pathfinder inter nov2010

THE INSTITUTE OF CHARTERED ACCOUNTANTS

OF NIGERIA

NOVEMBER 2010 INTERMEDIATE EXAMINATION

Question Papers

Suggested Solutions

Plus

Examiners‟ Reports

PATHFINDER

INTERMEDIATE EXAMINATION - NOVEMBER 2010 2

FOREWORD

This issue of the PATHFINDER is published principally, in response to a growing

demand for an aid to:

(i) Candidates preparing to write future examinations of the Institute of Chartered

Accountants of Nigeria (ICAN).

(ii) Unsuccessful candidates in the identification of those areas in which they lost

marks and need to improve their knowledge and presentation.

(iii) Lecturers and students interested in acquisition of knowledge in the relevant

subjects contained herein, and

(iv) The profession in improving pre-examinations and screening processes, and so

the professional performance of candidates.

The answers provided in this publication do not exhaust all possible alternative

approaches to solving the questions. Efforts have been made to use the methods

which will save much of the scarce examination time. Also, in order to facilitate

teaching, questions may be altered slightly so that some principles or application of

them may be more clearly demonstrated.

It is hoped that the suggested answers will prove to be of tremendous assistance to

students and those who assist them in their preparations for the Institute‟s

Examinations.

NOTES

Although these suggested solutions have been published

under the Institute‟s name, they do not represent the views

of the Council of the Institute. The suggested solutions are

entirely the responsibility of their authors and the Institute

will not enter into any correspondence on them.

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TABLE OF CONTENTS

SUBJECTS

PAGES

COSTING AND QUANTITATIVE TECHNIQUES 4 - 29

AUDIT AND ASSURANCE 30 - 52

TAXATION 53 – 79

BUSINESS COMMUNICATION AND RESEARCH METHODOLOGY 80 - 103

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ICAN/102/P/1 EXAMINATION NO…………………

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

INTERMEDIATE EXAMINATION – NOVEMBER 2010

COSTING AND QUANTITATIVE TECHNIQUES

Time allowed – 3 hours

SECTION A

PART I MULTIPLE CHOICE QUESTIONS (20 Marks)

1. Identify one of the following that is NOT a method of remuneration

A. Time work.

B. Unagreed group scheme.

C. Payment by result.

D. Group bonus scheme.

E. Profit sharing and co-partnership.

2. Choose ONE of the following that is NOT a main source of collection of overhead

A. Direct expenses book.

B. Invoices.

C. Stores requisition.

D. Wages analysis book.

E. Journal entries.

3. Which of the following is NOT a method of recovering overheads?

A. Percentage on cost of direct materials

B. Standard budget rate

C. Percentage on cost of direct wages

D. Percentage on prime cost

E. Machine hour rate

4. The characteristics of obsolete stocks EXCLUDE one of the following:

A. Low turnover ratio.

B. No demand at present.

C. May be required in future.

D. Can be retained.

E. Scrapped because they have market value.

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5. To which of the following should an internal auditor be responsible?

A. Managing Director

B. Chief Accountant

C. Financial Controller

D. General Manager Finance

E. Top Management

6. Policy decision on profitability is NOT made using

A. comparison of total profit to unit profit.

B. percentage of profit to sales.

C. labour turnover ratio.

D. stock turnover ratio.

E. contribution related to key factor.

7. “Added Value” or “Value Added” can be defined as

A. sales value less the cost of purchased materials.

B. sales value less the cost of purchased materials and services.

C. sales value less the labour and materials costs.

D. sales value less fixed and variable costs.

E. sales value less material cost only.

8. Choose ONE of the following that cannot be apportioned on the basis of floor

area:

A. Rates.

B. Rent.

C. Security.

D. Lighting.

E. Cleaning.

9. Causes of discrepancies between actual stocks and recorded stocks EXCLUDE

A. non-receipt of goods in time to store.

B. errors of incorrect recording and calculation.

C. under or over issues not noted.

D. shrinkage, pilferage, evaporation, losses due to breaking bulk.

E. loss or non-use of Good Received Notes,(GRN).

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10. First in First out (FIFO) characteristics do NOT include ONE of the following:

A. It is an actual cost system.

B. It renders cost comparison easy.

C. Oldest items are issued out first.

D. Unrealized profits do not exist.

E. Stock valuation is based on recently acquired materials.

11. Which of the following is a cost driver?

A. An item of production overhead

B. Any cost incurred by the vehicle driver

C. A common cost which is shared over cost centres

D. Any cost relating to transport

E. An activity which generates cost

12. The following data relates to stock item SSR: Ordering cost is N40 per order,

stockholding cost is 24% per unit per annum and annual demand is 12,000 at

N100 per unit. What is the economic order quantity?

A. 500 units

B. 400 units

C. 200 units

D. 220 units

E. 250 units

13. What is the area which does not contravene any of the constraints in a typical

linear programming problem called?

A. Optimum area

B. Acceptable region

C. Critical region

D. Feasible region

E. Rejection region

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14. In the Simplex Method, the inequalities in the constraints are re-written as

equations by introducing

A. extra constraints.

B. slack variables.

C. minimum error.

D. a constant.

E. dummies.

15. An activity has 9 weeks and 13 weeks time estimates with probabilities of 0.6

and 0.4 respectively. What is the expected time for the activity in weeks?

A. 22.0

B. 23.0

C. 10.6

D. 11.5

E. 11.0

16. What is the estimated time of an activity with optimistic, pessimistic and most

likely times of 6 weeks, 24 weeks and 15 weeks respectively?

A. 15weeks

B. 90 weeks

C. 45 weeks

D. 7.5 weeks

E. 30 weeks

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1

9 9 12

0

0 0 5

3

12

14

17. In the diagram above, what is the value of the earliest starting time X?

A. 12

B. 14

C. 16

D. 21

E. 28

18. Which of the following is correct in relation to Part of Activity-on-Arrow Network

diagram shown above?

A. A and C must finish before B can start

B. A and C must finish before D can start

C. A only must finish before D can start

D. C only must finish before B can start

E. C only must finish before D can start

1

3

X

14

LS

T

ES

T

A

C

B

D

9

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19. A critical path is made of activities A, B and C. The optimistic O, pessimistic P

and most likely M estimates (in weeks) are given in the table below.

ACTIVITY OPTIMISTIC TIME

(weeks)

MOST LIKELY TIME

(weeks)

PESSIMISTIC TIME

(weeks)

A 5.6 7.5 15.5

B 3.5 5.5 8.5

C 4.0 7.0 11.0

Assume normal distribution, calculate the Standard Deviation (SD) of the

finished event.

A. 4.778.

B. 3.65.

C. 2.1859.

D. 1.9105.

E. 0.78.

20. In an activity-on-arrow network diagram, the last head event has earliest start

time and latest finish time of 28 months each. What is the duration of the

critical path of the network?

A. 28 months

B. 56 weeks

C. 14 months

D. 1month

E . 0 month

PART II SHORT-ANSWER QUESTIONS (20 Marks)

1. Budgeted overhead for cost centre divided by budgeted units of absorption

basis is called ………………

2. In contract costing, the value of work done which is not yet recognized in the

profit and loss account is shown in the balance sheet as …………………

3. The introduction of an incentive scheme will be worthwhile provided that the

increased output can be sold at a price which is in excess of the ………………..

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4. The formula for allocating non-manufacturing overhead based on the ability of

the products to bear such costs is given as ……………………..

5. The file of all individual accounts supporting the total control account is called

the ……….

6. The only two major types of variances are price and………………

7. Machine breakdown or lack of materials or tools gives rise to

………………variance.

8. A situation where variances outside pre-determined limits are investigated and

necessary action taken can be said to be an extension of the use of

……………………

9. In the balance sheet method of preparing a cash forecast, where the asset side

total is lower than the liability side total reveals a ………………………

10. In a Zero Based Budgeting System, the document that forms its foundation is

called……….

11. The expense which should be allowed for the level of activity achieved is called

…………

12. In a break-even chart, the space between the sales line and the total cost line is

called ……………

13. The probability of throwing a total of 9 with two fair dice is ……………..

14. If the probability of an event is 0.6, then the probability of its complement is

............

15. The relationship between Laspeyre‟s index IL, Paasche‟s index I

P and Fisher‟s

index IF is represented by ………………………

16. The corrected price of a commodity as a percentage of the price in the base

period is referred to as ……………..

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17. In transportation problem, slack variables stand for ……………resources.

18. The sum of floats of activities on the critical path is…………………

19. An activity that does not consume time or resources is a/an …………………

20. A path through the network with same earliest start times and latest start times

is the......

SECTION B ATTEMPT ANY FOUR QUESTIONS (60 Marks)

QUESTION 1

a. In a manufacturing process, state any five essentials of material control that are

required prior to actual use in production. (5 Marks)

b. Storekeeping can make substantial contribution to efficient operation. State any

five activities involved in storekeeping. (5 Marks)

c. “Material Requirement Planning (MRP) is aimed at maintaining smooth

production flows”. Explain what it entails and the requirements for the

operation of the system. (5 Marks)

(Total 15 Marks)

QUESTION 2

Goke Limited is a construction company that has just won the construction of 2km

drainage and 1km road projects titled projects 101 and 204 respectively from

Dagbolu Local Government with effect from January. Details of data relating to

project 101 which was over 80% completed as at December are as follows:

N‟ 000

Material delivered directly to site 1,750

Materials from the company 670

Plants purchased 1,500

Plants taken to site (cost N4.5m) 2,700

415

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Materials on site as at end of the year

Materials transferred to project 204 855

Site wages paid 1,070

Sub –contract costs 850

Fuel and diesel 400

Other expenses 340

Insurance paid 180

Cost of work certified 4,750

Value of work certified 5,200

Progress payment 4,680

The contract sum is N7.5 million and estimated cost to completion is put at N960,000.

Depreciation is calculated at 20% per annum on cost, site wages unpaid as at date

amounted to N250,000 while insurance paid was for a period of 2 years due to the

discount offered. 10% of work certified is retained by the Local Government.

Required:

Prepare the contract account for project 101 and show whether profit can be taken.

Show balance sheet entries. (Total 15 Marks)

QUESTION 3

Ogbuefi Limited produces three products, all of which use the same machine with

available 55,000 hours per period. The standard costs of the products per unit are:

Bak1 Bak II Bak III

Maximum demand(units) 3,000 5,000 3,500

Direct labour N N N

-processing(N 7.50/hr) 30 45 45

-finishing(N 4.50/hr) 18 9 18

Variable overhead 42 36 32

Total variable cost 130 140 140

Selling price 200 250 225

Price of complimentary

Product 185 215 200

Fixed cost for the period is N650,000

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Required:

(a) Calculate the deficiency in machine hours for the next period. (4 Marks)

(b) What is the most appropriate production sequence for the products?

(5 Marks)

(c) Determine which product(s) and quantity (if any) that should first be

bought out. (4 Marks)

(d) Calculate the net profit of Ogbuefi Limited. (2 Marks)

(Total 15 Marks)

QUESTION 4

There are 160 agents of TOLU INSURANCE PLC selling motor (M), home (H) and life (L)

insurance policies to their customers at Ikeja. In the last month of the last quarter, 42

of the agents sold only motor policy, 30 agents sold only home policy and 24 agents

sold life policy only while 18 agents did not sell any policy. 22 of the agents sold both

motor and home policies, 16 sold both home and life policies while 20 sold both motor

and life policies.

Required:

(a) Draw the Euler-Venn diagram for the insurance company with the given data

clearly indicated. (4 Marks)

(b) Determine the number of agents who sold:

(i) at least one of the three policies. (2 Marks)

(ii) all the policies (3 Marks)

(iii) each of the policies (6 Marks)

(Total 15 Marks)

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QUESTION 5

The table below shows the prices and sales of five commodities for 2004 and 2009:

2004 2009

Commodity Price (N) Quantity ( kg) Price (N) Quantity (kg)

Rice A 5000 55 8000 55

Beans B 4000 97 7000 97

Sugar C 300 22 700 22

Salt D 250 25 750 20

Garri E 1000 50 1800 60

Use 2004 as the base year to calculate the

(a) Laspeyre‟s index number (6 Marks)

(b) Marshal and Edgeworth‟s index number. (9 Marks)

(Total 15 Marks)

QUESTION 6

The weekly cost of production C(q) (N`000) and unit price p(q) (N`000) of a special

capsule are respectively expressed as C(q) = 200 + 46q + q2

; p(q) = 200 – q (

For q < 200) where q is the number of kilogrammes of capsule produced and sold.

Required:

(a) Obtain expressions for marginal revenue, marginal cost and marginal profit.

(5 Marks)

(b) Determine the production level and price that will maximise profit using the

information in (a) above; (5 Marks)

(c) Determine the price elasticity of demand at the production level that

maximises profit. Comment on your result. (5 Marks)

(Total 15 Marks)

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SOLUTIONS TO SECTION A

PART I MULTIPLE CHOICE QUESTIONS

1. B

1. A

2. B

3. A

4. E

5. C

6. B

7. C

8. A

9. B

10. E

11. C

12. D

13. B

14. C

15. A

16. E

17. A

18. C

19. A

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WORKINGS

12. EOQ = 20024100

40000,1222

CC

DCO

Where CO = cost of ordering

CC = carrying cost , and

D = annual demand

15. Expected time = (9 × 0.6) + (13 × 0.4) = 5.4 + 5.2 = 10.6 (C)

16. Estimated time = 156

)15(4246

(A)

17. EST = max of { 9 + 12 = 21, 14 + 14 = 28 }

EST of X = 28 (E)

19.

2

0

6

ttSD

p

1859.26

411

6

5.35.8

6

6.55.15222

(C)

Examiners‟ Report

The questions test a sizeable proportion of the syllabus.

All candidates attempted this part of the paper.

Performance was average as about half of the candidates scored 50% and above.

Candidates will do better in future if they cover adequately the entire syllabus

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PART II SHORT-ANSWER QUESTIONS

1. overhead absorption rate

2. work in progress

3. costs of production

4. estimated non-manufacturing overhead

estimated manufacturing costs

5. subsidiary ledger

6. volume

7. idle time

8. management by exception

9. bank overdraft position

10. decision package

11. flexible budget allowance

12. angle of incidence

13. 1/9

14. 0.4

15. cpf III

16. Price index

17. unused

18. zero

19. dummy activity

20. critical path

PATHFINDER


WORKINGS

13. Sample space for totals

1 2 3 4 5 6

1 2 3 4 5 6 7

2 3 4 5 6 7 8

3 4 5 6 7 8 9*

4 5 6 7 8 9* 10

5 6 7 8 9* 10 11

6 7 8 9* 10 11 12

Pr{9}=

9

1

36

4

14. Let A be the event

P(Ac

) = 1 – P(A)

= 1 – 0.6

= 0.4

EXAMINERS‟ REPORT

The questions cover a good proportion of the syllabus. Almost all the candidates

attempted the questions.

Performance was poor. Less than 20% of the candidates scored 50% and above.

Candidates were, in most cases, unable to recall simple costing and QT terminologies.

Improved performance will be achieved if candidates prepare harder and better for

subsequent examinations.

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SOLUTIONS TO SECITON B

QUESTION 1

1a. The essentials of material control prior to actual use in production are as

follows:

(i) Materials of the appropriate quality and specification should be

purchased only when required and appropriately authorized.

(ii) Material should be properly inspected and received.

(iii) Appropriate storage facilities should be provided and stock levels

physically checked on a regular basis.

(iv) The documentation, accounting and controls at each stage should

be well designed and effective.

(v) The supplier chosen should represent an appropriate balance

between quality, price and delivery times.

(vi) Direct materials used in production should be charged to

production on an appropriate and consistent pricing basis.

(vii) Stock must be well organized to ensure that stock quantities on

hand are available when required.

b. Storekeeping is an important function and makes substantial contribution to

efficient operations in any organization. Storekeeping functions include the

following:

(i) Receipt of parts and materials from suppliers

(ii) Efficient and speedy issue of required materials, tools etc.

(iii) Organizing storage in logical sequence, thus ensuring that items can be

located easily.

(iv) Organizing stock checks either on a continuous or a periodic basis so as

to be able to provide accurate stock figure, when required.

(v) Protecting items in store from damage and deterioration.

(vi) Securing the store from pilferage, theft and fire.

c. Material Requirement Planning is a system that converts a production schedule

into a listing of the materials and components required to meet that schedule,

so that adequate stock levels are maintained and items are available when

needed. It is concerned with the following:

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(i) Maximizing the efficiency in timing of orders for raw materials or parts

that are placed with suppliers.

(ii) Efficient scheduling of the manufacture and assembly of the final

product.

The operation of a material requirement planning requires the following:

(i) A master production schedule showing the quantities and timing

required for the finished product.

(ii) A bill of material which shows the breakdown of each finished product

into sub-assemblies, components and raw materials.

(iii) An inventory file containing the balance on hand, scheduled receipts and

numbers already allocated for each material.

(iv) A parts manufacturing and purchasing file containing lead times of all

purchased items and lead times and production sequences of all sub-

assemblies and components produced internally.

EXAMINERS‟ REPORT

The question tests candidates‟ knowledge of:

Essentials of materials and production control

Storekeeping functions

Material Requirement Planning

About 95% of the candidates attempted this question.

Performance was below average as 30% of the candidates who attempted the question

scored 50% and above.

Major shortcomings include the following:

Candidates lacked understanding of the requirements of the question.

Many candidates confused storekeeping functions with valuation of store

materials.

MRP (Materials Requirement Planning) was taken in many instances as

Materials Requisition Notes.

PATHFINDER


It is recommended that:

Candidates should endeavour to cover all aspects of the syllabus diligently.

Speculation as to areas of concentration should be discouraged among

candidates as much as possible.

QUESTION 2 GOKE LIMITED

PROJECT 101

N‟000 N‟000

Material direct to site 1,750 Material c/d 415

Material from store 670 Material transferred 855

Plant depreciation 300 Insurance c/d 90

Plant depreciation 900 W.I. P c/d 600

Wages 1,070 Cost of work certified 4,750

Wages accrued 250

Sub-contact costs 850

Fuel & Diesel 400

Other expenses 340

Insurance 180

6,710 6,710

Cost of work certified 4,750 Value of work certified 5,200

Profit for the year 450

5,200 5,200

Material b/d 415 Wages 250

Insurance b/d 90

W.I.P b/d 600

Before any profit can be taken for the year it is necessary to estimate the overall

project outcome

N‟000 N‟000

Contract value 7,500

Cost to date 5,350*

Future cost 960 6,310

Expected overall profit 1,190

PATHFINDER


From the above, the profit taken in the account is reasonable.

*Cost to date = Total cost – material c/d – insurance c/d – material transferred

= 6,710 – 415 -855 – 90 = 5,350

Balance sheet extract

N‟000

Stock

Material on site 415

W.I.P 600

Debtors

Amount recoverable on contract 520

Prepayment

Insurance 90

Liabilities

Wages accrued 250

EXAMINERS‟ REPORT

The question tests candidates‟ knowledge of Contract Costing and Accounts.

About 80% of the candidates attempted the question.

Performance was very poor as less than 10% of the candidates who attempted this

question scored 50% and above.

Major pitfalls were as follows:

Inability to display understanding of posting in Contract Accounts.

Many candidates could not comment on the reasonableness of the notional

profit taken.

A good number of the candidates were unable to display the Balance Sheet

Extracts.

It is recommended that candidates should improve on the quality of their preparation

and tuition for future examinations.

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QUESTION 3

OGBUEFI LIMITED

(a) Computation of Deficiency in Machine Hours

Bak I Bak II Bak III Total

Hours Hours Hours Hours

Processing hrs/unit 4 6 6

Finishing hrs/unit 4 2 4

Total hrs/unit 8 8 10

Maximum Demand (units) 3,000 5,000 3,500

Maximum hrs required 24,000 40,000 35,000 99,000

Available Hours (55,000)

Deficiency in Machine Hours 44,000

(b) Determination of most appropriate production sequence

Bak I Bak II Bak III

N N N

Selling price/unit 200 250 225

Total variable cost/unit 130 140 140

Contribution per unit 70 110 85

Required Machine hour/unit 8 8 10

Contribution per machine

Hour N8.75 N13.75 N8.50

Ranking: 2nd

1st

3rd

Sequence:

BAK II – 1st

to be considered for production.

BAK I – 2nd


BAK III – 3rd


(c) Determination of units of products that should first be bought out.

Machine hours Available: 55,000

Maximum Units Machine

Hours

Machine

Hours

Production

based on

Required Available Hours

Available

PATHFINDER


BAK II – 5,000

40,000 15,000 5,000

BAK I – 3,000 15,000 - 1,875

BAK III – 3,5000 - - -

BAK III will not be produced.

BAK I will be bought out first because only 1,875 units were produced out of 3,000

units demanded.

(d) Computation of Net Profit:

Maximum Units Machine

Hours

Machine

Hours

Production

based on

Required Available Hours

Available

BAK II – 5,000 40,000 15,000 5,000

BAK I – 3,000 15,000 - 1,875

BAK III – 3,5000 - - -

EXAMINERS‟ REPORT

The question tests candidates‟ ability to make informed business management

decision using Marginal Costing Approach.

Question appears very unpopular among candidates. About 15% of the candidates

attempted the question.

Performance was very poor as only about 20% of the candidates who attempted the


Major shortcomings noticed were as follows:

Candidates exhibited insufficient familiarity with decision making scenarios.

Inability to recognize relevant costs in decision making situations.


Candidates should read and digest costing topics on decision making.

Candidates should increase the length of time spent on preparation, improve on

quality of texts and tuition.

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QUESTION 4

(a) Euler-Venn diagram

18

(b) (i) The total number of agents = 160

No. of agents who did not sell any policy =18

No. of agents who sold at least only the three policies = y

i.e. y = 160 – 18 = 142 agents

(ii) Let x = no of agents who sold all the policies

Then,

42 + (22 – x) + 30 + (16 – x ) + 24 + (20 – x) + x = 142

i.e. 154 – 2x = 142

2x = 154 – 142

2x = 12

x = 6 agents

(iii) No. of agents who sold motor policy = 42 + (22 – x) + x + (20 – x)

= 84 – x = 84 – 6 = 78

i.e. 78 agents

No. of agents who sold home policy = (22 – x) + 30 + x + (16 – x)

= 68 – x = 68 – 6 = 62

i.e. 62 agents

16-x 20-x

22-x

42 H

L

30

24

M

x

PATHFINDER


No. of agents who sold life policy = (20 – x) + x + (16 – x) + 24

= 60 – x = 60 – 6 = 54

i.e. 54 agents

EXAMINERS‟ REPORT

The question tests Set Theory with application to business environment.

Topic appeared very popular among candidates as about 95% of the candidates

attempted the question.

Performance was well above average. About 50% of the candidates who attempted the


Major pitfalls came in the following areas:

Inability to appreciate and interprete the requirements of the question.

Many candidates could not draw the Venn Diagram.

QUESTION 5

(a) Laspeyre‟s index number,

1

100

00

01

QP

QPI L

P1Q

0 P

0Q

0

440,000 275,000

679,000 388,000

15,400 6,600

18,750 6,250

90,000 50,000

1,243,150 725,850

%27.171850,725

100150,243,1

LI

(b) Marshal and Edgeworth‟s index number

1

100

)(

)(

100

101

QQP

QQpIm

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P0 Q

0 P

1 Q

1 Q

0 + Q

1 P

1(Q

0 + Q

1) P

0(Q

0 + Q

1)

5,000 55 8,000 55 110 880,000 550,000

4,000 97 7,000 97 194 1,358,000 776,000

300 22 700 22 44 30,800 13,200

250 25 750 20 45 33,750 11,250

1,000 50 1,800 60 110 198,000 110,000

2,500,550 1,460,450

%22.171450,460,1

100550,500,2

mI

EXAMINERS‟ REPORT

The question tests candidates understanding and application of Index Numbers.

Topic appears very familiar with candidates as about 95% of them attempted this

question.

Performance was well above average. About 50% of the candidates who attempted the


Inadequacy came from the following:

Many candidates could not describe the right formulae required for solving the

problem.

Inability to identify the base year required for the calculation.


Candidates should improve on their preparation.

Strive to master relevant formulae.

PATHFINDER


QUESTION 6

(a) 246200)( qqqC

qqP 200)(

)(200)(Re 2 qRqqqPqvenue

Marginal Revenue, MR = )200( 2qqdq

d

dq

dR

q2200

Marginal cost, MC = dC = 46 + 2q

dq

Marginal profit = d (R –C)

dq

)46200()200( 22 qqqqdq

d

)46200200( 22 qqqqdq

d

= 200 - 2q – 46 – 2q

= 154 – 4q

(b) (i) For maximum profit, MC=MR

i.e qq 2200246

1544 q

5.384

154 q

Unit production price = 200 – q = 200 - 38.5 =161.5

Actual price of a unit = N161,500

(c) The price elasticity of demand,

dq

dpq

ped

1

P = 200 – q ; 1dq

dp

q

q

q

qed

2001

200

At maximum profit, q = 38.5

PATHFINDER


1948.45.38

5.38200

de

.1 elasticisdemandthethated

EXAMINERS‟ REPORT

The question tests candidates understanding and application of Revenue and Cost

functions.

About 60% of the candidates attempted the question.

Performance was fair. About 40% of the candidates who attempted the question scored

40% and above.

A major pitfall was inability of the candidates to understand the requirements of the

question.


Candidates should improve on the quality of tuition and texts for future

examination.

Increase the amount of time spent on preparing for future examination.

PATHFINDER


ICAN/102/P/3 EXAMINATION NO………………………...



AUDIT AND ASSURANCE

Time Allowed – 3 hours

SECTION A Attempt All Questions

PART I MULTIPLE CHOICE QUESTIONS (20 Marks)

1. ONE of the major attributes of good audit evidence is

A. narrative.

B. easy to obtain.

C. competence.

D. physical existence.

E. reliability.

2. The following are risks associated with automating the business environment

EXCEPT

A. Privacy violation.

B. Computer virus.

C. Authorised access to information and data.

D. Hardware failure.

E. Data loss.

3. Which of the following is NOT a means of third party confirmation?

A. Bank confirmation letter

B. Valuation reports from experts

C. Debtors‟ circularization

D. Management representation letter

E. Solicitors‟ letter

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4. ONE of the following may NOT be a criterion for assessing the internal audit

function:

A. Qualities of the directors.

B. Technical competence of staff.

C. Availability of resources.

D. Due professional care.

E. Supervision.

5. Insurance Act 2003 states that no insurer shall practice insurance business in

Nigeria unless the insurer has and maintains while carrying on that business a

paid up share capital of the following amount EXCEPT

A. Life insurance business not less than N150,000,000.00.

B. Non-Life insurance business not less than N150,000,000.00.

C. General insurance business not less than N200,000,000.00.

D. Composite insurance business not less than N350,000,000.00.

E. Re-insurance business not less than N350,000,000.00.

6. According to Banks and Other Financial Institutions Act CAP B3 LFN 2004, the

qualification of the approved auditor of a bank includes the following EXCEPT

A. Membership of one of the professional bodies recognized in Nigeria.

B. Approval by the Central Bank of Nigeria.

C. Approval by the Chartered Institute of Bankers.

D. Must be resident in Nigeria.

E. Carrying on Professional practice in Nigeria as an accountant and

auditor.

7. The functions of the Audit Committee are as follows EXCEPT

A. Reducing illegal activities and preventing fraudulent financial reporting.

B. Strengthening the role of non-executive directors with a view to

protecting them from being misled by management.

C. Increasing the credibility of audited financial statements.

D. Helping the Board of Directors in meeting their responsibilities and

reinforce the auditor‟s responsibility.

E. Confirming the appointment of the external auditor.

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8. Statements which state how the basic procedures contained in standards are to be

applied are described as

A. auditing procedures.

B. Guidelines.

C. statutory procedures.

D. accounting standards.

E. professional pronouncements.

9. Which of the following is in the broad category of information in the Audit

Planning Memorandum?

A. Audit engagement letter.

B. Audit working papers.

C. Background of the client.

D. List of overseas suppliers.

E. Directors service contracts.

10. The letter prepared by the auditor for the client company at the auditors‟

instance setting out description and definition of certain contingent

responsibilities is

A. representation letter.

B. solicitors‟ letter.

C. confirmation letter.

D. management letter.

E. circularization letter.

11. The concern of auditors regarding compliance with corporate governance codes

involves

A. occurrence.

B. completeness.

C. confirmation of claims in annual report.

D. cut-off procedure.

E. classification testing.

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12. The auditor, in carrying out his assignment, ensures that the following are in

order EXCEPT

A. consistency of the application of accounting policies.

B. compliance with legal requirements.

C. reliability of the opening balances.

D. preparation of the chairman‟s statements.

E. appropriateness of the comparative figures included in the account.

13. Auditing standards differ from auditing procedures in that procedures relate to

A. measurement of performance.

B. audit principles and practices.

C. acts to be performed.

D. audit programmes.

E. audit judgments.

14. The primary objective of the examination of financial statements by an

approved auditor of a bank is the expression of independent opinion on

A. the competence of management in accounting matters which is implied

by whether the opinion is qualified or not.

B. the conformity of the financial statements with the books of account .

C. the conformity of the financial statements with auditing standards.

D. the fairness with which the financial statements present the operational

results.

E. the conformity of the financial statements with accounting standards and

banking operational standards.

15. The primary responsibility for the adequacy of disclosure in the financial

statements of a limited liability company rests with the

A. partner assigned to the audit engagement.

B. audit manager in charge of the field work.

C. management of the company.

D. Securities and Exchange Commission.

E. Corporate Affairs Commission.

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16. Due professional care requires

A. a critical review of work done at every level of supervision.

B. the examination of all corroborating evidence available.

C. the exercise of error free judgment.

D. a study and review of the internal controls.

E. exercising professional care as judged by peer reviewers.

17. Which of the following best describes the reason why an independent auditor

reports on financial statements?

A. A management fraud may exist and is more likely to be

detected by independent auditors

B. Different interests may exist between the company preparing the

statements and the persons using the statements

C. A misstatement of account balances may exist and is generally corrected

as the result of the independent auditor‟s work

D. Poorly designed internal control may exist

E. Comply with the generally accepted standards of field work

18. The independent audit is important to users of financial statements because it

A. determines the future stewardship of the management of the company

whose financial statements are audited.

B. measures financial and business data in the financial statements.

C. communicates financial and business data in the financial statements.

D. involves the objective examination of, and reporting on financial

statements prepared by management.

E. reports on the accuracy of all information in the financial statements.

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19. Statutory Auditing can best be described as

A. a branch of accounting.

B. statutory function that attests to the results of financial information

provided by management in their stewardship function.

C. a professional activity that measures and communicates financial and

business data.

D. a regulatory function that prevents the issuance of improper financial

information.

E. a discipline that reviews the economic activities in the economy.

20. What is the responsibility of the incoming Auditor with respect to

communicating with the retiring Auditor in connection with the client?

A. The incoming Auditor has no responsibility to contact the retiring auditor

B. The incoming Auditor should obtain written clearance from the retiring

auditor

C. The incoming Auditor should contact the retiring Auditor without

obtaining permission from the prospective client

D. The incoming Auditor need not contact the retiring Auditor if he is aware

of all available relevant information

E. The incoming Auditor has no obligation to inform the retiring Auditor in

so far as he is competent to do the assignment

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PART II SHORT-ANSWER QUESTIONS (20 MARKS)

1. A person that has the ability to control or exercise significant influence over the other

party is described as……………………

2. Audit risk is assessed during the …………………

3. Pension Reform Act 2004, provides that pension funds and assets shall only be held

by……………….

4. If an auditor or client cannot trace transactions from its inception to the final

destination in the accounting records, then the process lacks ………………………

5. Forensic accounting involves investigative accounting and ………………….

6. Revenue or expense items that are unusual in nature and of infrequent occurrence

are called ………………

7. The risk that the auditor expects to be present in spite of controls is known as ………..

8. State a type of statutory document that is usually found in the permanent audit

file.

9. The process of dividing a population into sub-populations each of which is a group of

sampling units which have similar characteristics is known as ………….

10. Establishing authority limits for making payments is a type of …………….…

11. Risk assessment has two main components: risk identification and ……………….

12. A collection of data that is accessible and used by a number of different users for

different purposes is known as ……………

13. In a computer environment, manual authorisation of input documentation is a form of

……………

14. Periodically the directors render accounts of their stewardship to shareholders. These

accounts of stewardship are referred to as ………………………………………

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15. Section 29 of Banks and Other Financial Institutions Act CAP B3 LFN 2004 provides that

every bank shall appoint annually a person referred to as “approved auditor” and

such auditor shall be approved by …………………

16. Where Accounting Standards or guidelines issued in Nigeria conflict with international

standards or guidelines, the Nigerian Standards or guideline will

……………………………………..

17. Loss of a major market is an indicator of problem of threat to……………………..

18. State the fundamental means of communication between the auditors and the

management.

19. The audit approach that can be applied in a small charitable organisation is

………………………….

20. In addition to the characteristics of reliability and credibility of information provided

by the traditional auditing function, Assurance services also report on the

………………………. and timeliness of the information.

SECTION B – ATTEMPT ANY FOUR QUESTIONS (60 MARKS)

QUESTION 1

a. What is a “Computer Audit Program”? (3 Marks)

b. Describe three applications of such a program in connection (6 Marks)

with verification of assets.

c. Mention six uses to which a computer audit programme can be applied

in the audit of a company. (6 Marks)

(Total 15 Marks)

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QUESTION 2

“The technique of internal control assessment takes on full significance in the context

of audit of large companies. In the case of smaller companies, the audit objectives are

unchanged, but the absence of normal internal control criteria will often necessitate a

different approach to the audit work.”

Required:-

(a) Comment briefly on the above statement (3 Marks)

(b) State SIX principal arguments in favour of abolishing audit requirements

for small companies. (12 Marks)

(Total 15 Marks)

QUESTION 3

Under the current global economic meltdown, an auditor is expected to take positive

steps to confirm that the client‟s company is still a going concern.

Required:

a. List TEN financial symptoms of going concern problems of an enterprise.

(5 Marks)

b. Outline the management‟s mitigation plans to ameliorate the financial threats

of going concern status of an enterprise. (5 Marks)

c. List TEN other (non-financial) symptoms that may raise problems about the

going concern status of an enterprise. (5 Marks)

(Total 15 Marks)

QUESTION 4

Write short notes on the following:

a. Database management system (DBMS) (3 Marks)

b. Operating system (3 Marks)

c. Utilities and service programs (3 Marks)

d. Translators (3 Marks)

e. Control programs (3 Marks)

(Total 15 Marks)

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QUESTION 5

Auditing of computer information system should be piloted by trained information

systems auditors to prevent avoidable losses and calamities.

You are required to explain briefly:

a) The reasons for carrying out information systems audit. (5 Marks)

b) The auditor‟s role in Information Technology controls

implementation (5 Marks)

c) The Information Technology Application Controls. (5 Marks)

(Total 15 Marks)

QUESTION 6

A system of accounting will not succeed completely and accurately in processing all

transactions unless internal controls are built into the system.

You are required to state:

a) FIVE purposes of such internal controls. (5 Marks)

b) FIVE inherent limitations that may inhibit the achievement of the internal

control objectives. (5 Marks)

c) FIVE functions of the Board of Directors regarding the best practices expected in

Corporate Governance. (5 Marks)

(Total 15 Marks)

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SOLUTIONS TO SECTON A

PART I MULTIPLE – CHOICE QUESTIONS

1. E

2. A

3. D

4. A

5. B

6. C

7. E

8. B

9. C

10. A

11. C

12 D

13 C

14 D

15 C

16 A

17 B

18 D

19 B

20 B

Tutorial

16. A is the correct option because all other options are subset of A.

EXAMINERS‟ REPORT

The requirements of the questions are various and they cover many areas of the

syllabus. All candidates attempted questions and recorded about 65% pass which is

an indication that they understood the requirements of the questions.

Candidates should put in more efforts with a view to improving their performance in

future.

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PART II SHORT ANSWER QUESTIONS

1. Related party

2. Planning Phase of the Audit

3. Pension Fund Custodians

4. Audit Trail

5. Litigation Support

6. Extraordinary items

7. Inherent Risk

8. Memorandum and Articles of Association/Partnership agreement/trust deed/

association‟s constitution

9. Stratification

10. Accounting and organisational controls

11. Risk evaluation

12. Database

13. Input Control

14. Financial statements

15. Central Bank of Nigeria

16. Prevail

17. Going concern

18. Management letter, Letter of weakness, Internal Control Memorandum,

Domestic Report, Letter of Recommendation, Constructive Service Letter

19. Vouching approach, Substantive approach

20. Relevance

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Tutorials

16. The adoption of International Financial Reporting Standard (IFRS) will prevail

over the local standard.

EXAMINERS‟ REPORT

The requirements of the questions are various, covering many areas of the syllabus.

All candidates attempted the questions. The general performance level was about 55%

pass. There is, however, room for better performance.

SOLUTIONS TO SECTION B

QUESTION 1

a. A computer audit program is a software package which is also referred to as

enquiry and interrogation program. It is used for reading and interrogating

computer based files. This program enables a wide variety of information to be

extracted from computer files in a format significant for the purpose of the user. It

is necessary for details of the hardware, e.g. capacity of computer memory to be

taken into account as well as details of the layout of data fields used in the

master files prior to the utilization of the computer audit program.

b. In connection with the verification of assets, the computer audit program may be

used as follows:

(i) Debtors: Information can be extracted from debtors‟ files so as to provide

stratification according to size of amount, age, and balances which

exceed credit limits (“exception reporting”)

(ii) Stock: The computer audit program will provide an analysis of stock

according to age, materiality of individual items, items classified as

defective or obsolete and also stockholding and ordering status

(iii) Fixed Assets Register: Information can be extracted from this register to

give details of fixed assets movements during the current accounting

period, i.e. acquisitions and disposals. It will also highlight changes, if

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any, in depreciation rates on individual plant and equipment and assets on

which no depreciation has been charged at all. It also includes basic data on

individual fixed assets.

c. Uses of Computer Audit Programs in the audit of a company include:

i. Selection of representative or randomly chosen transactions or items for

audit tests e.g. items number 30 and every 10th

item thereafter.

ii. Scrutiny of files and selection of exceptional items for examination e.g.

all wages payments over N1,000 or all stock lines worth more than

N100,000 in total.

iii. Comparison of two files and printing out differences e.g. payrolls at two

selected dates and periods.

iv. Preparation of exceptional reports e.g. overdue debts.

v. Stratification of data with a view to examining only material items e. g.

stock lines or debtors.

vi. Verifying data such as stock or fixed assets at the interim stage and

comparing the examined file with the year end file so that only changed

items need be examined at the final audit.

vii. Comparison of files at succeeding year ends to identify changes in the

composition of stock.

EXAMINERS‟ REPORT

The question is in three parts and its requirements are direct and straight to the point.

The candidates‟ attempt at the question was about 75%. Out of this percentage only

20% scored pass mark.

The major shortcoming is poor understanding of the requirements of the question

especially in parts (a) and (b). Candidates are advised to improve their studies on

computer and other IT applications.

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QUESTION 2

(a) The application of auditing standards to the audit of small companies managed

and owned substantially by the same people is a subject which the Auditing

Practices Committee is aware of.

A fundamental question in this context is whether the value derived from the

audit of such company is commensurate with the cost of carrying it out.

From the point of view of the proprietor there is clearly an advantage in having

accounts properly prepared but the additional advantage of having them

audited is marginal, unless there is a dire need to do so. The same applies to

the other shareholders who are usually small in number and closely connected

with the proprietor.

The creditors derive same benefits, but, since accounts are often filed many

months after a company‟s year end, those providing credit more often resort to

trade sources for more up-to-date information on the company‟s credit

worthiness.

(b) Some of the arguments in favour of abolishing audit requirements for small

companies are:

(i) Proprietors of such companies tend to require financial services (accounting

services, tax advice) from professional accountants, and regard the audit aspect

of the work as part of the price of incorporation, but of no added value.

(ii) Since the shareholders and directors are the same people, there is something

ludicrous about the spectacle of “directors” supplying information to the

auditors so that the latter is then in a position to report back to them (the

members).

(iii) There is no legal requirement for outside interests to be served by the auditor

and in any case, such outsiders make no contribution to the audit fee.

(iv) Many outside interests such as banks are well protected by personal guarantees

from directors and charges against company assets. They are, therefore, not

dependent on the audit for protection.

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(v) Creditors are able to make little use of the audit since the accounts and audit

report are filed many months after credit is given and such accounts, even if

fully understood, would provide little indication of the risks involved.

(vi) The cost of satisfying legal and regulatory requirements associated with the

audit and past audit process may be disproportional to any related value

derivable.

EXAMINERS‟ REPORT

The question is in two parts. Part (a) tests candidates‟ knowledge on the approach to

audit work for smaller companies as against that for large companies and the internal

control assessment technique to be used. Part (b) requires the candidates to state the

arguments in favour of abolishing audit requirements for smaller companies. Over

80% of the candidates attempted the question. The candidates misunderstood the

requirements of the question especially part (b) and this contributed to their poor

performance.

Candidates are advised to read and interpret questions very well before attempting

them.

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QUESTION 3

a. Financial symptoms of going concern problems include

i. Adverse or negative current ratio or trend;

ii. Dependence on short finance for long term needs;

iii. High gearing ratio;

iv. Dividends, tax and other statutory deductions in arrears;

v. Excess of stocks and debtors;

vi. Exceeding overdraft limits

vii. Recurring operating losses;

viii. Default on loan interest or principal repayment;

ix. Potential loss on long term contract;

x. Under capitalization particularly where there is deficiency of share

capital and reserves.

xi. Major rescheduling of debts

xii. Substantial sales of fixed assets not expected to be replaced

xiii. Denial of normal terms of trade credit by suppliers

b. The above symptoms can be mitigated by addressing alternative means of

generating adequate cashflow.

i. Disposal of assets without adversely affecting operations

ii. Postponing the replacement of assets without adversely affecting

operations;

iii. Lease assets rather than outright purchase

iv. Rolling over existing loan facilities

v. Rescheduling debts

vi. Additional capital by way of rights issue

c. Other symptoms that raise problems about going concern of an enterprise

include:

i. Loss of key management staff;

ii. Prolonged industrial action;

iii. Loss of key franchise or patent;

iv. Loss of principal supplier or customer;

v. Substantial dependence on one or certain project or product;

vi. Continuous use of obsolete machines;

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vii. Natural disaster;

viii. Government legislations;

ix. Legal Disputes;

x. Ban on importation of relevant raw materials or major products.

EXAMINERS‟ REPORT

The question is in three parts, part (a) tests financial symptoms of going concern

problems, part (b) is on managements‟ mitigation plans and part (c) other symptoms

of going concern problems.

The question was attempted by about 90% of the candidates and about 40% of them

scored pass mark. The commonest pitfall was the inability of the candidates to

differentiate between financial symptoms and other (non-financial) symptoms.

Candidates are advised to understand the requirements of the questions before

attempting it.

QUESTION 4

(a) Database Management System (DBMS)

A database is an organized collection of structured data, stored with minimum

duplication of data items so as to provide a consistent and controlled pool of

data which is common to users of the system.

DBMS is a software system which constructs expands and maintains the data.

DBMS provides the following:

The interface between the user and the data in the base

Security for the data in the base

Protects data against unauthorized access

Safeguards data against corruption

Provides recovery and restart facilities after a hardware or software failure

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(b) Operating System

This is a suite of programs which takes over the operations of the computer

without human intervention by an operator. The following are the functions of

the operating system:

Scheduling and loading of jobs to provide for continuous processing

Control over selection and operation of input/output devices and file

handling

Provision of complete record of all that happens during processing in form of

a log

(c) Utilities and Service Programs

These are system programs that provide useful service to the computer users by

providing facilities for performing common task of routine nature. These

programs include Sort Editor, File Copying, Dumping, File Maintenance etc.

(d) Translators

This is a program that converts written statements in one language into

statements in another language. There are three types of these programs,

namely: Assemblers, Compliers and Interpreters.

(e) Control Program

This is a program used by computer to monitor and control operations without

the need for continual intervention by the users.

EXAMINERS‟ REPORT

The question is in five parts and test candidates‟ knowledge in the area of computer-

based accounting systems.

About 60% of the candidates attempted the question and the percentage that passed

was above 20%.

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Candidates shied away from the question. Their lack of knowledge of this part is

“unpardonable”. Candidates are advised to consolidate their knowledge in this area

of the syllabus.

QUESTION 5

(a) Reasons for carrying out computer information system audit

The observable trend is that there are innumerable risks associated with

computerised business environment.

The auditor would ensure that adequate controls are instituted to mitigate the

innumerable risks associated with the computerised environment as analysed

below:

i. Prevention of data loss or other kinds of disasters with a view to

maintaining the integrity of data.

ii. Malicious destruction of electronic information

iii. Ensuring that valuable information is not stolen.

iv. Mitigating the risk of hacking by malicious agents.

v. Preventing espionage activities

vi. Ensuring that computer viruses and worms are curtailed.

vii. Preventing unauthorized access to information and data.

viii. Preventing computer fraud, abuse and privacy violations.

(b) Auditors‟ role in Information Technology controls implementation includes the

following:

(i) Serving as specialists in the Information Technology Strategy Committee,

to offer advice on matters concerning Information Technology controls.

(ii) Auditors should be members of Information Technology steering

committee as key advisors.

(iii) Auditors should ascertain the management framework for Information

Technology governance, e.g. Control Objective for Information

Technology (COBIT), Committee of Sponsoring Organisation (COSO).

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(iv) Auditors should get involved in the business plan development. The

strategic alignment need to make this imperative.

(v) Auditors should evaluate Information Technology business processes,

ensuring that the process fits with the organization‟s culture and

structure, and the management of risk effectively.

(c) Information Technology Application Controls are controls performed

automatically by the system. They include:

i. Completeness checks – controls that ensure all records are processed

from initiation to completion

ii. Validity checks – controls that ensure only valid data are input or

processed

iii. Identification – controls that ensure all users are uniquely and irrefutably

identified

iv. Authentication - controls that provide an authentication mechanism in

the application system

v. Authorisation – controls that ensure only approved business users have

access to the application system

vi. Problem management – controls that ensure all application systems are

recorded and managed in a timely manner

vii. Change management – controls that ensure all changes on production

environment are implemented with preserved data integrity.

viii. Input controls – controls that ensure integrity of data fed from upstream

sources into the application system.

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EXAMINERS‟ REPORT

The requirements of this question which is in three parts (a) to (c) relate to knowledge

of Information Technology in auditing. About 80% attempted the question but about

30% of them demonstrated understanding of the requirements of the question. Parts

(a) and (b) were poorly answered whereas they earn more marks in part (c) which was

correctly interpreted. The candidates‟ main undoing was lack of proper understanding

of the question. This area of the syllabus is treated in the ICAN Audit and Assurance

study pack. Candidates should endeavour to cover all the areas of the syllabus.

QUESTION 6

(a) The purposes of internal controls in a business environment includes ensuring

that:

(i) transactions are executed in accordance with proper, general or specific

authorization.

(ii) all transactions are promptly recorded at the correct amounts, in the

appropriate accounts and in the proper accounting periods, so as to

permit preparation of financial statements in accordance with relevant

legislations and applicable accounting standards.

(iii) access to assets are in accordance with proper authorization.

(iv) recorded physical assets are compared with the existing physical assets

at reasonable intervals and appropriate action taken to reconcile any

differences.

(v) policies decided on and adopted by management are consistently

followed by those responsible for implementing them.

(vi) expensive assets are properly secured and safeguarded to prevent misuse

and misappropriation.

(vii) errors and irregularities are avoided.

(b) The following limitations may inhibit the achievement of the internal control

objectives:

(i) The cost of an internal control is not disproportionate to the potential loss

which may result from its absence

(ii) Most systematic internal controls tend to be directed at routine

transactions rather than non-routine transactions

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(iii) The potential for human error due to carelessness, distraction, mistakes

of judgment and misunderstanding of instructions

(iv) The possibility of circumvention of internal controls through collusion

with parties outside or inside the entity

(v) The possibility that a person responsible for exercising authority on

internal control could abuse that responsibility, for example by

overriding internal control

(vi) The possibility that procedures may become inadequate due to changes

in conditions or that compliance with procedures may deteriorate over

time.

(vii) Pressure expected from within and outside the organization can

influence the integrity and competence of staff.

(c) Concerning Corporate Governance, the functions of the Board include:

(i) Strategic planning

(ii) Selection, performance appraisal and compensation of senior

executives.

(iii) Succession planning

(iv) Communication with shareholders

(v) Ensuring the integrity of financial controls and reports

(vi) Ensuring that ethical standards are maintained and that the company or

organization complies with the laws of the land.

EXAMINERS‟ REPORT

The question is in three parts (a) to (c).

Part (a) and (b) test candidates on internal controls while part (c) tests on Corporate

Governance.

About 80% of the candidates attempted the question and about 50% of them scored

pass mark.

The commonest pitfall in answering the question is substituting “internal auditor‟s

functions” for “purposes of internal control”. Candidates are advised to prepare

adequately for the examination.

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ICAN/102/P/2 EXAMINATION NO...................................



TAXATION

Time allowed – 3 hours

SECTION A: Attempt All Questions

PART I: MULTIPLE-CHOICE QUESTIONS (20 Marks)

1. What are the relevant years during which the right to elect by the tax payer is

exercised under commencement rules?

A. 1st

and 2nd

years of assessment

B. 1st

and 3rd

years of assessment

C. 1st

and 4th

years of assessment

D. 2nd

and 3rd

years of assessment

E. 3rd

and 4th

years of assessment.

2. What are the two types of loss reliefs?

A. Adjusted loss relief and company loss relief

B. Current year loss relief and permanent loss relief

C. Terminal loss relief and ultimate loss relief

D. Current year loss relief and last year loss relief

E. Current year loss relief and carry forward loss relief.

3. In which year of assessment can initial allowance be claimed?

A. 1st

year of assessment

B. 2nd

year of assessment

C. 3rd

year of assessment

D. 4th

year of assessment

E. All the years of assessment.

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4. Which is the relevant tax authority for unincorporated entities, individuals and

body of individuals?

A. Local Government Joint Revenue Committee

B. State Internal Revenue Service

C. Federal Inland Revenue Service

D. Federal Ministry of Finance

E. Joint State Revenue Committee.

5. What is the time limit for filing self assessment returns by corporate

organizations?

A. Six months before the accounting year -end

B. One year after the accounting year- end

C. One year before the accounting year- end

D. Six months after the accounting year -end

E. 3 months after the accounting year- end.

6. What is the time limit allowed for payment of undisputed tax liabilities from the

date of notice of assessment?

A. 60 days

B. 120 days

C. 180 days

D. 360 days

E. 90 days.

7. Which of the following does restriction on carry forward of losses apply?

A. Agricultural companies

B. Insurance companies

C. Individuals

D. Manufacturing companies

E. Trading organizations.

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8. What is the term used when the tax payer seeks to minimize his tax liabilities

within the tax law?

A. Tax allowance

B. Tax shifting

C. Tax avoidance

D. Tax incidence

E. Tax evasion.

9. In absolute referencing, $G10 means

A. that the row is absolute and the column is relative.

B. absolute reference to cell G10.

C. that the column is absolute while the row is relative.

D. that cell G10 could not be regarded as absolute.

E. that cell G10 could be varied.

10. Using an excel spreadsheet, what is the formula for calculating the monthly tax

payable by an employee, given the following information?

A B C

1 Taxable Income Annual Liability Monthly Deduction

2 232,564 40,141.00 3,345

A. A/B

B. =A+B-C

C. B/12

D. B2/12

E. =B2/12.

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11. If the calculated tax is lower than the statutory minimum tax, the difference is

A. subtracted from the Statutory minimum tax.

B. payable in addition to the calculated tax.

C. carried back to the first preceding taxable year.

D. carried back to the third preceding taxable year.

E. carried back to the 2nd

preceding taxable year.

12. “Child” in respect to settlements, trusts, and estates includes all the following

EXCEPT

A. step child.

B. adopted child.

C. illegitimate child.

D. own child.

E. brother.

13. A person appointed by a Will or Codicil of a deceased person to administer his

estate after his death is called ……….

A a trustee.

B a beneficiary.

C an investor.

D an administrator.

E an executor.

14. What is the time limit within which a tax payer must appeal after the

adjudication by a Commissioner for Stamp duties?

A. 7 days

B. 14 days

C. 21 days

D. 28 days

E. 30 days

PATHFINDER


15. Which of the following constitutes challenges to computer applications in

Taxation?

A. Low level IT literacy among revenue officials.

B. Cost of computer acquisition.

C. Resistance to change.

D. Computer fraud.

E. Speed and improved efficiency on the part of tax administrators.

16. Which of the following is the relevant tax authority responsible for withholding

tax relating to enterprises?

A. Federal Board of Inland Revenue

B. State Board of Internal Revenue

C. Federal Inland Revenue Service

D. Federal Inland Revenue Service Board

E. Joint Tax Board.

17. Which of the following does not suffer withholding tax?

A. Dividend

B. Rent

C. Salary

D. Fees

E. Contracts.

18. Duties charged on legal documents are called

A. excise duties.

B. instrument duties.

C. stamp duties.

D. input duties.

E. sharp duties.

19. Income derived from employment, business, profession or vocation is called

A. gross income.

B. earned income.

C. net income.

D. unearned income.

E. estimated income.

PATHFINDER


20. The means by which the taxpayer seeks to minimize his tax liability through

legal acts is known as

A. tax allowance.

B. tax shifting.

C. tax avoidance.

D. tax evasion.

E. tax payment.

PART II: SHORT ANSWER QUESTIONS

1. Education tax is chargeable on ………………………

2. A person who receives or is entitled to receive benefits from an annuity under a

Settlement or Trust is -------------

3. Who is responsible for the day-to-day administration of the secretariat of the

Education Trust Fund?

4. When interacting with Spreadsheet, $AA$3 represents ………………reference.

5. The currency in which withholding tax is to be deducted and paid to the

relevant authority is the ………………….

6. What is the document required before a Qualifying Capital Ex penditure above

N500,000 is allowed by the relevant tax authority?

7. Who appoints members of the Education Tax Fund Board of Trustees?

8. In the year a partner resigns from a partnership, what is the basis of assessing

the remaining partners?

9. A computer simulation program that simulates a paper worksheet is

called……….

10. It is a general rule that ad valorem duty is not paid more than ……

PATHFINDER


11. Education tax payable by a limited liability company for any year of assessment

is based on ……………………

12. What type of assessment will a tax authority raise if a business produces

assessable income lower than reasonable income from that business?

13. Tax payer‟s right of election on commencement of business

covers………………..

14. Assessable profit less capital allowances is regarded as………………..

15. The system of collecting personal income tax due on employment income

including pensions is called …………………….

16. Dividend received by a company after deduction of withholding tax is

called…………..

17. Who presides over the Joint Tax Board?

18. When a taxpayer arranges his business activities/affairs in a manner that

enables him pay a lower tax, other than tax avoidance is referred to

as………………

19. Who settles complaints and conflicts between States‟ Tax Authorities?

20. What is the basis of assessing employment income?

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SECTION B: ATTEMPT ANY FOUR QUESTIONS

QUESTION 1

Samuel, Bako and Chukwu have been trading for many years under the name of SBC &

Co, sharing profits and losses in the ratio 2:2:3 respectively. From its records, you

ascertained that the firm recorded adjusted loss of N630,000 for the year ended 31

December 2002.

You are provided with the following information:

Samuel

N

Bako

N

Chukwu

N

Salaries 210,000 240,000 450,000

Interest on capital 36,000 48,000 36,000

Bonus 18,000 12,000 30,000

Depreciation for the year was N340,000.

Additional information:

(i) Samuel has a life policy on himself with a capital sum of N480,000 and annual

premium of N4,800.

(ii) Bako is unmarried while Chukwu has two children, aged 9 and 11 years.

(iii) Samuel received N150,000 as gratuity from his former employment in public

service.

(iv) Samuel is married with five children and two dependant relatives. He spends

N3,000 annually on the dependant relatives.

Required

(a) Compute each partner‟s assessable income. (7 marks)

(b) Compute Samuel‟s income tax for the relevant year of assessment. (8 marks)

(Total 15 marks)

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QUESTION 2

(a) Zeem Limited is a manufacturing company which commenced business on

1 June 2003 the adjusted profits for the relevant years of assessment are as

follows:

N

Period ended 31/12/2003 21,000

Year ended 31/12/2004 72,000

Year ended 31/12/2005 54,000

Year ended 31/12/2006 28,800

Required:

Assuming the company took advantage of the option open to it to minimize its tax

liability, compute the assessable profits for all relevant years of assessment.

(8 marks)

(b) Abdulahi Nigeria Limited had been preparing its accounts to 30

June every year

until year 2000 when a decision was taken that accounts for 6 months should

be prepared to 31 December 2000 and thereafter, yearly.

Adjusted Profits

N

Year ended 30 June 2000 240,000

Period ended 31 December 2000 180,000

Year ended 31 December 2001 280,000

Year ended 31 December 2002 320,000

You are required to compute the assessments for the relevant years of

assessment. (7 marks)

(Total 15 marks)

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QUESTION 3

Mr. James makes up his accounts to 30 September every year. Below is the account for

the year ended 30 September 2008:

N N

Gross Profit 455,000

Less: Rent 26,000

Bad debts 18,000

Repairs to Building 3,000

Donations 5,000

Preliminary expenses 3,000

Legal and Professional fees 6,000

Loss on disposal of vehicle 3,000

Depreciation 8,000

Other allowable expenses 150,000 (222,000)

Net Profit N233,000

You are provided with the following information:

(i) The gross profit included N165,000 which was a profit on sale of fixed assets.

(ii) Donations include purchase of new furniture of N1,300 donated to the Irawo

Social Club.

(iii) Legal and professional fees comprise of: N

Renewal of Short term lease 1,200

Renewal of Long lease 3,000

Cost of Tax Appeal 1,800

(iv) Bad debt included a general provision for bad and doubtful debts of N7,500

Required:

(a) Compute the adjusted profit for the relevant year of assessment (7Marks)

(b) Write short notes on:

(i) Badges of trade; and (4 Marks)

(ii) Foreign employment (4 Marks)

(Total 15 Marks)

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QUESTION 4

(a) Creating a „View‟ in Microsoft Excel Spreadsheet will enable the user to view

only the rows and columns that are relevant to the user. You are the Tax

Consultant of Eko Limited and have just prepared the P.A.Y.E. of the company.

Explain the steps necessary to:

(i) Create a general “View” that contains only specific rows and columns

(5 Marks)

(ii) Create a specific “View” of the file (5 Marks)

(b.) State any FIVE contents/particulars of Notice of Appeal to a Tax Appeal Tribunal

(5 Marks)

(Total 15 Marks)

QUESTION 5

(a) In the preparation of your tax report with Excel Spreadsheet, you are required

to:

(i) Explain a worksheet; (3 Marks)

(ii) List and explain FOUR characteristics of formatting (4 Marks)

(b) XYZ BANK PLC has been trading for many years. As part of its income for the

year ended 31 December 2008, the interest on Agricultural Loan, included in

the accounts, amounted to N15million. The breakdown of the interest income

based on the terms of the loan is as stated hereunder:

Repayment Period Moratorium Period Interest Rate Loan Interest

N

5 years 24 months 15% 7,500,000

3 years 18 months 18% 2,400,000

2 years 18 months 14% 2,100,000

3 years 18 months 35% 3,000,000

15,000,000

Base lending rate is 18%.

You are required to compute the interest rate exempted from tax (8 Marks)

(Total 15 Marks)

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QUESTION 6

SOULINE Company Limited engaged you as its tax Consultant with the mandate of

ensuring computation of its tax liabilities and prompt remittance of same.

The company needed your advice on payment of VAT. The following are the figures

relating to transactions for the month of February 2010

N

Purchase of Plant 700,000

Purchase of Trucks 400,000

Purchase of Excavator 1,500,000

Bought chipping materials 60,000

Bought loads of cement 80,000

Bought loads of sand 50,000

Part payment received 2,900,000

Additional payment received 1,600,000

You were informed that the company paid VAT on its purchases or bought items.

Required:

(a) Compute the VAT payable for the month of February 2010. (10 Marks)

(b) When must the VAT due be paid to the tax office? (10 Marks)

(Total 15 Marks)

PATHFINDER


TAX RATES

1. CAPITAL ALLOWANCES

Initial % Annual %

Office Equipment 50 25

Motor Vehicles 50 25

Office Building 15 10

Furniture & Fittings 25 20

Industrial Building 15 10

Non-Industrial Building 15 10

Plant and Machinery – Agricultural

Production 95 NIL

– Others 50 25

2. INVESTMENT ALLOWANCE 10%

3. TAX – FREE ALLOWANCE:

Maximum Per Year

N

Rent 150,000

Transport 20,000

Utility 10,000

Meal Subsidy 5,000

Entertainment 6,000

Leave 10% of Annual Basic Salary

4. PERSONAL INCOME TAX RELIEFS / ALLOWANCES

(a) Personal Allowance – N5,000 plus 20% of Earned Income

(b) Children Allowance – N2,500 per annum per unmarried child

subject to a maximum of four children.

(c) Dependent Relative – N2,000 each

(d) Disabled Persons – N5,000 or 10% of Earned Income (which

ever is higher)

(e) Life Assurance – Actual Premium paid

PATHFINDER


5. RATES OF PERSONAL INCOME TAX:

Taxable Income Rate of Tax

N %

First 30,000 5

Next 30,000 10

Next 50,000 15

Next 50,000 20

Over 160,000 25

Note: Annual income of N30,000 and below is exempted from tax but a

minimum tax of 0.5% will be charged on the total income.

6. COMPANIES INCOME TAX RATE 30%

7. EDUCATION TAX 2%

8. CAPITAL GAINS TAX 10%

9. VALUE ADDED TAX 5%

10. WITHHOLDING TAXES

Type of payment Rates Rates

(Companies) (Non- corporate)

Dividend, Interest, Rent 10% 10%

Royalties 15% 15%

Contract supplies 5% 5%

Building construction activities 5% 5%

Consultancy/Professional services 10% 5%

Management services 10% 5%

Commissions 10% 5%

Technical services 10% 5%

Directors fees 10% 10%

PATHFINDER



PART I: MULTIPLE-CHOICE QUESTIONS

1. D

2. E

3. A

4. B

5. D

6. A

7. B

8. C

9. C

10. E

11. B

12. E

13. E

14. C

15. E

16. B

17. C

18. C

19. B

20. C

EXAMINERS‟ REPORT

The questions test various aspects of the Syllabus.

Almost all the candidates attempted the questions and performance was good.

Candidates are advised to cover the entire Syllabus to be able to perform better

in future.

PATHFINDER


PART II: SHORT-ANSWER QUESTIONS

1. an assessable profit

2. annuitant.

3. Executive Secretary of Education Trust Fund

4. absolute cell

5. currency of the transaction

6. Acceptance Certificate from the Inspectorate division of the Federal

Ministry of Industries

7. President and Commander in Chief of the Armed Forces

8. preceding year basis, (if in writing to the relevant tax authority) otherwise,

cessation rule will apply

9. spreadsheet

10. once

11. assessable profit

12. Turnover assessment

13. 2nd

and 3rd

years of assessment

14. total profit

15. Pay As You Earn (PAYE) system

16. Franked Investment Income

17. The chairman of the Federal Inland Revenue Service Board

18. tax evasion

19. The Joint Tax Board

20. Actual year basis

EXAMINERS‟ REPORT

The questions test various aspects of the Syllabus.

Almost all the candidates attempted the questions and performance was good.

PATHFINDER


SOLUTIONS TO SECTION B

QUESTION 1

(a) SAMUEL, BAKO & CHUKWU (SBC & CO)

COMPUTATION OF ASSESSABLE INCOME OF EACH PARTNER

SAMUEL BAKO CHUKWU TOTAL

N N N N

Salaries 210,000 240,000 50,000 900,000

Interest on capital 36,000 48,000 36,000 120,000

Bonus 18,000 12,000 30,000 60,000

264,000 300,000 516,000 1 ,080,000

Share of adjusted

Profit/(loss ) (82,629) (82,629) (123,942) (289,200)

Assessable Income of 181,371 217,371 392,058 790,800

each partner

(b) COMPUTATION OF SAMUEL‟S INCOME TAX LIABILITY FOR 2003 ASSESSMENT

YEAR

N N

Assessable/Earned income 181,371

Less: Reliefs

Personal allowance (N5,000 + 20% x N181,371) 41,274

Children allowance (N2500 x 4) 10,000

Dependant relative (N2000 x 2) 4,000

Life assurance 4,800 (60,074)

N121,297

Income Tax Payable: N

1st N 30,000 @ 5% - 1,500.00

Next N30,000 @ 10% - 3,000.00

Next N50,000 @ 15% 7,500.00

Next N11,297 @ 20% 2,259.40

N121,297

PATHFINDER


Income tax payable 14,259.40

Note: Gratuity of Samuel from public office is exempted from tax.

Computation of Adjusted Loss:

N

Loss per accounts 630,000

Less: Depreciation 340,800

Adjusted Loss 289,200

EXAMINERS‟ REPORT

The question tests candidates‟ understanding of the assessment of partnership income.

Most candidates demonstrated a good understanding of the question and their

performance was good.

Candidates‟ commonest pitfall was their inability to separate the answers to (a) and

(b). This is because they are used to arriving at the assessment of partners under a

single procedure.

Candidates are advised to learn to separate different answers for different questions.

PATHFINDER


QUESTION 2

(a) ZEEM LIMITED

COMPUTATION OF ASSESSABLE PROFITS ON COMMENCEMENT OF BUSINESS

Without Tax Payers‟ Election With Tax Payers‟ Election

Assessment Assessable

Assessable

Years Basis Period Profit Basis Period Profit

N N

2003 1/6/03-31/12/03 21,000 1/6/03-31/12/03 21,000

2004 1/6/03-31/5/04 51,000 1/1/04-31/12/04 72,000

(N21,000+ 5/12X 72,000)

2005 1/1/04 -31/12/04 72,000 1/1/05-31/12/05 54,000

123,000 126,000

2006 1/1/05-31/12/05 54,000 1/1/05-31/12/05 54,000

2007 1/1/06-31/12/06 28,800 1/1/06-31/12/06 28,800

Recommendation: The tax payer should not exercise his right of election to be

assessed on actual basis for the 2nd

and 3rd

years of assessment, because it will

produce a higher tax liability.

(b) ABDULAHI NIGERIA LIMITED

COMPUTATION OF ASSESSABLE PROFITS FOR THE RELEVANT YEARS (Based on

Old Accounting Period)

Year of Basis Period Assessable Profit

Assessment N

2001 1/7/1999-30/6/2000 240,000

2002 1/7/2000-30/6/2001

(N180,000+N140,000) 320,000

2003 1/7/2001-30/6/2002

(N140,000+N160,000) 300,000

860,000

PATHFINDER


Based on the New Accounting date

Year of Basis Period Assessable Profit

Assessment N

2001 1/1/2000-31/12/2000

(1/2xN240,000+N180,000) 300,000

2002 1/1/2001-31/12/2001 280,000

2003 1/1/2002-31/12/2002 320,000

900.000

Conclusion: Since the assessment based on new accounting date is higher than

the old accounting date, the final assessment will be N 900,000.

EXAMINERS‟ REPORT

The question tests candidates‟ knowledge of “Commencement” rules and their ability

to take a decision based on the options available to tax payers.

Candidates demonstrated a good understanding of the question and their performance

was fair.

The commonest pitfall of some candidates is their inability to assign correctly “basis

periods” to relevant years of assessment.

Candidates are advised to learn how to assign correctly “basis periods” to relevant

years of assessment and also how to apportion profits when they fall into more than

one basis period.

PATHFINDER


QUESTION 3

MR JAMES

(a) COMPUTATION OF ADJUSTED PROFIT FOR 2009 YEAR OF ASSESSMENT

N N

Net Profit 233,000

Add: Disallowable Expenses

Preliminary expenses 3,000

Loss on disposal of vehicle 3,000

Depreciation 8,000

Donation: Purchase of furniture 1,300

Legal and Professional fees: Renewal of long lease 3,000

Cost of tax appeal 1,800 4,800

Bad Debts: General Provision 7,500 27,600

260,600

Less: Non-taxable income

Profit on sale of fixed assets (165,000)

ADJUSTED PROFIT N95,600

(b)ii) Badges of Trade

The question as to which activity constitutes a trade or business for the purpose

of subjecting the profit there from to tax has been a matter of judicial

controversy over the years.

The question was settled by case laws which laid down the tests against which

a particular activity is measured in order to determine whether or not a trade

has indeed been carried on.

The tests referred to as to what constitutes “Badges of trade” are:

Subjects – matter of the transactions;

Frequency of transactions;

Supplementary work;

Profit motive; and

Reason for sale.

PATHFINDER


All the above principles will not be considered by the courts in deciding whether

an activity constitutes a trade or not as was done in the case of Arbiz limited v

Federal Inland Revenue Service.

(ii) Foreign employment

“Foreign employment” means an employment the duties of which are wholly

performed outside Nigeria, save during any temporary visit of the employee to

Nigeria.

An individual who holds a foreign employment on the first day of January in a

year of assessment, who first becomes liable to income tax in Nigeria for that year

by reason of his entering that employment during that year, shall be deemed to be

resident for that year in the territory in which the principal office of his

employment is situated on that day, or on the day his foreign employment

commences, as the case may be.

EXAMINERS‟ REPORT

The question tests the candidates‟ ability to compute the assessment of individual tax

payers.

Many candidates attempted the question and demonstrated a good understanding of

it with the exception of foreign income where the performance was poor.

The commonest pitfall was the inability of candidates to present the solution in a flow.

Candidates are advised to learn presentations of the assessment of individuals.

PATHFINDER


QUESTION 4

(a)i The Steps to create a general View in Microsoft excel are:

-Click on custom view option,

-Click on View menu, and

-Click on the add button to create a view

-Click ok button

ii Steps required to create a specific view are:

-Change the settings that you want to save in the view.

-Click custom view

- Type the name for the view

-Select the option you want

- Click ok button

(b) CONTENTS OF NOTICE OF APPEAL

i) Assessment notice number and relevant year of a assessment.

ii) Amount of tax charged by the assessment.

iii) Amount of total profit on which the tax is charged as shown in the notice

of assessment.

iv) Date appellant was served notice of refusal to amend the assessment by

the FIRS.

v) Precise grounds of appeal which should be limited to those contained in

the tax payer‟s notice of objection to FIRS.

vi) Address for service of any notice, precepts or other documents by the

Secretary of the tribunal.

PATHFINDER


EXAMINERS‟ REPORT

Part (a) of the question tests candidates‟ knowledge of the use of Microsoft Excel

Spreadsheet, while part (b) tests candidates‟ knowledge of the contents of Notice of

Appeal.

Most candidates attempted the question and performance was very poor in part (a)

but good in part (b).

Candidates‟ commonest pitfall was the inability to understand the use of Microsoft

Excel Spreadsheet.

Candidates are advised to pay attention to areas of information contained in the

Syllabus.

PATHFINDER


QUESTION 5

(a) (i) Formatting is an act of applying commands to text, numbers and

graphics in order to transform them to a more visually attractive state.

(ii) Formatting characteristics are:

Font types

Font sizes

Font colour

Bolding

Italicizing

Underlining

Adding border

Shading

Alignment

(b) XYZ BANK PLC

Moratorium Interest Rate Agric Loan Interest Interest Exempted

N N

i) 24 months 15% 7,500,000 7,500,000

ii) 18 months 18% 2,400,000 2,400,000

iii) 18 months 14% 2,100,000 2,100,000

iv) 18 months 35% 3,000,000 NIL

Total interest exempted N12,000,000

Note: The loan Interest of N3,000,000 is disallowed because the interest rate

has exceeded the base rate of 18%.

EXAMINERS‟ REPORT

Part (a) of the question tests candidates‟ understanding of the use of Worksheet and

characteristics of formatting, while part (b) tests the candidates understanding of the

taxation of agricultural loan interest.

Most of the candidates attempted the question and performance was poor in part (a)

but fair in part (b).

Candidates‟ commonest pitfall was their inadequate understanding of the two areas

covered by the question.

PATHFINDER


Candidates are advised to pay attention to these areas in future examinations.

QUESTION 6

SOULINE COMPANY LIMITED

COMPUTATION OF VALUE ADDED TAX PAYABLE FOR 2010 ASSESSMENT YEAR

N N

INCOME

Part payment received 2,900,000

Additional payment received 1,600,000 4,500,000

Output VAT on income received @5%

(N4,500,000 X 5%)

225,000

DIRECT EXPENSES:

Bought chipping materials 60,000

Bought load of cement 80,000

Bought load of sand 50,000 190,000

Input VAT on direct expenses @5%

(N190,000 x 5%) N9,500

NET VAT PAYABLE = 225,000 – 9,500

= N215,000

b. The VAT computed must be paid on or before the 21st

day of the

month following that in which the supply or purchase was

made.

PATHFINDER


c. Tax invoices contain the following information:

i. Tax payer‟s Identification Number(TIN)

ii. Name, address and VAT registration number

iii. Customer‟s name and address

iv. Type of supply

v. A description of the goods and services supplied

vi. Quality of the goods and services supplied

vii. The rate of VAT

viii The rate of any cash discount offered

ix. The total VAT payable

Note: VAT on fixed assets bought are not to be remitted but

capitalized. Input VAT N2,100,000 will not be remitted.

EXAMINERS‟ REPORT

The question tests candidates‟ knowledge of the provisions of the Value Added Tax

Law.

Candidates demonstrated a good knowledge of the question but could not distinguish

between Invoice Value and Payment Received. The performance of the candidates

who attempted the question was good.

The commonest pitfall is the inability of the candidates to know that VAT on fixed asset

is to be capitalized.

Candidates are advised to study the VAT Act and also practice the computation of VAT.

PATHFINDER


ICAN/102/P/4 EXAMINATION NO.................


INTERMEDIATE EXAMINATION-NOVEMBER 2010

BUSINESS COMMUNICATION AND RESEARCH METHODOLOGY

Time allowed-3 hours

SECTION A: Attempt all questions

PART I: MULTIPLE CHOICE QUESTIONS (20 Marks)

1. The middle value in a set of numbers arranged in order of size is identified by

A. mean.

B. median.

C. mode.

D. geometric mean.

E. harmonic mean.

2. Which of the following is a single value computed from sample data that is used

to estimate a population parameter?

A. Interval estimate.

B. Point estimate.

C. Confidence interval.

D. Confidence level.

E. Sample.

3. The sampling technique that does not guarantee randomness in the selection of

items of any sort from a study population is referred to as

A. judgement sampling.

B. stratified sampling.

C. simple random sampling.

D. systematic sampling.

E. cluster sampling.

PATHFINDER


4. The following are stages of the communication process EXCEPT

A. Source.

B. Encoding.

C. Message.

D. Modeling.

E. Channel.

5. The method of delivering a speech off hand is

A. impromptu.

B. outline.

C. memorized.

D. blank.

E. prompt.

6. The technique used to take decisions about a population, using sample is called

A. Descriptive statistics.

B. Inferential statistics.

C. Computational statistics.

D. Essential statistics.

E. Efficient statistics.

7. The page that displays the result of data analysis on Statistical Package for

Social Sciences (SPSS) viewer is

A. string.

B. output.

C. crosstab.

D. case production.

E. help.

8. Which of the following is used to describe the effect of taking decision about the

worth of an object information?

A. Testing.

B. Evaluation.

C. Measurement.

D. Validation.

PATHFINDER


E. Assessment.

9. All research designs do all of the following EXCEPT

A. Specifying type of data to collect.

B. Revealing confidence level.

C. Serving as a frame work.

D. Identifying population of study.

E. Serving as a blue print.

10. Which of the following cannot affect the validity of an interview?

A. Perceptual difficulty.

B. Language.

C. Cultural distortion.

D. Halo effect.

E. Inaccurate judgement.

11. A perfect negative correlation is represented by a correlation coefficient of

A. 0.00

B. 1.00

C. -1.00

D. -0.50

E. -0.25

12. Which of these Microsoft packages can be used to determine the coefficient of

variation of a given variable?

A. Info-path.

B. Power point.

C. Network.

D. Webcam.

E. Excel.

PATHFINDER


13. Which one of these concepts illustrates the process of selecting a small number

of items for the purpose of estimating the behaviour of the entire items?

A. Sampling.

B. Sample.

C. Sampling frame.

D. Census.

E. Testing.

14. Select one of the following concepts that does not describe reliability

A. Accuracy.

B. Stability.

C. Variability.

D. Consistency.

E. Dependability.

15. Which of these types of measurement scales can a researcher use to determine

the difference between 16o

C to 17o

C and 10o

C to 11o

C reading on a

thermometer?

A. Interval scale.

B. Ratio scale.

C. Nominal scale.

D. Ordinal scale.

E. Reliability scale.

16. The statistical technique that is used to predict a respondent‟s score of one

variable on the basis of his scores on several other variables is called

A. split-half.

B. Cronbach alpha.

C. Rank Order Correlation Coefficient.

D. Regression.

E. Coefficient of Skewness.

PATHFINDER


17. Some students in the school doubt the English teacher‟s competence. The

underlined expression is a

A. statement.

B. clause.

C. phrase.

D. part of speech.

E. predicate.

18. Which of these depicts a report in a specialised field?

A. Regular report.

B. Progress report.

C. Analytic report.

D. Technical report.

E. Informational report.

19. The following is untrue in a negatively skewed distribution EXCEPT

A. The mean is smaller than the median.

B. The mean is larger than the median.

C. The mean and median are equal.

D. The median and the mode are equal.

E. The mean is equal to variance.

20. Which one of these concepts links range, mean deviation, variance and

standard deviation?

A. Measure of degree of variability.

B. Measure of highest value.

C. Measure of class interval.

D. Measure of validity.

E. Normal distribution.

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PART II SHORT-QUESTIONS ANSWER (20 MARKS)

1. The variable which value or behaviour cannot be determined by the variable(s)

specified in a given relationship is called…………………..

2. Electronic libraries can be easily accessed through the …………………

3. A sample with the same characteristics as the population is called………….

4. In a progress research report, the part of its component that tells about the

entire activities in brief is the ……………………..

5. The sending of messages to distant but defined receiver is called…………..

6. The statistical measure that is dependent on two extreme scores in the

distribution is known as ……………………….

7. Establishing relationship between variables will require …………research

8. The aspect of a research report that gives a brief description of the entire study

is ...…….

9. The measuring scale that is regarded as the simplest and lowest level of

measurement is called ................

10. A variable that determines the value of another variable in a given relationship

is called ....……….

11. The sampling technique where a researcher selects his items at a regular

interval from a sampling frame is ...................

12. A researcher was interested in studying why the “old Accounting system” of the

1960s failed. Some members of ICAN who used the old Accounting system

during the 1960s were interviewed. These accountants are considered as

.............

13. A rule of grammar showing agreement in number, gender or person is................

14. A study population where some items cannot be easily accessed is referred to

as ........... population.

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15. The statistic that divides data set into two equal parts is ...............

16. A variable that assumes whole numbers is ...............

17. Two types of current electronic statistical packages used by research analysts

are ................. and ...................

18. Inferences on the situation in a technical report would be presented in the

................

19. A summary of a report extracted for the management of the organization is

........................

20. The part of the report in which a sample of the questionnaire used to gather

data is usually included under……………….

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SECTION B ATTEMPT ANY FOUR QUESTIONS (60 marks)

QUESTION 1

Discuss briefly any five factors that promote the flow of information in the grapevine

channel. (15 marks)

QUESTION 2

Discuss briefly five principles of effective communication. (15marks)

QUESTION 3

(a) What is sampling frame? (2 marks)

(b) Itemise the three processes involved in simple random sampling.

(3marks)

(c) Distinguish between the following sets of sampling methods:

i. Systematic and Stratified Random Sampling. (5 marks)

ii. Cluster and Quota Sampling. (5 marks)

(Total: 15 marks)

QUESTION 4

(a) Write briefly on the following sampling techniques:

(a) Stratified Sampling. (5 marks)

(b) Simple Random Sampling. (5 marks)

(c) Systematic Sampling. (5 marks)

(Total: 15 marks)

QUESTION 5

(a) Define Literature Review. (3 marks)

(b) Discuss briefly any four reasons why a researcher must carry out

Literature Review. (12 marks)

(Total: 15 marks)

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QUESTION 6

A survey on the sources of drinking water conducted among 450 dwellers in

Damaturu town revealed the following result:

You are required to

a. find the expected frequencies corresponding to the observed frequencies.

(7marks)

b. use a suitable statistical technique to test the hypothesis that the source of

drinking water is independent of the status of the dwellers at 5% level of

significance. (8 marks)

(Total: 15 marks)

Educational

Background Total

Source Literate Illiterate

Bore-hole 110 145 255

Pipe-Borne 90 105 195

Total 200 250 450

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PART I MULTIPLE – CHOICE QUESTIONS

1. B

2. B

3. A

4. D

5. A

6. B

7. B

8. C

9. B

10. A

11. C

12. E

13. A

14. C

15. A

16. D

17. C

18. D

19. A

20. A

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EXAMINERS‟ REPORT

The questions test all sections of the topics as covered in the syllabus: that is

Communication, Research Methodology and Statistics in relation to accounting

procedures. This part of the question paper is attempted by all candidates.

About 75% of the candidates scored above average.

The commonest pitfall was the candidates‟ inability to choose the appropriate option

from the given options.

It is recommended that candidates study in such a way as to understand the concepts

and technical words in all topics. In addition, candidates should work through past

question papers and access good books on the relevant subjects.

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PART II SHORT-ANSWER QUESTIONS

1. exogenous variable

2. internet

3. representative sample/unbiased sample.

4. executive summary

5. broadcasting

6. range

7. correlation

8. abstract

9. Nominal scale

10. independent variable/explanatory/predictor

11. systematic sampling

12. primary sources/respondents/interviewees

13. concord

14. infinite

15. median

16. discrete

17. SPSS/ EPI-Info/SAS/EXCEL/E-VIEW/MINITAB

18. conclusion

19. executive brief

20. appendix

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EXAMINERS‟ REPORT

The questions test all sections of the topics as covered in the syllabus, that is

Communication, Research Methodology and Statistics in relation to accounting

procedures. This part of the question paper is attempted by all candidates.

About 60% of the candidates scored below average of the allotted marks.

The commonest pitfalls were in the candidates‟ inability to understand the concepts

tested and also their inability to relate such concepts to applicative scenarios.

It is recommended that candidates pay special attention to in-depth applications of

concepts.

They should use updated study/learning materials. They could also involve themselves

in students‟ group study irrespective of status.

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SOLUTION TO SECTION B

QUESTION 1

i. Ego: It is believed that information is power. People who have important and

secret information at their disposal want to make it known that they have such

material. This is because they feel it confers a level of importance on them.\

ii. Unusual access to privileged information: Some workers by virtue of their

position and job schedules get information that they do not usually handle.

They are then able to access information before it is released into the work

environment. Having come into possession of this information, they then share

with people who are close to them. Also, when sensitive and important issues

like promotions are being handled, people who are handling them usually feel

a sense of excitement and share the information.

iii. Insecurity and conflicts: Situations, such as retrenchment, rationalization, and

downsizing in a place of work, when they are well advertised and anticipated,

tend to generate a lot of anxiety and fear. In this situation of anxiety, fear and

speculation about what would and what would not happen become the order of

the day.

iv. Relationships and allegiances: People whose friends and relations are affected

by an important but secret decision usually feel they have a sense of

responsibility to communicate such information to them.

v. Informal interactions: Informal interactions have a way of instigating people to

chat freely and in that type of circumstance and scenario, sensitive and secret

information may be communicated. The material for communication in the

grapevine channel would have been provided through this medium.

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vi. Information hoarding: In situations where information hoarding is rampant,

workers who may be affected by withheld information would do anything to get

information and where this proves difficult, speculation and rumour take over.

Even where workers get authentic information, this would be largely

embellished to satisfy the yearnings and hunger of the information seekers.

vii. Problems in the formal channel: Where the formal channel is not operating

optimally, a number of developments occur, which may stimulate the flow in

the grapevine channel. Unjust and slow handling of complaints and issues may

give an impetus to the informal channel to react to information on such matters.

EXAMINERS‟ REPORT

This question tests candidates‟ understanding of the factors that promote /aid the flow

of grapevine information in an organisation. Less than 20% of the candidates

attempted this question. Of this percentage, more than 50% of them scored below

average.

Candidates‟ commonest pitfall is lack of idea on the topic tested; candidates have no

understanding of the concept of grapevine, that is, informal communication mode and

as such could not apply it to organisation‟s scenarios.

It is recommended that candidates should read current books on informal

communication in order to apply these concepts to life situation.

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QUESTION 2

The principles of effective communication are also known as the 7Cs of

communication. These principles are: Conciseness, Concreteness, Correctness, Courtesy,

Clarity, Completeness and Consideration. They are explained below:

(i) Conciseness: Communication should contain essential information. It should

not be made unnecessarily long. Every item in any piece of communication

must be necessary and useful.

(ii) Concreteness: Communication should be vivid, lucid and convincing. It should

not be abstract. It must be easily identifiable and its meaning must be without

ambiguity and derived without ambiguity and vagueness.

(iii) Correctness: Communication should be correct. It should not contain errors; it

should not be misleading. When information is accurate and correct it can be

properly applied to achieve the desired result.

(iv) Courtesy: It is important to be polite and civil to others in any situation. Enough

recognition and respect should be accorded the receiver of any communication.

He should not be treated in just any way but should be treated with dignity and

respect.

(v) Clarity: Communication needs to be clearly conceived and encoded or

composed. The intentions of the communicator should be very clear. Equally,

the message should not be complex. It should not be difficult to understand

and should be distinct. The message should be clear.

(vi) Completeness: Communication should be complete. It should contain all the

components needed to convey the necessary information. Information

communicated in part would not produce the desired effect. It is, therefore,

desirable that all information be completed wholly.

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(vii) Consideration: Communication needs to be handled with sensitivity to the

feelings of others. This would affect the choice of message and the manner of

communicating the message because the information is not the only thing to be

considered in communication. The manner of communication is as important as

the message. One then has to consider the situation the receiver is in and how

the message would be received.

EXAMINERS‟ REPORT

The question tests candidates‟ understanding of the principles of effective

communication. More than 50% of the candidates attempted the question.

About 75% of them scored above 50% of the marks obtainable.

The commonest pitfall identified is that candidates made irrelevant points on the

process and channels of communication. A number of them could not explain the

principles though they could identify them.

It is recommended that the candidates should be exposed to extensive reading and

writing skills. Also, candidates should read various academic texts on the concept and

develop a good perception of reading culture.

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QUESTION 3

a. Sampling frame is the list of elements from which the sample is drawn. It is

referred to as the working universe or non-theoretical population.

b. The steps included in simple random sampling are:

i. Defining population sets;

ii. Numbering cases in the sampling frame;

iii. Selecting sample case using any random sampling method and /or statistical

random table.

c.i

Systematic Random Sampling Stratified Random Sampling

Selection of sample is at regular

intervals.

Sample is divided into two or more

significant strata.

Selection is not determined by any

attribute except that based on study.

Selection is determined by common

attribute of population type.

A sampling fraction is used to

determine the frequency of selection.

Sample fraction is the ratio of actual

fraction and total population.

Simple random sampling method is

used to select sample.

It is sometimes considered as non-

representative and the result cannot

be applied to all members of the

population.

The method is said to be

representative enough because the

strata contains all members of the

population.

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c ii.

Cluster Sampling Quota Sampling

It is a probability sampling method. It is a non-probability sampling

method.

Population is divided into discrete

groups.

Population sample is entirely based

on representative variability.

Population representativeness may

be high

Population representativeness is low.

It is used basically for descriptive

study.

It is used for survey study like

interview.

EXAMINERS‟ REPORT

The question tests Sampling and Sampling Procedures. Candidates were to itemise

processes of Simple Random Sampling and state the differences between Probability

and Non-probability Sampling procedures.

About 80% of the candidates attempted this question. More than 50% of this

percentage scored above average.

The major pitfall identified in this question is candidates‟ inability to recognise that

questions C (i) & (ii) are examples of differences between probability and non-

probability sampling methods; thus, finding it difficult to list enough differences to

earn them good mark.

It is recommended that candidates make use of the study pack provided by the

Institute so as to be acquainted with the required techniques for the examination.

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QUESTION 4

(a) Stratified Sampling

This is a sampling technique where study population is divided into groups with

homogenous features. The relevant sub-samples are thereafter selected within

each group or stratum using simple random techniques. The sample drawn

from each group must be proportional to the size of group in the study

population.

(b) Simple Random Sampling

This is the sampling technique where every sample item in the population is

given equal and independent chance of being selected or included in the

sample. In the process of obtaining a simple random sampling, the researcher

could use the ballot box /raffle draw, shuffled card method or the use of random

number table. This method ensures the randomness of the sample items.

(c) Systematic Sampling

This is the probability sampling that involves the selection of every nth

item from

the sampling frame that has been serially arranged. The nth

item or the regular

interval is obtained by dividing the population size by the required sample size.

Thereafter, the first item is selected from the sampling frame using random

techniques. The subsequent items are selected using the regular interval or nth

item.

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EXAMINERS‟ REPORT

The question tests understanding of candidates‟ ability to write briefly on the topic of

sampling techniques. More than 80% of the candidates attempted this question.

Of this, over 70% of the candidates scored above average.

The major pitfall identified is that candidates failed to mention the key concepts in

each of the sampling techniques examined. Also, candidates could not clearly

differentiate between the different sampling methods. This could also mean that some

of the candidates do not link the explanations to the concepts required.

It is recommended that candidates should learn and understand these concepts in

their right perspectives.

QUESTION 5

a. Literature review can be defined as the critical evaluation of past works

relevant to the research under study, with a view of identifying areas of

convergence and divergence in such past work. It is a process involving the

systematic identification, location and analysis of documents containing

information relevant to the research problem area of interest.

b. Reasons for carrying out Literature Review:

(i) To determine what has already been carried out in the past that relates

to the problem of the study.

(ii) It also enables researchers to critically study the findings of the research

work. Literature review makes it possible to determine the meaning and

relationship between variables. In addition, it enables researchers to

clarify underlying processes as well as facilitate the interpretations of

research findings.

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(iii) Literature review can be used to achieve the purpose of replication and

also help the researcher to delimit and define the problem. It helps to

find out whether a finding in one area of social, academic, political or

economic life can be found or generalized in another area.

(iv) Literature review indicates where there is gap in current literature on

subject of research study. This allows the researcher to identify where his

work would fit in and what his contribution to knowledge should be.

(v) Literature review is used to provide grounding and justification for the

researcher‟s findings and conclusions. It shows that they are not strange

and are in tandem with the subject of research and are as such

legitimate material emanating from the field of study.

(vi) To lay the basis for theoretical postulations. The researcher can only

extract theory from existing literature. This theory is the foundation on

which his work would rest. The review of literature gives the researcher

the facility of exploring diverse but relevant theoretical directions, which

would be the foundation of the work and guide the researcher in his own

theoretical postulations.

(vii) Every field has leading figures whose works determine the colouration

and direction of developments. Literature review leads the researcher to

recognize these figures, their contributions and give intellectual stature

and dignity to the work.

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EXAMINERS‟ REPORT:

The question tests candidates‟ knowledge on Literature Review as well as their basic

understanding of the need for review of literature in a research study. More than 80%

of the candidates attempted this question.

The question was well-understood by the candidates and as such about 75% scored

above average of the total marks obtainable.

The commonest pitfall was in the candidates‟ presentation of ideas. Few candidates

could not distinguish between reasons and sources of literature review.

It is recommended that candidates study extensively and prepare ahead for the

examination.

QUESTION 6

a. The expected frequencies are obtained as follows:

e = (RT) (CT)

GT

Where RT = Row Total

CT = Column Total

GT = Grand Total

e11

= 200 x 255 = 113.33

450

e 12

= 200 x 195 = 86.67

450

e 21

= 250 x 255 = 141.67

450

e 22

= 250 x 195 = 108.33 450

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To test the hypothesis:

(b). H0 : The source of drinking water is independent of the status of the

dwellers.

H1 : The source of drinking water is dependent of the status of the

dwellers.

The suitable statistical technique is 2

- test of Independence

Appropriate test statistics 2

= ∑ ( fo ─ fe)2

fe

where o = Observed frequencies

e = Expected frequencies

Fo fe fo ─ fe (fo ─ fe)2

(fo─fe)2

fe

90 113.33 - 3.33 11.09 0.13

110 86.67 3.33 11.09 0.10

105 141.67 3.33 11.09 0.10

145 108.33 -3.33 11.09 0.08

Total 0.41

2

= 0.41

Degree of Freedom = ( r ─1) ( c ─1)

=( 2 ─1) ( 2─1)

= 1

The table value of 2

at 0.05 level of significance is 3.84

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Decision:

Since the calculated value of 2

= 0.41 is less than the tabulated value

2

0.05

= 3.84, we accept the null hypothesis and reject the alternate

hypothesis.

EXAMINERS‟ REPORT:

The question tests candidates‟ knowledge of hypothesis testing using Chi-Square.

More than 80% of the candidates attempted the question.

Of this percentage, about 80% scored above average.

The commonest pitfall was that candidates approximated the parameters given, thus

arriving at varied test-results which in turn affected the findings but this did not affect

the decisions arrived at.

pathfinder inter nov2010

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