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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  • 4 Marks

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

Explain TWO attributes of a good transfer pricing policy.

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  • 16 Marks

PM – Nov 2018 – L2 – Q2a and Q2b – Transfer Pricing

Calculate divisional profits and analyze the group impact under different demand scenarios and alternative sourcing options.

X and Y Divisions are two arms of the XY group of companies. X Division manufactures one type of component, which it sells to external customers and also to Y Division.

The following information relates to X Division:

  • Market price per component: N200
  • Variable cost per component: N105
  • Fixed costs: N1,375,000 per period
  • Demand from Y Division: 20,000 components per period
  • Capacity: 35,000 components per period

Y Division assembles another type of product, which it sells to external customers. Each unit of that product requires two of the components manufactured by X Division.

The following information relates to Y Division:

  • Selling price per unit: N800
  • Variable cost per unit:
    • Two components from X: 2 @ transfer price
    • Other variable costs: N250
  • Fixed costs: N900,000 per period
  • Demand: 10,000 units per period
  • Capacity: 10,000 units per period

Group Transfer Pricing Policy:

  • Transfers must be at opportunity cost.
  • Y must buy the components from X.

Required:

a. Calculate the profit for each division if the external demand per period for the components made by X Division is: i. 15,000 components ii. 19,000 components iii. 35,000 components

b. Calculate the financial impact on the Group if Y Division ignored the transfer pricing policy and purchased the 20,000 components it needs from an external supplier for N170 each. Your answer must consider the impact at each of the three levels of demand (15,000, 19,000, and 35,000 components) from external customers for the components manufactured by X Division.
(3 Marks)

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  • 30 Marks

PM – Nov 2018 – L2 – SA – Q1 – Decision-Making Techniques

Maximize profit for JJ Company by determining the optimal production plan and advising on Year 2 scenarios for fulfilling demand.

JJ Company specializes in the manufacture and distribution of accessories for cars and motorcycles across central Lagos and the suburbs. The board and management of the company have decided to expand their potential market by capitalizing on the recent demand for pedal cycles caused by congestion and concerns for global warming. They intend to start manufacturing pedal cycles from 2019.

The design team has developed four models A, B, C, and D for the initial launch of the pedal cycle. The manufacturing process involves frame manufacturing and assembly/accessory fitting.

Year 1

At present, there are 40 employees available to undertake frame manufacturing and 20 available for assembly and accessory fitting. Each employee works a 37-hour week, and no overtime is permitted. Employees working on frame manufacturing cost N1,100 per hour, while those working on assembly/accessory fitting cost N1,500 per hour. All employees can be fully utilized elsewhere if not working on this venture.

The anticipated time in hours that each process will take is as follows:

Model Frame Manufacturing (hours) Assembly/Accessory Fitting (hours)
A 2.25 1.25
B 2.20 1.80
C 2.20 1.40
D 2.60 3.00

Direct materials are expected to cost N5,500 for Model A, N6,000 for Models B and C, and N10,000 for Model D. There is no limit on the availability of materials.

Variable overheads of N2,700 per pedal cycle are incurred for both Models A and C, and N3,000 per pedal cycle for both Models B and D.

Fixed overheads allocated to the pedal cycle workshop are N666,000 per annum. The organization uses labor hours to base its overhead absorption rates.

Initial market research indicates that demand and selling prices are likely to be as follows:

Model Number of Pedal Cycles Selling Price (N)
A 200 14,550
B 75 16,500
C 220 17,000
D 80 24,000

Year 2

In Year 2, two additional options are available:

  1. Lifting the overtime ban and paying overtime at a rate of time and a half. This will necessitate raising the selling price of all units of the specific model being completed outside normal working hours by N2,500 per pedal cycle. The selling price of the other models remains the same as in Year 1.
  2. Buying in the completed pedal cycle necessary to meet demand from another supplier. This would cost N27,000 per pedal cycle, and the selling price of all units of the model would be increased by N5,500. However, the board is concerned this option may reduce demand.

Required:

a. Determine the production plan that would maximize the profit available to JJ Company in Year 1, assuming no overtime is worked. State the profit that would be earned as a result of this plan. (14 Marks)
b. Advise JJ Company of its most profitable course of action in Year 2, assuming all demand is to be satisfied. (8 Marks)
c. Explain in detail how the relationship between the company and the chosen supplier should be controlled if the directors are considering outsourcing key inputs. (8 Marks)

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  • 7 Marks

TAX – Nov 2018 – L2 – SC – Q7b – Tax Dispute Resolution

List seven transactions that require a tax clearance certificate before proceeding.

In a bid to bring more individuals and corporate organizations into the tax net, the submission of tax clearance certificates by taxpayers is a condition precedent before bidding for contracts.

Required:
State seven transactions which necessitate the submission of a tax clearance certificate.

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  • 8 Marks

TAX – Nov 2018 – L2 – SC – Q7a – Tax Dispute Resolution

Advise the managing director on the actions to be taken to resolve a disputed tax assessment by the FIRS.

As tax consultants to Aderibigbe and Associates Limited, the managing director of your client brought an assessment notice served on the company by the Federal Inland Revenue Service. He complained that the assessment was outrageous. You observed that the amount assessed was higher than that based on the documents submitted to the tax office.

Required:
Advise the managing director on the action to be taken to resolve the disputed assessment.

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  • 9 Marks

TAX – Nov 2018 – L2 – SC – Q6b – Taxation of Partnerships and Sole Proprietorships

List six considerations used to determine whether an activity constitutes a trade.

The difficulty in determining what constitutes a trade has led to many litigations and numerous tax cases on the issue. The problem from decided cases is that of finding an absolute test for identifying a trade. The conclusion has always been that there are no fixed rules, but that each case must be determined on its own facts.

Required:
State six considerations that influence the determination of when an activity constitutes a trade.

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  • 6 Marks

TAX – Nov 2018 – L2 – SC – Q6a – Withholding Tax (WHT)

Explain the main features of withholding tax and the relevant tax authorities for WHT in Nigeria.

Recently, the Federal Inland Revenue Service offices across the country embarked on a nationwide sensitisation programme. At a forum organised for this purpose in one of their offices in the South West zone, consultants were invited to present papers. As one of the tax consultants, you are required to explain:
(i) Three main features of withholding tax (3 Marks)
(ii) The relevant tax authorities in relation to withholding tax in Nigeria (3 Marks)

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  • 4 Marks

TAX – Nov 2018 – L2 – SC – Q5b – Companies Income Tax (CIT)

State the categories of companies exempted from minimum tax liability.

State the categories of companies that are exempted from minimum tax liability.

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  • 16 Marks

TAX – Nov 2018 – L2 – SC – Q5a – Companies Income Tax (CIT)

Compute the companies' income tax payable for Mandy Construction Nigeria Limited for the 2017 assessment year.

Mandy Construction Nigeria Limited is an engineering company incorporated on January 1, 2009, and commenced business the same day. The company makes up its accounts to June 30 each year. The company had prepared its tax returns for the 2017 assessment year and was of the opinion that it had no total profit and therefore was not subject to companies income tax.

As a tax consultant, the chief executive officer has requested you to review the tax returns to ascertain if any provision of the tax laws stipulates procedures to determine the tax payable in situations where there is no taxable profit or the total profit results in no tax payable.

The following information relates to the company’s records for the year ended June 30, 2016:

Statement of Profit or Loss for the year ended June 30, 2016:

Particulars N’000
Revenue 5,656,000
Cost of Sales (4,404,211)
Gross Profit 1,251,789
Other Income 152,240
Administrative Expenses (907,906)
Operating Profit 496,123
Investment Income 50,934
Finance Costs (890,657)
Loss Before Tax (343,600)
Income Tax –
Loss for the Year (343,600)

Additional Information:
(i) Included in administrative expenses are the following:

  • Loss on disposal of property, plant, and equipment: N4,352,400
  • Depreciation: N5,184,700

(ii) Capital allowances agreed with the tax office: N1,065,000

The company’s authorized, issued, and fully paid-up share capital of N1 each is provided as follows:

The net assets of the company extracted from the statement of financial position as at June 30, 2016, was N3,441,041,000.

Required:
From the available information, compute the companies income tax payable by Mandy Construction Nigeria Limited for the relevant assessment year.

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  • 4 Marks

TAX – Nov 2018 – L2 – SB – Q4b – Taxation of Partnerships and Sole Proprietorships

Discuss the rules of commencement in respect of partnership business.

Discuss the rules of commencement in respect of partnership business.

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