Pathfinder Pei Nov2010
Pathfinder Pei Nov2010
Pathfinder Pei Nov2010
OF NIGERIA
Question Papers
Suggested Solutions
Plus
Examiners‘ Reports
PATHFINDER
FOREWORD
This issue of the PATHFINDER is published principally, in response to a growing
demand for an aid to:
The answers provided in this publication do not exhaust all possible alternative
approaches to solving these questions. Efforts had been made to use the methods,
which will save much of the scarce examination time. Also, in order to facilitate
teaching, questions may be altered slightly so that some principles or application of
them may be more clearly demonstrated.
NOTES
1
PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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TABLE OF CONTENTS
SUBJECT PAGES
FINANCIAL ACCOUNTING 4 – 40
INFORMATION TECHNOLOGY 41 – 64
MANAGEMENT ACCOUNTING 65 – 95
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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ICAN/ EXAMINATION NO...................................
A B C D E
Note:
NCI = Non controlling interest
XYZ Plc is a subsidiary company
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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A. C6 – C5
B. C6+ C5
C. C7 – C5
D. B5– B6
E. A6– A5
A. N150Million
B. N500Million
C. N10Billion
D N2Billion
E. N3Billion
A. Loss on Voyage
B. Capital on Voyage
C. Reserve on Voyage
D. Profit on Voyage
E. Commission on Voyage
A. 69.75 Kobo
B. 101.50 Kobo
C. 65.00 Kobo
D. 90.00 Kobo
E. 92.00 Kobo
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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A. N 95,000
B. N500,000
C. N540,000
D. N730,000
E. N700,000
Chelsea Plc acquired 80% and 30% interest in the Ordinary Shares and Preference
Shares of Mikel Plc for N440,000 and N36,000 respectively on 31 December 2007.
On that date, the Profit and Loss Account and General Reserve balances were
N28,000 debit and N20,000 credit respectively.
8. What is the Profit and Loss Account balance that will appear in the
Consolidated Balance Sheet as at 31 December 2008?
A. N118,400
B. N437,300
C. N414,900
D. N392,500
E. N140,800
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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A. Infinite
B. Zero
C. >1
D. <1
E. Unity
10. Which of these accounting ratios will NOT be useful in determining the long-
term stability of a Company?
A. Gearing ratio
B. Proprietary ratio
C. Debt ratio
D. Fixed interest cover
E. Price Earning Ratio
11. Which of the following features is NOT true of Microsoft Excel application
package?
12. Which of the following control keys in Excel Package moves the cell pointer
to the previous work sheet?
A. Ctrl + page up
B. Ctrl + page down
C. Alt + page up
D. Alt + page down
E. Shift + Tab
13. In relation to Stock and Shares, how else can Par Value be described?
A. Market value
B. Stated value
C. Ex-rights price
D. Earnings Per Share
E. Net Book Value
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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15. Rotimi Nigeria Plc purchased 70% interest in Ewedu – Ewa Nigeria Ltd and
60% interest in Mensa Ghana Plc – a commercial company on the same date.
In relation to Rotimi Nigeria Plc group, Mensa Ghana Plc is a …………….
A. commercial company.
B. fellow subsidiary.
C. foreign associate.
D. foreign subsidiary.
E. foreign joint venture.
16. A parent company transferred a motor van costing N 10 million to its
subsidiary. The transfer was made at cost plus 25%. It is the Group‘s policy to
depreciate fixed assets at a flat rate of 10% per annum on straight line basis.
Which one of the following represents the excess or under depreciation for
consolidation adjustment purposes?
A. N57,143
B. N175,000
C. N100,000
D. N2,800,000
E. N1,600,000
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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A. Treasury Bills
B. Shares issued by the Federal Government
C. Bonds by the State Government
D. Coins and naira notes as legal tender
E. Balances with Discount Houses
20. The following are the reasons for exclusion of subsidiary from Consolidation
EXCEPT
Mallam Sule Plc acquired 75% of the ordinary share capital of Chukwu Plc on 1
April 2009.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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The Balance Sheets of the two companies as at 31 December 2009 were as follows:
Favour Plc acquired 80% interest in the equity capital of Bola Plc on 31 December
2005. On 31 March 2006, Favour Plc sold 20% of its holdings at a profit of
N48,000,000. An extract of the Profit and Loss Account of Favour Plc and Bola Plc for
the year ended 31 December 2006 showed:
7. Calculate the non-controlling interest for the year ended 31 December 2006.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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8. Determine the profit attributable to the group for the year ended 31 December
2006.
10. The combination of two or more international companies of equal size and
market power to form an entirely new company is called………………
15. In a group cashflow statement, a payment for the acquisition of the net assets
of subsidiary less any cash and cash equivalent, acquired is classified
as………….
16. Where a subsidiary company issues bonus shares from its post acquisition
reserves, the cost of investment incurred by the parent company will be
adjusted during consolidation. State the accounting entries to effect the
adjustment.
18. Which of the methods of accounting for contract recognizes profits as actual?
Balance Sheet and Profit and Loss extracts of Eko-Onibaje Insurance Plc as at 31
March 2010 are as follows:
Life Non- Life Total
N billion N billion N billion
Authorized Share Capital 500 350 850
Issued and fully paid Share Capital 45 30 75
Tangible Fixed Assets 90 60 150
Gross Premium 120 200 320
Net Profit 87 45 132
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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SECTION B
Chief Nwachukwu has been operating as a sole trader in Aba, Abia State, dealing in
general merchandise. Over the years, his business activities expanded so much that
he could not cope with its management. Based on the advice of his friend and
business associate, he registered the business as a limited liability company
Nwachukwu and Sons Nigeria Ltd. His first son who graduated in Business
Administration from Bakassi Polytechnic was made the General Manager.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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The Federal Government fiscal policies for 2009 banned the production of a major
product of Benbella Manufacturing Company Plc in Nigeria with effect from 1
January 2009. The latest Balance Sheet of the company as at 31 December 2008 is
summarized below:
Benbella Manufacturing Company Plc
Balance Sheet as at December 31, 2008
N‗000 N‗000 N‗000
Fixed Assets:
Freehold Land and Building 18,000
Plant and Machinery 8,600
Motor Vehicles 3,300
Current Assets:
Stocks 4,620
Debtors 6,915
Cash in hand 255 11,790
Current Liabilities:
Creditors 7,650
Bank Overdraft 5,060 (12,710) (920)
28,980
Financed by:
N ‗000
Ordinary Shares of N 1 each 12,000
6% Preference Shares of N 1 each 8,000
Revenue Reserves 1,980
10% Debentures (with floating charge) 7,000
28,980
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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Out of the debtors, 25% are not recoverable while N2,780,000 of the creditors have
preferential claims. The remaining creditors will be settled at an interest of 10 kobo
in the Naira. The Preference Shareholders are to receive a premium of 5 kobo per
share in liquidation. The estimated cost and expenses of liquidation was
N2,140,000.
Required:
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 2
The Consolidated Profit and Loss Account of Large – Joe Plc Group for the year
ended 31 December 2008 are as detailed below:
N ‗000 N ‗000
Turnover
Gross profit before interest 960,420
Interest 77,336
(35,607)
Group share of associated company‘s profit 41,729
992
42,721
Exceptional charge (5,627)
Profit before taxation 37,094
Taxation 11,914
Group share of associated company‘s tax 468 (12,382)
Profit after taxation 24,712
Non-controlling interest (1,293)
23,419
Extra ordinary gain 1,166
24,585
Dividends (7,076)
Retained profit 17,509
c) Taxation: N‘000
Income tax on profit for the year 10,107
Education tax 1,806
Deferred tax provision 2,750
14,663
Adjustment for prior year (2,749)
11,914
d) Dividends: N‘000
Ordinary 6,084
Preference 992
7,076
f) Dividend received and receivable from the associated company for the year
amounted to N290,000 while dividend paid and payable to non-controlling
shareholders for same period amounted to N666,000.
Prepare a Value Added Statement of Large – Joe Plc Group for the year ended 31
December 2008, showing clearly the contribution of the non-controlling interest
towards the expansion of assets. (15 Marks)
QUESTION 3
(a) Bale Plc has granted 50 share appreciation rights to each of its 1000
employees on 1 January 2005. The rights are due to vest on 31 December
2008, with payment being made on 31 December 2009. Assume that 75% of
the awards vest. Shares prices were:
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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N
1/1/2005 22
31/12/2005 27
31/12/2008 31
31/12/2009 28
(i) What liability would be recorded on 31 December 2008 for the share
appreciation rights? (2 Marks)
(b). Companies are required to record the substance of transactions rather than
their legal form, in situations where the legal forms are different from their
substance.
Explain with examples why it is important to record the substance rather the
legal forms of the transaction. (5 Marks)
(c). SURA Plc owns 80% of the share capital of MEGA Plc. The following
information were extracted from the individual Balance Sheet of the two
companies on 31 December 2009.
SURA Plc MEGA Plc
N‘000 N‘000
Current Assets 640,000 560,000
Current Liabilities 400,000 160,000
The debtors of SURA Plc include N64m from MEGA Plc while the creditors of
MEGA Plc include N40m payable to SURA Plc. The difference is accounted for
by cash-in-transit. There are no other inter – company balances.
You are required to calculate the Net Current Assets in the Consolidated Financial
Statements of SURA Plc.
(5 Marks)
(Total 15 Marks)
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 4
QUESTION 5
You are required to prepare the relevant accounts from the inception of the hire
purchase contract to 31 December 2008 in the books of the hirer and show how
these accounts would be reflected in the balance sheet on each accounting year
end.
( 15 Marks)
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 6
Required:
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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SOLUTIONS TO SECTION A
1. C
2. A
3. E
4. A
5. D
6. B
7. A
8. B
9. E
10. E
11. C
12 B
13. B
14. C
15. D
16. A
17. B
18. B
19. C
20. D
Tutorial Notes
QUESTION 1
QUESTION 2
Goodwill is the excess of the cost of acquisition over the total net assets acquired i.e
C6-C5
QUESTION 3
The national Insurance Commission Act (NAICOM) specifies the minimum paid-up
capital of insurance companies as follows:
Life = N2billion
Non-Life = N3billion
Composite = N3 billion
Re-insurance = N10 billion
QUESTION 5
4,200 + 1,300
0.65
= . 5.580 .
4,200+2,000
= 90 kobo
QUESTION 6
Amount of call on partly paid ordinary shares (90k- 65k) X 2,000,000 shares =
N500,000
QUESTION 7
N N
Cost of acquisition (Ord shares) 440,000
Less Net assets acquired:
Ord Share capital 300,000
Pre-acquisition profit (28,000)
Pre acquisition general reserves 20,000
292,000
Net assets acquired – 80% x (233,600)
292,000
Goodwill on preference shares 6,000
(36,000 – 30,000)
Total Goodwill (positive) 212,400
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 8
Profit and loss account balance that will appear in the consolidated balance sheet :
N
Profit and loss account balance of 296,500
Chelsea
Add post acquisition retained profit 140,800
of Chelsea in Mikel. = 80% x
(148,000 + 28,000) -
437,300
QUESTION 9
QUESTION 10
QUESTION 11
Par value is the amount stated in the Memorandum of Association as the value of
each share. It is also called nominal value.
QUESTION 12
Mensah Ciliana is foreign company in which Rotimi could exercise control over its
operating and financial policies.
QUESTION 16
QUESTION 17
EY = EPS/MPS
MPS = EPS/EY = 28/0.16 = 175k
Total Market value = 100,000 shares x N1.75k = N175,000
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 18
The capital structure of a company comprises capital, reserves and loan capital.
Where the total loan capital is higher than the sum of share capital and reserves, a
company is said to be highly geared. Loan capital bears fixed interest.
EXAMINERS‘ REPORT
The multiple choice questions are well structured and adequately covered the
syllabus. The options provided in the solution are close enough to avoid the correct
answer from standing out. The candidates‘ performance on the whole is average.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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1. i Pay slips
ii Payroll
iii Payroll analysis
iv Cash analysis
v Payment details for dispatch to the Bank
2. Lotus 1,2,3, Microsoft Excel, V calc, Multi Calc and Super Calc.
a. a. Debts to the State e.g. amount due from him to the Federal, State or
Local govt.
b. Debt incurred through fraud or through a fraudulent breach of trust
c. Judgment debt in an action for seduction.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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3% x N200b 6
And
20% x N45b 9
= 9
EXAMINERS REPORT
The questions covered the entire syllabus of the paper and the solutions are really
short requiring just one or two words and short accounting computations. Some
candidates could not provide correct solutions to the short accounting
computations. However, on the overall, candidates‘ performance was fair.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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SOLUTIONS (SECTION B)
QUESTION 1
Workings:
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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N ‗000 N ‗000
Items increasing deficiency:
Loss written of assets:
Plant and machinery 3,535
Motor vehicle 990
Stock 1,521
Debtors 1,729 7,775
EXAMINERS‘ REPORT
The case study tests candidates‘ knowledge of the theory and application of
piecemeal acquisition, companies‘ liquidation and disposal of a subsidiary.
Candidates‘ performance was below average in piecemeal acquisition and disposal
of subsidiaries but above average in liquidation of companies.
Candidates are advised to study the basic principles and procedures required to
prepare group accounts.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 2
Large - Joe Plc
Statement of Value Added for the Year ended December 31, 2008
N ‗000 N ‗000
Turnover 960,420
Bought in materials and services (Wk1) 749,780
Value added by the group 210,640
Non-trading income:
Property rent received 1,262
Realized exchange surplus 669
Exceptional loss (5,627)
Extra ordinary gain 1,166
Share of profit from associated company 992 (1,538)
209,102 100%
Applied as follows:
To pay employees:
Wages, salaries and commission 106,662
Retirement plan costs 7,106
Other benefits 3,062 116,830
55.9%
To pay Government:
Taxation 12,382
5.9%
To pay providers of capital:
Interest on money borrowed 32,891
Dividends – to other shareholders 7,076
- to non-controlling interest 666 40,633
19.4%
Depreciation 21,121
Wages, salaries and commission 106,662
Other benefits 3,062
Retirement plan costs 7,106 (137,951)
Add back
Property rents received 1,262
Realized exchange surplus 669 1,931
Add
Net Bank interest (7861 - 5145)
2,716
N749,780
EXAMINERS‘ REPORT
This question tests candidates understanding of the principles required for the
preparation of group Value Added Statement.
Candidates‘ performance was poor. The major pitfall was the candidates inability to
understand the elements of profit and loss account that constitute the components
of the value added applied to the different groups or stakeholders.
Candidates are advised to study the different classes of stakeholders and the
elements of the financial statements that are of particular interests to them.
QUESTION 3
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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(b) The substance of a transaction is reported rather than its legal form in order to
report the true and fair view of the performance of the entity. The substance
of a transaction represents the commercial intention as against the legal
form.
In instances where the risks and reward of a transaction do not rest with the
owners, control lies with the person that bears the risks and the rewards,
hence, the substance. Examples are in Finance Lease, Consignment of
goods where the seller retains the risks and rewards until the goods are paid
for or returned by the Consignee. Other cases are sales and purchases
agreements, factoring of debtors and securitized assets and loan transfers.
EXAMINERS‘ REPORT
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 4
N N
31/12/03 Balance c/d( wk 1) 708,383 31/12/03 P & L 708,383
31/12/04 Balance c/d 1,501,772 01/01/04 Balance b/f 708,383
P&L 708,383
Sinking Fund Invt 85,006
1,501,772 1,501,772
31/12/05 Balance c/d 2,390,368 01/01/05 Balance b/f 1,501,772
P&L 708,383
Sinking Fund Invt 180,213
2,390,368 2,390,368
31/12/06 Balance c/d 3,385,595 01/01/06 Balance b/f 2,390,368
P&L 708,383
Sinking Fund Invt 286,844
3,385,595 3,385,595
31/12/07 Balance c/d: 01/01/07 Balance b/f 3,385,595
On Redemption 375,000
Deb. Interest 75,000 P&L 708,383
Sinking Fund Invt Loss 187,500
General Reserve 3,862,500 Sinking Fund Invt 406,022
4,500,000 4,500,000
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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Working
S = A ((1+r)n-1)
r
= N4,500,000( (1+0.12)5 -1
0.12
= N4,500,000 X0.12 = N540,000
= N540,000/0.7623
= N708,382.50
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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EXAMINERS‘ REPORT
QUESTION 5
CARONIK ENTERPRISES
Machinery Account
N'000 N'000
MOA Motors
01/01/2005 Ltd 168,000 31/12/2005 168,000
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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N'000 N'000
Machine
01/01/2005 Bank deposit 16,800 01/01/2005 a/c 168,000
HP
31/12/2005 Bank Interest
1st Instalment Suspense
(w1) 45,360 a/c 30,240
Bal c/d 136,080
198,240 198,240
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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N'000 N'000
01/01/2005 MOA Machiney Ltd 30,240 31/12/2005 P&L 7560
Bal c/d 22,680
30,240 30,240
N'000 N'000
31/12/2005 Bal c/d 33,600 31/12/2005 P&L a/c P & L a/c 33,600
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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Current Liabilities
Workings
Calculation of Annual
Instalments N'000
36
PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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Dr HP Machine Account Cr
N‘000 N‘000
1/1/05 HP Creditor 168,000 31/12/05 Bal c/d 168,000
1/1/06 Bal b/d 168,000 31/12/06 Bal c/d 168,000
1/1/07 Bal b/d 168,000 31/12/07 Bal c/d 168,000
1/1/07 Bal b/d 168,000 31/12/08 Bal c/d 168,000
Dr Hp Creditor‘s Account Cr
N‘000 N‘000
1/1/05 Bank (initial deposit) 16,800 1/1/05 HP machine 168,500
31/12/05 Bank (1 st
45,360 31/12/05 Hp Int 7,560
Installment)
31/12/05 Bal c/d 113,400
175,560 175,560
31/12/06 Bank (2nd 45,360 1/1/06 Bal b/d 113,400
Installment)
31/12/06 Bal c/d 75,600 1/1/06 Hp Int 7,560
120,960 120,960
31/12/06 Bank (3rd 45,360 1/1/07 Bal b/d 75,600
Installment)
31/12/07 Bal c/d 37,800 31/12/07 Hp int 7,560
83,160 83,160
1/1/08 Bal b/d 37,800
31/12/08 Bank (4 th
45,360 31/12/08 Hp int 7,560
installment)
45,360 45,360
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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WORKINGS
= N 30,240,000
4 years
= N 7,560,000
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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= N 45,360
EXAMINERS‘ REPORT
QUESTION 6
a. An accounting chart in a Peachtree program means a list of all account
names used in general ledger and this is usually associated with an
Identification code, which would help to locate it when recording data.
OR
Chart of account is a list of account codes and description for all assets,
capital, liabilities, incomes and expenses.
b. Peachtree wizard to register a new company:
Posting Method
- Company‘s name
- Company‘s address
- Business type
- Accounting method
- Accounting period
- Fiscal year
c. - batch posting
- real time posting
In batch posting ,the transactions entered are saved to a temporary holding
areas, where they can be reviewed before they are posted to general ledger.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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The investment will be sold for N920,400 which will be added to the scrapped
value of N579,600 to provide N1,500,000 for the replacement of the new plant.
EXAMINERS‘ REPORT
Candidates are advised to update their understanding and skills of the various
accounting packages.
40
PROFESSIONAL EXAMINATION I – NOVEMBER 2010
PATHFINDER
A. DSS does not make a decision but guides the decision makers, while
an ES makes a decision.
B. ES does not make a decision but guides the decision maker, while a
DSS makes a decision.
C. DSS supports Management, while ES supports non-management
personnel.
D. DSS is internet based, while ES is not.
E. ES is internet based, while DSS is not.
A. user name.
B. password.
C. pass code.
D. wireless protocol.
E. access Rights.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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4. Bill payment systems will enquire the use of the following devices EXCEPT
A. computer
B. loudspeaker
C. modem
D. printer
E. bar code reader
A. employment module.
B. staff audit module.
C. networking module.
D. career planning module.
E. loan processing Module.
A. Payroll.
B. Invoicing.
C. Training.
D. Supermarket.
E. Testing.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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10. Which device is used to enter sales data into a supermarket computer system?
A. Mouse
B. Keyboard
C. Bar code scanner
D. Mark reader
E. UPS
A. Intranet.
B. Wi-Fi.
C. GPRS.
D. WIMAX.
E. EDGE.
A. Security
B. Versatility
C. Speed
D. Frequency
E. Reliability
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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14. Which ONE of the following is an attribute of File Transfer Protocol (FTP)?
A. The most popular way to transmit whole files from one computer to
another
B. The most popular way to transmit files from one person to another
C. The most popular way to delete files between two computers
D. The most popular way to generate files in a computer system
E. It allows files to be stored
15. Which of these applications of computers would store information about which
course a student is enrolled for?
18. Which type of software would you use to maintain information about account
holders in a Bank or Building Society?
A. Spreadsheet
B. Word processor
C. Database software
D. Stock control
E. Accounts ledger
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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20. Which one of the following is NOT a technique for handling input errors in a
computer processing environment?
1. An abstraction layer that decouples the physical hardware from the Operating
System to deliver greater IT resource utilization and flexibility is called
…………
3. An internet-based application where users can chat with each other online is
known as………………….
10. A way for government to use the new information technology to provide
more convenient access to government information and services is
called….……….
11. A project will usually have three closely linked objectives. These include
main, ………………..and non-objective
12. The three dimensions of a project usually referred to as Triple Constraints are
Deliverables, Cost and Resources and …………………….
13. Segregation of duties is ONE of the controls used to check overlapping in the
……………… of IS staff.
14. A computer software that mediates between two separate previously existing
applications is known as ………………….
17. The type of user interface that allows people to interact with programs
using different devices like mouse, rather than typing is known
as…………………
19. The facility that creates a fictitious entry in a database to process a test
transaction simultaneously with the live inputs is called………………….
46
PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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ABC CONSULTANTS
You are the team leader of a Consulting team handling the computerization of
operations of a major client in the Foods and Beverage industry. Your team has just
concluded the design of a new organization structure. The process manual,
developed by your team members was handed over to you for review. On reviewing
the proposed process manual, you observed many gaps, ranging from input
processes, operations and output processes. A major observed gap is the software
acquisition process. The manual did not indicate the standard processes for
acquisition of their software.
QUESTION 2
i Internet
ii Intranet
iii Extranet (6 Marks)
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 3
QUESTION 5
QUESTION 6
(b) List TWO main technologies used for storage devices and give FOUR
examples of each. (6marks)
(Total 15 Marks)
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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SOLUTIONS TO SECTION A
1. A
2. D
3. E
4. B
5. C
6. B
7. A
8. D
9. D
10. C
11. D
12. B
13. D
14. A
15. C
16. C
17. D
18. C
19. D
20. E
EXAMINERS‘ REPORT
The MCQ questions test candidates‘ knowledge on the major part of the syllabus.
Performance was very good as over 60% of candidates scored 50% and above.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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1. virtualization
2. continuous
3. bulletin board
4. database management
5. search engine
6. Cookie
7. Electronic Data Interchange (EDI)
8. E-Commerce
9. Control Objectives for Information and Related Technology
10. E-Government
11. additional
12. Time
13. responsibilities
14. middleware
15. Utility software
16. Client/Server Technology
17. Graphical User Interface (GUI)
18. Multi- user
19. Integrated Test facility
20. disputes
EXAMINERS‘ REPORT
Some candidates could not proffer appropriate solutions to some of the questions.
Candidates are therefore advised to read widely and be abreast with changes in
Information Technology.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 1
ABC CONSULTANTS
The risk is that of buying software with low initial costs but
significantly higher ongoing costs e.g. Maintenance costs
Request for Proposal: Send out Request for Proposals (REP) to the
Vendors, informing them of the IT environment.
EXAMINERS‘ REPORT
The question tests candidates‘ knowledge of outsourcing and the challenges that
may arise should a wrong software selection process procedure be used in the
acquisition.
Candidates are also expected to suggest the various ways of software selection
procedure as well as benefits and challenges of outsourcing.
The performance was very poor as about 30% of the candidates scored the 50% and
above.
The common pitfall was that most candidates did not understand this question
hence, their inability to interpret correctly.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 2
ii. Intranet: Intranet is an application having all the features of the internet,
but made available only to members of an organization. In other words,
Intranet is a private Internet for an organization.
b) i. A text editor is a type of program used for editing plain text file. This is
often provided with the operating system or software development
packages. A text editor is normally used for typing on the computer.
iii. A plain text file is represented and edited by showing all and edited by
showing all the characteristics as they are present in the file and the word
processing file characters can be modified
Word processor can usually edit plain text file and save in the plain text
format
The same cannot be done for text editor
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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EXAMINERS‘ REPORT
This question tests candidates‘ understanding of the differences among the major
data transmission networks. The question also requires candidates to state the
differences between text editor and word processor
Their performance was good in the first part of the question, but poor in the second
part. Overall, about 45% of the candidates scored 50% and above.
Most candidates could not differentiate between a text editor and word processor,
and could not also give appropriate examples of each.
QUESTION 3
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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EXAMINERS‘ REPORT
The performance was fair. Over 60% of the candidates scored 50% and above.
Some candidates that attempted this question were writing on feasibility study
instead of systems specifications.
Candidates are therefore expected to devote more time to study the aspect of
systems development.
QUESTION 4
(i) The identification of digital evidence. This is the first step in the
forensic process. Knowing what evidence is present, where it is stored,
and how it is stored is vital to determining which processes are to be
employed to facilitate recovery
(ii) The preservation of digital evidence. This is a critical element in the
forensic process. Given the likelihood of judicial scrutiny in a court of
law, it is imperative that any examination of the electronically stored
data be carried out in the least intrusive manner.
(iii) The analysis of digital evidence: The extraction, processing and
interpretation of digital data are generally regarded as the main
elements of forensic investigation. Once extracted, digital evidence
usually requires processing before it can be read by people.
(iv) The presentation of digital evidence. This involves the actual
presentation in a court of law. It includes the manner of presentation,
the expertise and qualifications of the presenter and credibility of the
processes employed to produce the evidence being tendered
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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(i) Media and electronic device analysis. This relates to the examination
of various types of storage media such as harddisks, removable
storage media like floppy disks CD ROMs, DVD. Hashdrivers e.t.c.
Intrusion defection
Evidence capture and presentation
Event or activity reconstruction
(iii) Research and Development. These involve probing into, and the
development of new techniques and the growth of new methodologies
tools, which are vital in keeping abreast of changes in the technology.
EXAMINERS‘ REPORT
This question tests candidates‘ knowledge of the activities involved in the use of
computer system, and computing devices in order to produce criminal evidence for
courts of law.
The performance was good as over 70% of the candidates who attempted the
question scored 50% and above.
Candidates still need to read more literature on this topic in order to improve their
information technology knowledge-based.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 5
iii) Online bulletin boards: This is used to present information and receive
feedback from stakeholders.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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iv) Cost: Most e-government applications are rather very costly. Another
area of cost is the implementation of the applications.
EXAMINERS‘ REPORT
The performance was good as over 60% scored over 50% and above.
Candidates are still expected to read widely in order to broaden their knowledge of
this subject matter.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 6
Input Device is a hardware component that allows a computer user to input data
into the computer. They are classified into Direct and Indirect input devices.
Keyboard
Pointing Devices:
Mouse
Trackball
Touch paid
Track point
Graphics tablet
Joystick
Touch Screen
Scanner
Microphone
Digital camera
Keyboard
The computer keyboard is used to enter text information into the computer; The
keyboard can also be used to type commands directing the computer to perform
certain actions.
Pointing Devices
The graphical user interfaces (GUIs) in use today require some kind of device for
positioning the on-screen cursor. Typical pointing devices are mouse, trackball,
touch pad, trackpoint, graphics tablet, joystick, and touch screen.
Mouse
The mouse pointing device sits on the work surface and is moved with the hand. In
older mice, a ball in the bottom of the mouse rolls on the surface as the mouse is
moved and internal rollers sense the ball movement and transmit the information
to the computer via the cord of the mouse.
Touch pad
Most laptop computers today have a touch pad pointing device. It moves the on-
screen cursor by sliding ones finger along the surface of the touch pad. The buttons
are located below the pad, but most touch pads allow the user to perform ―mouse
clicks‖ by tapping on the pad itself.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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Trackball
The trackball is a sort of an upside-down mouse, with the ball located on top. The
user places fingers to roll the trackball and internal rollers (similar to what‘s inside
a mouse) sense the motion which is transmitted to the computer.
Joysticks
Joysticks and other game controllers can also be connected to a computer as
pointing devices. They are generally used for playing games, and not for
controlling the on-screen cursor in productivity software.
Touch screen
Some computers, especially small hand-held Personal Digital Assistants (PDAs),
have touch sensitive display screens. The user can make choices and press button
images on the screen. They are often used with a stylus, which can be held like a
pen, to ―write‖ on the surface of a small touch screen.
Graphic tablets
A graphic tablet consists of an electronic writing area and a special ―pen‖ that
works with it. A graphic tablet allows artists to create graphical images with
motions and actions similar to using more traditional drawing tools.
Scanners
A scanner is a device that forms images on a printed page or graphic by digitizing
it, producing an image made of tiny pixels of different brightness and color values
which are represented numerically and sent to the computer.
Microphone
A microphone can be attached to a computer to record sound (usually through a
sound card input or circuitry built into the motherboard). The sound is digitized—
turned into numbers that represent the original analog sound waves—and stored
in the computer for later processing and playback.
Digital Camera:
A digital camera takes pictures by converting the light passing through the lens at
the front into a digital image.
A (ii) Output Devices
Output devices are hardware components that allow a computer user to produce
information from the computer, that is the devices that enable a user to get some
information out of a computer system.
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Examples include:
Multimedia
Explanations
CRT Monitor
The traditional output device of a personal computer has been the CRT (Cathode
Ray Tube) monitor. Just like a television set (an older one, anyway) the CRT
monitor contains a large cathode ray tube that uses an electron beam of varying
strength to ―paint‖ a picture onto the color phosphorescent dots on the inside of
the screen.
A flat panel display usually uses an LCD (Liquid Crystal Display) screen to display
output from the computer.
InkJet Printer
The most common type of printer for home systems is the color ink jet printer.
These printers form the image on the page by spraying tiny droplets of ink from the
print head. Laser Printer.
Laser Printer
A laser printer produces good quality images by the same technology that
photocopiers use. Laser printers are faster than ink jet printers.
Dot matrix printers use small electromagnetically activated pins in the print head,
and an inked ribbon, to produce images by impact. These printers are slow and
noisy, and are not commonly used for personal computers anymore (but they can
print multi-layer forms, which neither ink jet or laser printers can).They have
directional operation capabilities.
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Computers also produce sound output, ranging from simple beeps alerting the user,
to impressive game sound effects, to produce quality music.
Multimedia is a term describing computer output that includes sound, text,
graphics, movies, and animation.
It converts digital signals into analog signals. It is a terminal device that is used in
the connection of two systems. Signal from a PC is digital but is transmitted in the
cable as an analog signal. This conversion is done by the Modem
Two main categories of storage technology used today are magnetic storage and
optical storage. Physical components or materials on which data is stored are called
storage media. Hardware components that read/ write to storage media are called
storage devices.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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EXAMINERS‘ REPORT
This question tests candidates‘ knowledge of direct input, output, and storage
devices.
The performance was good. About 70% of the candidates who attempted this
question scored 50% and above.
Candidates still need to read widely on input, output and storage devices.
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ICAN/102/Q/2 EXAMINATION NO...................................
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
PROFESSIONAL EXAMINATION I – NOVEMBER 2010
MANAGEMENT ACCOUNTING
Time allowed – 3 hours
1. Which of the following represents a decision that rests upon the judgement
of managers because there is no formal mechanism for predicting likely
outcomes?
A. Symbolic Decision
B. Executive Decision
C. Managerial Decision
D. Non-Programmed Decision
E. Programmed Decision
A. Relevant Cost
B. Differential Cost
C. Marginal Cost
D. Incremental Cost
E. Opportunity Cost
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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Bijabi Limited has determined its activity level and is now budgeting for its
costs for the quarter ended 31 May, 2010. It has made the following
predictions:
A. N351,500
B. N358,500
C. N359,600
D. N360,500
E. N360,650
A. N187,500
B. N188,800
C. N201,500
D. N281,500
E. N361,500
A. value engineering.
B. value analysis.
C. cost reduction.
D. cost objective.
E. cost implication.
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A. 4 to 1
B. 3 to 1
C. 2 to 1
D. 1 to 1
E. 1 to 3
A. Payback Period
B. Accounting Rate of Return
C. Internal Rate of Return
D. Net Present Value
E. Profitability Index
A. 214 units
B. 215 units
C. 217 units
D. 218 units
E. 250 units
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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A. 300 units
B. 320 units
C. 370 units
D. 410 units
E. 420 units
12. Costs incurred if products or services fail to meet requirements after delivery
to customer are called
A. appraisal costs.
B. internal failure costs.
C. running costs.
D. prevention costs.
E. external failure costs.
13. Adamu Limited sells a product which has N8 per unit as variable cost. Sales
demand at N14 current rate, is 6,000 units. It is estimated by marketers that
sales volume would fall by 200 units for each addition of 25k to the sales
price. What is the optimal price that maximizes contribution?
A. N14.25
B. N14.50
C. N14.75
D. N15.25
E. N15.50
14. Using the data in Question13, at what level of sales will contribution be
maximized?
A. 5,000 units
B. 5,200 units
C. 5,400 units
D. 5,600 units
E. 5,800 units
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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15. Budgeted hours worked in a factory for a month was 220. Actual hours 200
and Standard hour produced 210. What is the efficiency ratio?
A. 91%
B. 95%
C. 97%
D. 100%
E. 105%
16. Using the data in Question 15, what is the production volume ratio?
A. 91%
B. 95%
C. 97%
D. 100%
E. 105%
17. Residue from manufacturing operations that has measurable but relatively
minor recovery value is
A. obsolete.
B. scrap.
C. defective.
D. spoilage.
E. expired.
A. N40 (F)
B. N40 (A)
C. N50 (F)
D. N50 (A)
E. N60 (F)
19. Using the details in Question 18, what is direct material usage variance?
A. 40 (F)
B. 40 (A)
C. 50 (F)
D. 50 (A)
E. 60 (F)
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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20. A budget that perpetually adds a month in the future as the month just
ended is dropped is called
A. continuous budget.
B. static budget.
C. current budget.
D. fixed budget
E. incremental budget.
1. A budget that adjusts for changes in sales volume and other cost drivers is
known as…………………
2. The difference between the standard yield of the actual material input and
the actual yield, both valued at standard material cost is known
as…………………………..
3. The difference between the fixed overhead recovered on the budgeted hours
and the fixed overhead recovered on the actual hours worked is called
……………..
5. The ratio of the present value of series of future cash benefits at the required
rate of return to the present value of the cash outflows is known as
……………………….
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
PATHFINDER
Carbon-Copy Company Ltd sells a product for N10. Budgeted sales for the
first quarter of year 2010 are given below:
Budgeted sales
N
January 400,000
February 600,000
March 700,000
The company collects 70% in the month of sales and 25% in the following
month. Five per cent (5%) of all sales are uncollectible and written off.
13. The result of dividing the total direct labour cost by the total number of units
produced is………………..
14. A period when machines and accessory equipment are made ready before
the commencement of operation is called ………….
15. The discount rate that makes the net present value of a project equal to zero
is ………………….
16. When an organization has idle capacity, it resorts to low pricing. This
method of pricing is called …………………..
17. Company X makes and sells 100 units of a product each month. The prime
cost per unit is N6.00 and unit selling price is N10. Production overhead cost
N200 per week and other overhead N150 per week. Determine the
production cost of sales using absorption costing method.
18. Use the data in Question 17 and variable costing method to determine the
production cost of sales.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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19. The measure of the scatter of the actual observation about the regression
line is termed …………….
20. Salaw Limited budgets fixed cost at N40,000. The variable cost of its single
product is N4 and capital employed is N100,000. The company wants to
earn a return on capital employed of 20% and estimated sale of 10,000 units
in the year. What is the selling price per unit?
QUESTION 1
CASE STUDY
Fountain Limited, a car hire firm, is considering its future cash flows. The Directors of the
company are interested in the period from the end of January 2010 to the end of 2015.
In particular, they wish to decide on the optimal replacement cycle for the fleet of thirty
hire cars. On 31 January 2010, the company purchased its existing fleet at a cost of
N300,000,000. The vehicles are to be depreciated in the accounts over a three-year life,
on a straight line basis. The resale value of a one-year old car, of the type used in the
fleet, is at present N7,000,000.
Inflation is at the rate of 10% per annum, and it is thought that it will continue at this
rate in the foreseable future. New car prices will increase in line with inflation but
second hand values are expected to remain at the present level for a number of years.
The resale value of a two-year old fleet car is at present N4,000,000 and the scrap value
of a three-year old car is N500,000.
The operating and maintenance costs are expected to increase at the rate of 10% per
annum in line with inflation. The cars are not worth keeping for longer than three years.
The company‘s cost of capital is 15%
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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Advise the company on the optimal replacement policy for its fleet of cars for the periods
1 February, 2010 to 31 December, 2015. Assume that the cash flows relating to revenue
and operating costs arise on the last day of the respective years.
(15 Marks)
QUESTION 2
Budgeted sales for 2012 is N25,000,000 with total variable costs of N15,000,000
for the centres. The details of the variable and period costs by divisions are given
below:
Cutting Filling Finishing
N N N
Variable costs 4,500,000 3,000,000 7,500,000
Period costs 2,500,000 1,500,000 2,000,000
Total 7,000,000 4,500,000 9,500,000
Required:
b) Filling division is considering a cost saving device which will reduce its
variable cost by 20%. What effect will this have on other costs or budgeted
sales. (5marks)
c) Compare the divisional contributions and profits in (a) and (b) above and
comment briefly on the possible divisional managerial attitudes to the
changes in divisional performances. (5marks)
(Total 15 marks)
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 3
100,000 units of the new product would be produced and sold each year from
1 January 2012 until 31 December 2015. Revenues and costs expected, expressed in
terms of 1 January 2010 price level, are as follow:
Additional overhead costs are N60,000 per annum. Selling price, variable costs
(excluding labour) and additional overhead costs are expected to increase in line
with the general price index. For a number of years, this index has increased at the
annual compound rate of 10% and it is generally expected to continue increasing at
the same rate in the future. Labour costs are expected to increase in line with the
wage rate index, which has been increasing at an annual compound rate of 20%.
The same rate increase is expected in the future. All revenues and costs would be
received or paid on the last day of the year in which they arise. Ignore taxation.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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QUESTION 4
You have just resumed for duty in your office as the Management Accountant after
attending a training course for one week at the Elkana Hotel, Kano. The theme of
the training was ―New Contemporary Issues Bothering on Information and
Communication Technology and Benchmarking‖.
Write a report to your Managing Director who had been against your attending the
course, with focus on:
(7marks)
(b) The steps involved in ensuring a successful implementation of benchmarking
in organization. (8 marks)
(Total 15 marks)
QUESTION 5
Additional Information:
(a) Present sales at 50% capacity are estimated at N30,000 per annum
(b) Estimated costs of closing down are N4,500. In addition, maintenance of plant
and machinery is expected to amount to N800 per annum.
(c) Cost of re-opening after closing down would be approximately N2,000 for
overhauling the machines and N1,400 for training of personnel.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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(d) Investigation made by a market research unit has indicated that sales should
take an upward swing to around 70% capacity at prices which will produce
revenue of N100,000 approximately in twelve months‘ time.
You are required to present the information in a manner which will show what decision to
be taken. (15marks)
QUESTION 6
Amina, Yomi & Co, a medium-sized firm of architects, is about to absorb Chika,
Tunde & Co, a similar sized firm. They have engaged you as Management
Accountant. Part of your duties will be to review the cost and management
accounting functions of the combined practice and to recruit an assistant. You have
an appointment with the Principal Partner to discuss these issues.
Required:
(b) The personal attributes you would expect the Assistant Management
Accountant to possess. (9 marks)
(Total 15 Marks)
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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1. D
2. C
3. A
4. E
5. B
6. B
7. D
8. A
9. B
10. C
11. A
12. E
13. C
14. C
15. E
16. B
17. B
18. E
19. B
20. A
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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WORKINGS
QUESTION 4
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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= 210 x 100
200 = 105%
EXAMINERS‘ REPORT
The questions test various sections of the syllabus. Performance was good as
candidates generally understood the questions.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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1. Flexible Budget
3. Under/Over absorption
4. NPV = N16,792
6. Benchmarking
7. Computer Forensic
8. Ethics
9. N520,000
10. N640,000
11. Responsibility center
12. Sales quantity – Opening inventory + Closing inventory
13. Direct labour cost per unit
17. N1,400
18. N600
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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WORKINGS
= N26.67
N
17. Prime cost per unit 6.00
Production overhead
(N800 for 100 units) 8.00
14.00
Expected cost: N
Fixed 40,000
Variable 40,000
80,000
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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EXAMINERS‘ REPORT
The questions test a wide spectrum of the syllabus. Candidates‘ performance was
fair as they showed fair understanding of the questions.
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QUESTION 1
CASE STUDY
Since the period involved is 6 years, the replacement cycles would be factors of 6,
that is, replace every year; replace every two and replace every three years.
Calculation of cash flows associated with the different replacement cycles.
Year 1 70
2 100 (1.10)
3 160 (1.10)2
4 70 (1.10)3
5 100 (1.10)4
6 160 (1.10)5
Decision: The 2 year replacement cycle shows the highest NPV of N460.09 million
and hence it is advisable to replace the fleet every two years.
EXAMINERS‘ REPORT
Performance was poor. Many candidates did not clearly understand the
requirements of the question. Notwithstanding the fact that this is a compulsory
question many candidates did not attempt it. Candidates that attempted it made
poor presentations, and incorrect data were used in a number of cases.
Candidates are advised to thoroughly digest this topic and practice with questions
on similar topics.
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QUESTION 2
The method used above is a good performance evaluation method as the increase
in efficiency in Filling division led to overall profitability in the company by
N600,000 while individual divisional performance contribution percentage remains
at 6%.
EXAMINERS‘ REPORT
The question tests candidates‘ knowledge of the principles of transfer pricing. They
are required in part (a) to determine the budgeted transfer values; in part (b) to
evaluate the effect of a 20% reduction in variable cost, and in part (c) compare and
comment on the divisional contributions in (a) and (b).
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SOLUTION 3
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Workings:
Computation of cash flows
Selling Prices Variable Costs
1/1/2010 = N 5.00 = N0.90**
31/12/2010 5(1.1) = 5.50 0.90 (1.1) = 0.99
31/12/2011 5.5(1.1) = 6.05 0.99 (1.1) = 1.089
31/12/2012 6.05(1.1) = 6.655 1.089 (1.1) = 1.1979
31/12/2013 6.655(1.1) = 7.321 1.1979 (1.1) = 1.31769
31/12/2014 7.321(1.1) = 8.053 1.31769(1.1) = 1.44946
31/12/2015 8.053(1.1) = 8.85 1.44946 (1.1) = 1.59440
EXAMINERS‘ REPORT
The question tests candidates‘ understanding of the principles underlying relevant cost
and the application of Net Present Value techniques for evaluating the production of a
new product. Candidates are expected to determine the Variable Costs, Contribution and
Net Present Value of the product.
Candidates‘ understanding of the question was poor and performance was also poor.
Candidates were unable to establish all relevant costs, the cash inflows and outflows, and
could not also compute the Net Present Value. The commencement dates of inflows and
outflows were also not clearly understood.
QUESTION 4
INTERNAL MEMO
With reference to my recent training course on the above subject matter in Elkana
Hotel, Kano, I hereby submit the report as below.
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One aspect of this investment will be, to ensure that a computer may be
capable of providing information in greater volume and in greater
details than would be available in a manual system. There should be
editing of the output to ensure that managers are not subjected to
information overload.
(v) Managers receiving computer print-out may feel the lack of personal
communication inherent in a less mechanized system. The
Management Accountant will be under pressure to ensure that personal
contacts are re-enforced, so that managers do not feel that their
performance against budget is being appraised in a purely automatic
manner.
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PROFESSIONAL EXAMINATION I – NOVEMBER 2010
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Thank you.
Management Accountant
EXAMINERS‘ REPORT
Candidates are expected to itemize clearly and discuss briefly, the challenges of
computers to management accounting; describe benchmarking; and list the steps
required for its successful implementation.
Many candidates who attempted the question hardly understood it. They
concentrated on benefits of computer to Management Accounting instead of
―challenges‖. Their understanding of benchmarking was superficial.
QUESTION 5
Closing Down Costs
N
Closing down cost 4,500
Maintenance of plant 800
Overhauling 2,000
Training 1,400
8,700
Calculation of variable cost at 50% capacity
Capacity Cost
N
40% 47,000
60% 61,000
Difference 20% 14,000
Capacity Cost
N
80% 75,000
60% 61,000
Difference 20% 14,000
Decision
It is better for the company to close down and re-open in 12 months‘ time
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EXAMINERS‘ REPORT
Candidates are required to determine closing down costs, variable costs at 50% and
70% activity levels and also stating contribution and profits at those levels of
activity.
Candidates did not seem to understand the requirements of the question. They were
unable to sift the desired data to use for the determination of closing down from
fixed costs at given activity levels. They were unable to properly separate the
variable cost from total costs. Correct presentation formats were also lacking.
Candidates are advised to study extensively and to adequately cover the syllabus.
Various decision making techniques should also be mastered.
QUESTION 6
INTERNAL MEMO
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(i) Planning the organisation‘s activities in the short, medium and long
term;
(iv) investigate, acquire and install suitable software to operate the cost
collection and reporting system;
(vi) collect, analyse and report information to monitor the profitability and
efficiency of the firm;
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Thank you.
EXAMINER‘S REPORT
The question tests candidates‘ knowledge of the cost and management accounting
functions of a medium sized firm of architects. Candidates are expected to adopt
the format of a memo in their presentation of the management accounting
functions of the firm. They are also expected to state the personal attributes of the
Assistant Management Accountant proposed for recruitment.
Candidates are advised to master the skills of presentation of reports. They are
also advised to understand the requirements of a question before attempting
them.
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102/P/3 EXAMINATION NO………………………...
A. narrative.
B. easy to obtain.
C. competence.
D. physical existence.
E. reliability.
2. The following are risks associated with automating the business environment
EXCEPT
A. Privacy violation.
B. Computer virus.
C. Authorised access to information and data.
D. Hardware failure.
E. Data loss.
4. ONE of the following may NOT be a criterion for assessing the internal audit
function:
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5. Insurance Act 2003 states that no insurer shall practice insurance business in
Nigeria unless the insurer has and maintains while carrying on that business
a paid up share capital of the following amount EXCEPT
6. According to Banks and Other Financial Institutions Act CAP B3 LFN 2004,
the qualification of the approved auditor of a bank includes the following
EXCEPT
8. Statements which state how the basic procedures contained in standards are to be
applied are described as
A. auditing procedures.
B. Guidelines.
C. statutory procedures.
D. accounting standards.
E. professional pronouncements.
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10. The letter prepared by the auditor for the client company at the auditors‘
instance setting out description and definition of certain contingent
responsibilities is
A. representation letter.
B. solicitors‘ letter.
C. confirmation letter.
D. management letter.
E. circularization letter.
A. occurrence.
B. completeness.
C. confirmation of claims in annual report.
D. cut-off procedure.
E. classification testing.
12. The auditor, in carrying out his assignment, ensures that the following are in
order EXCEPT
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13. Auditing standards differ from auditing procedures in that procedures relate
to
A. measurement of performance.
B. audit principles and practices.
C. acts to be performed.
D. audit programmes.
E. audit judgments.
15. The primary responsibility for the adequacy of disclosure in the financial
statements of a limited liability company rests with the
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17. Which of the following best describes the reason why an independent
auditor reports on financial statements?
A. a branch of accounting.
B. statutory function that attests to the results of financial information
provided by management in their stewardship function.
C. a professional activity that measures and communicates financial and
business data.
D. a regulatory function that prevents the issuance of improper financial
information.
E. a discipline that reviews the economic activities in the economy.
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1. A person that has the ability to control or exercise significant influence over the
other party is described as……………………
3. Pension Reform Act 2004, provides that pension funds and assets shall only be held
by……………….
4. If an auditor or client cannot trace transactions from its inception to the final
destination in the accounting records, then the process lacks ………………………
7. The risk that the auditor expects to be present in spite of controls is known as
………..
11. Risk assessment has two main components: risk identification and ……………….
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12. A collection of data that is accessible and used by a number of different users for
different purposes is known as ……………
15. Section 29 of Banks and Other Financial Institutions Act CAP B3 LFN 2004 provides
that every bank shall appoint annually a person referred to as ―approved auditor‖
and such auditor shall be approved by …………………
18. State the fundamental means of communication between the auditors and the
management.
19. The audit approach that can be applied in a small charitable organisation is
………………………….
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QUESTION 1
QUESTION 2
Required:-
QUESTION 3
Required:
c. List TEN other (non-financial) symptoms that may raise problems about the
going concern status of an enterprise. (5 Marks)
(Total 15 Marks)
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QUESTION 4
QUESTION 6
A system of accounting will not succeed completely and accurately in processing all
transactions unless internal controls are built into the system.
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SOLUTIONS TO SECTON A
1. E
2. A
3. D
4. A
5. B
6. C
7. E
8. B
9. C
10. A
11. C
12 D
13 C
14 D
15 C
16 A
17 B
18 D
19 B
20 B
Tutorial
16. A is the correct option because all other options are subset of A.
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EXAMINERS‘ REPORT
The requirements of the questions are various and they cover many areas of the
syllabus. All candidates attempted questions and recorded about 65% pass which
is an indication that they understood the requirements of the questions.
Candidates should put in more efforts with a view to improving their performance
in future.
1. Related party
2. Planning Phase of the Audit
3. Pension Fund Custodians
4. Audit Trail
5. Litigation Support
6. Extraordinary items
7. Inherent Risk
8. Memorandum and Articles of Association/Partnership agreement/trust deed/
association‘s constitution
9. Stratification
10. Accounting and organisational controls
11. Risk evaluation
12. Database
13. Input Control
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Tutorials
EXAMINERS‘ REPORT
The requirements of the questions are various, covering many areas of the syllabus.
All candidates attempted the questions. The general performance level was about
55% pass. There is, however, room for better performance.
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SOLUTIONS TO SECTION B
QUESTION 1
b. In connection with the verification of assets, the computer audit program may
be used as follows:
(ii) Stock: The computer audit program will provide an analysis of stock
according to age, materiality of individual items, items classified as
defective or obsolete and also stockholding and ordering status
(iii) Fixed Assets Register: Information can be extracted from this register
to give details of fixed assets movements during the current
accounting period, i.e. acquisitions and disposals. It will also highlight
changes, if any, in depreciation rates on individual plant and
equipment and assets on which no depreciation has been charged at
all. It also includes basic data on individual fixed assets.
iii. Comparison of two files and printing out differences e.g. payrolls at
two selected dates and periods.
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vi. Verifying data such as stock or fixed assets at the interim stage and
comparing the examined file with the year end file so that only
changed items need be examined at the final audit.
EXAMINERS‘ REPORT
The question is in three parts and its requirements are direct and straight to the
point. The candidates‘ attempt at the question was about 75%. Out of this
percentage only 20% scored pass mark.
QUESTION 2
A fundamental question in this context is whether the value derived from the
audit of such company is commensurate with the cost of carrying it out.
The creditors derive same benefits, but, since accounts are often filed many
months after a company‘s year end, those providing credit more often resort
to trade sources for more up-to-date information on the company‘s credit
worthiness.
(b) Some of the arguments in favour of abolishing audit requirements for small
companies are:
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(ii) Since the shareholders and directors are the same people, there is something
ludicrous about the spectacle of ―directors‖ supplying information to the
auditors so that the latter is then in a position to report back to them (the
members).
(iv) Many outside interests such as banks are well protected by personal
guarantees from directors and charges against company assets. They are,
therefore, not dependent on the audit for protection.
(v) Creditors are able to make little use of the audit since the accounts and audit
report are filed many months after credit is given and such accounts, even if
fully understood, would provide little indication of the risks involved.
(vi) The cost of satisfying legal and regulatory requirements associated with the
audit and past audit process may be disproportional to any related value
derivable.
EXAMINERS‘ REPORT
The question is in two parts. Part (a) tests candidates‘ knowledge on the approach
to audit work for smaller companies as against that for large companies and the
internal control assessment technique to be used. Part (b) requires the candidates
to state the arguments in favour of abolishing audit requirements for smaller
companies. Over 80% of the candidates attempted the question. The candidates
misunderstood the requirements of the question especially part (b) and this
contributed to their poor performance.
Candidates are advised to read and interpret questions very well before attempting
them.
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QUESTION 3
a. Financial symptoms of going concern problems include
EXAMINERS‘ REPORT
The question is in three parts, part (a) tests financial symptoms of going concern
problems, part (b) is on managements‘ mitigation plans and part (c) other
symptoms of going concern problems.
The question was attempted by about 90% of the candidates and about 40% of them
scored pass mark. The commonest pitfall was the inability of the candidates to
differentiate between financial symptoms and other (non-financial) symptoms.
QUESTION 4
The interface between the user and the data in the base
This is a suite of programs which takes over the operations of the computer
without human intervention by an operator. The following are the functions
of the operating system:
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These are system programs that provide useful service to the computer users
by providing facilities for performing common task of routine nature. These
programs include Sort Editor, File Copying, Dumping, File Maintenance etc.
(d) Translators
EXAMINERS‘ REPORT
The question is in five parts and test candidates‘ knowledge in the area of
computer-based accounting systems.
About 60% of the candidates attempted the question and the percentage that
passed was above 20%.
Candidates shied away from the question. Their lack of knowledge of this part is
―unpardonable‖. Candidates are advised to consolidate their knowledge in this
area of the syllabus.
QUESTION 5
The observable trend is that there are innumerable risks associated with
computerised business environment.
The auditor would ensure that adequate controls are instituted to mitigate
the innumerable risks associated with the computerised environment as
analysed below:
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ii. Validity checks – controls that ensure only valid data are input or
processed.
iii. Identification – controls that ensure all users are uniquely and
irrefutably identified.
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viii. Input controls – controls that ensure integrity of data fed from
upstream sources into the application system.
EXAMINERS‘ REPORT
The requirements of this question which is in three parts (a) to (c) relate to
knowledge of Information Technology in auditing. About 80% attempted the
question but about 30% of them demonstrated understanding of the requirements
of the question. Parts (a) and (b) were poorly answered whereas they earn more
marks in part (c) which was correctly interpreted. The candidates‘ main undoing
was lack of proper understanding of the question. This area of the syllabus is
treated in the ICAN Audit and Assurance study pack. Candidates should endeavour
to cover all the areas of the syllabus.
QUESTION 6
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(b) The following limitations may inhibit the achievement of the internal control
objectives:
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EXAMINERS‘ REPORT
Part (a) and (b) test candidates on internal controls while part (c) tests on
Corporate Governance.
About 80% of the candidates attempted the question and about 50% of them scored
pass mark.
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