Pathfinder Pei Nov2010

THE INSTITUTE OF CHARTERED ACCOUNTANTS
OF NIGERIA
NOVEMBER 2010 PROFESSIONA EXAMINATION I
Question Papers
Suggested Solutions
Plus
Examiners‘ Reports
PATHFINDER
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

thus the professional performance of candidates.
The answers provided in this publication do not exhaust all possible alternative
approaches to solving these questions. Efforts had 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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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
PATHFINDER
TABLE OF CONTENTS
SUBJECT PAGES
FINANCIAL ACCOUNTING 4 – 40
INFORMATION TECHNOLOGY 41 – 64
MANAGEMENT ACCOUNTING 65 – 95
ADVANCE AUDIT AND ASSURANCE 96 - 117
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ICAN/ EXAMINATION NO...................................
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

PROFESSIONAL EXAMINATION 1– NOVEMBER 2010
FINANCIAL ACCOUNTING
Time allowed – 3 hours
SECTION A: Attempt All Questions
PART I - MULTIPLE-CHOICE QUESTIONS – (20 Marks)
Use the following information to answer questions 1 and 2
Microsoft Excel package is an accounting package that manipulates rows and

columns; the table below depicts extracts of a group account consolidation
schedule taken from the package.
Microsoft Excel Sheet
A B C D E
TOTAL COST OF POST- NCI

1 CONTROL ACQUISITION
2 Equity in XYZ Plc N‘000 N‘000 N‘000
N‘000
3 Ordinary Shares 50,000 ? 10,000
4 Revenue Reserve 30,000 8,000 ? 6,000
5 Total Acquisition ?
6 Cost of Shares 79,000
acquired
7 Goodwill ?
Note:
NCI = Non controlling interest
XYZ Plc is a subsidiary company
1. What is the value of C5?

A. N50,000
B. N38,000
C. N48,000
D. N80,000
A N44,000
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2. To derive Goodwill in the consolidation schedule, the Excel equation is
A. C6 – C5
B. C6+ C5
C. C7 – C5
D. B5– B6
E. A6– A5
3. Adanna Insurance company was incorporated on 31 December 2009 to carry

out non-life business. State the minimum share capital required for its
registration.
A. N150Million
B. N500Million
C. N10Billion
D N2Billion
E. N3Billion
4. A final debit balance in a Voyage account is referred to as
A. Loss on Voyage
B. Capital on Voyage
C. Reserve on Voyage
D. Profit on Voyage
E. Commission on Voyage
Use the following information to answer questions 5 and 6
Bobo- Keke LTD. Statement of Affairs

N‘000 N‘000
Preference Shares of N1 each fully paid 2,500 Bank balance 2,420
Ordinary Shares of N1 each fully paid 4,200 Deficiency 5,580
Ordinary Shares of N1 each 65 kobo paid 1,300
8,000 8,000
5. What is the deficiency per ordinary share?
A. 69.75 Kobo
B. 101.50 Kobo
C. 65.00 Kobo
D. 90.00 Kobo
E. 92.00 Kobo
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6. Calculate the amount of call on the partly paid ordinary shares.
A. N 95,000
B. N500,000
C. N540,000
D. N730,000
E. N700,000
Use the following information to answer questions 7 and 8.
Chelsea Plc acquired 80% and 30% interest in the Ordinary Shares and Preference
Shares of Mikel Plc for N440,000 and N36,000 respectively on 31 December 2007.
On that date, the Profit and Loss Account and General Reserve balances were
N28,000 debit and N20,000 credit respectively.
Balance Sheet extract as at 31December 2008:

Chelsea Plc Mikel Plc
N N
Ordinary Share Capital 900,000 300,000
10% Preference Share Capital 250,000 100,000
Profit and Loss Account 296,500 148,000
General Reserves 350,000 205,000
7. What is the Goodwill on acquisition?
A. N212,400 positive goodwill

B. N163,600 positive goodwill
C. N212,400 Negative goodwill
D. N163,600 Negative goodwill
E. N242,400 Negative goodwill
8. What is the Profit and Loss Account balance that will appear in the
Consolidated Balance Sheet as at 31 December 2008?
A. N118,400
B. N437,300
C. N414,900
D. N392,500
E. N140,800
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9. What is the product of Price Earnings Ratio and Earning Yield?
A. Infinite
B. Zero
C. >1
D. <1
E. Unity
10. Which of these accounting ratios will NOT be useful in determining the long-
term stability of a Company?
A. Gearing ratio
B. Proprietary ratio
C. Debt ratio
D. Fixed interest cover
E. Price Earning Ratio
11. Which of the following features is NOT true of Microsoft Excel application
package?
A. Large number of rows and columns

B. Chart to draw data
C. Microsoft excel saving is automatic
D. Auto correct formula
E. Data validation
12. Which of the following control keys in Excel Package moves the cell pointer
to the previous work sheet?
A. Ctrl + page up
B. Ctrl + page down
C. Alt + page up
D. Alt + page down
E. Shift + Tab
13. In relation to Stock and Shares, how else can Par Value be described?
A. Market value
B. Stated value
C. Ex-rights price
D. Earnings Per Share
E. Net Book Value
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14. How can the cost associated with developing a computerized

accounting system be classified?
A. Revenue and expenditure cost

B. Accounting package and system cost
C. One off and on going cost
D. Installation and development cost
E. Software and Hardware maintenance cost
15. Rotimi Nigeria Plc purchased 70% interest in Ewedu – Ewa Nigeria Ltd and
60% interest in Mensa Ghana Plc – a commercial company on the same date.
In relation to Rotimi Nigeria Plc group, Mensa Ghana Plc is a …………….
A. commercial company.
B. fellow subsidiary.
C. foreign associate.
D. foreign subsidiary.
E. foreign joint venture.
16. A parent company transferred a motor van costing N 10 million to its
subsidiary. The transfer was made at cost plus 25%. It is the Group‘s policy to
depreciate fixed assets at a flat rate of 10% per annum on straight line basis.
Which one of the following represents the excess or under depreciation for
consolidation adjustment purposes?
A. N250,000 excess depreciation

B. N200,000 under depreciation
C. N200,000 excess depreciation
D. N250,000 under depreciation
E. N2 million excess depreciation
17. The Earnings Yield for a company with Earnings Per Share of 28kobo is 16%.
If the total number of shares is 100,000, what is the Market Value of the
shares?
A. N57,143
B. N175,000
C. N100,000
D. N2,800,000
E. N1,600,000
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18. A company is said to be highly geared when the company has………
A. more of equity capital in relation to fixed interest capital fixed.

B. more of fixed interest capital in relation to equity capital.
C. no fixed interest capital.
D. more overdraft facility.
E. negative shareholders‘ fund.
19. Which of the following is NOT authorized as a liquid asset for banks in
Nigeria?
A. Treasury Bills
B. Shares issued by the Federal Government
C. Bonds by the State Government
D. Coins and naira notes as legal tender
E. Balances with Discount Houses
20. The following are the reasons for exclusion of subsidiary from Consolidation
EXCEPT
A. the two companies are unrelated.

B. the accounting year-ends of the two companies are three months
apart.
C. a subsidiary company acquires an associated company.
D. circumstances prevent exercise of control.
E. the two companies operate in different countries.
SHORT ANSWER-QUESTIONS (20 MARKS)
1. State two reports generated from a computerized payroll system.

2. Give two examples of Spread sheet application packages.
3. Mention two situations under which a discharged bankrupt can be called
upon to answer charges.
Use the following information to answer Questions 4 to 6.
Mallam Sule Plc acquired 75% of the ordinary share capital of Chukwu Plc on 1
April 2009.
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The Balance Sheets of the two companies as at 31 December 2009 were as follows:
Mallam Sule plc Chukwu plc

N ‘000 N ‘000
Fixed Assets 200,000 50,000
80,000 -
Investment in Chukwu
Current Assets 250,000 80,000
530,000 130,000
Ordinary Shares of N1 each 300,000 60,000
Capital Reserves 50,000 8,000
Profit and Loss Accounts 80,000 12,000
Current Liabilities 100,000 50,000
530,000 130,000
Chukwu Plc commenced business on 1 January 2009 (profit accrued evenly

throughout the year).
Calculate the following:
4. The non-controlling interest to be disclosed in the Consolidated Balance

Sheet
5. The Goodwill on consolidation, and
6. Pre-acquisition profit.
Use the following information to answer Questions 7 and 8.
Favour Plc acquired 80% interest in the equity capital of Bola Plc on 31 December
2005. On 31 March 2006, Favour Plc sold 20% of its holdings at a profit of
N48,000,000. An extract of the Profit and Loss Account of Favour Plc and Bola Plc for
the year ended 31 December 2006 showed:
Favour Plc Bola Plc

N ‗000 N ‗000
Profit before tax 980,000 710,000
Taxation (360,000) (288,000)
Profit after tax 620,000 422,000
No adjustments have been made in respect of shares sold.
7. Calculate the non-controlling interest for the year ended 31 December 2006.
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8. Determine the profit attributable to the group for the year ended 31 December
2006.
9. Which of the two main classes of lease is non-cancellable?
10. The combination of two or more international companies of equal size and
market power to form an entirely new company is called………………
11. In bankruptcy, the convener of a meeting of creditors is………………..
12. Identify the two parties involved in winding-up of a company.
13. State any risk that is inherent in on-line entry of transactions in an

accounting system.
14. Accounting application packages designed in-house to carry out particular

tasks or centered towards a particular organization or group is referred to
as……………..
15. In a group cashflow statement, a payment for the acquisition of the net assets
of subsidiary less any cash and cash equivalent, acquired is classified
as………….
16. Where a subsidiary company issues bonus shares from its post acquisition
reserves, the cost of investment incurred by the parent company will be
adjusted during consolidation. State the accounting entries to effect the
adjustment.
17. What is the method of accounting for business combinations?
18. Which of the methods of accounting for contract recognizes profits as actual?
Use the following information to answer Questions 19 and 20.
Balance Sheet and Profit and Loss extracts of Eko-Onibaje Insurance Plc as at 31
March 2010 are as follows:
Life Non- Life Total
N billion N billion N billion
Authorized Share Capital 500 350 850
Issued and fully paid Share Capital 45 30 75
Tangible Fixed Assets 90 60 150
Gross Premium 120 200 320
Net Profit 87 45 132
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19. What is the life contingency reserves of the insurance company?
20. What is the non-life contingency reserves of the insurance company?
SECTION B
Answer Question 1 and any other three Questions (60 Marks)
QUESTION 1 CASE STUDY
Chief Nwachukwu has been operating as a sole trader in Aba, Abia State, dealing in
general merchandise. Over the years, his business activities expanded so much that
he could not cope with its management. Based on the advice of his friend and
business associate, he registered the business as a limited liability company
Nwachukwu and Sons Nigeria Ltd. His first son who graduated in Business
Administration from Bakassi Polytechnic was made the General Manager.
In year 2001, Chief Nwachukwu developed interest in the manufacturing industry

and was prepared to sacrifice everything he had to get involved. He sought for
advice from a consultant on whether to convert his existing merchandise company
into a manufacturing company or to float a new one for that purpose. The
Consultant, Olawale Associates, advised that Chief Nwachukwu should rather study
some products in the industry before venturing into manufacturing. Chief
Nwachukwu was convinced to start acquiring shares in a manufacturing company
of his choice.
On 20 September 2006, the Secretary of Benbella Manufacturing Company Plc, sent

a letter to Chief Nwachukwu as the Chairman of Nwachukwu and Sons Nigeria Ltd,
requesting him to nominate four out of the seven board members of Benbella
Manufacturing Company Plc. A review of the financial books of Nwachukwu and
Sons Nigeria Ltd. revealed the following details in respect of share acquisition in
Benbella Manufacturing Company Plc.
Date of Number of shares Benbella‘s Reserve

Acquisition acquired Balance
N
2001 100,000 80,000
2002 180,000 110,000
2003 200,000 240,000
2005 120,000 320,000
2006 200,000 460,000
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The Issued Share Capital of Benbella Manufacturing Company Plc is N1million

divided into Ordinary Shares of N 1 each.
In 2008, Chief Nwachukwu proposed to sell 400,000 ordinary shares in Benbella

Manufacturing Company Plc in order to raise funds for the expansion of the
warehouse of Nwachukwu and Sons Nigeria Ltd. His son, the General Manager,
disagreed with the proposal to sell the shares commenting that such a sale will
change the status of Benbella Manufacturing Company Plc from a subsidiary
company to an associated company. On 30 September 2008, a total of 200,000
Ordinary Shares of Benbella Manufacturing Company Plc was sold for N526,400.
The reserve balance of Benbella Manufacturing Company Plc on 1 January 2008
was N 500,000. The Company made a Profit Before Tax of N90,000, out of which, an
interim dividend of N20,000 was paid on 30 June 2008. The average cost per share
acquired in Benbella Manufacturing Company Plc was N1.85.
The Federal Government fiscal policies for 2009 banned the production of a major
product of Benbella Manufacturing Company Plc in Nigeria with effect from 1
January 2009. The latest Balance Sheet of the company as at 31 December 2008 is
summarized below:
Benbella Manufacturing Company Plc
Balance Sheet as at December 31, 2008
N‗000 N‗000 N‗000
Fixed Assets:
Freehold Land and Building 18,000
Plant and Machinery 8,600
Motor Vehicles 3,300
Current Assets:
Stocks 4,620
Debtors 6,915
Cash in hand 255 11,790
Current Liabilities:
Creditors 7,650
Bank Overdraft 5,060 (12,710) (920)
28,980
Financed by:
N ‗000
Ordinary Shares of N 1 each 12,000
6% Preference Shares of N 1 each 8,000
Revenue Reserves 1,980
10% Debentures (with floating charge) 7,000
28,980
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The Board of Benbella Manufacturing Company Plc considered voluntary

liquidation as one of the options available to the company because of the ban on its
major product. In the event of a liquidation, however, the assets of Benbella
Manufacturing Company Plc are expected to realize as follows:
N ‗000
Freehold Land and Building 18,490
Plant and Machinery 5,065
Motor Vehicles 2,310
Stocks 3,099
Out of the debtors, 25% are not recoverable while N2,780,000 of the creditors have
preferential claims. The remaining creditors will be settled at an interest of 10 kobo
in the Naira. The Preference Shareholders are to receive a premium of 5 kobo per
share in liquidation. The estimated cost and expenses of liquidation was
N2,140,000.
Required:
a) Compute the Pre – acquisition reserve for consolidation purposes. (3Marks)

b) Compute the Group‘s profit on disposal of shares in Benbella Manufacturing
Company Plc. (Assume Company tax rate of 30%). (6 Marks)
c) Prepare the Deficiency Account, if the Company is eventually liquidated.
(6 marks)
(Total 15 Marks)
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QUESTION 2
The Consolidated Profit and Loss Account of Large – Joe Plc Group for the year
ended 31 December 2008 are as detailed below:
N ‗000 N ‗000
Turnover
Gross profit before interest 960,420
Interest 77,336
(35,607)
Group share of associated company‘s profit 41,729
992
42,721
Exceptional charge (5,627)
Profit before taxation 37,094
Taxation 11,914
Group share of associated company‘s tax 468 (12,382)
Profit after taxation 24,712
Non-controlling interest (1,293)
23,419
Extra ordinary gain 1,166
24,585
Dividends (7,076)
Retained profit 17,509
Other relevant information:

a) Gross profit before interest is stated
After charging:
N‘000
Depreciation 21,121
Audit fees and expenses 2,413
Rent and insurance 6,276
Direct allowance 685
And after crediting:

Property rents received 1,262
Exchange surplus realised 669
b) Interest comprises: N‘000

Interest on 6% loan stock 18,244
Interest on short term loan 14,647
Bank interest 7,861
Bank interest receivable (5,145)
35,607
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c) Taxation: N‘000
Income tax on profit for the year 10,107
Education tax 1,806
Deferred tax provision 2,750
14,663
Adjustment for prior year (2,749)
11,914
d) Dividends: N‘000
Ordinary 6,084
Preference 992
7,076
e) The exceptional charge of N5,627,000 represents a provision for contingent

losses resulting from obsolete inventory discovered in the warehouse.
f) Dividend received and receivable from the associated company for the year
amounted to N290,000 while dividend paid and payable to non-controlling
shareholders for same period amounted to N666,000.
g) The total amount distributed on behalf of employees, including directors

during the accounting year is as detailed below:
N ‗000
Wages, salaries and commissions 106,662
Retirement plan costs 7,106
Other benefits 3,062
116,830
Required:
Prepare a Value Added Statement of Large – Joe Plc Group for the year ended 31
December 2008, showing clearly the contribution of the non-controlling interest
towards the expansion of assets. (15 Marks)
QUESTION 3
(a) Bale Plc has granted 50 share appreciation rights to each of its 1000
employees on 1 January 2005. The rights are due to vest on 31 December
2008, with payment being made on 31 December 2009. Assume that 75% of
the awards vest. Shares prices were:
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N
1/1/2005 22
31/12/2005 27
31/12/2008 31
31/12/2009 28
In accordance with IFRS 2, Share Based Payment;
(i) What liability would be recorded on 31 December 2008 for the share
appreciation rights? (2 Marks)
(ii) How would the settlement of the transaction be accounted for on 31

December 2009. (3 Marks)
(b). Companies are required to record the substance of transactions rather than
their legal form, in situations where the legal forms are different from their
substance.
Explain with examples why it is important to record the substance rather the
legal forms of the transaction. (5 Marks)
(c). SURA Plc owns 80% of the share capital of MEGA Plc. The following
information were extracted from the individual Balance Sheet of the two
companies on 31 December 2009.
SURA Plc MEGA Plc
N‘000 N‘000
Current Assets 640,000 560,000
Current Liabilities 400,000 160,000
The debtors of SURA Plc include N64m from MEGA Plc while the creditors of
MEGA Plc include N40m payable to SURA Plc. The difference is accounted for
by cash-in-transit. There are no other inter – company balances.
You are required to calculate the Net Current Assets in the Consolidated Financial
Statements of SURA Plc.
(5 Marks)
(Total 15 Marks)
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QUESTION 4
Akhatar Nigeria Limited issued N3.75million 8% Debentures at 105 on 1 January

2003. The term under which the debentures were issued provided that a Sinking
Fund be set up for the redemption of the debentures, 5 years later. The sum to be
set aside every year should be such that when invested annually at a compound
interest rate of 12% per annum will amount to N4.5million at the due date of
redemption of the debentures. Interest is paid on the debentures on 31 March and
30 September every year.
The debentures were redeemed on 31 December 2007 at a premium of 10%. To

provide cash for the redemption, the Sinking Fund investment was sold for
N4,312,500.
You are required to show the following accounts:
a. Sinking Fund Account, (5 Marks)

b. Sinking Fund Investment Account, and (5 Marks)
c. Sinking Fund Investment Disposal Account. (5 Marks)
(Total 15 Marks)
QUESTION 5
Caronik Enterprises acquired a machine under a hire purchase agreement on 1

January 2005, from MOA Industries Ltd.
The cash price of the machine was N168million.

The details of the hire purchase agreement were as follows:
a) Hire Purchase interest was N30.24million which was assumed to accrue

evenly over the period of the agreement.
b) 10% of the cash price must be paid by hirer before taking possession.
c) The balance of the amount due to MOA Industries Ltd. was to be settled by 4
yearly instalments, with each instalment payable on 31 December.
The machine was to be depreciated at the rate of 20% on cost annually.
You are required to prepare the relevant accounts from the inception of the hire
purchase contract to 31 December 2008 in the books of the hirer and show how
these accounts would be reflected in the balance sheet on each accounting year
end.
( 15 Marks)
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QUESTION 6
Peachtree, an off-the-shelf accounting package is increasingly becoming popular in

Nigeria.
Required:
(a) Define Chart of Accounts as used in a Peachtree program. (2Marks)

(b) Itemize FIVE Peachtree Wizards necessary to create accounts of a new
company.
(5 Marks)
(c) Explain briefly the two (2) posting options in a Peachtree program. (2 Marks)
(d) A plant cost N1.5m with a life span of three years and the residual value of
N579,600. For the purpose of replacement, N240,000 is to be set aside for
the first year and N300,000 for each of the remaining two years. These
amounts were invested at 10% per annum. Assume the replacement cost is
equal to the original cost.
Prepare the Sinking Fund Investment Account.

(6 Marks)
(Total 15 Marks)
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SOLUTIONS TO SECTION A
PART 1 – MULTIPLE CHOICE QUESTIONS
1. C
2. A
3. E
4. A
5. D
6. B
7. A
8. B
9. E
10. E
11. C
12 B
13. B
14. C
15. D
16. A
17. B
18. B
19. C
20. D
Tutorial Notes
QUESTION 1
NCI % = 10/50 x 100%/1 = 20%

Cost of control = 80%
;. C5 = C3 + C4 where C3 = 80% x N50m
C5 = N40m + N8m = N48m
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QUESTION 2
Goodwill is the excess of the cost of acquisition over the total net assets acquired i.e
C6-C5
QUESTION 3
The national Insurance Commission Act (NAICOM) specifies the minimum paid-up
capital of insurance companies as follows:
Life = N2billion
Non-Life = N3billion
Composite = N3 billion
Re-insurance = N10 billion
QUESTION 5
Deficiency per ordinary shares = Total deficiency

Nominal value of ordinary shares
= . 5,580 .
4,200 + 1,300
0.65
= . 5.580 .
4,200+2,000
= 90 kobo
QUESTION 6
Amount of call on partly paid ordinary shares (90k- 65k) X 2,000,000 shares =
N500,000
QUESTION 7
N N
Cost of acquisition (Ord shares) 440,000
Less Net assets acquired:
Ord Share capital 300,000
Pre-acquisition profit (28,000)
Pre acquisition general reserves 20,000
292,000
Net assets acquired – 80% x (233,600)
292,000
Goodwill on preference shares 6,000
(36,000 – 30,000)
Total Goodwill (positive) 212,400
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QUESTION 8
Profit and loss account balance that will appear in the consolidated balance sheet :
N
Profit and loss account balance of 296,500
Chelsea
Add post acquisition retained profit 140,800
of Chelsea in Mikel. = 80% x
(148,000 + 28,000) -
437,300
QUESTION 9
Price earning ratio x earnings yield = 1

MPS x EPS
EPS MPS = 1
QUESTION 10
The ratios measuring a company‘s long-term stability are: Gearing, Debt/equity,

Debt ratio and fixed interest cover while price earning ratio is an investment ratio
which measure the relationship between earnings per share and the market price
per share.
QUESTION 11
Par value is the amount stated in the Memorandum of Association as the value of
each share. It is also called nominal value.
QUESTION 12
Mensah Ciliana is foreign company in which Rotimi could exercise control over its
operating and financial policies.
QUESTION 16
25/100 x 10/100 x 10,000,000 = N250,000 excess depreciation
QUESTION 17
EY = EPS/MPS
MPS = EPS/EY = 28/0.16 = 175k
Total Market value = 100,000 shares x N1.75k = N175,000
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QUESTION 18
The capital structure of a company comprises capital, reserves and loan capital.
Where the total loan capital is higher than the sum of share capital and reserves, a
company is said to be highly geared. Loan capital bears fixed interest.
EXAMINERS‘ REPORT
The multiple choice questions are well structured and adequately covered the
syllabus. The options provided in the solution are close enough to avoid the correct
answer from standing out. The candidates‘ performance on the whole is average.
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SHORT ANSWER-QUESTION SOLUTIONS
1. i Pay slips
ii Payroll
iii Payroll analysis
iv Cash analysis
v Payment details for dispatch to the Bank
2. Lotus 1,2,3, Microsoft Excel, V calc, Multi Calc and Super Calc.
a. a. Debts to the State e.g. amount due from him to the Federal, State or
Local govt.
b. Debt incurred through fraud or through a fraudulent breach of trust
c. Judgment debt in an action for seduction.
3. Calculation of non controlling interest:

Share Capital 25%XN60m = N15m
Profit and Loss 25%x N12m = N3m
Capital Reserves 25% x N8m = N 2m
N20m
4. Goodwill on Consolidation. N‘000 N‘000

Cost of Investment 80,000
Share Capital 60,000
Capital Reserves 3/12 x 8,000 2,000
Profit and Loss 3/12 x 12,000 3,000
65,000 x 75% (48,750)
Goodwill 31,250
5. Pre-acquisition Profit: N‘000

Period 3 months ( 1/1/09 – 31/3/09)
Capital Reserves 2,000
Profit and Loss Accounts 3,000
5,000
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6. Non-controlling interest: N‘000

20% x 3/12 x 422,000 21,100
36% x 9/12 x 422,000 113,940
135,040
7. Profit attributable to the group: N‘000

Total group profit after tax 1,042,000
Add Profit on shares sold 48,000
Less non-controlling interest (135,040)
954,960
9. Finance Lease or Capital lease
10. Amalgamation/Merger.
11. The Official Receiver.
12. The creditor; Shareholders/Contributories.
13. The risks are:
(i) Transactions may not be entered into the terminal
(ii) Data entered into the terminal may be inaccurate
(iii) Transactions may be entered in the wrong accounting period
(iv) Data entered into the terminal may be improperly valued
(v) System failure and data loss
(vi) Invalid transactions may be entered into the terminal or inserted during
transmission.
(vii) Virus attack.
14. User defined or customized application software, bespoke, tailor made.
15. Cash flow from Investing activities.
16. Debit – cost of investment A/C; Credit – Capital Reserve
17. Purchase / acquisition method
18. Completed Contract Method.
19. The higher of 1% of gross premium and 10% of net profit

= 1% X 120,000,000,000 and 10% of 87,000,000,000
= 1,200,000,000 and 8,700,000,000
= N8,700,000,000
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20. The higher of 3% of total premium and 20% of net profit

N‘b
3% x N200b 6
And
20% x N45b 9
= 9
EXAMINERS REPORT
The questions covered the entire syllabus of the paper and the solutions are really
short requiring just one or two words and short accounting computations. Some
candidates could not provide correct solutions to the short accounting
computations. However, on the overall, candidates‘ performance was fair.
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SOLUTIONS (SECTION B)
QUESTION 1
(a) Calculation of Pre-acquisition Reserve:
Date of Acquisition Number of shares percentage Amount Pre-

Acquired Reserve acquisition
Reserve
N N
2001 100,000 10% 80,000 -
2002 180,000 18% 110,000 x 28% 30,800
2003 200,000 20% 240,000 x 20% 48,000
2005 120,000 12% 320,000 x 12% 38,400
2006 200,000 20% 460,000 x 20% 92,000
209,200
b) Calculation of Group‘s Profit on Disposal

N
Proceed on disposal 526,400
Less: Cost of Shares sold ( N200,000 x N 1.85) 370,000
Holding company profit on disposal 156,400
Less: Post acquisition reserves attributable to
Shares sold and no longer consolidated (wk) 63,610
Groups profit on Disposal N 92,790
Workings:
Post acquisition Reserve: N N

Post acquisition Reserve b/f 1/1/2008
(N500,000 – 209,200) 290,800
Reserves 1/1/2008 – 30/9/2008:
Profit before tax for the year to disposal date
(9/12 x N 90,000) = 67,500
Less company income tax at 30% 20,250
47,250
Less Interim dividend 20,000 27,250
Post acquisition Reserve to date of Disposal 318,050
Amount attributable to Shares sold 20% 63,610
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(c) Benbella Manufacturing Company

Deficiency Account
N ‗000 N ‗000
Items increasing deficiency:
Loss written of assets:
Plant and machinery 3,535
Motor vehicle 990
Stock 1,521
Debtors 1,729 7,775
Other cost and expenses

Cost and expenses of liquidation 2,140
Interest paid to creditors 487
Preference premium 400 3,027
10,802
Items reducing deficiency:
Land and building 490
Deficiency as per Statement of Affairs N 10,312
EXAMINERS‘ REPORT
The case study tests candidates‘ knowledge of the theory and application of
piecemeal acquisition, companies‘ liquidation and disposal of a subsidiary.
Candidates‘ performance was below average in piecemeal acquisition and disposal
of subsidiaries but above average in liquidation of companies.
The commonest pitfalls were the candidates‘ inability to:

a. Determine the percentage interest in each lot of the acquisitions which is
necessary for computing the required pre-acquisition reserves.
b. Understand the basic parameters steps required to calculate the profit or loss
on disposal of a subsidiary.
Candidates are advised to study the basic principles and procedures required to
prepare group accounts.
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QUESTION 2
Large - Joe Plc
Statement of Value Added for the Year ended December 31, 2008
N ‗000 N ‗000
Turnover 960,420
Bought in materials and services (Wk1) 749,780
Value added by the group 210,640
Non-trading income:
Property rent received 1,262
Realized exchange surplus 669
Exceptional loss (5,627)
Extra ordinary gain 1,166
Share of profit from associated company 992 (1,538)
209,102 100%
Applied as follows:
To pay employees:
Wages, salaries and commission 106,662
Retirement plan costs 7,106
Other benefits 3,062 116,830
55.9%
To pay Government:
Taxation 12,382
5.9%
To pay providers of capital:
Interest on money borrowed 32,891
Dividends – to other shareholders 7,076
- to non-controlling interest 666 40,633
19.4%
Retained in the Business for Expansion:

Depreciation 21,121
Profit re-invested: by minority interest 627
By other shareholders 17,509 39,257
18.8%
N209,102 100%
Working (Wk.1):
Calculation of Bought in material and services:
N ‗000 N ‗000
Turnover 960,420
Less Gross profit before interest 77,336
883,084
Less:
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Depreciation 21,121
Wages, salaries and commission 106,662
Other benefits 3,062
Retirement plan costs 7,106 (137,951)
Add back
Property rents received 1,262
Realized exchange surplus 669 1,931
Add
Net Bank interest (7861 - 5145)
2,716
N749,780
EXAMINERS‘ REPORT
This question tests candidates understanding of the principles required for the
preparation of group Value Added Statement.
Candidates‘ performance was poor. The major pitfall was the candidates inability to
understand the elements of profit and loss account that constitute the components
of the value added applied to the different groups or stakeholders.
Candidates are advised to study the different classes of stakeholders and the
elements of the financial statements that are of particular interests to them.
QUESTION 3
(a) i. Liability as at 31 December 2008:

Appreciation in price between 1/1/05 – 31/12/08
N31 – N22 = N9
No of employees on which rights vest = 75% x 1000 = 750
No of rights granted per employee = 50
Liability N9 X 750 X 50 = N337,500
ii. Gain between 1/1/05 – 31/12/09

(N28 – N22) X 750 X 50 = N225,000
Payment to employees N112,500
Comment: The transaction would be accounted for as a cash settled share

base payment if the entity has incurred a liability to settle in cash or other
asset.
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(b) The substance of a transaction is reported rather than its legal form in order to
report the true and fair view of the performance of the entity. The substance
of a transaction represents the commercial intention as against the legal
form.
In instances where the risks and reward of a transaction do not rest with the
owners, control lies with the person that bears the risks and the rewards,
hence, the substance. Examples are in Finance Lease, Consignment of
goods where the seller retains the risks and rewards until the goods are paid
for or returned by the Consignee. Other cases are sales and purchases
agreements, factoring of debtors and securitized assets and loan transfers.
We may also consider the commercial substance of a transaction where assets

are sold above or below their fair value. Reporting the substance of a
transaction, guides against Creative Accounting.
(c) Consolidated current assets: N‘000
SURA Plc 640,000

MEGA Plc 560,000
Cash in transit (N64m – N40m) 24,000
Inter-company balance (64,000)
1,160,000
Less consolidated current liabilities:
SURA Plc 400,000
MEGA Plc 160,000
Inter- company creditors (40,000)
520,000
Net current assets 640,000
EXAMINERS‘ REPORT
This question tests candidates understanding of the provisions of IFRS 2 – Share

based payment, substance of transactions over legal form and cancellation of inter
company balances in consolidated accounts.
Performance was below average. Candidates‘ pitfalls were:

a. Inadequate knowledge of the provisions of IFRS 2,
b. Inability to explain the commercial substance of a transaction and
differentiate it from the legal form, and
c. Inability of how to eliminate inter-company balances.
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Candidates are required to pay great attention to accounting standards particularly

the IFRS now that companies in Nigeria are required to adopt IFRS in the
preparation of financial statements.
QUESTION 4
Akhatar Nigeria Limited
(i) Sinking Fund Accounts
N N
31/12/03 Balance c/d( wk 1) 708,383 31/12/03 P & L 708,383
31/12/04 Balance c/d 1,501,772 01/01/04 Balance b/f 708,383
P&L 708,383
Sinking Fund Invt 85,006
1,501,772 1,501,772
31/12/05 Balance c/d 2,390,368 01/01/05 Balance b/f 1,501,772
P&L 708,383
2,390,368 2,390,368
31/12/06 Balance c/d 3,385,595 01/01/06 Balance b/f 2,390,368
P&L 708,383
3,385,595 3,385,595
31/12/07 Balance c/d: 01/01/07 Balance b/f 3,385,595
On Redemption 375,000
Deb. Interest 75,000 P&L 708,383
Sinking Fund Invt Loss 187,500
General Reserve 3,862,500 Sinking Fund Invt 406,022
4,500,000 4,500,000
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(i) Sinking Fund Investment Account

N‘000 N‘000
31/12/03 Bank 708,383 31/12/03 Bal c/d 708,383
1/1/04 Bal.b/d 708,383 31/12/04 Bal c/d 1,501,772

Bank 708,383
Sinkg fund 85,006 -
1,501,772 1,501,772
1/1/05 Bal, b/d 1,501,772 31/12/05 Bal c/d 2,390,368

Bank 708,383
Sinkg fund 180,213 -
2,390,368 2,390,368
1/1/06 Bal b/d 2,390,368 31/12/06 Bal c/d 3,385,595

Bank 708,383
Sinkg fund 286,844 - .
3,385,595 3,383,595
1/1/07 Bal b/d 3,385,595 31/12/07 Disposal 4,500,000

Bank 708,383
Sinkg fund 406,022 -
4,500,000 4,500,000
(ii) Sinking Fund Investment Disposal Account

N‘000 N‘000
31/12/07 Sinkg fund Inv 4,500,000 31/12/07 Bank 4,312,500

Sinkg fund
- (Loss on disposal) 187,500
4,500,000 4,500,000
Working
S = A ((1+r)n-1)
r
= N4,500,000( (1+0.12)5 -1
0.12
= N4,500,000 X0.12 = N540,000
= N540,000/0.7623
= N708,382.50
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EXAMINERS‘ REPORT
The question tests candidates‘ understanding on how to prepare sinking fund

investment accounts. The candidates‘ ability to calculate the amount to be invested
annually and the attributable interests is a key to answering the question correctly.
Candidates‘ performance was generally poor. The major pitfall was the inability of
candidates to apply the annuity formula correctly.
Candidates are advised to pay more attention to specialised accounts.
QUESTION 5
CARONIK ENTERPRISES
Machinery Account
N'000 N'000
MOA Motors
01/01/2005 Ltd 168,000 31/12/2005 168,000
1/12006 Balance b/d 168,000 31/12/2006 Bal c/d 168,000
1/1/207 Balance B/d 168,000 31/12/2007 Bal c/d 168,000
01/01/2008 Balance b/d 168,000 31/12/2008 Bal c/d 168,000
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MOA Machinery Ltd Account
N'000 N'000
Machine
01/01/2005 Bank deposit 16,800 01/01/2005 a/c 168,000
HP
31/12/2005 Bank Interest
1st Instalment Suspense
(w1) 45,360 a/c 30,240
Bal c/d 136,080
198,240 198,240
31/12/2006 Bank 01/01/2006 Bal b/d 136,080

2nd Instalment 45,360
Bal c/d 90,720
136,080 136,080
03/12/2007 Bank 01/01/2007 Bal b/d 90,720

3rd Instalment 45,360
Bal c/d 45,360
90,720 90,720
31/12/2007 Bank 01/01/2008 Bal b/d

4th Installment 45,360 45,360
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H.P INTEREST SUSPENSE ACCOUNT
N'000 N'000
01/01/2005 MOA Machiney Ltd 30,240 31/12/2005 P&L 7560
Bal c/d 22,680
30,240 30,240
01/01/2006 Ba/ b/d 22,680 31/12/2006 P&L 7,560

Bal c/d 15,120
22,680 22,680
01/01/2007 Bal B/d 15,120 31/12/2007 P&L 7560

Bal c/d 7560
15,120 15,120
01/01/2008 Bal b/d 7,560 31/12/2008 P&L 7,560

Bal c/d 7,560
15,120 15,120
01/01/2008 Bal b/d 7,560 31/12/2008 P&L 7,560
PROVISION FOR DEPRECIATION ON MACHINERY ACCOUNT
N'000 N'000
31/12/2005 Bal c/d 33,600 31/12/2005 P&L a/c P & L a/c 33,600
31/12/2006 Bal c/d 67,200 01/01/2006 Bal b/d 33,600

31/12/2006 P & L a/c 33,600
67,200 67,200
31/1/2/2007 Bal c/d 100,800 01/01/2007 Bal b/d 67,200

31/12/2007 P & L a/c 33,600
100,800 100,800
31/1/2/2008 Bal c/d 134,400 01/01/2008 Bal b/d 100,800

31/12/2008 P & L a/c 33,600
134,400 134,400
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BALANCE SHEET EXTRACT AS AT 31ST DECEMBER
2005 2006 2007 2008

N'000 N'000 N'000 N'000
Fixed Assets 168,000 168,000 168,000 168,000
Depreciation 33,600 67,200 100,000 134,400
WDV 134,400 100,800 67,200 33,600
Long Term Liabilities
HP Creditors Due after 90,720 45,360

12 months 15,120 7560
Less HP Interest 75,600 37,800
Current Liabilities
HP Creditors due within 12

months 45,360 45,360 45,360 45,360
Less HP Interest 7560 7560 7560 7560
37,800 37,800 37,800 37,800
Workings
Calculation of Annual
Instalments N'000
Cash Price 168,000

Total HP Interest 30,240
198,240
Less Deposit 16,800
Balance to be settled by 4 Instalments 181,440
Each Instalment N181,440

4 = N45,360
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ALTERNATIVE SOLUTION TO QUESTION 5
Dr HP Machine Account Cr
N‘000 N‘000
1/1/05 HP Creditor 168,000 31/12/05 Bal c/d 168,000
1/1/06 Bal b/d 168,000 31/12/06 Bal c/d 168,000
1/1/07 Bal b/d 168,000 31/12/07 Bal c/d 168,000
1/1/07 Bal b/d 168,000 31/12/08 Bal c/d 168,000
Dr Provision For Depreciation Account Cr

N‘000 N‘000
31/12/05 Bal c/d 33,600 31/12/05 P&L A/C 33,600
31/12/06 Bal c/d 67,200 1/1/06 Bal b/d 33,600
31/12/06 P&L A/C 33,600
67,200 67,200
31/12/07 Bal c/d 100,800 1/1/07 Bal b/d 67,200
31/12/07 P&L A/C 33,600
100,800 100,800
31/12/08 Bal c/d 134,400 1/1/08 Bal b/d 100,800
31/12/08 P&L A/C 33,600
134,400 134,400
Dr Hp Creditor‘s Account Cr
N‘000 N‘000
1/1/05 Bank (initial deposit) 16,800 1/1/05 HP machine 168,500
31/12/05 Bank (1 st
45,360 31/12/05 Hp Int 7,560
Installment)
31/12/05 Bal c/d 113,400
175,560 175,560
31/12/06 Bank (2nd 45,360 1/1/06 Bal b/d 113,400
Installment)
31/12/06 Bal c/d 75,600 1/1/06 Hp Int 7,560
120,960 120,960
31/12/06 Bank (3rd 45,360 1/1/07 Bal b/d 75,600
Installment)
31/12/07 Bal c/d 37,800 31/12/07 Hp int 7,560
83,160 83,160
1/1/08 Bal b/d 37,800
31/12/08 Bank (4 th
45,360 31/12/08 Hp int 7,560
installment)
45,360 45,360
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Dr HP Interest Expenses Account Cr

N‘000 N‘000
31/12/05 Hp Creditor 7,560 31/12/05 P&l A/C 7,560
31/12/06 Hp Creditor 7,560 31/12/06 P&l A/C 7560
31/12/07 Hp Creditor 7,560 31/12/07 P&l A/C 7,560
31/12/08 Hp Creditor 7,560 31/12/08 P&l A/C 7,560
Dr Profit & Loss A/C Extract for the year ended Cr

N‘000 N‘000
31/12/05 7,500
31/12/06 7,500
31/12/07 7,500
31/12/08 7,500
Balance Sheet Extract as at

Fixed Asset: 31/12/05 31/12/06 31/12/07 31/12/08
N000 N 000 N 000 N 000
HP Machine 168,000 168,000 168,000 168,000
Less Acc Depr (42,000) (84,000) (126,000) (168,000)
Net Book Value 126,000 84,000 42,000 NIL
Current
Liability
Hp Creditor 37,800 37,800 37,800 ------
Long term
Liability
Hp Creditor 75,600 37,800 ------- ------
WORKINGS
(1) Determination Of Annual Hp Interest

Annual Hp Interest= Total Hp Interest
4 years
= N 30,240,000
4 years
= N 7,560,000
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(2) Determination Of Annual Installment N

Cash Price 168,000,000
Add Total Hp Interest 30,240,000
Total Hp Price 198,240,000
Less Initial deposit (10% 0f cash price) 16,800,000
Total installments 181,440,000
Annual installment = Total installment

4 years
= N 181,440,000
4 years
= N 45,360
EXAMINERS‘ REPORT
The question tests candidates understanding of the preparation of hire purchase

contract accounts. Candidates‘ performance was above average. Candidates
displayed good knowledge of the two methods applicable. However, some
candidates did not know the relevant accounts to open.
QUESTION 6
a. An accounting chart in a Peachtree program means a list of all account
names used in general ledger and this is usually associated with an
Identification code, which would help to locate it when recording data.
OR
Chart of account is a list of account codes and description for all assets,
capital, liabilities, incomes and expenses.
b. Peachtree wizard to register a new company:
Posting Method
- Company‘s name
- Company‘s address
- Business type
- Accounting method
- Accounting period
- Fiscal year
c. - batch posting
- real time posting
In batch posting ,the transactions entered are saved to a temporary holding
areas, where they can be reviewed before they are posted to general ledger.
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In real time posting, transactions entered and posted to general ledger

instantly and they are also saved immediately.
d. Sinking Fund Investment Accounts
N N
Year 1 Cash 240,000 Balance c/d 240,000
Year 2 Balance b/f 240,000
Cash 300,000 Balance c/d 564,000
Cash interest 24,000
564,000 564,000
Year 1 Cash 240,000 Balance c/d 240,000
Year 2 Balance b/f 240,000 Balance c/d 564,000
Cash 300,000
564,000 564,000
Year 3 b/f 564,000 Balance c/d 920,400
Cash 300,000
920,400 920,400
Year 4 Balance b/d 920,400
The investment will be sold for N920,400 which will be added to the scrapped
value of N579,600 to provide N1,500,000 for the replacement of the new plant.
EXAMINERS‘ REPORT
The question tests candidates‘ understanding of the application of peachtree

package in preparing accounting reports of a company.
Candidates‘ performance was below average. The pitfalls identified included the
following:
a. Candidates could not define charts of account: and

b. Candidates did not understand how to create the account of a company
using peachtree package.
Candidates are advised to update their understanding and skills of the various
accounting packages.
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ICAN/102/Q/1 EXAMINATION NO………………………...

PROFESSIONAL EXAMINATION 1 - NOVEMBER 2010
INFORMATION TECHNOLOGY
PART I MULTIPLE CHOICE QUESTIONS (20 Marks)
1. A difference between a Decision Support System (DSS) and an Expert System

(ES) is that
A. DSS does not make a decision but guides the decision makers, while
an ES makes a decision.
B. ES does not make a decision but guides the decision maker, while a
DSS makes a decision.
C. DSS supports Management, while ES supports non-management
personnel.
D. DSS is internet based, while ES is not.
E. ES is internet based, while DSS is not.
2. Authorization and Authentication software makes use of the following for

securing user access EXCEPT:
A. user name.
B. password.
C. pass code.
D. wireless protocol.
E. access Rights.
3. Which of the following does NOT make use of Bluetooth application?

A. Mobile phone
B. Digital Television
C. Laptop system
D. Car
E. Grinder
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4. Bill payment systems will enquire the use of the following devices EXCEPT
A. computer
B. loudspeaker
C. modem
D. printer
E. bar code reader
5. The following are features of Human Resource Management software EXCEPT
A. employment module.
B. staff audit module.
C. networking module.
D. career planning module.
E. loan processing Module.
6. Which of the following is an internet-based application?

A. Accounting application
B. Web Portal
C. Web lion
D. Manual Bulletin Board
E. Operating system
7. Why is it important to make regular back-ups of computer data?
A. To prevent loss of data

B. To comply with the law
C. To protect the computer storage
D. To increase the storage capacity
E. To increase the computer storage
8. Which type of system would use Bar code as an input device?
A. Payroll.
B. Invoicing.
C. Training.
D. Supermarket.
E. Testing.
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9. Where should backup copies of data be stored?
A. Near the computer

B. In a different location
C. In a car
D. In an off-site fire proof store
E. In a study.
10. Which device is used to enter sales data into a supermarket computer system?
A. Mouse
B. Keyboard
C. Bar code scanner
D. Mark reader
E. UPS
11. The telecommunication technology that has the potentials to replace a

number of existing telecommunication infrastructure is the
A. Intranet.
B. Wi-Fi.
C. GPRS.
D. WIMAX.
E. EDGE.
12. GPRS is an acronym for
A. General Packet Radio Signal.

B. General Packet Radio Service.
C. General Parcel Radio Signal.
D. General Parcel Radio Server.
E. General Packet Radar Service.
13. Which ONE of following is NOT an attribute of a Computer?
A. Security
B. Versatility
C. Speed
D. Frequency
E. Reliability
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14. Which ONE of the following is an attribute of File Transfer Protocol (FTP)?
A. The most popular way to transmit whole files from one computer to
another
B. The most popular way to transmit files from one person to another
C. The most popular way to delete files between two computers
D. The most popular way to generate files in a computer system
E. It allows files to be stored
15. Which of these applications of computers would store information about which
course a student is enrolled for?
A. Computer based training.

B. Timetabling
C. Students record
D. Fees database
E. Employees‘ wages
16. The Data Protection Act is designed to
A. make personal data freely available.

B. create a permanent store for personal data.
C. regulate the use of personal data.
D. enforce deletion of personal data.
E. carry out audit trail.
17. What is controlled by software copyright regulations?
A. Making backups of the software

B. Number of copies sold
C. Type of computer used for the software
D. Illegal distribution of software
E. Word processing
18. Which type of software would you use to maintain information about account
holders in a Bank or Building Society?
A. Spreadsheet
B. Word processor
C. Database software
D. Stock control
E. Accounts ledger
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19. A company whose website provides a variety of portals exhibiting interactive

pages for visitors, customers and vendors is likely to attract hackers. To
provide a diversion of attention against hackers, the company should deploy
A. demilitarized Zone firewall.

B. statesful Inspection.
C. circuit level firewall.
D. a honey net.
E. router screening firewall.
20. Which one of the following is NOT a technique for handling input errors in a
computer processing environment?
A. Rejecting only transactions with errors

B. Rejecting the whole batch of transactions
C. Holding the batch in suspense
D. Accepting the batch and flagging error transaction
E. Accepting the transactions without flags
PART II SHORT-ANSWER QUESTIONS (20 Marks)
1. An abstraction layer that decouples the physical hardware from the Operating
System to deliver greater IT resource utilization and flexibility is called
…………
2. Integrated Test Facility (ITF) is a tool for ………………online auditing
3. An internet-based application where users can chat with each other online is
known as………………….
4. SQL Server, DB2, Microsoft Access are examples of ………………systems
5. An internet-based application used to search for information from any web

site on the internet is known as ......……….
6. A small piece of text stored on a user‘s computer by a Web browser to capture

user‘s details is known as……………….
7. The computer-to-computer transfer of information in a standard format,

exchanged between trading partners is called…………………
8. Business-to-business buying and selling of goods and services on the internet

is one of the forms of ………………………
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9. COBIT is an acronym for ………………….
10. A way for government to use the new information technology to provide
more convenient access to government information and services is
called….……….
11. A project will usually have three closely linked objectives. These include
main, ………………..and non-objective
12. The three dimensions of a project usually referred to as Triple Constraints are
Deliverables, Cost and Resources and …………………….
13. Segregation of duties is ONE of the controls used to check overlapping in the
……………… of IS staff.
14. A computer software that mediates between two separate previously existing
applications is known as ………………….
15. A system software used to analyse, configure, optimize and maintain

computers to keep them running, and ensure data security is called
………………..
16. A computing technology where one computer system renders services to

other computer systems is known as…………………………
17. The type of user interface that allows people to interact with programs
using different devices like mouse, rather than typing is known
as…………………
18. An operating system that allows concurrent access is known as

…………………
19. The facility that creates a fictitious entry in a database to process a test
transaction simultaneously with the live inputs is called………………….
20. As a component of web trust, online merchants must address issues of

complaints and …………….. as soon as possible
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SECTION B ATTEMPT QUESTION 1 AND ANY OTHER THREE QUESTIONS
QUESTION 1 CASE STUDY
ABC CONSULTANTS
You are the team leader of a Consulting team handling the computerization of
operations of a major client in the Foods and Beverage industry. Your team has just
concluded the design of a new organization structure. The process manual,
developed by your team members was handed over to you for review. On reviewing
the proposed process manual, you observed many gaps, ranging from input
processes, operations and output processes. A major observed gap is the software
acquisition process. The manual did not indicate the standard processes for
acquisition of their software.
In order to resolve this challenge, you are required to

(a)(i) state THREE challenges which the organization will likely face, should it go
ahead without establishing a standard software selection and acquisition
process. (3 Marks)
(ii) explain THREE steps in the software selection process to be adopted

by the organization. (3 Marks)
(b) Another assumption of the process manual is the outsourcing

of the Information Technology tasks of the client. You are required to
explain six benefits of outsourcing and THREE risks of outsourcing
to the organization. (9 Marks)
(Total 15 Marks)
QUESTION 2
(a) Explain the following terms:
i Internet
ii Intranet
iii Extranet (6 Marks)
(b) i. What is a Text Editor? (2 Marks)
ii. Give TWO examples of Text Editor . (1 Mark)

iii. Give THREE differences between a plain text file and a
word processor file (6 Marks)
(Total 15 Marks)
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QUESTION 3
(a) Define the term ―Systems Specification‖ (3 marks)

(b) List and explain SIX tasks undertaken during System
Implementation. (12 marks)
(Total 15 marks)
QUESTION 4
(a) What is computer forensic? (2 Marks)

(b) List and describe the four key elements of computer forensic
investigation.
(10 Marks)
(c) Outline three activities involved in computer forensic
investigation. (3Marks)
(Total 15Marks)
QUESTION 5
(a) Describe FIVE features of a standard e-government application. (5 Marks)

(b) Explain FIVE benefits of e-government applications. (5Marks)
(c) Explain FIVE challenges of e-government applications. (5Marks)
Total15Marks)
QUESTION 6
(a) Describe briefly:

i. any FIVE Direct Input Devices (5 marks)
ii. any FOUR Output Devices (4 marks)
(b) List TWO main technologies used for storage devices and give FOUR
examples of each. (6marks)
(Total 15 Marks)
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SOLUTIONS TO SECTION A
PART I MULTIPLE CHOICE QUESTIONS
1. A
2. D
3. E
4. B
5. C
6. B
7. A
8. D
9. D
10. C
11. D
12. B
13. D
14. A
15. C
16. C
17. D
18. C
19. D
20. E
EXAMINERS‘ REPORT
The MCQ questions test candidates‘ knowledge on the major part of the syllabus.
All candidates attempted the questions.
Performance was very good as over 60% of candidates scored 50% and above.
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PART II - SHORT-ANSWER QUESTIONS
1. virtualization
2. continuous
3. bulletin board
4. database management
5. search engine
6. Cookie
7. Electronic Data Interchange (EDI)
8. E-Commerce
9. Control Objectives for Information and Related Technology
10. E-Government
11. additional
12. Time
13. responsibilities
14. middleware
15. Utility software
16. Client/Server Technology
17. Graphical User Interface (GUI)
18. Multi- user
19. Integrated Test facility
20. disputes
EXAMINERS‘ REPORT
The questions cover a substantial part of the syllabus.
All candidates attempted the questions.
Performance of candidates in these questions was fair as 40% of candidates scored

50% and above.
Some candidates could not proffer appropriate solutions to some of the questions.
Candidates are therefore advised to read widely and be abreast with changes in
Information Technology.
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SOLUTION TO SECTION B – CASE STUDY
QUESTION 1
ABC CONSULTANTS
(a)i. Challenges of not establishing a standard software selection process

include:
 Unstandardized software selection process may lead the organization

into buying software that will not meet her needs especially in the
future.
 Unstandardized software selection process may make the

organization to buy popular software without considering all options.
This will lead to wastage of company‘s resources.
 Unstandardized software selection process may cause the

organization to buy software using input from an elite group without
getting input from the
organization at large.
 The risk of buying software without proper consideration of the

software company. Organizations have bought software only to
discover that the manufacturer is bankrupt and there is no source
code escrow
 The risk is that of buying software with low initial costs but
significantly higher ongoing costs e.g. Maintenance costs
(a)ii. Standard Software Selection Process include:
 Internal Process: The first step to an effective software selection

process is the design and documentation of an internal process
 Establishment of requirements: A requirement analysis establishes

what is required by the new application. This step helps to identify
the key requirements that a package must have in order to make the
short list.
 Identify both industry-specific and general ERP packages. Based on

the business requirements and budgetary needs, this will probably
eliminate most vendors.
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 Request for Proposal: Send out Request for Proposals (REP) to the
Vendors, informing them of the IT environment.
 In parallel with the functional assessments, assess the technical

capabilities of the short-listed vendors. This should include areas such
as scalability, ability to integrate with legacy systems, openness of the
architecture, licensing requirements, escrow facilities, and references.
 Select Software, gather the inputs received from the various

assessments prioritize the vendors' strengths and weaknesses,
weighting ranking and evaluating each of the packages according to
the environment.
(b)i. Benefits of Outsourcing include the following:

 It helps the organization to minimize capital expenditure for
acquisition of software and hardware
 The company will give up non-core functions. Being a manufacturing

company, IT service is a non-core function, so outsourcing will enable
her focus on her core manufacturing functions.
 It enables the organization to focus scarce resources on mission-

critical projects
 The organisation will to save money on manpower and training costs.
 Outsourcing to a professional service company will help the

organization to establish long-term, strategic relationships with
world-class service providers to gain a competitive edge.
 If the IT service is outsourced, the company will benefit from the

provider's expertise in solving problems for a variety of clients with
similar requirements.
 Risk spreading: With outsourcing, the company spreads her risks
 Outsourcing the IT function will enable the organization leverage the

provider's extensive investments in technology, methodologies and
people
 It will help the organization to reduce the risk of technological

obsolescence
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(b)ii. Risks of outsourcing
 Outsourcing may expose the organisation to risks of losing

confidential company information to outsiders
 There is the risk of not getting the full benefits of outsourcing if the
company fails to establish an effective internal baseline to measure
the providers against costs, service and value added.
 Outsourcing may limit the capability of the organisation to be flexible
in the future.
 Poor planning and implementation with respect to timing of transition
to service provider and demands on the organization.
 The service provider may not understand the business of his client
well enough to provide efficient outsource service
EXAMINERS‘ REPORT
The question tests candidates‘ knowledge of outsourcing and the challenges that
may arise should a wrong software selection process procedure be used in the
acquisition.
Candidates are also expected to suggest the various ways of software selection
procedure as well as benefits and challenges of outsourcing.
All candidates attempted this question.
The performance was very poor as about 30% of the candidates scored the 50% and
above.
The common pitfall was that most candidates did not understand this question
hence, their inability to interpret correctly.
Candidates are therefore advised to read widely on software selection and

outsourcing of software.
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QUESTION 2
a) i. Internet: This is a global system of interconnected computers that use a

standard protocol suite (TCP/IP) for communication. Internet provides such
facilities like e-mail; file transfers; remote access, online bulletin boards,
chat fora etc.
ii. Intranet: Intranet is an application having all the features of the internet,
but made available only to members of an organization. In other words,
Intranet is a private Internet for an organization.
iii. Extranet: Sometimes, organizations may enable a few external users to

have access to their intranet. When this is done, the intranet is known as
extranet. Hence, an extranet is an Intranet that allows access to some
external users.
b) i. A text editor is a type of program used for editing plain text file. This is
often provided with the operating system or software development
packages. A text editor is normally used for typing on the computer.
ii. Examples of text editors include:

Notepad
Word pad
Edlin
Edit
iii. A plain text file is represented and edited by showing all and edited by
showing all the characteristics as they are present in the file and the word
processing file characters can be modified
Document created by the word processor generally contains file format

specific control characterers beyond what is delivered in the character set,
such as BOLD, underscore, etc while these are not possible with text editor
Word processor can usually edit plain text file and save in the plain text
format
The same cannot be done for text editor
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EXAMINERS‘ REPORT
This question tests candidates‘ understanding of the differences among the major
data transmission networks. The question also requires candidates to state the
differences between text editor and word processor
Over 70% of the candidates attempted this question.
Their performance was good in the first part of the question, but poor in the second
part. Overall, about 45% of the candidates scored 50% and above.
Most candidates could not differentiate between a text editor and word processor,
and could not also give appropriate examples of each.
Candidates are therefore advised to familiarise themselves with various software

editors.
QUESTION 3
(a) Systems specification is a document prepared by the Systems Analyst after

the design of a system which specifies the requirement of the system in
terms of inputs, processing, outputs, costs, hardware and software.
(b) The following tasks are undertaken during System Implementation:

i. Programming: This is the writing of individual algorithms in a
particular language that may be needed.
ii. System testing: The individual programs and the entire system are
tested.
iii. Documentation: Accurate documentation is kept on the system with
respect to analysis, design, control, communication, training and
learning.
iv. Staff Training: Users are trained on how to man the system.
v. Changeover: This is the changeover from the old to the new systems.
vi. Master File Conversion: Old files are converted into new computer
files.
Vii. Hardware acquisition and installation: The computer hardware is
acquired, installed and tested.
viii. Site Preparation: Space for the computer is provided, wiring is done,
and air-conditioners, carpets, furniture and fittings are provided.
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EXAMINERS‘ REPORT
The question tests candidates‘ knowledge on the various information requirements

in systems specification as well as the activities that may be performed on systems
implementation.
Less than 60% of the candidates attempted this question.
The performance was fair. Over 60% of the candidates scored 50% and above.
Some candidates that attempted this question were writing on feasibility study
instead of systems specifications.
Candidates are therefore expected to devote more time to study the aspect of
systems development.
QUESTION 4
(a) Computer forensic is an emerging discipline that combines elements of law

and computer science to collect and analyse data from computer system
networks, wireless communication and storage devices in a way that is
admissible as evidence in a court of Law.
(b) Key elements of computer forensic Investigation include the following:
(i) The identification of digital evidence. This is the first step in the
forensic process. Knowing what evidence is present, where it is stored,
and how it is stored is vital to determining which processes are to be
employed to facilitate recovery
(ii) The preservation of digital evidence. This is a critical element in the
forensic process. Given the likelihood of judicial scrutiny in a court of
law, it is imperative that any examination of the electronically stored
data be carried out in the least intrusive manner.
(iii) The analysis of digital evidence: The extraction, processing and
interpretation of digital data are generally regarded as the main
elements of forensic investigation. Once extracted, digital evidence
usually requires processing before it can be read by people.
(iv) The presentation of digital evidence. This involves the actual
presentation in a court of law. It includes the manner of presentation,
the expertise and qualifications of the presenter and credibility of the
processes employed to produce the evidence being tendered
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(c) Activities involved in computer forensic investigation include the following:
(i) Media and electronic device analysis. This relates to the examination
of various types of storage media such as harddisks, removable
storage media like floppy disks CD ROMs, DVD. Hashdrivers e.t.c.
(ii) Data communication. This involves

 Network intrusion or misuse
 Data interception
Network intrusion deals with internet based analysis which consists of
 Intrusion defection
 Evidence capture and presentation
 Event or activity reconstruction
(iii) Research and Development. These involve probing into, and the
development of new techniques and the growth of new methodologies
tools, which are vital in keeping abreast of changes in the technology.
EXAMINERS‘ REPORT
This question tests candidates‘ knowledge of the activities involved in the use of
computer system, and computing devices in order to produce criminal evidence for
courts of law.
The performance was good as over 70% of the candidates who attempted the
question scored 50% and above.
Candidates still need to read more literature on this topic in order to improve their
information technology knowledge-based.
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QUESTION 5
(a) Features of e-government applications are as follows:

i) Two-Way communication between government agencies and her
citizens.
ii) Content management facility: This is used to remotely upload

information unto the government portals.
iii) Online bulletin boards: This is used to present information and receive
feedback from stakeholders.
iv) FAQ (Frequently Asked Questions). This is where frequently asked

questions and their answers are made available. Citizens can visit this
Webpage, use the search engine to pick their questions and already
documented answers.
v) Online Bill Payment facility: e-government applications will have a

facility for citizens to pay their tax and other levies online, and receive
acknowledgement of payments.
vi) Constituent Relationship Management: This is used to track

interactions between citizens and government officials. This includes
e-mail facility, chat facility and blogs.
vii) Electronic voting facilities.
viii) E-payment facilities: This is how government pays service providers

directly.
(b) Benefits of e-government applications include:
i) It helps to simplify processes and makes access to government

information more easily accessible for public sector agencies and
citizens.
ii) It eliminates bureaucracy.
iii) It aids efficiency, improves services, better accessibility to public

services, and greater transparency and accountability.
iv) Elimination of fraud and ghost workers.
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v) Provision of opportunity for citizens to have easy access to

government officials without protocols. This helps government
officials to have direct information about the impact of their decisions
on the citizens.
(c) Challenges of e-Government applications include:
i) Cyber attacks: Every e-government application with online payment

facility will be a target of cyber criminals.
ii) Implementation of the application to meet the requirements of

government agencies.
iii) Audit: Auditing e-government systems may pose more challenge as

audit trails may be lost.
iv) Cost: Most e-government applications are rather very costly. Another
area of cost is the implementation of the applications.
v) Hardware Infrastructure: Necessary hardware and communication

systems to run applications may not be available or provided.
EXAMINERS‘ REPORT
This question tests candidates‘ understanding of e-government, features, benefits

and challenges of its application.
The performance was good as over 60% scored over 50% and above.
Candidates are still expected to read widely in order to broaden their knowledge of
this subject matter.
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QUESTION 6
Input Device is a hardware component that allows a computer user to input data
into the computer. They are classified into Direct and Indirect input devices.
Examples of direct input devices include:
Keyboard
Pointing Devices:
 Mouse
 Trackball
 Touch paid
 Track point
 Graphics tablet
 Joystick
 Touch Screen
Scanner
Microphone
Digital camera
 Keyboard
The computer keyboard is used to enter text information into the computer; The
keyboard can also be used to type commands directing the computer to perform
certain actions.
 Pointing Devices
The graphical user interfaces (GUIs) in use today require some kind of device for
positioning the on-screen cursor. Typical pointing devices are mouse, trackball,
touch pad, trackpoint, graphics tablet, joystick, and touch screen.
 Mouse
The mouse pointing device sits on the work surface and is moved with the hand. In
older mice, a ball in the bottom of the mouse rolls on the surface as the mouse is
moved and internal rollers sense the ball movement and transmit the information
to the computer via the cord of the mouse.
 Touch pad
Most laptop computers today have a touch pad pointing device. It moves the on-
screen cursor by sliding ones finger along the surface of the touch pad. The buttons
are located below the pad, but most touch pads allow the user to perform ―mouse
clicks‖ by tapping on the pad itself.
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 Trackball
The trackball is a sort of an upside-down mouse, with the ball located on top. The
user places fingers to roll the trackball and internal rollers (similar to what‘s inside
a mouse) sense the motion which is transmitted to the computer.
 Joysticks
Joysticks and other game controllers can also be connected to a computer as
pointing devices. They are generally used for playing games, and not for
controlling the on-screen cursor in productivity software.
 Touch screen
Some computers, especially small hand-held Personal Digital Assistants (PDAs),
have touch sensitive display screens. The user can make choices and press button
images on the screen. They are often used with a stylus, which can be held like a
pen, to ―write‖ on the surface of a small touch screen.
 Graphic tablets
A graphic tablet consists of an electronic writing area and a special ―pen‖ that
works with it. A graphic tablet allows artists to create graphical images with
motions and actions similar to using more traditional drawing tools.
 Scanners
A scanner is a device that forms images on a printed page or graphic by digitizing
it, producing an image made of tiny pixels of different brightness and color values
which are represented numerically and sent to the computer.
 Microphone
A microphone can be attached to a computer to record sound (usually through a
sound card input or circuitry built into the motherboard). The sound is digitized—
turned into numbers that represent the original analog sound waves—and stored
in the computer for later processing and playback.
 Digital Camera:
A digital camera takes pictures by converting the light passing through the lens at
the front into a digital image.
A (ii) Output Devices
Output devices are hardware components that allow a computer user to produce
information from the computer, that is the devices that enable a user to get some
information out of a computer system.
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Examples include:
Cathode Ray Tube (CRT) Monitor

Flat Panel Display
Ink Jet Printer
Laser Printer
Dot matrix
Loud Speaker
Modem
Multimedia
 Explanations
 CRT Monitor
The traditional output device of a personal computer has been the CRT (Cathode
Ray Tube) monitor. Just like a television set (an older one, anyway) the CRT
monitor contains a large cathode ray tube that uses an electron beam of varying
strength to ―paint‖ a picture onto the color phosphorescent dots on the inside of
the screen.
 Flat Panel Monitor
A flat panel display usually uses an LCD (Liquid Crystal Display) screen to display
output from the computer.
 InkJet Printer
The most common type of printer for home systems is the color ink jet printer.
These printers form the image on the page by spraying tiny droplets of ink from the
print head. Laser Printer.
 Laser Printer
A laser printer produces good quality images by the same technology that
photocopiers use. Laser printers are faster than ink jet printers.
 Dot matrix printers use small electromagnetically activated pins in the print head,
and an inked ribbon, to produce images by impact. These printers are slow and
noisy, and are not commonly used for personal computers anymore (but they can
print multi-layer forms, which neither ink jet or laser printers can).They have
directional operation capabilities.
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 Sound Output / Loudspeaker
Computers also produce sound output, ranging from simple beeps alerting the user,
to impressive game sound effects, to produce quality music.
Multimedia is a term describing computer output that includes sound, text,
graphics, movies, and animation.
MODEM (Modulator demodulator)
It converts digital signals into analog signals. It is a terminal device that is used in
the connection of two systems. Signal from a PC is digital but is transmitted in the
cable as an analog signal. This conversion is done by the Modem
(b) Types of Storage Devices
Two main categories of storage technology used today are magnetic storage and
optical storage. Physical components or materials on which data is stored are called
storage media. Hardware components that read/ write to storage media are called
storage devices.
Magnetic storage Includes:
 Hard disks (both fixed and removable)

 High capacity floppy disks
 Disk cartridges
 Magnetic tape
Optical storage includes:
 Compact Disk Read Only Memory (CD ROM)

 Digital Video Disk Read Only Memory (DVD ROM)
 CD Recordable (CD R)
 CD Rewritable (CD RW)
 Photo CD
 Flush
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EXAMINERS‘ REPORT
This question tests candidates‘ knowledge of direct input, output, and storage
devices.
The performance was good. About 70% of the candidates who attempted this
question scored 50% and above.
Candidates still need to read widely on input, output and storage devices.
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ICAN/102/Q/2 EXAMINATION NO...................................
MANAGEMENT ACCOUNTING
PART I : MULTIPLE-CHOICE QUESTIONS (20 Marks)
1. Which of the following represents a decision that rests upon the judgement
of managers because there is no formal mechanism for predicting likely
outcomes?
A. Symbolic Decision
B. Executive Decision
C. Managerial Decision
D. Non-Programmed Decision
E. Programmed Decision
2. Which of the following techniques represents the period usually expressed in

years, which makes the cash flows from a capital investments appraisal of
project to equal the initial outflow?
A. Internal Rate of Return

B. Accounting Rate of Return
C. Pay Back Period
D. Net Present Value
E. Profitability Index
3. Which costs and revenue, appropriate to a specific management decision,

that are represented by future cash flows whose magnitude will vary
depending upon the outcome of management decision?
A. Relevant Cost
B. Differential Cost
C. Marginal Cost
D. Incremental Cost
E. Opportunity Cost
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Use the information below to answer Questions 4 and 5
Bijabi Limited has determined its activity level and is now budgeting for its
costs for the quarter ended 31 May, 2010. It has made the following
predictions:
Variable Costs Probability Fixed Costs Probability

N240,000 0.35 N175,000 0.25
N305,000 0.25 N182,000 0.30
N501,000 0.40 N201,000 0.45
4. What is the Expected Value of the Total Variable Costs?
A. N351,500
B. N358,500
C. N359,600
D. N360,500
E. N360,650
5. What is the Expected Value of the Total Fixed Cost?
A. N187,500
B. N188,800
C. N201,500
D. N281,500
E. N361,500
6. A systematic interdisciplinary examination of factors affecting the cost of a

product or service, in order to devise means of achieving the specified
purpose most economically at the required standard of quality or reliability
is
A. value engineering.
B. value analysis.
C. cost reduction.
D. cost objective.
E. cost implication.
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7. Which of the following quick ratios is considered acceptable as a general

rule?
A. 4 to 1
B. 3 to 1
C. 2 to 1
D. 1 to 1
E. 1 to 3
8. What is capital budgeting?
A. A budget for long term expenditure

B. A budget for obtaining investments of capital in the firm.
C. A budget for investments of short-term funds in the capital markets
D. Budget for business capital
E. Budget for business formation
9. Which of the following methods uses income instead of cash flow in

investment appraisal?
A. Payback Period
B. Accounting Rate of Return
C. Internal Rate of Return
D. Net Present Value
E. Profitability Index
Use the following data to answer Questions 10 and 11.
Unit selling price N500

Variable cost per unit N260
Fixed cost N52,000
Tax rate 40%
10. What is the break-even point in units?
A. 214 units
B. 215 units
C. 217 units
D. 218 units
E. 250 units
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11. How many units should be produced to achieve a target income of

N12,000 after tax?
A. 300 units
B. 320 units
C. 370 units
D. 410 units
E. 420 units
12. Costs incurred if products or services fail to meet requirements after delivery
to customer are called
A. appraisal costs.
B. internal failure costs.
C. running costs.
D. prevention costs.
E. external failure costs.
13. Adamu Limited sells a product which has N8 per unit as variable cost. Sales
demand at N14 current rate, is 6,000 units. It is estimated by marketers that
sales volume would fall by 200 units for each addition of 25k to the sales
price. What is the optimal price that maximizes contribution?
A. N14.25
B. N14.50
C. N14.75
D. N15.25
E. N15.50
14. Using the data in Question13, at what level of sales will contribution be
maximized?
A. 5,000 units
B. 5,200 units
C. 5,400 units
D. 5,600 units
E. 5,800 units
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15. Budgeted hours worked in a factory for a month was 220. Actual hours 200
and Standard hour produced 210. What is the efficiency ratio?
A. 91%
B. 95%
C. 97%
D. 100%
E. 105%
16. Using the data in Question 15, what is the production volume ratio?
A. 91%
B. 95%
C. 97%
D. 100%
E. 105%
17. Residue from manufacturing operations that has measurable but relatively
minor recovery value is
A. obsolete.
B. scrap.
C. defective.
D. spoilage.
E. expired.
18. A product has a standard direct material cost of N10 (5 kg of material M at

N2 per kg). During April 2009, 600kg of M were purchased at N1,140, 100
units of product A were manufactured using 520kg of material M. What is
direct material price variance?
A. N40 (F)
B. N40 (A)
C. N50 (F)
D. N50 (A)
E. N60 (F)
19. Using the details in Question 18, what is direct material usage variance?
A. 40 (F)
B. 40 (A)
C. 50 (F)
D. 50 (A)
E. 60 (F)
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20. A budget that perpetually adds a month in the future as the month just
ended is dropped is called
A. continuous budget.
B. static budget.
C. current budget.
D. fixed budget
E. incremental budget.
PART II: SHORT ANSWER QUESTIONS (20 MARKS)
1. A budget that adjusts for changes in sales volume and other cost drivers is
known as…………………
2. The difference between the standard yield of the actual material input and
the actual yield, both valued at standard material cost is known
as…………………………..
3. The difference between the fixed overhead recovered on the budgeted hours
and the fixed overhead recovered on the actual hours worked is called
……………..
4. If initial cash outflow is N100,000, yearly constant cash inflow is N20,000

while the working life is 7 years and cost of capital is 15%, determine the Net
Present Value.
5. The ratio of the present value of series of future cash benefits at the required
rate of return to the present value of the cash outflows is known as
……………………….
6. The establishment, through data gathering, of targets and comparators,

through which use relative levels of performance, and particularly, areas of
underperformance can be identified, is called………………………
7. An emerging discipline that combines elements of law and computer science

to collect and analyze data as evidence in a court of law is called
……………………
8. The sets of standards dealing with human conduct in relation to what is

morally good and bad is…………………………..
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Use the following information to answer Questions 9 and 10
Carbon-Copy Company Ltd sells a product for N10. Budgeted sales for the
first quarter of year 2010 are given below:
Budgeted sales
N
January 400,000
February 600,000
March 700,000
The company collects 70% in the month of sales and 25% in the following
month. Five per cent (5%) of all sales are uncollectible and written off.
9. Calculate the budgeted cash receipts for February.
10. Determine the budgeted cash receipts in March.
11. A sub-unit in an organization whose manager is held accountable for

specified sub-unit activities is called……………………..
12. When preparing a production budget, the quantity to be produced

can be determined by the model…………………
13. The result of dividing the total direct labour cost by the total number of units
produced is………………..
14. A period when machines and accessory equipment are made ready before
the commencement of operation is called ………….
15. The discount rate that makes the net present value of a project equal to zero
is ………………….
16. When an organization has idle capacity, it resorts to low pricing. This
method of pricing is called …………………..
17. Company X makes and sells 100 units of a product each month. The prime
cost per unit is N6.00 and unit selling price is N10. Production overhead cost
N200 per week and other overhead N150 per week. Determine the
production cost of sales using absorption costing method.
18. Use the data in Question 17 and variable costing method to determine the
production cost of sales.
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19. The measure of the scatter of the actual observation about the regression
line is termed …………….
20. Salaw Limited budgets fixed cost at N40,000. The variable cost of its single
product is N4 and capital employed is N100,000. The company wants to
earn a return on capital employed of 20% and estimated sale of 10,000 units
in the year. What is the selling price per unit?
SECTION B: ATTEMPT QUESTION 1 AND ANY OTHER THREE (60 MARKS)
QUESTION 1
CASE STUDY
Fountain Limited, a car hire firm, is considering its future cash flows. The Directors of the
company are interested in the period from the end of January 2010 to the end of 2015.
In particular, they wish to decide on the optimal replacement cycle for the fleet of thirty
hire cars. On 31 January 2010, the company purchased its existing fleet at a cost of
N300,000,000. The vehicles are to be depreciated in the accounts over a three-year life,
on a straight line basis. The resale value of a one-year old car, of the type used in the
fleet, is at present N7,000,000.
Inflation is at the rate of 10% per annum, and it is thought that it will continue at this
rate in the foreseable future. New car prices will increase in line with inflation but
second hand values are expected to remain at the present level for a number of years.
The resale value of a two-year old fleet car is at present N4,000,000 and the scrap value
of a three-year old car is N500,000.
The revenue from operating the fleet is expected to be N250,000,000 in 2010.This

annual revenue is expected to increase at a rate of 10% per annum irrespective of the
age of vehicles. The operating and maintenance costs for 2010 are estimated to be:
N70,000,000 for cars in the first year of their life

N100,000,000 for cars in the second year of their life
N160, 000,000 for cars in the third year of their life
The operating and maintenance costs are expected to increase at the rate of 10% per
annum in line with inflation. The cars are not worth keeping for longer than three years.
The company‘s cost of capital is 15%
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You are required to:
Advise the company on the optimal replacement policy for its fleet of cars for the periods
1 February, 2010 to 31 December, 2015. Assume that the cash flows relating to revenue
and operating costs arise on the last day of the respective years.
(15 Marks)
QUESTION 2
POLYTECH Aluminum Manufacturing Company has three autonomous divisions:

Cutting, Filling and Finishing. Cutting division is responsible for manufacturing
aluminum flat sheet which becomes the raw materials for Filling division. The
Filling division makes aluminum windows and doors. Finishing division is
responsible for marketing the entire company‘s final products.
The company‘s management feels that the divisions should be evaluated as

separate profit centres and that each centre should be credited with an equitable
share of contribution. The company‘s transfer pricing stipulates that proportionate
efforts are to be measured by the ratio of the division‘s variable cost to the total
variable cost of the centres.
Budgeted sales for 2012 is N25,000,000 with total variable costs of N15,000,000
for the centres. The details of the variable and period costs by divisions are given
below:
Cutting Filling Finishing
N N N
Variable costs 4,500,000 3,000,000 7,500,000
Period costs 2,500,000 1,500,000 2,000,000
Total 7,000,000 4,500,000 9,500,000
Required:
a) Determine budgeted transfer values using the agreed transfer pricing

method (5marks)
b) Filling division is considering a cost saving device which will reduce its
variable cost by 20%. What effect will this have on other costs or budgeted
sales. (5marks)
c) Compare the divisional contributions and profits in (a) and (b) above and
comment briefly on the possible divisional managerial attitudes to the
changes in divisional performances. (5marks)
(Total 15 marks)
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QUESTION 3
The Directors of ―No Farmer, No Nation‖ Agro-allied Company Limited are

considering undertaking the manufacturing of a new product. The company‘s
current cost of capital is 20% in money terms. Construction of the plant required to
produce the new product would take one year; that is, production would commence
on 1 January 2012. The plant would cost N500,000 of which N300,000 is payable
immediately and N200,000 on 31 December 2011. The construction cost is fixed by
contract.
100,000 units of the new product would be produced and sold each year from
1 January 2012 until 31 December 2015. Revenues and costs expected, expressed in
terms of 1 January 2010 price level, are as follow:
Per unit Probability

N
Selling price 5.00 -
Variable cost (excluding labour) 1.125 0.80
Labour 3.00 0.20
Additional overhead costs are N60,000 per annum. Selling price, variable costs
(excluding labour) and additional overhead costs are expected to increase in line
with the general price index. For a number of years, this index has increased at the
annual compound rate of 10% and it is generally expected to continue increasing at
the same rate in the future. Labour costs are expected to increase in line with the
wage rate index, which has been increasing at an annual compound rate of 20%.
The same rate increase is expected in the future. All revenues and costs would be
received or paid on the last day of the year in which they arise. Ignore taxation.
You are required to:
Advise the Directors of ―No Farmer, No Nation‖ Agro-allied Company Limited

whether the manufacture of the new product is worthwhile.
(15marks)
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QUESTION 4
You have just resumed for duty in your office as the Management Accountant after
attending a training course for one week at the Elkana Hotel, Kano. The theme of
the training was ―New Contemporary Issues Bothering on Information and
Communication Technology and Benchmarking‖.
Write a report to your Managing Director who had been against your attending the
course, with focus on:
(a) The challenges computers provide to the practice of management accounting
(7marks)
(b) The steps involved in ensuring a successful implementation of benchmarking
in organization. (8 marks)
(Total 15 marks)
QUESTION 5
ALL WELL LIMITED is experiencing shortage of raw materials as a result of the

economic recession in the country. The directors are considering whether or not to
close down until the recession is over.
A flexible budget has been compiled, as follows:
Fixed Costs Production Capacity

40% 60% 80% 100%
Close Normal Total Costs
down
N N N N N N
Factory Overhead 6,000 8,000 10,000 11,000 12,000 3,000
Admin Overhead 4,000 6,000 6,500 7,000 7,500 8,000
Selling and Distribution 4,000 6,000 7,000 8,000 9,000 10,000
Miscellaneous 1,000 1,000 1,500 2,000 2,500 3,000
Direct Labour - 10,000 15,000 20,000 25,000
Direct Material - 12,000 18,000 24,000 32,000
15,000 21,000 47,000 61,000 75,000 91,000
Additional Information:
(a) Present sales at 50% capacity are estimated at N30,000 per annum
(b) Estimated costs of closing down are N4,500. In addition, maintenance of plant
and machinery is expected to amount to N800 per annum.
(c) Cost of re-opening after closing down would be approximately N2,000 for
overhauling the machines and N1,400 for training of personnel.
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(d) Investigation made by a market research unit has indicated that sales should
take an upward swing to around 70% capacity at prices which will produce
revenue of N100,000 approximately in twelve months‘ time.
You are required to present the information in a manner which will show what decision to
be taken. (15marks)
QUESTION 6
Amina, Yomi & Co, a medium-sized firm of architects, is about to absorb Chika,
Tunde & Co, a similar sized firm. They have engaged you as Management
Accountant. Part of your duties will be to review the cost and management
accounting functions of the combined practice and to recruit an assistant. You have
an appointment with the Principal Partner to discuss these issues.
Required:
Write a memo to the Principal Partner on the following:
(a) The functions of cost and management accounting.

(6 marks)
(b) The personal attributes you would expect the Assistant Management
Accountant to possess. (9 marks)
(Total 15 Marks)
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SUGGESTED SOLUTIONS TO SECTION A
PART 1 MULTIPLE-CHOICE QUESTIONS
1. D
2. C
3. A
4. E
5. B
6. B
7. D
8. A
9. B
10. C
11. A
12. E
13. C
14. C
15. E
16. B
17. B
18. E
19. B
20. A
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WORKINGS
QUESTION 4
VARIABLE COST PROBABILITY EXPECTED VALUE

N N
240,000 0.35 84,000
305,000 0.25 76,250
501,000 0.40 200,400
360,650
QUESTION 5
FIXED COST PROBABILITY EXPECTED VALUE

N N
175,000 0.25 43,750
182,000 0.30 54,600
201,000 0.45 90,450
188,800
10. BEP = Fixed Cost = N52,000 = 216.67 units

Contribution margin N500 – N260
11. Level of Sales in unit = Fixed Cost + PBT

Contribution Margin
= N52,000 + 12,000(1 – 0.4)

240
= 300 units
13. Sales Variable Unit Sales Total

Price Cost Contribution Volume Contribution
N N N N N
14.00 8.00 6.00 6,000 36,000
14.25 8.00 6.25 5,800 36,250
14.50 8.00 6.50 5,600 36,400

14.75 8.00 6.75 5,400 36,450**
15.00 8.00 7.00 5,200 36,400
15.25 8.00 7.25 5,000 36,250
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Optimal price is N14.75
** means Optimal Price Point
14. Level of Sales is 5,400 units
15. Efficiency Ratio = Standard Hour Worked

Actual Hour
= 210 x 100
200 = 105%
16. Production Volume = Standard Hour = 210 x 100

Budgeted Hour 220 = 95%
18. Computation of Direct Material Price Variance

600kg of M should cost (xN2) 1,200
Actual 1,140
Material Price Variance 60F
19. Computation of Direct Material Usage Variance

100 units of Product A should use (x5) 500kg
Actual 520kg
20kg (A)
@ standard price per kg of M N2
Material usage variance N40 (A)
EXAMINERS‘ REPORT
The questions test various sections of the syllabus. Performance was good as
candidates generally understood the questions.
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PART II SHORT-ANSWER QUESTIONS
1. Flexible Budget
2. Direct Material Yield Variance
3. Under/Over absorption
4. NPV = N16,792
5. Profitability Index (PI)
6. Benchmarking
7. Computer Forensic
8. Ethics
9. N520,000
10. N640,000
11. Responsibility center
12. Sales quantity – Opening inventory + Closing inventory
13. Direct labour cost per unit
14. Set up time.
15. Internal Rate of Return (IRR)
16. Minimum pricing
17. N1,400
18. N600
19. Standard Deviation.
20. N10.00 per unit
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WORKINGS
4 Year Cash flow DCF 15% PV

N N
0 100,000 1.0000 (100,000)
1-7 20,000 4.1604 83,208
NPV ( 16,792)
9. February cash receipt;
N520,000 (N600,000 x70%+N400,000x25%) = N520,000
10. Cash receipt in March

=N700,000 x 70%+N600,000 x 25% = N640,000
13. Labour cost/unit = N80,000

3,000
= N26.67
N
17. Prime cost per unit 6.00
Production overhead
(N800 for 100 units) 8.00
14.00
Total production cost (N14 x 100) = N1,400
18. Total production cost (N6 x 100) = N600
20. Target profit is 20% of N100,000 N20,000
Expected cost: N
Fixed 40,000
Variable 40,000
80,000
Required profit mark up on cost 20,000

80,000 = 25%
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Cost per unit based on budgeted sales 80,000

10,000 = N8.00
Selling price per unit 125% of N8 = N10.00
EXAMINERS‘ REPORT
The questions test a wide spectrum of the syllabus. Candidates‘ performance was
fair as they showed fair understanding of the questions.
Candidates are advised to familiarize themselves with current developments in the

subject.
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QUESTION 1
CASE STUDY
Since the period involved is 6 years, the replacement cycles would be factors of 6,
that is, replace every year; replace every two and replace every three years.
Calculation of cash flows associated with the different replacement cycles.
One-year replacement cycle

Fleet O&M Resale‘s Revenue Net DCF Present
Year Cost Cost Value Cash @15% Value
N‘m N‘m N‘m N‘m N‘m N‘m
2010 (330) (70) 210 250 60 0.870 52.20
2011 (363) (77) 210 275 45 0.756 34.00
2012 (399) (85) 210 303 29 0.658 19.10
2013 (439) (94) 210 333 10 0.572 5.72
2014 (483) (103) 210 366 (10) 0.497 (4.97)
2015 - (113) 210 403 500 0.432 216.00
322.05
Two-year replacement cycle
2010 (70) 250 180 0.870 156.60
2011 (363) (110) 120 275 (78) 0.756 (58.97)
2012 (85) 303 218 0.658 143.44
2013 (439) (133) 120 333 (119) 0.572 (68.07)
2014 (103) 366 263 0.497 130.71
2015 - 161 120 403 362 0.432 156.38
460.09
Three-year replacement cycle

2010 (70) 250 180 0.870 156.60
2011 (110) 275 165 0.756 124.74
2012 (399) (194) 15 303 (275) 0.658 (180.95)
2013 (93) 333 240 0.572 137.28
2014 (146) 366 220 0.497 109.34
2015 - (258) 403 160 0.432 69.12
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416.13
Calculation of O & M Costs
Year 1 70
2 100 (1.10)
3 160 (1.10)2
4 70 (1.10)3
5 100 (1.10)4
6 160 (1.10)5
Decision: The 2 year replacement cycle shows the highest NPV of N460.09 million
and hence it is advisable to replace the fleet every two years.
EXAMINERS‘ REPORT
The question tests candidates understanding of the optimal replacement policy to

be adopted for a fleet of cars in a company. Candidates are expected to determine
the Total Fleet Cost, Annual Operating and Maintenance Cost, apply the discounting
factor and determine the Net Present Value of the vehicle.
Performance was poor. Many candidates did not clearly understand the
requirements of the question. Notwithstanding the fact that this is a compulsory
question many candidates did not attempt it. Candidates that attempted it made
poor presentations, and incorrect data were used in a number of cases.
Candidates are advised to thoroughly digest this topic and practice with questions
on similar topics.
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QUESTION 2
POLYTECH ALUMINIUM MANUFACTURING COMPANY

(a) The transfer values using the agreed transfer pricing method:
Division Cutting Filling Finishing Total
N N N N
Variable cost 4,500,000 3,000,000 7,500,000 15,000,000
Sharing of contribution 3,000,000 2,000,000 5,000,000 10,000,000
Transfer value/Sales 7,500,000 5,000,000 12,000,000 25,000,000
Cutting‘s share 4.5m x N10,000,000 = N3,000,000

15m
Filling‘s share 3.0m x N10,000,000 = N2,000,000

15m
Finishing‘s share 7.5m x N10,000,000 = N5,000,000

15m
(b) The revised transfer values:

Division Cutting Filling Finishing Total
N N N N
Variable cost 4,500,000 2,400,000 7,500,000 14,400,000
Sharing of contribution 3,180,000 2,120,000 5,300,000 10,600,000
Transfer value/Sales 7,680,000 4,520,000 12,800,000 25,000,000
Sharing of contribution:
Total Contribution = N25,000,000 - N14,400,000 = N10,600,000
Cutting‘s share 4.5m x N10,600,000 = N3,180,000

15m
Filling‘s share 3.0m x N10,600,000 = N2,120,000

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15m
Finishing‘s share 7.5m x N10,600,000 = N5,300,000

15m
(c) Comparison of the divisional contribution in (a) and (b):

Division Cutting Filling Finishing
N N N
Contribution in (a) 3,000,000 2,000,000 5,000,000
Contribution in (b) 3,180,000 2,120,000 5,300,000
Difference 180,000 120,000 300,000
Profit in (a) N10,000,000 – N6,000,000 = N4,000,000

Profit in (b) N10,600,000 – N6,000,000 = N4,600,000
The method used above is a good performance evaluation method as the increase
in efficiency in Filling division led to overall profitability in the company by
N600,000 while individual divisional performance contribution percentage remains
at 6%.
EXAMINERS‘ REPORT
The question tests candidates‘ knowledge of the principles of transfer pricing. They
are required in part (a) to determine the budgeted transfer values; in part (b) to
evaluate the effect of a 20% reduction in variable cost, and in part (c) compare and
comment on the divisional contributions in (a) and (b).
The performance was poor.
The commonest pitfall was the inability of candidates to determine the

contributions of the three departments and adjust for reductions in variable cost.
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Candidates are advised to improve on their analytical skills to enable them to

tackle related questions. They should also learn the effect of variation of one input
vis-à-vis the overall effect on sales, contribution, fixed cost and profit.
SOLUTION 3
With annual output of 100,000 units

2012 2013 2014 2015
N N N N
Contribution 442,000 476,000 511,000 547,000
Add. Overhead 79,860 87,846 96,631 106,294
Cash flow 362,140 388,154 414,369 440,706
Evaluation of new product project
Year Capital Cash 20% PV
Outlay flow Disc.
N N N
1/1/2011 (300,000) 1.00 (300,000)
31/12/2011 (200,000) 0.833 (166,600)
31/12/2012 362,140 0.694 251,325
31/12/2013 388,154 0.579 224,741
31/12/2014 414,369 0.482 199,726
31/12/2015 440,706 0.4019 177,120
NPV 386,312
Advice
In view of the positive NPV, the manufacture of the new product is worthwhile.
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Workings:
Computation of cash flows
Selling Prices Variable Costs
1/1/2010 = N 5.00 = N0.90**
31/12/2010 5(1.1) = 5.50 0.90 (1.1) = 0.99
31/12/2011 5.5(1.1) = 6.05 0.99 (1.1) = 1.089
31/12/2012 6.05(1.1) = 6.655 1.089 (1.1) = 1.1979
31/12/2013 6.655(1.1) = 7.321 1.1979 (1.1) = 1.31769
31/12/2014 7.321(1.1) = 8.053 1.31769(1.1) = 1.44946
31/12/2015 8.053(1.1) = 8.85 1.44946 (1.1) = 1.59440
** Note: Variable cost (excluding Labour cost) = N1.125 x 0.80 = N0.90

Labour Additional overhead
1/1/2010 = N0.60 = N60,000
31/12/2010 0.60(1.2) = 0.72 60,000 (1.1) = 66,000
31/12/2011 0.72(1.2) = 0.864 66,000 (1.1) = 72,600
31/12/2012 0.864(1.2) = 1.0368 72,600 (1.1) = 79,860
31/12/2013 1.0368(1.2) = 1.24416 79,860 (1.1) = 87,846
31/12/2014 1.24416(1.2) = 1.492992 87,846 (1.1) = 96,631
31/12/2015 1.492992(1.2) = 1.79159 96,631 (1.1) = N106,294
Computation of Unit cost

2012 2013 2014 2015
Sales/ unit 6.66 7.32 8.05 8.85
Variable cost/unit (1.20) (1.32) (1.45) (1.59)
Labour per unit (1.04) (1.24) (1.49) (1.79)
Contribution/unit N 4.42 N 4.76 N5.11 N 5.47
Total Contribution N 442,000 N 476,000 N 511,000 N 547,000

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EXAMINERS‘ REPORT
The question tests candidates‘ understanding of the principles underlying relevant cost
and the application of Net Present Value techniques for evaluating the production of a
new product. Candidates are expected to determine the Variable Costs, Contribution and
Net Present Value of the product.
Candidates‘ understanding of the question was poor and performance was also poor.
Candidates were unable to establish all relevant costs, the cash inflows and outflows, and
could not also compute the Net Present Value. The commencement dates of inflows and
outflows were also not clearly understood.
Candidates are advised to clearly understand the requirements of a question before

proffering solutions. They are also advised to practice with questions on related topics.
QUESTION 4
INTERNAL MEMO
Date: 12th October, 2010
To: Managing Director
From: Management Accountant
INFORMATION AND COMMUNICATION TECHNOLOGY AND BENCHMARKING:

IMPLICATIONS FOR ACCOUNTANTS IN NIGERIA.
With reference to my recent training course on the above subject matter in Elkana
Hotel, Kano, I hereby submit the report as below.
(a) Computers provide a challenge to the practice of management accounting in

the following ways:
(i) The Management Accountant is obliged to reconsider the contents of his

management report, and should investigate precisely what information
is needed by the various managers in the business. This analysis must
be done without any pre-conceptions and could best be handled by
someone other than the Management Accountant.
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One aspect of this investment will be, to ensure that a computer may be
capable of providing information in greater volume and in greater
details than would be available in a manual system. There should be
editing of the output to ensure that managers are not subjected to
information overload.
(ii) The Management Accountant should review the procedure by which

data are currently handled and simplify the handling of data, if
possible. It is not prudent to computerize an existing inefficient system.
A System Analyst may be needed.
(iii) He should review the source documentation used. Under a manual

system, errors in documentation can be identified and corrected before
processing is commenced. In a computerized system, incorrect source
data may have been processed in various ways before an error is
highlighted.
(iv) A computer can be programmed to carry out complex mathematical

calculations not previously used. Therefore, the Management
Accountant will be obliged to familiarize himself with new techniques
and be able to explain them to his manager.
(v) Managers receiving computer print-out may feel the lack of personal
communication inherent in a less mechanized system. The
Management Accountant will be under pressure to ensure that personal
contacts are re-enforced, so that managers do not feel that their
performance against budget is being appraised in a purely automatic
manner.
(b) Benchmarking is an established standard governing operations, with which

improvement can be made in furthering the performance of an organisation.
Steps towards the successful program of Benchmarking are:
* Review and assess current practices;

* Define measurable targets;
* Consider Cost/Benefit Analysis;
* Identify company or department against which to benchmark;
* Manpower development and training;
* Improvement in staff welfare;
* Use of Information and Communication Technology (ICT).
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I hope you will find this report useful.
Thank you.
Management Accountant
EXAMINERS‘ REPORT
The question tests candidates‘ knowledge on report writing, challenges posed by

computers to the practice of management accounting and imperatives for a
successful implementation of benchmarking in an organization.
Candidates are expected to itemize clearly and discuss briefly, the challenges of
computers to management accounting; describe benchmarking; and list the steps
required for its successful implementation.
Candidates‘ performance was poor.
Many candidates who attempted the question hardly understood it. They
concentrated on benefits of computer to Management Accounting instead of
―challenges‖. Their understanding of benchmarking was superficial.
Candidates are advised to update their knowledge of current trends in

Management Accounting and Information Technology related topics.
QUESTION 5
Closing Down Costs
N
Closing down cost 4,500
Maintenance of plant 800
Overhauling 2,000
Training 1,400
8,700
Calculation of variable cost at 50% capacity
Capacity Cost
N
40% 47,000
60% 61,000
Difference 20% 14,000
Variable cost of 10% capacity = N7,000

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Hence, total cost at 50% capacity level

= N47,000 + N7,000 = 54,000
Fixed cost (normal) 21,000
Variable cost 33,000
Calculation of variable cost at 70% capacity
Capacity Cost
N
80% 75,000
60% 61,000
Difference 20% 14,000
Variable cost of 10% capacity 7,000

Hence total cost at 60% capacity level 61,000
Total cost at 70% 68,000
Total cost (normal) 21,000
Variable cost 47,000
Statement of Profit and Loss at Expected levels of operation
Level of operation 0% 50% 70%

N N N
Sales Nil 30,000 100,000
Variable costs Nil 33,000 47,000
Contribution Nil (3,000) 53,000
Fixed Costs (15,000) (21,000) (21,000)
Closing down cost ( 8,700) - -
Profit/loss (23,700) (24,000) 32,000
Decision
It is better for the company to close down and re-open in 12 months‘ time
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EXAMINERS‘ REPORT
The question tests candidates understanding of the application of flexible

budgeting techniques in determining costs at given activity levels for decision
making.
Candidates are required to determine closing down costs, variable costs at 50% and
70% activity levels and also stating contribution and profits at those levels of
activity.
The performance was poor.
Candidates did not seem to understand the requirements of the question. They were
unable to sift the desired data to use for the determination of closing down from
fixed costs at given activity levels. They were unable to properly separate the
variable cost from total costs. Correct presentation formats were also lacking.
Candidates are advised to study extensively and to adequately cover the syllabus.
Various decision making techniques should also be mastered.
QUESTION 6
INTERNAL MEMO
Date: 15TH OCTOBER, 2010
To: PRINCIPAL PARTNER
From: MANAGEMENT ACCOUNTANT
COST AND MANAGEMENT ACCOUNTING FUNCTIONS AND ATTRIBUTES OF AN

ASSISTANT MANAGEMENT ACCOUNTANT
In response to your request, I hereby state as follows:
(a) Cost and management accounting involves providing and interpreting

internal accounting information for managers‘ use for the following
purposes:
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(i) Planning the organisation‘s activities in the short, medium and long
term;
(ii) design suitable cost collection and reporting system to assist in

management and control of costs;
(iii) recruit and train costing staff;
(iv) investigate, acquire and install suitable software to operate the cost
collection and reporting system;
(v) decision making;
(vi) collect, analyse and report information to monitor the profitability and
efficiency of the firm;
(vii) performance appraisal of both financial and non-financial;
(viii) liaise with the financial accountants to optimize the organisation

information, collection and reporting;
(ix) report to the company partners;
(x) carry out such other duties as may be required.
(b) Some of the personal attributes expected of an Assistant Management

Accountant include:
(i) He/she must have been trained or already possessed a professional

qualification in management accounting;
(ii) be highly numerate;
(iii) have excellent knowledge of the cost and management accounting

information requirements of a large architect‘s business;
(iv) be able to critically appraise the existing systems and provide

information to ensure their relevance to the future;
(v) have excellent communication skills;
(vi) be computer literate;
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(vii) be flexible and self-motivated;
(viii) possess management perspective as well as being technically

competent;
(ix) be able to work on own initiative;
(x) be able to spend time with partners on site;
(xi) be a good team player;
(xii) be conversant with new development in Management Accounting and

Information Technology;
(xiii) have at least 2 years‘ experience in a medium sized firm of architects.
Submitted for your further consideration.
Thank you.
EXAMINER‘S REPORT
The question tests candidates‘ knowledge of the cost and management accounting
functions of a medium sized firm of architects. Candidates are expected to adopt
the format of a memo in their presentation of the management accounting
functions of the firm. They are also expected to state the personal attributes of the
Assistant Management Accountant proposed for recruitment.
The performance was fair.
Candidates‘ understanding was also fair.
A few candidates presented functions as attributes, and many presented a

Formal letter instead of a memo. Many demonstrated a shallow knowledge of
the management accounting function.
Candidates are advised to master the skills of presentation of reports. They are
also advised to understand the requirements of a question before attempting
them.
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102/P/3 EXAMINATION NO………………………...

INTERMEDIATE EXAMINATION – NOVEMBER 2010
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
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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
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 ……………….
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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 ………………………………………
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.
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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 (6 Marks)
in connection 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)
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)
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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)
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.
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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.
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.
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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 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.
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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.
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:
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(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.
(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;
vii. Natural disaster;
viii. Government legislations;
ix. Legal Disputes;
x. Ban on importation of relevant raw materials or major products.
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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
(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
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 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%.
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:
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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).
(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.
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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.
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.
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(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
(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.
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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.
117

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THE INSTITUTE OF CHARTERED ACCOUNTANTS

NOVEMBER 2010 PROFESSIONA EXAMINATION I

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

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

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

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

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

Although these suggested solutions have been published

ADVANCE AUDIT AND ASSURANCE 96 - 117

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

Time allowed – 3 hours

SECTION A: Attempt All Questions

PART I - MULTIPLE-CHOICE QUESTIONS – (20 Marks)

Use the following information to answer questions 1 and 2

Microsoft Excel package is an accounting package that manipulates rows and

Microsoft Excel Sheet

TOTAL COST OF POST- NCI

1. What is the value of C5?

2. To derive Goodwill in the consolidation schedule, the Excel equation is

3. Adanna Insurance company was incorporated on 31 December 2009 to carry

4. A final debit balance in a Voyage account is referred to as

Use the following information to answer questions 5 and 6

Bobo- Keke LTD. Statement of Affairs

5. What is the deficiency per ordinary share?

6. Calculate the amount of call on the partly paid ordinary shares.

Use the following information to answer questions 7 and 8.

Balance Sheet extract as at 31December 2008:

7. What is the Goodwill on acquisition?

A. N212,400 positive goodwill

9. What is the product of Price Earnings Ratio and Earning Yield?

A. Large number of rows and columns

14. How can the cost associated with developing a computerized

A. Revenue and expenditure cost

A. N250,000 excess depreciation

18. A company is said to be highly geared when the company has………

A. more of equity capital in relation to fixed interest capital fixed.

A. the two companies are unrelated.

SHORT ANSWER-QUESTIONS (20 MARKS)

1. State two reports generated from a computerized payroll system.

Use the following information to answer Questions 4 to 6.

Mallam Sule plc Chukwu plc

Chukwu Plc commenced business on 1 January 2009 (profit accrued evenly

Calculate the following:

4. The non-controlling interest to be disclosed in the Consolidated Balance

Use the following information to answer Questions 7 and 8.

Favour Plc Bola Plc

No adjustments have been made in respect of shares sold.

9. Which of the two main classes of lease is non-cancellable?

11. In bankruptcy, the convener of a meeting of creditors is………………..

12. Identify the two parties involved in winding-up of a company.

13. State any risk that is inherent in on-line entry of transactions in an

14. Accounting application packages designed in-house to carry out particular

17. What is the method of accounting for business combinations?

Use the following information to answer Questions 19 and 20.

19. What is the life contingency reserves of the insurance company?

20. What is the non-life contingency reserves of the insurance company?

Answer Question 1 and any other three Questions (60 Marks)

QUESTION 1 CASE STUDY

In year 2001, Chief Nwachukwu developed interest in the manufacturing industry

On 20 September 2006, the Secretary of Benbella Manufacturing Company Plc, sent

Date of Number of shares Benbella‘s Reserve

The Issued Share Capital of Benbella Manufacturing Company Plc is N1million