.
The Oke-Mosan Microfinance Bank balance in 2018 represents the „short term
loan

The Chairman of the Governing Council, who incidentally is a chartered accountant, observed that the financial statements appeared incomplete because no statement of cash flows was prepared.
Required:
Prepare, a statement of cash flows for Amotekun State University of Education for the year ended December 31, 2018, using the direct method in accordance with IPSAS 2

Answer

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Tags: Financial Statements, Government Accounting, Public sector financial reporting
Level: Level 2

Topic: Public Sector Financial Statements
Series: MAR/JULY 2020

PSAF – Mar/July 2020 – L2 – Q2 – IPSAS 3 Changes and Expenditure Assignment Challenges

Explanation of changes in accounting policies and challenges in expenditure assignment according to IPSAS 3.

Question

IPSAS 3 – Accounting policies, changes in accounting estimates and errors, outlines criteria for selecting and changing accounting policies among other purposes.

a. Explain what constitutes changes in accounting policies under the standard.
(4 Marks)

b. Outline THREE disclosure requirements in the standard:

(i) When initial application of IPSAS 3 is made and has effects on current, prior, or future period.
(ii) When voluntary changes in accounting policy are made and have effects on current, prior, or future period.
(6 Marks)

c. Expenditure assignment refers to division or sharing of expenditure, regulatory, and tax functions or responsibilities among multi-levels of governments in a federation. Identify and explain FIVE challenges prevalent on expenditure assignment.
(10 Marks)

Answer

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Tags: Accounting Changes, Accounting Policies, Expenditure assignment, IPSAS 3
Level: Level 2

Topic: International public sector accounting standards
Series: MAR/JULY 2020

PSAF – Mar/July 2020 – L2 – Q3 – National Chart of Accounts Characteristics and Structures

Characteristics of National Chart of Accounts, its structures for budgeting, and problems with debt conversion programmes.

Question

National Chart of Accounts (NCOA) shows the complete list of budget and Accounting items for General Purpose Financial Reporting System (GPFS) and budgeting.
Required:
a. Identify FOUR characteristics of National Chart of Accounts. (4 Marks)

b. Discuss the SIX structures of the National Chart of Accounts for budgeting. (6 Marks)

c. Discuss FIVE problems associated with debt conversion programmes in a country. (10 Marks)

Answer

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Tags: Budgeting, Debt Conversion, National Chart of Accounts, Public Finance
Level: Level 2

Topic: Debt Management, National Chart of Accounts
Series: MAR/JULY 2020

PSAF – Mar/July 2020 – L2 – Q5 – Matanmi Local Government Council 2019 Budget Preparation

This question focuses on budgeting for overheads and road repairs by local governments and the characteristics of public goods.

Question

Major towns and cities in Ibadan State, which is one of the states in the South West of the country, are maintained by local government councils, which are funded through allocations from the federation account, state accounts, and internally generated revenue. The local government councils submit budgets each year, which forms the basis of the funds received.

Matanmi Local Government Council, one of the local government councils in Ibadan State, provides you with the following information as part of the 2019 budget preparation:

Overheads:
Overhead costs are budgeted on an incremental basis, taking the previous year’s actual expenditure and adding a set percentage to allow for inflation. Adjustments are also made for known changes. The details are:

Note 1: One new staff member will be added to the payroll, costing N300,000 in 2020.
Note 2: A move toward a paperless office is expected to reduce stationery costs by 20% in 2020.
Road Repairs:
In 2020, it is expected that 200 kilometers of road will require maintenance, but a contingency of an extra 10% has been agreed.
In 2019, the average cost of a road repair was N1,500,000 per kilometer, but this did not include any cost effects of extreme weather conditions. The following probability estimates have been made in respect of 2020:

Inflation on road maintenance costs is expected to be 10% between 2019 and 2020.

New roads are budgeted on a zero-based basis and will have to compete for funds along with other capital projects such as hospitals and schools.
Required:
a. Calculate the overheads and road repairs budgets for the year 2020.
(10 Marks)

b. The goods and services produced in every society can be classified into public and private goods.
Identify and explain TWO sub-divisions and THREE characteristics of public goods.
(10 Marks)

Answer

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Tags: Local Government Budget, Overheads, Public Goods, Road Repairs
Level: Level 2

Topic: Local Government Accounting, Public Goods
Series: MAR/JULY 2020

PSAF – Mar/Jul 2020 – L2 – Q1a – Accounting for Government Assets and Liabilities

Prepare a non-current assets schedule for a university and identify features of a finance lease in compliance with IPSAS.

Question

In the year 2000, Amotekun State of Nigeria established two State Universities University of Education (ASUE), to cater for the indigenes of the state. The following information relates to each of the universities:
a. The Bursar of Amotekun State University, Oke-Mosan, delegated the preparation of Non-current assets schedule to be included in the final accounts of the University for the year ended December 31, 2018, to one of the Deputy Bursars in the Bursary Department.
In the discharge of the assignment, the Deputy Bursar reviewed the following documents:

International Public Sector Accounting Standards (IPSAS).
Previous year’s financial report.

He was able to obtain the following information:

(i)

Non-current assets register.
Valuation reports, etc.

(i) It is the policy of the University to charge a full year’s depreciation on assets irrespective of the month of purchase or revaluation during the year, while no depreciation is charged on assets disposed of during the year.

(ii) Equipment on lease is depreciated equally over the period of the lease.

(iii) Land and buildings were professionally revalued during the year by Parisco & Associates, a firm of Chartered Surveyors and Valuers, and approved by the State Ministry of Works and Housing. The valuation, which was based on the open market value, produced a revaluation surplus of N150,000,000 over the carrying amount as at January 1, 2018.

(iv) The University purchased plant and machinery which was imported from the United Kingdom at a cost of N430,500,000. Installation and transportation costs to the University amounted to N20,500,000.

(v) The Deputy Bursar that prepared the non-current assets schedule last year classified some of the computer equipment purchased on May 15, 2017, costing N26,000,000 as office equipment. A reclassification is required in the current year.

(vi) Office furniture and fittings costing N12,250,000 were disposed of during the year for N11,500,000, which resulted in a profit of N750,000.

(vii) The University entered into an equipment lease agreement with Ode Finance Limited; the terms and conditions of the finance lease are as follows:
Principal sum: N45,000,000
Lease period: 5 years
Lease rentals: N10,000,000 p.a.
(viii) During the year, the University acquired a fleet of vehicles at the cost of N50,000,000. The State Government financed this acquisition.

Required: i. In accordance with IPSAS 13, identify FIVE features of a finance lease. (5 Marks) ii. Prepare the non-current assets schedule of Amotekun State University suitable for publication. (15 Marks)

Answer

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Tags: Asset Register Question, Depreciation, Finance leases, IPSAS, Non-current assets schedule, Revaluation
Level: Level 2

PM – Mar/Jul 2020 – L2 – Q6 – Performance Measurement Systems

Explains types of information required by different management levels and the qualities of good information.

Question

Performance management incorporates activities that aim to ensure that goals are consistently met in an effective and efficient manner. In order to achieve this, management requires reliable systems to support them in decision making.

Required:
Explain, with examples, the common types of information that are required by various levels of management for effective decision making, stating the qualities needed to classify such information as good. (20 marks)

Answer

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Tags: Decision Making, Information Quality, Management Information, Operational, Performance Management, Strategic, Tactical
Level: Level 2

Topic: Management Information Systems
Series: MAR/JULY 2020

PM – Mar/Jul 2020 – L1 – SB – Q2 – Budgetary Process and Behavioural Problems for Toby Nigeria

Discussion on budgeting and behavioral issues at Toby Nigeria Limited and redrafting of a budget statement.

Question

Toby Nigeria Limited is a publishing company established in the early 1970s. The company has recently been taken over by Superior Quality Limited – a multinational company operating in Europe.
Mr. Edet Akpan, a staff of Superior Quality Limited, has been sent from the company’s headquarters to review, among other things, the budgeting and reporting system used by Toby Nigeria Limited.
During his visit to all the departments, he discovered that monthly budgets are prepared for each department in the company. Upon request, the last budget statement for the School Stationery Production Department (SSP) for period V was presented to him.
The budget statement presented was as follows:
Budget statement for period V
Department: SSP Department

Mr Tola Ademola, the School Stationery Manager, revealed that the budget statement presented was based on 40,000 units with a standard labour content of 3 hours per unit.
Mr. Akpan observed that Tola was not in any way enthusiastic about the budget system. He saw it as a pressure system imposed by the company’s top management to indict some of the managers. He pointed out that the system was hurriedly introduced by High Flyer Consults, about twelve months ago. The consultant never took time to talk to the managers or provide explanation that
could assist users to understand the system. The experienced School Stationery Manager was doubtful about the competence of the consultant. He was of the
opinion that the system introduced in Toby Nigeria Limited was either a ready-made one developed for another company or that the consultant did not understand the system well enough to give him the needed confidence to educate the users. He concluded by stating that he was sure his department made a loss as
against the positive figure recorded in the report and there was the possibility of reporting a loss at another period when profit was actually made. The situation reported above cuts across virtually all the departments and so the need to nip the situation in the bud became very urgent.
The task of making budgeting system more useful and acceptable in a biased environment like this, no doubt, seems difficult therefore, Mr. Akpan has requested from you an advice that will assist him in getting out of the woods.

Required:
a. Redraft the budget statement in a more informative manner. (12 Marks)
b. Discuss the behavioral problems brought out in this situation. (4 Marks)
c. Discuss the steps Mr. Akpan should take to remedy the situation. (4 Marks)

Answer

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Tags: Behavioral Problems, Budget Preparation, Budget Redraft, Capacity Management, Divisional Performance, Investment Centers, Pricing Decisions, Reporting System, Transfer Pricing
Level: Level 2

Topic: Accounting Concepts, Transfer Pricing
Series: MAR/JULY 2020

PM – Mar/Jul 2020 – L2 – Q1 – Decision Making and Capacity Constraints for Benco Limited

Evaluate which of two components, K or T, should be produced and sold to maximize profit based on given cost and capacity constraints.

Question

Benco Limited produces two critical components, K and T, both of which are used in petroleum refinery. The components are made by passing each one through two fully automatic computer-controlled machine lines – A and B – with respective maximum capacity of 13,600 hours and 15,360 hours. The following details are available:
(i) Due to production constraints, the company has decided to produce only one of the two components, K or T, for the next period but not both.
(ii) Market demand is limited to 59,200 units of K and 80,000 units of T.
(iii) Products unit data:

(iv) The maximum quantity of material X available is 136,000kg. The material is purchased at ₦50 per kg.
(v) Variable machine overhead for machine line A and line B is estimated at ₦500 and ₦600 per machine hour respectively.
(vi) The company operates a JIT system.

Required:
a. Calculate which of the components, K or T, should be produced and sold in the year in order to maximise profits. You should state the number of units to be produced and sold and the resulting contribution. (10 Marks)
b. Benco Limited wishes to consider additional sales outlets which could earn contribution at the rate of ₦400 and ₦600 per machine hour for machine line A and line B respectively. Such additional sales outlets would be taken up only to utilise any surplus hours not required for the production of the components. Calculate whether Benco Limited should now produce either component K or T and what quantity to be produced and the resulting contribution. (9 Marks)
c. Suggest ways in which the company may overcome the capacity constraints which limit the opportunities available to it in the year, and indicate the types of costs which may be incurred in overcoming each constraint. (10 Marks)

d. Illustrate the use of opportunity cost in the charging of each of material, labour and overhead elements in comparison with historic absorption cost elements. For each element, you should illustrate your answer with figures of your choice.
(11 Marks)

Answer

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Tags: Cost Analysis, Decision Making, Marginal Costs, Profit Maximization, Variable Costs
Level: Level 2

Topic: Decision making techniques
Series: MAR/JULY 2020

AA – Mar/Jul 2020 – L2 – Q1 – Small Company Qualification

Explanation of the audit requirements and exemptions for small companies, including the benefits and limitations of audits, eligibility for external auditors, and audit planning and risk assessment procedures.

Question

Mr. Ajibade, a businessman based in the South West region of Nigeria intends to start a new company. The new company, when formed, will focus solely on the production of face masks and alcohol-based hand sanitisers which are needed to prevent the spread of the novel corona virus. This has been incorporated into the draft Memorandum of Association to be submitted to the Corporate Affairs Commission (CAC).

Mr. Ajibade has heard of section 377 of Companies and Allied Matters Act (CAMA) Cap C20 LFN 2004, which offers exemption from an audit if a company qualifies as a small company as per section 351 of the Act. He thinks that when he starts a small company, he will therefore be exempted from statutory audit and so save cost.

Mr. Ajibade has a growth plan for his prospective company. He has also heard that if the company is to grow bigger in the future, he will require more funding in the form of loans from banks and other financial institutions. The banks will require audited financial statements as a prerequisite to granting his company loan facilities. He is therefore, curious to know more about the importance of audited financial statements.
He has approached you for advice.

Required:
a. What qualifies a company as a small company according to CAMA.
(6 Marks)
b. The benefits and limitations of an audit.
(9 Marks)
c. The eligibility for qualification as external auditor.
(6 Marks)
d. The scope of a statutory audit.
(4 Marks)
e. According to ISA 300: Planning an Audit of Financial Statements, the objective of the auditor is to plan the audit work so that the audit will be performed in an effective manner.
Required:
Explain the benefits of adequate planning of the audit.
(5 Marks)
f. Explain THREE risk assessment procedures required by ISA 315: Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.
(10 Marks)

Answer

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Tags: Audit Benefits, Audit Exemptions, Audit Requirements, Professional Ethics, Risk Assessment Procedures, Small Companies
Level: Level 2

AA – Mar/Jul 2020 – L2 – Q2 – Professional Ethics and ICAN’s Ethical Standards

Explains the concept of professional ethics, its importance, and the differences between rule-based and principle-based ethics, highlighting their advantages and weaknesses.

Question

At an inaugural lecture, a professor stated that ‘professionals all over the world should be alive to their duties and not breach the ethics of their profession’. As a professional, you attended the inaugural lecture and you are aware that The Institute of Chartered Accountants of Nigeria (ICAN) has “Accuracy and Integrity” on its logo, and you also know that professionals should not act contrary to ethical standards and public interest in discharging their duties.

Required:</strong >
Explain the following:
(a) Professional ethics. (2 Marks)
(b) Importance of professional ethics. (5 Marks)
(c) Differences between rule-based and principle-based professional ethics. (3 Marks)
(d) Weaknesses of rule-based professional ethics. (4 Marks)
(e) Advantages of principle-based professional ethics. (6 Marks)
(Total 20 Marks)

Answer

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Tags: Ethical Decision-making, Ethical Standards, Principle-based Ethics, Professional Ethics, Rule-based Ethics
Level: Level 2

Topic: Ethical Standards, Professional Ethics, Rule-based vs Principle-based Ethics
Series: MAR/JULY 2020

AA – Mar/Jul 2020 – L2 – Q3 – Internal Control and Audit Importance for Big Man Nigeria Ltd

Explanation of internal control, objectives, features, and responsibilities of management, board, and auditors.

Question

Big Man Nigeria Limited is registered with the Corporate Affairs Commission. The services to be rendered are awaiting regulatory approval. Pending that approval, directors of the company have been funding the operations of the company through the parent company for the past four years. However, the newly appointed chairman of the company’s board of directors believes there is the need to organize the company strategically so as to make it more attractive to investors.

Your father’s friend, Mr. Ado, has been appointed as the Managing Director of the company, and he is interested in appointing an accountant to keep the books of accounts of the company. The present financial operation of the company does not show a good internal control structure. Added to this, Ado is thinking of recommending to the board of directors the need to appoint an external auditor.

The Managing Director, who is not an accountant, has requested for your advice on the need for an adequate internal control system in a company.
Explain to Mr. Ado, the following:
a. Meaning of internal control. (4 Marks)
b. Objectives of internal control. (6 Marks)
c. Features of a good internal control system. (4 Marks)
d. Regarding internal control, the responsibilities of:
i. Management; (2 Marks)
ii. Board of Directors; and (2 Marks)
iii. External auditors. (2 Marks)
(Total 20 Marks)

Answer

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Tags: Board of Directors, External Auditors, Internal Control, Management
Level: Level 2

Topic: Internal Control Systems
Series: MAR/JULY 2020

AA – Mar/Jul 2020 – L2 – Q4 – Various Types of Audit

Explains and provides examples for different types of audits including forensic, information systems, compliance, and value for money audits.

Question

During a debate session, there were arguments among the accountancy students of the University of Kunu that the quality of audit work performed recently did not portray accountancy professionals as men of integrity. In their opinion, most financial malpractice committed by members of staff of a company are not detected by the auditors at the time of their audit and this causes corporate failures or leaves the shareholders with little or no return on their investments.

It is obvious that most students are unclear about the various types of audit. They all agreed that an informed person should be invited to educate members of the association on this topic. As an ex-student of University of Kunu, you have been invited to give a talk on various types of audit.

Required:
Explain the following, giving examples to support your answer:
a. Forensic audit (5 Marks)
b. Information systems audit (5 Marks)
c. Compliance audit (5 Marks)
d. Value for money audit (5 Marks)
(Total 20 Marks)

Answer

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Level: Level 2

Topic: Introduction to Auditing, Regulatory Framework for Auditing, The Role and Responsibilities of Auditors
Series: MAR/JULY 2020

AA – MarJul 2020 – L2 – Q5 – Assurance Services and Due Diligence for Hallmark Ltd

Explanation of assurance services, levels of assurance, and elements of an assurance engagement.

Question

The Directors of Hallmark Limited have decided that in order to improve its operating efficiency, there is need to increase the working capital of the company. The last audited financial statements of the company were up to September 30, 2018. A prospective investor has decided to perform due diligence on the company before investing a certain amount of money in the business. The Financial Controller of Hallmark Limited has advised the directors that prior to the due diligence exercise, there might be need to perform assurance services on the company’s financial result as the investor may not be willing to accept the last audited financial statements for the due diligence. Your father, who is a director of the company, has approached you as an accountancy student to give more explanations to him on the foregoing.

You are required to explain:
a. Assurance services (5 Marks)
b. The various levels of assurance services (7 Marks)
c. The components/elements of an assurance engagement (8 Marks)

Answer

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Tags: Assurance Services, Components of Assurance Engagement, Levels of Assurance
Level: Level 2

Topic: Assurance services
Series: MAR/JULY 2020

AA – Mar/Jul 2020 – L2 – Q6 – Internal Control Weaknesses in Debtors’ Recovery

This question addresses weaknesses in internal control systems, control objectives, and activities for cash sales and bank lodgements.

Question

In a medium-sized trading organisation, the accountant was given the additional responsibility of pursuing recoveries from debtors. On one occasion, when an insurance claim of N1 million was received, the accountant credited it to the account of a debtor to cover up a previous misappropriation of N1 million he had recovered in cash from the debtor.

Required:
(a) Identify and describe the weaknesses in the internal control system which led to this situation. (10 marks)

Answer

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Tags: Bank Lodgements, Cash Sales, Control Activities, Control Objectives, Internal Control, Weaknesses
Level: Level 2

Topic: Internal Control Systems
Series: MAR/JULY 2020

FR – Mar/Jul 2020 – L2 – Q3a – Exceptions to Consolidated Financial Statements Under IFRS 10

Explain the exceptions to the requirement for a parent to prepare consolidated financial statements according to IFRS 10.

Question

International Financial Reporting Standards (IFRS 10) – Consolidated Financial Statements states that a parent must prepare consolidated financial statements for the group as a whole.
Required:
Explain the exceptions to this rule according to IFRS 10. (7 Marks)

Answer

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Tags: Consolidation, Exceptions to Consolidation, Financial Reporting, Group Accounts, IFRS 10
Level: Level 2