INSTITUTE OF CHARTERED SECRETARIES & ADMINISTRATORS OF NIGERIAQuestions, Suggested Answers and Examiners Reports December 2014 CONTENTS Professional Programme I Strategic & Operations Management Corporate Law Financial Accounting Management Accounting Professional Programme II Corporate Administration Corporate Secretaryship Corporate Financial Management Corporate Governance DISCLAIMER: It should be noted that this booklet contains ‘suggested’ answers only; they are not model answer, and are not exhaustive, but indicate what could have been achieved by a good candidate in the time allowed. The aim is to provide students with guidance regarding what could be included in their answers. Page 3-12 13-20 21 -39 40 -59 60 -72 73 - 89 90 - 106 107 - 122@ Professionalism and Integrity INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA DECEMBER 2014 DIET: PROFESSIONAL EXAMINATIONS STRATEGIC AND OPERATIONS MANAGEMENT (Code:-P101) Tuesday Afternoon, 2nd December, 2014 INSTRUCTIONS Answer ALL questions in Section A. All questions cary equal marks, Answer THREE (3) questions from Section B. All questions carry equal marks. Time Allowed:3 HOURS Candidates are expected to show their workings using the inside page and the last sheet of the answer booklet, Candidates are forbidden from bringing phones into the examination hal, Only non-programmable calculators are permitted for use in the examination, auSECTION A (Answer all questions in this section) QUESTION 1 (a) Distinguish berween aplan aid an objective. (4 Marks) (bo) Desoriethe assumptions of theraionale mode! of Strategic Management (4 Marks) (©) _ Briefly explain what Stakeholder: analysis isand state how Stakeholders can’ be classified. (4 Marks) (a) Bxplainthe dfferencé between organizational vision admission, (4Marks) (©) Explainyhatthe concept Departmentaiatin!meansandenumerato any Wows} 2 which it may be done. - -~ (4 Marks) (). List four (4) arguments for social responsibility of organizations in: modem society, (4 Marks) (@_ Wentifyany four(4) methods of performance evaluation. (4 Marks) (h) __ Distinguish between’ ‘organizational effectiveness’ and organizational efficiency’ (4 Marks) (Identify four (4) specific problems related to language difficulties in cross-cultural Communication. - (4 Marks) @_ Whatare the techniques that might be used to establish standard time’? (4 Marks) (Total: 40 Marks) SECTION B (Answer THREE questions from this Section ) QUESTION2 The global high unemployment and. economic constraint shifted society's ‘behaviour towards. “survival instinct” of attaining dreams. ‘Critically appraise two theories of motivation that closely lean towards this assertion. (Total: 20 Marks) QUESTIONS é ~ Youare responsible for Human Resource! Strategie managementmaters in Your company. ‘Management enquiry vealed thet the fow performance record over the months {sas aresult of existingstructuresand ‘measures that prevent team work. ‘Youare equired to writes paper onthe concept “work team” inorder to enlighten themanagemeatin your company. (Total: 20 Marks) QUESTION 4 “An important feature ofthe environment of any no-monopolsticbusiness is competition. (@) Assuming youare theOperations Manager of asmnall scale enterprise, deseribe four (4) ways in which you can direst your business strategy towards the competition rather than reacting tit (8Marks) © Disoussbriéfly the Opportunist Strategy Model laying emphasison its advantages and disadvantages. (10 Marks) eae bn ntti lt EScc) Inyourview, is this model use Will you adopt it? (Mark) (otal: 20 Marks) | fore small scale enterprise? (I Marky QUESTIONS Mir. Oluwatobilobs Valentina is the CEO of ValDaNao Nigeria Limited. Lately he invested a substantial amount ofmoney in his business operations. He hasemplayed youas a Consultant to help him measure his organizational effectiveness with the aim of knowing how well his businessis performing given the new injection of funds. (a) Identify and explain to him any four things you will need to measure so as to determine organizational effectiveness. (8 Marks) (>) Explain thedifference between qualitative dnd quantitative measures of effectiveness to him. (4 Marks) (©) Describe briefly any four (4) approaches you canuse to help him measure his organizational effectiveness, (8 Marks) (Total: 20 Marks) QUESTION 6 ‘Miss. Bepeye is an experiericed Operations Manager of a manufacturing outfit, The organisation's management thas decided to post her to another city to start a subsidiary and she has been given the mandate to develop an appropriate organizational structure for the new subsidiary. (2) Explain what organizational structure is, (5 Marks) (b) Assuming Miss Pepeye intends to use the Robbin's framework to develop the structure of the new subsidiary, explain any five (5) ofthe under-lsted six (6) key elements of the framework:- - Specialization = © Chain ofeommand = Departmentalization = Span of Control - — Centralization - Formalization (5 Marks) (Total: 20 Marks)STRATEGIC & OPERATIONS MANAGEMENT MARKING GUIDE SECTIONA a, ‘Aplan isan explicit statement of intention that identified both objectives and the actions fo achieve them, (2Marks) While an objective is a quantified or more precise aim in line with the goals of the organization. It is simply a goal expressed in a form in whichits attainment can be measured, (2Marks) (Totat: 4 Marks) ‘The assumptions of the Rationale Modelof Strategic Management are: () Objectivity: Strategies are determined on their own merits through an objective analysis (The trategie planining model canbe broken down into jts components (ii) Corporate strategies are developed first, before individual business units or functions strategies. (iv) Moststrategies are created ‘top down’ and the results are documented in a plan (4 Marks) Stakeholder analysis identifies stakeholder expectations and powerhelps to establish political priorities. ‘Stakeholders cat be classified according to the power they hold and the extent to which they show or are likely to show intefestin the organization'sstrategies. (4 Marks) “Organizational vision isa mental image ofa possible and desirable furure state of an organization. While organizational mission is the foundation on which strategy is built and focuses on organizational purpose and value, (4Marks) Departmentalization isthe basis upon waich jobs are grouped together so that tasks can be coordinated. ‘Thismay be done according to: (2Marks) Functions Product/Service Geography Process Customers (I Mark each for any 2=4 Marks) Arguments for social responsibility of organizations in modem society are: ‘Modern businesses have potential capability o do good. Involvement in greater responsibility isa lean way to anticipating emerging problems. Investment in good values yield benefits for all stakeholders in the long run Society naturally grants rights and privileges to organizations that are highly socially responsible. (4 Marks) ‘The methods of performance evaluation inehude-————=———— ‘Narrative Description: Of an employee's strengths, weaknesses, past performance, potential and suggestions, Critical Incidents: Evaluator'sattention is focused on those behaviours that are key in effectively executing the job and executing it ineffectively. + Graphic Rating Scales: An evaluation method where the evaluator rates performance factors on an incremental scale,Behaviourally Anchored Rating Scales (BARS): An evaluation method where actual job-related Multi-Person Comparisons (Group Order-Ranking, Individual Raking and Paired Comparisons) Evaluation of one individual performance against the performance of one or more others. ‘Marks) (Listing, Only, of any Fou Organizational effectiveness is the degree to which an organization realizes its goals. On the other hand, organizational efficiency is the amount of resources used to produce a unit of output (4 Marks) ‘The fourspecific problems related to language difficulties in cross-cultural communication are: Barriers caused by semantics due to different national cultures, Barriers caused by word connotations Barriers caused by tone differences Barriers caused by differences among perceptions (4 Marks) ‘The techniques that are used to establish standard time are: Direct Observation: by trained observer monitoring, and use the recorded time of the zetivity, on. different occasions to establish a standard time, Work (or Activity) Sampling: at pre-determined intervals and calculating the degree of accuracy ofthe activity. Time and Diary Sheets: involve keeping track of the allocation and dur spentin answering phones or handling visitors, and arriving ata summary, as standard. jon of tasks, e.g. time ‘Time and Motion Study: involve finding the simplest and most efficient way of completing standardized routine tasks and timing the element of the task in order to arrive at a realistic standard, ‘Synthetic method of work measurement: involve using previous timing of similar jobs to arrive at reliable and consistent time standard, (4Marks) (Total: 40 Marks) SECTIONB QUESTION2 a. Nowadays, people tend to place emphasis on money, as income, for the attainment of needs and eventual dreams. This is areflection of the ‘hard time’ due to global economic constraint. Itis implied therefore that money has become a highly valued motivator. “The value of money asa motivator will depend upon the individual calculus, attainment of needs and the ‘expectaney that an action (or behavior) will ladto more money and/or desired goal, ‘Therefore, money is instrumental in satisfying each and every one of theneeds, Money is the basis for comparison. Itean be measured more precisely than most other motivating agents can, Money, especially when tied to particular pieces of effort motivates. Thisis why thereis conflict between organizations view of money and employees’ view of money. Employees regard money as ineome whereas, organizations regard money asa cost, (6Marks)b. Abraham Maslow, one ofthe early theorist on motivation is of the opinion that man has five inateneeds. These needs are satisfied using money as major instrument, The satisfaction of a need leads the desire to satisfy the next need in hierarchical way. Self Actualization Psychological ‘Maslow's Hierarchy of Needs: 4 Physiological Needs: The need for food, shelter, ete for survival. Safety Needs: Freedom from threat, butalso security order, predictability . Social Needs: Forrelationships, affection, sense of belonging Esteem Needs: For competence, achievement, independence, confidence and perception of others inrespect of status, respect, recognition Self-Actualization Needs: For fulfillment of ultimate desire Money obtain from work providesa livelihood and takes up such a large part of'aperson's life ltistherefore obvious that money plays an important part in the satisfaction ofthat person's needs, Some of the negative sides ofthe theory are: Maslow's theory applies to motivation in general, not just work +, Maslow provided no empirical substantiation Itis difficult to predict behavior using the hierarchy. The theory is too vague. (7 Marks) ‘Victor Uroom and Charles Handy expectancy theory slates that the strength of.an individual's motivation to do something will depend on the extent to which he or she believes the results of their efforts contribute towards desired outcomes, to reward them orto punish them, People will be motivated to do things to reach a goal. If they believe in the worth of that goal and if they can see that what they do will help them in achieving it. In other words, ‘everything that is done in the world is done by hope’ (Martin Luther). ‘The simple explanation of the theory is that people's motivation toward doing anything will be determined by the value they place on the outcome of their effort (whether positive or negative) multiplied by the confidence they have that their effort will materially aid in achieving a goal. ‘The theory may be staled as: Expectancy x Valence = Force of Motivation Where; "Force's the strength ofa person's motivation, *Valence' is the strength of an individual's preference for an outcome, and 7 Expectancy’ is the probability that a particular action will lead to a desired outcome. 8“when a person is indifferent about achieving a certain goal, a valenee of zero occurs; there fs # negative valence when the person would rather not achieve the goal. The result of either would be, of course, no motivation, Likewise, a person would have he motivation to achieve a goal ifthe expectancy were zero or negative. The force exered todo something wil depend on both valance and expectancy. Moreover, a motive to accomplish some actions might be determined by a desire to accomplish something else, For example, an employee mightbe willing fo work had to achieve company goals in marketing o production foraprometon orpay valence. (7Marks) (Total: 20 Marks) QUESTION3 F ‘Work Team is group whose individual efforts result in a level of perfosmance that is preatr than the sum of those individual inputs, A work team generates positive synergy through co-ordinated effort Contemporary organizations are non making use of team to organize work, Sometimes, aleam may beconstintedona temporary basis so as tocarry out aspecific task ‘Work team is flexible in native and is made up of small number of people with complensentary skills for a common purpose! : (4 Marks) “Teams can be classified based on their objective. However, the three most common forms of fess are: Problem-solvingteams; Self-managed teams; and Cross-functional teams Problem Solving Teams: Teams ofthis native comprise of fire to 12 employees domiciled in the same unit. ‘Thisenables them to worktogether and exchange of ideas Cross Functional Teams are made up of employees fiom the same cadre, but with diverse work areas Nonetheless, the aim is to accomplish a task. The diversity of work areas makes it litle bit difficult to ‘understand each other. It takes time to build trust and teamwork. Self: Managed Work Teams refers to autonomous teams that could not only solve problems but also implement solutions and take fall responsibilty for outcomes. In most cases, supervisory positions are climinatedas the teams cary out all the funetions of management. (6Marks) Ways of Creating High Performance Teams: “The aim of work teams i to enhance performance. Although, individuals in groups cau be motivated to work harder, thercare other ways of creating aneffective and efficient performance. Size of Work Teams: The number of individuals that make up a team should be lower than 12 members in orderto ensure effectiveness and cohesiveness. “Abiktios of Members: It is expected that the individuals of the team should have the tectnical expertise, problem-solving and decision-making skills and interpersonal skills, such as Iistening, confit resotution, knowledge management. [Allocating Rotes: Te people that make up team should have the same (oreltively the same) personalities, skills, preferences, strengths, styles and values. The effectiveness of « team depends on the Blend of the individual skills and abilities of its members. A team should have a competent leader who ‘coordinates theteam for effective performance Common Purpose: A team should have a common purpose so that they can remain focused. An accepted common pupose provides direction and guidance under any constraints ; Invariably the eam will convert theircommon purpos=into specific goal, whichis measurable and realistic. Performance Evaluation and Reward Systems: Pesformance evaluation should not be Kimited to individuals. Bifective reward systems linked to performance evaluation of groups will reinforce tcam effort and commitment ‘Motul ‘Trust: Teams that have mutual rust among individuals of the team tend perform better. Tis is because the membece believe in the integrity, character, and ability of each other which translates into high performance, - (6Marks) ‘Thehigh performance of teams has limitations: ‘Team workings sometimes not suitable forall jobs ‘Team work should be tailored towards high performance and not to satisfy employees. Crowd decisions can bedelayed 5 ._ Proference might be given to team social rélationship atthe expense of performance. : f (Marks) (Total: 20 Marks) QUESTION 4 @) (b) ‘The four ways in which Ican direct my business strategy towards the competition rather than reacting to itone: (i) Relative Superiority: I éan exploit my competitor's actual or potential weakness or.the particular features of my own strengths thereby gaining relative advantage over them. Gi) _Readjust Current Resources: I will identify the key success factors of my organization and then concentrate resources on these activities. (ii) Challenge Assumptions: Iwill challenge the accepted assumptions of doing business in my industry by being innovative. (iv) Embarking on Segmentation or Product Differentiation: ‘This will enable me find new ways of exploiting the market. (8 Marks) ‘The Opportunist Strategy Model isan informal system of corporate planning, Accordingto this model, itis possible for organizations to do without strategic plans and to operate by exploring opportunities as they arise, judged on their individual merits and not within the rigid structure of an overall corporate strategy. (4 Marks) ‘This Model is Advantageous because: ( _ Tkenablesmanagers seize opportunitiesasthey arise (i) Ttis flexible and adaptable if Gi) _Ttencourages amore creative attitude among lower-level managers (3 Marks) ‘This Model is Disadvantageous because: It does not provide coordinating framework fr he whole organization, Hence, it will not work for large organizations,fe) QUESTIONS @) (o) (©) (b) Gi) > Gi) Yes, this model isus Itcannot guarantee that all opportunitiesare identified and appraised. Icemphasis the profit motive to the exclusion of af other considerations. 6 Marks) 11 fora small scale enterprise. (i Mark) Yes, | will adop! it (Mark) (Total: 20 Marks) he four things Iwill need to measure to determine organizational effectivenessare: @) i) ii) (iv) Profitability: Profitability has two components; cost and income, Thus, I will measure the success ofall activities within the organization in terms of cost minimization or income maximization ‘Activity: | will assess the whole organization in terms of all the activities engaged in and the value added by each. Productivity: This is the quantity of products produced in relation to resources put in. This defines how efficiently resources are used. Quality and Service: Twill measure the quality of the organizations output in ferms of products and services. (8 Marks) “Qualitative measures of effectiveness are subjective and judgmental measures that are difficult to express in numerical terms, While quantitative measures of effectiveness are objective scientific measures that are ‘easily expressed in numeric terms, (4 Marks) Approaches that can be used to measure organizational effectiveness are: @ Gi) Gi) Gy) Goal Approach: This entails identifying an organization's output goals and assessing how far the organization has attained them. Itisa logical approach that measures progress toward goals, Resource-Based Approach: This approach looks at the inside of the transformation process. It assumes that organizations must be successful in obtaining and managing valued resources in order to be effective. Internal Process Approach: This entails measuring effectiveness as internal organizational health and efficiency. Hence, an effective organization has a smooth intemal process and happy and satisfied employees. Stakeholder Approach: ‘This is also called Constituency Approach, It entails measuring effectiveness based on the level of satisfaction ofeach stakeholder. (2 Marks for any 3 = 6 Marks) (Total: 20 Marks) the organizational element that defines how jobs (tasks) are formally divided, grouped aid co-ordinate, Its the means of attaining organizational gonts and objectives. (5 Marks) Robbins Framework of Organizational Structure is made up of the following six key elements, Specification: According to Robbins, there must be specialization within the organization structure. ‘Specialization describes the degree fo which tasks in the organization are divided into separate jobs.(i) Git) Gv) ) wi) Departmentalization: This must be present inthe organization structure, itis the basis upon whieh at tasks can be coordinated jobs are grouped together s Chain of Command: This refer to the lowest level and clarifies who reports (o whom. This must be clearly reflected in an tothe lineofauthority that extends from the fop of the organization organization structure, Span of Control: This had to be present in an organization structure. It refers to the number of reports for whom a manager is responsible (ie. the number of employees under a manager's control) it determines the number of levels and managers in an organization. Centralisation: This refers to the degree to which decision-making is concentrated at single point in the organization. The more decentralized an organization is, the faster is decision-making andaction. Formalization: This refers to the degree to which jabs within the organization are standardized and the degree of discretion over both what is done and when it is done within a job. Marks each for any 5 = 15 Marks) (Total: 20 Marks) scene sieiseinininetiumnniiianaliinkhgninnitntemit@ Professionalism and Integrity INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERTA. DECEMBER 2014 DIET: PROFESSIONAL EXAMINATIONS CORPORATE LAW (Code: P102) Wednesday Afternoon, 3rd December, 2014 INSTRUCTIONS Answer ALL questions in Section A. All questions carry equal matks. “Answer THREE (3) questions from Section B. All questions carry equal marks, Time Allowed:3 HOURS . Candidates are expected to show their workings using the inside page and the last sheet of the Bene answer booklet. 5, Candidates are forbidden from bringing phones into the examination hall. 6" Only non-programmable calculators are pérmitted for use in the examination,SECTION A (Answer all questions in this section) QUESTION T fa) Explain the term “clogs on: ‘the equity of redemption”. (4 Marks) (©) When can a third party enforce an ultra vires transaction against a ‘Company? 4 Marks) © _ Distinguish between a derivative and a representative action. (4 Marks) (@ On what grounds can a director be forced to vacate his office under the articles of the Company and disqualification by the court? (4 Marks) (©) Whyisitnecessary to draw up a debenture trust deed whena Company issues debenture stock? a (4 Marks) (What is the major disadvantage of a Company winding up as opposed to a voluntary winding up as far as the creditors are concerned? - (4 Marks) (g) Whats meant by a transaction at an under value? (4 Marks) @) _Highlightand explain the importance and purposes of'share premium account (4 Marks) (@ —_Underwhat circumstances may a promoter make aprofit out ofthe promotion? (Marks) @ ‘ ‘Whatare the special rules governing the issue of shares by ‘publicCompanies? (4 Marks) (Total: 40 Marks) SECTION B (Answer THREE Questions from this section) QUESTION 2 (2), Wdentify and outline the exceptions to there that funds in the share premiutn account are generally treated as share capital and tht all the provisions of Companies and Allied Matters Act, (CAMA) Cap C20, Laws of the Federation of Nigeria 2004 relating tothe reduction ofa Company's share capital will applyas if tho share premium account were part of the paid up share capital of the Company. (10 Marks) (©) What doesit mean o issue shares at discount and state the exceptions tothe general ruleprokibiting the issueofsharesata discount. (0 Marks) (Total: 20 Marks) UESTION 3 Fellx and John have approached you to acton their behalfin the formation ofa private Company limited by shares, Felbx and John have no intention of inviting others to subscribe to the Memorandum of Association, The Company haste intention of buyinga plo of land for their business from OMONILE, who needs the proceeds urgently forthe Purchase ofa state-oF the-art” car ftom Japan to be used by him during the confermenton him ofa chieftaincy ttl, OMONILE is however mounting pressure on Felix and John to conclude the contract of sale of the land within the next three days otherwise he will not hesitate 6 Offer the land W other iMterested buyers on the waiting list. But the ‘Company is unlikely to be registered for atleast another one week While Felix and John do not want to lose this ‘opportunity, (a) Advise Felixand John accordingly on the way out (8 Marks) (©) List the docaments that wil have tobe deliveredto the Registrar of Companies for the incorporation of the Company and the purpose which each of the documents will serve, (22 Marks) (Total: 20 Marks)eSTIONS ii and Tade are minority sharcholders in Skytop Industries Ple reputed for the manufacturing of durable «ehold utensils, Sola, Kola and Taiwo who ate the ditectors of the Company recently mortgaged the Company's to Gold Bank Ple in order to raise short-term capital for completion of a work-in-progress. Timi and Tade ressed their displeasure at this development and threatened to institute legal action against the three directors 2, Kola and Taiwo for having misapplied the assets of the Company. ‘Do you think Timi and Tade will succeed in their action?, (20 Marks) Higl ight the reasons for the rule in Foss v. Harbottle (1843) 2K B. 461 (10 Marks) (Total: 20 Marks) ESTIONS Jer Companies and Allied Matters Act, (CAMA) Cap C20, Laws of the Federation of Nigeria 2004, it shall be rwful for a Company to make a Joan to any person who is its director or a director of its holding Company, or to ‘r into any guarantee or provide any security in connection with a loan made to such a person as earlier tioned by any other person. : Explain the exceptions to the general rule imposing a prohibition on loans to directors. Explain what is meant by secret profits or benefits and the rules prohibiting directors from making secret profits orbenefits, (Total: 20Marks) ESTIONG sstrial and Autogas Ltd was incorporated asa limited liability Company for the production and marketing of gas, gas cylinders to meet the demands of customers. The Company has gained considerable acceptance in the ketand its tumoverhas been growing in leapsand bounds. omotive Gas Ltd who is also.a player and a force to be reckoned with in the gas market feared thatit would lose clientele base and goodwill to Industrial and Autogas Ltd. because of the similarity in the names of both wwanies. votive Gas Ltd, wants to approach the court for an injunction restraining Industrial and Autogas Ltd from g the word “autogas” in their Company'sname. Identify and discuss the legal issues arising out of the above facts andsubstantiate your argument with a decided case. seen ao (10 Marks) What is passing off? (5 Marks) Explain the procedure under Companies and Allied Matters Act, (CAMA) Cap C20, Laws ofthe Federation ‘of Nigeria 2004, fora change of Company name, (Marks) (Total: 20 Marks) 1sCORPORATE LAW MARKING GUIDE SECTION A a, f ‘A clog means a bar and the equity of redemption isthe right to pay off mortgage without any hindrance, Therefore, the rule of equity is that there can be no provision in the mortgage deed which bars the mortgager from paying off the mortgage prematurely, (4 Marks) A third party can enforce an ultra vires transaction against a Company as long as he entered into the transaction in good faith, in accordance with the ordinary law of contract, he must have given consideration. In order words, he must have a contract with the Company. (4 Marks) A derivative action is a procedural device that allows an aggrieved shareholder to sue in the Company's name. The plaintiff, however, must be the proper person to bring the action. If the plaintitthas acted improperly he cannot bring a derivative action. While A representative action is brought by a member to enforce a right which is enjoyed by hitn in his individual capacity (4 Marks) ‘A director may be forced to vacate his office under the Articles of the Company or disqualification by the courtunder the following: i) He ceases to be a director by virtue of any provision of the Act or he becomes prohibited by the law from becomingaadirector. Gi) Hebecomes bankrupt or makes any arrangement or composition with his creditors generally. (iii) I fheis suffering from mental disorder as adjudged by the court. (iv) Heresigns his office by notice to the Company. (7) He has beet absent for more than six consecutive months without permission of the directors from board meetings held during that period and the board pass @ resolution to that effect. (Any Four (4) Marks from Above=4 Marks) “There aretwo main reasons - First, the trust deed appoints trustees in whom any mortgage of the assets of the company can be yented. Secondly, the trustes have the right t act on behalf of the individual debenture holders and so enforce their tights under the debenture, (4 Marks) ‘The major disadvantage is cost. Ifthe company is put into compulsory liquidation; the Company will have to bear the cost of the proceedings. The implication of this is that there will be less money for the creditors, (4 Marks) ‘This is the situation where the Company makes a gift to a person or enters into ; atransaction under which the Company receives no consideration. A transaction will also be at an undervalue if the consideration received by the Company is significantly lower in value than the consideration provided by the ‘Company. (4 Marks) ‘The share premium account may beused forthe follow @ ‘To pay up unissued: shares which are allotted to members as fully paid ‘up bonus shares, (__Towrte offthe expenses of othe commission paid or discount allowed on, any issue of shares ordebentures of the Company. Gif) Towrite off preliminary expenses of the Company. (i) To provide forthe premium payable on the redemption of debentures of the Company. (¥) To pay off any premium ot the redemption or purchase by Companies of their own shares. (Any Four (4) from the above=4 Marks) 6 ii. promoter may mike a profit out of the promotion provided he discloses his interes! and the company consents to his Keeping the profil. The disclosure must be made to un independent board of directors or to all the members of the Company by stating the promoters interest in the prospective. (4 Marks) i, Apublie Company cannot accept an undertaking to do work or to perform services as payment for its, shares. ‘Atleasta quarter ofthe nominal value and the whole of any premium must have been paid. Itmay not issue shares in return for non-cash consideration ifthe consideration is tobe performed more than five years after the issue ofthe shares Any non-cash consideration must have been independently valued. (Any Two (2) Points = 4 Marks) (otal: 40 Marks) SECTION B IESTION 2 a, Under CAMA 2004 (S.120),the share premium may be used for the followin _ @___Topay ypunissuedshates which are allotted to members as fully paid up bonus shares, (i) Towrite offpreliminary expenses of the Company (iii) To write off the expenses of or the commission paid or discount allowed on, any issue of shares or debentures of the Company. (iv) Toprovide for the premium payable on the redemption of debentures of the Company. (¥) _ Topay offany premium on the redemption or purchase by Companies of their own shares. G Marks for any 4=12 Marks) b, Shares are said to be issued at a discount when the consideration for which the share is issued is lower ‘than the nominal value of the shares. Exceptionto therule: (i) Theissue of the shares at a discount is authorized by a resolution passed on the general meeting ofthe Company and therefore is sanctioned by the court (i) Theresolition specifies the maximum rate of discount at which the shares are to be issued. (ii) The shares to be issued at a discount one issued within one month after the date on which the issue is sanctioned by the court or within such extended time as the court may allow. (8 Marks) (Total: 20 Marks) QUESTION 3 a, Advice to Felix and John ‘The issue at stake here is the urgent need for an immediate signing of the contract so that they do not lose this opportunity and the promoters have been informed that the incorporation will take another one week, There are two options offered to the promoters. Firstly, they could obtain a shelf Company through which they could sign the contract immediatély and secondly, Felix and John could enter into a provisional contract in their own names which contracts provides that, upon incorporation, all rights and liabilities there under shall pass to the Company. (8Marks). ”bb. The following documents will ned to be filed and lodged with the Registrar-General ofthe Corporate | [Affairs Commission under S. 35(1) and $.35 (2) of CAMA | ‘Memorandum of Association: This sets out the name of the company. The Registered office and the j | head office if different from the registered office (nor P. O. Box) FormC06. (ii) Form CAC 2-Statemeat of Authorized Share Capital & Allotment of Shares): A Statement of authorized share capital signed by at least one director and that the liability of the members is limited. i (ii) Form CAC 7 (Particulars of Directors and Any Changes): A statement containing the list and particulars and the consent of person who are tobe just directors ofthe Company. () Articles of Association: These contains the intemal rules ofthe company, dealing with matters such 4 as shares, directors, meetingsetc. Gi) _Astatwlory declarationin the preserbed formby a legal practioner that therequirements ofthis act forthe registration have been complied with Section 35 (3). Gi) Any other documents required by the commission to satisfy the requirement of any law relating (0 (12Marks) (Total: 20 Marks) STION 4 (a) Timi and Tade will not succeed in their eotion because the shareholders were not competent to act as i the formationofaCompany. t plintfsin these proceedings. When a wrong is done to @ Company, the proper plaintiff in any action remedy that wrong is the Company itself ie, Skytop Industries Plo. (a0 Marks) (b) Reasons for therole in Foss V. Harbottle 1843: (@ __Itassersthe separate legal personality ofthe Company when a wrong s done tothe Compasys the proper-person tosue to remedy the situation isthe Company itself. Gi) Teprevents mutipicity of action in the name ofthe Company. It would be absurd ifevery member ofa Company fo which harm had been done could sue in the name of the Company t0 recover compensation for that hartn, ; Gil) Itprevents futilelitigation. (lo Marks) i (Total: 20™Marks) QUESTIONS Exceptions tothe general rules are: (House purchase loans (i) Losnsinthe ordinary course of business where the Company isinvolved in ending 0 Gii) Relevant companies making smallcredittransactions SHEE (iv) Relevant companies making credit transactions in the ordinary ‘course of business of the company loan for the purpose. (W) Loans fortheperformance ofa dircotor’s duties (vi) Relevant Companies making small quasi-loans. 2-Marks for any five (5)=10 Marks)) What isa secret profit or benefit? A secret profit or benefit is one which is not authorized by or disclosed to the Company: It is when a director uses the Company property, (4 Marks) opportunities or information to obtain a profit or benefil(s) Rules probibiting directors from making secret profits or benefits (A divector musi not without the consent of the Company make profit out of his position in the Company beyond his agreed remuneration. (ii) The director should not deal on behalfof the Company with himself'n any business ortransaction, Gil) Adirector should notenrich himself unjustly iv) Aditector should not misuse information obtained from the Company by virtue of his position. (2 Marks for any 3 = 6 Marks) (Total: 20 Mar QUESTION 6 : {@) Automotive Gas Limited is not likely to succeed in obtaining an injunction restraining industrial and (b) © autogas Itd from using the word “autogas” in his company's name, The reason is not far-fetched, If the name is simply a word in ordinary use representing a machine or on article of commerce, the probability of deception is out of all proportion less than it would be in the case of an invented or fancy word. (AERATION LTD V. TOLLIT 1902) (16 Marks) Passing off is a tort which occurs when a person ar business uses a name which is so like that ofan existing business as to be likely to cause confusion in the mind of potential customers and a possible divergence of trade away from the plaintiff's business.(Scction 30) NIGER CHEMISTS V NIGERIA (5 Marks) Undef CAMA 2004 (Seetion.31), the Company will pass a special resolution by a simple majority of the ‘members in a general meeting to bring about the change which will then be forwarded to the Registrar General for necessary action, (SMarks) (Total: 20 Marks)CORPORATE LAW Examiner's Report General Comments ‘Atotal number of23 students tepistered forthe examination, Two (2)candidates in Benincenire were absent. “The performance ofthe students yas slightly better than the previous examination: 11 candidates scored above 50%, while the remaining LO students failed. QUESTION "This was the compulsory question therefore answered by all students QUESTION? ‘Students performance on’ the whole was cither average or below average. STION3 ‘This question appeared straight to the point and ‘practical, Most of the students attempted it and performance was comparatively good. ESTION: ‘This question was scenario based and majority of the students attempted it Performance Was above average a8 students understood the legal issues raised in the question. QUESTIONS Few ofthe students attempted this question and performance was poor. It appears that the students were either not familie with the (a) partofthe question or didnot prepare well “They performed better inthe (b) part. However, performance was still below expectation. ‘Many of the students didnot read the question thoroughly and therefore did not address all the issues raised. QUESTION 6 Fw ofthe stdents attempted this question and performed below average, However the students could not identity the issues raised in 6(2). Their conclusions were wrong and they could notsupply any decided case as was requested. Mostof the students could not redefine “passing off”in (6b) an didnot realise thatitwasa Common Law concept. “The students appeared not to have prepared to answer questions on procedural issues, They sre advised to read the Companies and Allied Matter Act, Cap’C20 LEN 2004-when preparing for. ihe examination. 20 j@ ICON Professionalism and Integrity INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA DECEMBER 2014 DIET: PROFESSIONAL EXAMINATIONS FINANCIAL ACCOUNTING (Code: P103) Tuesday Morning, 2nd December, 2014 INSTRUCTIONS Answer ALL questions in Section A. All. questions carry equal marks. . Answer THREE (3) questions from Section B. All questions carry equal marks . Time Allowed:3 HOURS . Candidates are expected to show their workings using the inside page and the last sheet of the answer booklet. Candidates are forbidden from bringing phones into the examination hall inthe examiination. Only non-programmable calculators are permitted fe aSECTIONA ‘(Answer all questions in this Section) QUESTION 1 (2) IAS J primarily addresses the presentation of Financial Statements ‘The Standard requires management () ©) @ © wo to prepare financial statements on a going concer basis. State the circumstance under which financial statements may not be prepared on the going concer basis. What ae the disclosure requirements when the going concer basis isnot followed? (4 Marks) Define functional currency inaccordance with JAS 21 and explain how itis determined. (4 Marks) Jaga Lid incurred the following contract costs in the fist year of two year contract for ‘N800million to ‘constructaroad, The performance for the first yearisas follows:- Nmiillion Cost ofmaterials incurred 180 Labourand other costs incurred 160 Casto completion 250 ‘Agreed price for the cofponent completed 420 Calculate the profitto be taken ino the statement of profit forthe year and state why. (4 Marks) ‘The Companies Act classified reservesas either distributable ornon-distributable, \Whatis 2 non-distributable reserve and what purpose doesiit serve? (3 Marks) Give two examples of norr-distributablereserves. (Mark) (Total Marks 4) ‘Thestatelnents of profit orloss (Extracts) of Patron Pleand Sabo Plc for the year ended 30, September, 2014 areas follows:~ PATRONPLC SABOPLC Nimillion Nimillion Revenue 8,900 6,340 Costof Sales 3,108 2,440 Gross profit 5,792 3,900 () Patowns 60% of the equity shares of Sebo Pe. (ii) In the year ended 30 September, 2014, Patron sold goods costing NI, OO0million to Sabo for 1i{900nillian: One-half 1/2} of these goodssvere still in the inventory of Sabo at 30 September, 2014, Propare the consolidated statement of gross profit for the period. (4Marks) “The Intemational Accounting Standards! Board (IASB) framework describes the principle of ‘substance overform', (j) ~ Describe the principle according tothe IASB framework (Marks) Mapo Ltd sold a building to Portal Ltd, an investment company, for N200miltion ‘Mapo Ltd can repurchase the property at any time within the next two years forthe original selling price of N200nillion plusa stim added half-yearly based on the bank lending rate plus 2%4- 2 sitHow should Mapo Lidaccowat torthis transaction? No ealewiation 1 fequited (2. Marks) (Total: 4 Marks) (3) Anextract from the list of balances of Sekky Lid as at 30 June, 2014 is given below. N' Million, Revenue 0 Opening Inventories - Raw materials 4 Work-in-progress 7 Finished goods 6 Purchases ofraw materials 30 Wages . 20 Administrative Salaries 10 Production overheads 8 Office rent, rates and repairs 12 Closing inventories Raw materials 6 Work-in-progress 6 : Finished goods 8 Prepare Sekky Ltd Statement of profit or Loss forthe year ended 30 June, 2014, classifying expenses by function. (4 Marks) (h) Explain whatismeant by capital reorganization and the purpose it serves. (2 Marks) State four of the forms capital reorganization can take, (Marks) (i) Explain the significance of horizontal analysis in financial statements and outline briefly how this is achioved? (4 Marks) G) __ Havingregards to IAS 38- Intangible Assets, explain why or why not the following expenditures can be capitalized. (@) Implementation ofan advertizing campaign paid in advance for four years. (2Marks) () —_Adaeze Ple has produced a new computer game, Adaeze sells this game to its customers in the ordinary course of business. (2Marks) (Total: 4 Marks) SECTION B (Answer THREE questions from this Section) QUESTION 2 Femoo, a Public Limited Company has authorized share capital of 750 million ordinary shares of NI each. ‘The Company prepares its accounts as on 31 March in-each year and the trial balance before final adjustments extracted on 31 March, 2014 showed: Notes N'000 000 Equity share capital issued and fully paid 600,000 Retained profits at 01/04/2013 183.000 6% loan notes (Secured on leaschold property (i) 180.000 23Leaschold property at cost 61/04/2013 (ii) 600,000 Plant and Machinery at cost 1/04/2013 iii & iv) 240,000 “ Addition to plant during the year 300,000 Depreciation ~ Leasehold property - 01/04/2013 228,000 Depreciation, Plant and Machinery 0{/04/2013 90,000 ‘Addition to plant and machinery during the year 480,000 Receivables 300,000 Prepayments 240,000 Balance at bank 7 270,000 Profit for the year (Note i) 333,000 Sales proceeds of plant 36,000 ‘Accounts payables 510,000 2,160,000 2,160,000 ADDITIONAL NOTES (@__, TheProfitforthe period istatedsubjectto any tems in notes (i) tov below. (ii) The loannotesare repayableat par by six equal installments starting on 31 March, 2015, (ii) Anal depreciation is calculated as to = Leasehold property 2% on cost and plant and Machinery 20% reduoing balance on NBV as at01 April, 2013 plus addition less disposal in the year. (iv) Plant disposed originally cost N48million with accumulated depreciation of N9.6 million. (¥) Dividend of 20 kobo paid on ordinary share capital during the period had notbeen in the trial balance, Required: (a) Prepare the statement of changes in equity for the year ended 31 March, 2014, and the statement off financial position of FemooPlcas at that date, suitable for publication (IAS!) QUESTION3 (Total: 20 Marks) ‘The Statement of Financial Positions as at 31 March, 2014 of Obodo Plc and its subsidiary Christy Ple are summarized below: OBODOPLC —CHRISTYPLC + Non-Current Assets: N'000 N'000 Property plantand equipment 9,000 4,800 Inyestmentin subsidiary 10,000 : 19,000 4,800 Taventory 12,000: —18,000-— ‘Trade receivables 25,000 21,000 Current account with Christy 4,000 - Bankbalance 20,000 Z 43,800, ” hihi ait aaaatiniuad sara atacand cuttinEquity & Liabilities: Issued share capital NI 40,000 8,000 Retained camings 24,000 9,800 64,000 17,800 Current Liabilities ‘Trade payables 16,000 18,000 Current account with Obodo 2,000 Bank overdraft 6,000 + 80,000 43,800. NOTES 1. Obodoacquired 80%shares inChristy many years agoat. which date the retained earnings of Christy were NI million. Goodwill on consolidation had suffered impairment loss and had been fully written off before the current accounting period. TL O34 March, 2014 there was cash in transit from Christy to Obodo, IL _Itisthe group policy to value non-controlling interests at the proportionate share ofthe fair value of the subsidiary'snet dssets, Required (@) Prepare the consolidated statement of financial position as at 31 March, 2014 (Show your workings). QUESTION 4 The following information is obtained from the books of Adelenwa Ple, Statement of financial position as at31 December, 2013 N'000 Non-current Assets 2,800 Property, plant and equipment Current Assets: Cash 300 ‘Trade receivables 500 Inventories 800 Prepayments 400 Total Assets 4,800 Equity and Liabilities: 2,000,000 ordinary shares of NT 2,000 Retained Profit Non-Current Liabilities: 712% Loan notes 40,000 8% preference shares NI 400 Current Liabilities: Trade payable 25 2012 N'000 2,400 200 400 700 300 4,000 1,600 1,000 400 400 4,000 (20 Marks)The statement of profit of loss for the year ended 31 December 2013 N00 Revenue 4,800 Cost of Sales G.000) Gross profit 1,800 Operating expenses (1,056) Profit from operation 144 Interest expense 122) Profit before tax 622 Income tax expenses (336) Profit for the period 7 286 ‘The inventory at 31 December, 2011 was valued at N475,000 Required: (a) Compute the following ratios for 2013 and 2012. i. —-Currentratio Interest cover Inventory turnover iv. Trade receivable days vy. Tradepayable days vi. Sales tonon-currentassets vii, Debvequity ratio viii Net profit margin 2012 N'000 4,000 (2,800). 1,200 (704) 496 (07 389 (216) 1B. (16 Marks) (©) Commentbriefly on the liquidity and salvency position ofthe company over the two years STK (Marks) (Total: 20 Marks) Chuka Plowith apaid-up capital of N162million has decided on a scheme for the reduction of capital, the scheine has been fully authorized by the court and all interested parties. The statement of financial position ‘of Chuka on 30 June, 2014 was as follows:- N'000 Property, plants and equipment Building at book values Plant and machinery (NBV) Investments Current Assets: Inventories: Accounts receivables CashatBank Current Liabilities, N‘000 32,400 25920 58,320 113,400‘Accounts paya . 11.664 125,004 Capital and Reserves: 8% cumulative pref, shares fully paid (N1) 97,200 ‘Ordinary shares of NI fully paid 64,800 162,000 Accumulated loss (36,936) . 125,064 ‘Thescheme provides for the following ; i. The preference shares are classified as equity and are to be reduced by 25 kobo each and half of the balance tobe converted to ordinary shares i, The arrears of dividends on preference shares amounting to N5,952,000 to be settled by issued of one ordinary. Sharé of 25 kobo perNI of dividend iii, Ordinary shareholders are to receive one new share of 25kobo paid up for each ordinary share held. All share Capital as reduced to be consolidated to N | share each, iv. Thescheme further provides thatthe values ofthe reduction of capital to be utilized as follow. (a) Towrite off the debit balance on thereserves (b) —Toreduce by'N9,072,000 the values of buildings and plant andmachinery. (©) Towriteoffbad debts of N6,280,000 and obsolete inventories of N7,380,000 (@) The balance remaining to be used to reduce the value of investment. Required: Prepared the necessary ledger accounts to record the scheme jn the books of Chuka Ple (Hint, (i) Capital Reconstruction (fi) Ordinary share capital account and (fii) Cumulative preference share) account. Prepare the Statement of financial position, after the completion of the scheme. (Assume that the scheme was. completed on 31 August, 2014, (Total: 20 Marks) QUESTIONS Mr. Awaiko wanted to obtain & financial assistance from a foreign baiik. The financial statéments of Mr. Avvaiko prepared on historical eost basis was presented to the bank. ‘The bank requested that the accountants should be re-presented showing present values adapted to price index, current purchasing power and current costs. This request is against the fact that the value of money is not constant especially in Nigeria where the Naira fluctuates widely against major foreign currencies, Required: Advice an the use as againsthistorical cost of: (@) Price index (6Marks) (Current Cost Accounting (CCA) (6Marts) b. Explain four (4) defects of historical costs accounting in times of ncreasingprice, (8Marks) (Total: 20 Marks) 7FINANCIAL ACCOUNTL MARKING GUIDE SECTIONA a. (Going concem basis is not applied to financial statements when management either intends to Tiquidate the entity orto cease trading norhas no other alternative thas to doo. For example, fan cetity makes losses perpetually and the situation cannot be reversed in the foreseeable future, or there are government policies restricting substantially the financial and operating policy of the entity, management may not have choice but to cease trading, Gi) © Diselosure: The fact thatthe going concer basis was not used, the basis used and the reason why the entity is notregarded asa going concern, (4Marks) Functional Currency is the currency of the primary environment in which the entity operates. The following factors are taken into consideration to determine functional currency: (__Thecurrency thatpprincipally influences the selling price of goods and services, Gi) The curency of the country whose competitive forces and regulations mainly determine start the sale price of goodsand services. (ii) The curency that influences the cost of labour, materials and other costs of providing goods and services., (4Marks) “ JAGALTD | Nm Cost to date(180+160) 340 Anticipated future cost 250 en Contract Price . 300, “The contracts profitable overall. Hence, profit taken woud be related between costo date and the agreed price for component completed, That isN420m -N340m = N80 (4 Marks) “Anon-distributable reserve is reserve that is notrepayable to the shareholders who have subscribed forthe shares ofthe entity: Itremains a partofthe company'spermanent capital. Non-distributable reserve is meant 10 safeguard the interest of creditors and is known as capital maintenance. Examples are share premium, revaluation reserves, sinking fund reserves. (4 Marks) PATRON &SABOPLC Nm RevenueN'm(8,900 + 6,340) - 1,900 13,340 CostofSales(3,108 + 2,440) - 1,900 + % x 900 (4,098) Gross Profit 9282 CostofSales; i Nm Pis 5,548 Intercompany Sales (1,000) Unrealized Profits % x 900 450 (4 Marks) 28(i) TASB framework states that information is to represent faithfully the ransaetiomts and other events + “fhatit purports to represent, itis necessary that they are accounted for and presented sn accordance with the substance and economic reality and not their legal form. (ii) The sibstance of this transaction is 2 secured Joan fom Portal te Mapo with the expectation being, that Mapo will exercise its options to repurchase the building, No sales should therefore be recognized. The N200m isa loan received from Portal Ltd. (4 Marks) SEKKYLTD STATEMENTS OF PROIFT OR LOSS FOR THE YEAR ENDED 30 JUNE 2014 it N'm Revenue ; 90 Cost of Sales 655) Gross Profit rs Administrative Expenses (20) Operating Profit, Ts Allocation of Costs Cost of Administration Sales Expenses Nim N'm ‘Opening Inventories 4+7+6 7 Purchases 30 Closing Inventory 6 + 6 + 8 (20) ‘Wages: 20 Administrative Salaries Production Overhead s* Office Rent, Rates and Repairs 12 55 20 (4Marks) Capital reorganization involves the internal rearrangement of the capita structure of company. Itis done to prevent the transfer of a Company's operations and net assets to another Company in consideration ofthe allotment of the latter Company shares to the former Company shareholders. Capital reorganization could take the form of: i) Splitting ofshares Sete eee ee Gi) Tnjectingoffrest long-term funds into the Company Gii) Redemption of redeemable preference shares (iv) Bonusshares () Capital reduction (4 Marks) 29Horizontal analysis compares the financial statements of the current periods with previous periods, and to noteand rationalize any significant changes, The analysis is done on line-by-Line comparisons of revenue, costs, assets, liabilities and capital employed. ‘The changes in these parameters and the relevance of other information in. the published financial statements or press cuttings about the Company or the industry in which it operates must also be considered, The trend analysis can offer some interesting insights into the development of the business. (4 Marks) J (The costs are not capitalized because IAS 38 prohibits the capitalization of expenditure on advertising and promotional activities. (i) The costs are not capitalized because the computer game is held for sale in the ordinary course of business. Consequently LAS 2 is applicable instead of JAS 38. (4 Marks) (Total: 40 Marks) ECTIONB ; QUESTION? FEMOOPIC a Statement of changes in Equity forthe year Ended 31 March 2014 i } Share Retained Total Capital Profits Balance 31/03/2014 600,000 183,000 783,000 Net Profit forthe Period 290,280, 290,280 Dividends Paid (120,000) (120,000) 600,000 353,280 953,280 b Statement of Financial Position as at31 December 2014 Notes N‘000 N‘000 ‘Noi-CurrentAssets Property, Plant & Equipment 2 473,280 Current Assets: Inventories 480,000 Trade Receivables 300,000 Prepayments . 240,000 ‘Caslrat Bank (N270,000-N120,000) 150,000 1,170,000 Less Current Liabilities Accounts Payable 510,000 Current Position of 6% Loan Notes, 30,000 540,000 Net Current Assets 630,000 30 caseNon-Current Liabilities ‘6% Loan Notes(180,000-N30,000) (150,000) 953,280 Share Capitaland Reserves: Notes Issued Share Capital 600,000 Retain Profits 353,280 (933,280 Notes othe statement financial position: 1. Statementofaccountingpolicies (2) The Financial Statements have been prepared in aecordance with International Financial Reporting Standards (FRS) (b) Depreciation (Leasehold property 2%oncost (ii) Plant and machinery: depreciation is calculated on reducing balance method at a rate of 20% per annum, Assets acquited during the year are charged with a » full year depreciation. 2, ~ Tangible Assets Leasehold Plant & Total Property Machinery "000 N'000 Nooo Co At April, 2013 600,000 240,000 840,000 Additions 30,000 30,000 Disposals (48,000) (48,000) At31 March 2014 222,000 822,000 Depreciation: At L Apsil, 2013 228,000 90,000 318,000 Disposal = (9,600) (9,600) Charged forthe year 12,000 28,320 40,320 At31 March 2014 240,000 108,720 348.720 Net Book Value ‘At31 Match 2014 113,280 473,280 ‘A131 March 2014 ~~--7150,000 522,000 3. Share Capital: The authorized share capital consists of 750milion Shares of NI each of which 600million are issued and fully paid Workings 1. Profitorloss forthe year ‘000 N'000 Profit forthe year per list of balances 333,000Less: Deprecration (NJ2m_ + 28.32m) Losson Sale 2, Disposal of Plant Proceeds Cost 7 Depreciation Loss onSale UESTION 3 Obodo Group ‘Consolidated Statementof Financial Position as at 31 March 2014 Property Plant & Equipment 5 Current Assets: : Inventories Trade Receivables Cash in Transit Bank Balance Less Current Liabilities: ‘TradePayables Bank Overdraft ‘Net CurrentAssets Shate Capital and Reserves: Issued Share Capital NI Retained Profits @ Non-Controllinglnterests (1) Goodwill impaired. Workings: 1 ‘Non-Controlling Interest 2 ‘Calculation of Retained Profits Payment N00 48,000 (9,600) Debit Retained Profit Credit Goodwill 2,800 ~ 2800 = 20% x N17,800,000 ‘000 Subsidiary (9,800 - 1,000) 80% 32 24,000 7,040 (40,320) (2,400) 290,280 w'000 36,000 (otal: 20 Marks) ‘N'000 13,800Goodwill Written Of (2,800) : 28.240 NOOO 3, Goodwill 10,000 NetAssetsacquired(8m + im), (7,200) 280 (Total: 20 Marks) QUESTION 4 Adelanwa Ple Calculation of ratios: a ()— CursentRatio = Current Assets Current Liabilities 2012, = 1600 = 4:1 400 2013 = 2000 = 4:1 “300 (ii) ~ Interest Cover Profitbefore Interest and Tax Total Interest Expenses 2012 496 = 4.6times 107 213° = 744 =O. L times 1m (iii)__Inventory Turnover = Costof Sales “Average Inventory 2012 = 2,800/(475 +-700) + 2 = 48times 2013 3,000/(800 + 700) + 2 = 4times Inventory days= 77 days for2012 = 91 days for2013 TradeReceivables x 365 days Credit Sales (jv) Trade Receivable Days = 2012 = 400/4,000 x 365 days = 36.5days 2013 = 500/4,800 x 365 days 38days (vy) TradePayablesDays = "Trade Payables x 365days Credit Purchase 2012 = 400/3,025 x 365 days = 48days 2013 = 500/3,100 x 365days 59 days 3‘The liquidity position as measured by the current ratio, (wi) Sales to Non-Current Assets (NCA) = Revenue TotalofNCA : 20120 = 4,000/2,400 = 1.67times 20130 = 4,800/2,800 = | Ttimes (wii) Debit/EquityRatio. = Long-TermDebt x 100% Equity 2012 = 1,400/2,200 x 100% = 63.6% 2013. = 1,600/2,700 x 100% = 59.3% (ii) NetProfitMargin = —ProfitforthePeriod x 100% 55 Sales 2012 = 173/4,000.x 100% = 43% ‘2013, = 286/4,800 x 100% = 5.9% “Comment for both years, appears to be good and is much above the norm of 2:1. However, with the: acid testratio of.1,25 in 2012 and 1.6 in 2013 (see working Note 2), it appearsas if so mich idle, fund is tied up in inventory and prepayments. Slow moving inventories could lead to obsolete inventory, ‘The solvency position measured by debt/equity ratio and interest cover showed that the company is not geared at alland would not face any threat from the creditors. Working: (a) Purchases 2013 2012 N'000 ‘N'000 Cost of Sales 3,000 2,800 Closing Inventory 800 700 Opening Inventory (700) 473) Purchases 3,100. 3025 (2) AcidTestRatios = Current Assets - Inventory Current Liabilities 2012 = 1600 ~ 700 - 300 = 1:50:1 400 2013.. = 2000. -.800_--400-—_= _1:60:1__ 500 (Total: 20 Marks) ° 34 ss isssicnaeaiti a aSQUESTIONS Chuka Pie @ Capital Reconstruction Account ‘000 N'000 Arrears ofPref, Dividend 1488 Ordinary Shares (i) 48,600 Profitor Loss Statement 36,936 Cumulative Pref. Shares(iii) 24,300 Accounts Receivables 6,280 Building & Plant 9,072 Inventories 7,380 Investment (Balancing Figures) + 1744 72,900 i) Ordinary Share Capital Account Nv000 = N'000 N'000 N'000 Capital Reduction 75%x 64,800 48,600 Balance B/E 64,800 Balcf 54,138 Cum. Pref. Shares (ii) 36,450 Arrears of Dividend : NS,952x25% 1,488 102,738 102,738 Gi) 8% Cumulative Preference Shares N'000 N'000 N'000 Capital Reduction 25% x 97,200 24,300 Balance b/f 97,200 Ordinary Share Capital %(97,200-24,300) 36,450 Belance olf 36,450 97,200 97,200 CHUKAPLC Statement of Financial Position as at 31 August2014 N'000 N‘000 a Building & Plant 49,288 Investment (55,080- 11,744) 43,336 2588 Current Assets: Inventories(21,060 - 7,380) 13,680 Accounts Receivables (22,842 - 6,280) 16,562 Bank Balance aan 30,404 Current Liabilities: ‘Trade Payable (82,400) Net Current Liabilities (1,996) 90,588 38Share Capital and Reserves: Authorized Issued N'000 Neovo 8% Cumulative Pref: ShareN1 97,200 36.450 (ii) H Ordinary Share Capital N1 each 64,800 54,138 90588 Working: Buildingand Plant N'eoo Building 32,400 Plant s 25,920 Amount Written Off (9972) 9248 (Total: 20 Marks) JUESTION 6 (a) Price Index is used as a measure to reflect movement in price level. The price index system is developed by iitilizing retail price index statistics determined through relatively simple computation of the ratios of ‘amountof money which could buy given amounts of goods or services during varying time periods. It is'a barometer of fluctuating price levels and it is amended from time to time to take account of new ‘commodities entering the consumer's range of choice and needs. Itis amodel that incorporates the concept of gains and losses in purchasing power, thus it has the following advantages: in Itisa true system of inflation accounting because it adjusts for changes in the unit of measurement. (i) —_Itmeasures the impact on the company in terms of shareholders" purchasing power. Butit fails to capital the economic substance when specific and general price movements diverge, it doosnotshow the current value of assets and liabilities and does not maintain physical capital of the business. ii) Current cost Accounting: The general principles of Current Cost Accounting (CCA) are that the current cost income statement are charged with the value of the business of assets consumed during the period and the current statement of financial position reflects the cusrent value of inventory and non-current assets. Under CCA, physical capital is maintained, assets are stated at their value to the business and holding gains are eliminated from profits. Hence, users can use it to assess the tre current state or recent performance of the busines CCA also eliminates the possibility of paying div eliminated holding gains from profits nds out of real capital, having Because the distortion caused by moving prices has been eliminated, yardstick for management performance are more comparable as a time series by the entity and across entities | 36o) Defects of Historical Cost Accounting a «ay Gi) (iv) () I eads to mis-statement of the values of assets and profitability, hence, statement of financial position no longer represents the economic state of affairs ofthe business. Itis not possible to compare and assess the growth and performance of an entity on atime series and across entities because profits and asset values have become distorted, ‘The formulation of plans and the settings of targets based on out-dated historical financial data would become sub-optimal, ‘Under historical cost accounting, revenue is matched with differing historical costs levels as the monetary unit becomes unstable; hence, financial reports become confusing and probably misleading, Unrealized profits arising in individual accounting periods are increased as a result of inflation hence the possibility ofpaying dividends out ofreal capital (Total: 20 Marks) 37FINANCIALACCOUNTING Examiner's Report ae rere eeae General Comments: 42% of candidates passed this paper. All the candidates answered question one and al least two other questions, Only one candidate who attempted less than three questions in section B passed the paper Candidates ae therefore advised to allocate their time well to be able to answer the required number of questions, ‘There was also ample evidence that candidates did not lear from the past examiners’ comment by the awkward manners they arranged their solutions or not showing workings where necessary, to eam good marks. However, the performance this diet was an improvement on previous performances. ‘We hope candidates would ‘work hard on the basic accounting principles, theoretical and. statutory framework, read the past examination questionsand marking guides and follow instructions for future better performance in this paper. QUESTION 1 ‘This question is knowledge based with few basic calculations; About 50% of the candidates performed above average in this sectioi, The examiners made the following observations a “Most candidates have'a clear understanding of when financial statements may not be prepared ongoing- concer basis butdid not know the disclosure requirements b. _“Thiequestion was poorly answered. In fact, some ofthem changed the question to foreign currency. Performance was poorhere. Most candidates add the agreed price for work completed to cost of contract while others also wrongly modified the profit obtained by 2/3. IAS 11 on construction contract should be studied. FE a. Most candidates answered this question correctly, e Some candidates failed this question because they deducted N1,000m instead of N1900m as inter~ companysales fromboth revenue and.ostofsales. f. Candidates described the significance of substance over form correctly but could not determine whether the transaction betvtcen Mapo and Portals sales or oan, 8B. ‘Most candidates wasted time preparing Manufacturing, trading and profit accounts. Some candidates could not also distinguish between costs of sales and administration expenses items. h. Candidates performed well in this question i ‘The performance in this question was poor, j. Only few candidates performed well inthis question. JUESTIONZ ‘The question tests candidates! understanding of the requirement of IASI to prepare the Financial Statements, ‘Afew candidates scoredaverage marks. The following problems werenoted. (i) Candidates did not know how to present statement of changes in equity. (ii) Thecurrentportion of non-current liabilities wes notstated as current liabilities, Gil) The effect of the disposal of non-current assets was not properly adjusted for. QUESTION ‘Phe question tests candidates’ understanding of the preparation of Consolidated Financial Statements, Most of the ‘candidates who attempted the question scored average mark and above. However, the following defects were discovered. 38(). Nonwriting Gi) Using wrong value ofnetassets ofthe subsidiary to caleutare non-contrathng interest ii) Candidates are advised to stady with past questions. ampere lasses. Jsi QUESTION 4 ‘This is aquestion on ratio anal ratios and comment on where candidates were required to calculate some specific the liquidity of the company, Candidates’ performance was quite impressive here. However, few candidates tailed the question not because they did not know the formula bat because they could not pick the relevant values in the arrays of figures given, Few candidates did not also know the correct units of measurements such as when to use percentage, number oftimes or days. Candidatesare advised to study the application of the formula and the correct unit for each ratio. QUESTIONS This is a question on preparation of capital reconstruction ‘Account. Performance in this question was quite impressive. QUESTION 6 “This question required candidates to compare curtent cost accounting with historical cost accounting, Performance was average but some candidates were justrepeating the same points thereby losing valuable marks. 39Professionalism and Integrity INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA DECEMBER 2014 DIET: PROFESSIONAL EXAMINATIONS MANAGEMENT ACCOUNTING (Code: P104) Wednesday Morning, 3rd December, 2014 INSTRUCTIONS . Answer ALL questions in Section A. All questions carry equal marks. Answer THREE (3) questions from Section B. All questions catty equal marks. . Time Allowed:3 HOURS . Candidates are expected to show their workings using the inside page and the last sheet of the eRe answer booklet, 5, Candidates are forbidden from bringing phones into the.examination fall . Only non-programmable calculators are permitted for use in the examination, 40SECTIONA in this Section) : (Answer all quest QUESTION Ramalab Nigeria Limited manufactures and sells a product called “RAMA” ‘The selling price of RAMA 1s N3U and the summarized profitand loss account for the year 2012 is as stated below N N Bales 1,200,000 Direct materials 7 180,000 Directlabour 7 240,000 Variable productionoverhead i 120,000 Fixed production overhead Z : 750,000 ‘Administrative cost “| 112,500 Selling and Distribution Cost 2 : 90,000 892,500 Netprofit beforetax / 307,500 ‘Less: Provision for tax @ 30% FE 92,250 Net Profitaftertax 215,250 “The total fixed cost was N352, 500 and the breakeven point for the year 2012 was N640,909. The following ten (10) short answer questions relate to Ramallah Nigerian Limited, a) Determine the contribution margin ratio for 2012. (4 Marks) b) —i)—_Explain what you understand by profit-volume (pv) ratio. (4 Marks) ii) Caloulate the PV ratio and margin of safety for year 2012. (4 Marks) ©) Determine the number of units tosell inthe year2013 toachievean ‘After-tax-profit of N225,000 (4 Marks) @). Calculate the sales value required to achieve a net profit before tax of 20% of total revenue. (Marks) ©). Determine the percentage increase insales volume requiredin the year 2013 to produce a profit before tax of 20% higher than the year 2012 result, Assume that there isno changein unit sellingprice and coststructure (4 Marks) {). “Determine the selling price that the Company must charge in thie year 201310 covera potential inorease of 15% in variable production cost inthe year2013 andstill maintain year2012contribution margin ratio. (4 Marks) 2). Caloalate the volume ofsales in Naira that the Company must achieve in the year 2013 to maintain the same net profit of the year 2012 ifthe selling price remains at N30 and variable cost per unit increases, by 15% (4 Marks) hy, __Listeight(8) underlying assumptions of break- even analysis (4 Marks) 4i}. Produce a revised operating statement forthe year 2012 assuming asalesmen'scommission ‘0f 10% is introduced, selling price is reduced by 15% and volume increases by 30%. (Marks) j). Briefly mention and explain the scope of management accounting (4 Marks) (Total: 40 Marks) SECTION B (Answer ANY THREE questions from this Section) QUESTION 2 ‘A manufaeturing company, MANUF NIGERIA LIMITED is faced with the problem of planning its production ior ofthe Company has approached you ence” "The Managing Di cost and this is threatening its continued for employment as the Management Accountant of the Company. After considering the conditions of your employment, you aecepted the offer to work for the Company, You were informed that your first task will be to complete the preparation of the budget for the remaining six (6) months of the year (ie. from July to December, 2012), You have been giveninformation in respect of monthly overhead costs and moathly direct labour hours, from Jamuary to June, 2012, Youbave also been informed that it might be possible to estimate an equation for fotal overhead cost, X=direct labour hours, ‘overhead cost as represented by the formula, Y=a+bx, where ¥: fixed overhead cost; and b= variable overhead cost per direct labour hour, Presented below are the overhead costs and direct labour hours from January to 30" June, 2012, ‘Month ‘Overhead Costs Direct Labour Hours N January 930 320 February 1,020 41 March 960 354 April 1,065 447 May 1,020. 399 June 1,035 464 Required: (a) Briefly explain the terms“Cost Estimation Techniques” . (2 Marks) (b) __Listfour(4) methods which may be used by you tocstimate future cost of production in this company. (2 Marks) ©) Using the two (2) most commonly used methods out ofthe four (4) methods listed by you above, estimate the fixed and variable components of overhead costs from the information given above. Saeaee ae (14 Marks) (€) Outline four(4) conditions which you would likely consider ifyou are to use linear regression anclysis to analyse cost behaviour (2 Marks) (Total: 20.Marks) aQUESTIONS + (a) The following data relates to.a product called ‘Pricex manufactured by Pricey Nigeria Limited. Selling price | 3 2 ] 2 18 15 m [é 0 wi | Demand 0 6 {2 {3s ef 2 2 33 (000 Units) | | “The Company has estimated its variable costper unit tobe N9 while the annual costs estimated ve be 45,000 Regutired: ‘The Managing Director of Pricey Nigeria Limited hes informed you as the Management Accountant of the Company that he had been told thatthe Company ean use either the tabular or algebraic approach to fix the optimal selling price fortheir product “Pricex”, Required: = Demonstrate your knowledge ofthese two (2) pricing method to convince the Managing Director of their efficacy in fixing the selling price for Pricex. (4 Marks) o ‘Write shortnotes on the following terms:- (i) PriceDiserimination (3. Marks) (ii) CostControl (0 Marks) (ii) CostReduetion (U4 Marks) (Total: 6 Marks) (Total: 20 Marks) QUESTIONS (2) Distinguish between “risk” and “uncertainty” (3 Marks) (&) _ TheSociety for Administrators of Nigeria hasbeen organizing annual dinner anddance for the pastten (10) years, principally to raise funds o'compliment membership subscription for the up-keeps of the Society. Itis envisaged thatthe recent recession in the country may adversely affect the number of prospective participants at the dinneranddance this year. Itisalsoanticipated that the advertising space to be sold in the programme published for the oecasion would be adversely affected” Going by the experience of the society in the past regarding orgavizing dinner and dance, andalso the current prices and quotations, itis expected that the following costs and revenue will be incurred and generated respectively, for the function. N Costs: Dinner and dance: -Hire of Bvent Hall 7,000 -Band and entertainment 28,000 43-Raffle prizes 8,000 “Photograph 2,000 -Food al N120 per plate (Guaranteed minimum of 400 Plates) Programmes: -Fixed cost of N200,000:phus NSO per page Revenue Dinner and dance: Price of tickets ~ N200 per person Average revenue from: (i) Raffle = NSO peg person Gil) Photographs = N10 per person Programme: Advertising generates an average revenue of N700 per page Additional Information: ‘The recordsand accounts of the society withrespéctto such function inthe pastrevealed the following: Number of Tickets sold / Number of Past occasions 250-349 8 : 350-449 12 450-549. 16 550-649 4 a ‘Number of Programme page sold Numberofpast occasions 240 8 320 16 400 12 480 4 a0 ‘The Society has agreed to usea Market Research Consultant to carry outa survey aso the likelihood of the number of tickets and numberof pages of advertising space tobe sold forthis year's dinner and dance. Required: ‘You have been appointed asthe society's Masket Research Consultantio advicethesociety on the viability or otherwise of each of the activities-mentioned-above-for-this.yeats! function. (17 Marks) (Total Marks: 20 Marks) QUESTION 5 Write shortnotes on the following: (@) (i) Accountingrate of return (ARR) (ii) Traditional payback period (TPP) ii) Discounted payback period (DPP) (iv) Profitability Index (PT) (0 Marks) 44ib) Cablex Nigeria Limited manufactures and sells high quality electric cables for bot domestic and jndividualuses, The Company currently enjoys 15 pereentof the market share forits product ealled “Unique Cable” « information rejzarding the standard cost and profit margin for one Presented below is! unitof Unique Cable. Selling price 20 Less: Variable costs Direct material Direct labour Overhead Contribution perunit Less Fixed costs jpsie Net profit Isl= al “The Company's budgeted sales for 2014 are N6,000,000. However, the MarketingDdirecror has cuggested thatthe Company's market share could be increased to 20 per cent withthe possiblity of snaintaining that new level forthe next three (3) years oy if the company ean agree on the following promotion budgetto be spentat the commencement ofeach of thenext three 3) years: ‘Year Promotion Budget N 2004 400,000 2005 300,000 2006 200,000 Analysis of the fixed costs revealed hat 50 percent of the N4 fixed cost is for depreciation charge While the remaining 50 perceat is expected to increase by1N120,000 as a result ofthe increase in the marketshare. Tisthepolicy ofthe Company to maintain anoverall profitretuen of 30 percent whichis to boused as hurdle-rate for this type ofproject Required: ‘Asthenew Mmaiagement Accountant of the Company, your immediate task is to ‘evaluate whether of not the project should be embarked upon assuming no other variables are to be considered except those mentioned above (10 Marks) (Total: 20 Marks) 45QUESTIONS Multiflex Company Ltd is a conglomerate with banking, insurance and trading activities in Nigeria. The Board of directors has requested the General Manager of the insurance division to submit its proposed capital budget for 2014 for inclusion in the Company-wide budget. The following projects, all of which require an outlay of capital and have equal risk are being considered by the Insurance Division Manager. Project Investment required Return ‘N'000 eee N'000 1 13,000 4,140 2 7,200 2304 | 3 5,250 735 4 3,600 4B Soccees | 2,400 480 6 1/050 294 A’ a policy, the Company maintains a cost of capital of 15% and the Insurance Division Manager is expected to decide which project to embark upon. ‘The Company has decided to make a total of N4Smillion available to the insurance division for investnient pucposes. Required: (i) With respect tothe above information you have been consulted by the Insurance Division Manager to offer professional advice to him on each of the projects, Your task entails computation of the total investment, total erurn, return on capital invested and residual income on each of these assumptions stated below, and also stating selected projects. (a) _Itisthe poliey of the Company to accept al projects promisingat least 20% ormore; (b) _Itis the policy of thie Compaity to evaluate the Insurance Division Manager on his ability to maximize his return on capital invested; and (©) _Itisexpected thatthe Insurance Division Manager would maximize residual income as computed using the _ . 15%costofcapital. eet (18 Marks) Gi) Asaconsultant, which ofthe three (3) approaches will you recommend to the Company as the most effective investment policy for the Company as a whole? (2Marks) (Total: 20 MarksMANAGEMENT ACCOUNTING MARKING GUIDE * SECTIONA DUESTION1- RAMALAH NIGERIA LIMITED (a) (b) © Preliminary Workings WK: Calculation of Number of units sold last year Numberofunits= Total Sales Selling Price = Ni2000 30 = 40,000 unit (4. Marky wk: Calculation ofcontibution margin and contribution margin ratio x N Selling Price 30.00 Direct Materials inn.o00} : 40,000 450 Bireot Labour {2s000 2.000 40,000 6.00 Variableproduction oven 120.000 40,000 3.00 03.50) Contribution Margin 16 Note Contribution Margin Ratio (CMB)=Contribution Margin Selling Price CMR = 1650 N30.00= 0.55 Profit-Volume- Ratio Profit-Volume Ratio is not a relationship between profit and volume as enormously construed but rather a relationship between contribution margin and selling price, Its also called Contribution to Sales ratio or Contribution Margin ratio. ‘The Profit Volume ratio of this Company is calculated as follows: Profitvolumeratio= Contribution margin Selling price N16.50 N30.00 = Determination of Number of units to sell to achieve an after-tax profit of N225,000 in the year 2013 WK 1 Conversion of After tax profitto Before tax profit Profit Before Tax = ProfitAfter'Tax Ir = 1N225,000 1-03 4a= 225,000 07 = N321426.571428 = N32L22 Break-cvenpoint(units)= Fixed Cost+profit Contribution margin i = —.N825,500-+N321.429 N16.50 = N673,929 NI6.50 0944.1818181= 40.844units (6) _ Calculation of sales valuerequired to achieve ant profit before tax of 20% of total revenue 5 Let the otal revenue berepresented by Y 4 Salesvame = (Y) = Fixed Cost+ Profit 4 Contribution Margin Ratio 4 y = 352,500.20 058 ossy = N352,500+020¥ ji } 058Y¥-0.20¥=N352,500 0.35Y=N352,500 4 y 1352.50 ' 035 3 y=. Nhoowiaaasmi4. = X= NALOOR i © eterminationofpereentage increase in sales volume and sales valve required in he ; year 2013 to produce amet profit before tax of20% higher than year 2012 result. 4 (i) Sales Volume = Fixed cost + Profit i Contribution Margin = Fined gost +120% of profit Contribution Margin = _N352,500+N307.500 x 120% NI6.50 : = 352,500 +1N369,000 / NI650 = NI2LS00 { Ni6.50 = 43 7212NNT. 43,227umits 7 Percentage Increase = New units Old units x 100 Old Units 1 = — 43,727=400.000 x 100 4 40,000 1 | | “ i | |oO ® 40,000 1 9.3175 = 90% Determination of Revised Selling Price (RSP) in year 2013 to maintain year 2012 contribution margin ratio Workings: Calculation of Revised Varfable cost RVC N Direct Material 4350 Direct Labour 6.00 ‘Variable production overhead (N3x 1.12) 336 : 13.86 Contribution MarginRatio(CMR) = Revised Selling Price (RSP) Revised VC Revised Selling price (RSP) CMR =RSP=RV RSP 0.55=RSP=13.86 : RSP O.5SRSP ~ — =RSP-13.86 0.SSRSP-RSP = -13.86 -0.45 RSP = -13.86 RSP= -_13.86 + 0.45 RSP=N3O. Determination of sales value in the year2013 to maintain the same net profit ofthe year 2012 if'selling price remains at'N30 and variable cost per unit increased by 15% Note: Revised Variable Cost = NIBS0xL15 = NISS25 = NIS53 Revised Contribution Margin Ratio(CMR) = SP-RVC SP = 30-1553 30 = 14.47 30 = 048233333333 0.48 Sales Value= Fixed cost + Profit Pee Contribution Margin Ratio = N_352,500-+N307,500 048 = N60, 048 =NLI7: 49(h) @ 0 List of Underlying Assumptions of Break-even Analysis: i Every costitem is eithera variable cos! ora fixed cost, ii, Semi-variable cost could be segregated into both their variable and fixed components, ili, Variable cost per unit is constant, ‘otal fixed costremains unchanged Vv. Noriskand uncertainty viv Sellingprice remains constant Levelofefficiency and technology remains the same constant sales mix f ix. Parity ofproduction and sales X Output is the only independent vi Revised Operation Statement for2012 Preliminary Calculations: New selling price (N30x85%) 25.50 New Variable Cost (N13,50+N2.55) NI6.05 New Volume (40,000units x 130%) 52,000units Revised Operating Statement for 2012 N Sales (52,000xN25.50) 1,326,000 Less variable cost (52,500xN16.05) $34,600) Contribution 491,400 Less Fixed Cost (352,500) Profit Bofore Tax 138,900 Provision for Tax at 30% (41,670) Net Profit fter Tax 7.230, ‘Scope of Management Accounting a Planning: ‘It involves assisting the organization to plan ahead by means of budgets and long-term plans to ensure efficient management and.uscs ofthe organization's scarce resources, b, _Attention- Directing Objective: Ithelps the management to apply the principle of “Management by Exception” and highlights ‘SWOT asstated above, Itis also referred to as “Control Accounting”. ©. Problem Solving Objective: ‘The basic question is “of the several alternative courses of.action: ‘at my disposal, which one should choose? Itrequires the quantification of costs and benefits associated with alternative courses of (Total: 40 Marks) action, This is referred to as “decision-making accounting”. 50 Only one productis being produced and in the case of a multi-product firm, there is iia ii a eaSECTIONB QUESTION 2-MANUF NIGERIA LIMITED -(a) Cost Estimation Technique . Cost estimation technique is the method of separating mixed cost into both its fixed and variable components. It evolves through the cost behaviour where we have some costs which are fixed, variable, semi-vatiable and stepped fixed costs. I is in a bid to separate the mixed cost into its fixed and variable components that cost estimation techniques are derived, (2 Marks) (6) Methods of estimating cost i ‘Accounting Analysis Method High and Low Points Method ili, Scatter Graph Method iv, Regression Analysis Method (2Marks) (© Estimation of fixed and variable components of overhead cost using High and Low points method. Activity Cost : LE) N “High 464 1,035 Low 302, Bo Difference 162 405 Variable cost perDirectLabourHour(DLH) = Difference in Cost Difference in Activity = ‘NLOS 162 064814814814 =_0.65 ‘Total Cost (TC)=Total Fixed (TFC) + Total Variable Cost (IVC) TFC+TVC TFC+N0.65 «464 TEC+N301.60 : 1N1,035~-N301.60 NZ33.40 NOTE: (@®— TotalFixed Cost = 733.40 (i) Total VariableCost += = 301.60 Total Cost 11,035.00 Using Least Square Regression Analysis Method Y= atbx b = n(Zxy) -(2x3y) a(Sx’)—(Ex)" 31a 2 Separation of Cost : Month eee Y xy x January 302 930 280,860 91,204 February 411 1,020 419,220 168,921 March 354 960 339,840 125,316 April 4a 1,065 476,055 199,809 May 399 1020 * 406,980 159,201 June 1.035 480,240 215,296 z 2377 2,403,195 | _959,747 b= (Say) (Ex By) n(Ex’)-(Zx)" (b= 62,408,195) -(2,37746,030) 6(959,747) - (2,377) b = 14,419,170 14,333,310 5,758,482 ~5,650,129 Ben, B60 108,353 b=0.792409993 b= 079 a -=EY-bEx noo a =6,030 - 0.79(2,377) AGrer re eee a = 1,005 - 312.9716667 a = N692.0283333 a= NO Yo os atbx Y= N692+N0.79 (@ ~ Conditions to be considered when using Least Square Regression Analysis, There must bea économic sense There must bea reasonable goodness of fit ‘Theco-efficientof the independent variable'b' should be significantly difforent fiom zero. iv. ‘There must bea linear relationship between the two (2) variables ¥. _ Theremust be constant variance ofresidual vi, Auto-correlation should beavoided vii. ‘There must be large number of observations viii, Price level mustremain constant ix. Productivity of labour must remain constant. (Total: 20Marks) 52QUESTIO? * PRICEY NIGERIA LIMITED () Calculation of Optimal Selling Price using Tabular Approach Price Quantity Contribution Fixed ProfitiLoss (Units) (sP-VO)xQty Cost N N N N 33 0 0 (45,000) (45,000) 27 6,000 + 108,000 (45,000) 63,000 a 12,000 144,000 (45,000) 99,000 18 15,000 135,000 (45,000) 90,000 15 18,000 108,000 (45,000) 63,000 12 21,000 63,000 (45,000) 18,000 27,000 (81,000) (45,000) (126,000) 33,000 (297,000) (45,000) (342,000) Conclusion: he optimal selling price is N21 atsales quantity of 12,000 units andnetprofit ofN99,000. (i) __ Calculation of Optimal Selling Price using Algebraic Approach ‘Step: Selling price equation: SP=B — (4 Price ) Pn A Quantity WhereR = Selfingprice when Zero quantity is demanded A Price = Ghange in price for every change in demand A Quantity = ‘Change in quantity for every change in price 4 = Variable quantity demanded Selling price finctio sp = R A Price (Ass) fa SP = 33-0.001q Step 2: Sales Revenue Function: SalesRevenue = Selling Pricex Quantity = @3- 0.001a)xq = 33q-0.001g 33@) Step 3: Total Cost Function: ‘Total Cost (TC) =Total Variable Cost (TVC)+ Total Fixed Cost(TFC) TC = TVCHTFC TC = Ng +N45,000 Step 4: Get Marginal revenue and Marginal Cost and equate ‘Marginal Revenue (MR) =Marginal Cost (fC) =33 -0,002g 9 PutMR= MC Wehave 33—0.002q 0.002q = 33 -9 0.002q = 24 4 24 0.002 q 2,000 Calculation of Optimal Selling Price SP = 33 -0.001(12,000) SP B12 SP wal i, PriceDiscrimination: Price discrimination i po productand prevent contact between the different segments so that a different price can be charged for the same product in each segment. This can be practiced the following instances: a) Through negotiation with individual customers. b) Through product differentiation 4 le if firm can establish separate market segments for the same basic iiii UE: ¢} —-Byoftenng quantity discount d) _Byoreating branches, ie. having different prices for ifferent branches. Cost Controt: This is the regulation of the cost of operating # business and is concerned with keeping expenditure within acceptable limits. The approach is to ensure that costs do nol exceed budget ‘or standards by an excessive amount. Cost Reduction: “This is a planned approach to reducing expenditure. To do this, various techniques are used. The approach is to look at each elementof cost such as material cost, labour cost and overheads, and then look for ways of reducing these costs. (Total: 20 Marks) 4 (A) Distinetion between Risk and Uncertainty ii Risk: This occurs where itis not known what the future outcome will be but where the various possible outcomes may be expected with some degree of confidence from knowledge of past or existing events. Uncertainty: This occurs-where the futire outcome cannot be predicted with any degree of confidente from knowledge of past or existing events so that no probability estimates are available, (B) _ TheSociety for Administrators of Nigeria No.of ‘Ticket Sold 250-349 350-449 450-549 550-649 Calculation of Expected Value of Activities 1)» DINNERAND DANCE. Average Revenue@ Variable Fixed Persons N200+NSO —Cost@ ——Cost’—=Profit Proba- Expected +NIO=N260 N20 bility —_-Value(x) N N N N N 78,000 (48,000) (45,000) (15,000) 0.2 3,000) 3501449, 2 = 400 104,000 (48,000) (45,000) -11,000- 033,300 4504549 2 = 500 130,000 (60,000) (45,000), 25,000 04 10,000 5501649 2 = 600 156,000 (72,000) (45,000) 39,000 2) PROGRAMMES No.of Revene@ — VariableCost Fixed Profit —Proba Expected PagesSold N700 Per Page @N5O per Page Cost bility Value (x) N N N N N 240 168,000 (12,000), (200,000) (44,000) 0.2. (8,800) 320 224,000 16,000)" (200,000) 8,000 04 3,200 400 280,000 (20,000) (200,000) 60,000 03 18,000 55480 336,000 (24,000) (200,000) 112.000 on L200 EV=X=23,600 ii, Calculation of Standard Deviation and Coefficient of Variation 1 DINNERAND DANCE Profit Proba Expected _(-X) («-3 P(x ® bility value(®) N N N N N (15,000) 02, (3,000) (29,200) 852,640,000 170,528,000 11,000 03 3,300 7,200) 10,240,000 3,072,000 25,000 04 10,000 10,800 116,640,000 46,656,000 39,000 ot 24,800 61s, 51,504,000 EV=X 14.200 3,2 1,594,560, 1,760,000 StandardDeviation = {2P@-3) 4 281,760,000 = 16,785.70821 = 16.786 Co-efficiont of Variation = Standard Deviation (SD) Expected Value (x) = 16.786 14,200 = 1,182112676 = Lg 2. PROGRAMMES Profit Proba Expected (x-x) (yt Py @) bility ‘yalue(x) N N N N N 44,000) 02 (6,800) (67,600) 4,569,760,000 913,952,000 8,000 04 3,200 45,600) 243,360,000 97,344,000 60,000 03 18,000 36,400 1,324,960,000 397,488,000 112,000 ou 11,200 88.400 7.814,560,000 781,456,000 BV= XB 41,600 139,526, 000_2,190,24 StandardDeviation = = DP(R-x) - = 2,190,240,000 46,800 Co-efficient of Variation = Standard Deviation (SD) Expected Value (X) . = 46,800 23,600 1983050847 = 198 56Conclusion: Based on the computations above, the society's Dinner and Dance and Programmes of activity ‘appears to be viable and profitable, QUESTIONS @ i, iii, iv. (b) Accounting Rate of Return (ARR): ‘This is a method of project appraisal based on the financial report of an organization. uses profits after depreciation and these profits should be average profits over the life of the project. It is a ratio of accounting profits to accounting investmnent for capital projects. ‘Traditional Payback Period (TPP): ‘The Payback period of a project is the number of years it takes to recover the amount invested on the project. Although it is a traditional, method of appraisal in the sense that it does not consider the time value of money, Discounted Payback Period: ‘The discounted payback period is the number of years it takes the present value of cash inflows to repay the cash outlay on the project. That is, unlike the payback period that uses undiscounted cashflows, the discounted payback period uses the same set of cashflows but in present value terms. Internal Rateof Return (IRR) ‘This is known as a sophisticated fashion of accounting rate of retum. It is also called “Discounted Cashflow yield (DCF yield)”. Itis that rate of return or cost of capital that will produce a zero net present value (NPV) when it is applied to the cashflows of a project. Profitability Index (PT) ‘The profitability index is a ratio of the gross present value or the Net Present Value of a project to the cash flow required during the year of restriction, Itis the ratio that explains the net inflow that will be realized for each Naira of outflow. It is also known as cost/benefit ratio. (Total: 10 Marks) CABLEX NIGERIA\ Preliminary Workings WK1 Calculation of Increase in Market Share — ‘Y Increase in Market Share = 20% - 15%: If 15% = N6,000,000sales 20% = 20/15 x N6,000,000 =N8,000,000 sales ‘Thus increase in sales =N8,000,000—-N6,000,000=N2,000,000 1% s7WK2 Calculation of Incremental Contribution Units to &: sold at 15% market share = Total Sales Value Selling Price = 6,000,000 N20 300,000units sat 20% Market Share ‘Therefore, incremental units= 400,000-300,000= 100,000 units 00,000 units x N6 = N600,000 ‘Thus incremental contribution = Solution: () PROJECTEVALUATIONATS% INCREASE IN MARKET SHARE ‘Year Promotional Incremental Incremental ‘Net Cash DF@30% Present Expenses FixedCost Contribution Flow Value . Nto00 N'000 N‘000 N‘000 N‘000 0 i (400) r - (400) 1.0000 (400) 1 _ G00) (120) 400 (20) 0.7692 15.384 2 (200) (120) 400 80 0.5917 11.834 . (120) 400 280 0.4552 127.456 : NPV = — (245.326) Advice: The increase in market share should not be pursued because the project will not be profitable and will not beviable. This isbecause the net present valuc of the projectafter the end ofthe third year is negativeN245,326. (:10Marks) (Total=20 Marks) QUESTION 6 MULTIFLEX COMPANY LIMITED. (a) Ifprojects promising 20% and above are to be accepted Projects Required ©” Return Returnon Investment Investment Returns x 100 N'000. N‘000 Investment 1 1 18,000 4,140 23% 2 7,200 2,304 32% 3 5,250 135-— 4 3,600 648 18% 5 2,400 480 20% 6 1,050 294 28% Advice: Projects 1, 2, 5 and 6 should be considered as they have returns on investment that are equal to or higher than the bench-mark of 20%.(b) ifthe Division Manager is to maximize returns on capital invested. + STERIL: Computation ofthe Total Investment: Projects Investment ‘N'000 1 18,000, 2 7,200 5 2,400 6 1050 28,650 STEP 2: Computation of ‘Total Returns Projects Investment 000 1 4,140 2 iH 2,304 5 480 6 294 2218 STEP 3 i Gi ivestmer ROL TotalRetums x 100 Total Investment 1 = NI218 x 100 28,6501 =25.193717277 = 25% (©) Ifthe Division Manger is tomaximizethe Residual income Residual Income Total Retuns—Inputed Cost NB: Inputed Cost is the rate of cost of capital multiplied by the total investment, N‘000 Total Returns: 7,218.00 Less Inputed Cost (N28,650 x 15%) 4,297.50, Residual Income 2:920.50- Recommendation of the Best Approach Residual Income approach is the mosteffective investment policy forthe Company because itwill enhance goal congruence, autonomy and performance evaluation, (Total: 20 Marks 59@ Professionalism and Integrity INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS OF NIGERIA DECEMBER 2014 DIET: PROFESSIONAL EXAMINATIONS CORPORATE ADMINISTRATION (Code: P201) Wednesday Morning, 3rd December, 2014 INSTRUCTIONS ‘Answer ALL questions in Section A. All questions carry equal marks. . Answer THREE (3) questions from Section B, All questions carry equal marks. . Time Allowed:3 HOURS ‘Candidates are expected to show their workings using the inside page and the last sheet of the answer booklet. Candidates are forbidden from bringing phones into the examination hall Only non-programmable calculators are permitted for use in the examination. Pepe a i i i i i 4: (Answer all questions in this Secuon) + QUESTION | (a) Oncofthe popular means of embracing Total Quality Management (TQM) is benchmarking, List four (4) difficulties that are impediments to successful benchmarking, (4 Marks) (b) The adequacy andrelevance of information is paramount to the suceess of a company. Briefly listthe characteristics of good information, (4 Marks) (©) Identify any four (4) factorsto bec: (@ _Asthe Company Secretary of Success Nig, Ple, what are the factors your will consider when choosing an ‘dered in deciding factory location decision (4 Marks) internet service provider? (Marks) (©) Distinguish between job description and person description in Human Resource Manegement. (4Marks) () Dismissal can be time consuming and has cost inaplications to employers. What four (4) checks should be made beforeany decision to dismissistaken. (4 Marks) '@ Corporate Administration is a support service of strategic importance in organizations. Mlustrate this s assertionusing a simple Value Chain Model diagram (Marks) (h) Briefly explain the concept of Capital Gains Tax under Corporate Taxation. (4Marks) (ji) __Listthe fouritems to be included in the statement ofthe Defined Benefit (DB) payable ifa member dies in service, (4Marks) @ Identify any four(4) points in support ofa passing-off case, (4 Marks) (Total: 40 Marks) SECTION B (Answer THREE questions from this Section) QUESTION? In compliancé with the government's policy on Staff Pension Scheme, the management of your Company is considering outsourcing its pensions administration. Briefly explain the benefits and disadvantages of outsourcing pensions administrations. (Total: 20 Marks) QUESTION 3 ‘You are the Company Secretary of a medium sized manufuoturing Company, which is experiencing steady information usage and operational growth. You discover thatthe current manual storage method is not compatible with the business growth trend and files are building up. You are required to prepare a memorandum to the board explaining electronic usage as a better option. : (otal: 20 Marks) QUESTION 4 You are a Company Sceretary/Legal Adviser of a multinational Company, whose “niche” is diverse inventions. Of recent, some of its inventions are being hijacked by some individuals outside the Company. ‘The management of the Company has asked you to: 61(© Explain the concept ofintellectual property; (b) Discuss the various types of intellectual property rights (IPRs); (©) Highlighttheprovisions of IPR licence agreement. (Total: 20 Marks) QUESTIONS You are the Company Secretary/HR Manager of a medium-size microfinance bank. You are concemed about the stress the employees are going through when dealing with high risk investment decisions and struggling to meet high deposit mobilization targets. The employees too work late into the night on adaily basis. You discussed this issue with the Managing Director who feels “stress is nothing but the normal task of the job” bat however requested fora formal paper onit. ‘You are required to prepare a paper to the Managing Director on actions to be taken to avoid stress, and employees ‘prove against employers in an action for damages. - (Total: 20 Marks) QUESTIONS =, ‘One of the young managers in your Company is undecided on accepting or rejecting his nomination as a member appointed trustee of the Company's pension scheme, He knows littleas far as trusteeship is concemed. Youarerequired to advise him on the trustees' main duties, responsibilities and management of liability, (Total: 20 Marks) aCORPORATE ADMINISTRATION Bames lists a number of difficulties that are impediments to successful benchmarking - they include the problemsof: (Selecting thecomectperformance measures (ii) Selecting an appropriate partner (ii) Obtaining access (iv) Understanding the particularcitcumstances ofanother business. (4 Marks) ‘The characteristics of good information areas follows: () —-Relevanttoitspurpose Gi) Complete forits purpose. (Gif). Comectforits purpose Gv) Clearftransparentto the user; ()— Haveintegrity (vi) Betargeted (vii) Manageabléin quantity (vill) Timely (0). Communicated appropriately (3) Costeffective (4 Marks) Factors that should be considered in location decisions are as follows: Staff: availability and salary expectations Competitive environment: positive and negative Infrastructures: equipment, ransport communication links ‘Regulatory environment: health, safety, insuranceneed Flexibility: to accommodate changes in size, business focus (Any 4=4 Marks) ‘When selecting an intemet service providers, organization should look for the following: + Reliability and service availability ‘The seciirity measures that are in place. At the very least, an Internet Service providers should have secure servicers and eneryption technology in place ‘The amount of storage space and bandwidth for yourwebsite ‘What support is offered? You should ensure that there is 24-hour support with sufficient response and repairs targets Ifthere isa cancellation and refund policy, ifyou are dissatisfied with the service a . It is likely that a contract with a contract with an Internet service provides will exclude liability for your website content (4 Marks) 6Job description: A written statement of all the facets of @ job accompanied (in some cases) by required levels of achievement to be attained by the person performing the job, Person description: A written statement analyzing the skills, educational attainments and/or experience believed tobe required by the ideal candidate for the vacancy tobe filled. (Marks) £ Thedecisionto dismiss should therefore only be taken after your checks: Asalastresort ‘Afier calm consideration, andreconsideration, ofthe events which ledto thedecision + xfer checking that the whole process is in accordance with the procedure laid down (finany doubt) after taking legaladvice ‘Ensuring that hereis no specific reason/s), except criminal, is adduced forthe dismissal. (4 Marks) & Firm infrastructure ‘Human resource management ‘Technology development ') Procedure Margin Inbound | Operations ] Outbound | Sales and | Service Logistics [Louistios_| Marketing Primary A ‘The Value Chain Model s (2 Marks) Effective administration is critical for providing communication systems, for co-ordinating the different activities and for ensuring that there is common knowledge and understanding of the firm's objectives. ‘Therefore, failure or inefficiency in, administration will negatively impact on the effectiveness of the wholebusiness. (Briefexplanation-2 Marks) bh, Company Capital Gains (Capital gainstaxisatax. on the gain accruing when an asset is sold, otherwise disposed of loss, destroyed or otherwise ceases to exist (all ofthese occasions are referred to asadisposal) Gi) Broadly speaking, a gain acerues when the proceeds of disposal exceed the cost of acquiring and enhancing the asset Git) All forms of property, whether tangible or untangible, with certain specific exemptions, fall within the scope of the tax. (4 Marks) ‘The tems that should be ineludedin the statement payable ita member dies ia service include: Commencement date of the pensionable servi “The accrual rate for calculating the members and their spouse's benefits; ‘The current pensionablesalary used in the calculation; Calculations of any deduction from benefits (4 Marks) 64 | | / is‘The following points needs to be proved to support passine-off ease: ‘Amisrepresentation hasbeen made, either by words or deeds; “The misrepresentation was by a trader during the course of business “There was 2 risk of confusion resulting from a common field of activity “The claimanthas some reputation in the name “The action was meant to injure the goodwill or the business of the complainant “There was actual damage to the goodwill or business ofthe complainant (Any four (4) Points=4 Marks) (Total: 40 Marks) SECTION B QUESTION 2. a Benefit of outsourcing staff Pensions Scheme Management = Buyingin aspecialist resource which would beexpensive andor dificaltto replicate in house Most third party companies will bave invested heavily in the infrastructure necessary to the effective management ofapension scheme. B.g. knowledgeable staff, computer systems ‘Anunderstanding ofcommon customer queries “The secuty of hiring inexpestsin ahighly regulated and rapidly changing environment. Oitsourcing pension’ administration will not necessarily save money. However, the benefits of having a scheme rn by a specialist company may outweigh financial considerations for some organization Disadvantages of outsourcing Perceived loss ofcontrol ‘The possibility of unforeseen and spiralingcosts ‘Theloss of direct contact with scheme members ‘Monitoring performance and managing underperformance (8 Marks) (Total: 20 Marks) IN 3 From, Company Secretary Te: Board of Director Date XXXX Subject: Adoption of Flectronic Systemin like manner as skilled labour or computers are resources, information too is a resource in an organization. ‘Therefore, information should be easily sourced, “ed. Pape? Tiling should not be used as the only organized, processed, stored and retrieved when itis option but should be subsidiary to electrons, where there is need to keep hard copy document for historical reason. Electronic System: Networks: It is possible to share information through network, On the other hasid, central storage system 65could be adopted. The disadvantages of centralized storage one that the systems could become ‘overheaded and break-down (or network failure) will adversely affect the company as a whole. However, system crash in one or two units, will be limited to the units concemed only. Decentralization will encourage duplication, lack of integrity on information, The main benefil of network system is that ‘computer is linked to one another. Electronic Document Management Systems (EDMS): EDMS gives ample freedom to a company on the ‘management of its system, EDMS allows a company to create, manage, control and distribute electronic document. This system suite library services,.andit trail, archiving, version control, imaging (scanner, digital camera) services. Databases are used to provide wide range of information. Jt can be manipulated fo generate reports in ‘varied formats, charts, graphs, It can also be used to analyse tasks, procedures, sequences of steps, kanown as workflow, Integrated databases can allow access to information anywhere in the world, at any time, and input data none application wil update the data appropriately i thes. Intranets: Intranets allows for fster means of disseminating information inthe Frm of memo, liter, cireular, or even conversation on-line. However, access to different areas of an intranet can be restricted by use of passwords to keep confidential information secure, Storage Electronically: Electronically stored information should be regularly backed up through floppy disk ot recordable CD. The latter has capacity to store many large amounts of information. Backing, storage ig neoessary because of some disasters, such as flog, fire, theft and earthquake, Electronic storage consumes lesser space than manual method, In view of the changing trend in information technology, changing over to electronic system will raise the processing level of data incompatible with the growth of operations and competitive race. Meetings ‘can even be held using video teleconferencing facility. Discussions can even be stored which again serves as minutes ofthe discussion (Total: 20.Marks) QUESTIONS @ The unifying feature of intellectual property is that it protects some aspect of intellectual creative endeavour, which include aninventive concept, anatistic work, aesthetic design or brand identity. ‘Although, the desire of the government is to minimize monopoly over people's lives, livelihood and creativity, it also desire to reward inventors for spending their time, money, energy, brain for the improvement ofthe society at large. In order, to 50 live these two conflicting interest, intellectual property! currers a variety of different rights, “Therefore, intellectual property rights are legal rights, such as patents, copyright and trademarks wi ich, prevent the unauthorized use or exploitation of intellectual property like inventions, computer software andbrandnames. Intellectual property rights can be classified as ‘registered’ and unregistered’ IPRs. Registored rights are acquired on completion of a segistration process and, when granted, are recorded on a public register.. 65) © On the other hand, unregistered rights come into existence automatically without the neces fer sny registration and are not recorded on any central database. Registered rights include - patents, trademarks, and registered design rights, unregistered rights include unregistered design rights, copyright, trade secrets, and the tight to protect the goodwill and reputationalready established by a business on its wading name or wading style, ‘The four main types of IPRS are Patents ‘Trademarks Designs Copyright Patents: patents are registered rights that protect industrial inventions for up to 20 (twenty) years. ‘Trademarks: are registered rights protecting elements of brand identity, such as trading names and logic which continue as longas registration fees are paid. Designs: Both registered rights and unregistered rights that protect the aesthetic appearance of articles and which last for varying periods of time, from 3 (three) to 25 (twenty-five) years depending on the type of design-right on question. Copyright: Is the unregistered protection for the creator of literary, artistic, dramatic and musical works against the unauthorized copying of their works Which lasts forthe life of the author plus 70 years. Copyright also protects other types of intellectual creations, such as, sound recordings, films, ~ broadcasts, cable programmes and published editions. The duration of these other copyrights varies dependingupon the right concemed. AnIPR licence agreement may have the following provisions ‘Names of grantorand license Identity of IPR owner, ifother than the grantor; Definition of intellectual property granted Permitted useand permitted teritory, ifapplicable Rights to sub-licenceand/or to assign; ‘Temmoflicence Provisions for summary termination in the event of material breach by licenses, including, ‘non-payment of licence fees orroyalties Licences obligation tosetum orto destroy all licensed material or termination Warranty of title and indemnity by grantor and by ultimate owner; ‘Owner's right of entry to licenses premises to ensure provisions are being kept and to audit icence fee accounting. Confidentiality undertakings; Licensee's obligation to inform of any suspected infringements and possibly to take action; 6