Series: NOV 2020

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  • 20 Marks

AT- Nov 2022 – L3 – Q4 – Regulatory Environment for Corporate Reporting

Discuss the significance, guiding actions, inconsistencies, compliance areas, and dispute resolution in transfer pricing under Nigeria’s 2018 regulations.

Transfer pricing has become a topical issue in the world of taxation in recent years. This trend is partly driven by the need to prevent fiscal evasion and avoid economic double taxation. Various governments, both in developed and emerging countries, have continued to issue regulations to guide the operations of transfer pricing systems within their jurisdictions.

In Nigeria, the first step toward establishing a legal framework for regulating transfer pricing took place in August 2012, with the enactment of Income Tax (Transfer Pricing) Regulations Number 1, 2012. Due to shortcomings in the implementation of this regulation, it was revoked, and the Income Tax (Transfer Pricing) Regulations 2018 was subsequently enacted.

One critical principle, enshrined in various transfer pricing regulations, that every taxpayer must comply with when dealing with transactions between related entities is the arm’s length principle. This principle has gained significant attention among academics, regulatory institutions, and professionals, with ongoing debate surrounding its application.

Required:

a. Explain the significance of transfer pricing to both the taxpayers and tax authorities. (2 Marks)

b. In complying with the arm’s length principle, discuss two guiding actions which enterprises and multinationals must follow in their intercompany dealings. (3 Marks)

c. Identify and explain four methods multinational companies might use in financial dealings with associated or subsidiary entities that deviate from the arm’s length principle. (6 Marks)

d. In the administration of the Transfer Pricing Regulations 2018, highlight and discuss three fundamental compliance areas for taxpayers and tax practitioners. (6 Marks)

e. Explain the resolution process for disputes that arise between a taxpayer and tax authorities under the Transfer Pricing Regulations 2018. (3 Marks)

(Total: 20 Marks)

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  • 20 Marks

CR – Nov 2017 – L3 – Q3 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Evaluate Funda Plc's accounting policies for specific transactions, recommending adjustments as per IFRS where appropriate.

Funda Plc. is a listed utility service company in Nigeria providing water, electricity, and cable services. The directors prepared draft financial statements for the year ended June 30, 2017, following IFRS guidelines to support a loan application. Employees, owning 5% of ordinary shares, raised concerns about certain accounting policies applied by Funda Plc.

The draft income statement for the year ended June 30, 2017, is as follows:

N’m
Revenue 410.0
Cost of Sales (275.0)
Gross Profit 135.0
Other Operating Costs (65.0)
Profit Before Taxation 70.0

Employee Representatives’ Queries on Accounting Policies:

  1. Sale of Water Filters
    Funda Plc. sold 30 industrial water filters to a steelmaker, offering a 20% discount and granting the steelmaker a put option to repurchase the filters at 35% of the purchase price after six years, despite the filters’ expected ten-year life. Funda Plc. has recognized the entire revenue upfront.
  2. Connection Fees
    A refundable connection fee is charged for electricity connections, to be returned upon customer disconnection. No minimum notice is required, and costs can be deducted from refunds. The fee was fully recognized in the year as revenue.
  3. Activation Fees
    Non-refundable activation fees for digital cable services were fully recognized in revenue.
  4. Deposits for Domestic Electrical Goods
    Customers place a 25% deposit on orders, with the balance payable on delivery. Deposits are retained if orders are canceled but refunded if Funda Plc. fails to deliver. Revenue includes N10 million from deposits, with 90% of orders fulfilled.

Required:
Prepare a report explaining the suitability of Funda Plc.’s accounting policies for each transaction and recommend the appropriate IFRS treatment where necessary.

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  • 6 Marks

BL – Nov 2020 – L1 – SB – Q1d – Company Law

List powers exercised by the Annual General Meeting (AGM) of a company.

One of the two organs of a company is the general meeting of members.

Required:
State FOUR powers of the Annual General Meeting.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q6c – Partnership Law

Assess the legality of different partnership arrangements.

Comment on the legality of the following relationships operating as partnerships:

i. A partnership of 16 persons established for charitable purposes
ii. Adex cooperative society consisting of 500 members
iii. Black and Blue law firm consisting of 31 lawyers
iv. Stone Partnership firm comprising Segun aged 28, Tunde aged 17
v. A partnership of volunteers for the purpose of helping persons displaced by flood.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q6b – Law of Contract

Define express terms, implied terms, conditions, and warranties in a contract.

Contractual agreements usually contain terms that are different in nature and importance.

Required:
Define the following terms:
i. Express terms
ii. Implied terms
iii. Conditions
iv. Warranties

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q6a – The Nigerian Legal System

List tests to determine intent to steal during taking or conversion.

Taking or conversion with intent to defraud is an element of stealing.

Required:
State FIVE tests of determining whether or not an accused has an intention to steal at the time of taking or converting a thing.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q5d – Negotiable Instruments

Explain different cheque crossing types and define negotiable instruments.

Crossing of cheques has legal implications in banking transactions, and a cheque is a type of negotiable instrument.

Required:
i. A cheque instruction to “pay Ronke the sum of N50,000.00” without crossing the face of the cheque with two parallel lines.
ii. “Pay Andrew N100,000” with two parallel lines traversing the face of the cheque.
iii. “Pay Mary N150,000” with two parallel lines with Congo Bank written in between the two parallel lines on the face of the cheque.
iv. “Pay Ngozi N200,000” and by cheque with two parallel lines and the words “account payee only” written in between the two parallel lines.
v. Define negotiable instruments.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q5c – Agency Law

List the duties of an agent in an agency contract.

Parties under a contract of agency have certain rights and duties.

Required:
State FIVE duties of an agent under a contract of agency.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q5b – Employment Law

Define an employment contract and list grounds for dismissal by an employer.

Contracts of employment may be created and brought to an end in different ways.

Required:
i. Explain contract of employment.
ii. State THREE reasons for which an employer could dismiss an employee.

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q5a – Alternative Dispute Resolution

Define arbitration and describe an arbitral award.

Arbitration is a type of alternative dispute resolution mechanism.

Required:
Explain arbitration and arbitral award.

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  • 20 Marks

MI – Nov 2020 – L1 – SB – Q6 – Information System Development and Security

Identify costs of software implementation, types of firewalls, common network issues, and methods to manage email inboxes.

a. When a new software is implemented, various costs are incurred. Identify FIVE of such costs. (5 Marks)

b. Identify FOUR types of firewalls. (4 Marks)

c. State FIVE common network issues an organisation may encounter. (5 Marks)

d. If email is used inappropriately, it can hinder productivity. Identify SIX ways email inbox can be better managed. (6 Marks)

(Total 20 Marks)

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  • 20 Marks

MI – Nov 2020 – L1 – SB – Q5 – Information Systems

Define Decision Support System, list DSS packages, and outline advantages, disadvantages, and impact of IT.

a. Define Decision Support System (DSS). (2 Marks)

b. List FIVE DSS packages that can be used to explore alternatives. (5 Marks)

c. Enumerate THREE advantages and TWO disadvantages of DSS. (5 Marks)

d. State FOUR benefits and FOUR lapses of information technology to individual, organisation, and government. (8 Marks)

(Total 20 Marks)

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  • 12 Marks

MI – Nov 2020 – L1 – SB – Q4b – Basic Variance Analysis

Calculate material and labour variances for product AB, and list possible causes of each variance.

b. ABC maintains the following standard cost card for product AB:

Item Standard Quantity Standard Price Total Cost (N)
Direct Material A 3kg @ N8 per kg N24
Direct Material B 5kg @ N6 per kg N30
Direct Labour 2hrs @ N24 per hr N48
Variable Overhead 2hrs @ N9 per hr N18
Total Standard Cost N120

Actual Results for the Period:

  • Actual production: 11,800 units
  • Direct material A: 35,800kg @ N7.5 per kg = N268,500
  • Direct material B: 62,000kg @ N7 per kg = N434,000
  • Direct labour: 24,500 hours @ N25 per hour = N612,500
  • Variable overhead: 24,500 hours @ N9 per hour = N220,500

Required:
i. Calculate the following variances:

  • Material price
  • Material usage
  • Total material
  • Labour rate
    (9 Marks)

ii. List TWO possible causes of each of the variances in (i) above. (3 Marks)

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  • 8 Marks

MI – Nov 2020 – L1 – SB – Q4a – Costing Techniques

Identify the purposes of standard costing systems and the types of standards used in management information.

a. Standard costing systems are widely used because they provide cost information for many different purposes.

Required:
i. Identify FIVE of such purposes. (5 Marks)
ii. State THREE types of standards. (3 Marks)

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  • 20 Marks

MI – Nov 2020 – L1 – SB – Q3 – Costing Methods

Apportion joint costs of three products using the physical unit and sales value basis, and calculate profit percentages.

Standard Limited produces three products, “Sta,” “And,” and “Ard,” which pass through the same process and can all be sold as good products. Total joint costs incurred amount to N3,710,000. Output and selling prices of the products are as follows:

Product Output (Units) Selling Price (N)
Sta 6,000 250
And 3,500 400
Ard 4,500 350

Required:
Apportion the joint costs and calculate the profit percentage using:
a. The physical unit basis. (10 Marks)
b. The sales value basis. (10 Marks)

(Total 20 Marks)

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  • 20 Marks

MI – Nov 2020 – L1 – SB – Q2 – Costing Methods

Prepare the contract account for “Recoverable 777” with materials, plants, and other expenses involved in the contract.

Recoverable Limited is into construction, and the following information relates to one of its contracts, code-named “Recoverable 777” as at the end of the first year. It is the company’s policy to take the difference between the value of work certified and the cost of work certified as profit for the year:

Description N
Materials purchased directly to site 3,450,000
Materials purchased directly to site but not yet paid 1,300,000
Materials transferred to site 5,650,000
Materials transferred out of site 720,000
Plants purchased for contract 15,000,000
Plant transferred to site 5,000,000
Payment of sub-contractor 4,500,000
Insurance (effective 2 months after commencement of contract) 600,000
Salary 7,500,000
Salary due but not paid 2,000,000
Other site expenses 1,905,000
Head office charges 500,000
Value of work certified 36,500,000
Contract value 50,000,000
Payment received 33,800,000
Value of material on site at end of year 850,000
Value of plant 1 c/d 12,000,000
Value of plant 2 c/d 4,000,000

Required:
Record the contract account for “Recoverable 777”. (Total 20 Marks)

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  • 20 Marks

MI – Nov 2020 – L1 – SB – Q1 – Budgeting

Prepare the cash budget for the first three months of the year based on provided sales, expenses, and additional company details.

WXYZ is preparing for the first half of the next year. The following information was available:

a. Sales – 15% of monthly sales are in cash, while the balance is sold on credit. Collections from receivables are 50% in the first month after sales, 30% in the second month, and the balance in the third month after sales.
b. Purchases are usually 55% of sales and paid in the month of purchase.
c. Insurance company is expected to pay the sum of N525,000 in February based on the company’s accidented vehicles.
d. Salary deductions are paid on a preceding-month basis.
e. Company income tax of N475,550 will be paid in March.
f. Cash and cash equivalent balance as at December is N502,760.
g. Bank charges are 1% of total payments for the month.
h. Additional Information:

Month October (N) November (N) December (N) January (N) February (N) March (N)
Sales 750,000 600,000 850,000 520,000 670,000 800,000
Net Salaries 230,000 200,000 250,000 210,000 240,000 270,000
Other Expenses 200,700 187,500 197,500 177,200 187,500 192,700
Salaries Deductions 29,400 28,400 39,400 28,700 32,750 27,650

Required:
Prepare the cash budget for the first three months of the year. (Total 20 Marks)

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  • 6 Marks

CSME – Nov 2020 – L2 – Q6D – Corporate Governance

Differentiate between a trade and a profession.

The ICAN Professional Code of Conduct and Guide for Members requires every member or student of the Institute to always “act professionally” and in “the public interest” in the discharge of their responsibilities.

Required:

Differentiate between a trade and a profession.

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  • 7 Marks

CSME – Nov 2020 – L2 – Q6C – Corporate Social Responsibility (CSR)

Discuss briefly the concept of 'acting in the public interest'.

The ICAN Professional Code of Conduct and Guide for Members requires every member or student of the Institute to always “act professionally” and in “the public interest” in the discharge of their responsibilities.

Required:

Discuss briefly „acting in the public interest‟.

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  • 6 Marks

CSME – Nov 2020 – L2 – Q6b – Corporate Governance

Discuss the behavioral attributes that will enable an ICAN student to act professionally.

The ICAN Professional Code of Conduct and Guide for Members requires every member or student of the Institute to always “act professionally” and in “the public interest” in the discharge of their responsibilities.

Required:

Discuss the behavioural attributes that will enable an ICAN student to act professionally.

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