1.doc · web viewb enumerate and briefly explain four factors inhibiting location of industries....

THE CHARTERED INSTITUTE OF TAXATION OF NIGERIAOCTOBER 2012: TAXATION TECHNICIANS SCHEME

PART 1: ACCOUNTINGATTEMPT ALL QUESTIONS. TIME: 3 HOURS

1. On 1st January 2009, Okosun, Ahmed and Bayo entered into a Joint Venture agreeing to deal in second hand machinery whereby Okosun will locate and value the machinery, Ahmed will provide the finance and Bayo will sell the machinery to various willing purchasers with whom he is in contact. The transactions which occur are as follows:Okosun:- N

March 1-25: Cost of Travelling 50,000.00March 10-25: Cost of Collecting items to his yard and eventual

delivery to Bayo 150,000.00Ahmed:-

March 10-25: Payment to various parties for purchase of machinery 500,000.00March 21: Reimbursement to Okosun for collection and delivery costs 150,000.00April 1: Part payment to Bayo for spares and labour 200,000.00

Bayo:- March 26: Cost of unloading equipment 25,000.00March 27-April 15: Labour and other costs for repairs to equipment,

cleaning, painting, etc 300,000.00April 1-30: Sales receipts from various parties 3,000,000.00

Cost of delivery to purchasers 100,000.00

You are required to prepare:a. The accounts of the Joint Venture in the books of each Venturer. (12 Marks)b. The memorandum Joint Venture Account. (8 Marks)

(Total 20 marks)

Assessor’s Comment

Student’s performance is average. The question tested students understanding of Joint Venture. It ought to be a borrowed question but the poor performance of students is an indication of lack of adequate performance.The number of students is very low, an implication of lack of popularity among students occasioned by non-recognition attached to the certificate. The Institute should work on this. SOLUTIONTTS 1 ACCOUNTING SOLUTION1. a. JOINT VENTURE ACCOUNT

IN THE BOOK OF OKOSUN

JOINT VENTURE WITH AHMED AND BAYO

N NMarch 1-25 Travel costs 50,000.00 March 10-25 Ahmed 150,000.00March 10-25 Delivery costs 150,000.00 April 30 Bayo 675,000.00April 30 Profit & loss A/C 625,000.00

825,000.00 825,000.00

IN THE BOOK OF AHMED

of 29

JOINT VENTURE WITH OKOSUN AND BAYON N

March 10-25 Bank (various) 500,000.00 April 30 Bayo 1,475,000.00March 25 Okosun 150,000.00April 1 Bayo 200,000.00April 30 P & L A/C 625,000.00

1,475,000.00 1,475,000.00

IN THE BOOK OF BAYO

JOINT VENTURE WITH OKOSUN AND AHMEDN N

March 26 Unloading costs 25,000.00 April 1 Ahmed 200,000.00Mar 27-Apr 15 Labour & Spares 300,000.00 Apr 1-30 Sales (various) 3,000,000.00April 1-30 Delivery costs 100,000.00Apr. 30 Profit & loss A/C 625,000.00

Okosun 675,000.00Ahmed 1,475,000.00

3,2000,000.00 3,200,000.00

b. MEMORANDUM OF JOINT VENTUREOKOSUN, AHMED AND BAYO

N NMarch 1-25 Travel Costs 50,000.00 April 1-30 Sales 3,000,000.00 “ 10-25 Delivery costs 150,000.00“ 10-25 Purchases 500,000.00“ 26 Unloading costs 25,000.00“ 27-Apr 15 Labour & Spares 300,000.00Apr. 30 Profit c/d 1,875,000.00

3,000,000.00 3,000,000.00Apr. 30 Okosun 625,000.00 Profit b/d 1,875,000.00

Ahmed 625,000.00Bayo 625,000.00

1,875,000.00 1,875,000.00

2 a. You are required to list the broad classification of accounts and write short notes on each (8 marks)

b. Define subsidiary books (2 marks)c. Itemise any five (5) subsidiary books normally used in financial accounting and state their

uses. (10 marks) (Total 20 marks)


The question tested the candidates’ knowledge of the basic accounting classification and books (subsidiary) normally used in financial accounting.

The candidates’ performance was average. While a servable numbers of candidates demonstrated good understanding of the questions, some candidate’s knowledge fell below expectation. It is importance that candidates should attend specialised centurial centers as it is importance to note that this level provides the much desired foundation

of 29

SOLUTION2. a. There are two (2) broad classification of accounts. These are personal account and

impersonal account. (2 Marks)

i. PERSONAL ACCOUNTSThese are accounts of persons, natural or corporate who have business dealings with the organization. The personal accounts comprise debtors’ accounts, creditors’ accounts, capital account and bank account.

(3 Marks)

ii. IMPERSONAL ACCOUNTSThese are the accounts of non-persons. Impersonal accounts are further sub-divided into real accounts and nominal accounts. Real accounts relate to tangible assets such as buildings, motor vehicles, furniture and stock. Nominal accounts relate to revenue/income, expenses and intangible assets. Among the accounts classified as nominal are sales account, discount received account, rent account, salaries account and goodwill account.

(3 Marks)b. SUBSIDIARY BOOKS

Subsidiary books can be defined as the books into which transactions are recorded on a daily basis from the source documents and from which transfers are made at suitable periodic intervals to the relevant accounts in the ledger. The use of subsidiary books prevents the ledger from containing too much detail.Other names for subsidiary books are: books of original entry and books of prime entry.

(2 Marks)c. Subsidiary books normally used in financial accounting are listed below:

USESi. Sales Day Book For recording credit sales

ii. Purchases Day Book For recording credit purchasesiii. Returns Inward Day Book For recording returns from customers iv. Returns Outward Day Book For recording returns to suppliersv. Cash Book For recording the receipt & payment of

Money.vi. Journal Proper For recording other transactions

10 x 1 Mark 10 Marks

3. a. Mention five (5) vital information obtainable from a Plant and Machinery Register (5 marks)

b. State five advantages of keeping a Plant Register (5 marks)c i. Define depreciation and mention two (2) methods of depreciation that are very

popular in application. (5 marks) ii. State two (2) advantages of each of the methods mentioned above. (5 marks)

(Total 20 marks)


This question tested the knowledge of students on Depreciation which as attempted by almost all the candidates. It is expected to attract good attempt but was however poorly attempted by candidates. The reason could be traced to poor preparation by the students. It appears that account is strange to the candidates, may be due to their various non-accounting background.

of 29

I advice that candidates should be encouraged to attend Institutional houses to take lectures so as to arm themselves with adequate preparation.

SOLUTION 3. a. Information obtainable in a plant and Machinery register are

i. Original costii. Date of Acquisitioniii. Date and cost of subsequent addition or improvementiv. Basis upon which depreciation is charged and amount provided each year.v. Disposal date to which price and profit or loss on sale are recordedvi. Name of makers/suppliers.

5 Marks

b. ADVANTAGES OF KEEPING PLANT REGISTERi. It keeps statistical record of individual items of plant and machinery.ii. It prevents depreciation from being charged in respect of any individual item of

plant after the entire cost has been written off.iii. It facilitates easy computation of departmental depreciation charge where a

business consists of several departments.iv. Information relating to individual item of plant is readily available in case of any

need for insurance claim arising from loss or damage by fire.v. It discloses the profit or loss incurred on individual plant sold before the end of

its estimated working life.

c. i. Depreciation is the permanent decrease in value of an asset through wear and tear in use or passage of time.Two methods of depreciation that are popular in application areStraight line method andReducing Balance methodA straight Line Method of depreciationIt is easy calculateIt spreads the depreciation charge into profit and loss account equally over the period of the estimated life of the asset.

ii. Reducing Balance MethodIt avoids complications of identifying individual asset to determine the expiration of its estimated useful life.The method gives the asset a residual value at any point in time, because the rate is applied to the book value balance

10 Marks Total 20 Marks.

4. The information listed below is available in reconciling the Bank Statement of DEGEMA Company on August 30, 2009.

of 29

i. The Cashbook showed a balance of N77,660.00 at 30th August, 2009. It includes N1,000.00 meant for Petty Cashbook. The Bank Statetment as at August 30, 2009 indicated a balance of N97,340.00.

ii. The August 30 Cash receipt of N58,460.00 had been remitted to the bank on that date but did not appear on the Bank Statement. The bank received a cheque for N40,000.00 from a stock-broking firm for the sale of 150 shares of stock of Royal Ball Plc; neither the proceeds of the sale of stock nor the transfer of fund of N18,460 to DEGEMA from their clients was recorded in the Cashbook.

iii. Included with the August Bank Statement was an advice for charges of N2,200.00.iv. Amongst the cheques issued in August, the following were not included in the cheques paid

by the bank:Cheque No. Amount (N)924 3,210.00943 8,260.00946 8,710.00

v. A service charge for N3,400.00 by the bank made in error against DEGEMA Company’s Account.

vi. A bill receivable of N6,900.00 in favour of DEGEMA Company matured on 30 th August, 2009. The bank included an advice indicating the receipt of the bill less N50.00 handling charges with the Statement of Account.

iv. An advice for N750.00 was enclosed being cost of cheque book bearing DEGEMA Company’s name and address.

Required:a. Prepare the adjusted Cash Book (11 Marks)b. Prepare a bank Reconciliation Statement as at 30th August, 2009. (9 Marks)

(Total 20 Marks)

The question tested the knowledge of the candidates on bank reconciliation.

The performance of the candidates was below average; as only 5 of them scored above 10 out of which one of them got the question correctly.

The most common pitfall in the question was that the candidates could not differentiate the items to be treated in adjusted cash book and the ones to be treated in the reconciliation statement.

Similar question should be tested in future to improve on the candidates’ performance.

SOLUTION

4. a. DEGEMA COMPANY

ADJUSTED CASH BOOK AUGUST 30 TH , 2009 N N

Balance as per cash book 77,660.00Add: Proceeds on sale of stock 40,000.00Funds transfer 18,460.00Bills receivable by bank 6,850.00 65,310.00

of 29

Less: Petty Cash reported separately 1,000.00Bank charges 2,200.00Cost of cheque book 750.00 3,950.00Adjusted cash balance 139,020.00

BANK RECONCILIATION STATEMENTBalance per bank statement 97,340.00Add: Uncredited deposit of August 30 58,460.00Service charge made by bank in error 3,400.00 61,860.00

159,200.00Less: Unpresented chequescheque no. 924 3,210.00cheque no. 943 8,260.00cheque no. 940 8,710.00 20,180.00Balance as per adjusted cashbook 139,020.00

20 Marks

5. Mr. Braimoh commenced business on 1st January 2008 by transferring N720,000 from his private current account into a bank account which he had opened for the business. His transactions for the month of January 2008 were as follow:

NJan. 1 Bought goods on credit from Yinusa 120,000.00Jan. 2 Withdrew cash from the bank for office use 18,000.00“ 3 Sold goods on credit to Dauda 150,000.00“ 4 Bought goods on credit from Bashiru 180,000.00“ 6 Sold goods to Oke on credit 220,000.00“ 7 Paid rent by cash 2,500.00Jan. 9 Withdrew cash from office till for personal use 3,000.00“ 10 Bought goods from Bemigho on credit 100,000.00“ 11 Goods returned by Dauda 17,000.00“ 12 Sold goods on credit to Anao 140,000.00“ 14 Purchases from Ewulom paid by cheque 40,000.00“ 15 Goods returned to Yinusa 8,200.00“ 15 Cost of goods taken for private use 5,000.00“ 16 Goods returned by Oke 20,000.00“ 17 Sold goods (normal selling price N20,000) to Akin given trade discount of 10%) 0Jan. 18 Received cheque of N95,000 from Oke after he had deducted cash discount of 5% 0Jan 20 Purchased second-hand car from Mazamaza Motors by cheque 100,000.00“ 21 Paid cheque to Yakubu in full settlement of his account 110,000.00“ 22 Cash sales to Taribo received by cash 25,000.00“ 25 Goods returned to Bemigho 5,000.00“ 26 Purchased goods worth N70,000 on credit from Aminu at a trade

discount of 10% 0Jan. 27 Paid cash N18,000.00 to Bemigho after deducting discount of 10% 0“ 29 Received cash from Dauda in full settlement of his account 130,000.00“ 29 Cheque received from Anthony 50,000.00“ 30 Deposited cash into bank account 80,000.00“ 30 Paid salaries by Cash 5,000.00“ 31 Withdrew cash from bank to pay his son’s school fees 3,000.00“ 31 Paid Bashiru by cheque 80,000.00

You are required to write up the 3-column Cashbook. (20 marks).

Assessor’s Comment of 29

Candidates’ showed average understanding of the topic; many posted even non-monetary transactions into the cash book.

SOLUTION

5. THE PRINCIPLE OF DOUBLE ENTRY BOOKKEEPING

3-COLUMN CASH BOOKDATE PARTICULARS DISC CASH BANK DATE PARTICULARS DISC CASH BANK

N N N N N N1/1/08 Capital - - 720,000 2/1/08 Cash (Contra) - - 18,0002/1/08 Bank (Contra)- 18,000 - 7/1/08 Rent - 2,500 -18/1/08 Oke 5,000 - 95,000 9/1/08 Drawings - 3,000 -22/1/08 Sales - 25,000 - 14/1/08Purchases - - 40,000

20/1/08Motor Vehicles - - 100,00029/1/08 Dauda 3,000 130,000 - 21/1/08 Yakubu 1,800 - 110,000

27/1/08 Bemigho 2,000 18,000 -29/1/08 Anthony - - 50,000 30/1/08 Bank (Contra) - 80,000 -30/1/08 Cash(Contra) - - 80,000 30/1/08 Salaries - 5,000 -

31/8/08 Drawings - - 3,00031/8/08 Bashiru - - 80,00031/8/08 Balance c/d - 64,500 594,000

8,000 173,000 945,000 3,800 173,000 945,000 64,500 594,000

THE CHARTERED INSTITUTE OF TAXATION OF NIGERIAOCTOBER 2012 TAXATION TECHNICIANS SCHEME

PART 1: ECONOMICS

ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS TIME: 3 HOURS1. i. What do you understand by the term “Monopoly”? (2 ½ Marks)

ii. What are the sources of monopolies? (7 ½ Marks)iii. Compare and contrast the characteristics of Perfect Competition and Monopolistic Competition.

(10 Marks)(Total 20 Marks)


About 98% of the candidates attempted this question. The question is in three parts and intended to test the candidates’ understanding of market structure. One of the major topics in fundamental Economics. About 90% of the candidates’ exhibited clear understanding of this question. Candidates are advised to spend more time in studying related texts.

SOLUTION

TTS 1 ECONOMICS SOLUTION1. A Monopoly

of 29

i. A monopoly is the form of a market organisation in which there is a single firm producing a commodity for which there are no close substitutes. A monopolist is a price setter because the single firm constitutes the industry. 21/2Marks

ii. Sources of monopoliesAny of the following situations may give rise to monopoly.a. Control of the entire supply of a basic input. If the entire

supply of the basic raw materials required in production of a commodity is controlled by a single firm or a country.

b. Large-scale production and economies of scalec. Franchises and patents -: Laws that prevent any other firm

from producing exactly the same type of materials, machines, authors of textbooks, composers of songs and music or protected by copyright.

d. State monopoly e.g PHCN- The government may assume a monopoly power in the production of some commodities to promote economic growth and improved conditions of living.

e. Merger and acquisition- when big firms enter into agreement to control market supply

f. Heavy initial cost:- A monopoly may occur if a great deal of capital is needed to establish a company.

(5 points at 11/2marks each for a well explained point) (71/2 Marks)iii. Comparison/similarities of perfect competition and monopolistic

competition

a. There are many buyers and sellers in the two markets

b. There are free entry and exit in both markets.

c. In both markets, the marginal cost has to be equal to marginal

revenue for profit maximization.

(2 points at 1Mark each)

Differences/contrastsS/N Perfect competition Monopolistic competition1 The products are homogenous The products are differentiated2 Uniform price for all producers and

sellersProducers/sellers sell at different prices

3. No transport costs are incurred Transport costs are incurred4 Producers/sellers have identical cost

structuresProducers/sellers have different cost structures

of 29

5 There is perfect knowledge of market transactions

There is inadequate knowledge of market transactions.

6 There is preferential treatment Preferential treatment exist 4 points @ 2 marks each for each comparison 4 x 2 Marks =

8 Marks

2. a Differentiate between Perfect and Imperfect Market (2 Marks)b State four (4) advantages of Pure or Perfect Competition and four (4) advantages of

Pure Monopoly (12 Marks)c List Four (4) causes of Monopoly (6 Marks)

(Total 20 Marks)


More than sixty percent of the candidates got the different between perfect and imperfect market. On the other hand, over seventy percent of the candidates got the advantages aspect of the quest right.

SOLUTION

2. Perfect Marketi. Perfect Market is a market where buyer equity prevails in all facets

of buying and selling in that market. Whereas an imperfect market is where there is discrimination in the market. Happenings in the imperfect market are the direct opposite of what operate in the perfect market.

(2 Marks)ii. Characteristics of pure or perfect market

a. Large numbers of buyers and sellersb. Free entry and exitc. Products are homogenous and have close substitutesd. No preferential treatmente. Perfect knowledge of the marketf. Free mobility of factorsg. Buyers and sellers are price takersh. Excess profit is achieved in the short run onlyi. Price = Marginal Revenue = Marginal cost.

(1 ½ marks to 4 or the point i.e 11/2 x 4 = 6Marks)

iii. Advantages of pure Monopoly

of 29

a. It is profitable as cost of production is minimized and waste competition is avoided through advertising as there are no competitors.

b. Has the advantage of large scale production. There is efficient and full utilization of resources and thus enjoys internal economies of scale leading to full utilization of resources.

c. Encourages research and development because of the abnormal profit the monopolist enjoys in both the short run and long run.

d. Because of advantage of abnormal profit in short run and long run, it enables a monopolist to have enough funds to enable him carry out research for overall development in the industry.

e. Possibility of high standard products attainability is not in doubt. The resources at her disposal are maximally and optimally utilized to produce the best.

(1 ½ Marks to 4 or the point i.e 11/2 x 4 = 6Marks)

iv. Causes of Monopolya. Patent Right (PR)- patent right given to inventors can lead to

monopolies. PR is commonly granted to authors and musicians.b. Legal Monopolist- monopoly can be created by law for example

in Nigeria the Nigeria Railway Corporation (NRC) and water board are the only bodies charged with the responsibilities of rendering services to humanity as laid down by law.

c. Natural Monopoly- monopoly can be created by the deposit or existence of natural resources in some areas for example Canada is a monopolist in the supply of Nickel to other Countries of the world.

d. Amalgamation of firms- The amalgamation of firms producing

the same goods or services may lead to the formation of cartel

which are capable of chasing out smaller firms especially when

the cartel charges lower prices relatively.

(1½ marks to 4 of the point i.e 11/2 x 4 = 6Marks)

3. a Define:i. Gross National Product (GNP) (2 Marks)ii. Net National Product (NNP) (2 Marks)

b State in formula form: of 29

i. National Income in an open economyii. Disposable Income (Yd)iii. Net Export (3 Marks)

c. Given the following information:₦’000

Household Consumption of goods and service - 8,000Wages - 7,000Rent - 2,000Capital Goods - 1,800Inventory Accumulation - 300Interest - 2,000Government Expenses - 1,750Interest - 2,000Profit - 1,050Depreciation or Capital Consumption Allowance - 1,000(i.e. Export = ₦600, while import = ₦400)

Note all figures are in thousands (i.e. ’000)

Required:Calculate the Gross National Product (GNP) and hence the Net National Product (NNP) using (i) The factor (Income) Approach and(ii) The Expenditure Approach (13 Marks)

(Total 20 Marks)


Only few candidates attempted the question another performance was poor. The question is standard for level. It is advisable that candidates should always prepare for the examination as not more than 50% had pass works.

SOLUTION

3. a. i. GNP is the market value of all fixed goods and services produced by an economy during a specified period of time usually a year.

(2 Marks)ii. NNP is GDP less depreciation or capital consumption

allowance. (2 Marks)

b. Ii. National Income (Y) in an open economy = C + 1 + G –X – M (1 Mark) ii. Yd = Y – T (1 Mark) iii. Net export = X – M (1 Mark)

c. i. GNP and NNP using factor (Income) Approach. These are payments relating or made to factors of production i.e land (rent), labour( wages) capital (interest) entrepreneur (Profit) = GNP

of 29

N, 000

: Rent 2,000Wages 7,000Interest 2,000Profit 1,050GNP 2,050Less Depreciation 1,000

11, 050 (6 Marks)

ii. GNP and NNP using Expenditure approach. These are expenses on household consumption (C), investment (I) in Capital goods, government (G) expenditure i.e Y = C + I+ G in the context of a closed economy and Y = C + I+ G(X-M) in the context of an open economy where net export = X – M (X = Export and M = Import)

N, 000 N, 000Household Consumption (C) 8,000 Investment (I) Capital goods 1800Add inventory Accumulated 300Subtotal of investment (I) 2100 2,100Government (G) Exposes 1,750Net export (600 – 400) 200GNP 12,050Less depreciation 1,000Net National Product (NNP) 11,050

(61/2 Marks)

4. a Explain briefly the following business entitiesi. Sole-Proprietorshipii. Partnershipiii. Joint- Stock Companiesiv. Public Corporation (10 Marks)

b Enumerate and briefly explain four factors inhibiting location of industries. (10 Marks) (Total 20 Marks)


Students performance on the question was average. However, the word inhibition was mistakenly taken as favourable, thereby casing poor responds from themSOLUTION

4. a. i. Sole- Proprietorship – It is a business entity owned by an of 29

individual. It is the oldest form of business organisation. Decision in this type of business is taken faster, liabilities are unlimited and owners receive all profit and bear all losses on his own.

(21/2 Marks)ii. Partnership – It is a form of business organisation formed by

two or at most twenty people with a profit motive. Partnership is common in the profession e.g town planners, architects, medical doctors, solicitors or accountants.

(21/2 Marks)iii. Joint Stock Companies – A joint stock company can be either a

private limited company or a public limited company. Those that formed the company are called shareholders. In Nigeria such company is registered with Corporate Affairs Commission (CAC) having its headquarters at Abuja. The business of the company, responsibilities and benefits of each shareholder, the authorised share capital, the conduct of meeting and how the business can be dissolved are all clearly spelt out in the Memorandum and Article of Association.

(21/2 Marks)iv. Public Corporation – A public Corporation may be defined as

industrial and commercial undertaking owned and run by the government. They are maintained with public revenue. They are quasi profit making organisations established either by statue or Act of parliament. Some of them come under the category of public utilities to render services, others operated as purely commercial ventures. Example of Public Corporation in Nigeria includes PHCN, Water Corporation, Nigeria Railway Corporation Nigeria Airways etc.

(21/2 Marks)b. a. Lack of natural factors

b. Long distance to source of raw materialsc. Long distance to marketd. Lack of infrastructural facilitiese. Long distance to source of financef. Lack of development in prospective areas of industrial locationg. Social and political factors.

(1mark for mentioning 4 of the point 11/2 marks for discussing 4 of the points (1 + 11/2) x 4points =10 Marks)

of 29

5. a. What is Valorem Tax? (2 Marks)b. List five (5) Principles of taxation. (5 Marks)c. Explain four forms of direct taxation. (8 Marks)d. List five economic effects of indirect taxation. (5 Marks)

(Total 20 Marks)


This serves as a bonus to candidates. Majority of the candidates found it easy to attempt. Unfortunately, some still failed this question.

SOLUTION5. i. Ad valorem tax means a tax levied in proportion to the value of the

taxable item. Examples are VAT, tenement rate or property tax and stamp duty payable on the share capital of a company, when a company is being registered.

(2 Marks)

ii. 5 principles of Taxation a. It should be difficult to evadeb. It should be convenient for the tax payerc. It should be equitabled. It should be economical to administers so that the greatest

possible proportion of its yield is available to the authoritye. It should not deter enterprise and productive effortf. It should allow elasticity in rate and yield

(5 points @ 1 mark each) (5 Marks)

iii. 4 forms of Direct taxa. Income tax- this type of tax is levied on most forms of income,

both earned and unearned. Taxable income is referred to as an individual total income less his allowances. This is directly known as pay as you earned (PAYE).

(2 Marks)b. Company Tax- This is a tax on the profit of a company. Its

incidence (burden) is uncertain because it is possible for a company to shift the tax to consumers.

(2 Marks)

of 29

c. Property tax- This is a tax on the property of an individuals. (2 Marks)

d. Poll tax- A poll tax is a flat rate levied on every individual in a country especially people whose income are low or whose income cannot be correctly assessed.

(2 Marks)

iv. List 5 economic effects of Indirect taxa. Inflationb. Change in consumption patternc. Encourage smugglingd. It is discriminatory; it only affects those people who actually

buy a good or service which is taxed.e. It is regressive- the poor will pay relatively more of their

income than the richf. Change in the investment pattern in that it is

counterproductive in regulating the economy. (5 Marks)

(5 points @ 1 mark each) Total (2 + 5 + 8 + 5) 20 Marks

THE CHARTERED INSTITUTE OF TAXATION OF NIGERIAOCTOBER 2012: TAXATION TECHNICIANS SCHEME

PART 1: ELEMENT OF BUSINESS LAWATTEMPT ALL QUESTIONS. TIME: 3 HOURS

1. a. i. What do you understand by inferior and superior courts of record? (2 Marks)ii. State three examples of inferior and superior court of record. (3 Marks)

b. What are judicial officers in the following courts called?i. Customary courtsii. Magistrate Courtiii. Sharia Court of Appealiv. High Courtv. Court of Appealvi. Supreme Court (3 Marks)

c. Civil and Criminal liabilities are the same. Do you agree with this statement? Give two (2) reasonsfor your answer. (3 Marks)

d. State the basis and extent of liability in tort. (3 Marks)e. Write short notes on any three of the following

i. Legal and equitable remedies for tort.ii. Real and Personal Propertyiii. Legal Personsiv. Corporate Personality.v. The Doctrine of Ultra vires. (6 Marks)

(Total 20 Marks)

of 29


Performance very impressiveSOLUTION

TTS 1 ELEMENT OF BUSINESS LAW SOLUTION1 a. (i). Inferior courts of record are so called because of their exercise of a

comparatively limited jurisdiction both in terms of cases they adjudicate upon and the scope of punishment they can impose or claims they can grant. Superior courts of record, on the order hand, exercise jurisdiction usually regarded as unlimited, though subject to legislative expediency (2 Marks)

(ii). Examples of inferior courts of record are Magistrate Courts, District courts, the Justices of the Peace, Arbitration Courts, Coroner’s Courts, Juvenile Courts, etc. Examples of superior courts of record are High Courts, Customary Court of Appeal, Sharia Court of Appeal, the Court of Appeal and the Supreme Court.

(3 Marks)b. (i). Customary Courts – Customary Courts Judges

(ii). Magistrate Courts – Magistrates(iii). Sharia courts of Appeal – Grand Khadi(iv). High courts – Judges(v). Court of Appeal – Justices of the Court of Appeal(vi). Supreme Court – Justices of the Supreme Court (3 Marks)

c. Civil and criminal liabilities are not the same. Civil liabilities relate to civil wrongs while criminal liabilities relate to criminal offences. Civil liabilities arise out of proceedings to determine the civil rights and obligations of parties while criminal liabilities arise out of prosecution of suspects for alleged criminal offence or misconduct. (3 Marks)

d. A tort is a civil wrong, consisting of some act done which, without just cause, causes harm or injury to the plaintiff. It is therefore founded on consequential damage to the plaintiff. There is however a limit to the requirements of damage resulting to the plaintiff for example, cases where damages have been done but the plaintiff has no right of action. (3 Marks)

E (i). The legal remedies for tort are damages while equitable remedies are injunction, restitution, etc.

(ii). Real property refers to immovable property like land and buildings while personal property refers to movable properties like cars, electronics, clothes, jewels, etc and invisible property like copy right, trade mark, shares, patent, etc.

(iii). Legal persons are persons recognized by the law as possessing legal personalities, capable of suing and being sued in a court of law.

(iv). Corporate personality is an artificial personality, a creation of law, possessing a legal personality by virtue of having been incorporated In accordance with the relevant law. Examples of corporate personalities are companies and incorporated trustees.

(v). The ultra vires rule was developed by common law as a way of checking the excesses of registered companies. By the rule a company’s powers are limited by its objects. Any act of a company outside its objects is seen as an act without the powers of the company and therefore ultra vires. The Locus classicus is Ashbury Railway Carriage and Iron Co. V. RichieThe doctrine was meant to serve two purposes:1 The protection of investors so that they could know the objects for

which their money was employed and

of 29

2 The protection of the creditors of the companies from dissipation in authorized activities of funds on which they depend for payment. The rule is however not without defects. It unduly restricts the right of a company to engage in or change to activities which it considers profitable. In this sense, the rule works against the interest of members and investors which it is meant to protect. In an attempt to evade the ultra vires rule, draftsmen employed the use of extensive and comprehensive object clause and omnibus provisions.

However the Companies and Allied Matters Act, 1990 has whittled down the harsh effect of the ultra vires rule. Although Section 39(1) still maintains that a company is not to carry on any business not authorized by its memorandum, S. 39(3) saves the validity of the acts of the company not done or made in furtherance of any of the authorized businesses of the company, even though the company exceeded its objects or powers.Section 39(4) provides that the court may prohibit by injunction, on the application of a member of the company or the holder of any debenture secured by a floating charge over all or any of the company’s property or by the trustee of any such Debenture holder, the doing of any act or the conveyance or transfer of any property in breach of section 39(1).The effect of Section 39 is therefore that a proposed ultra vires act of a company can be declared illegal and prohibited by the court but an act already done by a company remains valid, though ultra vires.

(3 marks for any 3 point)

20 Marks2. a. What do you understand by the term Partnership? (3 Marks)

b. Discuss major distinctions between a Partnership and a Company? (6 Marks)c. Mention and explain the three types of Partners (6 Marks)d. What are the circumstances that can warrant the dissolution of Partnership? (5 Marks)

(Total 20 Marks)


The question tested the candidates’ knowledge on company law particular on partnership and majority of them seem to understand it and equally gave good answers as was regard of themSOLUTION

2 (a). Partnership is the business relationship which subsists between persons carrying on.business in common with a view of profit. It is characteristically different from a company, though it is required to have at least two members like a company.

(3 Marks)

(b) Though a partnership, like a company, is usually formed for the purpose of carrying on business and making profit, it is fundamentally different from a company. A partnership, unlike a company, does not have a distinct legal personality. It has no perpetual succession like the company and the death of a partner can lead to the dissolution of a partnership. Members of a partnership, unlike those in a company are personally liable for the debts of the partnership. (6 Marks)

(c). Three types of partners(i). Active Partners – These are partners who are actively involved in the day to day

operations of the partnership.

of 29

(ii). Dormant Partners – These may not have their names in the business of the partnership and do not participate in the operations and running of the business, but share in the profits of the business.

(iii). Nominal partners – These lend their names to a business without having a real interest therein. 2 marks for each point

(d). A partnership may be dissolved in the following circumstances:(i). If the term fixed for the partnership has expired, the partnership is dissolved.

(ii). If the partnership is entered into for a single adventure or undertaking, the termination of same dissolves the partnership.

(iii). A partner may give notice to the other of his intention to dissolve the partnership and the partnership is dissolved from the date stated in the notice as the date of dissolution. Where no such date is stated, then the effective date is the date of communication.

(iv). Illegality of the objects for which a partnership is formed leads to its dissolution. (11/4 marks for

each point)Total: 20 Marks

(v). On the application by a partner, the Court may declare a dissolution of partnership in any of the following cases.

1. When a partner is adjudge a lunatic by inquisition

2. When a partners is incapable of performing his part of the partnership contract

3. When a partner is guilty of conduct regarded by the court as calculated to prejudicially affect the carrying on of the business.

4. When a partner willfully or persistently commits a breach of the partnership agreement.

5. When the partnership business can only be carried on at a loss

6. When circumstances have risen in the opinion of the court which renders it just and equitable that the partnership be dissolved.

(vi). A partnership is also dissolved at the death of a partner or at the option of other partners if one partner charges his share in the property as payment of his separate debt. (2 marks for each point)

20 Marks

3. a. What are the five (5) circumstances under which a contract may be discharged? (10 Marks)

b. State five remedies available for a breach of contract. (10 Marks) (Total 20 Marks)


of 29

The question was tested on two parts (a) and (b) under which a contract may be discharged and (b) the remaining available for a breach transaction.

The candidates’ performance was below average but it was fairly attempted.

SOLUTION3 (a). The discharge of contract refers to the means by which a contract is terminated or

determined and the parties are generally freed from their mutual obligations. A discharged contract therefore generally ceases to be binding on the parties.

A contract may be discharged in any of the following ways:

(i). By Agreement - e. g. by Novation

(ii). By frustration – (a) change of circumstances (b) destruction of subject matter (c) non occurrence of an event

(iii). By breach(iv). By performance(v). By lapse of time when a contract contains stipulation that time is of essence of

the contract (2 marks for each point)

(b). A breach of contracts occurs when a party to a contract acts contrary to the terms of such contract. The following are the remedies for a breach of contract.(i). Damages(ii). Rescission i.e. to rescind the contract(iii). Specific performance, i.e. seek an order of specific performance.(iv). Injunction(v). Quantum merit 2 marks for each point

Total: 20 Marks

4. a. Enumerate four methods of creating an agency (8 Marks)b. Distinguish between Disclosed Principal and Undisclosed Principal. (6 Marks)c. Briefly mention three conditions necessary for the creation of Agency by Necessity

(6 Marks) (Total 20 Marks)


The overall performance was satisfactory

SOLUTION4. (a). Agency may be created in four main ways as follows:

(i). By Agreement (ii). By Necessity(iii). By Estoppel and (iv). By Ratification (Any four point for 8 Marks)

(b). Principal may be classified into – Disclosed and Undisclosed PrincipalsDisclosed Principal – A disclosed principal is one whose existence (not necessary his name) is known to the third party. The third party is made aware, at the time of his contract with the agent that the agent is acting on behalf of another person.An undisclosed Principal’s name and existence is concealed from the third party by the agent. The third party is therefore made to believe that the agent is acting for himself.

of 29

(6 Marks)(c). Agency by necessity will be implied if all the following three conditions are present.

(i). An emergency or a situation of real commercial necessity must exist,(ii). The “agent” must act in the best interest of his principal, and(iii). Conditions must make it impossible to communicate with the principal for

further instructions. (2 marks for point)Total

20 Marks

5. a. Under what circumstances may the court annul an adjudication order in bankruptcy?Discus only three (3) of such circumstances (6 Marks)

b. Outline the circumstances in which a trustee in bankruptcy may vacate his office? (6 Marks)

c. Under contract of insurance, what is insurable interest? (2 Marks)d. Briefly discuss the characteristics of insurance. (6 Marks)

(Total 20 Marks)Assessor’s Comment

The question tested the students’ understanding of the law of Bankruptcy and Insurance. The aspect of Bankruptcy appears to be a higher standard of question for students at this level. The students did not understand the question. About 99% of the students failed.

SOLUTION

5 (a). The court may annul an adjudication order in bankruptcy in the following circumstances:(i). Where the court is of the opinion that the adjudication order should not have

been made.(ii). Where the court is satisfied that the debts were not paid in full(iii). If the petition is defective or if it is made on misleading facts.(iv). If the court has approved and accepted the plan.(v). If the debtor has died before the bankruptcy proceedings started or where the

debtor is a minor and the debt is enforceable against him.(6 Marks)

(b). A trustee in bankruptcy may vacate his office in the following circumstances(i). Resignation – This is usually effected by calling a meeting of creditors and placing

the resignation before them. The creditors may accept or reject this resignation.(ii). Removal – The creditors may, by ordinary resolution, at a meeting specially called

for that purpose (of which seven days’ notice has been given) remove a trustee other than the official receiver appointment by them.A trustee may also be removed, if the court is of the opinion that:

(1). The trustee appointed by the creditors is guilty of misconduct or is incompetent

(2). His connection with or relation to the bankrupt or his estate or any particular creditor makes it difficult for him to act with impartiality in the interest of the creditors generally.

(3). His trusteeship is being needlessly protracted without any probable advantage to the creditors.

(4). He is by reason of mental or physical disability or absence incapable of performing his duties.

(5). The interest of the creditors requires that he be removed.

(iii). Release: – this can be granted when the property of the bankrupt has been realized and the final dividend is declared. The effect of a release is that it

of 29

discharges the trustee from all liability in respect of any act done during his administration of the bankrupt’s affairs. (6 Marks)

(c). Insurable interest is the insured’s pecuniary interest in the subject matter of insurance. It is the key concept of insurance law; it is a legal requirement which determines whether or not the insured has suffered within the meaning of loss in insurance.

(2 Marks)

(d). The first basic characteristic of insurance is the presence of the element of uncertainty. The essence of insurance is the cushioning or lessening the effect of loss, not the prevention of loss. Where the element of uncertainty is absent, it is not a contract of insurance. Insurable interest is another characteristic of insurance. It determines whether or not an insured has suffered loss. Another characteristic of insurance is utmost good faith. This feature is another distinction between a contract of insurance and ordinary contracts. It places special burden on parties to the contract of insurance as to the matters to be disclosed prior to the conclusion of the contract.

(6 Marks)

20 Marks

THE CHARTERED INSTITUTE OF TAXATION OF NIGERIAOCTOBER 2012 TAXATION TECHNICIANS SCHEME

PART 1: INTRODUCTION TO TAXATION

ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS TIME: 3 HOURS1. a. i. Explain what you understand by tax. (4 marks)

ii. Briefly discuss the objectives of taxation in a country. (6 marks)b. What are the characteristics of a good tax system? (10 marks)

(Total 20 marks)Assessor’s Comment

On average, the performance was goodSOLUTION

TTS 1 INTRODUCTION TO TAXATION SOLUTION

1. i. Tax is a compulsory levy by the government of any

country, through an appropriate agency, on all incomes, goods

services and properties of an individual, partnership, executor,

trustee and corporate body.

It is a charge imposed by the government of any country on

incomes, goods, services and properties of an individual and

corporate body to raise money for public revenue generation and

other legitimate functions of the government.

(4 Marks)

ii. Objectives of taxation include the following:

of 29

a) Revenue generation: The primary objective of a modern tax

system is generation of revenue to help the government to

finance ever-increasing public sector expenditure.

b) Provision of merit goods: Another important objectives of a tax

system is the promotion of social, economic and good

governance through provision of merit goods. Examples of

such merit goods and services are health and Education. As

private enterprises will push the cost of providing these merit

goods and services beyond the reach of common people. It

must not be left into the hands of the private enterprises.

c) Provision of ‘Public Goods’ examples of such public goods are

i. Internal security through maintenance of law and order

by police and other security agency

ii. External Security through defence against external

aggression by Army, Navy and Air-force and

iii. Provision of street light and roads.

d) Discouraging consumption of demerit goods: Tax can be used

to discourage the consumption of demerit or harmful goods

like alcohol and cigarettes. This is done to reduce external cost

to the society. These external costs include health risks and

pollution.

e) Redistribution of Income and Wealth: Tax system is a means of

ensuring the redistribution of income and wealth in order to

reduce poverty and promote social welfare. For example,

taxation can be used as economic regulations for promotion of

economic stability and sustainable growth through fiscal

policy. Taxation can also be used to fight inflation, of 29

unemployment and creating a sound infrastructure for

businesses.

f) Harmonisation of Economic objectives: Another important

objectives of modern Tax system is the harmonization of

diverse trade or economic objectives of different countries. For

example, a good tax system can be used to achieve the

philosophy of the single market in ECOWAS in order to provide

for the free movement of goods / services, capital, people

between member states (6

Marks)

(b) Characteristics of a good tax system:

A good tax system according to Adam Smith should contain the

following elements:

a) Equity

b) Certainty

c) Convenience

d) Administrative efficiency

e) Economic productive

a. CERTAINTY: The procedure must be objective, certain and scientific.

The time and manner of payment, amount to be paid should be

certain and clear. It should not be arbitrary or left to whims and

caprises of tax officials.

b. EQUITY: it should be equitable, that is every person should be taxed

according to his ability. The rich should pay more while poor pay less.

It should be progressive. It must not be levied arbitrarily. The amount

payable must not be bias or be influenced by personal feelings.

People in the same level and circumstances must pay the same tax.

c. CONVENIENCE: The tax must be convenient to pay. The tax payer

must not experience much cost or inconvenience in an attempt to of 29

pay the tax. In addition, social and economic standing of the tax

payer must be taken into account.

d. ADMINISTRATIVE EFFICIENCY: The administration must be easy. It

must be possible to know the tax base and it must be possible to

collect the tax once it is levied. It must be administratively efficient

and not cause economic distortion.

e. ECONOMIC PRODUCTION: It should be such that bring in sufficient

revenue to the government. The condition of the taxpayer must not

be also worse economically

f. POLITICAL ACCEPTABILITY: The tax payment must be generally

accepted by the tax payers so that resentment or riot is avoided.

g. SIMPLICITY: A good tax system should not be difficult to administer

and understand, so as not to breed problems of differences in

interpretation and legal disputes.

h. FLEXIBILITY: A good tax system should be capable of adjusting to

changing circumstances. Nigerian income tax system is reviewed

annually in order to alleviate the negative effects of epileptic

economic conditions

i. VERTICAL RE- DISTRIBUTION: A good tax system must be capable of

being used for vertical redistribution. This means off to those who

are worse off and must not discourage those who are better off.

(10 Marks)

2. a. Tax evasion is said to be prevalent in Nigeria. Enumerate the causes of tax evasion. (5 marks)

b. List at least five steps that have been taken by government at various levels to reduce tax evasion in Nigeria. (10 marks)

c. Briefly explain the impact of the steps in (b) on government revenue. (5 marks) (Total 20 marks)


of 29

The question tested student knowledge of tax evasion and the causes. It also tested student knowledge on how to reduce tax evasion, and the impact of tax evasion on government revenue. Candidates attempted the question, but their performance was below average, on which were advice to study more, and go through pathfinder’s which will enhance their way of answering questions

SOLUTION

2. a. Causes of Tax Evasion

I. Existence of corrupt tax officials

II. Existence of loopholes in Tax law

III. Porous borders

IV. Lack of proper tax machineries i.e absence of honest and

dedicated tax collectors

V. Poor accounting records (5 Marks)

b. Measures to reduce Tax Evasion

I. Proper policing of the porous border

II. Making of Tax clearance certificate compulsory in awarding

government contract or other business with the government.

III. Introduction of penalty for tax evasion

IV. Introduction of Tax Identification Number

V. Employment of Tax Monitoring Agents (TAMA) in some states

for total collection. (10 Marks)

c. Impact of steps b above in Government Revenue

The introduction of the steps above has yielded a positive results in

some states as well as to the Federal government. The government

revenue of those states has gone up recent times. The improvement

in the tax revenue has no doubt facilitated the provision of

infrastructural facilities and other public goods to the citizens of

Nigeria in recent times.

3. Write short notes on the followings: of 29

a. Appropriation Bill (4 marks)b. Basis of Assessment (4 marks)c. Basis period (4 marks)d. Fiscal year (4 marks)e. Tax Avoidance (4 marks)


The candidates could not differentiate between the “Basis Period” and “Basis of Assessment”. Also, they could not provide clear examples of tax avoidance methods adopted in practice by taxpayers. A lot confused it with tax evasion. The general performance was below average/poorSOLUTION

3. a. Appropriation Bill

It is a proposed plan of government expenditure for the approval of

the legislature. (4 Marks)

b. Basis of Assessment

This is the manner in which the income that is chargeable to tax

within a particular year of assessment is determined. Each tax year is

known as year of assessment. The income charged to tax in any tax

year is determined using either of the two form of basis i.e actual

year basis or preceding year basis.

(4 Marks)

c. Basis Period

This defines the basis upon which tax liability would be computed. It

is a way of capturing the income of all business for taxation purpose

using common basis. (4 Marks)

d. Fiscal Year

The fiscal year is the government budget year. January to December

every year. (4 Marks)

e. Tax Avoidance

It is a way of identifying the loopholes in the tax law and taking the

advantage of such a loophole to reduce the tax payable. Tax

avoidance is not a criminal offence. (4Marks)

of 29

4. a. Explain the differences between the Federal Inland Revenue Service and the State Board of Internal Revenue. (10 marks)

b. Outline five different documents that are commonly used by tax authorities in the assessmentof tax payers. (10 marks)


This is a question on the differences between the Federal Inland Revenue Service and State Board of Internal Revenue. The student performance was not encouraging as they did not understand the differences between the two tax body.This also tested candidate knowledge on different document that are commonly used by Tax Authorities in the assessments of Tax papers. Student performance on this question was fair but not encouraging enough

SOLUTION

4. a. Difference between Federal Inland Revenue Service and StateBoard of Internal Revenue.

i. The executive chairman of (FIRS) is appointed by the President

of Nigeria while the executive chairman of state board of

internal revenue is appointed by the state government and

both must have experience in Taxation.

(5 Marks)

ii. The FIRS is responsible for collecting company income tax,

petroleum profit tax, value added tax while the state board of

internal revenue is to collect pay as you earn (PAYE) and other

personal income tax.

Iii. The composition of FIRS is far more than the composition of

state board of internal revenue as per the recent amendment

iv. The functions and powers of FIRS have been enlarged by the

recent amendment than that of the state board of internal

revenue. (5 Marks)

b. Documents used in Assessing Tax payer

i. Financial statement (2 Marks)

ii. Dividend warranty (2 Marks)

iii. Contract/Services for Withholding Tax (2 Marks)

of 29

iv. Certificate of incorporation to know the commencement date

of business (2 Marks)

v. Memorandum and Article of Association (2 Marks)

5. a. What is ‘Tax Identification Number’? (5 marks)b. State the condition that must be satisfied by a tax payer before being issued with

Tax Clearance Certificate. (10 marks)c. Briefly explain the term ‘Back Duty Investigation’ in taxation. (5 marks)


Almost all candidates attempted the question. Their performance is impressive.

Please note that solution was only procured for question one. Assessors’ procured suggested solutions to questions 2 – 5 – let us advised to get solution need before the commencement of the marking.

SOLUTION

5. a. Tax Identification Number

Tax identification number is equally called personal identification

number for tax purposes. It is a recent innovation by the tax

authority so as to be able to locate and assess the performance of tax

payer. Its introduction will no doubt discourage tax avoidance and

evasion.

(5 Marks)

b. Conditions that must be fulfilled before issuing a Tax clearance

Certificate.

Where a relevant tax authority is of the opinion that tax assessed has

been fully paid or that no tax is due it shall issue a tax clearance

certificate to the person within two weeks of the demands. Such a

tax clearance certificate must disclose:

Total profit or chargeable income

Tax payable of 29

Tax paid

Tax outstanding or a statement that no tax is due.

(10 Marks)

c. Back Duty Investigation

The relevant tax authority either under the provision of the Company

Income Tax Act or the Personal Income Tax Act may from time to

time and as long as it wishes to carry out a back duty investigation

audit on a tax payer. The law allows the relevant tax authority to go

back as far back as six years before the year of examination. The

records of the tax payer are audited to examine the truth in the

information that was earlier provided. The purpose of the back duty

investigation is to:

Detect errors or omissions in the assessment or collection of

taxes

Detect false or doubtful claim of allowance in respect of

current or previous year

Detect failure to disclose or include in full any income or

earnings in the returns made available to the tax office.

(10 Marks)

of 29