Series: NOV 2018

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  • 15 Marks

CSME – Nov 2018 – L2 – Q7 – Corporate Governance

Provide a defence for the unitary board structure, outline core roles, and discuss the composition and size of the board.

It is important that, as a member of the board of directors of a company, you have a good understanding of the nature, types, and structures of a board.

You are required to:
a. Provide a defence for the unitary board structure. (5 Marks)
b. Outline the core roles of a board of directors. (5 Marks)
c. Provide a broad overview of the composition and size of a unitary board of directors. (5 Marks)

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  • 15 Marks

CSME – Nov 2018 – L2 – Q6 – Corporate Strategy Formulation

Explain the BCG Model with a diagram to analyze a firm's business portfolio, detailing the four product categories.

As part of a training session in strategic management, deploy a diagram to explain how a firm would use the Boston Consulting Group (BCG) model to analyze its business portfolio. Explain each category of products identified in the BCG model.

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  • 15 Marks

CSME – Nov 2018 – L2 – Q5 – Ethics in Business

Discuss the six stages in handling ethical conflicts based on ICAN's professional code of conduct.

You have been invited to facilitate a session on how to deal with ethical conflicts based on the Institute of Chartered Accountants of Nigeria code of professional conduct. Discuss the six stages in handling ethical conflicts.

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  • 20 Marks

CSME – Nov 2018 – L2 – Q4 – Ethics in Business

Discuss ethical considerations for accountants, actions to serve the public interest, and the nature and purpose of a corporate code of ethics.

There is an increasing demand on professional accountants to pay close attention to ethical standards as they carry out their professional duties. This requires, among other considerations, that accountants act professionally and in the public interest. They are also expected to abide by the code of ethics of their profession and the corporate code of ethics of the organization in which they work.

Required:

a. Discuss the ethical considerations a professional accountant should attend to in the discharge of professional duties. (6 Marks)

b. What specific actions are you expected to take in order to serve the public interest? (5 Marks)

c. Discuss the nature and purpose of corporate code of ethics. (9 Marks)

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  • 20 Marks

CSME – Nov 2018 – L2 – Q3 – Risk Management and Corporate Strategy

Explain the processes of identifying, assessing, measuring, and prioritizing risks, and discuss the impact on stakeholders.

Success and profit maximization in business are premised on factors that include the ability to identify, assess, and measure risks. As a risk manager, how would you explain the following to a group of prospective entrepreneurs in ways that would adequately equip them to deal with operational, business, and strategic risks?

a. Risk identification (4 Marks)
b. The impact of risk on any four stakeholders (4 Marks)
c. Assessing risks: impact and probability (4 Marks)
d. Measuring risks (4 Marks)
e. Prioritizing risks (4 Marks)

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  • 20 Marks

CSME – Nov 2018 – L2 – Q2 – Corporate Governance

Identify five key corporate governance issues for expansion and principles of good corporate governance for PKL Restaurants Limited.

PKL Restaurants Limited was established in 1995 and now has 12 branches in different parts of Lagos. The company wants to expand its operations to Abuja and Port Harcourt. Consequently, it seeks to restructure the business and build structures for good corporate governance.

Required:

a. Develop a proposal highlighting five key issues of corporate governance. (10 Marks)

b. Evaluate five principles of good corporate governance that the company should adhere to. (10 Marks)

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  • 5 Marks

CSME – Nov 2018 – L2 – Q1b – Business-Level Strategies

Describe two key risks associated with adopting a cost leadership strategy in business.

Provide a detailed account of two of the risks business entities might face by adopting a strategy of cost leadership.

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  • 25 Marks

CSME – Nov 2018 – L2 – Q1a – Environmental Analysis

Perform a SWOT analysis using a Mini Resource Audit and Porter's Five Forces for Igbadun Nigeria Limited in the online streaming business.

Igbadun Nigeria Limited is a private limited liability company engaged in the business of online content streaming to registered subscribers through a dedicated website “igbadun.com”. The company’s content offerings include movies, TV episodes, cartoon series, educational series, documentaries, and reality shows.

The subscriber base growth rate of Igbadun has been phenomenal, jumping from about 3,000 in 2013 to 30,000 at the end of 2017. This is despite the fact that the industry is relatively new in Nigeria. The growth has led to an increase in revenue from N72 million in 2013 to N450 million by the year ended 31 December 2017. However, the only source of revenue to the company is customer subscriptions.

The impressive performance of Igbadun Nigeria Limited has been attributed to several factors, including:

  • Increasing internet usage;
  • Increased patronage of streamed online programs;
  • Improved access to the internet at a reduced cost;
  • Affordability of internet-enabled devices suitable for viewing online video content;
  • Cost reduction strategies and a very affordable subscription rate, which has been reduced from N2,000 in 2013 to N1,500 in 2017. This is the second-lowest rate in the industry;
  • Aggressive marketing strategy and investment in advertising;
  • Reduction in marketing costs as a percentage of revenue from 16% in 2013 to 12.8% in 2017;
  • Growth of gross subscribers by more than 100% per annum;
  • Investment of over 60% of its earnings for growth and development, especially in purchasing the best hardware and software available;
  • Aggressive R & D policy that has led to in-house development of most of its software, with all of them duly patented;
  • Effective Human Resource Management strategy that has helped to attract, motivate, train, and retain highly qualified and experienced manpower;
  • Management team of highly experienced personnel.

A report recently released by Arthur Baker and Company, a reputable consulting firm in Nigeria, predicted that the demand for online program streaming in Nigeria will grow significantly to 5 million by 2020. Consequently, existing rivals, such as Netcom and other smaller competitors, are jostling to gain competitive advantage. The relatively liberal legal requirements for entry have also facilitated an influx of new entrants into the industry. Netflox, the world’s biggest provider of online program streaming service, recently commenced operations in Nigeria.

Copyright activists recently proposed a bill to the National Assembly, allowing online program streaming providers to stream new releases only after two months of release. This bill will adversely affect the subscription revenue of igbadun.com if passed into law.

A major part of Igbadun’s subscription revenue is received through online payments using debit cards. However, a recent report by an independent consultant shows a decline in the use of online payment platforms due to increased security concerns. This has the potential to hurt Igbadun’s revenue stream.

Igbadun is also struggling to compete with other movie entertainment media such as cable TV, DVDs, and cinemas. The most worrisome for the company has been DVDs. The activities of pirates have made the price of DVDs for new releases as low as N500 each. If this continues unabated, the company risks losing its subscriber base.

Despite these challenges, Igbadun plans to grow its subscriber base to 200,000 by the end of 2020.

Required:

a. With the aid of a Mini Resource Audit and Porter’s Five Forces Model, prepare a SWOT analysis for the management of Igbadun Nigeria Limited.

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  • 15 Marks

PSAF – Nov 2018 – L2 – Q7 – Fiscal Policy and Public Finance

Discuss the objectives of an ideal intergovernmental fiscal system and the problems facing intergovernmental fiscal relations in Nigeria.

“There are critical issues and problems with decentralisation of government and intergovernmental fiscal relations in Nigeria.”

Required:
a. The main objectives of an ideal system of fiscal relations among sub-national units in a federation.
(6 Marks)
b. Three problems of intergovernmental fiscal relations in Nigeria.
(9 Marks)

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  • 15 Marks

PSAF – Nov 2018 – L2 – Q6 – Fiscal Policy and Public Finance

Discuss the concept of market failure and provide cases justifying government intervention in the economy.

he need for government intervention in the economy is justified on the basis of market failure. In particular, the intervention has become inevitable in view of some practical situations for which the market is rather unhelpful.

Required:
a. Discuss the notion of “market failure” as a basis for government intervention.
(5 Marks)
b. Provide four illustrative cases to justify government intervention in the Nigerian economy.
(10 Marks)

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  • 12 Marks

AFM – Nov 2018 – L3 – Q1a – Discounted cash flow techniques

Evaluating an irrigation project using the Adjusted Present Value (APV) method, incorporating debt financing, government subsidy, and project cash flows.

One-Village Water Resources Ltd (One-Village) is considering a damming and irrigation project that will supply water to tomato farms around the Oti River. One-Village plans to commence the construction and installation phase of the project immediately and complete it in three years. One-Village will invest GH¢3 million in new plants and equipment now. Mobilisation to the project site will cost GH¢0.5 million now. Development costs are expected to be GH¢3 million in the first year, GH¢4 million in the second year, and GH¢2 million in the third year.

The commercial phase of the project will commence in the fourth year and run indefinitely. The project will generate after-tax net cash flows of GH¢6 million in the fourth year and GH¢8 million in the fifth year. Beyond the fifth year, cash flows will grow by 5% every year to perpetuity.

One-Village has 10 million shares outstanding, which are currently trading at GH¢3.5 each. The total value of its debt stock is GH¢20 million. One-Village plans to finance the investment requirements of the construction and installation phase of the project with new debt. Its borrowing cost is 20%, while its cost of equity is 25%. The Government of Ghana is promoting large-scale farming and is willing to give a subsidised loan of up to GH¢10 million at 15% annual interest. One-Village plans to take the maximum subsidised loan from the Government of Ghana and finance the balance with a bank loan. Issue costs, which are tax-deductible, are expected to be GH¢0.6 million. Both loans will be repaid in five years. One-Village falls into the 22% corporate income tax category. The risk-free interest rate is 14%, and the return on the market portfolio is 18%.

Required:
Evaluate the project using the adjusted present value (APV) technique and recommend whether it should be implemented or not. (12 marks)

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  • 4 Marks

AT – Nov 2018 – L3 – Q5c – Tax administration, Minerals and mining

Explanation of how revenue from a shared processing facility is accounted for tax purposes in mining operations.

A mining company with two contracts operating in the Western and Ashanti Regions of Ghana has one processing facility for its mining operations from both contracts. This has engaged the attention of the Ghana Revenue Authority for some time now regarding how to handle its activities for tax purposes.

Required:
As a final-level tax candidate, how will revenue received from a shared processing facility by a mining company be accounted for tax purposes?

 

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  • 8 Marks

AT – Nov 2018 – L3 – Q5b – Business income – Corporate income tax

Computation of taxes payable by a mining support services company, including adjustments for dividends, tax losses, and investment deductions.

Manla Ltd, since its incorporation, has been providing Mining Support Services (MSS) in line with its mandate, and the following is relevant to its operations for the 2017 year of assessment:

Details GH¢
Chargeable income 240,000,000
Loss from investment deducted in arriving at the chargeable income 700,000
Dividend (gross) received from A Ltd (a mining company) where Manla Ltd has 26% voting power 20,000
Provision for bad debts written off 400,000
Tax loss from 2014 deducted 20,000
Net dividend received from a US-based company after 5% withholding tax 9,500
Items worth GH¢ 60,000 granted to a powerful shareholder were adjusted in arriving at chargeable income 60,000

(Note: Manla Ltd has a basis period from January to December.)

Required:
i) Compute the taxes payable by Manla Ltd. (6 marks)
ii) Comment on the treatment of the investment loss of GH¢700,000. (2 marks)

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  • 8 Marks

AT – Nov 2018 – L3 – Q5a – Petroleum operations, Capital allowance

Computation of tax payable for a petroleum company, including adjustments for financial gains, costs, and capital allowances.

The following is relevant for the operation of AB Ltd, operating in the upstream petroleum sector for the 2017 year of assessment:

Details $
Revenue 100,000,000
Cost 80,000,000
Profit 20,000,000

The following additional information forms part of the above:

  • The revenue includes financial gain from swaps of $1,000,000.
  • The financial cost of $1,200,000 was added to the cost.
  • The cost includes depreciation of $200,000.
  • Research and development (R&D) of $100,000 was added to the cost of operation.
  • Revenue on 20,000 barrels of oil sold was added to revenue. The price used on the 20,000 barrels was $70 in its tax returns, but the agreed price is now $67, certified by the Petroleum Unit of the Ghana Revenue Authority.
  • Written down value (WDV) as of 31/12/2016 was $1,800,000 after granting capital allowance the second time as of 2016 year-end. This information is yet to be adjusted.

Required:
i) Compute the tax payable. (6 marks)
ii) Comment on the deductibility of financial cost in petroleum operations. (2 marks)

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  • 4 Marks

AT – Nov 2018 – L3 – Q4c – Tax administration

Explanation of the objectives and effects of tax amnesty on government revenue.

As part of tax administration, the government rolls out tax amnesty from time to time.

Required:
i) What does tax amnesty seek to serve? (2 marks)
ii) What are the effects of tax amnesty on revenue? (2 marks)

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  • 6 Marks

AT – Nov 2018 – L3 – Q4b – Tax Administration

Evaluation of the benefits of the self-assessment regime for taxpayers and the tax authority.

The Income Tax Act, 2015 (Act 896), as amended, requires all taxpayers to be on self-assessment as taxpayers know better their circumstances for tax purposes.

Required:
Evaluate FOUR (4) benefits of the self-assessment regime.

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  • 10 Marks

AT – Nov 2018 – L3 – Q4a – Tax administration in Ghana

Explanation of VAT registration period and consequences of failure to register, including ethical considerations and VAT exemptions.

Mr. Patapaa commenced trading on 1 April 2017 and has made the following sales:

Period Monthly Sales (GH¢)
April to June 2017 29,500
July to September 2017 12,200
October to December 2017 21,500

These figures are stated exclusive of Value Added Tax (VAT). Mr. Patapaa’s sales are all taxable activities.

As a trainee Chartered Accountant, you have advised Patapaa in writing that he should be registered for VAT, but he has refused to register because he thinks his net profit is insufficient to cover the additional cost.

Required:
i) Explain what period Mr. Patapaa was required to compulsorily register for VAT and the implications of continuing to trade after this period without registering. (2 marks)
ii) What are the sanctions for failure to register for VAT? (4 marks)
iii) Briefly explain from an ethical viewpoint the issues you, as a trainee Chartered Accountant, should consider to deal with Mr. Patapaa’s refusal to register for VAT. (2 marks)
iv) State the activities or persons that are exceptions to the normal threshold rules. (2 marks)

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  • 2 Marks

AT – Nov 2018 – L3 – Q3d – Mergers, amalgamation and reorganisation

Conditions under which research and development expenditure should be capitalized for tax purposes.

Under what condition should Research and Development (R&D) Expenditure be capitalized?

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  • 3 Marks

AT – Nov 2018 – L3 – Q3c – Tax administration

Recommendations for ensuring voluntary tax compliance under the Ghana Revenue Authority reforms

The Ghana Revenue Authority (GRA) has embarked on serious tax reforms to enable it to achieve its tax revenue targets year after year. As part of the reforms, it has been said that GRA should pursue voluntary tax compliance if it really wants to meet its revenue target.

Required:
Recommend THREE factors that are necessary to ensure voluntary tax compliance.

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  • 5 Marks

AT – Nov 2018 – L3 – Q3b – Business Income, Corporate Income Tax

Analysis of tax payable for a company planning to operate in a regional capital vs. a district capital based on projected financial performance.

The following information is an extract of projected financial performance of YZ Ltd, a manufacturing company that intends to go into operation with a basis period from January to December. Management is contemplating operating in either Kumasi or Konongo, but the results are expected to be the same irrespective of the location. The following projected results from January to December Year 1 are worth analyzing:

Kumasi (Regional Capital) Konongo (District Capital)
Revenue GH¢ 3,000,000 GH¢ 3,000,000
Cost GH¢ 1,200,000 GH¢ 1,200,000
Gross Profit GH¢ 1,800,000 GH¢ 1,800,000
Expenses GH¢ 1,000,000 GH¢ 1,000,000
Net Profit GH¢ 800,000 GH¢ 800,000

The following additional information is relevant:
A building to be bought on 1 March Year 1 for GH¢400,000 has been granted full year’s depreciation at the rate of 20%, and the same has been added to the projected cost above.

Required:
i) Compute the projected tax payable based on the information above and recommend where management is likely to site the entity and why.
ii) What other TWO (2) factors, apart from what has been identified in (i) above, may dictate siting a manufacturing business in a regional capital?

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