Series: MAY 2015

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  • 15 Marks

PM – May 2015 – L2 – SB – Q7 – Environmental and Social Performance Management

Discuss the concept of globalisation, its impact on management information systems, and arguments against its influence on management performance

The use of internet has made the entire universe a global village. Managers can comfortably sit in their offices connected to the internet and the world wide web to obtain all necessary information for their business needs.

Required: a. Discuss the concept of globalisation and how management information systems have enhanced effective management performance. (10 Marks)
b. What arguments will you advance against globalisation as it relates to management performance? (5 Marks)

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  • 15 Marks

PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-

Determine the most profitable product mix for Markus Limited, and prepare a profitability statement for the optimal product mix.

Markus Limited manufactures three products and operates a marginal costing system.

The following information has been extracted from the company’s records:

Products X Y Z
Units budgeted to be produced and sold 3,600 6,000 3,400
Selling Price (₦) 120 110 100
Requirement per Unit:
Direct Material (kg) 5 3 4
Direct Labour (Hours) 4 3 2
Direct Labour Hour rate (₦) 4 4 4
Direct Material Cost per Kg (₦) 8 8 8
Variable Overheads (₦) 14 26 16
Fixed Overheads (₦) 20 20 20
Maximum possible sales (units) 8,000 10,000 3,000

All the three products are produced from the same direct material using the same types of machine and labour. Direct labour, which is the key factor, is limited to 37,200 hours.

Required: a. Determine the most profitable product mix. (6 Marks)
b. Prepare a statement of profitability for the product mix. (9 Marks)

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  • 15 Marks

PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

CAROSSI Limited makes quality wooden products such as tables, chairs, benches, and doors. Historically, the company has used mainly financial performance measures to assess the performance of the company as a whole. The company’s Chief Executive Officer has just been informed of the ‘Balanced Scorecard Approach’ and is eager to learn more.

CAROSSI Limited has two Divisions X and Y, each with its own cost and revenue streams. Each Division is managed by a divisional manager who has the power to make all investment decisions within the Division. The cost of capital for both Divisions is 15 percent. Historically, investment decisions have been made by calculating the Return on Investment (ROI) of any opportunities, and presently, the return on investment of each Division is 18 percent.

A recently appointed manager for Division X strongly feels that using Residual Income (RI) to make investment decisions would result in better ‘goal congruence’ throughout the organisation.

Investment Details for Each Division:

Division X Division Y
Capital required for investment (₦m) 88.2 46.0
Revenue generated from investment (₦m) 46.4 28.1
Net profit margin (%) 30 35

The company is seeking to maximise shareholders’ wealth.

Required: a. Describe the Balanced Scorecard Approach to performance measurement. (8 Marks)
b. Determine both the return on investment and residual income of the new investment for each of the two divisions. Comment on these results and take into consideration the manager’s views about residual income. (7 Marks)

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  • 20 Marks

PM – May 2015 – L2 – SB – Q4 – Costing Systems and Techniques

Analyze the pricing policy and budget position for Badegy Limited, considering competitor price changes and cost inflation.

BADEGY Limited is a medium-sized company. The company is in the process of deciding its pricing policy for the next period.

The following information is available from its records:

Previous Period:

  • Revenue: ₦13,000,000
  • Units Sold: 100,000 at ₦130
  • Costs: ₦10,000,000
  • Profit: ₦3,000,000

Current Period:

  • Revenue: ₦13,780,000
  • Units Sold: 106,000 at ₦130
  • Costs: ₦10,774,000
  • Profit: ₦3,006,000

It was discovered that between the previous and current periods, there was a 4% general cost inflation, and it is forecast that costs will rise further by 6% in the next period. As a matter of policy, the company did not increase the selling price in the current period, although competitors raised their prices by 4% to allow for the increased costs.

A survey by a team of management consultants found that the demand for the product is elastic with an estimated price elasticity of demand of 1.5. This means that volume falls by 1.5 times the rate of real price increase. Various options are to be considered by the Board.

Required: a. Show the budgeted position of the company if it maintains the ₦130 selling price for the next period when it is expected that competitors will increase their prices by 6%. (15 Marks)
b. What would the budgeted position be if the company also raises its price by 6%? (5 Marks)

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  • 20 Marks

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

Pakex is a division of an automobile group that has five years remaining on a leased premises in which it sells self-assembled motorcycles. The management is proposing an investment of ₦48 million on immediate improvements to the interior of the premises in order to stimulate sales by creating a more effective selling environment. The following information is available:

(i) The expected increase in revenue following the improvements is ₦40 million per annum. The average contribution to sales ratio is expected to be 40%.

(ii) The cost of capital is 16% and the division has a target Return on Capital Employed of 20% based on the net book value of the investment at the beginning of the year.

(iii) At the end of the five-year period, the premises improvements will have a NIL residual value.

(iv) The management staff turnover at Pakex division is high. The division’s investment decisions and management performance measurement are currently based on the figures for the first year of the proposal.

In addition to the above information, there is an alternative proposal that suggests a forecast of the increase in revenue per annum from the premises improvements as follows:

Year 1 2 3 4 5
Increase in Revenue 56 40 40 24 16

All other factors are expected to remain the same.

Required: a. Prepare a summary of the statement of the management’s investment proposal for years 1 to 5 showing Residual Income and Return on Capital Employed for each year using the straight-line depreciation method. (10 Marks)
b. Comment on the use of the figures from the Statement in (a) above as a decision-making and management performance measure. (4 Marks)
c. Calculate the Residual Income and Return on Capital Employed for year 1 using the alternative proposal. (6 Marks)

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  • 20 Marks

FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management

Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.

Ozoigbondu Nigeria Limited is a company that is into buying and selling of plastic containers. The company is financed by a capital of ₦15 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively.

The Company has been in trading business for the past six years and has consistently adhered to its corporate policy on sales, purchases, and inventory management.

The company’s policy on sales is to ensure that sales are collected as follows: (i) Cash sales is 40% of the monthly sales. (ii) The balance of the month’s sales is to be collected in the month following sales.

The policy on purchases is in agreement with the supplier’s policy which is to pay for all supplies in the month following. The company’s stock policy is to reserve 30% of the month’s purchases as closing inventory.

The following information is available for the five years 2010 to 2014:

2010 2011 2012 2013 2014
Monthly Sales 3,400,000 3,600,000 4,200,000 4,800,000 7,200,000
Monthly Purchases 2,000,000 2,400,000 2,800,000 3,200,000 4,800,000
Monthly Salaries 350,000 350,000 430,000 430,000 480,000
Monthly Rent 100,000 100,000 100,000 100,000 100,000
Monthly Cash Expenses 200,000 220,000 240,000 280,000 360,000

Additional Information: (i) The company purchased a motor vehicle in July 2013 which was paid for in September 2013. The cost of the motor vehicle was ₦5,000,000.
(ii) Annual depreciation for the motor vehicle is 20%.
(iii) The Cash Balance as at 31st December 2011 was ₦4,000,000.
(iv) The company’s salaries, rent, and expenses were paid in the month they were due.

Required: a. Prepare a Profitability Statement for 2012, 2013, and 2014. (10 Marks)
b. Prepare a Cash Flow Statement for 2012, 2013, and 2014. (7 Marks)
c. Determine and comment on the liquidity ratio (current ratio) for 2014. (2 Marks)
d. Compute the gearing ratio. (1 Mark)

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  • 30 Marks

PM – May 2015 – L2 – SA – Q1 – Cost-Volume-Profit (CVP) Analysis

Analyze Tadefo Limited's activity-based costing, discuss budgeting weaknesses, and describe the advantages of ABB and ZBB.

TADEFO LIMITED is a manufacturing company which produces and assembles car components. The company has two main production departments: Machining and Assembling. Each of the two departmental managers is responsible for producing annual budgets based on targets set by the management. From last year’s budget, TADEFO Limited hoped to turn an expected 10 percent rise in total revenue into a 20 percent increase in the company’s profits.

The following budgeted information relates to TADEFO Limited for the forthcoming period:

Products Information:

Products ACQ BEZ CFJ
Sales and production (units) 30,000 50,000 40,000
Selling price (per unit) (N) 73 45 95
Prime cost (per unit) (N) 65 32 84
Machine Dept. (hrs per unit) 4 2 5
Assembly Dept. (hrs per unit) 2 7 3

Overheads Re-Analyzed into Cost Pools:

Cost Pool Amount (N’000) Cost Driver Quantity for the period
Machine services 359 Machine hours 425,000
Assembly services 328 Direct labour hours 532,000
Set-up costs 36 Set-ups 720
Order processing 165 Customer orders 34,000
Purchasing 88 Supplier’s orders 12,400
Total Overheads 976

You have also been provided with the following estimates for the period:

ACQ BEZ CFJ
Number of set-ups 220 130 210
Customer orders 18,000 10,000 10,000
Suppliers’ orders 5,200 3,600 4,200

Required: a. Prepare and present a profit statement using activity-based costing. (14 Marks)
b. What would you consider to be the weaknesses of an incremental budgeting system for a company such as TADEFO Limited? (5 Marks)
c. Describe Activity-Based Budgeting (ABB) and comment on the advantages of its use by TADEFO Limited. (5 Marks)
d. Explain how the use of Zero-Based Budgeting (ZBB) can motivate employees. (3 Marks)
e. “Encouraging employee participation in budget setting is beneficial” Discuss. (3 Marks)

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

Chief Zeta created a Trust many years ago for the benefit of his four children, Alpha, Beta, Cepha, and Delphi. A lawyer was appointed as the Trustee to his Estate.

For the year ended 30 September 2014, the Trust income amounted to ₦3,120,000. Each of the beneficiaries receives an annuity of ₦150,000 every year while the expenses incurred on the administration of the Trust was ₦57,500 per annum. The trustee is on a remuneration of 2% of the Computed Income.

Chief Zeta instructed that discretionary payments of ₦22,500, ₦17,500, ₦15,000, and ₦12,500 respectively should be made to Alpha, Beta, Cepha, and Delphi respectively. In addition, nine of the ten portions of the remainder of the Computed Income should be shared equally among the four children.

Chief Zeta has requested you to supervise the administration of the above Trust.

You are requested to:

a. State the basis of assessment of Estates, Trusts or Settlements. (1 Mark)

b. Identify the persons chargeable to Income Tax under the Trust or Settlement created by Chief Zeta. (3 Marks)

c. Compute the income of the Trust. (3 Marks)

d. Determine the amount due to each beneficiary. (6 Marks)

e. Explain how the Computed Income should be apportioned and how the Income Tax burden will be shared by all the parties. (Ignore Withholding tax). (2 Marks)

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q6 – Value-Added Tax (VAT)

Analyze VAT compliance, loss carry forward, and compute tax liabilities for Hidden Treasures Limited based on provided financial data.

HIDDEN TREASURES Limited is an agro-allied and trading organisation which specialises in Crop and Grain production, Animal husbandry, Sale and distribution of Grains (i.e. cowpeas, guinea corn, millet, rice, beans and groundnuts).

The company has been in business for many years and it has been filing annual Income Tax returns regularly except VAT returns. On 16 March 2015, the Federal Inland Revenue Service (FIRS) served a notice of Tax Audit covering 2010 – 2014 financial years.

The management believed erroneously that since it deals in VAT exempt goods, it did not need to file VAT returns on a monthly basis.

In preparation for the visit of the FIRS, the company’s management invited you on 23 March 2015, to their office and gave you the following extracts from the company’s Statement of Comprehensive Income and agreed Capital Allowances:

Year ended Agric Production (₦) Grain Distribution (₦)
Year ended 30/09/2010 Loss (770,000) (225,000)
Year ended 30/09/2011 Profit 630,000 280,000
Year ended 30/09/2012 Loss (600,000) (150,000)
Year ended 30/09/2013 Profit 990,000 140,000
Year ended 30/09/2014 Profit 30,000 120,000

Agreed Capital Allowances are as follows:

Tax Year Capital Allowance (₦)
2011 70,000
2012 65,000
2013 125,000
2014 115,750
2015 85,000

You are required to:

a. State the provisions of the VAT law with regard to rendition of returns by Vatable persons. (2 Marks)

b. Show by analysis the amount of losses carried forward under each income head shown above. (8 Marks)

c. Compute the tax liabilities for each year. (5 Marks)

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q5 – Companies Income Tax (CIT)

Schedule of capital expenditure allocation for Covenant Construction Limited with assessment basis and treatment of capital expenditure.

Covenant Construction Limited commenced business on 3 August 2011, making up accounts to 31 July annually. The schedule of assets acquired prior to commencement of the business is as shown below:

Description ₦
Tractors and Grader 7,500,000
Motor vehicles for field operations 13,500,000
Construction site (Factory building) 11,250,000
Furniture, Fixtures and Fittings 778,250

Covenant Construction Limited won another contract and additional assets were purchased as stated below:

Date of Purchase Description Number of Items Cost (₦)
Nov. 2011 Plant & Machinery 3 580,000
April 2012 Motor vehicle 1 1,375,000
Aug. 2012 Building 1 1,350,000
Jan. 2013 Generator 1 450,000
June 2013 Factory extension 1 575,000
Nov. 2013 Pick-up van 2 1,050,000

At the last Board meeting, the Directors argued on what benefits will accrue to Covenant Construction Limited on Capital Expenditure incurred before and after commencement of business.

They were also interested in knowing the years that will be affected and the impact it will have on the company’s Total Profit.

You have been invited by the Finance Director of the company who asked you to look into these matters. The Finance Director has asked you to specifically address the following:

Required:

a. Prepare the schedule of Capital Expenditure Allocation and identify the Qualifying Expenditure based on which Capital Allowances are claimable: i. Normal basis of assessment (5 Marks)
ii. Revised basis of assessment (based on taxpayer’s right of election) (5 Marks)

b. Explain the treatment of Capital Expenditure acquired by Covenant Construction Limited before it commenced business on 3 August 2011. (2 Marks)

c. State the relevant tax years and corresponding basis period covered by the data above. (3 Marks)

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q19 – Management, Individual, and Organisational Behaviour

Identifying the leadership style based on authority and control over rewards.

A leadership style in which the leader has the authority to withhold or give reward and punishment is referred to as ………………. style.

A. Democratic leadership
B. Participative leadership
C. Contingency leadership
D. Autocratic leadership
E. Laissez faire leadership

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q18 – Basics of Business Finance and Financial Markets

Identifying which option is not a financial instrument in the money market.

Which of these is NOT a financial instrument traded in the money market?

A. Treasury Bills
B. Call money
C. Development stock
D. Stabilization securities
E. Bill Finance scheme

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q17 – Investment Decisions

Understanding the decision rule for investment acceptance based on NPV.

The decision rule for the acceptance of investment using Net Present Value (NPV) method is, accept if the:

A. NPV ≥ 0
B. NPV > 0
C. NPV < 0
D. NPV ≤ 0
E. NPV = 0

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q16 – The Business Environment

Defining the process of grouping prospective buyers in marketing.

Aggregating prospective buyers into groups is called:

A. Market categorisation
B. Market mix
C. Market segmentation
D. Market modelling
E. BCG matrix analysis

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q15 – Basics of Business Finance and Financial Markets

Identifying the most commonly used source of short-term finance for businesses.

Which of the following sources of finance available to businesses is the most frequently used for short-term finance?

A. Bank borrowing
B. Rights issues
C. New share issues
D. Retained earnings
E. Trade credit

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q14 – Management, Individual, and Organisational Behaviour

Understanding how meeting employee social and psychological needs aligns with organizational goals.

Meeting the social and psychological needs of employees in the fulfilment of organisational goals can be referred to as:

A. Motivating
B. Controlling
C. Organising
D. Planning
E. Coordinating

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q13 – Basic Management Functions

Primary objective of strategic planning in business.

ONE of the primary objectives of strategic planning is to achieve:

A. Business strategy
B. A sustainable competitive advantage
C. Purpose of production
D. An aspiration
E. Business idea

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q12 – The Business Environment

Identifying the most appropriate term for individuals or groups interested in an organization.

The most appropriate terminology that describes those who have interest in an organisation is:

A. Customers
B. Shareholders
C. Stakeholders
D. Management
E. Owners

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q11 – Nature of Business, Types, and Objectives.

Identifying an alternative to shareholders' wealth maximisation.

Which of the following is regarded as an alternative to shareholders’ wealth maximisation?

A. Long term stability
B. Long term growth
C. Corporate wealth maximisation
D. Share price maximisation
E. Cost minimisation

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  • 1 Marks

BMF – MAY 2015 – L1 – SA – Q10 – Business and Organizational Structures and Choices

Requirements for incorporating a limited liability company, excluding non-essential documents.

The following are required to incorporate a limited liability company EXCEPT:

A. Memorandum of Association
B. Articles of Association
C. Statement of authorised share capital
D. Location of the registered office
E. Source of finance

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