EXAMINER’S REPORT

ON

THE CHARTERED INSTITUTE OF BANKERS OF NIGERIA

OCTOBER 2014 DIET EXAMINATION

(OLD SYLLABUS)

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Table of Contents CERTIFICATE IN BANKING Business Communication Skills 3 Elements of Banking 15 Information Communication Technology 25 Introduction to Biz Finance 34 Introduction to Business Law & Ethics 48 Introduction to Financial Accounting 59 Principles of Economics 79 Principles of Management 86 Quantitative Techniques 95

FOUNDATION Basic Accounting 106 Economics 130 General Principles of Law 138 INTERMEDIATE

Elements of Banking 146 Financial Economics 156

Quantitative Techniques 169 PROFESSIONAL EXAMINATION I Financial & Management Accounting 180 Information Communication Technology 195 Management Theory & Practice 205 PROFESSIONAL EXAMINATION II International Trade 217

Law, Ethics and Corporate Governance 232 Marketing of Financial Services 245 Research Methodology 252

PROFESSIONAL EXAMINATION III

Bank Lending and Credit Administration 263 Corporate Finance 277 Practice of Banking 292 Strategic Management in Financial Services364 306

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CERTIFICATE IN BANKING

BUSINESS COMMUNICATION SKILLS

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A. General Overview (i) The Syllabus was adequately covered. (ii) Time allowed was appropriate and considerate enough. (iii) Consistency in required number of questions: Very consistent. B. Comments on the Question

The questions were of high standard, expected of a body like the CIBN. C. Evaluation of Scripts

Marking was properly done. Each page was marked and scores were indicated, as expected. D. General Comments on Candidates’ Performance. Being an old syllabus, only nine (9) candidates took the exam. E. Analysis of General Performance of Candidates

Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rates in

Percentage

Failure

F1 F2 F3 9 - 8 89% 1 - -

F. Analysis of Attempts Per Question

Question No. Total No. of Candidates that

Attempted Question

No. of Distinctions

No. of Passes No. of Failures

1 9 1 6 2 2 9 6 3 - 3 5 1 3 1 4 6 1 3 2 5 7 3 4 - 6 - - - - 7 - - - - 8 - - - -

G. Section I: Communication Process (30 marks) Question I Option (A) With adequate suitable illustrations, identify and explain the obligatory elements of the communication process, including informed commentary about why they are considered obligatory in contrast with the optional element.

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Comment Being a compulsory question, it was attempted by all the candidates – nine (9) in all, one candidate had distinction, six (6) passed and two (2) failed. The question is a direct one which requires understanding of the communication process and its elements. Relevant examples to show understanding of the question were acknowledged. Answer The obligatory elements of the communication process are: the encoder, decoder, message and feedback. Each of the elements is expected to be explained as indicated below: - The Encoder is the communicator who initiates the process of communication. He conceives, encodes and transmits the message to the decoder, using an appropriate channel and language of expression. In every teaching-learning situation, the teacher or lecturer is always the encoder. Between couples, either spouse can be the encoder, depending on which of them initiates communication. The same applies to parents and children, as well as in organisations. - The Decoder is the target audience of the encoder. Hence, he receives and decodes the message of the encoder. He also prepares and despatches appropriate feedback to the encoder, using the right language and channel. In every teaching-learning situation, the students are always the decoders. In an organisational situation, the subordinates are decoders of instructions and directives given by the management (encoders). -Feedback is the response of the decoder to the message of the encoder. It is very crucial to the encoder as an element of the process, because it enables him to ascertain how effective he has impacted on the decoder. The appropriate response to any message indicates that the decoder understands the message. In every communication process, feedback is very important, be it a classroom setting, in an organisation or in the home. Commentary The encoder, decoder, message and feedback are obligatory elements of the communication process as opposed to other elements of the process which are optional, because the process is unimaginable without them. There must be

Sender Receiver Encoder Decoder Feedback

Sends the message Receives the message Option (B)

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“Feedback entails the reversal of roles in the communication process” with pertinent examples, justify this statement. Comment It is a straightforward question, that requires the application of what the candidate had learnt about communication as a process. Answer Candidates are expected to identify and explain what feedback is in the communication process. Mention that feedback can be positive or negative and identify what can be responsible for either a negative or positive feedback. Explain the importance of feedback as a crucial part of the communication process. Give examples to show feedback as an important element in effective communication.

(20 marks) Option (C) As the Head of your Unit, how can you use the English Language, being the official language, to promote organisational objectives through communication? Comment This is also a direct question, calling for a sound knowledge and understanding of operations of organisations with regard to objectives and effective communication in the workplace. Answer Organizational objectives can only be achieved through effective use of language, which should be courteous, relaxed and straight forward.

- Good communicators go the extra mile to become competent in English Language.

- This can be made possible by a gradual life-long learning process, though it takes time, patience, and hard work to master skills which result in enormous rewards and satisfaction. Thus, as the head of your unit, ensure that your language in all business communication is accurate for the following reasons: • To establish a relationship with the people you communicate with regularly. Unsuitable and

inaccurate language could destroy relationships.

- To communicate your ideas precisely, which may be affected by using unsuitable and inappropriate language, thereby making your meaning unclear to your recipients.

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- To convey a good image of your organisation by using clear, concise and accurate language. This will give the impression of efficiency.

- Avoid careless expressions which contain errors.

Section 2: Correspondence (30 marks) Question 2 Option (A) Write a condolence letter to the Managing Director who is a top customer of your bank, who lost three members of his family in a recent plane crash. Convey the heart-felt sympathy of your bank’s management and staff on the sad loss. Answer A condolence letter, as a variant of good news message issued to comfort the bereaved and show that his/her friends share in the grief at the traumatic period. The candidate is expected to console the bereaved and assure him of support and sympathy of various friends, offer words of comfort and consolation. As much as possible, include quotes from the Holy Books to console and commiserate with the bereaved to cheer them up and give words of consolation.

(30 marks) Option (B) The Central Bank of Nigeria (CBN) has just released to the press a list of five mega-banks in Nigeria which does not include your bank, contrary to your speculation. In your capacity as a Branch Manager of your bank, write a letter to the Managing Director convincingly prompting him to petition the CBN Governor over the unjustifiable omission. Answer This is a formal letter which requires the use of the banks’ letterhead. The letter must have the following:

Recipient’s Address e.g. The Governor

Central Bank of Nigeria 1 Yakubu Gowon Way Maitama District Abuja Opening e.g. Salutation, caption

body closing

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Content should include: 1. A suitable introductory paragraph on the purpose of the letter.

2. At least three convincing reasons why the managing director has to petition the CBN Governor. The

reasons must reflect clear-cut criteria for determining or categorising some banks as mega-banks which the writer’s bank has capacity to have met.

3. A summary of the business/image prospects of the writer’s bank should the proposed petition sail

through.

4. An appropriate concluding paragraph, Option (C) Question Several customers to your bank have recently approached you in your capacity as a branch manager raising issues about exorbitant bank charges in connection with interest on savings accounts, interest on short-term loan, withholding tax savings account, interest and commission on turnover. Taking a defensive posture on all the issues, write a letter to one of these your valuable customers, Godwin Alaba of Bona Ventures, 114 Herbert Macaulay Way, Yaba, Lagos classifying the issues in question to convince him to the effect that the charges should not be reviewed downwards contrary to his demand. Answer This is a formal letter, hence it should be written on the Bank’s letterhead. It must have the following features:

- Recipient’s Address just as we have in option (b).

- The body must comprise a suitable introductory paragraph which will spell out the purpose of the letter.

- At least two acceptable reasons to justify the identified bank charges on running cost analysis.

- A concise summary of customers’ benefits from corresponding bank services.

The candidate is expected to use appropriate words and grammatical errors (linguistic noise). The letter must be appropriately punctuated. Section 3: Interpersonal Communication (20 marks)

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Question 3 Option (A) Non-verbal communication can complement verbal communication in any organisation. Enumerate the ways the following non-verbal forms can aid or distract effective communication in any organisation.

(i) Use of body language (ii) Dressing style (iii) Use of space (iv) Use of time (v) Vocal cues

Comment Five (5) of the nine(9) candidates, attempted this question. Answer The candidate is expected to: Explain what is meant by non-verbal communication and discuss ways it can complement or contradict verbal communication. List the use of the various non-verbal communication modes to complement or contradict verbal communication. Explain how body language can reinforce the spoken word (show sincerity, conviction) or contradict (show insincerity). Give relevant examples here. Dressing style can reinforce image conveyed of a personality spoken form or speak volumes of vain pursuits, can also cause distraction away from the speaker’s message to the personal characteristics by the speaker. - Space can communicate meaning in speaking and listening. Space can convey intimacy, etc.

- Time can convey how we manage our affairs, how we arrive early or late for appointments, prioritise our

telephone calls or manage our daily schedules.

(4 marks each x 5 = 20 marks) Option (B) Interpersonal communication can be oral or written. Relying on your knowledge of the oral form, explain how the following skills serve to enhance effective interpersonal communication, fluency, eloquence, stress and intonation, restatement. Answer

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Fluency and eloquence enhance effective communication by attracting and helping to sustain the decoder’s interest. It is an indication of self-confidence anchored on the speaker’s mastery of the subject matter. Stress and intonation serve necessary emphatic purposes, and so help to send the message on the mind of the decoder for lasting affect and therefore prevent forgetfulness. Restatement helps to pragmatically draw the decoder’s attention to notable or salient messages for deserved prompt and effective feedback.

(Content - 12 marks) (Style - 8 marks)

(Total = 20 marks) Option (C) Explain how the listening skills help to promote understanding in interpersonal communication. Answer For understanding to take place in interpersonal communication, the receiver has to pay attention to get and understand what the sender says. Listening skill is not passive because the listener is a partner in the communication process. Good listening skill is borne out of training. In order to actively listen to another person, concentration, will power and great mental effort are required. Without discipline and full concentration, the listener’s attention will not be total. The right type of words and proper presentation will not allow the listener’s attention to wander to other issues. Again, understanding will be promoted when a conscious effort is made to check the points raised in the communication encounter to ensure that each has been understood. In most interpersonal encounters, there is the tendency that you as the listener are busy thinking of what reply to give as soon as the speaker stops, that you do not listen to understand the message/information. This will definitely affect understanding and the appropriate response to be given. To guard against passive listening, a conscious effort should be made to train oneself to concentrate and not be passive in a listening communication process. Listen only to the speaker with full attention. To enhance understanding, the listener is encouraged to take notes which would be brief, logical and easy to read thereafter.

(Content -12 marks) (Style – 8 marks)

(Total = 20 marks) Section 4: Public Speaking/Presentation (20 marks)

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Question 4 Option (A) As the officer nominated to address the employees of your organisation on the urgent needs to guard against rumour mongering, present your speech with particular emphasis on the damaging consequences of rumour on the business prospects of the organisation. Answer Title: The Urgent Need To Guard Against Rumour Mongering – A speech presented at ABC Organisation/Company to all employees of the organisation/company to stem the spate of rumour mongering in the organisation/company. Highlight of the Content Introduction 1. What prompted the speech? Two or three instances of rumour mongering in the company along

with their consequences. 2. (a) What is rumour? (b) what is rumour mongering? (c) relevant – illustration 3. At least three causes of rumour mongering linked to the organisational culture along with their

solution. 4. Proposed disciplinary measures as a last resort against rumour mongers. 5. What the company stands to benefit if rumour mongering is drastically curtailed, if not eliminated. 6. Conclusion: Appeal for the employees’ co-operation.

(Layout = 3 marks) (Content = 8 marks)

(Total = 11 marks) Option (B) You have been invited to give a career talk to graduating students of Bells University on “Banking as a fulfilling career”. Prepare a speech of not more than 500 words for this purpose. Answer The essence of a good speech should be demonstrated as to what it takes to make a persuasive, convincing speech to arouse the audience -should show understanding of the peculiarities of the audience and tailor the message accordingly. The structure of a good speech. -good introduction -explain the subject matter extensively in the body of the speech. -summarise the speech effectively in the conclusion. Appropriate use of language and relevant examples and illustrations, facts, figures to support the evidence in the speech.

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The conclusion should summarise concisely the theme of the speech. The length of the speech should be observed. Excess writing will attract sanctions.

(Layout - 3 marks) (Content - 8 marks)

(Style - 7 marks) (Accuracy - 2 marks)

(Total = 20 marks) Option (C) As a public speaker, what are the principles you will consider when presenting a speech to a group of undergraduates of Paramount University in taking up a career in Banking. Answer Title: Choosing Banking as a Career. The following principles should be followed in presenting this speech: 1. Introduction 2. Body of the Speech -Elucidate the functions of banking in the economy. -Highlight the prospects of the banking industry. 3. Conclusion

-Highlight the need to acquire a professional training by enrolling with the Chartered Institute of Bankers so thatyou will be recognised as a professional banker after writing their examination.

(Layout - 3 marks)

(Content - 8 marks) (Style - 7 marks)

(Accuracy - 2 marks) (Total = 20 marks)

Section 5 OrganisationalCommunication (20 marks) Question 5 Option (A) Explain the following impediments to effective organisational communication.Highlight their specific practical inhibitions. (i) Size of the organisation (ii) Network breakdown (iii) Status differences (iv) Conflict of interests (v) Poor listening and premature evaluation. Answer

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i. Size of the Organisation:The bigger the organisational structure, the more transmission layers it has for messages and feedback and, therefore, the more likely they are to be distorted and/or delayed from arriving at their destination.

ii. Network Breakdown: This occurs to hinder effective organisational communication when, for instance, workers are too busy to remember to despatch necessary information or a message, or feedback is delayed.

iii. Status Differences: These occur to interrupt or disrupt upward or downward communication flow, and

so, render it ineffective.For instance, subordinates do not wish to express opinions which are at variance with those of their bosses. Again, the climate may be so poor as to hinder information flow totally. Climate, refers to respective attitudes of subordinates and superiors to one another, which may be positive or negative.

iv. Conflict of Interests: If the interests of various officers clash with one another on a given subject

matter.

(7 marks)

Option (B) Your organisation is set for an Annual General Meeting (AGM) scheduled to take place in the second week of September. Write a notice to this effect and include the Agenda to all the stakeholders. Answer The candidate is expected to write a notice of meeting, indicating the date, time and venue of the meeting. He is also expected to prepare the Agenda for the meeting. Agenda

- Opening Prayer - Welcome address by the chairman - Reading and adoption of the minutes of the previous meeting. - Matters arising from the minutes - Reading of correspondence, by the secretary - Business adjourned from last meeting - Financial matters (treasurer’s report, circulation of account, etc). - Reportsfrom Committees, Sub-committees and officers. - Election of new officers. - First motion moved and seconded. - Any other business (AOB) - Date of next meeting - Adjournment - Meeting declared closed by Chairman

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(13 marks)

Option (C) What are the challenges of exchange of information flow among the units in the organisation at the same level? Answer The following are the challenges of exchange of information flow among the units in the organisation at the same level. Attitudes of heads of department

i. Failure of any unit to co-operate with the others will have a negative effect on the organisation’s functional procedures and effective communication in the department.

Not making information available to other units can also pose a challenge. Ineffective communication flow, hoarding of information. ii Demarcation line which exists between departments. For instance, the sales Dept and Accounts Dept operate at the same level with two heads of Departments. Not being open and coming with information that can help two units to function effectively can pose a serious challenge.

iii Distortion of information: This is because much information between departments is verbal with oral communication in particular.

iv Language problem is experienced because modern communication gadgets are completely in use in most organisations.

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ELEMENTS OF BANKING

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General Overview Examiners expected that candidates would have prepared very well for this diet examinations knowing full well that this is their last chance of writing examination based on the old syllabus. However, this assertion paid off as many of the candidates performed creditably well. We hope candidates who could not scale the hurdle will work assiduously to harmonise the old and new syllabus for a desirable result in future examinations. Time allocated for the examination was considered adequate since most of the questions attempted were satisfactorily answered. Comments on Questions All the questions which were set within the scope of the syllabus are standard, straight-forward and well-structured and this culminated in satisfactory performance recorded therein. Evaluation of Scripts The quality of marking exhibited in all the scripts reviewed by the examiners was satisfactory, a development that resulted in an objective evaluation of the candidates’ performances. General Comments on Candidates’ Performance The performance this diet was indeed satisfactory, though with the pass rate lingering at 80% as obtained during the April 2014 diet. We are happy to close out on this impressive note and hope this trend would be reflected for some time to come on the new syllabus. Analysis of General Performance of Candidates

Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rates in Percentage

Failure

F1 F2 F3 45 5 31 80 Nil 4 5

A total of 45 candidates as against71 in the April. 2014 diet, sat for this subject at both the certificate and intermediate levels and, of this number, 36 candidates (or 80%) passed with five distinctions while 09 (or 20%) failed as follows, F1 :Nil, F2:4 and F3:5. Analysis of Attempts Per Question

Question No.

Total No. of Candidates that Attempted Question

No. of Distinctions No. of Passes No. of Failures

1 41 16 17 08 2 29 01 13 15 3 33 06 14 13 4 13 01 04 08 5 31 09 13 09 6 30 04 11 15 7 43 15 25 03

QUESTION- BY- QUESTION ANALYSIS

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Question 1 (a) List and discuss five types of money. (b) Is there any difference between near-money and pure money?

(20 marks) Comment This is a popular question and the end justified the means as most of those that attempted it appeared to have a full grasp of the question, more so when the topic has become a familiar terrain for candidates. This question was attempted by 41 (or 91%) of the candidates, out of which 33 (or 80%) passed. It ranked 2nd in popularity and in pass rate. Answer (a)(i) Commodity Money: This is money which has commodity value/content in relation to its value as money, i.e. it carries intrinsic value (e.g. gold and silver), but if the commodity content is higher than its value as money, it ceases to serve as money. (ii) Legal Tender: This type of money has the backing of the law of the country. Any commodity which a country’s law legislate as money is regarded as a legal tender. (iii) Token Money: This type of money has no commodity content. It is a money without intrinsic value. For example, Naira in Nigeria is worthless as a commodity but has value as money. The face value is greater than the value of the content used in printing it, i.e. the intrinsic value is less than the face value. (iv) Quasi/Near-Money: Near money is an asset that performs the function of store of value but does not adequately perform the function of medium of exchange. These are those financial instruments that needed to be converted before they can be generally accepted for the settlement of trade debts (v) Paper Money/Fiat Money: This is a pure token issued by each country’s central bank as fiduciary issue. It is a legal tender because it is enforced by law. (vi) Bank Deposits: These are deposits in current accounts/demand deposits. They are acceptable as a means of payment because people can draw cheques on their accounts to make payments. In other words, bank deposits are forms of money deposited with the bank which are equally withdrawn by cheques. They are an example of pure money. (The above list is not exhaustive through 3 marks each for any 5 points = 15 marks) | (Total = 20 marks) (b) Near Money and Pure Money The difference between pure money and near money is that pure money is in its spendable form and therefore enhances the exchange process unlike near money which is not generally acceptable for payment for goods and services. Pure money is easily transferable from one party to another and generally acceptable, unlike near money, e.g. Cheque. (5 marks) Question 2 (a). Explain what is meant by Development Bank. (b). What are the objectives of Bank of Agricultural Co-operative and Rural Development Bank. (BOA)?

(20 marks)

Comment

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Although this question was fairly attempted by candidates, the overall result revealed that this part of the syllabus appears not to have received their reading attention. Therefore, candidates should note that it will do them a lot of good to dwell more on this section in order to acquire useful knowledge that could assist them in advising customers and clients alike. A total of 29 (or 64%) of the candidates answered the question, out of which 14 (or 48%) passed. Answer (a) A development bank is a specialised financial institution set up by the government to provide

medium- and long-term funds to accelerate the pace of development in the country. (4 marks)

(b) The objectives of Nigerian Agricultural Co-operative and Rural Development Bank are: (i) Acceptance of savings deposit from customers and the repayment of same with accrued interest

as and when due; (ii) Provision of opportunities for self-employment in the rural areas thereby reducing rural/urban

migration; (iii) Augmenting government efforts in the diversification of the productive base of the national

economy; (iv) Inculcating banking habits at the grass roots level of the Nigerian society;. (v) Provision of affordable credit facilities to less privileged Nigerians who cannot readily access the

services of conventional banks; (vi) Promotion of capacity building through the provision of relevant training and advisory service; (vii) Fostering an accelerated growth and development of the agricultural sector and rural economy; (viii) Encouraging the formation of co-operative societies at all levels.

(2 marks each 2 x 8 = 16 marks) (Total = 20 marks)

Question 3

(a) The Securities and Exchange Commission is the apex institution in the capital market. Briefly explain its related functions.

(b) List the membership of the Securities and Exchange Commission (SEC). (20 marks)

Comment Knowledge of the capital market structure and operations as well as its usefulness for economic development is very vital for students of banking. Candidates who attempted this question displayed reasonable understanding of the topic and were able to record good pass mark. A total of 33 |(or 73%) of the candidates attempted the question, out of which 20 (or 61%) passed. Answer (a) Functions of Securities and Exchange Commission (SEC)

(i) Determining the amount and time at which securities of companies are to be sold to the public either through offer for sale or subscription;

(ii) Registering all securities proposed to be offered privately;

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(iii) Maintaining surveillance over the securities market (including the securities exchange) in order to ensure orderly, fair and equitable dealings in securities and to forestall illegal dealings by privileged insiders at the expense of innocent and often ignorant investors;

(iv) Protecting the integrity of the securities market against any abuses arising from the practice of insider trading;

(v) Acting as the apex regulatory organisation for the Nigerian Stock Exchange and its branches to which it is at liberty to delegate powers;

(vi) Creating the necessary atmosphere for the orderly growth and development of the capital market through enlightenment programmes such as seminars, workshops, symposia, publications and stimulation of ideas;

(vii) Determining the bases of allotment of securities in a public offering to ensure a wider spread of share ownership;

(viii) Determine when issuing houses or registrars should return surplus application monies and the penalty payable for non-compliance;

(ix) Auditing the books of companies and institutions involved directly or indirectly in the securities business;

(x) Determining the contents of the prospective and other issuing memoranda. (xi) Ensuring that banks raise money only by public offer. (xii) Registering the following:

- Stock exchanges and their branches. - Persons/institutions involved in securities dealing (e.g. stockbrokers, - registrars, issuing houses and fund managers). - Securities to be traded or being traded (share debentures, government stock). (1.5 marks each for any 10 points =15 marks)

(b) Membership of SEC (i) A representative of Central Bank as chairperson. (ii) One representative of the Nigerian Stock Exchange (iii) One representative of the Nigerian Enterprises. (iv) One representative each from (v) Federal ministry of Finance.

• Federal Ministry of Trade and Tourism; • Federal Ministry of Industries; • The Executive Directors of Commission;

(vi) Five (5) private members appointed by the Federal Government who hold office for 5 years and are eligible for reappointment.

(1 mark each for any 5 points = 5 marks) (Total = 20 marks) Question 4 Explain the following in the context of international banking.

(a) London Club of Creditors; (b) Eurobond; (c) Special Drawing Rights (SDRs); (d) West African Bankers’ Association (WABA). (20 marks)

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Comment The world is now a global financial village and this position buttresses the need to acquire knowledge on in international banking. Very few candidates attempted this question and, even at that, they did not do well enough. Only 13 candidates (representing 29%) attempted the question but just 5 of them (or 38%) pass. Answer (a) London Club of Creditors

This is a cartel of international commercial banks which handles private debts and other commercial debts and operates strictly on commercial terms. They are thus stricter in terms than Paris Club of Creditors. The London Club debts are largely private trade debts and have two components viz (i) Promissory Notes. (ii) Brady par bond collateralised with US Treasury Bonds.

(5 marks) (b) Eurobond

-Eurobond is a method of raising long-term fund in the international capital market outside the country in whose currency the bonds are denominated. -They are issued directly by the borrower in bearer form. -The interest payment is not subject to withholding taxs. -There is secondary market and the currency control is convertible. -Bonds are usually issued as US Dollar, Swiss Franc, Pound Sterling and Euro. -Cost of issue is low, easy to arrange and simple. -It attracts higher rates (yields). (5 marks)

(c) Special Drawing Rights (SDRs) Special drawing rights is an unconditional additional international reserve asset.

introduced by the International Monetary Fund (IMF) to ease the problem of international liquidity. It is mere bookkeeping entry. SDRs are allotted to member nations of the IMF in proportion to their quotas with the fund. Member countries can use gold or scarce currencies to settle their debts when faced with balance of payments difficulties. (5 marks)

(d) West African Bankers Association (WABA)

The West African Bankers’ Association is the association of commercial and merchantbanks in West Africa. The decision to establish this association was reached in Bamako, Mali in 1978 while its draft constitution was ratified at a meeting of bankers held in Freetown, Sierra-Leone. (5 marks) (Total = 20 marks)

Question 5 Not all securities offered by customers are acceptable to banks. Mention and discuss the main types of securities acceptable to a lending banker. (20 marks)

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Comment The examiners could observe the willingness on the part of the candidates to answer this question on security but they lack the depth and ability to explain the points and highlight the issues required. A total of 31 (or 69%) of the candidates answered the question and 22 (or 71%) passed. Answer Acceptable securities to a lending banker are as follows :

(i) Land and landed property that are free from encumbrances as legal or equitable mortgages. (3 marks)

(ii) Stocks and shares of first-class companies usually known as blue chips. Simple deposit of share certificates may be accepted, but deposit coupled with undated but signed transfer forms are preferable. However, the charge should be registered or noted with the CSCS. (4 marks)

(iii) Life Policies – with adequate or substantial surrender values are also acceptable. Preferred life policies are those of insurance companies whose integrity is unimpeachable. (3 marks)

(iv) Guarantee of reliable and responsible individuals or third parties is usually accepted by banks. This is provided that the guaranteed is worth more than the amount being guarantee. It is normal to take status inquiry on an intending guarantor to establish his worth and perhaps level of responsibility. (3 marks)

(v) Debentures- Banks often use company debentures (floating or fixed) as security. The assets of the company are executed in favour of the bank, subject to certain conditions. (3 marks)

(vi) Domiciliation of contract proceeds; Proceeds from specified contracts may be domiciled with a lending banker as security for intended borrowing. When the contract is performed, the underlying proceeds are paid through the bank in which it was domiciled into of the contractor’s account. (4 marks) (Total = 20 marks)

Question 6 Mention and explain the various methods of effecting international payments. (20 marks) Comment This question was set to test candidates’ understanding of the operational and payment methods in international trade. However, many of the candidates resorted to guesswork and by implication did not accord the topic the attention it requires thus leading to an average performance in the question.A total of 30 (or 67% of the candidates attempted the question and only 15 (or 50%) passed.

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Answer Methods of Payment in International Trade

(i) Open Account: This is where an exporter sells his goods on credit and obtains payment at later date depending on the agreement. The exporter may face the problem of non-payment. (2 marks)

(ii) Payment in Advance: In this case, the exporter receives advance payment before the actual shipment of the goods or delay shipment. It is a more secure method of obtaining payment. (2 marks)

(iii) Bills for Collection: The bank is involved in this. It is the process whereby an agreement is

reached between the exporter and the importer that uniform rules for collection (URC) is applicable. The exporter will give instruction to his bank on how it should handle his documents in obtaining payments either against documents, against payments’ acceptance or negotiation. The collection is accompanied by commercial documents either with or without payments. (2 marks)

(iv) Documentary Letter of Credit: This is the most acceptable mode of payment in international trade. Under this method, the importer approaches his banker to open a letter of credit in favour of the exporter together with the list of all the conditions fulfilled. The documents include bills of lading, commercial papers, certificate of origin and insurance certificate. Documentary letters of credit may be revocable or irrevocable. (2 marks)

(v) Foreign Currencies : Commercial banks provide foreign exchange to ease travelers undertaking international transactions, e.g. Euro’s, Pounds Sterling and Dollars (2 marks)

(vi) Travellers’ Cheque: This is a cheque issued to a customer going on a foreign mission such as business, education, religion or holiday. It is denominated in the currencies of countries of destination and subject to a maximum amount stipulated by the government and the CBN annual credit guidelines.

(2 marks)

(vii) Basic Travelling Allowance (BTA): This differs, depending on the type of trip or mission. The cheque enjoys automatic recognition and is honoured once it is presented for payment in the designated foreign currency (2 marks)

(viii) Foreign Draft.: A customer may request his bank to issue a foreign draft in his name or in the exporters’ name payable at a designated bank overseas.

(2 marks)

(ix) SWIFT: (Society for World- Wide Interbank Financial Telecommunication) has members world-wide with headquarters in Brussels. Members are requested to contribute to a pool of funds

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maintained for the development and maintenance of their central communication to which they link their own local system for urgent transactions and receipt of messages for interbank financial settlements. (2 marks)

(x) Telegraphic Transfer or Cable Payment Order. This is a transfer of fund by cable. It is more expensive but faster than mail transfer. It is usually authenticated by tested code or test keys. But the invention of SWIFT has reduced the usage of this method of payment. (2 marks) (Total = 20 marks)

Question 7 Banking in the 21st Century has been made easy through e-banking.

(a) Enumerate numerous benefits of e-banking in Nigeria (10 marks) (b) State clearly problems associated with e-banking in Nigeria. (10 marks)

Comment The examiner is happy to observe that candidates are now abreast with current innovative developments in the banking and financial environment in Nigeria, especially as it affects the pool of investments by deposit money banks towards the acquisition and deployment of modern technologies in the industry. It is therefore heartwarming to note that most of the candidates that attempted the question passed with good grades. A total of 43 (or 96%) of the candidates attempted the question and 40 (or 93%) passed.

Answer (a)The Benefits of E-Banking in Nigeria

(i) Increase in business patronage without corresponding increase in branches. (ii) Improvement in service delivery resulting from interactive facilities of e-banking system. (iii) E-banking phenomenon will not decrease the total workforce in the industry, however, more

computer-literate and educated staff will take preference over existing labour mix. (iv) It could be argued that with growth in banking culture, more people will be recruited by the various

financial institutions, without necessarily increasing branch network. (v) It will eliminate the endemic long queues at bank counters. (vi) Through online services, customers can withdraw funds or make deposits easily at any branch

office of the bank (vii) Accessing information on one’s account at the bank is made easier and quicker. (viii) The risk of carrying large sumsof money in cash on trips has drastically reduced because of

electronic transfer facilities. (ix) The temptation to store large sums of cash in the office or at home is also reduced since people

will not wait long to cash their cheques at the bank. (x) Bank statements of account come out quicker and readily these days.

(1 mark each for any point = 10 marks)

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(b) Problems Associated with E-Banking in Nigeria (i) Poor telecommunication system. (ii) Unstable but expensive power supply. (iii) High cost of acquiring/ installation of information technology hardware. (iv) Dearth of skilled personnel. (v) High maintenance cost of technology equipment. (vi) Security implications of some of the equipment. (vii) Application limited to institutional clients as the private clients lack access to equipment for

interface with e-banking system. (viii) Lack of confidence among private clients. (ix) Increased computer fraud resulting from introduction of e-banking. (x) High cost of operations sometimes passed to the customers.

(1 mark each for any point = 10 marks) (Total =20 marks)

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INFORMATION COMMUNICATION TECHNOLOGY

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A. General Overview The questions covered the syllabus and were adequate for the level. A time of three hours was allowed to attempt five out of seven questions. The instructions were clear and in simple language.

B. Comments on the Questions The questions were in line with the structure as stated in the syllabus to attempt 5 out of 7 questions. The production of the question paper was clean and clear.

C. Evaluation of Scripts The standard of the marking was very good with consistency and accuracy. Marks were awarded based on points enumerated by candidates (i.e. no arbitrary award of marks).

D. General Comments on Candidates Performance The general performance was in the same range with that of the April diet examination. The overall pass rate of 65% was achieved.

E. Analysis of General Performance of Candidates Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rate Percentage

Failure F1 F2 F3

20 0 13 65 0 5 2

F. Analysis of Attempts for Question Question No.

Total No. of Candidates that Attempted Question

No. of Passes No. of failures

1 6 0 6 2 20 17 3 3 20 16 4 4 18 11 7 5 12 1 11 6 18 4 14 7 3 1 2

G. Examination Questions, Comments and Suggested Answers

Question 1 Give a brief explanation which would be suitable for a manager of the following telecommunication terms: a) PABX b) Protocol c) PSS d) Band Rate e) Modem (20 marks) Comment

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This was the least attempted question. All the six (6) candidates that attempted it failed. It was clear that the candidates did not study the aspect of the syllabus that deals with telecommunication terms as stated in the question above. The question in 1(d) ought to read “baud” rate instead of band rate. Candidates who are familiar with the term got it right as one can only talk about band width but not rate. Answer (a). PABX—Private Automatic Branch Exchange (PABX systems) provide facilities for office switch-

boards and telephone systems. It can offer facilities such as automatic message switching automatic dialling, conference calls or when a line is engaged (call repeating). (4 marks)

(b). Protocols-- is the instruction used in a packet switching system. It divides a message into packet, gives each packet control data which identifies the sender and the destination address and transmits the packet along the network. (4 marks)

(c) PSS – Packet Switching System allows a number of computers to transmit data to one another in a more economical way than dedicated private lines. The data message in a PSS is divided up into packets which includes the identification of the sender and the address of its destination.

(d). Baud rate – means bit per second transmitted. Data is usually transmitted by means of bit serial transmission where the bits that make up a character are sent down the line in turn.

(e). Modem-- is a device which converts data digital form used (by a computer) into waveform ( as used by telephone lines) and vice-versa. For data transmission through the telephone line to be possible, the data has to be passed through a modem between a telephone line and the computer. There must a be modem at each end before the data set to computer and after before it gets to telephone lines.

Question 2 (a) State four (4) broad aims of an effective and efficient Payment System.

(8 marks) (b )Give four (4) factors that are responsible for the challenges in the Nigerian Payment System. (8 marks) (c) List four (4) examples of Electronic Money. (4 marks)

(Total = 20 marks) Comment This is the most attempted question, with all the 20 candidates taking a short at it. A pass rate of 85% was achieved. Majority of the candidates demonstrated a good understanding of the aims, and challenges of an effective and efficient payment system in Nigeria. Candidates also named examples of e-money. Answer (a). Aims of an effective and efficient payment system in Nigeria are:

i. To eliminate delays in settlement; ii. To reduce transaction costs;

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iii. To minimise the volume of cash transaction in the economy; iv. To ensure convenience and facilitate greater volume of economic activities and hence productivity.

(2 marks per point = 2 x 4 = 8 marks) (b). Factors responsible for observed deficiencies are:

i. Inadequate infrastructure; ii. Human capacity limitation; iii. Distrust (lack of confidence) among the people; iv. Socio-cultural attitudes ; v. Financial illiteracy.

(2 marks for any 4 point = 2 x 4 = 8 marks) (c) Examples of e-money are i. Smart card / value card ii. Credit cards iii. Debit cards iv. SWIFT v. ATM

(1 mark per point = 1 x 4 = 4 marks) Question 3 (a) Explain four (4) main classes of computers with details of the environment of usage and their

components. (12 marks) (b) Mention four (4) modern secondary storage devices. (4 marks) (c) State four (4) computer input technologies. (4 marks)

(Total = 20 marks) Comment This question was attempted by all the 20 candidates with a pass rate of 80%. Candidates showed a good understanding of the concept of main classes of computers with the details of the environment of usage and their components. Also, majority of the candidates were able to mention the modern storage devices and computer input technologies. Answer (a). The 4 main classes of computers are:

i. Microcomputer: A microcomputer is any computer that is built around a microprocessor. A Microprocessor is the information control centre that processes and transfers information stored in the memory. (3 marks) ii. Mini computers are the least costly and most widely used computers. Minicomputers lie between microcomputers and mainframes in cost, speed and computing power. They can perform many tasks concurrently.

iii. Main frame computers are the large-scale computers found in the computer rooms of most large businesses, financial institutions and universities. (3 marks)

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iv. Super computers are the most powerful and expensive computers of all. Super computers are useful for scientific and engineering calculations, weather forecast, cryptography and computer animation. (3 marks) (a) The 4 modern secondary storage devices are:

(a) Data card; (b) Flash drive; (c) Compact disc; (d) Optical disk drives; (e) Bluetooth.

(1 mark each for any 4 points = 4 marks) (b) Modern computer input technologies are:

i. Mouse; ii. Keyboard; iii. Touch screen; iv. Optical scanner; v. Voice recognition; vi. MICR- Magnetic Ink Character Recognition; vii. OCR- Optical Character Recognition.

(1 mark each for any 4 points = 4 marks) Question 4 (a) Differentiate between the terms - Application Package and General Purposes Package. Give an example of each. (14 marks) (b) Give three (3) advantages of each of the above packages (6 marks)

(Total = 20 marks) Comment Eighteen (18) candidates attempted the question with a pass rate of 61%. The candidates that did not perform well could not differentiate between an application package and a general purposes package, let alone give an example of each. They also failed to identify the advantages of each of the packages. Answer Application package is a ready-made program written to perform a particular job. The job will be common to many. A potential package could be adopted by all of them for their data processing operation. It is a complete system for a particular application supplied by some outside body for general use by individual firms. An application package is always fully documented with specifications of input, output formats and data layout ,user instruction manuals, hardware requirement and details of how the package can be used to suit the users’ needs. An example is word processors. A general purpose package is more general in application. The program can perform a specific function like spreadsheet or modeling, but it is up to the customer to use it for stock, payroll. An example is Corel draw

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(b) Advantages of application package are: (i) The provisions of expertise are normally availableto the smaller user. (ii) Reduction in systems and programming efforts and cost. (iii) Reduction in time needed for implementation. (iv) Reduction in errors in design: the program should be well tested before usage.

(1 mark each for any 3 points = 3 marks) The advantages of general packages are:

i. They save time, in that programs do not have to be written specially or procedure carried out manually.

ii. They can be used for a variety of applications. iii. Parameters and data input can be changed or flexed to compare different results. iv. The packages are easy to use and require no great computer knowledge.

(1 mark each for any 3 points = 3 marks) Question 5 (a) Information Systems carry out three (3) general activities. State the activities. (1 mark) (b) Explain how the activities are carried out. (3 marks) (c) List four (4) types of Information System (4 marks) (d) Discuss three (3) of the information system types listed in (c) above showing clearly their differences. (12 marks)

(Total = 20 marks) Comment Twelve (12) out of the twenty (20) candidates attempted the question. The performance was very poor with a pass rate of 8%. The candidates did not understand the concept of information systems. Majority of them could not list the types of information system and the general activities involved in any information system. This is a basic requirement to understand the concept being tested here. Answer (a). The 3 activities are those of input, process and output. (b). It accepts input data from various sources within or without into the system.

i. Next, the inputted data is acted upon using a given procedure. This is called the processing stage to give the desired output.

ii. Finally, the result of processing is given out as information via output units as soft or hard output as desired.

(1 mark each = 1 x 3 = 3 marks) (c)(i) Transaction processing system, otherwise called Operation Information System. (OIS)

(ii) Management Information System (MIS); (iii) Decision Support System (DSS); (iv)Executive Information System (EIS); (v). Expert System; (vi)Office Automation System (work group, support system.).

(1 mark each for any 4 points. = 4 marks)

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(d)(i) Basically, an Operational Information System (OIS) collects and stores data about business events (transactions) and something that controls the decision-making part of a transaction. A transaction which could be sales, purchase, supplies, etc .generates or modifies, data stored in the information system. The two main types OIS are batch processing and real-time processing. Examples are Point –Of- Sale system for sales, transactions, processing or credit card payments, etc OIS improves transaction processing. (4 marks)

(ii). Management Information System (MIS). This is a system that provides managers of organisations at all levels and all functions with appropriate information from relevant sources to enable them take timely and effective decisions for planning, directing, co-ordinating and controlling the activities for which they are responsible. MIS evolved from efforts made to provide answers to the shortcoming of OIS which improve transaction processing but no information for management.

(4 marks) (iii). Decision Support System (DSS):This is an information system that assists managers with unique

forms of non-recurring strategic decisions that are relatively instructed. It performs “what if“ and reports generated tasks as well as suggests alternatives that would prove most advantageous given a set of alternatives. It has the decision-making ability based on defined objectives. It serves as a supporting material for MIS.

(4 marks) (iv). Executive Support System (ESS): This is an information system that helps managers and executives

by providing them with flexible access to information for monitoring the operating results and general business conditions. It also helps in making unstructured decisions through advanced graphics and communication.

(4 marks) (v). Expert System (ES): This is a knowledge intensive program that solves problems by capturing the

expertise of a human in a limited domain of knowledge and experience. It helps in solving problems which require an expert knowledge of the process of performing specific tasks. Expert systems use computer programs that store facts and rules in what are called knowledge bases to mimic the decision process of the human expert. They are referred to as intelligent systems because of the infusion of knowledge and decision-making characteristics with computer processing power.

(4 marks) (vi). Office Automation System (OAS): This is an application that facilitates everyday communication and

information processing tasks in offices and business organisations just to improve the productivity of workers in the offices. It encompasses a wide range of tasks that include word processing, spreadsheet application and telephone systems.

(4 marks Question 6

a) List four (4) levels at which computer crimes are committed. (4 marks) b) How are the listed crimes committed and who are the criminals? (8 marks) c) Effects of virus attack can be disastrous to the system. List four of such effects.

(4 marks) d) State four (4) ways by which you can logically protect the system in your organisation.

(4 marks) (Total = 20 marks)

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Comment The performance in this question was very poor as only 4 out of the 18 candidates that attempted the question managed to have a pass mark. The pass rate was 22%. The question was on levels at which computer crimes are committed. It also deals on how they are committed and on identifying the criminals. Very few candidates gave the effect of virus attack on the system while many listed how the system could be logically protected. Performance could have been improved if candidates paid particular attention to computer crimes, their effects and safeguards. Answer

a. At input, output, software development and data transmission levels. (1 mark each = 4 marks)

b. (i). At the input level, the computer operator commits the crime here. It involves feeding the computer with wrong data which would lead to wrong information in the output.

(2 marks) (ii). At output level, the result from the computer could be sold to competitors by any member of staff that has access to it.

(2 marks) (iii). At software level, the programmer can add a fictitious code to move a certain amount of money from one account to another. Most crimes occur at this level. (iv).At the data transmission level, the issue of networking and the Internet has exposed the firm to outsiders. Hackers can gain access into firms from any external location to perpetrate fraud.

(2 marks) c. (i). Wreckage of IT equipment;

(ii). Clogging up of e-mail computer server; (iii). Significant data loss from hard disk; (iv). Erasure of the content of the CMOS which will affect the date, time and other details that the

computer needs to boot; (v). Automatic mailing of a copy of the virus to all the e-mail addresses.

(1 mark for each point – 1 x 4 = 4 marks)

d. (i) By providing password for authorized users. (ii) By encrypting data

(iii) By regularly providing regular and full computing resources. (iv) By providing a system to monitor the ex-activities of all login users. (v). By introduction of a mechanism that will trigger when more than two attempts are made by

a user at login time. (1 mark each for any 4 points = 4 marks)

Question 7 When buying a printer for a small business computer, a layman sometimes takes a bewildering range of choices.

a) Explain the difference between Parallel and Serial Printers. (16 marks)

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b) Briefly describe the following types of printer mechanisms and explain when they would be the preferred choice

i. Daisy Wheel. ii. Dot Matrix. (4 marks)

(Total = 20 marks) Comment This is the least attempted question with only three (3) candidates. One (1) out of whom showed a good understanding of the mechanism of printers but failed to differentiate between parallel and serial printers. Answer

a. i. A serial printer allows signals to pass serially from the computer to the printer. If the computer output is in a form different from that expected by the printer, an interface card can be provided to convert the data to the required form. The common serial interface is RS232 or RS423.

(3 marks) ii. A parallel printer can deal with signals in parallel as they are normally passed around inside the computer. The most common parallel interfaces are IEEE-488 and centronic (3 marks)

b(i) Daisy wheel printer: is quite widely used in microcomputer systems. A metal or plastic print wheel is

used which may be changed to alter character styles and can normally print 96 different characters. The characters arranged in the wheel circumference on spokes, strike the paper through a carbon ribbons and bold lettering is achieved by a slightly off set second strike. Printing speeds vary from 15 to 55 characters per second. Although the speed is slow, it is primarily used where print quality is more important than speed.

(7 marks) (ii) Dot matrix printer: This is the most commonly used printer in the microcomputer system. A set of

small pins is arranged in a vertical matrix. The matrix moves along the line of paper to print each character which is individually shaped by selected pins being pressed into the paper through an inked ribbon. The main advantages are: there is greater speed of printing up to 400 characters per second, and the character styles are wider with software control allowing a greater variety of character styles. The disadvantage of dot matrix printer is that print quality is not as high as with the impact printer. It is used where volume of report to be printed is high and speed is important.

(7 marks)

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INTRODUCTION TO BUSINESS FINANCE

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A GENERAL OVERVIEW This is the last time this introductory course will be examined by the institute. The question, marking scheme and Examiner’s method of marking werein line with the syllabus and consistent with the standard of the previous diets.It was designed to give candidates an introduction to Business Finance. The time allowed for the paper and the instructions on the question paper were clear and adequate to ensure that the candidates had a good showing in the examination. The Examiners were not disappointed as all the eight (8) Candidates that sat for the paper passed.

B COMMENTS ON QUESTIONS

Being an introductory course as the title suggests, the questions were standard.They adequately covered the syllabus. Out of seven questions set candidates were expected to answer five. There was no compulsory question. It should be mentioned, however, that the standard expected on the subject to which this introductory course has been merged (Accounting and Business Finance at the Diploma level) is higher and broader both in terms of the quality of the questions and expectation of the Examiners from the candidates. It is therefore expected that the teachers and candidates would prepare harder to meet the requirements of that subject.

C EVALUATION OF SCRIPTS

The quality of the scripts was generally very good. However, candidates did better on the essay questions, e.g. Question 2 on ‘Sources of Short Term Fund\s and Question 5 on ‘Time Value of Money and its Application’. All candidates who attempted the two questions scored the pass mark. The Examiners were not impressed by the candidate’s reaction to questions that involved computation such as Question 4 on ‘Present Value’, Question 6 on ‘Financial Statement Analysis’ and Question 7 on ;Investment Appraisal. Candidates are therefore advised that building a successful career in Banking and Finance requires both numerate and linguistic skills - ability to explain clearly their understanding. They should therefore blend the two skills.

D COMMENT ON CANDIDATES’ PERFORMANCE

The subject recorded a 100% success rate.There was no candidate with a distinction pass. The candidates were commended for recording good showing in Questions2 and 5 where all candidates that attempted the questions passed. By comparison, it is unfortunate that more than half of the candidates that attempted Questions 4, 6 and 7 could not score the pass markin the respective questions. Candidates are urged to prepare better on therelevant sub-topics.

E ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES

Total No. of Candidates

No. of Dist

No. of Passes

Total No. of Passes

Pass Rate

Failure F1 F2 Total

8 - 8 8 1000% - - - -

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F ANALYSIS OF ATTEMPTS PER QUESTION

Q. No.

No. of Candidates

Dist Pass Total Pass

% Failure

F1 F2 F3 Total % Failure

1 5 1 2 3 60% - 2 - 2 40% 2 7 5 2 7 100% - - - - - 3 5 1 3 4 80% - 1 - 1 20% 4 7 2 1 3 42.9 1 1 2 4 57.1% 5 7 2 5 7 100% - - - - - 6 5 1 1 2 40% - - 3 3 60% 7 4 1 - 1 25% 1 1 1 3 75%

Presented below are the question-by-question analysis of candidates’ reaction to the questions and the suggested answers to each question. Question 1 Briefly distinguish between Ordinary Shares and Debt Capital.

(20 marks) Comment This was an essay question. It was attempted by about 63% of the candidates that sat for the paper, 60% of whom scored the pass mark. The performance was rated above average.Candidates are to note that the advantage from debt being tax deductable arose from the fact that it is included in the expenses before arriving at profit before tax. Further, although debt is regarded as a cheap source of fund which is good when the profit is high, in period of 1ow profit, the use of debt becomes counterproductive asreturns to ordinary shares become low, and the debt capital increases the risk of liquidation. This is because it is compulsory for the firm to pay the interest, whether profit is made or not. Answer

Ordinary Shared and Debt Capital Distinguished (a) Ownership: Ordinary shareholders are the owners of the firm, unlike Debt Capital holders who are

regarded as creditors to thefirm. (b) Rights: Ordinary shareholders have the right to vote at Annual General Meetings unlike Debt

holders who may only attend meetings when the payment of their interest or principal is in arrears. (c) Claims on Income: Debenture/ Debt capital holders have a claim to Interest on debenture and will

be paid in all circumstances, whether there is profit or not. Shareholders get a portion of the profits called Dividends on the profit of the firm. Dividends may not be paid if the company is making a loss and can only be paid at the discretion of the directors.

(d) Seniority: Bond holders are always settled first before equity holders are paid dividends. In the case of liquidation, the claims of shareholders are also subordinated to those of Debt holders

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(e) Risk: From the investor’s perspective, shares represent a riskier bet in the company. Ordinary shareholders are risk-takers. In the case of liquidation, the claims of shareholders are subordinated to those of debt capital holders and they may not be paid anything.

(f) Cost of Funds: Debenture/ Debt Capital is regarded as a cheaper source of funds when compared with shares. The more debt the company employs the riskier the business is from the shareholders’ perspectives and so will require more compensation for taking the risk-(Risk –return trade-off).

(g) Maturity: There is maturity period for bonds or debt unlike equities. / shares. (h) Conversion: Shares cannot be converted into debentures, whereas debt capital (debentures) can

be converted to shares. Convertible debentures/debt capital can be issued which can be converted into shares at the option of the debt holders.

(i) Tax Treatment: Interest payments on debts are treated as tax-deductable expenses for the purpose of tax computation Dividend payment to equity holders is not tax-deductable.

(j) Issue at Discount: Debentures / Debt Capital can be issued at a discount. but there are legal restrictions on issue of shares at a discount. (20 marks)

Question 2 Write short notes on the following as sources of short-term funds: (i) Trade Credits (4 marks) (ii) Factoring (4 marks) (iii) Bank Overdraft (4 marks) (iv) Bankers Acceptance (4 marks) (v) Commercial Paper (Total = 4 marks) Comment The question was attempted by seven (7) (or 87.5%) of the eight (8) candidates that sat for the paper. All the candidates scored a pass mark in this question. Five (5) candidates (or 71.4%) distinction. The attempt was rated quite satisfactory. However, the performance ratings would have been better if some candidates’ understanding and presentation on Commercial Paper and Bankers Acceptance were adequate. Answer Notes in the following (i) Trade Credits: These facilitate the purchase of supplies without immediate payment .Goods or raw

material can be bought on credit for a period; conversion and eventual sales take place thereafter before payment of the trade credits. This provides a source of finance. From another perspective, trade credits are used by a supplier to encourage sales and at times a supplier will give a discount if the customer pays within a certain period of time. Trade credits are granted to those customers who have reasonable amount of financial standing and good will.

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(ii) Factoring: This is a type of debtor finance in which a business sells its account receivables (i.e.

invoices) to a third party (called a factor) at a discount. The firm thus involves turning over the responsibility for collecting its debt to a specialist/Institution called the Factor.The firmreceives payment on the discounted invoices before the specialist collects the debt. Factoring is not the same as invoice discounting (which is called Assignment of Account Receivables). Factoring is the sale of receivables whereas invoice discounting is considered a borrowing that involves the use of the account receivable assets as collateral for the loan.

(iii) Bank Overdraft: This is an extension of credit from a lending institution (bank)when an account

reaches zero. It is a short term credit facility given by a bank for the duration of not more than one year. This facility is only available to the current account customer of a bank and is given at a stated rate of interest. It usually does not require collateral and is available to individuals and corporate entities. A customer that is granted an overdraft facility can withdraw from his account or issue cheques more than the amount in his favour up to a certain limit. Interest is paid on the outstanding balance of an overdraft.

(iv) Bankers’ Acceptance: This is a short-term debt instrument. It is a promised future payment, or time

draft which is accepted and guaranteed by a bank and drawn on a deposit at the bank. The Bankers’ Acceptance specifies the amount of money, the date, and the person to whom the payment is due. After acceptance, the draft becomes an unconditional liability of the bank.

It may further be explained as a bill of exchange drawn by a customer on a banker (financially stable bank). The bill is accepted by the bank, hence the title ‘Bankers Acceptance’. Once accepted by the first-class bank, the bill is ready for discounting with another bank or finance company to provide the funds needed. Bankers’ Acceptance is commonly used to finance import / export trade transaction, and has a tenor of 180 days. It makes a transaction safer between two parties who do not know each other because it allows the parties to substitute the bank’s creditworthiness for the one who owes the payment.

(v) Commercial Paper: This is an instrument issued by a large company (blue-chip) to raise short-term

finance from the money market. It is usually issued by a bank on behalf of its customers and sold at a discount so that the buyer obtains return on his investment upfront. The company can then pay the fixed amount on the maturity date specified on the notes. Commercial paper has a tenor of 90 days and can be rolled over twice after issue. This makes its maximum tenor to be 270 days. Typically, the longer the maturity date on a note, the higher the interest rate the issuing institution pays.

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The following advantages may be claimed for using commercial paper: • High credit rating fetches lower cost of capital. • Wide range of maturity provides more flexibility. • It does not create any lien on the company’s asset. • Tradability of commercial paper provides investors with exit option.

Commercial paper has the following disadvantages:

• Its use is limited to blue chip company. • Issuance of commercial paper brings down bank credit limit. • Stand-by credit may become necessary. • A high degree of control is exercised on the issue of commercial paper.

Question 3 Senama is considering investing in two securities which have the following returns and risk relationships: Security A Possible Returns % -10 5 20 35 50 Probability of Occurrence 0.1 0.2 0.4 0.2 0.1 Security B Possible Returns % 5 -15 35 50 25 Probability of Occurrence 0.3 0.1 0.2 0.3 0.1 (I) You are required to calculate the expected risk of each security.

(15 marks) (II) Briefly distinguish between Risk and Uncertainty. (5 marks) (Total = 20 marks) Comment This question on risk was divided into two parts. Part (i) is a simple computation on the expected risk of two securities; which can be measured using Standard Deviation; while part (ii) tested the distinction between risk and uncertainty. The candidates made a very good attempt at the question. Five (5) (or 62.5%) of the candidates attempted the question, and 4 candidates for 80% scored pass marks. One (1) candidate (or 20%) presented excellent responses and passed at distinction level; One (1) candidate could not secure a pass mark in the question.

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Answer Senama (i) Calculation of Expected Risk Security A Return

X Prob. X X-X (X-X)2 P (X-X)2 -0.10 0.1 -0.01 -0.30 0.090 0.009 0.05 0.2 0.01 -0.15 0.0225 0.0045 0.20 0.4 0.08 0 0 0 0.35 0.2 0.07 0.15 0.0225 0.0045 0.50 0.1 0.05 0.30 0.090 0.009 X = 0.20 0.028 Standard Deviation = P(X-X)2

= 0.028 = 0.1673 = 16.73% (7 ½ marks) Security B X Prob. X X-X (X-X)2 P(X-X)2 0.05 0.3 0.015 0.195 0.038 0.0114 -0.15 0.1 -0.015 0.395 0.156 0, 0156 0.35 0.2 0.07 0.105 0.011 0.0022 0.50 0.3 0.15 0.255 0.065 0.0195 0.25 0.1 0.025 0.005 0.000 0.0000 X =0.245 0.0487 Standard Deviation = P(X-X)2 = 0.0487 = 0.2207 = 22.07% (7 ½ marks) (ii) Risk and Uncertainty Risk can be explained to mean a situation in which there are known probabilities (both subjective and objective) for potential outcomes. The decision maker is assumed to be aware of all possible future states of nature which may occur and affect relevant decision parameters.

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Uncertainty, on the other hand, is defined as a situation in which such probabilities are either unknown or cannot be accurately estimated. (5 marks) Question 4 (i) Bandwidth is a beneficiary in the Trust established by Mabayoje Foundation. Under the trust, she is

to receive N25, 000.00 annually in perpetuity at the end of each year. You are required to compute the present value of this annuity if investment can be done at 25%. (8 marks)

(ii) Write short notes on the following: (a) Annuity (3 marks) (b) Perpetual Annuity (3 marks) (c) Annuity Due (3 marks) (d) Ordinary Annuity (3 marks) (Total = 20 marks) Comment The question was attempted by seven (7) (or 87.5%) of the candidates. It was divided into two parts. The part (i) involves computation to determine present value of annuity. The candidates who knew the formula and its application did well in this part of the question. However, the part (ii) which was an essay question did not produce good responses as many candidates described annuity only. The overall effect was that out of the seven (7) candidates that attempted the question, only three (3) secured a pass mark, with one (1) making the pass at distinction level. Four (4) candidates failed with half of them producing woeful scripts and obtaining F3 results. Answer (i) Calculation of present value of perpetual annuity PV = A r Where PV = Present Value of Perpetual Annuity A = Annual Payments r = Interest Rates PV = N25,000 0.25 PV = N100,000 (ii) (a) Annuity: This can be explained to mean equal receipts and payments over a period of time

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(b) Perpetual Annuity: This is equal payment or receipt into perpetuity without an end. It is given by the formula PV = A R

(c) Annuity Due: This is equal payment or receipts at the beginning of a year. It is given by the formula FV = K (1+r) (1+r)n r

(d) Ordinary Annuity: This is equal payment or receipt received at the end of a year. It is given by the

formula. FV = K (1+r)n-1 r

Question 5 (i) Briefly explain what you understand by “Time value of money”. (10 marks) (ii) How does this concept apply to the process of Compounding and Discounting? (10 marks) (Total = 20 marks) Comments This was an essay question on Time value of money, and the process of determining its effect on the value of money -that is, compounding and discounting. It was attempted by 87.5% of the candidates and all of them secured pass marks; with two (2) |(or 26.8%) making the pass at distinction level. The overall assessment of the performance was adjudged ‘Very Good’. Answer (i) Time Value of Money

This is the notion that money in the present is worth more than some amount in the future. This is attributable to inflation, missed opportunities and the risk of default. One Naira today is worth more than one Naira in the future. This is so because the owner of one Naira can invest it in a profitable investment or put it in a deposit account that will give him a return. The key components of time value of money are future value and present value. (10 marks)

(ii) Compounding and Discounting The concept of future or compound value involves the application of compound interest rate to a present or initial sum of money that will materialise in some future amount.

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It is the sum to which the initial amount of money or principal will group over a number of years, when interest is earned at a rate per annum. The higher the value of interest, the faster the rate of growth of the initial amount of money or principal. The concept of discounting or present value is the inverse of compounding. Discounting helps the decision maker to determine the present value of a future amount, assuming he has an opportunity cost to earn a certain return on the money. This return is also known as the discount rate, required return, cost of capital or opportunity cost. (10 marks)

Question 6 Cherish Plc. Statement of Financial position as at the year ended December 31, 2012. Fixed Assets N000 N000 Property, Plant and Equipment 2276 Other Financial Assets 98 2374 Current Assets Stock 289 Debtor 503 Marketable Securities 68 Cash 363 Total Assets 1223 3597 Equity and Liabilities Equity Ordinary Shares 191 Preference Shares 200 Reserves 428 Retained Earnings 1135 Shareholders’ Funds 1954 Non Current Liabilities Long-erm liabilities 1023 Current Liabilities Creditors 382 Bank Overdraft 79 Long-term loans 159

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620 Total Equities & Liabilities 3597 Extract of Revenue Account ‘’000 Sales 3,074 Cost of Sales 2,088 You are required to calculate the following: (i) Net working capital (4 marks) (ii) Current Ratio (4 marks) (iii) Quick Ratio (4 marks) (iv) Stock Turnover (4 marks) (v) Debt Equity Ratio (4 marks) (Total = 20 marks) Comments This question tested Ratio Analysis -a very important sub-topic in Business Finance that has wide implication on career progression of bankers. A good knowledge of the sub-topic will also aid easy qualification in the institute’s examination because of the relevance to other core courses in the institute’s qualifying curriculum. It was attempted by 87.5% of the candidates that sat for the examination. Two (2) (or 20%) of the candidates passed at distinction level. Another 2 (or 20%) passed ordinarily. The three (3) candidates (or 60%) that failed presented woeful answers and scored F3 marks. This suggests that candidates have not mastered this important topic and that those who cared to were amply rewarded. Performance in the question was rated below average. Candidates are advised to note the classification, formula and explanation of the basis for computing the various ratios. Answer Cherish Plc (i) Net Working Capital

Current Assets - current liabilities N1,223, 000 – 620,000 = 603,000

(ii) Current Ratio Current Assets Current Liabilities = 1,223,000 620,000 = 1.97 times (iii) Quick Ratio

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= Current Assets – Stock Current Liabilities = 1,223,000 – 289,000 620,000 = 1.51 times (iv) Stock Turnover = Cost of Goods Sold Average Stock of Inventory = 2,088,000 289,000 = 7.2 Times (v) Debt/Equity Ratio = Long-Term Debt X 100 Shareholders Funds 1

= 1,023,000 X 100 1,954,000 X 1 = 52.4% Question 7 (a) Wealth Basket Microfinance Bank Limited has two loan applications with the following cash flows: Year 0 1 2 3 4 Loan A - N15, 000 4,939 4,939 4,939 4,939 Loans B - N 35,000 11,525 11,525 11,525 11,525 Both loans attract a 12 per cent interest rate and are amortised annually over a four-year period. if the cost of funds is 8%, you are required to determine the value created with the use of the Net Present Value Method. (15 marks) (b) What are theadvantages of the Net Present Value project appraisal method? (5 marks) (Total = 20 marks) Answer

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(a) Wealth Basket MicroFinance Bank Limited Calculation of Net Present Value

Loan A Yr Amount Present Value N 0 (15,000) 1 (15,000) 1 4939 0.9250 4574 2 4939 0.8574 4235 3 4939 0.7939 3,921 4 4939 0.7351 3631 N.PV - N 1,361

Loan B Yr Discount Present

N Factor @ 8% value N 0 (35,000) 1 (35,000)

1 11,525 0.9260 10,672 2 11,525 0.8574 9882 3 11,525 0.7939 9150 4 11,525 0.7351 8422 N.PV - N 3,176 (ii) Advantages of the Net Present Value method of project Appraisal

• It recognises the Time Value of money. • NPV give absolute measure of profitability which immediately reflects in the shareholders’ wealth. • It gives a clear accept/reject recommendation. • It uses all cash flows over the project life. • NPV for several projects can be added up. • It can be adjusted for inflation.

Comment This question tested investment appraisal. It was the least popularly attempted question in the examination by only 50% of the candidates that sat for the paper. The only candidates that secured a pass mark made it at distinction level. This suggests that he knew what he was doing. Candidates’ performance was rated below average. CONCLUSION The100% pass rate observed was quite satisfactory and pleasing to the Examiners. However,the fact that there was no candidate with a pass at distinction level and that the candidates did better on the essay aspects of the questions undermine this success rate and shows that the preparation towards the examination was not thorough enough. Candidates are therefore advised to prepare better for the next examination in the new syllabus which is Accounting and Business Finance at the Diploma level. The syllabus of the new subject is broader and the quality of the questions and expected responses from candidates should be higher than the current syllabus which is an introductory certificate level course.

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Candidates and the teachers are also expected to note the weak areas pointed out in the body of this report.

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INTRODUCTION TO BUSINESS LAW & ETHICS

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A. General Overview a. Syllabus Coverage; The paper covered the syllabus very comprehensively. b. Adequacy of Time; Three hours, amounting to an average of 36 minutes per question is

quite adequate for anybody that prepared well for the examination. c. Number of Questions; Given the limited amount of time available, five (5) questions, that

have consistently been the norm over the years, are just enough and should be retained. d. Instructions to Candidates; The instructions to candidates are very clear and quite easy to

follow.

B. Quality of Questions For a diploma level examination, the quality of questions is very adequate. C. Evaluation of Scripts The standard of evaluation of the scripts is very high and should be maintained and even improved upon. D. General Comments on Candidates’ Performance The overall performance of candidates at 85% is above average, although there is a lot of room for improvement as most of the passes were marginal. E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES

Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rates in %

Fail 1 Fail 2 Fail 3

8 Nil 6 75% - - 2

F. ANALYSIS OF ATTEMPTS PER QUESTION Question

No. Total No. of

Candidates that attempted Question

No. of Distinctions

No. of Passes No. of Failures

1 3 - 1 2 2 7 - 4 3 3 5 - 4 1 4 4 - 3 1 5 5 - 2 1 6 6 - 4 2 7 5 - 2 3 8 5 - 3 2

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EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS. SECTION A Question 1 (a). ‘Common Law’ is one of the key sources of law in Nigeria. Briefly discuss the characteristics and problems of Common Law. (10 marks) (b). Equity provides a wide range of doctrines /maxims for the attainment of Justice. List at least 10 equitable maxims known to you. (10 marks) (Total =20 marks) Comment This question on common law and equity is a traditional one that featured in almost every past diet. It is therefore surprising that only three (3) of the eight (8) candidates or only 36% attempted the question, out of which only one (1) or only a mere 13% passed. Training instructors should sharpen their techniques to ensure their students understand these very elementary questions. Answer

(a) Common law is based on judicial precedents, otherwise known as ‘stare decisis’ which means ‘stay by the decision’. It is therefore not surprising that common law becomes rigid over time.

The characteristics and problems of common law are as follows: (1) Common law is very rigid. (2) Although it provided answers to a wide range of legal problems, it was however deficient in many

areas. (3) It was difficult to amend. (4) There were insufficient writs or court documents to meet the various conflicts in the state amongst

litigants. (5) It was full of technicalities and rules. (6) There was a prevalence of corruption in the issuance of royal writs to file petitions in common law

courts, by court officials. (7) Decisions were based strictly on precedents, a previous decided case or authority based on the

same facts or similar material facts with the instant case. (8) Strict reliance on technicalities may rob one of justice in a good case. (b) Maxims of Equity. (1) Equity will not suffer a wrong to be without a remedy or where there is an injury, there is a remedy,

‘ubi jus ibiremedium. . (2) Equity follows the law. (3) Where the equities are equal, the first in time prevails. (4) He who seeks equity must do equity. (5) He who comes to equity must come with clean hands. (6) Delay defeats equity. (7) Equity looks at the intent rather than the form. (8) Equity regards as done that which ought to have been done. (9) Equity imputes an intention to fulfil an obligation. (10) Equity acts in personam.

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(11) Equity will not allow a statute to be used as an engine of fraud.

Question 2 (a). Acceptance of an offer is the act which completes a contract … and binds the two parties’. List the principal elements of ‘Acceptance’ in the Law of Contract. (5 marks) (b). ‘Acceptance’ by post is assumed to have taken place on the day the letter was posted and it is immaterial whether or not the offeror confirms its receipt thereof. Mention the exceptions to this rule that are known to you. (5 marks) (c). Contracts can, amongst other methods, be classified according to their legal effects, namely; (i). Valid (ii). Void. (iii). Voidable (iv). Illegal (v). Unenforceable Write short explanatory notes on each of the above classes of contract. (10 marks)

(Total = 20 marks) Comment This question on one of the popular elements of contracts, “acceptance”, turned out to be a very popular one as seven (7) out of the eight (8) candidates or 88% attempted it, although only four (4) or 50% passed. This is a very obvious question that every first-year business law student is supposed to have passed easily, leading perhaps to a situation where candidates may have taken the topic for granted. Both teachers and students should never make the mistake of taking any topic for granted, no matter how “ordinary” it may appear to be. Answer

(a) Elements of Acceptance 1. Acceptance must be unconditional; else it becomes a counter-offer. 2. Acceptance must take place before it is revoked by the offeror. 3. Acceptance must be communicated to the offeror before it becomes effective. 4. Where acceptance is made by post, acceptance is deemed to take place the date the letter was

posted, 5. Acceptance creates a binding contract between the offeror and the offeree. 6. Where the method of acceptance was expressly specified by the offeror, then such a method must

be adopted. 7. However, where no specific method is stipulated by the offeror, then the offeree can communicate

to the offeror, within a reasonable time, by reasonable means. 8. Any attempt to vary the terms of the offer nullifies its validity.

(b) Exceptions to the Rule of Acceptance by Post. 1. It will not apply where the terms of the offer either expressly or impliedly indicate that the acceptance must get to the offeror personally. 2. It will not apply where the application of the tule will result in manifest inconvenience and /

or absurdity.

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3. Where the letter of acceptance is wrongly addressed, and / or inadequately stamped. 4. Where the letter was not properly posted.

(c) Types of Contract.

1. Valid Contract; A valid contract is simply a contract of full legal force and effect, not vitiated in any way whatsoever.

2. A void contract is one where one or more of the requirements of a valid contract, are absent, or where even if all the legal requirements are present, the law disapproves of its purpose or the means by which it seeks to achieve the purpose. For example a wagering contract.

3. A voidable contract is a contract which, inits inception, is valid and capable of producing the result of a valid contract, but which may be avoided, i.e. rendered void at the option of one of the parties.

4. Illegal Contract; A contract that is contrary to criminal law, although a contract can as well be illegal without contravening the criminal law; while a void contract is not necessarily illegal, an illegal contract is always void.

5. An unenforceable contract is a contract that may be complete and regular on the face of it, but lacks legal validity owing to one technical defect or another other. For example, a contract of guarantee by law is required to be in writing and will not be enforced ina law court, if this requirement is not fulfilled.

Question 3 (a) Two common methods of raising funds by limited liability companies (LLCs) are through the issuance of shares and debentures. Briefly discuss these two methods respectively. (8 marks) (b) Briefly discuss three types of each of shares and debentures, respectively. (12 marks) (Total = 20 marks) Comment This question which dwelt on the method of fund raising by limited liability companies could not have been more apt. Five (5) persons or 63% of the candidates who registered to sit for average performance the paper opted to answer the question out of which only four (4) passed , an average performance indeed. Candidates should redouble their efforts so as to record improved performances in the years ahead. Answer (a)(i) SHARE

Section 650 (1) of CAMA defines ‘Share’ as ‘the interest in a company’s share capital of a member, who is entitled to a share in the capital or income of such a company and includes stock’. A shareholder is therefore a proportionate owner of the company but he does not own the company’s assets which belong to the company as a separate and independent legal entity. Debenture This has been defined as ‘ … an instrument issued by a company, normally but not necessarily, called on the face of it, a debenture and providing for the payment of or acknowledging the indebtedness of a specified sum…’ In common ordinary parlance, these are papers issued to lenders to show that they have lent money to the company.

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(b) Types of Shares (i). Ordinary Shares; These are shares which have no specified rights. They are in the main risk bearers and absorbs most of the losses that may occur in a bad year. In like manner, they enjoy the bulk of the profits in a good year.

(ii) Founders’ or Deferred Shares; The promoters of companies or vendors who sell their businesses to a company may take shares that give them special rights. These shares are called founders’ or deferred shares. They rank in priority after the ordinary shares and bear and enjoy the bulk of the losses and profits respectively. (iii) Preference Shares; A share by whatever name designated,which does not entitle the holder to participate beyond a specified amount in any distribution, whether by way of dividend or capital in the event of a winding up, or otherwise. For example, withregard to dividend, it is entitled to a specified percentage, such as 7% of the investment, even if no dividend is paid to the ordinary shareholders.

Types of Debentures.

(i) Registered debentures payable to the registered debenture holder. (ii) Bearer debenture payable to bearer. (iii) Perpetual debenture made ‘irredeemable or redeemable on the happening of a contingent

event, however remote, or on the expiration of a specified period, however long…’ (iv) Convertible Debentures: These are issued ‘… upon the terms that in lieu of redemption or

repayment, they may at the option of the holder or the company, be converted into shares in the company upon such terms as are stipulated in the debenture.

(v) Secured Debenture: One which is secured by a charge over the company’s property by way of a fixed charge over the whole or a specified part of the company’s undertaking and asset or by way of a fixed and / or floating charge on the movable property of the company.

(vi) Naked Debenture: A debenture not secured by any charge whatsoever. Question 4 The collection, discounting and payment of negotiable instruments form a substantial part of the work of a bank. (i). Briefly discuss five essential elements (characteristics) of a Negotiable Instrument known to you. (10 marks) (ii). Name five principal types of Negotiable Instruments which are encountered in modern banking practice today. (5 marks) (iii) What is a quasi-negotiable instrument? Give at least five examples of quasi – negotiable instruments that you are familiar with. (5 marks) (Total = 20 marks) Comment Only four (4) persons, or 50% of the eight (8) candidates that registered for this paper, attempted the question, three (3) of whom passed, a not-too-impressive performance. There is therefore the need to adopt a more serious approach to both the teaching and learning of this and other subjects in the Institute’s examinations at all levels, so as to improve on this pedestrian performance in the future.

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Answer (i) Characteristics Of Negotiable Instruments.

1. The instrument and the rights which it embodies are capable of being transferred by delivery, either with or without endorsement, depending on whether the instrument is in favour of “ORDER” or “BEARER”; an instrument thus transferred is said to be negotiated.

2. The person to whom the instrument is negotiated can sue on it in his own name. 3. The person to whom a current and apparent regular negotiable instrument has been negotiated who

takes it in good faith and for value, obtains agood title to it, even though his transferor has a defective title or no title at all. Unless an instrument possesses the three characteristics mentioned above, it is not a negotiable instrument. Certain points arising out of these characteristics require further comments.

4. Notice to the person liable on the instrument is not necessary. 5. Consideration is presumed to have been furnished for the instrument. 6. They are a chose in action which can be enforced by action in a law court.

(ii) Types of Negotiable Instruments.

1. Bills of exchange, which include cheques 2. Promissory Notes which include bank notes. 3. Banker’s Drafts. 4. Treasury bills. 5. Travellers’cheques. 6. Bearer bonds. 7. Warehouses keepers’ warrants.

(iii)Quasi-Negotiable Instruments There are some instruments which possess the first two characteristics of a negotiable instrument. In other words, they are taken subject to defects inherent in the rights of the previous holder or holders. Question 5

(i) Under normal circumstances, agency relationship is brought about by way of express agreement between he principal and the agent. However, in certain situations, the relationship can be implied. Discuss. (10 marks)

(ii) The contractual relationship which exists between a banker and a customer is a complex one, the implied terms of which would, if reduced into writing, run into several pages. One of such implied terms is that of Agency. Discuss briefly situations in which the banker acts as his customer’s agent. (10 marks) (Total = 20 marks)

Comment This question on agency is a very typical one featuring almost in every diet in one form or the another. It is therefore very disappointing that only five (5) of the eight (8) candidates attempted the question, out of which only a miserable number of 2, or a mere 25%, passed. Efforts must be intensified to reverse this rather ugly trend in future diets.

Answer

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(i) Implied Agency. The relationship, like all other contracts,is usually brought about via express agreement which includes writing, word of mouth, (parole) under seal, etc. However, agency relationship can be Implied in the following situations:

(1). Conduct of the parties. If the natural consequence of one’s conduct is to portray another as his agent, estoppel will prevent him from denying the agency. If a third party had relied on his conduct to deal with the agent, for example, partners. (2). Cohabitation; For example, a man and a woman living together. (3). Necessity; Emergency situations may give rise to agency. (4). Ratification. (5). By operation of the law.

(ii)The Banker as Agent of the Customer. (1) When the bank acts as a collecting bank for the collection, clearing and payment of customers’ cheques, dividend warrants and other instruments. Thus, the banker to whom a cheque is delivered for collection is under a duty to his customer to use reasonable diligence in presenting it for payment.

(2). When a banker opens a letter of credit and bills for collection for a customer in a foreign trade transaction. (3). When a banker purchases shares on behalf of a customer. (4). When a bank acts as executor / trustee. (5). When a bank implements a customer’s standing order to settle recurring bills.

SECTION B Question 6

(i) ‘Ethics and professionalism are the bedrocks of trust and honesty, which constitutes the pillar on which banking is built’ Femi Ekundayo, Past President CIBN (2008). Discuss. (10 marks)

(ii) Enumerate five (5) tangible benefits accruable to bank customers under a regime of sound ethics and professionalism in the banking industry. (10 marks) (Total = 20 marks)

Comment This question on Ethics and Professionalism is a general knowledge question that any person that keeps abreast of current affair, is expected to pass very well. A pass rate of 50% is therefore most unsatisfactory and every step should therefore be taken to register a more encouraging pass rate in future examinations. Answer (i) Ethics and Professionalism. Professional ethics, in the context of banking business, encompasses a nexus of written and unwritten norms and best practices such as honesty, integrity, fairness, competence, customer satisfaction, loyalty, transparency, self-discipline, social responsibility, accountability, compliance, confidentiality, etc. Although the two concepts of ethics and professionalism are used interchangeably, they are by no means synonymous. Ethics emphasises professionalism, whilst professionalism deals essentially with competence and technical skills attached to an occupation. Thus, professional ethics may be defined as the standard of competence

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and practice or code of conduct required of those in a given calling or line of business or trade group, association or specialised occupation. In the above context, the code of conduct for bankers, enuntiated by the bankers’ committee, which also put in place a framework for its implementation, is very pertinent. Of course, the code of conduct provides only as a supplement to the legal framework, provided by law. Clearly, the Nigerian standard of banking practice, stresses professionalism, observance of laws, honouring of commitments and fairness in dealing with customers. A diligent pursuit of these codes and standards as well as the provisions of the various legislation will go a long way in bringing about a more mutually beneficial banker / customer relationship. (ii)Tangible Benefits of Professional Ethics Compliance (1). Sound and competent business advisory services. (2). Reasonable and fair lending and deposit rates. (3). Accurate,fair and lawful charges for services rendered. (4). Quick turnaround time for routine banking transactions. (5). Reliable and consistent business environment. (6). Inculcation of international best practices. (7) Reduction in incident of failed banks.

Question 7 There is evidence showing that banks engage in various forms of malpractice, either as a deliberatestrategy or in order to enhance their profits. The Regulatory Authorities have indeed confirmed this …’ Odozi, former Deputy Governor, CBN.

(a) Briefly discuss any five (5) common malpractices that banks in Nigeria usually indulge in. (10 marks)

(b) Briefly discuss the measures that have been put in place by the Regulatory Authorities to curb the incessant cases of malpractice taking place in the banking industry today. (10 marks)

(Total =20 marks)

Comments Malpractice in banks, being a sub-set of corruption in the wider society, should be a very populartopic. One had therefore expected all of the eight (8) candidates to attempt the question rather thanthe five (5) that actuallydid. Even more disheartening is the fact that only 3 of thesecandidates or an insignificant 36% managed to pass the question. It is therefore self-evidentthat a lot of work still needs to be done by all concerned. Answer (a) Common Malpractices in Banks (1) Conflict of interest; Engaging in extraneous activities which compete, interfere with

orconstrain a banker’s primary responsibility. (2) Insider Abuse: Improper granting of loans to directors, officers, managers and politically exposed persons.

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(3) Offer and acceptance of gratification in the course of discharging one’s duty to customers. (4) Non-compliance with circulars, guidelines and directives of the regulatory authorities. (5) Misuse of information received in the course of his duties as a banker. (6) De-marketing of other banks by deliberately peddling falsehoods about them. (7) Unreasonably high deposit target for female staff. (8) Breaching duty of confidentiality. (9) Deliberate rendition of inaccurate records / returns to the regulatory authorities. (10) Payment of brokerage to staff for attracting deposits and / or recovering of debts. (11) Non-observation of the provisions of the Bankers’ Tariff.

(b) Measures to Curb Malpractices in Banks The Bankers’ Committee, comprising the Governor of the Central Bank of Nigeria and the CEOs of

banks has put together a code of banking practice aimed at curbing and reducing all forms of malpractices and indiscipline in the banking industry to the barest minimum.

The Bankers’Committee established a committee on ethics and professionalism on the 19th of December, 2000, to give teeth to its determination to instil discipline in the banking profession. The sub-committee, after series of consultations in the industry, came up with the aforementioned code, containing a list of acts, conducts and omissions, classified as unethical, as well as establishing a procedure and frame-work for addressing all reported cases of misconduct as defined. The duties of the sub-committee, as defined in the code, include the following: (1). To develop a standard code of banking practice. (2). To consider complaints from the public and within the industry. (3). To consider complaints by banks against the regulatory authorities and vice versa. (4). To Recommend sanctions against any erring members to the Bankers’ Committee.

Question 8 The Companies and Allied Matters Act (CAMA), is one of the manylegislations aimed, amongst others, at bringing about good ethical practice and corporate governance in the business sector, including the banking and finance industry inparticular.

(a) Briefly discuss the duties imposed on company directors by the law. (10 marks) (b) List the information that this law mandates the company to make public regarding its directors.

(10 marks) (Total =20 marks)

Comment This question that tried to ascertain the level of knowledge of candidates on the duties of company directors is a very appropriate one, given that a preponderance of banks’ business customers are corporate bodies of one form or the another who function through human agents or “alter egos” known as directors. Five (5) candidates, or 63%, attempted the question, out of which three (3), or a mere 38%, passed. This is a very pedestrian performance, which trend must be reversed without delay.

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Answer (a) Duties of Company Directors (1) Company directors stand in a fiduciary relationship towards the company and shall

observe utmost good faith towards the company in any transaction with it or on its behalf. (2) They shall also owe fiduciary relationship, where they act as agents of the company. (3) They shall at all times act in the best interest of the company. (4) The directors shall also have regard to the interest of the company’s employees and

members. (5) They shall exercise their powers for the purposes specified in the memorandum. (6) Directors shall not fetter (compromise) their discretion to vote in a particular way. (7) They shall not in the guise of delegation, abdicate their responsibilities. (8) No provision in the articles of the company shall operate to absolve a directors of these

responsibilities. (9) Any duty imposed on a director by the law shall be enforceable against him. (10) The directors owe themselves fiduciary duties inter se. (11) Directors must exercise their duties for the benefit of the company. (12)They must not put themselves in a position of conflict of interest. (13)Theymust exercise due care and skill. (14)Theymust not engage in insider trading of any kind. (b) Publication of Information on Directors (1) Particulars of share and debenture holdings. (2) Particulars of directors and secretaries. (3) Particulars of directors must be displayed on official documents of the company such as

letter-heads etc. (5) Notification of change of directors to the Corporate Affairs Commission. (6) Register of directors’ shares and debentures. (7) Register of directors and secretaries.

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INTRODUCTION TO FINANCIAL ACCOUNTING

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A. GENERAL OVERVIEW This is the last time the syllabus of this introductory course in accounting will be examined. The

instructions guiding candidates in answering the questions were clear and unambiguous. The time allowed for answering four out of the six questions set was adequate. Candidates demonstrated reasonable knowledge of the syllabus, although there was no exceptional script that merited a distinction level. This shows that the candidates need to improve on knowledge of some specific areas highlighted in this report in ensuring better showing while preparing to sit for an accounting-based subject.

B. COMMENTS ON THE QUESTIONS The questions were adequately spread to cover the entire syllabus. They were standard and selected

to test candidates’ understanding of essential accounting foundation rudiments of the syllabus. Candidates were expected to answer four out of six questions. The questions were selected as follows:

Q1 - Accounting function and uses of financial statement Q2 - Accounting records and control – Bank reconciliation Q3 - Accounting for fixed asset, depreciation and disposal Q4 - Journal entries/Double entry book-keeping

Q5 - Final accounts of non-profit-making organisations – preparation of Income and Expenditure Account and Balance Sheet

Q6 - Stores Accounting using two most popular methods of issuing stocks - First In, First Out (FIFO) and Last In, First Out (LIFO).

EVALUATION OF SCRIPTS The quality of the candidates’ expression of knowledge in the tested areas was fair. The marking of the scripts was in line with the predetermined answer schematics. Some candidates performed excellently in Q2 on Accounting Records and Bank Reconciliation Statement and Q6 on Stores Accounting. The candidates got distinction level marks. No candidate attempted Q3 on Accounting for Fixed Asset; Depreciation and Disposal. COMMENTS ON CANDIDATES PERFORMANCE It is a pleasure to record that four candidates out of five (or 80%) of the candidates scaled through the examination by scoring the pass mark, although there was no candidate with a pass at distinction level. The only candidates that failed produced a woeful answer at the examination and scored F3. Apart from Q3 which no candidate attempted, the candidates did fairly well in all the questions as there was no question where half of the candidates did not score the pass mark.

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ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES Total No. of Candidates

No. of Distinctions

No. of Passes

Total No. of Passes

Pass Rate in Percentage

Failure F1

F2

F3

% Failure

5 - 4 4 80% - - 1 20% ANALYSIS OF ATTEMPTS PER QUESTION

Q Total No. of Candidates

No. of Distinctions

No. of Passes

Total No. of Passes

Pass Rate in Percentage

Failure % F1 F2 F3 Failure

1 4 - 2 2 50% - - 2 50% 2 5 1 3 4 80% 1 - 20% 3 - - - - - - - - - 4 3 - 2 2 66.67 - - 1 33.33% 5 3 - 2 2 66.67 - - 1 33.33% 6 6 5 2 1 60% 2 40%

Presented below is a question-by-question analysis of candidates’ performance and the respective suggested solution.

Question 1 (a) Discuss the various services provided by the Accounting function to an entity. (10 marks) (b) Identify FIVE (5) users of accounting information and state TWO (2) specific information required by

each user from financial statements. (15 marks) Comment The question was divided into two parts. Part (a) tested the objective of having an accounting function in an organisation while part (b) tested users and their uses of accounting information. These are introductory topics in accounting classes. The question was attempted by 80% of the candidates that sat for the examination, 50% or two candidates of whom scored the pass mark. The other 50% had F3 results, (woeful marks). The performance was rated average. It is surprising that many candidates could not explain services provided by the accounting function in an organisation in part (a), nor identify the users and give an explanation of the uses of accounting information effectively in part (b) .These were expected to be cheap questions but the candidates bungled it. Answer (a) The various services provided by the accounting function to an entity include the following

i. It provides a record of daily activities of the entity. ii. It enables businessmen and other interested parties determine the profitability or otherwise

of an enterprise.

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iii. It allows proper planning and control to be exercised on resources invested in a business venture, as in each department or segment of the market, e.g. through budgeting and budgetary control and performance appraised.

iv. It facilitates decision-making. v. It ensures proper accountability to the owners of the business. vi. It assists evaluation of future prospects of the company, e.g. investment appraisal, capital

budgetary control. vii. It provides information on the current financial position of an enterprise. viii. It enables evaluation of financial stability and the level of capital gearing, of a company. ix. It assists financial institutions (e.g. banks) in assessing the creditworthiness of an entity. x. It enables employees determine their job security, e.g. value-added statement. xi. It records, in a systematic manner, the transactions of an entity and reports on the

performance. xii. It provides the link with the financial public auditors, tax authorities and financial institutions. (b) Users of accounting information and information needs: Users Information Required (i) Owners (Managers) - Profitability to assess past performance

- Possibility of the business survival and continuity in operation - Future prospects based on present performance to include prospective market.

(ii) Shareholders (Owner s) - Operating performance to assess the efficiency of

who are not managers the management. - Whether or not to support or change the management. - Future prospects of business to know whether to retain ownership or sell their shares.

(iii) Management - To assess their performance.

- To decide whether to declare dividend – for incorporated enterprises (companies) - As a basis for detailed future planning.

(iv) Tax Inspectors - Profit to assess the tax liability of the business.

- To ascertain whether all income are properly disclosed. - As a basis for future estimation of projected tax revenue.

(v) Banks and Other Lenders - To assess company’s ability to continue in operation into

the future.

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- To establish the prospect of the business borrowing and its repayment obligation (if any) at due date

To review terms and conditions for further appraisal of bank/advances based on current financial position

(vi) Prospective -operating performance-to decide whether to invest Investors / potential in the business, or not Buyers of business -the possible price to acquire shares /part owner of the

business -action to be taken on acquisition-based on current value

of assets. (vii) Supplier -possibility of business continuity into the future- Actual / potential going concern Financial status-whether it can continue to honour

obligation and pay out liabilities -credit limit needed in the operations can sustain. (viii) Customers – actual and -size of operation to determine order to place Potential -appraisal of long and short term prospect of

company/business to continue in operation -Liquidity position to support credit sales-credit term on its

purchases (ix) Employees and -operating scale and performance and prospect of

Trade unions negotiating for higher remuneration, survival and future prospects of business

-security of employment based on strategic plan and future prospect of the business

(x) Researchers and Business -operating performance-to assess position in the Analyst industry and future prospects

-financial position-to value its shares or net worth for prospective buyers -to offer consultation services or advice in case of needs-in specific areas. Of the company’s assets, liabilities and ownership structure

(Total = 25 marks) Question 2

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(i) Why do business enterprises prepare bank reconciliation statement at regular interval? (ii) Identify and describe the FIVE documents needed by a business entity to initiate banking

transactions in order to ensure that they are not omitted from its cash books and other ledger accounts.

(iii) The bank statement of Tidbits Enterprises at the end of July 2014 reveals a credit balance of

N47,650 while the company’s cash book has a credit balance of N26,000. After a thorough investigation, it was discovered that the following transactions were responsible for the difference.

(a) Cheques issued to customer for N51,000 has not been presented for payment.

(b) Bank charges for the month of N4,500 has been debited by the bank but not yet recorded in the cash book.

(c) A standing order for insurance premium of N 21,000 which appeared in the bank statement has not been posted into the cash book of the company.

(d) Cheques of N21,250 deposited on July 30 2014 has not been credited by the bank. (e) A cheque received from a customer for N12,000 in settlement of his account which was paid

into the bank on July 29, 2014 was dishonoured and attached to bank statement sent to the company on August 1, 2014.

(f) A customer (Happy Stores) paid in a sum of N45,600 by direct transfer into the company’s bank account in settlement of its outstanding balance.

Required: Prepare the bank reconciliation statement and adjusted cash book to reflect the above transactions

as at July 31, 2014. (10 marks) (Total = 25 marks) Comment This question which tested accounting controls around cash was divided into three parts. All the five (5) candidates that sat for the examination attempted the question. Part (i) is a textbook question. It requested candidates to provide reasons for preparing bank reconciliation statement. Like many questions whose answers can be provided by reading the textbook, performance in this part of the question was very good. Part (ii) was an application question. Candidates had problems in identifying and describing documents necessary for banking transactions. Some candidates failed to realise that not all source documents or subsidiary books like the Day books are relevant for the purpose of answering the question. Candidates are therefore advised to tailor their answers to the requirements of every question. The performance in this part of the question was average. Part (iii) required candidates to prepare Adjusted Cash Book and Bank Reconciliation Statement.

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Questions on Bank Reconciliation Statement are always attractive and popular, The performance in this part of the question was above average. The overall assessment revealed 80% pass rate as four out of the 5 candidates passed; and one of them (or 20%) secured the pass at distinction level. The only candidates that failed had F3 score. Answer (i) Business enterprises prepare bank reconciliation statements at regular intervals (usually monthly)

to: - ensure that all cheques deposited into the bank account has been credited by the bank or not. - identify cheques issued to customers but not yet presented for payment. - ascertain if all standing orders in the bank have been carried out and the amount of each transaction

to identify any direct payment into the company’s bank account, the source and amount involved. - note for recording all charges by banks for the cost of running the account. - record in the cash book all transactions which have been recorded and reflected on the bank

statement but not previously known to the company. - prepare a reconciliation statement that puts the balance on the cash book in agreement with the

figure on the bank statement. (ii) The document’s necessary for initiating banking transactions to record in cash book are: (a) Deposit Slip- A document used in making deposit to the bank. It must be completed with Account

Number, Depositor’s Name, Depositor’s Phone Number, Date and Amount Paid into the bank (b) Cheque Stubs- A part of the cheque left in the cheque book. It contains all the filled-in information in

the cheque including the date, amount and payer. (c) Payment Voucher- Internal document that must be completed to initiate and provide for approval as

authentic evidence on legality of the transaction-payment made (d) Receipts- Internal document issued in respect of cash or cheque payment before lodgment into the

bank. It is used to initiate entries in the debtor’s (customer’s) account and cash book (banks) if cheque.

(e) Bank Statement- Official document issued by the bank on an account held with the bank to give the

detail of transaction in the account during the month. It is the main document for the preparation of adjusted cash book figures and bank reconciliations statement.

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(iii) Books of Tidbits Enterprises

Cash Book (Adjusted) N N Happy stores (direct payment) 45,600 Balance b/d 26,000 Balance c/d 17,900 Bank charges 4,500 Insurance (premium) 21,000 Debtor (Distribution cheque) 12,000 63,500 63,500

Bank Reconciliation Statement as at July 31, 2014 N Balance as per Bank Statement 47,650 Add-Un credited cheques 21,250 68,900 Less-Un presented cheque 51,000 Balance per cash Book Ledger 17,900 Question 3 Ekene Obangiji is a transporting company which has its accounting year from 1st January to 31st December. The company purchased the following assets on the dates and at the amount stated below: Asset Date of Purchase Amount N Office Building 18/01/04 1,500,000 Vehicle 1 18/05/04 600,000 Vehicle 2 21/11/05 700,000 Vehicle 3 05/02/06 150,000 i) In 2005, N100,000 was spent on the office building to acquire legal right over the property and

N20,000 was spent on its renovation. ii) Vehicle 1 was deemed to have a scrap value of N100,000 after an expected useful life of four (4)

years. Depreciation was provided using straight line basis. On 20/11/06, the lorry was sold for N300,000 after purchasing vehicle 3.

iii) Other vehicles were depreciated using 25% reducing balance while the office building was

depreciated using 5% straight line basis.

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iv) It is the policy of the company to provide a full year’s depreciation in the year of acquisition of an

asset and none in the year of disposal. v) N42,000 fuel was purchased per quarter of a year for each vehicle. You are required to prepare: a) Asset Account b) Provision for Depreciation Account for the years to 31st December, 200, prepared for each asset type

separately to the nearest Naira. c) Asset Disposal Account d) An extract from Statement of Financial Position as at 31st December, 2007and show all workings. (25 marks) Comment

The question was on Fixed Asset accounting. It was designed to test candidates’ knowledge on double entry bookkeeping as applicable to preparation and maintenance of fixed asset, Provision for depreciation account; Asset Disposal Accounts and effect on financial position of the company (i.e. extract of the balance sheet). It is surprising that no candidate made an attempt at this question. However, for ease of understanding the suggested solution, some basic guiding principles relevant to the preparation of the accounts and in answering the questions are pointed out: i. Fixed Assets: (Motor vehicles and office building):

Assets always have debit balances at the time of purchase:

Debit - the Fixed Asset Account (Motor vehicles or office building) Credit – Cash/Bank ii. Provision for Depreciation:

Provision is a credit balance. Therefore, on ascertaining the provision required using the stated percentage.

Debit: Profit and Loss Account (because it is an expense) Credit: Provision for depreciation On disposing an asset; track down the amount of provision already made on the asset at the date

of disposal and make the following entries. Debit: Provision for depreciation Credit: Asset Disposal Account The effects of this is to reduce the balance on the accumulated provision for the depreciation account

by the amount belonging to the assets disposed so that the amount remaining on the provision account relates to assets still in use.

iii. Asset Disposal Account

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This account is prepared to determine if profit or loss has been made on the use of the asset at the time of disposal. The following entries are required:

*Transfer the cost of the asset from the fixed asset account to asset disposal account Debit: Asset Disposal Credit: Fixed Asset: (motor vehicle 1)

*Transfer the provision on the asset to the Asset Disposal Account: Debit: Provision for Depreciation Credit: Asset Disposal *Record sale of the Asset Debit: Cash/Bank Credit: Asset Disposal

*Balance off the account to ascertain if profit or loss has been made and record the entries against the profit and loss account.

iv. Extract of Balance Sheet The objective is to record the Cost; Deprecation and Net Book Value (NBV) of the assets at year end. This involves recording the balance on the fixed asset at cost; the balance on account, the accumulated provisions account from the ledgers. The difference between the cost and the accumulated provision is the Net Book Value (NBV).

Answer

EKENE OBANGIJI

a (i) Office Building Account N N 13/1/04 cash 1,500,000 31/12/04 Balance c/d 1,500,000 2005 Balance b/d 1,500,000 31/12/05 Balance c/d 1,620,000 Cash 100,000 Cash 20,000 1,620,000 1,620,000 1/1/2006 Balance b/d 1,620,000 31/12/2006 Balance c/d 1,620,000 1/1/2007 Balance b/d 1,620,000 31/12/2007 Balance c/d 1,620,000 a (ii) Motor Vehicle Account

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N N 18/5/2005 Balance b/d 600,000 31/12/2014 Balance c/d 600,000 1/1 2005 Balance b/d 600,000 31/12/05 Balance c/d 1,300.000 20/11/05 Cash –vehicle-2 700,000 1,300.000 1,300.000

1/1 2006 Balance b/d 1,300.000 20/11/06 Asset Disposal

(Vehicle 1) 600,000 5/12/06 Cash –vehicle-3 150,000 Balance c/d 850,000 1,450,000 1,450,000 1/1/2007 Balance b/d 850,000 31/12/07 Balance c/d 850,000 (b) I Provision for Deprecation – Motor Vehicles N N 31/12/04 Balance c/d 125,000 31/12/04 P&L A/C 125,000 31/12/05 Balance c/d 425,000 1/1/05 Balance b/d 125,000 31/12/05 P&L Acct. 300,000 425,000 425,000 20/11/06 Asset disposal 250,000 1/1/06 Balance b/d 425,000 (vehicle 2) 31/12/06 Balance c/d 343,750 P&L 168,750 593,750 593,750 Balance b/c 470,31 31/1/07 Balance b/d 343,750 P&L A/C 126,563 31/12/07 Balance d/d 470,313 470,313

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(b) ii Provision for Deprecation – Office Building N N 31/12/04 Balance c/d 75,000 31/12/04 P&L A/c 75,000 31/12/05 Balance c/d 156,000 1/105 Balance b/d 75,000 31/12/05 P&L A/c 81,000 156,000 156,000 31/12/06 Balance c/d 237,000 1/1/07 Balance b/d 156,000 31/12/06 P&L A/c 81,000 237,000 237,000 31/12/07 Balance c/d 318,000 1/1/07 Balance b/d 237,000

31/1/07 P&L A/c 81,000 318,000 318,000 (c) Asset Disposal Account N N Motor vehicle Account 600,000 Prov. for Depreciation 250,000 Cash 300,000 Loss on Disposal 50,000 600,000 600,000 (d) Extract of Financial Position as at 31st Dec 2007 Fixed Asset(Non-Current Asset) Cost Dep. NBV Office Building 1,620,000 318,000 1,302,000 Motor Vehicle 850,000 470,313 379,687 2,470,000 788,313 1,681,687 Question 4 a) State six (6) benefits of Journal? (6 marks) b) Mention five (5) uses of Journal?. (5 marks)

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c) The following transactions took place in the firm of Alalade Electronics during October 2010:

Oct 1 Bought a second hand motor van on credit from Classical Motors Limited for N 800,000

Oct 3 A debt of N38,000 owed by Hannah & Co. was considered bad. Oct 4 Moleye owed the firm N150,000. She is declared bankrupt and N50,000 was

received in full settlement of the debt. Oct 8 Alalade (the Proprietor) took two (2) radio sets costing N30,000 each for own use

without paying for them. Oct 13 On 30th March, 2010, the firm paid an insurance bill of N56,000 thinking that it was

all in respect of the business. It was later discovered that N12,000 of the amount paid was in fact insurance of Alalade’s personal house.

Oct 24 One of the radio sets taken by Alalade on 8th October is now returned to the

business. No money was taken for the return. Oct 28 Bought machinery N400,000 on credit from Galaxy Limited.

Required: Show Journal entries to record the above transactions. (14 marks) (Total = 25 marks) Comment The question tested knowledge of use of Journals and the practical application of double entry book-keeping using the “Journal”. It was divided into three parts. In all, 60% of the candidates attempted this question. Parts (a) and (b) were essay questions on benefits of using journals and the uses journals can be put respectively. The answers to these questions were available directly from textbooks and candidates’ performance in the two parts of the question was satisfactory. Part (c) tested the practical application of double entry book-keeping using “journal” entries. The candidates’ reaction was considered below average signifying poor knowledge of double entry book-keeping. Whereas, narration is an essential part of journal entries, it was observed that two out of the three candidates that attempted the question did not include narration in their answers. This shows they did not understand the importance of preparing the journals. The overall effect was that two of the three candidates (66.7%) made the pass mark. There was no candidate with a pass at distinction level. The answer of the only candidate that failed in the question was considered woeful (F3 result). The candidates ‘performance rating on the question was above average. Answer

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(a) Journal has the following advantages: (i) It provides in one place a complete picture of each transaction. (ii) It serves as a source of future reference to the accounting transaction of an enterprise. (iii) it reduces the possibility of an error when transactions are first recorded. Errors can be more

easily traced. (iv) It provides concise but informative narration sufficiently detailed to prove or disprove the

accuracy and validity of a transaction. (v) It eliminates the need for a reliance on the memory of the book keeper, which is often

required to explain certain transaction is of a complicated nature. (vi) The risk of not recording a transaction at all or of making one entry only is reduced. (11/2 marks for any 4 = 6 marks)

b) Uses of Journal (i) Opening entries for a new business. (ii) Closing entries for an existing business. (iii) Transfer between accounts. (iv) Purchase and sale of fixed assets on credit.. (v) Correction of errors and omissions. (vi) Any other transactions which cannot be recorded in any other subsiding books. (1 mark for any 5 points = 5 marks)

0 (4c) ALALADE ELECTRONICS JOURNAL ENTRIES

Date Particulars Folio Dr Cr 2010 N N 1/10/10 Motor vehicle

Classical Motors Ltd Purchase of second hand motor van on credit

GL GL

800,.000 800,000

3/10/10 Bad debts account Hannah & Co Amount due from Hannah & Co written off as bad

GL SL

38,000 38,000

4/10/10 Cash/Bank Bad debts account Moleye N50,000 received from Moleye in full settlement of N 150,000 debts, the balance written off as Bad Debt

50,000 150,000

8/10/10 Drawings Purchases Cost of two radio sets taken by proprietor

GL GL

60,000 60,000

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13/10/10 Drawings Insurance Personal House insurance wrongly posted to insurance account now reversed.

GL GL

12,000 12,000

24/10/10 Purchases Drawings Radio set costing N 30,000 originally taken on 8/10/10 by the proprietor now returned

GL GL

30,000 30,000

28/10/10 Machinery Galaxy Ltd Purchase of machinery on credit

GL GL

400,000 400,000

(1 marks for 14 ticks = 14 marks)

Question 5 Sunday Bangaya, the Treasurer, Pleasure City Club disclosed the following details about his Club. i) That the total membership of his Club is 120, all of whom had paid their annual subscriptions of

N30,000 except 12 members who are in arrears for one year’s subscription. ii) During the year ended 30th Sept, 2012, the Treasurer had incurred the following expenses:

N Rent of Club Premises 1,500,000 Electricity 360,000 Cleaning 168,000 Sundry Expenses 132,000 At the end of the year, the Treasurer had an outstanding account for electricity N45,600. iii) Purchase of refreshment during the year amounted to N 362,400 and sale of refreshments

N487,200. There was a stock of refreshments in hand at 30th Sept, 2012 valued at N72,200 compared with N108,000 at the beginning of the year.

iv) Socials held during the year brought gross proceeds to N3,900,000. Expenses in connection with

the socials amounted to N 1,500,000. v) On the 30th Sept, 2012, cash on hand and at bank was N 3,970,800 and the value of furniture and

fittings was estimated at N 1,110,100. vi) The Accumulated fund of the Club at the beginning of the year was N 1,584,000. You Are Required: a) To prepare an Income and Expenditure Account for the year ended 30th September, 2012.

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b) A Statement of Financial Position for the club as at that date. (25 marks) Comment This was a simple question on the final accounts of a Non-Profit-making organisation (clubs and societies). It tested the preparation of Income and Expenditure Account and was attempted by three (3) candidates, that is, 60% of the candidates. Two (2) candidates (66.7%) scored the pass mark. The only candidates that failed (33.3%) made a poor shot at the question and had F3 result. No candidate made the pass at distinction level. The performance was expected to be better than this but the candidates were careless in handling some items in the Income and Expenditure account and the Statement of Financial Position (Balance Sheet). For example; the candidates did not handle the treatment of subscription in arrears properly, with the concomitant effect on the statement of Financial position. The handling of the Refreshment and social accounts (bar trading account) which required minor adjustment to ascertain the profit was also shoddy. Answer

Book of Pleasure City Club Income and Expenditure Account for the Year ended 30 September 2013

N N N N Rent 1,500,000 Subscription received 3,240,000 Electricity 360,000 Subs. in Arrears 360,000 Outstanding electricity Bill 45,600 405,600 Cleaning 168,000 Proceeds from Bar 3900,000 Sundry Expenses 132,000 Less Expenses 1500,000 2,400,000 Surplus 3,883,200 Refreshments Sales 487,200 Opening stock 108,000 Purchases 362,400 470,400 Less stock 72,200 398,200 Profit form Refreshment 88,800 6,088,800 6,088,800

PLEASURE CITY CLUB Statement of Financial Position as at 30 September 2012

N N Accumulated Fund 1/10/2011 1,584,000 Furniture & Fitting 1,110.000

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Add surplus of income Over-expenditure for the year Current Assets 3,883,200 Stock Refreshment 72,000 5,467,200 Sub. in Arrears 360,000 Current Liabilities Cash in hand and Accrued Electricity 45,600 at Bank 3,970,800 4,402,800

5,512,800 5,512,800 Question 6 Mallam Chinekeng recorded the following transactions in the month of June 2009: June 1 Received 2,000 units of materials at N200 per unit June 2 Received 520 units at N 210 per unit June 8 Issued 1, 400 units of stocks June 9 Received 800 units at N 230 per unit June 15 Received 600 units at N 250 per unit June 20 Received 1,240 units of stocks June 24 Issued 480 units of stocks June 26 Received 1,000 units at N 220 per unit June 30 Issued 760 units of stocks Required: Record the above transactions in a store ledger card and show the value of closing stock using: i) First in, first out method (FIFO) ii) Last in, first out method (LIFO) (25 marks) Comment This question was on Store accounting. It requested candidates to prepare store ledger card and show the value of closing stock using two most popular methods of issuing stock, that is, First in First out (FIFO) and Last in, First out (LIFO). It was attempted by all the five (5) candidates that sat for the paper. Three (3) candidates (or 60%) scored the pass mark. Two of them (40%) scored the pass mark at distinction level. These were the candidates that knew what they were doing. The scripts of the two candidates that failed (40%) were considered woeful. This suggests that they did not understand this sub topic in accounting. The overall candidates’ performance rating on this question was above average. Candidates preparing for accounting examination are to note that Stores accounting is one of the most popular topics in financial and

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elements of cost accounting that is regularly examined. They are therefore urged to master this topic so that their performance can improve.

Answer

Books of Mallam Chinekeng

STORE LEDGER CARD (FIFO METHOD)

RECEIPT ISSUE BALANCE Qty Date Unit Price Amount June N N 1. 2,000 200 400,000 2. 520 210 109,200 8. 9. 800 230 184,000 15. 600 250 150,000 24. 26. 1000 220 220,000 30.

Qty Unit Price Amount N N 1400 200 280,000 600 200 120,000 520 210 109,200 120 230 27,600 1240 - 256,800 480 230 110,400 200 230 46000 560 250 190,000 760 - 236,000

Qty Unit Price Amount N N 2,000 200 400,000 520 210 109,200 2520 - 509,200 600 200 120,000 520 210 109,200 1120 229,200 1120 229,200 800 230 184,000 1920 - 413,200 600 250 150,000 2520 - 563,200 680 230 156,400 600 250 150,000 1280 - 306,400 200 230 46,000 600 250 150,000 800 196,000 1000 220 220,000 1800 - 416,000 40 250 10,000

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81000 220 220,000 1040 230,000

STORE LEDGER CARD (LIFO METHOD)

RECEIPTS ISSUE BALANCE Qty Unit Price Amount June N N 1. 2000 200 400,000 2. 520 210 109,200 8. 9. 800 230 184,000 15. 600 250 150,000 20 24. 26. 1000 220 220,000 30.

Qty Unit Price Amount N N 520 210 109,200 880 200 176,000 1400 - 285,200 600 250 150,000 640 230 147,200 1240 - 297,200 160 230 36,800 320 200 64,000 480 - 100,800 760 220 167,000

Qty Unit Price Amount N N 2000 200 400,000 520 210 109,200 2520 - 509,200 1120 224,000 1120 200 224,000 800 230 184,000 1920 - 408,000 1920 408,000 600 250 150,000 2520 - 558,000 1120 200 224,000 160 230 36,800 1280 260,800 800 200 160,000 800 200 160,000 1000 220 220,000 1800 380,000 240 220 52,800 800 200 160,000 1040 212,800

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CONCLUSION The 80% pass rate recorded in this diet was pleasing and considered good. Candidates were found to do better in essay questions than in the ones involving computations. They are therefore advised that they need both linguistic and numerate skills to succeed in Accounting examination. The numerate skills can be developed through practice. In fact, accounting is not a reading or memorising subject; it involves more of simple computations whose principles can be mastered through practice. Candidates are to note that the basic book-keeping skill lies in understanding the double-entry principle and the application of this skill will permeate all their accounting education and career in banking. It is lack of good knowledge in double-entry book-keeping that made candidates to avoid answering Q3 on Fixed Asset Accounting.

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PRINCIPLES OF ECONOMICS

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GENERAL OVERVIEW Principles of Economics is one of the subjects designed for candidates sitting for the Certificate in Banking examination. It is incorporated intoprogramme to equip students with the ability to describe, analyse and interpret economic and financial issues affecting the banking industry in particular and the economy at large. In view of this, the October, 2014 diet questions were carefully selected to cover all the relevant topics of the syllabus. It contained four questions from Section A and three questions from Section B, of which the students were required to answer any five questions. The performance of candidatesin this examination was quite better than previous ones.In this diet, out of6candidates that sat for the examination, 3 had distinction, 2 passed while only 1 failed,representing an 87% pass rate.It must be reiterated at this point that success in Economics requires the following tips:

i. Adequate preparation for the examination. ii. In-depth knowledge of the subject matter. iii. Appropriate use of economic language. Students should endeavour to be familiar with

Economics jargons as it helps in explaining economic issues. iv. Good spellings and good writing. It must be emphasised that bad writing distort good points. A

good answer will only earn a good mark if it is readable; hence a good point that cannot be read earns no mark. In like manner, wrong spelling reduces marks awarded for a question.

v. Orderly presentation of points: It must be re-emphasised that orderly presentation of points is vital for success in any examination. No matter how good the answer may be, wrong presentation will reduce the expected mark.

Question-by-Question Performance There were seven questions in all,out of which candidates were expected to answer any five. The summary of the performance is tabularised as follows:

Question Attempted Passed Pass Rate % Failed FailuresRate %

1 03 2 68 1 32 2 05 4 80 1 20 3 03 2 68 1 32 4 06 4 68 2 32 5 06 6 100 0 32 6 04 4 100 0 0 7 02 2 100 0 0

SECTION A

Question 1 Write short notes on the following cost concepts (using relevant diagrams as appropriate):

(a) Explain the term ‘Supply’. (b) Identify and explain five (5) factors that could influence the supply of yam in Nigeria.

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Comment This is anunpopular questionamong the candidates that sat for this paper. Only half of the candidates attempted the question. Out of the three thatdid, only two passed with one failure,resulting intoa 68%pass rate. Answer (a) Supply: This refers to the quantity of goods and services that producers are willing and able to offer for sale at a given price and time. (b)(i) Price of Yam: The higher the price of yam, the higher the quantity of yam supplied, and vice versa.

ii. Cost of Producing Yam: The higher the cost of production, the lower the supply of yam and vice versa. iii. Prices of Other Agricultural Product: If the prices of other agricultural produce are high relative to that of yam, producers will supply lesser yam and more of other products. iv. State of Technology: An improvement in technology will increase the quantity of yam supplied, and vice versa. v. Government Policy: A favourable government policy will favour the supply of more yams while the opposite will reduce its supply. vi. Natural Phenomena: Flood or other disasters will reduce the supply of yam while the absence of such phenomena will increase supply.

Question 2

a) Define the term ‘Microeconomics’ and ‘Macroeconomics’. b) Briefly explain the following basic economics concepts:

(i) Scarcity (ii) Scale of Preference (iii) Choice (iv) Opportunity Cost (v) Economic Agents

Comment This is apopular question among the candidatesand it recorded a good performance. Five (5)candidates attempted the question with only one failure. This represent 80% pass rate Answer

(a) (i) Microeconomics: This studies individual economic behaviours, e.g. household, firm and government. It involves demand and supply analysis and price determination. (ii) Macroeconomics:This studies aggregate economic behaviours, e.g. aggregate or national income, aggregate demand, employment level, general price level.

(b) (i) Scarcity:Scarcity means ‘limited in supply’ relative to demand. All economic goods are scarce because their supply is limited. Human resources are also scarce.

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(ii) Scale of Preference: This refers to the arrangement of wants in the order of importance or priority. The most pressing need tops the list while the least pressing need is at the bottom of the list. The need at the top of the list must be satisfied first before those that follow it. (iii) Choice:Choice involves tradeoffs; choosing one thing and leaving the other. This arises as a result of limited resources to meet numerous wants. Those items that are bought are our preference, hence our choice. (iv) Opportunity Cost:This is the alternative forgone or real cost. After making our choice from the scale of preference, the alternatives left unsatisfied are the forgone alternatives, hence they are the opportunity cost. (v) Economic Agents: These are the providers or owners of productive resources and they include individual households, business firms and the government.

Question 3

(a) Distinguish between ‘Perfectly Competitive’ and ‘Imperfect’ Markets. (b) Identify and discuss five (5) features of Perfectly Competitive Market.

Comment This question recordeda fairly good performance as three (3) candidates attempted it with two (2) passes and one (1) failure. This represents a68% pass rate. Answer (a) Perfectly Competitive Market: This is a market situation where there are many buyers and sellers with identical goods. Buyers and sellers are price takers. Imperfect Market:This is a market where the number of market operators are not many, e.g. monopoly, duopoly and oligopoly markets. (b) Features of Perfectly Competitive Market

i. Large Number of Buyers and Sellers: The market consists of many buyers and sellers. ii. Homogeneous Product: Products bought and sold are exactly the same in shape and size, colour

and weight. iii. Free Entry and Exit of Goods: There is no barrier to trade. iv. Perfect Mobility of Resources: There is no restriction of any form. v. Perfect Knowledge: Operators have relevant and adequate information relating to the market. vi. No Preferential Treatment: No participant can be cheated or treated differently.

Question 4 (a) Define the term ‘Supply of Money’. (b) Identify and explain five (5) essential qualities of Money.

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Comment This is a popular question among the students as all the six (6) candidates attempted it.However, the performance showed four (4) passes and two (2) failures, resulting in a 68% pass rate. Answer (a) Supply of Money: This refers to the total amount of money in an economy. It is the sum of currency in circulation and demand at the financial sector, I.e. Ms = CC + DD. In a wider form, money supply can be defined as Ms = CC + DD + TD + SD. (b) Essential Qualities of Money include:

i. GeneralAcceptability: Money commands confidence and is generally acceptable in payment for valuable goods and services.

ii. Divisibility: Money is easily divisible into smaller units without loss of value. iii. Homogeneity: Each portion of the material being used as money is alike. iv. Storability / Durability: Money is durable and can be stored over a long period. v. Transportability: Money is easily carried from one place to another. vi. Recognisability: Money is easily recognised in quantity and quality.

SECTION B

Question 5

(a) What is National budget? (b) Identify and discuss three (3) types of budget.

Comment This is another question with good performance.All the six (6) candidates attempted the question and they all passed. This resulted into a 100% success rate. Answer (a) National Budget: This is the statement showing the expected government revenue and expenditure for the country for a particular period, i.e. it states the income and expenditure of a government at a particular period. (b)(i) Balanced Budget: Budget is balanced when the total receipts are equal to total expenditure, i.e. neutral budget. It is adopted if government desires to keep the level of economic activities relatively stable as in the preceding year. (ii) Surplus Budget: This happens when the revenue planned exceeds the proposed expenditure. It is used to control inflation which may be secured by a reduction in government expenditure with an increase in taxation. (iii) Deficit Budget: This happens whenthe planned receipts are less than the proposed expenditure. It is adopted to stimulate economic growth during economic depression.

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Question 6 (a) How would you define the term ‘middleman’ in the channel of distribution? (b) Identify and discuss three (3) arguments for and three (3) arguments against the existence of

middlemen in Nigeria. Comment This is a well-attended question by the candidates who sat for the paper. The performance is impressive. as all the four students who attempted the question passed, translating to a 100% pass rate. Answer (a) Middlemen: This is a channel through which goods are passed from the producers to the final consumers. Middlemen include, wholesalers and retailers. They act as a medium of moving goods and services from the producers to the consumers. (b) Arguments for middlemen:

i. They encourage specialisation and large-scale production. ii. They are necessary for distribution and to complete the chain of production. iii. They increase concentration of production and enhance convenience to consumers.

Arguments against Middlemen: i. They usually hoard goods and thus create artificial scarcity and also raise prices. ii. They cause rift among producers, especially small producers in order to obtain more profits. iii. They are underemployed.

Question 7

a) Distinguish between ‘Money’ and ‘Opportunity Cost’. b) Write short notes on the following concepts: (i) Fixed Cost (FC) (ii) Variable Cost (VC) (iii) Total Cost (TC) (iv) Average Cost (AC) (v) Marginal Cost (MC)

Comment This is an unpopular question among the candidates. Only two candidates attempted the questionout of the total number (6) that took the subject. However, the two candidates passed, resulting in a 100% pass rate. Comment (a)(i) Money Cost: This is the monetary value (worth) of an item. I.e. price paid or amount expended on an item. (ii) Opportunity Cost: This is the item forgone after making a choice. This is also known as a real cost or alternative forgone. (b)(i) Fixed Cost: Total amount expended on fixed inputs, e.g. rents on land, building and other equipment. (ii) Variable Cost: Total amount expended on variable inputs, e.g. raw materials, wages and salaries.

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(iii) Total Cost: Total amount expended on the production of goods and services. It is the addition of fixed cost and variable cost: TC = FC + VC (iv) Average Cost: This is the total cost divided by the units of output produced. AC = TC / Q. (v) Marginal Cost: This is the addition to total cost as a result of producing one extra unit of output. MC = dTC/ dq.

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PRINCIPLES OF MANAGEMENT

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A. GENERAL OVERVIEW The October 2014 diet of the examination on this subject marks the end of the old syllabus. Only 7 candidates sat for the examination in this subject, out of which 2 candidates, representing 29 per cent of the candidates, passed, while 5 candidates, representing 71 per cent of all the candidates that sat for the examination in this subject, failed. Syllabus Coverage About 90 per cent of the syllabus was covered by the questions presented in this diet of the examination on the subject. The spread represents the efforts of the examiners to ensure that successful candidates on the subject grapple with the basic principles of effective management. The candidates were examined on such vital topics as business ethics, systems approach to management, Hawthorne studies on management thought, control process, conflict management, decision making, etc. Adequacy of Time Allowed The time allowed for the candidates to attempt the questions was confirmed adequate, considering the need to develop their ability as managers and leaders to make timely decisions while under operational pressure. This ability was demonstrated by all the students that passed the examination as they attempted all the questions within the time allotted for the examination. Consistency in Required Number of Questions The number of questions presented in this diet of the examination and the number expected of the candidates to attempt is consistent with the trend since the commencement of the old syllabus on the subject. Clarity of Instructions to Candidates All the instructions associated with the examinations on the subject were clearly presented to the candidates in the front page of the question paper as well as complied with by all the candidates that passed this diet of the examination. B. COMMENT ON THE QUESTIONS The questions were professionally designed, and the flow remarkable. The production of the questions is hereby confirmed to be an improvement over the April 2014 diet of the examination as printing errors were discovered to be minimal. C. EVALUATION OF SCRIPTS Assessment and grading of the scripts of this diet of the examination on the subject was as usual done with utmost care to ensure that no candidate was short-changed in any way. This assignment was handled by a team of highly experienced examiners under the supervision of a chief examiner. The environment under which marking took place was very conducive. The examiners participated in the co-ordination exercise before the actual marking started, thereby jointly reviewing the marking scheme, establishing the points on the basis of which scores should be awarded, and above all harmonising the content of the marking scheme with the marks allotted to the different questions .The script assessment and grading were done with an eagle eye, under the strict supervision of the Chief Examiner. All these cautions gave rise to a high level of consistency in the awards and, above all, accuracy of the scores received by the candidates.

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D. GENERAL COMMENT ON OVERALL PERFORMANCE Out of the total number of 7 candidates that sat for this diet of the examination, 2, representing approximately 29 per cent, passed, while 5, representing 71 per cent, failed. The high rate of failure in all the questions attempted in the subject suggests that the candidates did not prepare adequately for the examination. E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES Total No. Total No. Total No. Pass Rate Failure of Candidates of Distinctions of Passes in % F1 F2 F3 7 - 2 29 1 2 2 F. ANALYSIS OF ATTEMPTS PER QUESTION. Question Total No. of No. of No. of No. of No. Candidates that Distinctions Passes Failures Attempted Questions 1 6 0 0 6 2 3 0 0 3 3 3 0 2 1 4 7 3 3 1 5 5 1 3 1 6 7 1 1 5 7 3 0 0 3 G. EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS Question 1 (a) What is the systems approach to management? (b) Outline the impact of Hawthorne studies on management thought.

(20 marks) Comment About 86 per cent of all the candidates that sat for the examination on this subject attempted this question. Regrettably, however no candidate achieved a pass score on the question. It is surprising to observe at this juncture that none of the candidates provided a satisfactory explanation of what the systems approach to management is all about . Besides, no candidate provided a satisfactory answer on the impact of the Hawthorne studies on management thought. There is every reason to believe that the candidates did not cover this aspect of the old syllabus while preparing for the examination. Answer

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(a) The systems perspective basically holds that an organisation consists of interrelated parts, which must work in harmony for the success of the organisation and that whatever affects one part of the organisation also affects the other parts. As a model, a system consists of these parts: - The inputs like resources, customers, etc. - Transformation process through which inputs are transformed or processed into outputs. - Outputs which are the outcome of the transformation of inputs. There is also feedback which is information about the status or performance of any given effort in the system. A system may be open (interacting with the external environment) or closed (does not interact with the external environment). When the subsystem in the system work in harmony, synergy occurs; the collective output is more than the summation of the individual outputs. Systems also have boundaries which may be within (internal) or without (external) and the gate-keepers (those who manage the boundaries) play important roles in the effectiveness of the organisation.(10 marks) (b) The Hawthorne studies was conducted in the Western Electric Company plant, Chicago by Elton Mayo and his colleagues between 1927 and 1936. Coming at a time when scientific management was the norm, the studies became a game changer in that they proved and stressed the importance of human relations and the need to show concern for people in the workplace. The impact of Hawthorne studies on management thought includes the following: 1. Man is a social animal at work and outside work. Workers cannot be treated in isolation. 2. Membership of individuals is important to individuals and that leads to the establishment of informed groups in the organisation. 3. People would respond favourably when they are taken into consideration or become the centre of attention. This is called the Hawthorne effect. 4. That relationship between people was an important factor in the attitudes of employees. 5. Informal groups exercise strong influence over the behaviour of workers. 6. Social relations at work are as important as monetary incentives and physical conditions. 7. Brought into the forefront organisations are social systems encompassing individuals, informal groups, formal groups and intergroup relations. (10 marks) Question 2 What is ethics in business? Briefly describe the main arguments for and against Corporate Social Responsibility (CSR). (20 marks) Comment Only 3 candidates out of the 7 that sat for the examination in this subject attempted this question. Surprisingly, none of the candidates achieved a pass score. The question on business ethics and corporate social responsibility is considered the cheapest in the subject. Besides, the topic is a topical issue which any serious student should be abreast with. The poor performance recorded in this question reinforces the argument that the students did not really study, in preparation for the examination. Answer

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Ethics in business refers to accepted principles of right or wrong governing the conduct of business people. (4 marks)

Arguments in favour of Corporate Social Responsibility (CSR) are: - Organisations create many of the problems such as water pollution and resource depletion in the

society, hence they should play a major role in solving them. - Organisations are entities like private citizens, hence they should carry out their obligations as

citizens. - They can achieve enhanced regulations to maintain greater market share of their product because

of their visible contributions to society. - When organisations care and promote employee interest, it will lead to societal quality of work life.

(8 marks) Argument against Corporate Social Responsibility

- Organisations may think that they are being harmed for using their resources for socially responsible causes.

- It may lead to conflict of interest among managers regarding areas in which to perform their CSR obligations.

- Organisations lack the expertise to understand how to assess and make decisions about worthy social responsibility programmes.

- Shareholders believe it is a way of taking their share of business profits in an organisation. (8 marks)

Question 3 Identify the main forces in the Task Environment and describe the challenges that each force presents to bank managers. (20 marks) Comment Only three (3) candidates representing 43 per cent, attempted this question, out of which two (2) passed. The two candidates that achieved a pass score on the question wrote very well. Answer The main forces in the Task Environment includes:

- Customers; - Suppliers; - Competitors; - Distributors; - Labour; and - Technology. The customers are king in the task environment. They facilitate the process of transformation in every

system. Without the customers, who will consume whatever goods or services are produced? Hence their characteristics must be known, their needs met, while there must be a continuous satisfaction to ensure repeat patronage.

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The suppliers of raw materials used in the course of production are also vital. The quality of a product is highly dependent on the quality of raw materials used. The availability of the materials, the ability of the suppliers to meet demand and their credibility a great impact on the task process.

The competitors are the other firms in the same line of business. To maintain and increase the market share, an organisation must develop a strategy that will outplay its competitors.

Distributors are the middlemen in the supply chain. Their integrity, ability and capability are of great concern to an organisation.

Labour supply availability, cost, quality and quantity matter, just as labour laws, labour unions, etc. Technology is another force in the task environment. The issue here is the cost, availability, rate of

development, the technology being adopted by the competitor, available resources, availability of qualified personnel, etc.

Question 4 What is a control process? How can a manager regulate the activities of individuals and units so that they are consistent with the organisation’s goals and standards?

(20 marks) Comment All the candidates that sat for this diet of the examination on the subject attempted this question, out of which 6 candidates passed, showing an 86 per cent pass rate. This is the best attempted of all the questions, in which candidates also performed excellently, as 3 of them made distinction in the question. Candidates demonstrated good understanding of the control process, and how managers can regulate activities of individuals and units consistent with the organisation’s goals and standards. Answer (i) A control process is a series of steps undertaken to ensure that organisational resources are applied in line with planned instructions and established principles. These steps are:

- Establishing standards and performance; - Measuring actual performance against the set standards; - Ascertaining the deviation; - Investigating and establishing the real cause(s); - Developing a corrective model; - Feedback to ensure that the corrective measure works; - Recycling, if need be. (5 marks)

(ii) Ways in which a manager can regulate units and individual activities are: - Personal contact with and direct supervision of subordinates; - Bureaucratic control, which deals with measuring progress towards set goals and applying corrective measures for achieving objectives; - Output control, which refers to setting goals for units and individuals to achieve while monitoring performance; - Cultural control, which involves regulating behaviour by socialising employees to internalise organisational values and basic assumptions;

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- Market control, which refers to using pricing to regulate organisational activities; - Incentive control, which involves encouraging and rewarding employer behavior; - Auditing, which deals with independent appraisal of financial statement; - Communicating policies, procedures and rules to make employees work to set objectives.

Question 5 (a) Conflict is perfectly natural and should be expected to occur. It usually does not appear suddenly.

Describe the progressive phase through which conflict passes in organisations. (b) Distinguish between intrapersonal conflict and intergroup conflict. (20 marks)

Comment About 85 per cent of all the candidates that sat for this examination on the subject attempted this question, out of which 57 per cent passed, including 1 candidate that made distinction on the question. The candidates also demonstrated adequate knowledge and understanding of the progressive phase of conflict processing, and correctly distinguished between intrapersonal conflict and intergroup conflict. Answer (a) The phases of conflict in an organisation are:

(i) Latent Conflict: At this stage, the basic conditions for conflicts (competition for scarce resources, drive for authenticity) exist but have not yet been recognised. (ii) Perceived Conflict: At this stage, one or both participants recognise the cause of the conflict, e.g. employee begins to complain that his manager does not like him. (iii) Felt Conflict: Tension begins to build up between the parties, although no struggle yet. (iv) Manifest Conflict: Struggle is underway and the behaviours of participants make the existence of the conflict apparent to others. (v) Conflict Aftermath: Conflict ends through resolution or suppression; it then establishes new conditions for more effective co-operation. (10 marks)

(b) Intrapersonal Conflict is internal to the individual and can result when barriers exist between the drive and the goal.

- Interpersonal conflict is a conflict between two or more individuals and may result from many factors such as prejudices, dissatisfaction with roles relative to others. - Intergroup conflict has a structure that is usually independent of the individuals occupying roles within the structure. (10 marks)

Question 6 (a) What is decision-making and under what situations do managers make decisions? (b) Describe the factors that may influence effective decision-making (20 marks) Comment All the candidates that sat for this examination on the subject attempted this question, out of which only 2 candidates, representing 28 per cent, passed, including 1 candidate that made distinction on the question.

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Most of the candidates that failed could not correctly distinguish between the different situations under which managers make decisions. Answer (a) Decision-making refers to making a choice from among alternative courses of action. It is a process

of selection from two or more possible alternatives based on some criteria. (4 marks)

Decisions can be made by managers under the following conditions: (i) Risk: The probability of the possible occurrence of the outcome of an event is known. (2 marks) (ii) Uncertainty: The probability of the possible occurrence of the outcome of an event is not known.

(2 marks) (iii) Certainty: The decision-maker knows with certainty the outcome of every alternative chosen.

(2 marks) (b) Factors influencing effective decision-making are:

(i) Information about alternative course of action, resources, etc. (2 marks) (ii) Time required before decisions are made (2 marks) (iii) Capability of the decision-maker (2 marks) (iv) Organisational culture which has to do with beliefs and behaviours of members (2 marks) (v) External environment which deals with those variables outside the control of the decision-maker.

(2 marks) (10 marks) (Total = 20 marks)

Question 7 Briefly discuss the following contemporary issues in management: (i) Team Building. (ii) Total Quality Management (TQM). (iii) Instrument of co-ordination. (iv) Determinants of organisational structure (20 marks) Comment About 43 per cent of all the candidates that sat for this diet of the examination on the subject attempted this question, out of which none passed. The high failure rate is attributed to the fact that the candidates lacked the facts to present under the different contemporary issues in management. Their answers were too skeletal to attract good marks required for them to achieve a pass score. Answer (i) Team Building: The implied definition of a manager is that he gets the job done through others. This is why concepts like joint effort, workforce, team spirit and group cohesion are prevalent in work

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organisations. Without the team there is little the manager can achieve on his own. Therefore, if a manager must play the role of a team builder effectively, he should do the following:

- Ensure that group members are recognized for their accomplishment through visible appreciation such as using letters of appreciation;

- Initiate activities that contribute to group morale; - Hold periodic staff meetings to encourage group members to express their feelings and talk

about their accomplishments, problems and concerns freely; - Implement decisions; - Encourage feedback (5 marks)

(ii) Total Quality Management (TQM): This is a culture of total commitment to customer satisfaction

through continuous process improvement, the contribution and job involvement of workers. The key objectives of TQM are to improve organisational performance and effectiveness.

The characteristics of TQM include: - Total process; - The customer as king; - Rational information collection and analysis; - Cost of poor quality; - Greater involvement of people ; - Teamwork; - Creative thinking. (5 marks)

(iii) Instrument of coordination

- Committee; - Manager; - Specialised department; - Communication; - Group; and - Region. (5 marks)

. (iv) Determinants of Organisational Structure: These include:

- Size; - Age and ownership; - Type of business; - Competitive environment; - Type of industry; - The level of technology applied in the business; - Corporate strategy. (5 marks)

(Total = 20 marks)

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QUANTITATIVE TECHNIQUES

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A. GENERAL OVERVIEW i) The questions set were within the syllabus for the examination and were spread as much as

possible to ensure that questions were not concentrated in one area. ii) The time allowed for the examination would be adequate for every candidate that prepared

well for the examination. iii) There was consistency in the required number of questions. iv) The instructions were quite clear and candidates tried to abide by the instructions.

B. COMMENT ON THE QUESTIONS

The questions were well proofread and the quality was high. It followed the laid-down structure in the syllabus.

C. EVALUATION OF SCRIPTS The marking was meticulously done after the review of the marking scheme. Marks were also properly added and reviewed.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE Candidates performed poorly. There was evidence that most of the candidates‘mathematical background was quite poor, considering that those who had good mathematical background got exemption from Quantitative Technique’s. The failure rate was very high and performance vis-à-vis the previous diets did not show any improvement. More tuition centres need to be created.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES Total No of Candidates

Total No of Distinctions

Total No of Passes

Pass Rates in Percentages

Failure F1 F2 F3

90 - 12 13.3% - 6 72

F. ANALYSIS OF ATTEMPTS PER QUESTION Question No. Total No. of

Candidates that Attempted Question

No of Distinctions No. of Passes

No. of Failures

1 32 - 7 25 2 42 - 17 25 3 69 - 31 38 4 18 - 8 10 5 81 - 20 61 6 58 - 15 43

SECTION A

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Question 1 (a) A businessman has 60 percent chance of securing a bank loan from his bank any time he applies

for loan. In a particular year, he intends to apply for bank loan twice. Find the probability that he will secure the loan:

(i) In the two attempts. (ii) At least in one of the two attempts. (iii) Only in one of the two attempts. (b) The special allowances for a group of workers (in thousands of Naira) in a bank is known to be

normally distributed with mean N120,000 and standard deviation N5,000. If there are 200 workers who are entitled to the special allowance in the bank, determine the number of the workers whose special allowance is:

i. Below N125,000. ii. Between N115,000 and N128,000. iii. Above N130,000. (25 marks)

Comment This is an applied probability question and it is a standard one. Only 32 out of 90 entries in this option attempted the question. The performance of candidates in this number was very much below average. It was an indication that either the candidates did not have a firm grip of the subject matter or they did not prepare well enough for the paper. There is therefore the need for adequate tuition to enable candidates to prepare well for the examination. Answer (a) Let A represent the event of securing a loan.

Then,P(A) =0.6 and P(A’) = 0.4 (where P(A’) is the complement) (i) Securing the loan in the two attempts = AA

∴P(AA) = P(A) x P(A) = 0.6 x 0.6 = 0.36 (ii) Securing a loan in at least one attempt is AA or AA’ or A’A

∴P(AA or AA’ or A’A) = 0.6 x 0.6 + 0.6(0.4) + 0.4(0.6) =0.36 + 0.24 + 0.24 = 0.84

(iii) Securing a loan in only one of the two attempts is AA’ or A’A ∴ P (AA’ or A’A) = P(AA’) + P (A’A)

= 0.6(0.4) + 0.4(0.6) = 0.24 + 0.24 = 0.48

ALTERNATIVE (ii) Securing at least in one attempt is the complement of not securing in either attempt.

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Not securing in either attempt is A’A’ P(A’A’) = 0.4(0.4) = 0.16 ∴P(Securing at least in one attempt) = 1 – 0.16 = 0.84 (b) Let the special allowance be represented by X

Then X ∼ N (120,000; 50002), and number of workers is given as 200

(i) P(X < 125,000) P (x – 120,000)˂125,000 – 120,000 5,000 5,000 P (z < 1.0) →0.8413 (from the normal table) ∴ No. of workers receiving less than N125,000 is 200 (0.8413) = 168.26 ≅ 167 workers

(ii) P (115,000 < x < 128,000) P (115,000 < x < 120,000) Ζ 128000 – 120,000 5,000 5,000 P(-1.0 <Ζ< 1.6) 0.9452 – 0.1587 0.7865 ∴ The number of workers earning between N115,000 and N128,000 is 200 (0.7865) = 157.3 ≅ 157 workers

(iii) P(x > 130.000) P (Ζ>130,000 = 120,000) 5000 P (Ζ> 2.0) ≅ 1 – 0.9772 = 0.0228 The number of workers earning above 130,000 is 200 (0.0228) = 4.56 ≅5 workers

Question 2 The advertising budgets of XYZ Bank PLC for the last five years are as follows: Year Quarters Advertising Budget (N’ million)

2005 1 15 2 12 3 14 4 19

2006 1 17 2 14 3 18 4 21

2007 1 18 98

2 12 3 16 4 18

2008 1 20 2 18 3 16 4 23

2009 1 15 2 12 3 11 4 17 You are required to: (a) Calculate the trend values by using the moving average method. (b) Estimate the seasonal indices by using the additive model

(25 marks) Comment A total of 42 candidates attempted this question and like the earlier number, the performance was very poor. Only a handful of candidates were able to make the pass mark and that was not encouraging. It is most likely that candidates took the examination for granted and did not prepare for it by attending tuition classes. The need to developed study materials for students is very necessary. Answer (a)

Year Quarter Y 4 Points Moving Total

Centred Moving Ave.

Trend Y-T SI

2005 1 15 - - - - 2.2 2 12 60 - - - -11.1 3 14 62 122 15.25 -1.25 -4.1 4 19 64 126 15.75 3.25 12.9 2006 1 17 68 132 16.5 0.5 2.2 2 14 70 138 17.25 -3.25 -11.1 3 18 71 141 17.625 0.375 -4.1 4 21 69 140 17.5 3.5 12.9 2007 1 18 67 136 17 1.0 2.2 2 12 64 131 16.375 -4.375 -11.1 3 16 66 130 16.25 -0.25 -4.1 4 18 72 138 17.25 0.75 12.9 2008 1 20 72 144 18 2.0 2.2 2 18 77 149 18.625 -0.625 -11.1 3 16 72 149 18.625 -6.625 -4.1 4 23 66 138 17.25 5.75 12.9 2009 1 15 61 127 15.875 -0.875 2.2 2 12 55 116 14.5 -2.5 -11.1 3 11 - - - - -4.1 4 17 - - - - 12.9

Q1 Q2 Q3 Q4

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- - -1.25 3.25 0.5 -3.25 0.375 3.5 1.0 -4.375 -0.25 0.75 2.0 -0.626 -2.625 5.75 -0.875 -2.5 - - Total 2.625 -10-75 -3.75 13.25 Correction Factor -0.34375 -0.34375 -0.34375 -0.34375 Seasonal Indices 2.28125 -11.09375 -4.09375 12.90625

Where, correction factor = 2.625 – 10.75 – 3.75 + 13.25 4 = 1.375

4 = 0.34375 = - 0.34375 (b) Seasonal indices = 2.28125 – 11.09375 – 4.09375 + 12.90625 = i.e the sum of all the seasonal

indices must equal zero. Question 3 The intelligence of each student leaving a secondary school is rated by his/her intelligence quotient (IQ.). The data below show the IQs of 50 school leavers:

75 75 98 70 135 110 96 101 107 89 83 85 101 95 112 112 107 106 125 108 95 96 120 93 110 89 75 88 81 79 82 112 116 88 97 94 104 97 91 140 98 86 114 105 86 83 93 102 111 82 You are required to: (a) Construct a frequency table using the class intervals, 65 – 74, 75 – 84, … for the data. (b) Draw the cumulative frequency curve for the IQ of the school leavers and use it to estimate the:

(i) Median IQ and interpret it. (ii) The percentage of school leavers, whose IQs are above 110.

(25 marks) Comment This was the most popular question as 69 candidates attempted it. Candidates did fairly well in the (a) part of the question which required them to prepare a frequency table but not many of them were able to plot the cumulative frequency curve. Over 35% of the candidates who attempted this number were able to meet the cut off pass mark.

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Answer (a) Frequency Table (b) Cumulative Frequency Class Interval Frequency Less than 64.5 0

64 – 74 1 “ 74.5 1 75 – 84 9 “ 84.5 10 85 – 94 11 “ 94.5 21 95 – 104 12 “ 104.5 33 105 – 114 12 “ 114.5 45 115 – 124 2 “ 124.5 47 125 – 134 1 “ 134.5 48 135 – 144 2 “ 144.5 50

50 (b)(i) Using the cumulative frequency in (b) above, the cumulative frequency curve (ogive) is plotted in a

graph to get an s-shaped curve. (ii) From the curve, the number of students with IQs above 110 is the 41st to the 50th students.

Hence, the percentage is 10 x 100 = 20% 50

SECTION B Question 4 SUMSEU Nigeria Limited, a construction company, has won a contract to build a shopping complex. The project entails nine main activities labelled A,B,C,D,E,F,G,H,I. The preceding activities for and duration of each activity are given in the following table. Activity Preceding Activity Duration (weeks) A - 12 B - 15 C - 18 D A 10 E B 8 F E 7 G E 9 H C,F 11 I D,H 6 You are required to: (a) Draw the Network diagram for the project. (b) Calculate all the Earliest Start Times (EST) and Latest Start Times (LST) and show them on the

diagram and hence find the shortest time for the completion of the project. (25 marks)

Comment

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Only 18 candidates attempted this question. Considering the background of the candidates taking this course (mostly candidates who had no quantitative background), this question appears to be a bit difficult. It even showed in the number of candidates that attempted the question and that also accounted for the poor performance in the question. Answer (a) Draw the network diagram. (b) EST’s and LST’s are indicated in the diagram.

The shortest time for the completion of the project is obtained by calculating the duration along the critical path, i.e 6+11+7+8+15 = 47 weeks.

Question 5 (a) Define and give an example for each of the following:

(i) A square matrix (ii) A symmetric matrix (iii) An identify matrix.

(b) A company produces two products X and Y. During the first quarter of a year, a sales representative of the company sold 6,000 units of product X and 4,000 units of Y to realise N4.6m while in the second quarter, he sold 5,000 units of product X and 8,000 units of product Y amounting to N5.7m.

You are required to: (i) Formulate the appropriate simultaneous equation to this problem. (ii) Use the matrix method to find the price of each product. (iii) If he is paid 10% commission on sales of product X and 15% commission on sales of product Y,

calculate the monthly commission for the sales representative to the nearest thousand Naira. (25 marks)

Comment The question tried to test candidates’ knowledge of simple matrices and the application of matrix in solving simultaneous equations. The number of candidates who attempted this is 81, although the pass rate was poor. There is need for intensive grooming of candidates for the examination and ensuring that examiners’ reports get to as many as candidates possible to assist them in preparing for the examination. Answer (a) (i) A square matrix is a matrix that has equal number of rows and columns, e.g. A = 2 1 3 5 (ii) A symmetric matrix is a matrix that is unchanged when the matrix is transposed,i.e. if the rows and columns are interchanged. e.g

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B = 5 2 8 2 7 4

8 4 9 (iii) An identity matrix is a diagonal matrix with diagonal elements being ones and diagonal elements being zeros e.g., I = 1 0 0 0 1 0 0 0 1 (b)(i) Let 𝑥𝑥 represent the price of product X sold. Let 𝑦𝑦 represent the price of product Y sold. 6,000x +4,000y = 4,600,000 5,000x + 8,000y = 5,700,000 6x + 4y = 4,600 5x + 8y = 5,700 optional.

(i) In matrix form, we have 6 4 x = 4,600 5 8 y 5,700 6 4 = 28 5 8

And inverse of 6 4 = 1/28 8 -4 8 -4 -5 6 ∴ x = 2 8 -4 4,600 y 28 -5 6 5,700 = 500 400 i.e Price of product X = N500 and price of product Y = N400

(iii) Total sales for product X = (6,000 + 5,000) (500) = N5,500,000 ∴ commission on product X = 10 x 5,500,000 = N550,000 100 Total sales for product Y = (4,000 + 8,000) (400) = N4,800,000 ∴Commission on product Y = 15 x 4,800,000 = N720,000

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100 ∴Total commission for 6 months = N1,270,000 ∴Monthly commission =1,270,000 6 = N212,000 Question 6 (a) Briefly define the following terms with respect to linear programming:

(i) Objective function (ii) Feasible solution.

(b) State the two major assumptions for linear programming. (c) A financial company provides two types of services X and Y. It is established that each unit of product

X requires 25 labour hours and 4 machine hours while each unit of Y requires 15 labour hours and 8 machine hours. If 150 hours of labour and 64 of machine hours are available and the profit on unit X and Y are N3 and N4 respectively.

You are required to: (i) Formulate the above as a linear programming problem. (ii) Obtain the optimum profit of the company using graphical method. (iii) Shade the feasible region.

(25 marks) Comment The question is standard and one expects candidates to attempt it successfully; but it has been noticed that once any solution involves plotting of graph, candidates tend to perform poorly. The number of candidates that attempted this number is 56 and the performance in it was below average. Answer (a) (i) Objective function is the function to be maximised or minimised. (ii) Feasible solution is a portion that satisfies simultaneously all the constraints in a linear programming

problem. (b) Two major assumptions that are usually made in linear programming are - Linearity - Non-negativity (c)(i) Let x units represent number of X produced.

Let y units represent number of Y produced. Objective function: to maximize profit, 3x + 4y subject to: Labour hours: 25x + 15y ≤ 150 Machine hours: 4x + 8y ≤ 64 x ; y ≥ 0 non negative assumption

(ii) To obtain the optimum profit using the graphical method constraint I : 25x + 15y = 150 x = 0; y=10 i.e (0,10) and x=6; y=0 i.e (6,0)

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Constraint II: 4x + 8y = 64 x = 0; y = 8, i.e (0,8) x = 16; y = 0, i.e (16,0)

(iii) the graph and from the graph, ABCD is the feasible region with A(0,8), B(1.8,7), C(6,0) and D(0,0) Point Max = 3x + 4y A (0,8) 32 B (1.8,7) 33.4 C (6,0) 18 D (0,0) 0

Hence, the optimal value is 33.4 obtained at x = 1.8 and y = 7, i.e.,1.8 units of service x should be provided while 7 units ofservice Y should be made.

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FOUNDATION

BASIC ACCOUNTING

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(A) GENERAL OVERVIEW This is the last time this subject (as a foundational level subject) is being examined in the institute’s qualifying examination, This subject has been merged with Introduction to Financial Accounting and Introduction to Business Finance at the Certificate level to form a new subject titled Accounting and Business Finance at the Diploma level. The number of candidates that sat for the paper- eight (8) in number- was few because many candidates have already switched to the new subject-Accounting and Business Finance which commenced last diet.

(B) COMMENT ON THE QUESTIONS

The questions were standard and designed to cover the entire syllabus. The question setting pattern was in line with the demands of the syllabus and similar to the last diet which required candidates to answer four (4) out of six (6) questions. As usual, there was an essay question and a question on costing. No question was made compulsory. The examination calls for intelligent answers to demonstrate that the candidates studied the necessary technical background in the subject and can apply that knowledge to practical problems that may arise in the accounting office.

Question 1 was on Accounting for Non- profit making organisation Question 2 was on Costing-Marginal Costing-Breakeven Analysis, Contribution Margin Ratio, Margin of Safety. Question 3 was an essay question which required candidates to distinguish between some basic accounting terminologies Question 4 tested for knowledge of contemporary accounting terminologies, journal entries; accounting for debtors and preparation of ‘T’ account to record end-of-the year entries-prepayments. Question 5 tested valuation of stock and claim for loss of stock. Question 6 was on analysis of financial statement

The questions can therefore be seen to cover the entire syllabus. (C) EVALUATION OF SCRIPTS

Candidates now seem to have a much greater familiarity with the subject as evidenced in the improved quality of the scripts over the past five or six diets. As observed in the past diets, the candidates’ success did not emanate from one question as was usually the case in the previous diets. Except for Questions 2 and 6, more than 50% of the candidates that attempted each question scored the pass mark. The three most popular questions were Q 3, 6 and 4 and there was variation in the level of performance observed in each question. Candidates scored distinction level marks only on Q3 which was an essay question.

(D) GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE

Although the 75% success rate recorded in this examination was a bit lower than last diet’s; it was appreciated that the pass rate kept in line with the upward trend observed over the past five diets;

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In October 2012, the pass rate was 40.38%, in April 2013, it was 45.45%; October 2013, -68%; April 2014, -77.8% and this diet, 75%. This record confirms that teachers and candidates are now better prepared than in the past. The message for improvement remains the same. Candidates must ensure that the balance of their study reflects the balance of the syllabus. This is especially so, given the current changes in the institute’s examination curricula which fused this syllabus with Introduction to Accounting and Introduction to Business Finance at the Certificate level to form a new subject titled Accounting and Business Finance sat the Diploma level of the new Institute qualifying curriculum. However, we expect the candidates to carry current efforts which culminated in the upward trend in performance into the new syllabus which is more demanding.

(E) ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES

Total No. of Candidates

No. of Distinctions

No. of Passes

Total No. of Passes

Pass Rate in Percentage

Failure Total Failures

Percentage Failure

F1 F2 F3 8 - 6 6 75% - 1 1 2 25%

(F) ANALYSIS OF ATTEMPTS PER QUESTION

Question No.

Total No. of Candidates that Attempted Question

No. of Distinctions

No. of Passes

% Passes Failure

F1 F2 F3 1 2 - 1 50% - - 1 2 5 - 1 20% - - 4 3 8 5 2 87.5% - - 1 4 6 - 4 66.7% - 2 - 5 3 - 2 66.7% - - 1 6 7 - 1 14.3% 1 4 1

Presented below are suggested answers for each question, preceded by the question and comments on candidates’ reaction to the question. It is stressed that these suggested solutions are not exhaustive and candidates sometimes gave good points or approaches for which the examiner gave credit. Question 1

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The following details are available from the cash book of Jagnees Golf Club: 31 /12/ 2011 31 / 12 /2012 (i) N N Inventory of Golf materials 182,400 80,200 Payables for Golf material suppliers 8,200 44,400 Payables for general expenses 1,200 3,000 Equipment 160,000 - Subscription owing 6,000 10,600 (ii) Summary of Bank Statement – Year 2012 N N Balance b/ fwd 142,800 Golf material suppliers 653,600 Subscription 195,400 Rent 179,200 Golf material sales 848,000 Rates 55,000 Life membership 12,000 General expenses 11,800 Balance c/d 43,800 Salaries 342,400 1,242,000 1,242,000

(iii) The person who handled Golf materials sales “all in cash” had disappeared taking with him monies

he received from this source. It was not known how much money he had stolen, but all Golf materials were sold at a profit of 33 1/2 % on cost price.

(iv) Three people had each paid life membership fees of N 4,000. It was decided to treat this as prepaid

amount, except for one-tenth to be credited to the Income and Expenditure Account each year. (v) Equipment to be depreciated at 20% per annum from the year of purchase. You are required to:

(a) Draw up Golf materials income statement for the year 2012 to calculate gross profit on Golf materials sold. The cash stolen should be credited to this account; a debit to be shown in the Income and Expenditure Account.

(4 marks)

(b) Prepare Income and Expenditure Account for the year ended 31st December, 2012 and statement of Financial Position (Balance Sheet) as at that date. (21 marks)

(Total = 25 marks) Comment

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This question was on Accounting for non-profit making organisation. It was the least popular question. Despite the fact that the subtopic is usually tested in this paper, it was attempted by only two candidates or a quarter of the candidates who sat for the paper. Only one candidate (or 50%) scored the pass mark, while the other candidate put up a woeful effort with F3 result. There was no candidate with a pass at distinction level. The performance was rated average and it demonstrated that the candidates were not prepared for the question. The cause of the not-too-good performance was that the candidates lacked a good knowledge of incomplete records. As a result of this, the following were obvious lapses observed on the attempts at this question: (i) Cost of Sales: Candidates were not able to obtain the correct figure for purchases which would

have been obtained through preparation of creditors’ control accounts. (ii) Cash Loss: Since candidates were not able to obtain the Cost of Sales figure, the Sales figure

was also wrong. The cash loss was the difference between Sales and the amount remitted to the bank as can be observed on the bank statement.

(iii) Accumulated Funds: Candidates did not realise the need to prepare the accumulated funds from the opening detailed balances given.

Candidates’ performance would have been enhanced if they showed their working as instructed in the question.

Answer

(a) JAGNESS GOLF CLUB INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2012 N N Sales (W2) 1,056,000 Less Cost of Sales Opening Inventories (Stock) 182,400 Purchases 689,800 872,200 Loss Closing Inventories (Stock) 80,200 Cost of Sales 792,000 Gross profit on Sale of Golf Materials 264,000 (bi) INCOME & EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER, 2012 Income N N

Golf Material Sales Income 264,000 Subscription 200,000 Life Membership 1,200

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465,200 Expenditure Cash Loss 208,000 Rent 179,200 Rates 55,000 General Expenses 13,600 Salaries 342,400

Depreciation (20% of N 160,000) 32,000

830,200

Deficit (365,000) (bii) STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) AS AT 31ST DECEMBER, 2012 N N N

Fixed Assets (Non- Current Assets) Equipment 160,000 64,000 96,000 Current Assets Inventories of Golf Materials 80,200 Subscription Owing 10,600 90,800 Current Liabilities Bank Balance 43,800 Payable for Golf Material -Supplies 44,400 Payable–General Exp. 3,000 Life Subscription:- Subscription prepaid (w3) 10,800 102,000 11,200 84,800 Financed by:- Accumulated Fund (w1) 449,800 Deficit (Income & Expenditure) (365,000) N 84,800 WORKING - NOTES:

W1 – Accumulated Fund as at 31/12/2011 111

N N Golf Material 182,400 Equipment (w4) (N 160,000-32,000) 128,000 Subscriptions 6,000 Bank 142,800 459,200 Less Payables Golf Materials 8,200 General Exp 1,200 9400 449,800 W2 – Sales Golf Material were sold @ 331/3 % profit on Cost Cost of Sales 792,000 1/3 of 792,000 264,000 1,056,000 W3 – Life Membership N Income & Expenditure Account (1/10th ) 1,200

Pre Payment (9/10th) 10,800

12,000

13 ticks + 29 ticks @ ½ mark = 21marks W4 Equipment NBV as at 31/12/2012 N Cost when purchased 160,000 Less Depreciation in 2011 32,000 Net Book Value 31/12/2011 128,000 Depreciation charged for 2012 32,000 96,000 W5: Cash Loss N Sales 1,056,000 Less Amount Paid to Bank 848,000

Cash Loss 208,000 Question 2

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Kompany Manufacturing Company Limited manufactures toys which it sells for N250 per unit. The variable cost of producing one unit of the products is N 170. The total fixed cost is N360,000 per month on which the company budget is to produce 5,000 units per month. Required: (a) What is the contribution margin ratio? (b) Calculate the break-even point in units. (c) Calculate the margin of safety and explain your results. (d) All things being equal, what is the effect of each of the following on the budgeted profit? (i) 10% increase in fixed cost. (ii) 15% increase in selling price. (iii) 5% decrease in variable cost. (e) How many units should the company produce to make a profit of N 150,000 per month? (25 marks) Comment This question was on costing. As usual with costing questions which require computation, this question gave the candidates problems. It recorded a 20% pass rate and the performance was consequently rated poor on a topic regularly tested in this subject. This shows that the candidates were not prepared for the examination. The candidates did not understand the formula to apply in determining the key concepts required – Contribution Margin Ratio; Break- even point and Margin of Safety. In the part (d) which required candidates to show the effect of some variables on budgeted profit, some candidates showed the new profit figure but not the effect on the budgeted profit. This means that they had not concluded their answers and so could not get the full marks allocated for that part of the question. Answer

(a) CONTRIBUTION MARGIN RATIO CMR = SP – VC SP 250-170 250 32% (3 marks) (b) BREAK-EVEN POINT, BEP (In Units) BEP = FC Contribution Per Unit = 360,000 = 4,500 Units

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80 (3 marks)

(c) MARGIN OF SAFETY (IN UNITS) The company budget is 5,000 units The break even point is (4,500) units Margin of safety 500

This shows that if the Company, production should drop by 500 units there will be a loss (3 marks)

(d) (i) 10% Increase in Fixed Cost = 360,000 x 1.1 = 396,000 Total Sales = 5000x N 450 N1250,000 Variable Cost 5,000x 170 = 850,000 Contribution 400,000 F/Cost 396,000 Profit N4,000

Budgeted Profit will drop by N36,000 as a result of increase in fixed cost to N 4000

(4marks)

(ii) 15% Increase in Selling Price N Total Sales 5,000 x 287.5 1,437,500 Variable Cost 850,000 Contribution 587,500 Fixed Cost 360,000 227,500

Budgeted Profit will increase by N187,500 as a result of the impact of the increased sales on contribution to N 227,500

(4 marks)

(iii) 5% Decrease in Variable Cost N Total Sales = 5,000 x N 250 1,250,000 Variable Cost = 5,000 x N 1615 807,500 442,500 Fixed Cost 360,000 N 82,500 Budgeted profit will increase by N42,500 as a result of the impact of the reduction in variable cost leading to increase in contribution by the same margin to N 82,500

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(4 marks) (e) To make a profit of N150,000 per month The Company needs to produce FC + Profit Contribution margin per unit 360,000 + 150,000 50 = 6,375 units (4 marks) Question 3 Distinguish between: (a) Error of Principle and Error of Commission (5 marks) (b) Share and Debenture (5 marks) (c) Provisions and Contingent Liabilities (5 marks) (d) Capital Employed and Working Capital (5 marks) (e) Capitalisation Issue and Capital Reserves (5 marks) (Total = 25 marks) Comment Like many essay questions set in the past, this was a very popular question and it was done quite well. It was attempted by all the eight (8) candidates who sat for the examination. Seven (7) candidates (or 87.5%) passed five (5) of whom were outstanding with distinction. The only candidates who failed had an F3 result. This shows that the candidate was not prepared for the examination. When assessing the scripts, the Examiners were satisfied in most cases with the candidates’ distinction between Share and Debenture, Capital Employed and Working Capital. Few candidates were confused in explaining the distinction between Error of principle and Error of commission. Some misunderstanding was also observed in the explanation of Contingent Liability and Capitalisation Issues. The overall assessment of the exposition on this question was very good. Answer (a) Error of Principle and Error of Commission: Both types of error cannot be detected through the preparation of a trial balance.

Error of Principle involves posting of an item into the wrong class of account. It involves making a double entry in the belief that the transaction has been entered in the correct account but subsequently finding out that the accounting entry breaks the “rules” of an accounting principle, e.g.

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treating repairs of a machine which should be a current expenditure as expenditure on a non-current asset (Capital Expenditure) Error of Commission involves the posting of an item to the wrong account of the same class, e.g. A sale of goods to Chike has been treated as a sale of goods to Chuks or telephone expenses of N 500 has been debited to electricity account OR the total credit sales in the sales day book which should be N 28,425 have been incorrectly added up as N 28,825 and this has been used to debit total receivable and credit total sales in the ledger. Although the total debits and total credits are still equal, they are incorrect by N400.

(b) Share and Debenture Share represent the liability of a limited liability company to its members, that are the Shareholders. It is the interest or right of a shareholder in a company which is measured by a sum of money. The main classes of shares are . Ordinary Shares, Preference Shares and Deferred or (Founders’) Shares. In essence, ordinary shares are the most popular type of shares and they are referred to as equity shares. They also have rights to share in the profits of the company. As owners of the company, the equity shareholders receive their share of profit only after the preference shareholders have been paid but before the referred ordinary shareholders. Debentures is a loan and not a share capital. It may be described as a bond acknowledging a loan usually under the company seal and usually secured by a charge on the company’s property or undertaking, bearing a fixed rate of interest, and being either repayable within a specified period or irredeemable during the existence of the company. The interest on the debenture is payable, whether the company is making profit or not; and in the event of the company being unable to pay the principal or interest as they falls due, the debenture holders can request the company to wind up when the debt is said to crystallise. The debenture is a preferential debt in time of liquidation.

(c) Provisions and Contingent Liabilities:

Provisions can be defined as “any amount written off or retained by way of providing for depreciation, renewal or diminution in value of assets or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy. Provisions represent a liability of uncertain timing or amount and a charge against the Profit and Loss account for the purpose of meeting a specifically known liability when the exact amount of such liability might be unknown, e.g. Provision for bad debt; Provision for discount, etc.. IAS 37 states that a provision should be recognised (which simply means “included”) as a liability in the financial statement, when all three of the following conditions are met

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• An entity has a present obligation (legal or constructive) as a result of past event. • It is probable (that is more than 50% likely) that a transfer of economic benefit will be

required to settle the obligation, and • A reliable estimate can be made of the obligation.

A Contingent Liability can be defined as a possible obligation that arises from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more certain future events not wholly within the entity’s control OR a present obligation that arises from the past events but is not recognised because it is not possible that a transfer of economic benefit will be required to settle the obligation or the amount of the obligation cannot be measured with substantial reliability. The IAS provides that contingent liabilities should not be recognised in financial statements but they should be disclosed in the notes e.g. by giving a brief description of the nature of the contingent liability, estimates of its financial effect, an indication of the uncertainties that exist and possibility of reimbursement.

(d) Capital Employed and Working Capital

Capital Employed represents the amount used in running the business. The term is not uniformly interpreted. Sometimes, it refers to the value of fixed assets and current assets (Total Capital Employed) and sometimes, it may refer to Net Capital Employed or Net worth or Net Assets when the term refers to Total Assets less Current Liabilities or the aggregate of issued Share Capital, Reserves, Debentures and long-term liabilities It is impossible to assess profits or profit growth properly without relating them to the amount of funds (capital) that were employed in making the profit. The most important profitability ratio is therefore Return on capital Employed (ROCE) which states the profit as a percentage of the amount of capital employed. ROCE measures the overall efficiency of a company in employing the resource available to it. Working Capital may be defined as the excess of current and liquid assets over current liabilities. It is the measure of the liquidity of a company. The standard test of liquidity is the current ratio which is a ratio measuring the current asset against the current liabilities. The idea behind this is that a company should have enough current assets that give a promise of “cash to come” to meet its future commitments to pay its current liabilities. However, companies are not able to convert all their current assets into cash quickly. In such businesses where inventory turnover is slow, most inventories are not very “liquid assets” because the cash cycle is so long, hence additional liquidity ratio known as Quick ratio or Acid-test ratio, is calculated. Where the working capital is declining, it indicates that the business is undergoing stress and is declining whereas if the fixed assets are unduly increasing, the business, is becoming “top-heavy” and overtrading (i.e. in table on its foundation). Working Capital is also known as Net Current Assets.

(e) Capitalisation Issues and Capital Reserves

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Capitalisation Issue is also known as Bonus issue or scrip issue. Capitalisation issue occurs where a company possesses considerable undistributed profits which it decides to capitalise. The object of capitalisation of profit appropriated to reserve or accumulated on profit and loss account is to bring the issued share capital more closely into line with the actual capital employed.

Capital Reserves are reserves not available for distribution as dividend but may be used for capitalisation issues. They may arise from the issue of share (e.g. Share Premium), Revaluation of Assets (Asset Revaluation Reserve) or set aside from profit for the redemption of share (Capital Redemption Reserve).

Question 4 (a) State the objectives of preparing: (i) A Trial Balance. (2 marks) (ii) Statement of Comprehensive Income . (4 marks) (iii) Statement of Financial position. (2 marks) (b) At the close of the year’s business, the Sundry Trade receivables (Debtors) of Mando Ltd stood at a

total of N500,000 and provision for doubtful debt is N50,000. It is considered that: (i) Manu Ltd owes N 40,000 for goods supplied .It has been declared bankrupt and as such the

whole of the debt should be written off as bad. (ii) Provisions for bad debts is to be equal to 10% of the outstanding trade receivables (Debtors).

Required: (i) Journal entries to effect the decisions. (ii) Show how the item of sundry debtors should be set in the firm’s Statement of Financial Position. (8 marks) (c) Blessing Ltd’s Financial Year ends on 31st December. Rates are half-yearly instalmentally in

advance for the period of 1st April to 31th March. That is N30,000 on 30th April and N30,000 on 31st October.

Required: Show the Rates Ledger Account, including the entries required to apportion the expenditure between the two accounting periods, the Statement of Comprehensive Income and Statement of Financial Position (9 marks)

(Total = 25 marks)

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Comment The question was attempted by three-quarters of the candidates and two-thirds of them scored pass marks. The question was divided into three parts. Part (a) involved explanation of three basic contemporary accounting terminologies: Trial balance; Comprehensive Income Statement and Statement of Financial Position. Many candidates gave good explanations for the objectives of preparing the trial balance. Few candidates were confused by the contemporary terminologies-Comprehensive Income Statement and Statement of Financial Position. The performance in this part was above average. The parts (b) and (c) involved Accounting for Current Assets (i.e Debtors), including Provision for .Bad-Debt and Prepayments.

In the (b) part which involved accounting for debtors, the entries were to be effected using journal entries. However, many candidates did not prepare their answers using journals nor were they able to prepare extracts of the Statement of Financial Position (Balance Sheet). The performance in this past was adjudged fair. The Part (c) required accounting entries to reflect adjustment on prepayment of rates. Candidate did fairly well in this section, although the responses showed that they were not well prepared for the extracts of the Statement of Financial Position

Answer

(a)(i) Objectives of Trial Balance

• To list all debit and credit balances extracted from the ledger for the purpose of preparing final account;

• As a means of checking the arithmetical accuracy of postings into the ledger;

• As an aid to the preparation of Trading Profit and Loss Accounts (Income Statement) and Balance Sheet (Statement of Financial Position) (2 marks)

(Ii) Statement of Comprehensive Income

This consists of the Trading Account and the Profit and Loss Account

Trading Account (Income Statement)

• To determine the gross profit for the trading period under review;

• To compare performance of the organisation over the period.

(2 marks)

Profit And Loss (Statement of Profit and Loss) 119

• It aids the determination of Net profit for the year.

• It shows the profit available for distribution by the owner of the business.

(2 marks)

Statement of Financial Position- Balance Sheet

• It shows the List of Assets and Liabilities of an organisation

• It shows the state of Financial Position of an organisation at a particular time

• It shows the owners’ contribution to the business and how much is due to be credited.

(2 marks) (b) MANDO LTD (i). JOURNAL ENTRIES DR CR Bad debt A/C 40,000 Manu Ltd A/C 40,000 Being balance on Manu Ltd’s Account written- Off Provision for doubtful debt 4,000 Profit & Loss account 4,000 Being excess provision Written back to maintain

The provision of 5% of Sundry debtors

(ii). EXTRACT OF STATEMENT OF FINANCIAL POSITION

(BALANCE SHEET EXTRACT) Sundry Debtors N460,000 Loss Provisions (46,000)

414,000

8ticks @ 1mark = 8marks (c) BLESSING LTD RATES LEDGER ACCOUNT N N

30/4 30,000 Profit & Loss 45,000 30/10 30,000 Rates in Advance e/d 15,000 60,000 60,000

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Rate in Advance 15,000 EXTRACT FROM THE COMPREHENSIVE INCOME STATEMENT

(PROFIT AND LOSS ACCOUNT) N Rate 45,000 EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION

BALANCE SHEET EXTRACT CURRENT ASSETS Rate paid in Advance N15,000 (9 marks) (Total = 25 marks)

Question 5 (a) Igwe Ltd prepares accounts annually to 30 September and stocktaking takes place during the

following weekend. 30 September, 2013 fell on a Monday while stocktaking commenced on 5th October and the value

of stock then, actually on the premises was N 15,918,000. You ascertained the following additional information: (i) Goods outwards are entered in the sales day book as at the date of dispatch. (ii) Goods inwards are entered in the purchases day book at the date of the invoice. (iii) Sales during the period 1st – 5th October as shown by the sales day book and the cash

sales book amounted to N200,000. (iv) Purchases during the same period as shown in the purchases day book amounted to N

151,000 but, of these, goods to the value of N53,000 were not received until after 5th October.

(v) Goods invoiced during September and not dispatched until October amounted to N 160,000, of these, goods to the value of N 130,000 were dispatched during the period 1st to 5th October and N30,000 after 5th October.

(vi) The average ratio of gross profit to turnover is 25%. Required: Calculate the value of the stock as at 30th September, 2012 for inclusion in the year’s

accounts. (12 marks) (b) On 30th August, 2013 the stock of Oluwatobi Enterprises was partly destroyed by fire. The books of

the business were saved and the following information was extracted: 121

N Inventories (Stock) January, 2013 120,000 Purchases 1st January to 31st August, 2013 400,000 Revenue (Sales) 480,000 Average gross profit percentage over the preceding two years 33 1/3 % Inventory (stocks) salvaged 30,000

Required: Calculate the amount to be claimed from Insurance Company. (13 marks) (Total = 25 marks)

Comment The question was divided into two parts. Part (a) was on determination of closing stock value (valuation of stock) when Stock Audit was conducted after year end while part (b) was on determining the insurance claim for loss of stock. The question was attempted by three candidates (or 37.5%) of the candidates and two candidates (or 66.7%) scored a pass mark. The performance of the sole candidate that failed was woeful and that earned him an F3 score. Although the performance in the question was adjudged above average; the examiners believe the candidates’ performance could have been better if theyhad prepared better.

Answer

(a) IGWE STOCK INVENTORY RECONCILIATION STATEMNET

N N Value of (Inventory) on 5th October 15,918,000 Add:- Sales during 1st to 5th October 200,000 Less: 25% Gross profit (25% of 200,000) 50,000 150,000 16,068,000 Deduct: Purchase recorded During 1st – 5th October 151,000 Less: goods not yet recovered 53,000

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98,000 15,970,000 Deduct: Purchase recorded in September but dispatch During 1st – 5th October 130,000 Stock On 30th September, 2012 15,840,00 (12 ticks @ 1 mark each 12 marks)

OLUWATOBI ENTERPRISES ESTIMATED TRADING ACCOUNT

FOR PERIOD 1st JAN to 3rd AUG 2013 N N Sales (Revenue) 480,000 Stock 1st Jan, 2013 120,000 Purchases 400,000 Estimated Stock 200,000 Estimated Gross

Profit (33 1/33% of 480,000 160,000

680,000 680,000

(13 ticks @ 1 mark each = 13 marks) (b) OLUWATOBI ENTERPRISES

ESTIMATED AMOUNT TO BE CLAIMED FROM INSURANCE COMPANY

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N

Estimated stock value 200,000 Less: Value of stock salvaged 30,000 Insurance Claim 170,000

Question 6 (a) List and explain any five (5) users of financial statement. (5 marks) (b) Financial accounting information has two particular features which limit its usefulness. Discuss these

two features of financial accounting information.

(5 marks) (c) The following are the financial statement of Wale Limited: Statement of Comprehensive Income as at 31st October, 2010 N’000 N ‘000 Sales 224,000 Cost of Sales (180,000) Gross Profit 44,000 Operating Expenses 24,000 Interest 4,000 28,000

Net Profit Before Tax 16,000 Taxation (8,000)

Net Profit After Tax 8,000 Statement of Financial Position as at 31 October, 2010

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Cost Depreciation Net Book Value N’000 N’000 N’000 Plant and Equipment 88,000 8,000 80,000 Motor vehicle 22,000 2,000 20,000

110,000 10,000 100,000 Current Assets

Stocks (Inventory) 45,000 Debtors (Trade Receivables) 32,000 Prepayment 2,000 Bank 8,000 Total Assets 87,000 187,000

N’000 N’000 N’000 Equity and Liabilities Issued Capital (Ordinary Shares) 40,000 Returned Earnings 61,000 101,000 Non- Current Liabilities 8% Debenture Stock (2013-2014) 50,000 Current Liabilities: Creditors (Trade Payables) 36,000

Total Equity and Liabilities 187,000 Required: Assuming the level of stock (inventories), debtors (trade payment) have remained constant throughout the year, calculate and explain the significance of the following ratios: (i) Current ratio (ii) Gearing ratio (iii) Debtors’ collection period (iv) Creditors; payment period (v) Stock turnover (15 marks) (Total = 25 marks)

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Comment This simple question on Financial Statement Analysis was the second most popular question as it was attempted by seven (or 87.5%) of the candidates but surprisingly, only one candidate (or about 14.3%) scored a pass mark. The question was divided into three parts. Part (a) required candidates to list and explain five users of Financial Statements. This presupposes that candidates who listed a user without explaining the significance of the financial statement to the user could not expect to get the full marks. The performance was above average though. Part (b) required candidates to discuss the features which limit the usefulness of accounting ratio. Many candidates, however, could not explain the limiting features. The performance in this part was below average. Part (c) tested the computation of some accounting ratios and explanation of the ratios. Examiners were not impressed by the quality of the responses. Most candidates did not know the formulas to use for the calculation and also could not explain the significance of the ratio. The candidates’ overall performance in the question was rated poor. Candidates’ are advised that a good knowledge of financial statement analysis and, in particular, calculation of ratio is essential to a successful completion of the Institute’s qualifying examinations for its relevance to other advanced subjects and in developing a career in banking. Answer (i) The following are the users of financial statement:

(i) Owners / Potential investors.; (ii) Managers / Managements; (iii) Creditors/ Suppliers; (iv) Customers / Clients; (v) Employees / Trade Unions; (vi) Government; (vii) Analysts; (viii) Public .

These users of financial statement can gain better understanding of the significance of the information in the financial statement by comparing it with other relevant information. Specifically, the various groups are interested in the performance and financial position of a company as it affects their needs. These are discussed below: (i) Owners / Potential Investors. These are the shareholders. They require information regarding the performance of the firm in terms of its profitability or otherwise. They equally require the information to ascertain the financial position of the firm with a view of to judging whether it is a sound investment. They need information on risk and return on investment and the ability of the entity to pay dividends.

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(ii) Managers / Management: Unlike other users, they need information on all aspects of the firm. Timely, complete and regular financial information will enable management to monitor performance and compare actual performance with planned performance so that necessary corrective actions can be taken where necessary. This is in an effort to ensure that the business is performing efficiently and according to plan. (iii) Creditors/Suppliers: This group includes loan creditors. They require information to judge its creditworthiness, to assess whether loans and related interests and invoices will be paid when due. (iv) Customers / Clients: The customer is the king in any firm. They require information which relate to products, prices, quality and reliability. They will want to judge the company whether it will continue in existence, especially where they have a long-term involvement with the company or a dependence on their product. (v) Employees / Trade Unions: They need information to be able to assess the employee’s stability and profitability, and whether the firm is strong enough to provide remuneration and other benefits. They need information to enable them form an opinion about the firms job security. (vi) Government: The government needs to be able to assess taxation and regulate industries, as well as use the information for statistical purposes. The following government agencies require financial information on companies.

* Tax authorities for tax purposes; * Corporate Affairs Commission (CAC) for regulatory and record purposes; * Federal Office of Statistics (FOS) for necessary and relevant economic and industrial data

for national planning; * Central Bank of Nigeria (CBN) for regulatory purposes; * Federal Mortgage Bank of Nigeria (FMBN)– for regulatory purposes.

(vii) Analysts: This group analyses financial statements for varying information needs. They provide their expert opinion based on the information made available to their clients or employers. (viii) The Public: These are other people who have some interests in the business but are not yet members, e.g. intending investors. They require to find out through the financial information the position and the profitability level of the firm. (5 marks) (b) Features that Limit the Usefulness of Accounting Information

(i) It is Historical – Decision makers require future information to enable them make better decisions but financial accounting is unable to provide such information.

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(ii) Financial Accounting Information is expressed in monetary terms. That is, it only provides information that can be expressed in monetary terms. (e.g. Naira and kobo). Non-quantifiable information which, in many cases, are equally important for decision making and planning cannot be provided by financial accounting.

(5 marks)

(c) WALE LTD

RATIOS CALCULATIONS SIGNIFICANCE Current Ratio Current Assets

Current Liability 87,000,000 36,000,000 241

This ratio measures the ability of the company to meet its liability obligations as at when due

Gearing Ratio Debt Capital Equity Capital 50,000,000x100 101,000,000 = 49.5%

Gearing ratio is concerned with a company’s long- term capital structure a company with gearing ratio of more than 50% is said to be highly geared A highly geared company may have the problem of borrowing in future.

Debtors’ Collection Period

Debtors x 365 days Sales 32,000,000 x365 224,000,000 = 52.1days

Debtors’ collection period is a ratio that gives explanation of working capital management of the company. A poor debtors’ collection period implies that debtors are not paying on time

Creditors’ Payment Period

Creators’ x365 days Purposes 36,000,000 x 365 days 180,000,000 = 73 days

This ratio also helps to assess a company’s liquidity. A high creditor period may imply poor management or current extended credit feom suppliers

Stock Turnover Ratio

Coat of Sales Stocks 180,000,000 45,000,000 = 4 times

This ratio measures how vigorously a business is trading A slow stock turnover ratio may imply a slow trading or a building of stock levels.

(15 ticks @ 1 mark each +15 marks)

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Conclusion The 75% pass rate observed in this paper was adjudged above average. Candidates are urged to take the impressive performance observed to the next level of the Institute’s examination. The candidates are to note the need for improvement in the weak areas observed –Incomplete Records/Accounting for non-profit making organisations and Financial Statement Analysis and Costing. A good knowledge of accounting ratio Financial Statement Analysis is essential for students to do well in some other subjects of the institutes examination such as Lending and Credit Administration, Financial and Management Accounting. Practice of Banking and in developing a career in Banking.

A ( 1) FAILURE – For all subjects excluding Basic Accounting No. of Candidates GRADE

F3 F2 F1

MARKS 0-29 30-39 40-43

TOTAL A (II) FAILURE - For Basic

Accounting

GRADE F3 F2 F1

MARKS 0-24 25-34 35-38

-1 -1 -

TOTAL 2 B (1) B (II) C

PASS – for all subjects, excluding Basic Accounting *44-69 PASS-for Basic Accounting *39-69 DISTINCTION (70% and above for all subjects) OVERALL TOTAL PASS (i.e. B+C-D

6 - 6

E PERCENTAGE OF PASSES (i.e. B=C-D) 75% NOTE: *449 should be rounded off to 50 for all subjects except Basic Accounting. *39 should be rounded off to 40 for Basic Accounting

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ECONOMICS

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GENERAL OVERVIEW Economics, as a social science subject, equips students with the ability to describe, analyse and interpret economic and financial issues affecting the banking industry in particular and the economy at large. In view of this, the April 2014 diet questions were carefully selected to cover all the relevant topics of the syllabus. This paper contains four questions from Section A (Microeconomics) and three questions from Section B (Macroeconomics), of which the students were required to answer five questions with at least two from each section. The performance of candidatesin this examination was much better than previous ones October 2013 (68%) and April 2014 (100%). In this diet, out of6that sat for the examination, 3 had distinction and 3 passed, representing 100% pass rate. This performancemay be due to adequate coverage of the syllabus and additional effort not to carry the subject to the new syllabus. It must be noted that success in Economics requires the following tips:

vi. Adequate preparation for the examination. vii. In-depth knowledge of the subject matter. viii. Appropriate use of economic language. Students should endeavour to be familiar with

Economics jargons as it helps in explaining economic issues. ix. Good spellings and good writing. It must be emphasised that bad writing distort good points. A

good answer will only earn a good mark if it is readable; hence a good point that cannot be read earns no mark. In like manner, wrong spelling reduces marks awarded for a question.

x. Orderly presentation of points: It must be reemphasised that orderly presentation of points is vital for success in any examination. No matter how good the answer may be, wrong presentation will reduce the expected mark.

Question-by-Question Performance There were seven questions in all, of which candidates were expected to answer five questions with at least two from each section. The summary of the performance is tabularised as follows:

SECTION A

Question 1 Write short notes on the following cost concepts (using relevant diagrams as appropriate):

(a) Total Cost (b) Marginal Cost (c) Average Cost (d) Variable Cost (e) Fixed Cost.

Question No.

Attempted Passed Pass Rate (%)

Failed Failure Rate (%)

1. 4 4 100 - - 2 6 5 83 1 17 3 4 4 100 - - 4 5 2 40 3 60 5 4 4 100 - - 6 4 3 75 1 25 7 3 2 67 1 33

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Comment This is a popular question with impressive performance. All the Four (4) candidates that attempted the question passed, resulting in a 100% pass rate. Answer

(a) Total Cost: This is the sum total of fixed cost (TFC) and total variable cost (TVC) at any given level of output. It varies with any given level of the firm’s output. TC = TFC + TVC

(b) Marginal Cost: This is the addition to total cost resulting from the production of an additional unit of output. MC = dTC

dQ (c) Average Cost: This is obtained by dividing the total cost with the level of output. Average cost

initially falls, reaches minimum and eventually rises (d) Variable Cost: This is the part of total cost that changes with the increase in the level of output. As

depicted under the total cost, it starts from the origin. It rises with the increase in output from zero. (e) Fixed cost: This is the cost incurred on the fixed inputs. At any level of output, the total fixed cost

remains the same. It is also referred to as overhead cost and is represented in the total cost graph. Question 2

c) Define the term ‘market’. d) State any three features of a monopoly.. e) Outline any three sources of monopoly power.

Comment This was a popular question among the candidates with good performance. Six (6)of them attempted the question with only one failure. This represents a 83% pass rate. Answer (a). Market is any arrangement through which buyers and sellers communicate to exchange goods and services. It may be in a specific geographical location or may be through telephone or post office, etc. (b). Features of a Monopoly

i. A single firm (seller) that controls the total supply of a commodity in the market. ii. Monopolist is a price setter. iii. The firm’s demand curve is also the market demand curve and is downward sloping because lower

prices are required if larger quantities are to be used or sold iv. There is barrier to entry of new firms. v. Monopoly firm redistributes income from factor owners to itself by retaining supernormal profits vi. There is a unique product for which there exists no respect or close substitute vii. It is the most concentrated industry. This is because almost all the assets of the industry, all the

productive facilities and all the market’s power are concentrated in one firm because the single firm is the industry

(c). Sources of Monopoly Power

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i. Control of the entire supply of a basic input: If the entire supply of basic raw materials required for the product is controlled by a single firm or a country, such firm or country would monopolise the supply of the product.

ii. Monopoly may arise because of large-scale production and economies of scale. Monopoly power may be retained through cost advantage gained from the use of cost-saving technology which enables it to sell at a lower price than any competitor.

iii. Franchise and Patients: If a firm invents a machine after huge costs have been incurred on research and development efforts, the government may grant the firm a patent right that prevents any other firm from producing exactly the same type of machine.

iv. State Monopoly: Government as a way to prevent exploitation may assume a monopoly power in the production of some commodities or in the provision of same services.

v. Merger and Acquisition: When big firms merge to control the market supply, they establish a strong monopoly power, and thus, chas away the competitors.

Question 3

(c) What are business organisations? (d) Mention and explain any three factors that determine the size of business units. (e) Discuss any three sources of finance available to business organisation.

Comment This is a well-attempted question by candidates who sat for the paper. The performance is impressive. All the four students who attempted the question passed, translating to a 100% pass rate. Answer (a). Business organisations are the enterprises set up by individuals, governments and their agencies for the main purpose of providing goods and services, with a view to making maximum profits, erg. Sole proprietorships, partnerships, joint-stock companies or co-operatives (b). Factors that determines the size of business units

i. Number of workers employed. ii. Nature of Business: This could be in form of primary production or direct services for small firms and

complex secondary and tertiary production for large firms iii. Technique of Production: This depends mostly on human labour for small firms and the use of large

capital equipment for large firms. iv. Capital Involved: Small capital outlay for small firms, and large capital outlay for large firms at the

initial stage. v. Size of the Market: Small market for small firms while an extensive market is needed where demand

is large. vi. Economies of Scale: In a small firm, expansion is not very easy because any undue expansion may

give rise to diminishing returns but a large firm can benefit from economies of scale, both internal and external.

vii. Problem of Space: Since little capital is required in the establishment of small firms, there may be the problem of space for growth or expansion, but, for large firms, since there is plan for growth at the inception of its establishment, there will be little or no problem for expansion

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c. Sources of Finance to Business Organisations i. Personal Financial Resources: This involves personal savings,contributions by groups that form the

organisation. ii. Loan from Individuals: This involves loan from friends and relatives. iii. Loan from Financial Institutions, such as the Bank of Industry (BOI), commercial banks or insurance

companies. iv. Ploughed Back Profit: This is the re-investment of profit made by the company v. Trade Credits: This is when creditors supply materials or inputs to a company for a period of time

before payment. vi. Equity Shares: This is the major source of finance to joint-stock companies. They obtain funds from

the general public by issuing shares and giving shareholders certificate of participation in the ownership of the corporation.

vii. Debentures: These are long-term loans obtained from the public at a fixed interest. They may be redeemed by the subscribers after expiration of the loan period.

viii. Government Subvention or Subsides or Grants. ix. Tax holiday and rebate, which allow new firms to establish themselves before they are expected to

pay full tax. Question 4 With appropriate illustration, explain the following forms of taxation. (a)

(i) Progressive tax (ii) Proportional tax (iii) Regressive tax.

(b) State four problems of development planning in developing economies like Nigeria Comment This is a popular question among the students as 83% of the candidates attempted it. However, the performance was bad, as only two (2) out of five (5) candidates passed, thereby recording the highest failed question for the subject. The pass rate was only 40%. Answer (a). Forms of Taxation i. Progressive Tax: This form of taxation exists when taxpayers pay more as their income increases.

The implication is that, the rich in the economy pays more. ii. Proportional Tax: This allows taxpayers equal rate on their income. In other words, taxpayers pay

the same proportion of their income. iii. Regressive Tax: This form of taxation exists when a higher tax rate is levied on the lower income

earners or taxpayers to pay smaller proportion of their income as tax (b). Problems facing development planning in the developing countries like Nigeria are:

i. Insufficient and unreliable statistical data; ii. Lack of adequate qualified personnel; iii. Poor implementation of past plans; iv. Overambitious nature of planners;

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v. Political instability; vi. Policy inconsistency; vii. Overdependence on external source of finance.

SECTION B.

Question 5

(c) What do you understand by central bank? (d) Discuss two conventional/ traditional functions and two developmental functions of the Central Bank

of Nigeria. Comment This is another question with a good performance. The total number of candidates who attempted the question were four (4), and all of them passed, resulting into a 100%.pass rate. Answer (a). Central banking is the act of providing regulatory, supervisory and developmental role by a

government-owned financial institution in an economy. Such institution, known as a central bank, acts at the apex financial institution and overseas all the activities of other financial institutions in the system

(b). Traditional functions of the Central Bank of Nigeria are: i. Bankers to the Government: The Central Bank of Nigeria (CBN) is the federal government banker

and adviser in financial matters. It receives and pays bills on behalf of the government. ii. Issuance of currency: The Central Bank of Nigeria (CBN) is solely responsible for the printing of new

currency (notes and coins) as well as withdrawal of old currency from circulation. iii. Bankers to Other Banks: All other banks open accounts with the Central Bank through which

financial transactions occur between them. iv. Lender of Last Resort: The Central Bank bails the government out of illiquidity or cash shortage. v. Management of the country’s liquidity to ensure that there is no excess or shortfall in cash supply

within the system. Developmental functions are:

i. Financial System Stability: The Central Bank ensures that the financial system is prevented from collapse. It regulates the activities of the commercial banks and other financial operators regularly.

ii. Development of the Lending Sectors: The Central Bank ensures that loans and credit facilities are directed to sectors that will promote growth and development of the economy. It creates microfinance institutions to provide loan facilities to small businesses and special lending directives to specific sectors.

iii. Development of specialised banking institutions such as the Nigerian Export - Import Bank (NEXIM), Nigerian Deposit Insurance Corporation (NDIC), etc.

Question 6

(c) What are the functions of Commercial Banks? (d) N20,000 is deposited in a bank with 10% cash reserve ratio. If the commercial bank money creation

ability is efficient as required by the credit creation theory, what is the maximum money created?

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Comment This is a fairly good performance as four (4) candidates attempted the question with three (3) passes and one (1) failure. This represent 75%pass rate Answer (a). The functions of commercial banks are:

i. Acceptance of Deposits: The Commercial banks make profit or generate income through acceptance of deposits from customers which they lend to creditworthy customers.

ii. Creation of Demand-Deposit: They create money by lending out deposit money that are received from customers.

iii. Acting as Agent of Fund Transfer. The commercial banks transfer funds on behalf of their customers. iv. They provide foreign exchange services to their customers. v. Equipment Leasing: Commercial banks finance the purchase of fixed assets for their customers,

usually firms or business enterprises. vi. Brokerage Services: Commercial banks act as an intermediary between their customers and other

agents both in the money and capital markets. (b). The maximum money to be created is given as follows: Maxi = maximum money to be created A = Initial deposit; R = cash reserve; A = 20,000; r = 10% = 0.1; Total Money Created =N20,000 (1/0.1) = N200,000 The initial deposit of N20,000 leads to a maximum creation of N200,000 when cash reserve ratio is 10%.

Question 7

c) Explain the difference between ‘demand pull inflation’ and ‘cost push inflation’ d) What are the causes of each type of inflation? Briefly discuss them.

Comment This is an unpopular question among the candidates. Out of the six (6) candidates who sat for the paper only three (3) attempted the question with two (2) passes and one (1) failure. Answer (a) (i). Demand Pull Inflation: Demand Pull Inflation exists where there is a persistent rise in the

general price level resulting from a persistent rise in aggregate demand. It usually exists when the aggregate demand exceeds the productive capacity in an economy. (ii). Cost Push Inflation: It exists when there is an increase in cost of production. When production cost increases, it is passed to the consumer in form of higher price. This leads to cost push inflation.

(b) Causes of Inflation: (i) Increase in money supply; (ii). General increase in spending;

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(iii). Rising cost of borrowing in the money market; (iv) Low capacity utilization; (v) Increase in salaries and wages.

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GENERAL PRINCIPLES OF LAW

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A. GENERAL OVERVIEW (i). Syllabus Coverage; The paper covered the syllabus very comprehensively.

(ii). Adequacy of Time; Three hours amounting to an average of 36 minutes per question WAs quite

adequate for any body that prepared well for the examination. (iii). Consistency in number of questions: Very consistent. (iv). Instructions to Candidates; The instruction to candidates were very clear and quite easy to follow. B. QUALITY OF QUESTIONS

For a diploma level examination, the quality of questions was very adequate. C. EVALUATION OF SCRIPTS

The standard of evaluation of the scripts was very high and should be maintained and even improved upon.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE.

The overall performance of candidates at 85% was above average although there is a lot of room for improvement as most of the passes were marginal passes.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES

Total No. of candidates

Total No. of Distinctions

Total No. of Passes

Pass Rate in

Percentage

Fail 1 Fail 2 Fail 3

3 Nil 2 67% Nil Nil 1

F. ANALYSIS OF ATTEMPTS PER QUESTION

Question No. Total No. of Candidates that

Attempted Question

No. of Distinctions

No. of Passes No. of Failures

1 3 - 2 1 2 3 - 1 2 3 1 - 1 0 4 3 - 2 1 5 1 - 1 0 6 2 - 0 2 7 2 - 2 0 8 -- - - -

G. EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS SECTION A Question 1

(a) Explain the various ways of crossing a cheque. (b) What is the effect of the words ‘ACCOUNT PAYEE ONLY’ on a cheque?

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(c) Maito drew a cheque in pencil in favour of Uche for payment of computer accessories he bought from Uche but forgot to insert a date on it. Uche thought he lost the cheque but discovered in his wardrobe after six (6) months of issue. On presenting the cheque to the bank, Uche was informed by the bank clerk that the cheque was undated and he immediately inserted the day’s date on the cheque. However, the bank clerk refused payment despite the fact that Maito’s account was well funded. Advise Uche on the position of this transaction. (20 marks)

Comment This question on crossing of cheques and their implications for the banker / customer relationship is a practical everyday question for a typical banker and it was therefore not surprising that all the three candidates attempted it. It is, however, disappointing that one of these candidates could not make the pass mark and may be unable to transit seamlessly to the new syllabus.

Candidates should therefore endeavuor to cover the syllabus, read all the key texts as well as make a thorough review of the journals, financial dailies and periodicals, and past question papers.

Answer (a). The main purpose of crossing a cheque is to safeguard and protect the interest of bank customers.

It should, however, be noted from the outset that crossing per se does not destroy the negotiability of a cheque except when the words ‘Not Negotiable’ are written within the parallel lines. There are basically two broad ways of crossing a cheque, namely: (1) General Crossing: This involves the use of vertical or traverse parallel lines with some words

written within the two lines, such as ‘Not Negotiable’, Account Payee only’, ‘& Co.’ etc. (2) This also involves the drawing of two vertical parallel lines across the face of the cheque but this

time with the name of the bank in which it is to be paid written within those lines. Thus, it is said to be specially crossed in favour of that bank.

(b) Account Payee Only: This implies that the cheque, just like in the case of all other types of crossings, cannot be paid across the counter but into the payees’ account only.

(c) Non-dating of the cheque makes it an inchoate instrument. However, the validity of the cheque or any other bill of exchange can be restored by the insertion of the missing date and the six month period of validity begins to read from the date on the cheque, no matter when inserted, unless it can be proved otherwise. The bank should therefore pay the cheque, all other things being equal.

SECTION B Question 2 (a). State how contracts are discharged in a typical agreement. (b) Banuso, a music hall owner, engaged the services of Tonto, a musician, to perform before an

audience of about 500 people to round off the independence anniversary celebration on 20th of December, 2011. On the 15th of December, 2011, Tonto was called up by the government for military service which lasted for about six months. Banuso, naturally very unhappy that Tonto could not honour the agreement, sued him for non-performance and claimed damages for breach of contract on the ground that Tonto accepted engagement by the government for military service without his prior consent.

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Has Tonto any defence in law? Comment A straightforward question on the discharge of a contract ought to have been a bonus question indeed. All three candidates attempted the question and, disappointingly, only one of them passed. Again, preparation is the key thing and candidates must always show the required seriousness before they can succeed in these examinations. Answer (a). Discharge of contract can take place on the following grounds:

(i) By Performance: When both concerned have performed their obligations under the contract terms and conditions. (CUTTLER V. POWELL)

(ii) By fundamental breach of the terms of the contract. (iii) By Agreement: Both parties can agree to mutually discharge themselves from further

obligations under the terms of the contract. (iv) By Lapse of Time: If the time frame for the contract lapses, the underlying contract ceases

to exist. (v) By Frustration: This is usually due to an ‘Act of God’ referred to as ‘Force Majeure’, in other

words, circumstances beyond human control. (b). The contract between Banuso and Tonto is that of Personal Service. The call-up of Tonto by the government for military service was not envisaged by either party at the inception of the contract. The non availability of Tonto as a result of his call-up for military service has substantially affected his performance under the contract. Therefore, the contract can be regarded as having been frustrated. In the light of this, Tonto’s defence will be the pleading of Frustration and Banuso, quite unfortunately, will not be able to recover any damages.

(POUSSARD V. SPIERS AND POND, 1876).

Question 3 (a) What do you understand by the doctrine of ‘STAER DECISIS’ and how does this doctrine operate

in Nigeria? (b) Explain the terms ‘COMMON LAW’ and ‘DOCTRINE OF EQUITY’ in the context of being part of the

sources of the Laws of Nigeria. (c) What are the relevant qualifications for appointment as Chief Justice of Nigeria?

(20 marks) Comment “Stare Decisis,” as a legal concept, may not be a very familiar one for the entry level bankers that constitute the bulk of the candidates at this foundation stage of the examination. It is therefore not surprising that only one of the three candidates had the courage to attempt the question and, mercifully, passed it, albeit marginally. Questions should be framed at all times bearing in mind the level of exposure of the candidates for whom such questions are meant. Answer (a) Staer decisis or ‘Judicial Precedent’ is the doctrine by which a lower court must follow the previous decision of a higher court provided the facts of the case before it are on all fours with the case decided by

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the higher court. The practical application of this doctrine is made possible by the existence of an established judicial hierarchy and up-to-date Law Reports. The doctrine operates as follows in Nigeria: The decision of the Supreme Court is binding on all other courts in Nigeria being the apex court from which there is no further appeal. It is followed by the Court of Appeal, then the various High Courts (Federal, State and Industrial) and down the line to Magistrate Courts. (b) Common Law is the basic law of England developed by the judges of the old common law courts, the King’s bench, court of common pleas and the exchequer from the local custom of the English people. Doctrine of Equity simply means fairness and was developed to ameliorate the harshness and rigidity of common law. It is also a case law system but developed by the court of chancery. Both Common Law and Equity are sources of Nigerian law by virtue of local reception statutes and laws by the colonial administration at the time. (c) The Chief Justice of Nigeria is appointed by the President on the advice of Judicial Advisory Council subject to confirmation by a simple majority of the Senate. He must be a Legal Practitioner of not less than 15 years’ post-call experience. He must be a moral beacon of impeccable character.

Question 4 (a). What do you understand by the term ‘Independence of the Judiciary’? How has it been safeguarded

under the Constitution of the Federal Republic of Nigeria 1999? (b). Give a brief outline of the constitution and functions of the National Assembly under the Constitution

of the Federal Republic of Nigeria, 1999. (20 marks)

Comment “Independence of the Judiciary” is an area that should not pose a serious problem to any serious minded candidate. Again, expectedly, all three (3) candidates attempted the question and, again, one of them could not make the pass mark. Candidates should always approach these examinations with the seriousness that they deserve. Answer (a). The Constitution of the Federal Republic of Nigeria, 1999 provided for the safeguard of the Judiciary in Nigeria as follows:

(i) Manner of Appointment: Judges are appointed based on good behaviour, beyond reproach, impeccable character and must be above board.

(ii) Salaries: Judges earn their salaries and personal emoluments for life, even after retirement from active service, direct from the Consolidated Fund.

(iii) Immunity: Judges enjoy immunity in the course of the discharge of their judicial functions. (iv) Contempt Powers: Judges have wide powers to instil discipline in the courts through the use

of the power to arrest, charge and sentence persons for contemptuous behaviour displayed before their courts.

(v) Facilities: They are expected to be given adequate facilities such well equipped and comfortable courtrooms and chambers, adequate and qualified manpower, etc., to make for efficient and effective discharge of their judicial functions.

(b). The National Assembly, that is to say the legislature at the federal level, is made up of two chambers- the Senate and the House of Representatives under the 1999 Constitution of Nigeria. The Senate is

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composed of 3 senators from each of the 36 states of the country and one from the FCT, each of whom must not be below 40 years of age. The House of Representatives, on the other hand, shall be composed of members not below 21 years of age representing each of the Federal constituencies in the various states of the federation, including the FCT. It is headed by a Speaker to be elected from amongst themselves.

The National Assembly performs the following functions: (i) Making laws for the good governance of the country (ii) Confirming ministerial and other appointments of the President of the Federal Republic of

Nigeria as provided by the Constitution. (iii) Considering of annual and other spending estimates of the President presented before it for

approval (iv) Exercising oversight functions of the various Ministries, Departments and Agencies (MDAs)

of the Executive arm of the Federal Government.

SECTION C Question 5 (a). Set out the rights and remedies available to a Legal Mortgagee of land once the Mortgagor is in

default of his obligation. (b). On what grounds may the Governor of a State revoke a statutory Right of Occupancy under the

Lands Use Act of 1978. (20 marks)

Comment The theory and practice of Mortgages constitute the core of the legal aspect of lending which, in turn, is at the heart of banking business. This may be a technical and apparently dry subject, it is at the same time a very interesting area of banking and candidates should always expect to be tested in this area in one form or the another and therefore ensure that they familiarise themselves with the topic. However, only one candidate attempted the question and, quite commendably, scaled through the hurdle.

Answer (a) Subject to any provision to the contrary in the mortgage deed, a Legal Mortgagee has the following rights and remedies once the mortgagor defaults in his obligation under the mortgage.

(i). Suing on the personal covenant to repay. (ii). Sale of the property; (iii). Appointment of a Receiver; (iv). Foreclosure; (v) Taking of possession.

(b) Grounds of Revocation of s Right of Occupancy.

(i). Breach of the term of the grant, eg default in payment of rent; (ii). Overriding public interest and policy; (iii).Refusal to accept or pay for the Certificate of Occupancy; (iv).Federal Government’s notice of its need to use the land for public purpose; (v) State Government need of the land for public purpose.

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Question 6 (a). State the five clauses which will be set out in the Memorandum of Association of a recently

incorporated company limited by shares. (b). In relation to companies, what is meant by the ‘ULTRA VIRES’ doctrine? Mention a decided case

on it. (20 marks) Comment A very practical and everyday question for an average banking student. The five (5) typical clauses that appear in a standard Memorandum of Association of a limited liability company should be an easy one for candidates. Alas, none of the two candidates that attempted the question passed, a very poor commentary on both the teaching and learning techniques that may have been deployed by all concerned. Efforts must not be spared to avert this embarrassing but avoidable calamity in future diets. Answer (a). Under the Companies and Allied Matters Act 1990, the five (5) clauses in the Memorandum of Association of a limited liability company are as follows:

• The name of the company ending with the word ‘Limited’; • The address of the registered office of the company ( not P.O. Box); • The objects of the company; • That the liabilities of the members are limited. • The share capital showing the amount and its divisions thereof.

(b). Under S.38 of the Companies and Allied Matters Act 1990, a company shall have power to carry out its objects. However, S.39 stipulates that a company cannot do the following:

• Business not authorised by its Memorandum and Articles of Association. • Exceed the powers stipulated in its Memart, which actions shall be declared ultra vires the company

and are said to be null, void and of no effect. (Continental Chemists Limited v. Ifekandu) (Ashbury Railway Carriage & Iron Company v. Riche).

Question 7 (a). Mention five (5) defences of the action under the Ryland v. Fletcher case. (b). Mr. Goodman, out of sympathy, offered Nene, a pregnant woman, a car lift in a crowded bus stop in

Lagos. While Mr. Goodman was driving along the highway, his phone rang and in an attempt to answer the phone, he ran over a 10-year- old school boy, at a zebra crossing. On seeing the crushed body of the boy, Nene went into spontaneous labour having suffered a nervous shock and, as a result, lost a pregnancy that took her 20 years to conceive. Nene and her husband became very depressed and are threatening to sue Mr. Goodman to court for damages. Advise Nene and her husband Tony about their rights, if any.

Comment This question, a test of the knowledge and practical application of the rule in the case of Ryland V. Fletcher, was attempted by two of the three candidates both of whom, very interestingly, passed. This is proof of the fact that adequate preparation pays off handsomely at all times!

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Answer (a). Defences for action under Ryland v. Fletcher are as follows: (i). Voluntia non fit injuria (ii). Act of God (Force Majeure) (iii).Statutory authority (iv).Act of stranger (v). Plaintiff’s action. (b). Mr. Goodman, the Samaritan, had genuine intention to render assistance to Nene, the pregnant woman. However, accident has occurred due to his negligence. He owes Nene a duty of care. Mr. Goodman was in breach of that duty and as such Nene is entitled to damages. (Donoghue v. Stevenson). However, Tony, Nene’s husband, cannot recover any damages because he was not present at the scene of accident, i.e. he was too remote to be linked to the accident and its effects thereof.

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INTERMEDIATE

ELEMENTS OF BANKING

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General Overview Examiners expected that candidates would have prepared very well for this diet examinations knowing full well that this is their last chance of writing examination based on the old syllabus. However, this assertion paid off as many of the candidates performed creditably well. We hope candidates who could not scale the hurdle will work assiduously to harmonise the old and new syllabus for a desirable result in future examinations. Time allocated for the examination was considered adequate since most of the questions attempted were satisfactorily answered. Comments on Questions All the questions which were set within the scope of the syllabus are standard, straight-forward and well-structured and this culminated in satisfactory performance recorded therein. Evaluation of Scripts The quality of marking exhibited in all the scripts reviewed by the examiners was satisfactory, a development that resulted in an objective evaluation of the candidates’ performances. General Comments on Candidates’ Performance The performance this diet was indeed satisfactory, though with the pass rate lingering at 80% as obtained during the April 2014 diet. We are happy to close out on this impressive note and hope this trend would be reflected for some time to come on the new syllabus. Analysis of General Performance of Candidates

Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rates in Percentage

Failure

F1 F2 F3 45 5 31 80 Nil 4 5

A total of 45 candidates as against71 in the April. 2014 diet, sat for this subject at both the certificate and intermediate levels and, of this number, 36 candidates (or 80%) passed with five distinctions while 09 (or 20%) failed as follows, F1 :Nil, F2:4 and F3:5. Analysis of Attempts Per Question

Question No.

Total No. of Candidates that Attempted Question

No. of Distinctions No. of Passes No. of Failures

1 41 16 17 08 2 29 01 13 15 3 33 06 14 13 4 13 01 04 08 5 31 09 13 09 6 30 04 11 15 7 43 15 25 03

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QUESTION- BY- QUESTION ANALYSIS Question 1

(c) List and discuss five types of money. (d) Is there any difference between near-money and pure money?

(20 marks) Comment This is a popular question and the end justified the means as most of those that attempted it appeared to have a full grasp of the question, more so when the topic has become a familiar terrain for candidates. This question was attempted by 41 (or 91%) of the candidates, out of which 33 (or 80%) passed. It ranked 2nd in popularity and in pass rate. Answer (a)(i) Commodity Money: This is money which has commodity value/content in relation to its value as money, i.e. it carries intrinsic value (e.g. gold and silver), but if the commodity content is higher than its value as money, it ceases to serve as money. (ii) Legal Tender: This type of money has the backing of the law of the country. Any commodity which a country’s law legislate as money is regarded as a legal tender. (iii) Token Money: This type of money has no commodity content. It is a money without intrinsic value. For example, Naira in Nigeria is worthless as a commodity but has value as money. The face value is greater than the value of the content used in printing it, i.e. the intrinsic value is less than the face value. (iv) Quasi/Near-Money: Near money is an asset that performs the function of store of value but does not adequately perform the function of medium of exchange. These are those financial instruments that needed to be converted before they can be generally accepted for the settlement of trade debts (v) Paper Money/Fiat Money: This is a pure token issued by each country’s central bank as fiduciary issue. It is a legal tender because it is enforced by law. (vi) Bank Deposits: These are deposits in current accounts/demand deposits. They are acceptable as a means of payment because people can draw cheques on their accounts to make payments. In other words, bank deposits are forms of money deposited with the bank which are equally withdrawn by cheques. They are an example of pure money. (The above list is not exhaustive through 3 marks each for any 5 points = 15 marks) | (Total = 20 marks) (b) Near Money and Pure Money The difference between pure money and near money is that pure money is in its spendable form and therefore enhances the exchange process unlike near money which is not generally acceptable for payment for goods and services. Pure money is easily transferable from one party to another and generally acceptable, unlike near money, e.g. Cheque. (5 marks)

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Question 2 (a). Explain what is meant by Development Bank. (b). What are the objectives of Bank of Agricultural Co-operative and Rural Development Bank. (BOA)?

(20 marks)

Comment Although this question was fairly attempted by candidates, the overall result revealed that this part of the syllabus appears not to have received their reading attention. Therefore, candidates should note that it will do them a lot of good to dwell more on this section in order to acquire useful knowledge that could assist them in advising customers and clients alike. A total of 29 (or 64%) of the candidates answered the question, out of which 14 (or 48%) passed. Answer (a) A development bank is a specialised financial institution set up by the government to provide

medium- and long-term funds to accelerate the pace of development in the country. (4 marks)

(b) The objectives of Nigerian Agricultural Co-operative and Rural Development Bank are: (ix) Acceptance of savings deposit from customers and the repayment of same with accrued interest

as and when due; (x) Provision of opportunities for self-employment in the rural areas thereby reducing rural/urban

migration; (xi) Augmenting government efforts in the diversification of the productive base of the national

economy; (xii) Inculcating banking habits at the grass roots level of the Nigerian society;. (xiii) Provision of affordable credit facilities to less privileged Nigerians who cannot readily access the

services of conventional banks; (xiv) Promotion of capacity building through the provision of relevant training and advisory service; (xv) Fostering an accelerated growth and development of the agricultural sector and rural economy; (xvi) Encouraging the formation of co-operative societies at all levels.

(2 marks each 2 x 8 = 16 marks) (Total = 20 marks)

Question 3

(c) The Securities and Exchange Commission is the apex institution in the capital market. Briefly explain its related functions.

(d) List the membership of the Securities and Exchange Commission (SEC). (20 marks)

Comment Knowledge of the capital market structure and operations as well as its usefulness for economic development is very vital for students of banking. Candidates who attempted this question displayed reasonable understanding of the topic and were able to record good pass mark. A total of 33 |(or 73%) of the candidates attempted the question, out of which 20 (or 61%) passed.

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Answer (a) Functions of Securities and Exchange Commission (SEC)

(i) Determining the amount and time at which securities of companies are to be sold to the public either through offer for sale or subscription;

(ii) Registering all securities proposed to be offered privately; (iii) Maintaining surveillance over the securities market (including the securities exchange) in

order to ensure orderly, fair and equitable dealings in securities and to forestall illegal dealings by privileged insiders at the expense of innocent and often ignorant investors;

(xiii) Protecting the integrity of the securities market against any abuses arising from the practice of insider trading;

(xiv) Acting as the apex regulatory organisation for the Nigerian Stock Exchange and its branches to which it is at liberty to delegate powers;

(xv) Creating the necessary atmosphere for the orderly growth and development of the capital market through enlightenment programmes such as seminars, workshops, symposia, publications and stimulation of ideas;

(xvi) Determining the bases of allotment of securities in a public offering to ensure a wider spread of share ownership;

(xvii) Determine when issuing houses or registrars should return surplus application monies and the penalty payable for non-compliance;

(xviii) Auditing the books of companies and institutions involved directly or indirectly in the securities business;

(xix) Determining the contents of the prospective and other issuing memoranda. (xx) Ensuring that banks raise money only by public offer. (xxi) Registering the following:

- Stock exchanges and their branches. - Persons/institutions involved in securities dealing (e.g. stockbrokers, - registrars, issuing houses and fund managers). - Securities to be traded or being traded (share debentures, goverment. stock). (1.5 marks each for any 10 points =15 marks)

(b) Membership of SEC (i) A representative of Central Bank as chairperson. (ii) One representative of the Nigerian Stock Exchange (iii) One representative of the Nigerian Enterprises. (iv) One representative each from (v) Federal ministry of Finance.

• Federal Ministry of Trade and Tourism; • Federal Ministry of Industries; • The Executive Directors of Commission;

(vi) Five (5) private members appointed by the Federal Government who hold office for 5 years and are eligible for reappointment.

(1 mark each for any 5 points = 5 marks) (Total = 20 marks)

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Question 4 Explain the following in the context of international banking.

(e) London Club of Creditors; (f) Eurobond; (g) Special Drawing Rights (SDRs); (h) West African Bankers’ Association (WABA). (20 marks)

Comment The world is now a global financial village and this position buttresses the need to acquire knowledge on in international banking. Very few candidates attempted this question and, even at that, they did not do well enough. Only 13 candidates (representing 29%) attempted the question but just 5 of them (or 38%) pass. Answer (a) London Club of Creditors

This is a cartel of international commercial banks which handles private debts and other commercial debts and operates strictly on commercial terms. They are thus stricter in terms than Paris Club of Creditors. The London Club debts are largely private trade debts and have two components viz (iii) Promissory Notes. (iv) Brady par bond collateralised with US Treasury Bonds.

(5 marks) (b) Eurobond

-Eurobond is a method of raising long-term fund in the international capital market outside the country in whose currency the bonds are denominated. -They are issued directly by the borrower in bearer form. -The interest payment is not subject to withholding taxs. -There is secondary market and the currency control is convertible. -Bonds are usually issued as US Dollar, Swiss Franc, Pound Sterling and Euro. -Cost of issue is low, easy to arrange and simple. -It attracts higher rates (yields). (5 marks)

(c) Special Drawing Rights (SDRs) Special drawing rights is an unconditional additional international reserve asset.

introduced by the International Monetary Fund (IMF) to ease the problem of international liquidity. It is mere bookkeeping entry. SDRs are allotted to member nations of the IMF in proportion to their quotas with the fund. Member countries can use gold or scarce currencies to settle their debts when faced with balance of payments difficulties. (5 marks)

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(d) West African Bankers Association (WABA) The West African Bankers’ Association is the association of commercial and merchantbanks in West Africa. The decision to establish this association was reached in Bamako, Mali in 1978 while its draft constitution was ratified at a meeting of bankers held in Freetown, Sierra-Leone. (5 marks) (Total = 20 marks)

Question 5 Not all securities offered by customers are acceptable to banks. Mention and discuss the main types of securities acceptable to a lending banker. (20 marks) Comment The examiners could observe the willingness on the part of the candidates to answer this question on security but they lack the depth and ability to explain the points and highlight the issues required. A total of 31 (or 69%) of the candidates answered the question and 22 (or 71%) passed. Answer Acceptable securities to a lending banker are as follows:

(vii) Land and landed property that are free from encumbrances as legal or equitable mortgages. (3 marks)

(viii) Stocks and shares of first-class companies usually known as blue chips. Simple deposit of share certificates may be accepted, but deposit coupled with undated but signed transfer forms are preferable. However, the charge should be registered or noted with the CSCS. (4 marks)

(ix) Life Policies – with adequate or substantial surrender values are also acceptable. Preferred life policies are those of insurance companies whose integrity is unimpeachable. (3 marks)

(x) Guarantee of reliable and responsible individuals or third parties is usually accepted by banks. This is provided that the guaranteed is worth more than the amount being guarantee. It is normal to take status inquiry on an intending guarantor to establish his worth and perhaps level of responsibility. (3 marks)

(xi) Debentures- Banks often use company debentures (floating or fixed) as security. The assets of the company are executed in favour of the bank, subject to certain conditions. (3 marks)

(xii) Domiciliation of contract proceeds; Proceeds from specified contracts may be domiciled with a lending banker as security for intended borrowing. When the contract is performed, the underlying proceeds are paid through the bank in which it was domiciled into of the contractor’s account. (4 marks) (Total = 20 marks)

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Question 6 Mention and explain the various methods of effecting international payments. (20 marks) Comment This question was set to test candidates’ understanding of the operational and payment methods in international trade. However, many of the candidates resorted to guesswork and by implication did not accord the topic the attention it requires thus leading to an average performance in the question.A total of 30 (or 67% of the candidates attempted the question and only 15 (or 50%) passed. Answer Methods of Payment in International Trade

(xi) Open Account: This is where an exporter sells his goods on credit and obtains payment at later date depending on the agreement. The exporter may face the problem of non-payment. (2 marks)

(xii) Payment in Advance: In this case, the exporter receives advance payment before the actual shipment of the goods or delay shipment. It is a more secure method of obtaining payment. (2 marks)

(xiii) Bills for Collection: The bank is involved in this. It is the process whereby an agreement is reached between the exporter and the importer that uniform rules for collection (URC) is applicable. The exporter will give instruction to his bank on how it should handle his documents in obtaining payments either against documents, against payments’ acceptance or negotiation. The collection is accompanied by commercial documents either with or without payments. (2 marks)

(xiv) Documentary Letter of Credit: This is the most acceptable mode of payment in international trade. Under this method, the importer approaches his banker to open a letter of credit in favour of the exporter together with the list of all the conditions fulfilled. The documents include bills of lading, commercial papers, certificate of origin and insurance certificate. Documentary letters of credit may be revocable or irrevocable. (2 marks)

(xv) Foreign Currencies : Commercial banks provide foreign exchange to ease travelers undertaking international transactions, e.g. Euro’s, Pounds Sterling and Dollars (2 marks)

(xvi) Travellers’ Cheque: This is a cheque issued to a customer going on a foreign mission such as business, education, religion or holiday. It is denominated in the currencies of countries of destination and subject to a maximum amount stipulated by the government and the CBN annual credit guidelines.

(2 marks) (xvii) Basic Travelling Allowance (BTA): This differs, depending on the type of trip or mission. The

cheque enjoys automatic recognition and is honoured once it is presented for payment in the designated foreign currency (2 marks)

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(xviii) Foreign Draft.: A customer may request his bank to issue a foreign draft in his name or in the exporters’ name payable at a designated bank overseas.

(2 marks)

(xix) SWIFT: (Society for World- Wide Interbank Financial Telecommunication) has members world-wide with headquarters in Brussels. Members are requested to contribute to a pool of funds maintained for the development and maintenance of their central communication to which they link their own local system for urgent transactions and receipt of messages for interbank financial settlements. (2 marks)

(xx) Telegraphic Transfer or Cable Payment Order. This is a transfer of fund by cable. It is more expensive but faster than mail transfer. It is usually authenticated by tested code or test keys. But the invention of SWIFT has reduced the usage of this method of payment. (2 marks) (Total = 20 marks)

Question 7 Banking in the 21st Century has been made easy through e-banking.

(c) Enumerate numerous benefits of e-banking in Nigeria (10 marks) (d) State clearly problems associated with e-banking in Nigeria. (10 marks)

Comment The examiner is happy to observe that candidates are now abreast with current innovative developments in the banking and financial environment in Nigeria, especially as it affects the pool of investments by deposit money banks towards the acquisition and deployment of modern technologies in the industry. It is therefore heartwarming to note that most of the candidates that attempted the question passed with good grades. A total of 43 (or 96%) of the candidates attempted the question and 40 (or 93%) passed.

Answer (a)The Benefits of E-Banking in Nigeria

(xi) Increase in business patronage without corresponding increase in branches. (xii) Improvement in service delivery resulting from interactive facilities of e-banking system. (xiii) E-banking phenomenon will not decrease the total workforce in the industry, however, more

computer-literate and educated staff will take preference over existing labour mix. (xiv) It could be argued that with growth in banking culture, more people will be recruited by the various

financial institutions, without necessarily increasing branch network. (xv) It will eliminate the endemic long queues at bank counters. (xvi) Through online services, customers can withdraw funds or make deposits easily at any branch

office of the bank (xvii) Accessing information on one’s account at the bank is made easier and quicker. (xviii) The risk of carrying large sumsof money in cash on trips has drastically reduced because of

electronic transfer facilities.

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(xix) The temptation to store large sums of cash in the office or at home is also reduced since people will not wait long to cash their cheques at the bank.

(xx) Bank statements of account come out quicker and readily these days. (2 mark each for any point = 10 marks)

(b) Problems Associated with E-Banking in Nigeria (xi) Poor telecommunication system. (xii) Unstable but expensive power supply. (xiii) High cost of acquiring/ installation of information technology hardware. (xiv) Dearth of skilled personnel. (xv) High maintenance cost of technology equipment. (xvi) Security implications of some of the equipment. (xvii) Application limited to institutional clients as the private clients lack access to equipment for

interface with e-banking system. (xviii) Lack of confidence among private clients. (xix) Increased computer fraud resulting from introduction of e-banking. (xx) High cost of operations sometimes passed to the customers.

(1 mark each for any point = 10 marks) (Total =20 marks)

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FINANCIAL ECONOMICS

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A. GENERAL OVERVIEW The paper covered substantially several aspects of the syllabus. It tested the concepts, principles and theories of Financial Economics. The paper also tested analytical skills of the candidates on the subject. Time allowed for the paper was adequate, given the requirements of the questions and the number of questions candidates were expected to attempt. Instructions to candidates were very explicit and clear.

B. COMMENTS ON THE QUESTIONS The questions on the paper were well framed, lucid and relevant to the subject matter of Financial Economics. The paper had a good spread of the syllabus. The quality of the paper met the minimum standard requirements as far as the knowledge of Financial Economics is concerned.

C. EVALUATION OF SCRIPTS The quality of marking by examiners was alright and consistent with the marking schemes. They had been fair to the candidates and the system of examination. The scores returned for the candidates reflected well their understanding and knowledge of the paper.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE

The general performance of candidate on this paper was below average, with an overall pass rate of about 37%. However, when compared with the previous diet, the general performance showed some improvement.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES The table below shows the distribution of candidates’ performance in the paper

Total No. of Candidates

Total No. of Distinctions

Total No of Passes

Pass Rates in Percentage

Total of No. of failures F1 F2 F3

35 - 13 37.14 - 14 8

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F. ANALYSIS OF ATTEMPTS PER QUESTION

G. EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS Question 1 Indicate which of the following statements are True or False and comment briefly to substantiate the choice made.

(i) Interest rate increases as banks’ liquidity reserve increases. (ii) The precautionary demand for money is a decreasing function of income. (iii) Devaluation occurs when the value of a country’s currency increases as a result of increases in

trade volume. (iv) Treasury certificates are inter-bank financial instruments with maturity dates ranging from 3 to 36

months. (v) In the Keynesian liquidity preference theory, as the price of bond increases rate also increases. (vi) Reserve requirement determines the cost at which banks can borrow from the Central Bank as

lender of last resort. (vii) The current account of a country consists of transactions that are permanent in nature or goods and

services that are required for investment purposes. (viii) According to the structuralist, apart from a sudden fall in output as a result of decrease in

productivity, decrease in efficiency or decline in supply of essential raw materials will also lead to shortfall in supply and hence, inflation.

(ix) Externally held currencies or deposits denominated and held in another country other than its country of issue or origin refers to foreign reserve.

(x) The I-S curve refers to the various combinations of interest rate and income levels that are consistent with equality of demand and supply of money in the monetary sector of the economy.

(25 marks) Comment This is a compulsory question of the True/False type. The requirement of the question is for the candidates to substantiate the choice made. The ten (10) statements in the question cover several aspects of the syllabus. The question tests concepts and principles on Financial Economics. The question was attempted by all the candidates. The pass rate in the question was 34.3%, with 3 of them in distinction and 9 passes.Candidatesdid not demonstrate sufficient familiarity with the concepts and principles in the syllabus. Hence, they are advised to cover the recommended text for better understanding.

Question No. Total Number of Candidates that

Attempted Question

No. of Distinctions

No. of Passes No. of Failures

1. 35 3 9 23 2 28 1 6 21 3 23 - 1 22 4 31 2 10 19 5 3 - - 3 6 11 1 3 7 7 9 - - 9

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Answer (i) False

As the liquidity in the banking system increases, interest rate must fall in order to attract borrowers or investors in need of investment funds.

(ii) False The precautionary demand for money is cash holding to meet unforeseen circumstances and eventualities. By and large, the higher the level of income, the higher will be the amount held for this purpose. Hence, it is an increasing function of level of income.

(iii) False Devaluation occurs when there is an appreciable official reduction in the external value of a country’s domestic currency.

(iv) False Treasury certificates are not inter-bank financial instruments. They have a tenor or maturity date of 1-2 years.

(v) False In the Keynesian liquidity preference theory, as the price of bonds rises, interest rate falls; and as the price of bonds falls, interest rate rises.

(vi) False It is discount rate that determines the cost at which banks can borrow from the Central Bank as a lender of last resort.

(vii) False The current account deals with trade items that are current in nature either for immediate or short term consumption. Items recorded in the current account, whether visible or invisible are not for investment purposes.

(viii) True

Inflation is inevitable in such situation as crop failure, drought, war, port congestion, hoarding, etc. They tend to create scarcity which will force prices to go up.

(ix) False Such externally held currencies or deposits dominated are referred to as Euro currencies.

(x) False It is the LM Curve which refers to various combinations of interest rate and income levels that are consistent with equality of demand for and supply of money in the money market.

(1 mark each for correct choice) (1½ marks each for explanation)

(2 ½ marks each for 10 statements = 25 marks) Question 2 (a) What is a financial market? (b) Distinguish between primary and secondary markets. (c) Explain FIVE instruments used to raise funds in the money market.

(25 marks)

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Comment The question tests candidates’ understanding of financial market, its type and instruments. Virtually all the candidates (80%) attempted the question and just 25% of them obtained pass marks;: one had a distinction and 6 had passes. Candidates lost vital marks in the following areas: namely failure of candidates to identify and explain institutions and instruments involved in the market; and discussing instruments without reference to the tenor of the instruments. Candidates are advised to study, in greater detail, financial market as contained in the syllabus. Answer

(a) Financial Market • It is an institutional arrangement involving institutions, laws, regulations, instruments and

regulatory agencies for the facilitation of financial flows among different agents in the economy. • The instruments used to transfer funds from the surplus sector to the deficit sector are known

as financial instruments or securities while the operating institutions are the financial intermediaries or institutions.

(5 marks) (b) Primary and Secondary Markets

Primary market is the market for new issues, primarily concerned with the purchase and sale of new securities. • Operators in the market are the issuing houses such as stockbrokers, banks, mortgage banks,

insurance companies, the Central Bank and governments. • The operators play the role of financial intermediation by mobilising the savings of investors and

investing them. (5 marks)

Secondary market is the market for the sale and purchase of existing shares and stocks. • The stock exchange is at the centre of activities, providing the market in which holders of existing

quoted shares could sell such shares, thereby providing contact with individuals and institutions who might be interested in buying the shares.

(5 marks) (c) Instruments for Raising Funds

(i) Treasury Bills: Treasury bills are short term debt instruments issued to raise funds for the Federal Government. They have a tenor of 91 days. Apart from being a source of short-term fund, treasury bills are also deployed as instruments of monetary policy.

(2 marks) (ii) Treasury Certificates: Treasury certificates have been introduced to bridge the gap and

avert circumstances under which treasury bills would have to be recycled over time. Treasury certificates have much longer tenor than treasury bills and hence amendable for longer-term investment.

(2 marks) (iii) Call Money: Banks and other participating financial institutions usually keep their temporary

surplus cash with the Central Bank, which in turn invests these funds as short-term money market instruments known as call money. Call money earns interest at slightly less than treasury bills.

(2 marks) 160

(iv) Certificates of Deposit: These are in two categories: negotiable and non-negotiable certificates of deposit. They are inter-bank instruments with maturity dates ranging from 3 to 36 months.

(2 marks) (v) Bankers’ Unit Fund: This is a scheme under which banks and other financial institutions

can invest part of their excess liquidity. Participants invest in multiples of N10,000 while the CBN in turn invests the pooled fund in government stocks. The invested funds are repayable on demand in whole or in part, provided withdrawals are in multiples of N10,000.00. (2 marks)

Question 3 (a) What is budget deficit? (b) Examine FIVE major factors responsible for budget deficit in the Nigerian economy. (c) Explain THREE (3) ways in correcting budget deficit.

(25 marks) Comment The focus of the question is on budget deficit, its causes and the remedial measures to correct the fiscal gap. Majority of the candidates (66%) attempted the question, but just one candidate obtained a passmark. The candidates had problem identifying and examining the causes of budget deficit in Nigeria as well as corrective measures of the deficit. They are advised to read basic texts and Study Pack from the CIBN. Answer (a) Budget Deficit

• This refers to the excess of government expenditure over government taxation and other receipts in any one fiscal year.

• The operation of a budget deficit (deficit financing) is a tool of fiscal policy to enable government to influence the level of aggregate demand and employment in the economy.

(4 marks) (b) Factors Responsible for Budget Deficit The major factors responsible for budget deficit in the Nigerian economy include:

(i) Overdependence on the oil sector: The Nigerian economy has been heavily dependent on the oil sector for the larger percentage of revenue. Substantial fluctuation in the international oil market and the continuous Middle East crisis have on many occasions brought about uncertainty in government revenue while expenditure continues to grow, hence the persistent budget deficit.

(ii) Neglect of the Agricultural Sector With the discovery of oil in large commercial quantity in the early 1970s, the agricultural sector, hitherto the mainstay of the Nigerian economy became relegated to the background. The ensuing monocultural nature of the country’s economy has meant so much vulnerability to external shocks in the oil sector. Budget deficit becomes inevitable in the face of fluctuating and declining government revenue in most years.

(iii) Corruption: Inefficiency and official wastefulness at the level of government in Nigeria are a manifestation of corruption in high places. Allocated or budgetary funds are usually not

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used for the purpose for which the money was meant. Such invariably has always led to excessive spending beyond budgeted funds, hence budget deficit.

(iv) Tax Structure: Tax is an important source of government revenue. Tax structure in Nigeria is grossly unhelpful in terms of revenue generation in view of its narrow base. The types of taxes being administered are few, and with much reliance on indirect taxes. Against this background, governments have had to run budget deficit, at least to meet up with ever rising government expenditure.

(v) Political Instability: Political as well as socio-economic environments are said to be highly uncertain which tends to undermine domestic investment and discourage the flow of foreign direct investments. This has meant loss of revenue needed for economic growth and development which makes deficit financing the only promising option.

(vi) Development Project Financing: There are several development projects, notably infrastructure and power, that have continued to gain attention for appropriate financing. They tend to gulp a substantial amount of government revenue and, in most cases, in excess of available or budgeted revenue, hence budget deficit.

(3 marks each for any 5 points = 15 marks) (c) Ways of Correcting Budget Deficit

(i) Diversification: Government should intensify effort to diversify the production base of the economy. This will reduce the vulnerability to external shocks to the international oil market and thus minimise vagaries of government revenue from this source.

(ii) Fiscal Responsibility: By means of the Fiscal Responsibility Act, official corruption could be eradicated or be reduced to the barest minimum. The fiscal Responsibility Act, with the pursuit of accountability, fiscal discipline and transparency, could help address wasteful spending and keep government expenditure within what the budget could accommodate.

(iii) Improved Tax Base: The tax structure in Nigeria should be reviewed in a manner to improve tax base, and harness more tax handles hitherto neglected both in the formal and informal sectors of the economy. Improved tax revenue by these means would greatly augment government revenue and thus minimise deficit financing.

(2 marks each for 3 points = 6 marks) Question 4 (a) What is Monetary Policy? (b) Evaluate the efficacy or otherwise of FOUR major instruments used by the monetary authority in

Nigeria to regulate money supply. (25 marks)

Comment The question tested candidates’ understanding of monetary policy and its use in regulating money supply in Nigeria. It was a popular question as virtually all the candidates (89%) attempted it. The pass rate was, however, below average, (39%) with 2 candidates earning distinctions and 10 passing the question. Most candidates just discussed the instruments without examining their effectiveness in relation to Nigeria. Candidates are advised to get acquainted with application of monetary policy instruments in a developing nation like Nigeria. To have this, candidates are advised to be familiar with Central Bank of Nigeria (CBN) publications and the Study Pack of the Institute (CIBN).

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Answer (a) Monetary Policy

This is an instrument of demand management that seeks to influence the level and composition of spending in the economy and thus the level and composition of output. The main measures of monetary policy are: control of the money supply, credit and interest rates.

(b) Evaluation of Monetary Policy Instruments The monetary authority in Nigeria (the Central Bank of Nigeria) had, at one point or another, employed a number of measures to regulate the money supply in the country. (i) Open Market Operations (OMO): This is targeted at the liquidity base of the country’s

banking system. The Central Bank of Nigeria (CBN) controls money supply through its OMO. This involves the purchase by the CBN of government securities from the banks and the non-banking public. It also involves the sale of government securities by the CBN. By selling securities, the CBN reduces the deposits of banks, hence their capacity to create credit is reduced. And when the CBN purchases securities, banks are motivated to create credit and hence increase money supply. Efficacy of OMO in Nigeria is undermined by the underdeveloped financial market in the country. It has also been frustrated by the fact that most of the banks in Nigeria are still highly liquid despite the various regulations in place.

(ii) Reserve Requirement: This sets the minimum balance on the liquidity of banks vis-à-vis their deposit liabilities to ensure solvency of the banking system and control the expansion of credit creation. It is usually expressed as a percentage or a ratio above which each bank may not raise its advances or loans. However, this policy instrument has been criticised on the basis of equity. It does not discriminate among banks. When the ratio is raised, it affects all banks uniformly regardless of their differential credit-creating capacities. Reserve requirement is not all that effective in an economy like Nigeria, where the bulk of money supply is determined by currency outside the banks.

(iii) Discount Rate: The variation in discount rate influences, in a significant way, the cost at which banks borrow from the Central Bank as the lender at last resort. It directly affects the cost of credit, and hence the propensity of banks to borrow. The Central Bank controls the amount of credit made available to banks through its discount window by fixing the rate at which credit is made available. In developing countries like Nigeria, only the Central Bank could raise rates. So, an increase in rate will eventually lead to a fall in demand for credit and consequently money supply. However, given liquidity with banks or where banks do not depend on the Central Bank for credit, the use of discount rate is usually of limited effect.

(iv) Moral Suasion and Special Directives: By means of formal and informal discussions, the Central Bank of Nigeria makes known the monetary policy stance from time to time. Such could lead to agreement and commitment, even without legal basis for enforcement.

The efficacy of moral suasion depends largely on the extent of agreement and commitment on the part of banks. And, with special directives it all depends on the attitude of bank officials

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in terms of compliance; the threat from the monetary authority and enforcement of the directives. In Nigeria, the use of moral suasion and special directives has always been undermined by corruption, lack of transparency and sharp practices among the banks.

(5 marks each for 4 points= 20 marks)

Question 5 (a) Discuss the main issues in the theory of demand for money by the classical economist. (b) Identify the main factors that influence the velocity of money (V).

(25 marks) Comment The question tested candidates’ understanding of the main issues in the theory of demand by the classical school of thought. Candidates were also expected to demonstrate an understanding of the factors that could influence the velocity of money. Just three (3) candidates attempted the question and none of them obtained a pass mark. The candidates lacked understanding of the requirements of the question, owing to its technical/ theoretical nature. Candidates are advised to consult basic texts on Financial Economics, paying particular attention to the Quantity Theory of Money. Answer

(a) Main Issues The main issues in the theory of demand for money by the Classical Economists can be discussed along the following lines: (i) Analytical framework: The theory of demand for money by the classical economists makes

use of the quantity theory of money. The theory rests on two basic assumptions. • The economy is operating at full employment, which means that total output (S) is held

constant. • The velocity of circulation of money (V) is constant

Given these assumptions, the theory posits a direct relationship between the money supply (Ms) and the general price/level (P), as shown in the following equation. MV = PQ Where V and Q are the constant parameters. (4marks) By assuming equilibrium in the money market (i.e, Ms = Md) and several other modifications, the classical theory of demand for money becomes: Md = KPY Where Y = real national income, P = general price level, K= proportion of national income held for transaction purposes.

• If real cash balance is defined as Md , then Md = KY P P This means that real cash balance is functionally and directly related to income (Y). It shows that the demand for real balances is constant (K) of national income.

(4 marks)

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(ii) Motive for Holding Money: There are several motives for holding money (demand for money), namely: the transactions motive, the precautionary motive and the speculative motive. In contrast to the Keynesian economists, the classical economists recognise explicitly the transactions motive. To them, the demand for money is demand for real money balances, which varies directly with national income.

(4 marks) (iii) Velocity of Circulation of Money (V): The Velocity of Circulation of Money (V) measures

the rate at which money circulates through the economy in order to finance transactions. Whereas the classical economists assume that V is a parameter (i.e., a constant), the Keynesian economists argue that it is unstable and can change rapidly, especially in the long run.

(4 marks) (b) Factors that Influence the Velocity of Money (V): As argued by the Keynesian economists, the

velocity of money is never a constant, especially in the long run. The relevant factors that could influence it are

(i) Institutional Arrangement: For developed countries like U.S., in which there is widespread use of cheque and credit cards, less money will be required compared to Nigeria where virtually all payments are made in cash.

(ii) Mode of Payment: This refers to how often people get paid their money income (i.e. weekly, monthly or quarterly), which tends to affect velocity of money. The shorter the period of payment, the smaller the velocity of money.

(iii) Technology: This could influence the velocity of money in the economy. An efficient communication system in an economy would facilitate quick transmission of funds and hence a small cash requirement, i.e., low velocity of money in circulation.

(iv) Rate of Interest: When interest rates are high, people will try to economise on the cash balances they hold (since the interest rate is the opportunity cost of holding money), hence a given volume of transactions can be financed with a smaller stock of money (i.e. V increases). The converse applies when interest rates are low.

(3 marks each for 3 points = 9 marks)

Question 6 (a) What is capital market? (b) Discuss FIVE (5) major roles of a capital market. (c) Examine FOUR (4) problems confronting capital market operations in Nigeria.

(25 marks) Comment The focus of the question was on capital market in which candidates were expected to define the market, discuss its role and then examine the challenges of capital market operations in Nigeria. Just a few of the candidates (11) attempted the question, and only 4 obtained a pass mark. The candidates did not demonstrate a good understanding of the country’s capital market. Hence, candidates are advised to have familiarity with this aspect of the country’s financial market which has been sufficiently explained in several texts on Monetary / Financial Economics.

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Answer

(a) Capital Market: The capital market is one from which large companies and public enterprises attract long- term investment funds through a network of financial institutions and stockbrokers licensed to perform capital market functions. In the capital market, bonds, stocks, shares and mortgages are issued and traded. Capital market is a market for buying and selling of shares in quoted companies and other stocks. Institutions that are actively involved in capital market operations include insurance companies, pension funds, merchant banks, specialised financial institutions to some extent commercial banks, the stock exchange with the Securities and Exchange Commission as the apex institution.

(7 marks) (b) Roles of a Capital Market (i) A capital market provides an institutional arrangement that facilitates the transfer of medium-

and long-term investment funds from the surplus sector to the deficit sector from the perspective of economic development.A well developed capital market provides an opportunity for mobilising funds for long-term investment.

(ii) Capital market facilitates primary market activities, rapid capital formation and efficient resource allocation by improving the liquidity of securities.

(iii) The market provides an efficient forum for the determination of the current value of a company’s share and thereby enabling shareholders evaluate their portfolio from time to time. There is active in respect of virtually all securities listed.

(iv) Capital market provides an avenue for the federal and state governments to borrow money through listed securities. All Federal Government securities are listed automatically on the Stock Exchange, even though state governments may seek formal approval before their securities will be listed with the Federal Government guarantee. This provides a viable alternative for raising funds for capital development in addition to the revenue and statutory allocation.

(v) Capital market, through relevant publications, provides information and data each quoted and unquoted securities to enable individuals and institutions evaluate listed companies without recourse to financial accounts. Such information includes the current price, the price earnings ratio, when listed last, quantity traded, quantity declared, and so on.

(2 marks each x 5= 10 marks) (c) Problems of Capital Market Operations in Nigeria

(i) Availability of an institutional framework in terms of supervision and prudential guidelines to ensure integrity, probity, accountability and fairplay on the part of the participants..

(ii) Lack of efficient mechanism for determination of prices of securities and interest rates based on the realities of supply and demand. There is in fact the need for the market to conform almost entirely to an ‘efficient market’ or ‘perfect competition’ model.

(iii) Non-availability of a highly sensitive and responsive network for the effective actualization of the different monetary tools to ensure that the market moves along with the real sector and in line with macroeconomic objectives of the government.

(iv) The Nigerian capital market is faced with the problem of insufficient volume and variables, of financial instruments to facilitate financial intermediation for investment processes. Such instrument must be attractive to various types of market participants. The more the varieties

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and the volume, the more attractive the market and the more the options from which market participants can select.

(2 marks each x 4 = 8 marks) (Total = 25 marks)

Question 7

(a) What is credit creation and of what importance is the concept? (b) Discuss FIVE (5) factors limiting the ability of banks to create credit.

(25 marks) Comment The question tested candidates’ understanding of credit creation, its importance and limiting factors on the process. Only few candidates (9) attempted the question and none of them obtained a pass mark. Candidates are advised to get acquainted with this area of the syllabus, which should have been of interest for those in the banking sector. They should endeavour to read and study basic textbooks on Economics, and Study Packs of the Institute (CIBN). Answer

(a) Credit Creation (i) This is the ability of a commercial bank system to create new bank deposits and hence

increase money supply. (ii) Commercial banks accept deposits of currency from the general public. Some of this money

is retained by the banks to meet day-to-day withdrawals. (referred to as liquidity/cash ratio). (iii) The remainder of the money is used to make loans or invested. When a bank on-lends, it

creates additional deposits in favour of borrowers. (iv) The amount of new deposits the banking system as a whole can create depends on the

magnitude of the liquidity/cash ratio. (v) The multiple of its excess deposits/ reserves by which the banking system can expand

deposits and thus the money supply by making new loans is referred to as the credit/ monetary multiplier. This is measured as the reciprocal of liquidity/ cash ratio.

(9 marks) Importance of the Concept

(i) The process of credit creation has implication for money supply in the economy. It determines, in a significant way, the rate of growth of money supply in the nation.

(ii) Monetary policy is usually designed to target bank deposits and thus influence the process of credit creation in a manner as to keep money supply in the economy within tolerable limits.

(6 marks) (b) Limiting Factors of Credit Creation The following factors limit the ability of banks to create credit

(i) Monetary Policy: By means of monetary policy, the Central Bank can raise the reserve ratio to encourage contraction of money supply or it can lower it to encourage expansion of money supply. An upward review of reserve ratio generally tends to limit the ability of banks to create credit and hence money supply.

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(ii) Leakages: Currency drain from the banking sector is a leakage that leaves the banks with a lesser amount of deposits. The implication of a reduction in liquidity that ensues is to reduce monetary base and therefore limit banks in credit creation.

(iii) Lending Policy of Banks: The banks’ unwillingness to lend, possibly due to dissatisfaction with the credit credentials of borrowers, the business climate or quality of projects to be financed, could constrain the credit-creating ability of banks. Credit-creation process thrives much more in a situation of liberal lending policy of banks.

(iv) Extent of Public Borrowing: Unwillingness on the part of the public to borrow is a limiting factor. The reasons could range from lack of knowledge in processing loan applications to inability to identify feasible economic projects.

(v) Governments Credit Guidelines: The credit guidelines of government may be such that it prevents the banks from making the loan they desire. If the credit guidelines are directed at the sector preferred by government but considered risky by the banks, such guidelines may not be followed strictly, which means constraining the ability of banks to create credit.

(2 marks each for 5 points =10 marks) (Total = 25 marks)

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QUANTITATIVE TECHNIQUES

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A. GENERAL OVERVIEW i) The questions set were within the syllabus for the examination and were spread as much as

possible to ensure that questions were not concentrated in one area. ii) The time allowed for the examination would be adequate for every candidate that prepared

well for the examination. iii) There was consistency in the required number of questions. iv) The instructions were quite clear and candidates tried to abide by the instructions.

B. COMMENT ON THE QUESTIONS

The questions were well proofread and the quality was high. It followed the laid-down structure in the syllabus.

C. EVALUATION OF SCRIPTS The marking was meticulously done after the review of the marking scheme. Marks were also properly added and reviewed.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE Candidates performed poorly. There was evidence that most of the candidates‘ mathematical background was quite poor, considering that those who had good mathematical background got exemption from Quantitative Technique’s. The failure rate was very high and performance vis-à-vis the previous diets did not show any improvement. More tuition centres need to be created.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES Total No of Candidates

Total No of Distinctions

Total No of Passes

Pass Rates in Percentages

Failure F1 F2 F3

90 - 12 13.3% - 6 72

F. ANALYSIS OF ATTEMPTS PER QUESTION Question No. Total No. of

Candidates that Attempted Question

No of Distinctions No. of Passes

No. of Failures

1 32 - 7 25 2 42 - 17 25 3 69 - 31 38 4 18 - 8 10 5 81 - 20 61 6 58 - 15 43

SECTION A

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Question 1 (a) A businessman has 60 percent chance of securing a bank loan from his bank any time he applies

for loan. In a particular year, he intends to apply for bank loan twice. Find the probability that he will secure the loan:

(i) In the two attempts. (ii) At least in one of the two attempts. (iii) Only in one of the two attempts. (b) The special allowances for a group of workers (in thousands of Naira) in a bank is known to be

normally distributed with mean N120,000 and standard deviation N5,000. If there are 200 workers who are entitled to the special allowance in the bank, determine the number of the workers whose special allowance is:

iv. Below N125,000. v. Between N115,000 and N128,000. vi. Above N130,000. (25 marks)

Comment This is an applied probability question and it is a standard one. Only 32 out of 90 entries in this option attempted the question. The performance of candidates in this number was very much below average. It was an indication that either the candidates did not have a firm grip of the subject matter or they did not prepare well enough for the paper. There is therefore the need for adequate tuition to enable candidates to prepare well for the examination. Answer (c) Let A represent the event of securing a loan.

Then,P(A) =0.6 and P(A’) = 0.4 (where P(A’) is the complement) (iv) Securing the loan in the two attempts = AA

∴P(AA) = P(A) x P(A) = 0.6 x 0.6 = 0.36 (v) Securing a loan in at least one attempt is AA or AA’ or A’A

∴P(AA or AA’ or A’A) = 0.6 x 0.6 + 0.6(0.4) + 0.4(0.6) =0.36 + 0.24 + 0.24 = 0.84

(vi) Securing a loan in only one of the two attempts is AA’ or A’A ∴ P (AA’ or A’A) = P(AA’) + P (A’A)

= 0.6(0.4) + 0.4(0.6) = 0.24 + 0.24 = 0.48

ALTERNATIVE (ii) Securing at least in one attempt is the complement of not securing in either attempt.

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Not securing in either attempt is A’A’ P(A’A’) = 0.4(0.4) = 0.16 ∴P(Securing at least in one attempt) = 1 – 0.16 = 0.84 (d) Let the special allowance be represented by X

Then X ∼ N (120,000; 50002), and number of workers is given as 200

(iv) P(X < 125,000) P (x – 120,000)˂125,000 – 120,000 5,000 5,000 P (z < 1.0) →0.8413 (from the normal table) ∴ No. of workers receiving less than N125,000 is 200 (0.8413) = 168.26 ≅ 167 workers

(v) P (115,000 < x < 128,000) P (115,000 < x < 120,000) Ζ 128000 – 120,000 5,000 5,000 P(-1.0 <Ζ< 1.6) 0.9452 – 0.1587 0.7865 ∴ The number of workers earning between N115,000 and N128,000 is 200 (0.7865) = 157.3 ≅ 157 workers

(vi) P(x > 130.000) P (Ζ>130,000 = 120,000) 5000 P (Ζ> 2.0) ≅ 1 – 0.9772 = 0.0228 The number of workers earning above 130,000 is 200 (0.0228) = 4.56 ≅5 workers

Question 2 The advertising budgets of XYZ Bank PLC for the last five years are as follows: Year Quarters Advertising Budget (N’ million)

2005 1 15 2 12 3 14 4 19

2006 1 17 2 14 3 18 4 21

2007 1 18 172

2 12 3 16 4 18

2008 1 20 2 18 3 16 4 23

2009 1 15 2 12 3 11 4 17 You are required to: (c) Calculate the trend values by using the moving average method. (d) Estimate the seasonal indices by using the additive model

(25 marks) Comment A total of 42 candidates attempted this question and like the earlier number, the performance was very poor. Only a handful of candidates were able to make the pass mark and that was not encouraging. It is most likely that candidates took the examination for granted and did not prepare for it by attending tuition classes. The need to developed study materials for students is very necessary. Answer (a)

Year Quarter Y 4 Points Moving Total

Centred Moving Ave.

Trend Y-T SI

2005 1 15 - - - - 2.2 2 12 60 - - - -11.1 3 14 62 122 15.25 -1.25 -4.1 4 19 64 126 15.75 3.25 12.9 2006 1 17 68 132 16.5 0.5 2.2 2 14 70 138 17.25 -3.25 -11.1 3 18 71 141 17.625 0.375 -4.1 4 21 69 140 17.5 3.5 12.9 2007 1 18 67 136 17 1.0 2.2 2 12 64 131 16.375 -4.375 -11.1 3 16 66 130 16.25 -0.25 -4.1 4 18 72 138 17.25 0.75 12.9 2008 1 20 72 144 18 2.0 2.2 2 18 77 149 18.625 -0.625 -11.1 3 16 72 149 18.625 -6.625 -4.1 4 23 66 138 17.25 5.75 12.9 2009 1 15 61 127 15.875 -0.875 2.2 2 12 55 116 14.5 -2.5 -11.1 3 11 - - - - -4.1 4 17 - - - - 12.9

Q1 Q2 Q3 Q4

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- - -1.25 3.25 0.5 -3.25 0.375 3.5 1.0 -4.375 -0.25 0.75 2.0 -0.626 -2.625 5.75 -0.875 -2.5 - - Total 2.625 -10-75 -3.75 13.25 Correction Factor -0.34375 -0.34375 -0.34375 -0.34375 Seasonal Indices 2.28125 -11.09375 -4.09375 12.90625

Where, correction factor = 2.625 – 10.75 – 3.75 + 13.25 4 = 1.375

4 = 0.34375 = - 0.34375 (b) Seasonal indices = 2.28125 – 11.09375 – 4.09375 + 12.90625 = i.e the sum of all the seasonal

indices must equal zero. Question 3 The intelligence of each student leaving a secondary school is rated by his/her intelligence quotient (IQ.). The data below show the IQs of 50 school leavers:

75 75 98 70 135 110 96 101 107 89 83 85 101 95 112 112 107 106 125 108 95 96 120 93 110 89 75 88 81 79 82 112 116 88 97 94 104 97 91 140 98 86 114 105 86 83 93 102 111 82 You are required to: (c) Construct a frequency table using the class intervals, 65 – 74, 75 – 84, … for the data. (d) Draw the cumulative frequency curve for the IQ of the school leavers and use it to estimate the:

(iii) Median IQ and interpret it. (iv) The percentage of school leavers, whose IQs are above 110.

(25 marks) Comment This was the most popular question as 69 candidates attempted it. Candidates did fairly well in the (a) part of the question which required them to prepare a frequency table but not many of them were able to plot the cumulative frequency curve. Over 35% of the candidates who attempted this number were able to meet the cut off pass mark. Answer (b) Frequency Table (b) Cumulative Frequency Class Interval Frequency Less than 64.5 0

64 – 74 1 “ 74.5 1 75 – 84 9 “ 84.5 10

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85 – 94 11 “ 94.5 21 95 – 104 12 “ 104.5 33 105 – 114 12 “ 114.5 45 115 – 124 2 “ 124.5 47 125 – 134 1 “ 134.5 48 135 – 144 2 “ 144.5 50

50 (b)(i) Using the cumulative frequency in (b) above, the cumulative frequency curve (ogive) is plotted in a

graph to get an s-shaped curve. (iii) From the curve, the number of students with IQs above 110 is the 41st to the 50th students.

Hence, the percentage is 10 x 100 = 20% 50

SECTION B Question 4 SUMSEU Nigeria Limited, a construction company, has won a contract to build a shopping complex. The project entails nine main activities labelled A,B,C,D,E,F,G,H,I. The preceding activities for and duration of each activity are given in the following table. Activity Preceding Activity Duration (weeks) A - 12 B - 15 C - 18 D A 10 E B 8 F E 7 G E 9 H C,F 11 I D,H 6 You are required to: (c) Draw the Network diagram for the project. (d) Calculate all the Earliest Start Times (EST) and Latest Start Times (LST) and show them on the

diagram and hence find the shortest time for the completion of the project. (25 marks)

Comment Only 18 candidates attempted this question. Considering the background of the candidates taking this course (mostly candidates who had no quantitative background), this question appears to be a bit difficult. It even showed in the number of candidates that attempted the question and that also accounted for the poor performance in the question. SUGGESTED SOLUTION TO QUESTION 4. (a) Draw the network diagram. (b) EST’s and LST’s are indicated in the diagram.

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The shortest time for the completion of the project is obtained by calculating the duration along the critical path, i.e 6+11+7+8+15 = 47 weeks.

Question 5 (c) Define and give an example for each of the following:

(iv) A square matrix (v) A symmetric matrix (vi) An identify matrix.

(d) A company produces two products X and Y. During the first quarter of a year, a sales representative of the company sold 6,000 units of product X and 4,000 units of Y to realise N4.6m while in the second quarter, he sold 5,000 units of product X and 8,000 units of product Y amounting to N5.7m.

You are required to: (iv) Formulate the appropriate simultaneous equation to this problem. (v) Use the matrix method to find the price of each product. (vi) If he is paid 10% commission on sales of product X and 15% commission on sales of product Y,

calculate the monthly commission for the sales representative to the nearest thousand Naira. (25 marks)

Comment The question tried to test candidates’ knowledge of simple matrices and the application of matrix in solving simultaneous equations. The number of candidates who attempted this is 81, although the pass rate was poor. There is need for intensive grooming of candidates for the examination and ensuring that examiners’ reports get to as many as candidates possible to assist them in preparing for the examination. Answer (a) (i) A square matrix is a matrix that has equal number of rows and columns, e.g. A = 2 1 3 5 (ii) A symmetric matrix is a matrix that is unchanged when the matrix is transposed,i.e. if the rows and columns are interchanged. e.g B = 5 2 8 2 7 4

8 4 9 (iii) An identity matrix is a diagonal matrix with diagonal elements being ones and diagonal elements being zeros e.g., I = 1 0 0 0 1 0 0 0 1 (b)(i) Let 𝑥𝑥 represent the price of product X sold. Let 𝑦𝑦 represent the price of product Y sold. 6,000x +4,000y = 4,600,000 5,000x + 8,000y = 5,700,000

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6x + 4y = 4,600 5x + 8y = 5,700 optional.

(ii) In matrix form, we have 6 4 x = 4,600 5 8 y 5,700 6 4 = 28 5 8

And inverse of 6 4 = 1/28 8 -4 8 -4 -5 6 ∴ x = 2 8 -4 4,600 y 28 -5 6 5,700 = 500 400 i.e Price of product X = N500 and price of product Y = N400

(iii) Total sales for product X = (6,000 + 5,000) (500) = N5,500,000 ∴ commission on product X = 10 x 5,500,000 = N550,000 100 Total sales for product Y = (4,000 + 8,000) (400) = N4,800,000 ∴Commission on product Y = 15 x 4,800,000 = N720,000 100 ∴Total commission for 6 months = N1,270,000 ∴Monthly commission =1,270,000 6 = N212,000 Question 6 (d) Briefly define the following terms with respect to linear programming:

(iii) Objective function (iv) Feasible solution.

(e) State the two major assumptions for linear programming. (f) A financial company provides two types of services X and Y. It is established that each unit of product

X requires 25 labour hours and 4 machine hours while each unit of Y requires 15 labour hours and 8 machine hours. If 150 hours of labour and 64 of machine hours are available and the profit on unit X and Y are N3 and N4 respectively.

You are required to: 177

(iv) Formulate the above as a linear programming problem. (v) Obtain the optimum profit of the company using graphical method. (vi) Shade the feasible region.

(25 marks) Comment The question is standard and one expects candidates to attempt it successfully; but it has been noticed that once any solution involves plotting of graph, candidates tend to perform poorly. The number of candidates that attempted this number is 56 and the performance in it was below average. Answer (a) (i) Objective function is the function to be maximised or minimised. (ii) Feasible solution is a portion that satisfies simultaneously all the constraints in a linear programming

problem. (b) Two major assumptions that are usually made in linear programming are - Linearity - Non-negativity (c)(i) Let x units represent number of X produced.

Let y units represent number of Y produced. Objective function: to maximize profit, 3x + 4y subject to: Labour hours: 25x + 15y ≤ 150 Machine hours: 4x + 8y ≤ 64 x ; y ≥ 0 non negative assumption

(ii) To obtain the optimum profit using the graphical method constraint I : 25x + 15y = 150 x = 0; y=10 i.e (0,10) and x=6; y=0 i.e (6,0) Constraint II: 4x + 8y = 64 x = 0; y = 8, i.e (0,8) x = 16; y = 0, i.e (16,0)

(iii) the graph and from the graph, ABCD is the feasible region with A(0,8), B(1.8,7), C(6,0) and D(0,0) Point Max = 3x + 4y A (0,8) 32 B (1.8,7) 33.4 C (6,0) 18 D (0,0) 0

Hence, the optimal value is 33.4 obtained at x = 1.8 and y = 7, i.e.,1.8 units of service x should be provided while 7 units ofservice Y should be made.

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PROFESSIONAL EXAMINATION 1

FINANCIAL AND MANAGEMENT ACCOUNTING

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A GENERAL OVERVIEW

The questions examined adequately cover all areas of the syllabus of the paper, Financial and Management Accounting at the Intermediate Professional level of the Institute’s Examinations. The questions were well structured and tested both the theoretical and practical aspects of the paper. They were a mix of both Financial Accounting and Management Accounting questions. The examiners instructions were also clear and straight to the point.

1. SYLLABUS COVERAGE This is the old syllabus of the paper, Financial and Management Accounting. The paper was made up of two sections. Section A, which deals with Financial Accounting questions, comprised three (3) questions, out of which candidates were required to answer two (2) . Section B also had three (3) Management Accounting questions and candidates were also required to answer two (2). In other words, candidates were required to answer four (4) questions in all. The topics examined were as follows; SECTION A Question 1: Interpretation of Financial Statements and Preparation of Statement of Comprehensive Income. Question 2: Capital Reduction Scheme Question 3: Consolidated Financial Statements SECTION B Question 4: Budgeting Question 5: Marginal Costing Question 6: Investment Appraisal

2. ADEQUACY OF TIME ALLOWED The total time allowed for this paper was three (3) hours, 15 minutes. Fifteen minutes out of the time was dedicated to reading of the questions, while candidates were required to use the remaining three (3) hours to answer the required four (4) questions. This therefore gave adequate time for each of the questions to be attempted by the candidates.

3. CONSISTENCY IN REQUIRED NUMBER OF QUESTIONS All the questions examined were consistent with the requirements of the syllabus for this paper at this level of the Institute’s professional examinations.

4. CLARITY OF QUESTIONS, INSTRUCTIONS TO CANDIDATES, ETC. The instructions were very clear and unambiguous i.e. not subject to wrong interpretation by the candidates. The question’s requirements were specific and direct enough for easy understanding by the candidates.

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B COMMENTS ON THE QUESTIONS

The questions were standard enough and were within the context and framework of the syllabus for this paper.

C EVALUATION OF SCRIPTS The candidates’ scripts were well evaluated by the chief examiners’ and examiners’. A detailed and comprehensive marking guide was prepared for each question, and the basis for mark allocation was consistent with the marks allocated in the question paper. The marked scripts were also reviewed by the chief examiners, thus an giving opportunity for second opinion, and ensuring that the basis of marking was generally fair to all candidates.

D GENERAL INFORMATION ON CANDIDATES’ PERFORMANCES The performances of the candidates in this paper were above average. It is however hoped that candidates would continue to improve on their performances in future examinations.

E ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rate Percentage

Failure FI

F2

F3

41 ---- 24 58.54 - - 17

Question No. Total No. of Candidates that

attempted Questions

No. of Distinctions

No. of Passes No. of Failures

1 2 3 4 5 6

31 12 32 34 14 26

---- ---- ---- ---- ---- ----

18 3

10 30 0

12

13 9

22 4

14 14

F EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS SECTION A Question 1 (a) Illustrating with examples, explain the term ‘Related Party Transactions’ in a typical bank’s financial

statements. (5 marks) (b) The following balances were extracted from the books of Onisowo Bank Plc for the years 2011 and

2012. 2012 2011 N’m N’m

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Gross Earnings 7,495 5,515 Interest & other Income 3,929 2,746 Interest Expense 1,577 1,445 Provision for Risk Assets 771 358 Provision on Other Assets & Long Term Investment 214 28 Other Income 3,566 2,769 Operating Expenses 4,183 2,732 Taxation 250 315 Transfer to Statutory Reserves 153 191 Transfer to SME Reserves 75 95 Dividend - 300 Transfer to General Reserves 272 51 Additional Information: (a) The bank’s issued and paid up share capital was increased from N1.5 billion in 2011 to N4.1 billion

in 2012. (b) Shareholders’ funds are N14.8 billion and N13.4 billion in 2012 and 2011 respectively. (c) Total assets for 2012 and 2011 are N66.9 billion and N31.3 billion respectively. (d) The bank’s fixed assets are N30.9 billion and N6.1 billion at the end of 2012 and 2011 respectively. (e) The authorised share capital of the bank is 12,000,000,000 Ordinary Shares of N1 each. The

company issues its shares at par. You are required to:

(i) Prepare the bank’s Statement of Comprehensive Income for the year ended December 31, 2012 with comparative figures in a form suitable for publication. Ignore notes. (15 marks)

(ii) Compute the following ratios using the figures provided above for the two years, 2012 and 2011.

(a) Earnings per share (b) Return on capital employed (c) Bank’s total debt ratio to shareholders funds (d) Liquidity Ratio (10 marks) (Total = 30 marks)

Comment The question tested candidates’ knowledge of preparation and interpretation of financial statements of banks. The “a” part of the question dealt with related party transaction, while the other part of the question tested preparation and interpretation of financial statements. Majority of the candidates attempted the question and their performance was above average. Candidates are advised to prepare better for future examinations for better performances.

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Answer a) Related party transactions are those transaction entered into between the bank and some stakeholders in the bank’s normal course of business. Such stakeholders are sometimes referred to as insiders by virtue of their closeness or involvement in the management of the bank. Such transactions include loans, deposits, foreign currency transactions and guarantees involving the bank’s current and former directors, current and former staff and the companies where they or their spouses have interests. A full disclosure of this is required as notes to the Financial Statement.

ONISOWO BANK PLC b) i) Profit and Loss Account for the year Ended 31st December 2012 N2012 N2011 Nm Nm Gross Earnings 7,495 5,515 Interest and Other Income 3,929 2,746 Less: Interest Expenses 1,577 1,445 2,352 1,301 Less: Provision for Risk Assets 771 358 Net Interest Margin 1,581 943 Provision on Other Long Term Investment 214 28 1,367 915 Other Income 3,566 2,769 4,933 3,684 Less: Operating Expenses 4,183 2,732 Profit before Taxation 750 952 Taxation 250 315 Profit after Taxation 500 637

APPROPRIATION 2012 2011 Nm Nm Transfer to Statutory Reserve 153 191 Transfer to SME Reserve 75 95 Dividend - 300 Transfer to General Reserve 272 51 500 637 ii) 2012 2011

a) EPS : Profit after Tax 500,000 637,000 No of Ordinary Shares 4,100,000 1,500,000 12.2k 42.5k

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b) Return on Capital Employed Profit after tax × 100 500,000× 100 637,000× 100 Shareholders funds 14,800,000 13,400,000 3.4% 4.7% OR Profit before interest and tax × 100 750 ×100 950 × 100 Total assts 66,900 31,300 1.12% 3.04% c) Bank Total Debt Ratio to Shareholders’ Funds Total Debts ( Assets – Shareholders’ Funds) 66,900-14,800 31,300-13,400 Shareholders’ Funds 14,800 13,400 52,100 17,900 14,800 13,400 3.5:1 1.3:1 d) Liquidity Ratio 2012 2011 N2 billion N2 billion 66.9-30.9 31.3-6.1 52.1 17.9 36.0 25.2 52.1 17.9 69% 140.7% Question 2 Edge Worthy Limited, which had experienced trading difficulties, decided to reorganise its finances. On 31 December, 2009, a final trial balance extracted from the books showed the following position: N N 400,000 units of Ordinary Shares of N1 each 400,000 300,000 6% cum Preference Shares at N1 each 300,000 Share Premium account 80,000 Retained Earnings 228,750 Goodwill at Cost 110,000 Preliminary Expenses 14,500 Trade Creditors 87,000 Bank Overdraft 102,000 Plant and Machinery at Cost 420,000 Provision for Depreciation of Plant and Machinery 125,000 Leasehold Property at cost 160,000 Provision for Depreciation on Leasehold Property 60,000 Stock on Hand 158,350 Debtors 62,400 _______ 1,154,000 1,154,000

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The approval of the court was obtained for the following capital reduction scheme: (a) The nominal value of ordinary shares to be reduced to 25k per share. (b) The nominal value of preference shares to be reduced to 67½k per share (c) One 25k Ordinary Share to be issued for each N of Preference dividend arrears. The Preference

dividend had not been paid for four years. (d) The balance on Share premium account to be utilized. (e) Plant and machinery to be written down by N106,250. (f) The Retained Earnings account balance and all intangible assets to be written off. At the same time as the resolution to reduce capital was passed, another resolution was approved restoring the total authorised capital to N700,000, consisting of 300,000 6% cumulative preference ordinary shares of 67½ kobo each and the balance in ordinary shares of 25k each. As soon as the above resolution was passed, 600,000 ordinary shares were issued at par for cash payable in full on application. Required: (a) Prepare Capital Reconstruction Account. (b) Prepare statement of financial position after completion of the scheme. (30 marks)

Comment The question tested candidates’ knowledge of capital reduction scheme. Majority of the candidates avoided the question and even the few that attempted it performed woefully. Candidates are advised to pay more attention to this part of the syllabus for better performance in the future. Answer 2) EDGE WORTHY LIMITED a) Capital Reconstruction Account N N 72,000 Ordinary Shares 18,000 Ordinary shares 300,000 Profit and Loss 228,750 Preference Shares 97,500 Preliminary Expenses 14,500 Share Premium 80,000 Plant and Machinery 106,250 Goodwill 110,000 477,500 477,500

b) Balance Sheet after Reconstruction N N

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Fixed Assets Plant and Machinery 188,750 Leasehold Property 100,000 288,750 Current Assets Stock in Hand 158,350 Debtors 62,400 Cash at Bank 48,000 268,750 Current Liabilities Creditors 87,000 181,750 470,500 Represented by: Authorised Issued & Fully Paid N N 1,990,000 Ord. Shares of 25k each 497,500 268,000 300,000 6% Cum Pref. Shares of 671/2k 202,500 202,500 700,000 470,500 Question 3 (a) Briefly outline the characteristics of an associate company as distinct from a subsidiary company. (b) The summarised Statement of Financial Position of Abu Ltd and its two subsidiary companies, Iba

Ltd and Enu Ltd, as at 30 June, 2010 are as follows: Abu Ltd Iba Ltd Enu Ltd N’000 N’000 N’000 Assets Non-Current Assets 110,000 100,000 50,000 Other Financial Assets: 80,000,000 Shares in Iba Ltd. 116,000 - - 30,000,000 Shares in Enu Ltd. 34,000 - - Current Assets: 76,500 36,000 24,000 Bill Receivables 3,500 - _ -___ Total Assets 340,000 136,000 74,000 Equity and Liabilities: Equity Issued Capital (Ord. Share of N1 each) 240,000 80,000 40,000 Reserves 50,000 - -

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Retained Earnings 18,000 38,000 12,000 308,000 118,000 52,000 Current Liabilities: Trade Payables 32,000 13,100 22,000 Bill Payables - _ 4,900 -___ Total Assets and Liabilities 340,000 136,000 74,000 The following additional information is also available: (i) The shares in the subsidiaries were acquired by Abu Ltd on the following dates: 80,000,000 shares in Iba Ltd on 30/6/2009 30,000,000 shares ion Enu Ltd on 30/6/2008 (ii) The pre-acquisition retained earnings of Iba Ltd and Enu Ltd are N14,000,000 and N8,000,000

respectively. (iii) During the year ended 30th June 2010, Abu Ltd sold goods to Iba Ltd for N3,200,000, the cost of

which was N2,400,000. One half of these goods were still held by Iba Ltd on 30/6/2010 and are included at a valuation of N1,600,000 in Iba Ltd’s current assets as shown in the above balance sheet.

(iv) During the month of June 2010, Iba Ltd accepted bills drawn by Abu Ltd for N3,500,00. These bills,

which are due for payment in September 2010, are held by Abu Ltd as at 30/6/2010. Required: Prepare the consolidated Statement of Financial Position of the group as at 30/6/2010.

(30 marks)

Comment The question was on group accounts. The “a” part tested candidates’ knowledge on the difference between an associate company and a subsidiary company. The “b” part tested knowledge of preparation of a consolidated statement of financial position. Most of the candidates attempted the question, but performance was below average. Majority of them could not tackle the question as required and thus lost vital marks. Candidates are advised to learn and master the basic principles in preparation of group accounts for better performances in subsequent examinations.

Answer

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(a) An associate company is one in which another company has an interest with the following characteristics; i) The interest is not sufficient to make the associate company a subsidiary. ii) The investor’s interest is substantial, not less than 20% but not up to 50%. iii) The interest confers the power to exercise significant influence over the financial and operating policies of the associate. iv) The interest is intended to subsist for a long period and therefore referred to as a long-term investment. v) An associate is not consolidated in the group accounts. (b) Abu Ltd and Its Subsidiaries Consolidated Balance Sheet asaAt 30-6-2010 N’000 N’000 N’000 Goodwill 20,000 Fixed Assets 260,000 280,000 Current Assets 136,100 Current Liabilities Bills payable 1,400 Trade creditors 67,100 68,500 67,600 347,600 Financed by: Issued Share Capital 240,000 Profit & Loss A/C 44,600 284,600 Minority Interest 13,000 297,600 General Reserve 50,000 347,600 CONSOLIDATED SCHEDULE

ABU in Iba ABU in Enu MI P&L N’000 N’000 N’000 N’000 Iba Ltd O/S Cap 80,000,000 Profit 38,000,000 Enu Ltd OSC 40,000,000 P/L 12,000,000 Cost of Acquisition

80,000 14,000

30,000 6,000

-

10,000 3,000

24,000

3,000 94,000

(116,000) 36,000

(34,000)

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Goodwill Profit & Loss Unrealised Profit

(22,000) 2,000

20,000

2,000 (2,000)

-

13,000

18,000 (400)

44,600

SECTION B Question 4 Full participation by all departmental managers has been identified as one of the attributes of a good budgetary system. However, studies have shown the reluctance of such managers to participate fully in setting budgets. Required: (a) Suggest reasons why managers may be reluctant to participate in budget settings.

(10 marks) (b) What are the unwanted side effects which may arise from the imposition of budgets by senior

management? (10 marks) (Total = 20 marks) Comment This was a typical textbook question on budgeting. The first part of the question dealt with reasons for non-participation of managers in budget preparation. The second part dealt with the negative or unwanted side effects which may arise from the imposition of budgets by senior managers. Majority of the candidates attempted the question and performances were above average. This implies that the candidates were well familiar with this part of the syllabus. Candidates are advised to work harder while preparing for future examinations to further improve their performances. Answer (a) Reluctance of managers to participate fully in setting of budgets may be attributed to the follwing: i. Lack of Education and Training: Lack or inadequacy of formal training in the whole budgetary

process will impact negatively on the enthusiasm and willingness of the departmental managers. Pre-budget season seminars will be a good form to explain budget objectives and allow managers to ask questions about the system and receive satisfactory explanations.

ii. Lack of Motivation: Job satisfaction in form of good remuneration packages and environment will stimulate the interest of the managers in the achievement of corporate goals and objectives. This is a prerequisite for a good participatory budgetary system.

iii. Influence and Control: A manager will be reluctant to assume responsibility for revenue and cost centres for which he/she cannot exercise control or influence. Also, a high level of interference from higher management will render ineffective the responsibility foisted on the manager and this may lead to discouragement and reluctance. These factors may lead to tension, mistrust of the budgetary control system, and possibly lower performance.

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iv. Evaluation of Performance: Evaluating a manager’s performance based on budgets leaves little room for a manager to manoeuvre if actual results are not turning out as foreseen in the budget. There is some evidence to show that (easier) budgets are likely to be set where managers are seeking promotion because their budgets tend to be met and senior management approval is achieved.

(b) Unwanted side effects from the imposition of budgets by senior management. i. Creation of Tension or Pressure: This usually arises when budgets are imposed on managers for

elements of revenue or cost over which they have little or no control. This could adversely affect managerial performance with inefficiency creeping into their areas of responsibility.

ii. Aggression towards the System: Managers may sidetrack the corporate goals and attempt to find ways of getting around the budgetary control system if budgets are imposed from above in the organisational structure.

iii. Dysfunctional Implementation or Functional Self Centredness: Managers may make decisions which are in the best interest of their own department or function but these may not tally with the organisational goals of the overall company.

iv. Lack of Response to the Control Output of the System. Managers may not attach much importance to variance reports which are an important ingredient of budgetary control. They are likely to show more concern and react appropriately to such reports if they were involved in the initial setting of the benchmarks. Therefore, imposed budgets can have a large invalidating response to the reports streaming from the control element of the system.

Question 5 CIDI LTD makes a consumer product in three grades: Standard; Deluxe; and Super. Details of the three products are: Selling Price Variable Cost N N Standard 40 30 Deluxe 60 40 Super 80 50 Variable costs include direct labour, materials and variable overheads. Fixed costs are budgeted at N500,000 in total for the year. There is a shortage of skilled labour and the total number of direct labour hours expected to be available in the coming year is 200,000 hours. The direct labour rate is N2 per hour. Direct labour hours per unit of product are as follows: Standard 2 Deluxe 6 Super 7½ There is a restriction in the total number of units that can be produced in each grade as follows.

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Units Per Annum Standard 25,000 Deluxe 50,000 Super 8,000 Required: (a) The number of units in each grade which should be produced in order to utilize the available direct

labour hours and to achieve the maximum profit. (13 marks)

(b) Prepare an income statement based on your calculation in (a) (7

marks) (Total = 20 marks) Comment This question basically tested marginal costing principles and techniques. The first part of the question tested calculation of optimum output, given the necessary information while the second part of the question dealt with preparation of an Income Statement based on Marginal costing technique. Very few of the candidates attempted the question and their performances were very poor and woeful. This shows that candidates did not pay necessary adequate attention to this part of the syllabus. Candidates are advised to pay more attention to this part of the syllabus for better performances in the future. Answer Calculation of Optimum Output Standard Deluxe Super ₦ ₦ ₦ Sales Price 40 60 80 Variable Costs 30 40 50 Contribution/Unit 10 20 30 Required Direct Labour (Units) 2hrs 6hrs 7.5hrs Contribution/Direct Labour Hours 5 3.33 4

Order of production based on contribution per direct labour hour (limiting factor) Product Ranking No of Units (Production) Standard 1st 25,000 Super 2nd 8,000 Deluxe 3rd 15,000 Rank Product Units Labour per units Total Labour hr 1st standard 25,000 2 50,000

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2nd super 8,000 7.5 60,000 3rd deluxe 15,000 6 90,000 Total available labour hours 200,000 (b)

INCOME STATEMENT Standard

#’ 000 Deluxe #’ 000

Super #’ 000

Total #’ 000

Sales Revenue

1,000 900 640 2,540

Variable Costs

750 600 400 1,750

Contribution 250 300 240 790 Fixed Cost 500 Profit 290

Note: Revenue = Maximum Units Produced x Sale Per Unit Variable Cost = Maximum Unit Produced X Variable Cost Per Unit Question 6 A new processing machine has just come to the market and Chiso-Ken Limited is interested in its acquisition. Feasibility studies undertaken in the past 12 months at a cost of N20,000 indicate that the machine would eliminate operations costing N25,000 per annum. The machine would cost N94,000 and will last 5 years with no residual value at the end of its life. Assume 10% as the company’s cost of capital. Required: (a) Calculate the NPV. (b) Calculate the IRR. (c) Calculate the level of annual savings necessary to achieve a 12% DCF return. (d) Advise on the viability of the project. (20 marks)

Comment This was a typical question testing investment appraisal techniques. More than 50% of the candidates attempted the question and performance was fair. Candidates are advised to prepare more for future examinations. Answer 6

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Year Cash Flow(₦) DF at 10% PV(₦) DF at 12% PV(₦) 0 (94,000) 1.00 (94,000) 1.00 (94,000) 1-5 25,000 3.791 94.775 3.605 90,125 (a) NPV 775 -3,875

(b) IRR 10 + 775

775+3875 (12-10)

=10 + 0.33 IRR =10.33

(c) Annual Savings at 12% DCF Return Year CF DCF at 12% PV 0 (94,000) 1.00 (94,000) 1-5 26,075 3.605 94,000 Calculation of Required Annual Savings = 94,000 3.604 =N26,075

(d) Advice on Project Accept project since the NPV at the company’s cost of capital (10%) is positive.

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INFORMATION COMMUNICATION TECHNOLOGY PROFESSIONAL

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A. General Overview

The questions were set in line with the syllabus covering most of the areas stipulated. The time allocation was adequate. The questions were direct and the language used were adequate to the level of the candidates.

B. Comment on the Questions The questions were in two sections. Section A had 10 short compulsory questions while section B had 5 questions. Candidates were to attempt three out of the five questions in this section. There was no error detected in the printing of the questions.

C. Evaluation of the Scripts The scripts were carefully marked. Marks are allocated according to the points enumerated by candidates’ as contained in the question paper.

D. General comments on Candidates’ Performance Thirty-three (33) candidates sat for the examination. Seventeen (17) of them candidates passed, with a pass rate of 51.5%. The general performance was just average.

E. Analysis of General Performance of Candidates Total No. of Candidates

Total No. of Distinction

Total No. of Passes Pass Rate Failures

F1 F2 F3 33 0 17 51.5 0 0 16

F. Analysis of Attempts Per Question Question

No. Total No. of Candidates that

Attempted Question No. of Passes No. of Failures

1 33 11 22 2 4 0 4 3 24 12 12 4 15 0 15 5 25 5 20 6 29 21 8

G. Examination Questions, Comments and Suggested Answers

SECTION A

This a compulsory section with 10 short answers. Question 1 (i) List any FOUR Information Processing Techniques. (ii) (a) What is the importance of a pointing device as an input to the system? (b) Give TWO examples of pointing devices. (iii) (a) Name TWO participants that may be involved in the analysis and design of an information

system. (b) What is File conversion as it relates to system implementation?

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(iv) Enumerate FOUR common threats to computerised information system. (v) (a) What is a web browser? (b) List any TWO ways by which a web page can be built. (vi) With respect to security procedure, what name can be ascribed to each of the following?

(a) Ensuring that the originators of a message do not deny they sent the message.

(b) Ensuring that users are the persons they claim to be. (vii) What is an Electronic Fund Transfer (EFT) System? (viii) Identify TWO functions each of both the processor and the main memory. (ix) (a) What is an integrated package?

(b) Give TWO disadvantages of using such a package. (x) Differentiate between DDL and DML.

(40 marks) Comments The performance in the question was very poor as only eleven 11 out of thirty-three (33) candidates passed. The poor performance in this compulsory question wasresponsible for the just average overall performance. Majority of the candidates could not list the Information Processing Techniques correctly as in 1(i), other notable questions that were not understood included (vi), (viii), (ix), and (x). Candidates should endeavour to go through the whole syllabus as questions that require short answers could come from any part. Answer (i) -Time sharing -Batch processing

-Real – time processing -Transaction processing technique.

(ii) (a) A pointing device provides position information to the computer, buy indicating the position of the object as Icon, etc.

(b) – mouse – light pen

– joy stick – track ball - touch screen

(iii) (a) The participants are:

- System analysts, - Programmers,

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- Users. (b)File conversion is simply moving from the old file system to the new file system.

(iv) Common threats include: - Personnel actions, - Telecommunication problems, - Users errors, - Program changes, - Virus infection, - Theft of data, - Electrical problems.

(v) (a) A web browser is a software that provides the user interface for accessing the Internet web sites.

(b) A web page can be built by; - writing ones own HTML code, - using a word processing package, - purchasing and using web development , - using an end-user free development tool.

(i) (a) Non-repudiation. (b) Authentication.

(ii) An Electronic Fund Transfer (EFT) system is a form of electronic payment system in banking and retailing industries that uses a variety of information technologies to capture and process money and credit transfer between banks.

(iii) Functions of processor - Caries out processing; - Controls other parts of the computer; - Controls sequence of operators. Functions of main memory - Stores instructions awaiting execution; - Stores data awaiting processing; - Stores programs for execution.

2. (i) An integrated package is a software that combines several general-purpose applications such as word processing, spreadsheet graphics etc., into one package.

(ii) The disadvantages include: - Since some of the software in the integrated package may never be used, more space will be

occupied. - Some features may be left out, thus limiting the user in performing his work.

(iv) A DDL (data Definition Language) is used to develop and specify the data contents relationship and structure of each database and to modify these database specifications when necessary. While A DML (Data manipulation language) is used to perform data handling activities like adding, deleting and changing information in a database. (40 marks)

SECTION B

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Question 2

a) List FIVE drawbacks of sequential file organisation. (5 marks) b) Differentiate between a primary key field and a pointer field. (6 marks) c) Briefly explain THREE methods used in accessing records in a direct/random organization.

(9 marks) (Total = 20 marks)

Comment This is the least attempted question. It was attempted by only 4 candidates, all of them failed. The candidates did not understand the concept of file organisation and consequently the method of accessing records in a direct/random organisation. Answer

a. The drawbacks of sequential file organisation include: (i) Time to access record may be too long for many applications. (ii) Addition or deletion of records is not easy (iii) Reorganisation of records is frequent (iv) Updating of records is not easy. (v) The entire file must be processed and a new master file created, even if only one record

requires maintenance or updating. (5 Marks)

b. A primary key field is one that uniquely identifies a record in a file, while a pointer field is one within a record that indicates (or points to) the location of another record that is related to it in the same file or in another file.

(5 marks) c. Methods used in accessing records in a direct/random organisation include:

(i) Key Transformation This method performs an arithmetic computation on a key field of record and uses the resultant number as an address to store and access the record.

(3 marks) (ii) The Use of Record Keys;

Indexes are created for the records and related storage addresses. A new data record is stored at the next available location, and its key and address are placed in an index. The computer uses this index whenever it must access a record.

(3 marks) (iii) Index Sequential Access Method

In this method, records are stored in a sequential order in a magnetic disk or other direct access storage based on the key field of each record. In addition, each file contains an index that references one or more key fields of each data record to its storage location address. Thus a record can be directly located using key field to search and locate its address or in sequence.

(3 marks)

Question 3

199

a) Transmission of data using wireless technology relies on, among other methods, (i) Terrestrial microwaves. (ii) Cellular and PCs systems. (iii) Communication Satellites.

Explain the operations of the above mentioned methods. (12 marks)

b) Explain the following types of telephone network: (i) Public Network, (ii) Private Network, (iii) Value-added Network. (8 marks)

(Total = 20 marks) Comment The question was attempted by twenty-four (24) candidates. The pass rate was 50%. Candidates performed poorly in 3(a), (i) and (ii). Also, many students could not explain private and value-added networks 3(b), (ii) and (iii) satisfactorily. Answer

A. (i) Terrestrial Microwaves: These involves earth-bound microwave systems that transmit high-speed radio signals in a line-of-sight path between relay stations spaced approximately 35km apart. Microwave antennas are placed on top of buildings, towers, hills and mountain peaks to transmit from point to point.

(4 marks) (ii) Cellular and PCs Systems: Cellular and PCs telephone and pager systems use several radio communications technologies. However, all of them divide a geographical area into small areas or cells, typically from one to several miles in area. Each cell has its own low-power transmitter or radio relay antenna device to relay cells from one to another. Computers and other communication processors co-ordinate and control the transmission to and from mobile users as they move from one area to another. (iii) Communication Satellites These also use microwave radio as their telecommunications medium. Many communication satellites are placed in stationary geosynchronous or bits approximately 25,000 km above the equator. Satellites are powered by solar panels and can transmit signals at the rate of several hundred million bits/sec. They serve as relay stations for communication signals transmitted from earth stations. Earth stations use dish antenna to beam microwave signals to the satellite that amplifies and retransmits the signals to other stations thousands of miles away.

(4 marks) B. (i) Public Network: This is a network on which an organization compete for time with others.

• It moves information only. • It is slower than private network and gives little or no guarantee.

(ii) Private Network: This consists of communication media exclusively owned by an organisations or leased to connect network or network components.It is faster than public network and has better security.

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(iii) Value-Added Network: This is a semi-public network that provides service beyond the movement of information from one place to another. The value added is what makes it attractive. For example, if an organisation needs an EDI, capabilities to automate the exchange of standard business documents between it’ssuppliers and customers, it can contact a service provider to set up a network to provide and EDI. It offers security and auditing services.

Question 4

1. Describe THREE programming languages that serve as important tools for building multimedia web-page and web-based applications. (12 marks)

2. Assembly language is a low-level language. State what you consider to be ONE main advantage and TWO drawbacks of programs written in assembly language distinct from programs written in high-level language. (8 marks)

(Total = 20 marks) Comment The question was attempt by fifteen candidates and all of them failed. Majority of candidates were describing general programming languages (low level, high level and machine languages) instead of describing programming languages that serve as important tools for building multimedia web Page and web based applications as required in 4(a) and thus lost 12 marks allotted to it. The attempt on 4(b) too was poor as candidates could not state the advantages and 2 draw backs of an assembly language. Answer .1. The languages are:

• HTML, • XML, and • Java.

a. HTML (Hypertext Markup Language): This is a page description language that creates hypertext or hyper-media documents. HTML inserts control codes within the document at points that can be specified that create links (hyperlinks) to other parts of the document or to other documents anywhere on the World Wide Web. HTML Embeds control codes in ASCII text of adocument that designates titles, headings, graphics and multimedia components as well as hyperlinks within the documents.

b. XML (Extensible Markup language): Unlike HTML, it is not a web page format description language. XML describes the contents of web pages by applying identifying tags or contextual labels to the data in web documents. This XML makes website information a lot more searchable, workable and easy to analyse.

c. Java is an object-oriented programming language; It is created to revolutionise the programming of application for the web and corporate intranet and extranet. Java is specifically designed for real-time, interactive, web-based network application programs calledapplets which canbe executed by any computer and any operating system anywhere in the network.

2. The main advantage is; a. Operation can be specified in detail making the most efficient use of the machine. The drawbacks are:

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• Programming is machine-dependent • It is difficult to program as compared with a high-level language.

Question 5

a) There are two main approaches to data storage: (i) File-based approach. (ii) Database approach.

Enumerate three characteristics of each of the above approaches. (12 marks)

b) The use of database approach is common. However, circumstances might arise that suggest the use of the file-based approach instead. Highlight circumstances that might cause this.

(8 marks) Comment This is another question with very poor performance. Only five (5) out of twenty- five (25) candidates passed. Majority of the candidates that attempted the question did not seem to understand the concept of data storage viz-a-viz file-based and data approaches, let alone having to enumerate their characteristics and the circumstances that might lead to their use.

Answer a.(i) The following are the characteristics of file-based approach to data storage.

• Files are developed in a piecemeal fashion to service the needs of an application and one associated with that application.

• The same data can be repeated on many file for example employee address. • The same data may be held under different names, for example employee name and staff name. • The physical characteristics of storage of the same data on different files may be different. • The responsibility for data is dispersed

(2 marks each for any 3 = 6 marks) (ii) Characteristics of data base approach to datastorage include;

• It is an integrated store of shared data. • There is minimal redundancy of data. • It is structured in a manner that is logically meaningful to the organisation.

a) In certain circumstances, the file-based approach would be preferred. Such advantages may be

(i) Database design involves time and costs. This may not be needed in a file-based approach as there is a piecemeal design of the file.

(ii) Database hardware and software costs need to be taken into account. The DBMS for a large computer system is a complex piece of software that will be very expensive for file based approach; one can get and use a standard package to manage the file. Also very large, expensive storage is needed on which to create the database for the database approach.

(iii) Database access is slower than direct file access. Recovery of data from a database using DBMS involves another layer of software over and above an application program directly reaching a file. The database may be physically implemented using large numbers of pointers

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which will show down access. Thus, database access will likely be considerably slower than reaching direct file.

Question 6

(a) Enumerate FIVE features of a Spreadsheet. (5 marks)

(b) List the steps to take in correcting entries of data in a cell of Spreadsheet. (6 marks)

(c) List and explain THREE ways of accomplishing word processing command to SAVE an existing file. (9 marks)

Comment This is a well understood and attempted question. The performance was high with a pass rate of 72%. Those that failed could not enumerate the features of a spreadsheet 6(a). Candidates performed above average in 6(b), and (c) Answer (a) Features of a spreadsheet;

- It is divided into rows and columns - The rows are labelled in numbers 1,2,3……… and the columns are labelled A,B,C,…..etc. - A cell is formed at the point of intersection of a row and column. - A cell identified by an address which is a which is a combination of column and row labelled

as A1,B2, etc. - There is provision for functions for quick computation of values. - Three types of data can be processed: label, value and formula. - Spreadsheet operations are carried out on worksheets.

(1 mark for each any 5 points = 5 marks) (b) To correct entries of data to a cell;

- Place the cursor on the cell to correct. - Type the correct data. - Press enter.

OR - Double-click the cell. - At this point, type the correct data. - Press enter.

a. In order to SAVE a file in a word processing environment. • Use the menu-bar:

- The menu-bar consists of various commands that can be applied to it. - Click on a file in the menu bar. - Then, click on SAVE to save the current file.

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• Use short-cut method: Short-cut method is a key combination that is used to accomplish a task instead of selecting commands from the menu bar. Thus, to save the current file PRESS CTRL + S key together.

• Use the toolbar: The toolbar contains a series of icons that are used to accomplish various operations.. To save a file, click on SAVE icon

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MANAGEMENT THEORY AND PRACTICE

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General Overview The October 2014 diet of the examination on this subject marks the end of the old syllabus. Only 10 candidates sat for the examination in this subject, out of which 4 candidates, representing 40 per cent of all candidates that sat for the examination passed, while 6 candidates, representing 60 percent of all the candidates that sat for the examination in this subject, failed. Syllabus Coverage The questions presented represent 95 per cent of the syllabus, which has been distributed under compulsory multiple-choice questions and case analysis. The spread represents the efforts of the examiners to ensure that successful candidates on the subject acquire the essential competencies for effective management of organisational resources. Adequacy of Time Allowed The time allowed for the candidates to attempt the questions was confirmed adequate, considering the need to develop their ability as strategic managers and leaders to make timely decisions while under operational and performance pressure. This ability was demonstrated by all the students that passed the examination as they attempted all the questions within the time allotted for the examination. Consistency in Required Number of Questions The number of questions presented in this diet of the examination and the number expected of the candidates to attempt is consistent with the trend since the commencement of the old syllabus on the subject. Clarity of Instructions to Candidates All the instructions associated with the examinations on the subject were clearly presented to the candidates in the front page of the question paper as well as complied with by all the candidates that passed this diet of the examination. Comment on The Questions The questions were considered professional in all ramifications and standard as about 80 per cent are application questions, oriented towards testing the candidates’ competencies required to manage business resources. The questions captured topical issues in the Nigerian business industries such as management principles, business environment, feasibility studies and report, leadership development, bureaucracy,etc. The questions were professionally designed. The flow was remarkable,especially in the compulsory multiple-choice section. The case study was well articulated with almost zero difference from real-life issues and management challenges facing Nigerian business organisations today. Evaluation of Scripts Assessment and grading of the scripts of this diet of the examination on the subject was, as usual, done with utmost care to ensure that no candidate was short-changed in any way. This assignment was handled by a team of highly experienced examiners under the supervision of a chief examiner. The environment under which marking took place was very conducive. The examiners participated in the co-ordination exercise before the actual marking started, thereby jointly reviewing the marking scheme, establishing the points on the basis of which scores should be awarded, and, above all, harmonising the content of the marking scheme with the marks allotted to the different questions .The scripts’ assessment and grading were done with eagle

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eye , under the strict supervision of the Chief Examiner. All these cautions gave rise to a high level of consistency in the awards and, above all, accuracy of the scores received by the candidates. General Comment on Overall Performance Out of the total number of 10 candidates that sat for this diet examination, 4 representing, 40 per cent, passed, while 6, candidates representing 60 per cent of all the candidates that sat for the examination on the subject failed. The candidates performed very well in Questions 1, 4, 5 and 7. Analysis of General Performance of Candidates

Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rates (%)

Failure F1 F2 F3

10 - 4 40 6 - -

Analysis of Attempts Per Question

Question No. Total No. of

Candidates that Attempted Question

No. of Distinctions

No. of Passes No. of Failures

1 10 1 4 5 2 10 - 2 8 3 3 - 2 1 4 10 1 6 3 5 5 2 2 1 6 8 1 2 6 7 4 1 2 1

EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS. SECTION A Question 1 (i) Which of the following is not a stage in the group development process?

(a) Farming (b) Storming (c) Performing (d) All of the above. (ii) Which of the following is not a factor that contributes to the development of cohesiveness in a group? (a) Nature of task (b) Threats from outside

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(c) Value of work (d) None of the above.

(iii) The following, with the exception of one, are Fayol’s principles of management: (a) Discipline (b) Uniformity (c) Esprit de corps (d) Equity (e) Division of Labour. (iv) Which of the following is not one of Minzberg’s managerial roles? (a) Decisional roles (b) Financial roles (c) Informational roles (d) Interpersonal roles (e) All of the above. (v) Which of the following is known primarily for time and motion? (a) Henry Ford (b) Frank Gilreth (c) LyndallUrwick (d) Henry Gantt (e) Fredrick Taylor. (vi) Administrators require the following functions except: (a) Design skills (b) Conceptual skills (c) Human relations skills (d) Technical skills (e) Experimental skills (vii) Every manager performs the following functions except: (a) Controlling (b) Organising (c) Officialdom (d) Planning (e) Leading (viii) Which of these is not a final outcome of strategic planning? (a) Vision (b) Mission (c) Division (d) Domination (e) Policy (ix) Which of the following is not one of the tactics of dealing with difficult people? (a) Use humour (b) Give recognition and attention (c) Listen and then respond (d) Call law enforcement agents (e) Use tact and diplomacy

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(x) A……..is defined as a collection of parts into a complex unit or as organiaed complexity? (a) Authority

(b) Open system (c) Closed system (d) System (e) Environment (xi) Agroup of people who may have some claims with regard to the activities

of an organisation are known as……………….. (a) Claimants (b) Opportunists

(c) Stakeholders (d) Staff (e) All of the above. (xii) Two ways by which companies raise funds from their stakeholders and other investors are ………………………….. (a) Raising tax of their employees and directors. (b) Loans and retaining of profits for re-investment instead of paying

dividends (c) Conversion of their shares into loans. (d) Purchasing of other organisation’s shares. (e) Raising of funds from their clients and customers. (xiii) An organisation may be said to be responsible to the following except:

(a) Its shareholders. (b) Employees. (c) Customers and suppliers. (d) Competitors and the general public.. (e) Auditors. (xiv) The following are financial objectives of an organisation except: (a) Profitability. (b) Return on Capital Employed (ROCE). (c) Survival (the avoidance of loss). (d) Growth in earnings per share (EPS). (e) Interest payment to depositors to encourage savings. (xv) The true meaning of SWOT is :

(a) Share, Workers, Organisation andTthreats. (b) Survival, Weakness, Opportunity, andTtreaty. (c) Strength, Weakness, Opportunity, Threats. (d) Strengths, Weaknessess, Opportunities and Threats. (e) Survival, Weakness, Opportunity and Threats. (xvi) …………theory states that people are motivated by existence needs, related

needs and growth needs. (xvii) Corporate responsibility requires that organisations consider seriously the

impact of their actions on………………. (xviii) The expectancy theory of motivation is associated with……………….

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(xix) The formal process of arriving at a solution for a given problem through the process seeking expert opinion and eventually arriving at a consensus is called……………..

(xx) The forecast method that relies on the opinion of prospective buyers of the product regarding what they expect from the product and the reason for demanding for a particular product is called………………

(xxi) The master plan of the organisation where other sub-units of the organisation derive their functions and directions is called…………………

(xxii) ………is the sequence of actions that establishes a required method of handling future activities.

(xxiii) The process of directing and influencing the task-related activities of group members is called…………………

(xxiv) The principle that stipulates that an employee should receive orders from one superior only is called………………….

(xxv) The management technique in which specific performance objectives are jointly determined by subordinates and their supervisors, progress towards objectives is periodically reviewed and rewards are allocated on the basis of that progress is

called…………………… (xxvi) …………..can be described as the national co-ordination of the activities of a number of people for

the achievement of some common explicit purposes or goals, through division of labour and function, and through a hierarchy of authority and responsibility.

(xxvii) …………………….is a special type of chance that requires committing resources in order to improve company performance.

(xxviii) The process of determining future human resource needs relative to an organisation’s strategic plan and devising the steps necessary to meet those needs is called………………

(xxix) The process by which the knowledge, skills and abilities of employees to perform specificjobs are increased is ……………………………

(xxx) …………..is any person who notices and attaches some meaning to a message. (30 marks)

Comment About 50 per cent of all the candidates that sat for the examination on this subject performed very well in the compulsory multiple-choice question. This is slightly an above-average pass rate, implying that a good number of the candidates could not demonstrate a good understanding of the basic concepts associated with the subject. It is hereby recommended that as we step into the new syllabus, students,while preparing for the exam on the subject, should study and read wider as to cover the various topics to enable them perform well in the compulsorymultiple-choice questions. Answers i. c ii. c iii. b iv. b v. b

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vi. e vii. c viii. d ix. d x. d xi. c xii. b xiii. e xiv. e xv. d xvi. Alderfer’s ERG theory. xvii. Society. xviii. Victor Vroom. xix. Delphi approach. xx. Opinion Survey. xxi. Corporate/Strategic Planning. xxii. Procedure. xxiii. Leadership. xxiv. Unity of Command. xxv. Management by Objectives (MBO). xxvi. Organisation. xxvii. Opportunity. xxviii. Human Resource Planning. xxix. Training. xxx. Decoder .

SECTION B- CASE STUDY Question 2 Sixteen Bank Ltd is a new generation bank with over 100 branches all over Nigeria. Within six years of its existence it has expanded rapidly with branches in all the 36 states in Nigeria with its headquarters at Abuja. The bank carries out normal banking functions. The group personnel manager at the head office noticed that in every management meeting the major operational problem always on the agenda was the turnover among cashiers. In every year, about 70% of the bank cashiers quit within one year. Training new cashiers takes considerable time and money and much productivity is lost . The bank, despite the high rate of unemployment in the country found it difficult to find qualifiedapplicants for the position. An exit interview was conducted to identify the possible reasons for the turnover. The findings are that: - the payoff and benefits were comparable to the competitors . - some staff complained about working hours. - some noted that they cannot tolerate the myriad of repetitive actions required by their jobs. Required : (a) How would the bank enrich the job of cashiers? (10 marks) (b)How would job rotation and job enlargement be applied to help reduce dissatisfaction with the position of cashiers (15 marks) (Total =25 marks)

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Comment As a compulsory question, all candidates attempted this number. The performance on the question was, however, very poor as only 2 candidates representing 20 per cent of all the candidates, that sat for the examination on the subject, passed. It suggests that the examination candidates are yet to capture the skill required for case analysis. Answer (a)i The cashier’s job should be enriched by bringing approaches that will include more challenges,

responsibilities and the jobs more appealing. ii When the job is enriched it will give them a sense of ownership, responsibility, and accountability for

the job iii The job will become more exciting, thus increasing their job satisfaction and motivation. (b)i. The application of job rotation into the cashier’ job would allow a temporary switching of job

assignments. ii With this, the cashiers will develop new skills and learn other respects of the organisation’s work iii It will help in preventing the cashiers from feeling bored. iv It will give them an opportunity to learn about how the organisation operates. v The application of job enlargement to their job will increase the number and variety of tasks within

the job. vi This will make them take on high level job responsibility. vii They will be able to develop a broader set of skills, thus making them more valuable and flexible.

SECTION C Question 3 Discuss the main features and dysfunctions of the ideal type of bureaucracy. (15 marks) Comment Onlythree (3) candidates, representing 30 per cent of all the candidates that sat for the examination on this subject, attempted this question, out of which two (2) candidates passed. Answer Features of Bureaucracy i A continuous organisation of functions bound by rules. The specialisation of work, the degree of

authority allocated and the rules governing the exercise of authority ii A hierarchial arrangement of office jobs, i.e where one level of job is subject to control by the next

level. Iii Appointment to office is made on grounds in technical competence. iv The separation of officials from the ownership of the organisation. v Official positions exist in their own rights and job holders have no right to a particular position. vi Rules, decisions and actions are formulated and rewarded in writing. Dysfunctions

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i Rules, originally designed to serve organisational efficiency, could become all- important in their own right

ii Relationship between office holders or roles is based on the rights and duties of each role, i.e. they are depersonalised and this leads to rigid behavior.

iii Decision-making tends to be categorised, this discourages search for other alternatives. iv The effect of rigid behaviour is damaging for client/customer relations and management-worker

relationships, employees work within a framework of rules and controls which are imposed on them. vi Standardisation and routine procedures make change and adaptation difficult when circumstances

change. vii The exercise of control based on knowledge can lead to the growth of experts who always clash with

those of the generalist managers and supervisors.

Question 4 The environmental factors affecting organisations can be categorised into political, economic, social and technological (PEST). (a) For each of these categories, explain what they are and how they can influence organisations.

(8 marks) (b) Explain briefly why it is important for organisations to monitor their environmental influences.

(7 marks) (Total = 15 marks)

Comment All the candidates that sat for the examination on the subject attempted this question, out of which 7 passed, including one candidate that made distinction. Most of the candidates were ableto explain the environmental factors that affect organisations but only a few of them were able to explain why it is important for organisations to monitor their environmental influences. Answer (a)i Political influences are factors arising from the political decisions of government, government

policies, as well as laws and regulations Organisations that rely on government spending are subject to political influence, e.g hospitals, schools, etc.

ii Economic influences refer to general economic conditions, e.g. inflation, interest rates, minimum wage. Purchasing power, whether the economy is growing, stagnant or recession. These affect operating costs andprofits.

iii Social influences arise from attitudes, beliefs and habits of society as a whole or sectors of the society. Organisations may be affected by social influences such as religion, dressing, customs, etc.

iv Technological influences arise due to changes in technology. Technological changes that may affect organisations include digitalisation, automation, value engineering, etc, resulting in mass production time and cost savings, improved quality delivery, high/volume capacity of information storage and retrieval, etc.

(b) Organisations need to monitor environmental influences to look for developments that would have a profound influence in the organisations’ future. Environmental change could create opportunities and threats for the organisation.

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Unless organisations adapt to changes in their environment, they may stop being effective and successful and eventually lose out to competitors.

Question 5 As part of your banking training, you have been sent on a leadership development course. Upon your return, your manager has asked for a report on a certain concept. Required: (a) Describeleadership. (3 marks) (b) Describe Blake and Mouton’s managerial grid to your bank as an organisation. (6 marks) (c) Discuss the usefulness of the managerial grid to your bank as an organization (6 marks)

(Total= 15 marks) Comments About 5 (or 50 per cent) of all the candidates that sat for this examination on the subject attempted this question, out of which 4 candidates passed, including 2 that made distinction on the question. Answer (a) Leadership: This is a conscious activity about setting goals and inspiring people to give a

commitment to achieve the organisational goals.Leadership is the relationship through which one person influences the behaviour of others.

(b)(i) RobertBlake and Jane Mouton observed two basic ingredients of behaviour, namely concern for

production (i.e.tasks) and concern for people. (ii) Concern for production includes the manager’s attitudes towards procedures, processes, work

efficiency and volume of output. (iii) Concern for people includes personal commitment sustaining the esteem and trust of the group,

maintaining interpersonal relationships and ensuring good working relationships. (iv) They recognised that it was possible for concern for production to be independent of concern for

people. It was therefore possible for a leader to be strong on one and weak on the other, strong on both, weak on any variation in between. QUESTION 6 You have been posted to the credit department of your bank. A customer requested for a loan of N1.0million to facilitate a business. One of the conditions for granting the request is to prepare and present a good feasibility report to the bank Required: List and explain briefly the components of a good feasibility report. (15 marks) Comment

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About 80 per cent of all the candidates that sat for this examination on the subject attempted this question, out of which 20 per cent passed, including one candidate that made a distinction, on the question. Answer (a) The components of a good feasibility report are as follows:

- Cover Page - Table of Contents - Executive Summary - Introduction - Description of the Venture - Industry Analysis - Market Analysis - Strategic Human Resource Planning - Production Plan - Marketing Plan - Organisational Plan - Assessment of Risks and Problems - Financial Plan - Evaluation Recommendation and Conclusion - Appendix

Question 7 You have just been promoted to a senior managerial level in your bank and you will need some staff to work under you. Required: (a) What do you understand by the term ‘span of management’? (5 marks) (b) What factors will influence your choice of span of management? (10 marks) (Total= 15 marks) Comment About 50 per cent of all the candidates that sat for this diet of the examination on the subject attempted this question, out of which 4 candidates passed, including one that made a distinction on the question, while one candidate failed. Answer (a) Span of management is the number of persons a manager directly supervises or controls or

manages. There are two variants: i. Narrow Span of Control: This is where few subordinates report to the manager, hence tall

organisational structure. ii. Wide Span of Control: Where many subordinates are reporting to the manager, hence flat

organisational structure. (b) Factors that will influence the choice of span of control are:

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i. Personal Variable: -Personality of the superior -The superior/subordinate competence.

ii. Job Related Variables: - Nature of the work

- Job fatigue - Need for direction and control - Co-ordinating time -Planning time.

iii. Environmental Related Variable: - Volatility of the environment - Geographical dispersion of the employees.

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PROFESSIONAL EXAMINATION II

INTERNATIONAL FINANCE

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A. GENERAL OVERVIEW A brief overview of the subject shows:

i) The syllabus was adequately covered. ii) The time stipulated for the examination was adequate. iii) The question’s set were consistent with the requirements. iv) Instruction was clearly spelt out to candidates.

B. COMMENTS ON THE QUESTIONS

The questions followed from the acceptable standard and were adequately structured.

C. EVALUATON OF SCRIPTS The scripts were thoroughly marked and cross-checked for accuracy.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE The performance of candidates in this diet is far better than that of the previous diets. This is obvious from the analysis below.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rate in Percentage

F1 F2 F3

150 - 104 69.33% --- 21 25

F. ANALYSIS OF ATTEMPTS PER QUESTION. Question No. Total No. of

Candidates that Attempted Question.

No. of Distinctions

No. of Passes

No. of Failures

1 150 - 96 54 2 140 - 52 88 3 11 - 01 10 4 149 - 45 104 5 12 - 03 09 6 137 - 100 37 7 62 - 46 16 8 86 - 64 22

Question 1 In a foreign exchange contractual obligation between a bank and a customer, it can happen that a customer through no fault of his own, cannot complete the agreed transaction. In such a case the bank will have to “close out” the deal. (a) What actions will a bank undertake in the event of a customer’s inability to fulfill obligations in a forward

exchange contract? State the action where the customer is: 218

(i) an exporter

(ii) an importer (10 marks)

(b) Why is it necessary for a bank to “close out” a deal? (5 marks)

(c) Breakthrough Bank Plc agreed to enter into a forward contract to buy US$100,000 from a cocoa exporter,

Derry Trade Limited. The contract was fixed forward contract for a transaction due to take place in three months’ time. Unfortunately, the proceeds of export transaction was not received by Derry Trade Limited and consequently, it had to default. What action should Breakthrough Bank Plc take in the circumstance? The rates on the date that the forward contract was agreed were as follows: Spot Three months forward 1.8525 - 1.8535 0.94cpm 0.89cpm The Spot rates three months later were

1.92 - 1.93 (5 marks) Comment This is a compulsory question, attempted by all candidates. The performance was above average. It is an indication of adequate preparation. Answer A forward exchange contract is a binding contract, and the customers must ensure that they fulfil their obligations as agreed. However, where a customer cannot complete the transaction as agreed, the bank will undertake the following actions to complete the deal.

(i). In the case of an exporter: Where, on due date, an exporter cannot provide the currency that the bank has contracted to buy from it, the bank will undertake the following set of actions. i. Calculate the cost of the sale of the relevant amount of foreign currency at the spot rate

ruling on the date of default. ii. Calculate the amount it would have credited to the customer had the contract been

fulfilled. iii. Pass the net debit or credit to the customer’s account

(ii). In the case of an importer:

Where the customer is an importer, the bank will undertake the following set of actions. i. Calculate the amount that would have been debited had the forward contract been

completed. ii. Calculate the value of the currency market. The resultant gain or loss is then credited to

the customer’s account.

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2(c) The bank will take the following actions: The agreed forward buying note would be determined as follows: Spot- 1.8535 Less premium- 0.0089 Three- month forward 1.8446 On the due date the bank will calculate as follows. (Dr) cost of sale of $100,000 at 1.92 = £52,083.33 (Cr) proceed of purchase of $100,000 at 1.8446=£54,212.30 Net credit passed to customers account £2,128.97 1b- To avert loss for the bank

- To keep the book of a/c - To fulfill the binding nature of the obligation

Question 2 (i) A participant in the foreign exchange market that profits from simultaneous exchange rate differences

in different market is known as:

(a) Speculator

(b) Dealer

(c) Arbitrageur

(d) None of the above

(ii) Another term for Forward Transaction in the Foreign Exchange Market is:

(a) Outward-Forward Transaction

(b) Outright-Forward Transaction

(c) Forward-Forward Swaps

(d) Outward-Forward Swaps

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(iii) The method of quotation that expresses the exchange rate as the foreign currency price of one US Dollar is known as:

(a) European Terms

(b) American Terms

(c) Canadian Terms

(d) Scandinavian Terms

(iv) Interbank quotations in the Foreign Exchange Market are known as

____________________________ and ___________________________

(v) A way of borrowing one currency for a limited time while giving up the use of another currency for the same time is known as:

(a) Hedging

(b) Speculating

(c) Swap

(d) None of the above

(vi) The economic theory that links exchange rates, price levels and interest rates is called:

(a) Law of One Price

(b) Nominal Effective Exchange Rates

(c) International Parity Condition

(d) Real Effective Exchange Rates

(vii) All but one of the following are the functions of the Foreign Exchange Markets:

(a) Transfer rights from one International Bank to the other

(b) Obtain credit for International trade transactions

(c) Transfer purchasing power between countries

(d) Minimize exposure to the risks of exchange rates changes

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(viii) A Forward quotation expressed in points is known as:

(a) Forward Rates

(b) Forward Margin

(c) Swap Rates

(d) None of the above

(ix) The theory that provides the link between the Foreign Exchange Market and the International Money

Market is known as:

(a) Covered Interest Arbitrage

(b) Uncovered Interest Arbitrage

(c) Interest Rate Parity

(d) International Fisher Effect

(x) Name two (2) common Foreign Currency Financial Derivatives. (2 marks each = 20 marks)

Comment These are sets of objective questions that required detailed understanding. The performance indicated insufficient comprehension of the question. Candidates are expected to have adequate understanding of principle of exchange rate. Answer

1. c 2. b 3. a 4. Bid and ask 5. c 6. c 7. a 8. b 9. c 10. (i) foreign currency futures

(ii) Foreign currency options

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Question 3 a) The respective rates of inflation in Denmark and Nigeria are 2% and 4%. The market rates of interest

are 9% and 10% respectively. If the spot rate of exchange is 2.20KR to N1, what does this suggest about the forward rates?

(10 marks)

b) A Nigerian Bank has projected it will have a surplus of £480,000 in its London account for the next 12 months. An investment in a sterling term deposit in London would earn annual interest rate of 8%. However, the treasurer believes a better return could be earned from investing in US Dollars because although the rate of interest is lower at 6%, he expects the dollar to appreciate significantly over the next 12 months. The spot rate is $1.8120 to £1 and the forecast spot rate in 12 months’ time is $1.6500. Required:

(i) Calculate the benefit to the bank for making the dollar investment if the exchange rate changes

are as predicted. (5 marks)

(ii) Demonstrate that no benefit will be obtained if the international fisher effect holds. (5 marks)

(Total = 20 marks)

Comment Very few students attempted this calculation as a result of lack of understanding of the question. The question used indirect quote which made many candidates to query the question. Such question is inevitable as a result of financial globalisation.

Answer (a) This is fixed rate or indirect rate quote

(i)Purchasing Power Party (PPP) Suggests that Spot rate x (1+inflation rate) =forward rate (1+ N inflation rate)

i.e 2.20×1.02 = 2.16 1.04 This suggests that the F is expected to appreciate relative to naira over the forthcoming period (presumably a year?) (ii)Interest Rate Parity (IRP) suggests that Spot rate ×(1+F interest rate) 1+N interest rate) i.e 2.20×1.001=2.18 1.10

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The two theories are not giving consistent messages: The relative inflation rate suggests a forward rate of 2.16 while the relative interest rate suggests a rate of 2.18. (i)(b)This is fixed rate of indirect quote Sterling investment $450,000×1.08=£486,000.00 Dollar investment Convert at spot rate £450,000×1.8120 =$815,490.00 Months time £815,490×1.06 =864,419.00 Sterling obtained at Forecast rate $864,419 =23,890.55 1.6510 Gain = 523,890.55-486,000 =£37,890 (ii) If the international fisher effect holds the spot rate in 12 months’ time can be calculated from the following. 1+FR=FSR (fixed rate) 1+LR CSR i.e1.06= FSR 1.08 1.8120 Therefore FSR× (1.06)(1.8120) =1.7784 1.08 The sterling obtained from the dollar term deposit is: 864.419=£486,065.50 1.7784 Question 4 (i) International Banking markets which involve short-term borrowing and lending conducted outside of the

legal jurisdiction of the authorities of the currency that is used is known as:

(a) Eurodollar Markets

(b) Eurocurrency Markets

(c) Offshore Markets

(d) All of the Above (ii) Arrange the methods of payment in order of attractiveness from the exporters’ point of view.

(iii) All but one are Trade Financing Facilities available to an importer:

(a) Leasing

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(b) Factoring

(c) Accommodation

(d) Hypothecation Loan

(iv) The article that covers Credits V. Contracts in UCP 600 is:

(a) Article 8

(b) Article 12

(c) Article 4

(d) Article 19

(v) A letter of Credit that allows the seller to receive a part of the documentary credit amount as an advance

payment before the fulfillment of all the conditions stated in the documentary credit is known as ____________________________

(vi) All but one of the these are Multilateral Financial institutions:

(a) IDA

(b) MIGA

(c) IBRD

(d) IFC

(vii The exporter under Documentary Collections can be referred to as all but one

of these names:

(a) Payee

(b) Drawer

(c) Accreditor (d) Principal

(vii) Which Article in ICC Publication No.522 relates to action to be taken by a

bank where payment of interest is refused by the drawee?

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(viii) One of the series of Changes in INCOTERM 2010 is the reduction of the number of terms to:

a) 9

b) 10

c) 11

d) 12

(ix) Working Capital Management in an MNE requires all but one of the following:

a) Repositioning of fixed assets and long-term liabilities.

b) Repositioning of cash flows

c) Management of current assets

d) Management of current liabilities (2 marks each = 20 marks)

Comment This question was attempted by a larger percentage of the candidates. The performance, however, was below average. Candidates do not demonstrate adequate preparation; hence, they are hereby advised to cover the syllabus adequately to enhance future performance. Answer

1. d 2. i. Payment in advance

ii.Documentary credit iii.Documentary collection iv.Open account

3. b 4. c 5. Red claused credit 6. MIGA 7. c 8. Article 20 9. c 10. a

Question 5

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As a presenting bank adhering to the ICC Uniform Rules for Collections, Publication No.522, you are requested by the various drawees to release documents to them in the circumstances described below: Note: The collection order has no provision for any specific instruction to cover the following problems: a) When immediate payment is offered to enable goods to be passed through the customs (this is essential

before funds can be remitted abroad).

b) A bill of exchange is returned to you which purports to bear the stamp of the company which should accept. As you do not hold the account of the company concerned, you do not know whether the person who has signed it is authorized to do so.

c) The collection order states that interest is to be collected at 15% per annum in respect of any delay in

payment after first presentation terms are C.A.D. Two weeks after the first presentation, the drawee offers the principal amount but refuses to pay any interest.

d) The collecting bank demanded for collection charges from the drawee who refused to pay, claiming that

they had a prior agreement that all collection charges were to be for the account of the exporter, besides prior transactions had borne no recourse to them in terms of collection charges and that if his condition was refused since the goods had arrived, he would hold the bank liable for demurrage charges.

State the position of the bank under each circumstance. (5 marks each)

(Total = 20 marks) Comment This question was barely attempted by candidates and the few that attempted it did not demonstrate absolute understanding of the question. Candidates are advised to take this aspect of the syllabus serious because it entails rules that guide international trade which is inevitable.

Answer (a) Documents should not be released. Art.17 and 18 URC 522

Article 17- In the case of documents payable in the currency of the country of payment in local currency, the presenting bank must, unless otherwise stated, be instructed in the collection instruction. Release the documents to drawee against payment in local currency, only if such currency is immediately available for disposal in the manner specified in the collection instruction.

Article 18- In the case of documents payable in a currency other than that of the country of payment (foreign currency)

(a) Bill of exchange. Documents may be released (Art 22) The presenting bank is responsible for

ensuring that the form of the acceptance of a bill of exchange appears to be completed and correct but is not responsible for the genuineness of the any signature or for the authority of any signatory to sign the acceptance.

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(b) Documents may be released –Art 20 i. If the collection instruction specified that the interest is to be collected and the drawee

refuses to pay such interest, the presenting bank may deliver terms and conditions, as the case may be, without collecting such. sub-article 20(c)

(c) Collection charges – Documents should not be released.

Question 6 a) Explain the differences among transaction, operating and translation exposure.

(10 marks)

b) Describe your understanding of Electronic Money Transfer System (EMT) in International Finance. (5 marks)

c) List the relevance of Electronic Money Transfer System (EMT) to Modern International Financial Markets.

(5 marks) (Total = 20 marks)

Comment This question is in three (3) parts. It was well attempted by candidates. Majority that attempted it demonstrated good knowledge of the question and it aided their performance.

Answer (a)i .-Transaction exposure measures changes in the value of outstanding financial obligation incurred

prior to a change in exchange rates, but not due to be settled until after the exchange rate change. - It deals with changes in cash flows that result from existing contractual obligations. - It exists because of unexpected changes in future cash flow.

ii. Operating exposure (also called economic exposure), competitive exposure or strategic exposure. - Measure the change in the present value of the firm resulting from any change in expected

future opening cash flows of the firm caused by an unexpected change in exchange rate. - The change in value depends on the effect of the exchange rate changes on future sales

volume prices and costs. - The difference between the two is that transaction exposure is concerned with future cash

flows already contracted for, while operating exposure focuses on expected future cash flows that might change because a change in exchange rates has altered international competitiveness.

iii. Translation exposure, also called accounting exposure, is the potential for accounting- derived changes in owners’ equity to occur because of the need to translate foreign currency-financed statements of a foreign subsidiary into a single reporting currency to prepare worldwide consolidated financial statements.

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(b) Electronic money transfer system is the means of transferring funds from one country to another through any bank that has the resources of exploiting advantages of the advanced form of information technology. - The system entails the linking of the system of the local bank with that of its chosen overseas

correspondent banks such that when funds are received for transfer at one end, it makes that local equivalent of the foreign currency amount available to the beneficiary.

(c) Relevance - It has turned the international financial market into a global village. - It reduces transaction cost and is more beneficial to the customers. - It increases planning and efficiency on the part of the bank. - It gives room for further advancement and improvements. - It is safer than any other form of interbank financial system.

Question 7 Write short notes on the following International Trade Organisations: a) World Trade Organization (WTO) b) Organization for Economic Cooperation and Development (OECD) c) International Standards Organization (ISO) d) International Chamber of Commerce (ICC)

(5 marks each) (Total = 20 marks) Comment Candidates that attempted this question performed below average. It is an indication that candidate are not familiar with all these special terms of international trade and finance. They are hereby advised to prepare for all these terms because the terms are of paramount importance in finance.

Answer (a) World Trade Organisation has over 135 members with headquarters in New York, USA. It is a global

trading organisation covering trade in goods, services and intellectual property. Its objectives include: - Activities on field of trade and economic endeavours shall be conducted with a view to raising

standards of living, and full employment, etc. - To allow the optimal use of the world’s resources in accordance with the objectives of

sustainable development. - To make positive efforts, designed to ensure that developing countries, especially the least

developed among them, are assisted. - To ensure linkages between trade policies, environmental policies and sustainable

development. - To develop an integrated, more viable and durable multilateral trading system encompassing

GATT.

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(b) OECD is an international organisation that prevents credit term race among members. - Membership includes a few middle –income developing countries and the industrial market

economies. - The group comprises credit experts representing their respective governments. - International control of export credits. - It is an informal arrangement which seeks to limit competitive subsidisation of export

financing by its members. - Also deeply involved in promoting good corporate governance worldwide.

(c) International Standard Organisation is a Geneva-based body responsible for the setting of standards for goods and services. - The members subscribe to the standard. - ISO numbers are allocated to producers that meet the qualities as specified.

(d) ICC is a non-governmental organisation

- Major goals include the promotion of trade liberalisation based on free and fair competition. - Members are mainly business organisations spread across over 123 countries. - It represents the world business community at national and international levels. - It is involved in harmonising trade practices and formality terminology and guidelines for

importers and exporters. - Holds vocational seminars and business conferences throughout the world. - Produces a wide range of publications including UCP and UCC.

Question 8 Your customer OMLAN Limited has large export orders from foreign buyers in South America and Asia. The orders were placed by the foreign buyers as a direct effect of your customer’s participation in a Trade Fair which they attended and actively participated recently in Brazil. The Managing Director, Chief AkandeOmilani called in your office today and informed you of the breakthrough into the export markets and would require your expertise advices on this issue. Required: a) Briefly advice the chief on Export trade in Nigeria. (7 marks)

b) What are the services that are available to this type of customer who breaks into the export market for

the first time, both banking and non-banking services? (6 marks)

c) State the conditions precedent to export activities by a Nigerian company under the relevant exchange control regulations. (7 marks)

(Total = 20 marks)

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Comment This question tested the ability of candidates as it relates to export financing. Candidates demonstrated poor knowledge of the topic. They are advised to pay more attention to this because international trade and finance cannot do without export financing.

Answer (a) Government provides a lot of incentives to non-oil exports.

- Potential exporters must register with NEPC. - Must be a limited liability company. - All exports must be evidenced by duly completed Form NXP and registered with a bank in

Nigeria. - All exporters must open domiciliary account. - Export proceeds must be repatriated within 90days. - Exporters are advised to register with NEXIM.

(b) Services available

- Provision of services on foreign currency maintenance; - Repatriation of export proceeds;

- Purchase of foreign exchange; - Maintenance of naira account/loans and advances; - Establishment of letter of credit. Non Banking - Advisory services; - Travel facilities; - Bonds, guarantees andindemnities; - Status enquiry.

(c) Conditions

- Must register with NEPC. - Must register with NEXIM. - Must be a limited liability company. - Goods are subject to pre-shipment inspection.. - Must maintain a foreign currency account. - Must repatriate proceeds within 90days. - Must be experienced in the line of trade and, if not, a manufacturer must show. evidence of

available exportable materials..

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LAW ETHICS & CORPORATE GOVERNANCE

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A. GENERAL OVERVIEW The course is divided into parts A & B. The A part covers the basic rudiments of the applicable and regulatory instruments on banking generally. It also captures the elementary issues relating to Bank Guarantee and Indemnity. The scope of the course also extends to the coverage of Company Law and Practice, Real Property issues including the company securities and mortgages. This part also deals with Negotiable Instruments and General Principles of Agency. Part B, basically, relates to Corporate Governance, with emphasis on Ethics of banking, Corporate Social Responsibility and the Role of Regulatory Bodies in Banking Industries,inter alia,. The time allowed is 3 hours to attempt five questions, out of which 3 questions must be attempted out of five questions set in part A, and 2 questions must be attempted out of the three questions set in part B. There are 8 questions set in all. Candidates have a time limit of 45 minutes on each question which is adequate to do justice in the circumstance. The question paper is prefaced by the instruction page, giving adequate guides to the candidates on the rules and conditions that are applicable to the set questions.

B. COMMENTS ON QUESTIONS The questions are of high quality and they are balanced with most of them divided into at least 2 parts. In essence, even if a candidate cannot do well in one part, he would be able to perform well in the other part. However, Question 1 has only one question whilst Questions 2 and 4 have 3 parts each. The questions were legibly printed in a way that is devoid of ambiguity.

C. EVALUATION OF SCRIPTS The markings by the Examiners was extremely liberal. We were mindful of generating an impressive result and conscious of assisting the candidates in making pass grades against the backdrop of the fact that the old syllabus is being phased out and this is the last opportunity. Quite a lot of the candidates were upgraded eventually to boost the percentage of those in distinctions and pass mark categories.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE In assessing the candidates objectively in this diet, it was discovered that the performance was much better in standard than the performance in the last diet. We generated a pass mark rate of 93.3% which is appreciably higher than the last diet that was barely 43.85%.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES

TOTAL NO. OF CANDIDATES

TOTAL NO. OF DISTINCTIONS

TOTAL NO. OF PASSES

PASS RATES IN PERCENTAGE

FAILURES F1 F2 F3

119 2 109 93.3% NIL 2 6

F. ANALYSIS OF ATTEMPTS PER QUESTION

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QUESTION NO. TOTAL NO. OF CANDIDATES

THAT ATTEMPTED QUESTION

NO. OF DISTINCTIONS

NO. OF PASSES NO. OF FAILURES

1 92 9 57 26 2 105 39 52 14 3 28 2 16 10 4 96 28 50 18 5 36 Nil 20 16 6 60 3 34 23 7 91 3 52 36 8 82 7 56 19

G. EXAMINATION QUESTION, COMMENTS AND SUGGESTED ANSWERS SECTION A QUESTION 1 Alhaji Owolabi Bakudi Ezego is desirous of establishing a bank in Nigeria. His sincere opinion is that, for the purpose of establishing a bank in Nigeria there is no other requirement except being blessed with cash in abundance as an individual. He consulted two separate legal practitioners. One of them agrees entirely with him and the other totally disagrees with him. What position will you take, especially with your knowledge of the provisions of the Banks and Other Financial Institutions Act 1991 (as amended)? Comment The question borders on banking regulation and it was expected that candidate must sant with the relevant statutory provision and their purports, especially as it relates to the requirements of establishing a bank. The question was attempted by 92 candidate out of which a total of 66 passed with 9 distinctions. Hence only 28.26% of those that attempted the question failed. Students are advised to get conversant with the relevant banking regulations and their purports. Answer The position to be taken is dictated by the Banks and Other Financial Institutions Act 1991 (as amended) which makes clear provisions as to what must be done by any person desirous of establishing a bank in Nigeria. The two main requirements are:

a] A company must first be established by complying with requirements of the Companies and Allied Matters Act in relation to what must be done to incorporate a company in Nigeria.

b] The making of an application for a banking licence so that a banking licence is obtained. The

application to obtain banking licence is made in writing and addressed to the Governor of Central Bank of Nigeria.

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In support of the application, the following documents are required:

i The feasibility report of the proposed bank.

ii A draft copy of the Memorandum and Articles of Association of the proposed bank.

iii A list of the shareholders, directors and principal officers of the proposed bank and their particulars.

iv The prescribed application fee

v Such other information, documents and reports as the Central Bank of Nigeria may

from time to time specify.

vi The shareholders of the proposed bank shall deposit with the Central Bank of Nigeria an amount equal to the minimum paid-up share capital of the proposed bank which contemporarily is 25 Billion Naira. It must also be mentioned to Alhaji Owolabi Bakudi Ezego that even after the Bank licence had been given to the company incorporated by him the bank has a further obligation to continue to comply with other provisions of the Banks and Other Financial Institutions Act in its day-to-day operation.

The Bank must also continue to obey all policy guidelines and directives issued by the Central Bank of Nigeria from time to time. The issue of banking in Nigeria is not about having cash in abundance; It is more involving than that, by ensuring that all the requirements, as enumerated above, are met and complied with. (20 marks)

Question 2 a State and discuss the various ways of creating an agency relationship. b Outline the duties of an agent to the principal. c Give an outline of how Agency may be determined.

Comment

The question tested candidates’ knowledge on the law of Agency. It ranged from creation, through duties to termination. This aspect should ordinarily be the simplest of the questions. This reflected in the good performance of the candidates in the question. Only 14 failed out of the 105 candidates that attempted the question. We even recorded 39 distinctions. Hence, the percentage of failures merely translate to 9.4% Candidates are advised to get acquainted with the principles of Agency in the law of banking as it constitutes crux of dealings by proxy.

Answer

a. Agency may come into existence or be created in the following ways: i Express Creation-This could be by deed; it could also be by oral instructions.

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ii Implied Creation- This manifests in the following agencies - Agency of Necessity - Agency by Estoppel - Agency by Ratification. (10 marks)

b. Duties of an Agent to the Principal are as follows: i To obey the instructions of the principal; ii To exercise due care and skill; iii To act in good faith; iv To act personally, i.e. to perform his duties personally and not to appoint a sub-

agent to do what he is employed to do, (Hence, the maxim: delegatus non potest delegare;

v To render account; vi Duty of non-disclosure of confidential information i.e the agent owes the principal a

duty of secrecy; he is precluded from disclosing to outsiders confidential information which he had acquired during the agency.

(5 marks) c. There are two broad ways of determining an Agency

i By the act or conduct of the parties, i.e either by mutual agreement between the agent and principal or by the unilateral decision of either of them who gives the other side a notice of termination of the agency.

ii By operation of law - Through the death of one or both parties - The insanity of one or both parties - The bankruptcy of one or both parties - By frustration - Expiration or lapse of time (5 marks)

(Total = 20 marks) Question 3

a. Chief Anikura was the regional manager of the Nigerian Waterways Authority, a Federal Government Agency. He applied for a furniture loan of N2 million to furnish his official quarters and was granted. Later in the year, Chief Anikura won a complete set of furniture in a promotion organised by a building society and saw no need to spend the loan on furniture again. Chief Anikura then used the loan to further his interest in politics. The management of the Nigerian Waterways, on becoming aware of the development, investigated the matter, found him guilty and handed him over to the police for prosecution. Chief Anikura was subsequently charged for fraud and convicted. However, Chief Anikura is well connected in the society, especially within the rank and file of his political associates and he has been proposed for appointment as Executive Director of a commercial bank in which the Federal Government has a controlling share.

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Advise the legality or otherwise of this appointment.

b. A company secretary is no more a glorified clerk in the company. He is now one of the captains of industry. The Companies and Allied Matters Act 2004 has upgraded him to an officer of the company.

Enumerate and discuses the duties and responsibilities of a company secretary under the Companies and Allied Matters Act 2004.

Comment

This question borders on the eligibility for appointment as a director in Company Law as entrenched in BOFIA. It also seeks to test the candidates’ knowledge on the duties of company secretaries. These are purely company law issues with a special flavour of corporate governance. Only 28 candidates attempted the question and we had 18 passes with 2 in distinction category. Ten (10) of the candidates, which represents35.8%, failed the question. The rate of failure in this question is not particularly encouraging. Candidates are advised to develop more interest in company law and corporate governance as they constitute the core of the practice of banking.

Answer

(a)i The person disqualified from being appointed or retaining their positions as directors, secretaries or officers of a bank are listed in section 48 (2) (a)- (e) of BOFIA 1991. S. 48 (2) (c) BOFIA specifically states that no person convicted of any offence involving dishonesty on fraud shall be appointed or remain a director, secretary or an officer of a bank. Going by the provision of section 48 (a) (c) of BOFIA alone, Chief Anikura is disqualified from being appointed a director of a commercial bank. ii The persons disqualified from being directors of a company are listed in section 257

of CAMA 2004. One of such persons is a person disqualified under section 254 CAMA, i.e a fraudulent person.

S.254 of CAMA provides that where a person is convicted by a High Court for any offence in connection with the promotion, formation or management of a company, the high court shall make an order that such person shall not be a director of or in any, way whether directly or indirectly, be concerned or take part in the management of a company for a specific period not exceeding 10 years. The fraud for which such a person can be convicted must relate to a company. A company is defined to mean a company formed and registered in Nigeria. However, Chief Anikura cannot be disqualified under S. 254 CAMA from being appointed a director for the following reasons:

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• The Nigerian Waterways Authority is not formed and/or registered under an existing law before the commencement of CAMA.

• Before a person convicted of fraud under this section is prevented from being appointed a director of a company, the High Court must make an order that such person shall not be a director or take part in the management of a company for a specific period of not exceeding 10 years.

Since none of the two (2) situations mentioned above exists, the proposed appointment is not contrary to the provisions of the law.

(10 marks)

(b). A company’s secretary is an officer of the company with extensive duties and responsibilities. S 298 (1) CAMA 2004 lists the duties of a company secretary as follows:

i Attending meetings of the company, the board of directors and its committee,

rendering all necessary secretarial services in respect of the meeting and advising on compliance by the meeting with the applicable rules and regulations

ii Maintaining the registers and other records required to be maintained by the

company under the Act;

iii Rendering proper returns and giving notifications to the commission as required under the Act; and

iv Carrying out such administrative and other secretarial duties as directed by the director or the company. S. 298 (2) provides that the secretary shall not, without the authority of the board, exercise any powers vested in the director. (10 marks)

Question 4 a. When is a debtor regarded as having committed an act of bankruptcy? b. Outline the procedure leading to adjudication of bankruptcy. c. What are the limitations/disqualifications of a bankrupt?

Comment

This question relates to bankruptcy which is germane to the practice of banking. A total of 96 candidates attempted the question, out of which 78 passed with 28 in distinction category. The performance is impressive. The law of bankruptcy guides bankers on the disqualifications/limitations of a bankrupt in entering into banking transactions. It also affords bankers the knowledge of the adjudication processes. The total pass rate is 81.3%.

Answer

a. By section 1 of the Bankruptcy Act 1979 (as amended in 1992), a debtor is deemed to have committed an act of bankruptcy under any of the circumstances stated below:

- When the debtor fails to comply with bankruptcy notice.

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- Seizure of the debtor’s goods by the bailiffs/sheriffs of the Honourable Court with the

seized goods being in the custody of the bailiff/ sheriff for at least 21 days. - Where a debtor presents a petition against himself in court. (5 marks)

b. The outline of the procedure leading to adjudication of bankruptcy is as follows:

- The commission of an act of bankruptcy by the debtor;

- Presentation of petition against the debtor; - The making of a receiving order by the court against the debtor; - The appointment of the official Receiver;

- The preparation and presentation of the Statement of Affairs of the debtor; - The meeting of the creditors; - Possible consideration of composition, or

- Scheme of arrangements submitted by the debtor; - Public examination of the debtor;

- Adjudication order pronouncing the debtor as a bankrupt. (10 marks)

c. The Disqualifications/Disabilities of a bankrupt pursuant to sec. 126 of the Bankruptcy Act

1979 (as amended in 1992) are as follows:

-The bankrupt cannot be elected or remain in office as president, vice president, governor or deputy governor whilst still a bankrupt. -The bankrupt cannot be elected to, or sit or vote in either of the Houses of National Assembly or the State Assembly. -The bankrupt cannot be appointed to, or sit or vote in any governing board of any statutory corporation or any statutory body.

-The bankrupt cannot be appointed or act as a justice of the peace.

-The bankrupt cannot be admitted to, or act as a trustee of a trust estate. -The bankrupt is not allowed to practise any regulated profession on his own or in partnership with others. (5 marks)

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(Total = 20 marks) Question 5

(a). Life Assurance Policies are good as valid security advances. They are acceptable to banks as valid securities subject to other conditions being fulfilled by the intending borrower or customer. As a banker, how true is the statement and what other conditions are to be fulfilled by the intending borrower or customer?

(b). Define and discuss the under-mentioned under a life insurance policy and highlight their

importance to a lending banker: i Surrender value ii Nominal value

Comment This question constitutes an attempt to test the candidates’ knowledge on the suitability of a life insurance policy as a security for bank loan. It also sought to assess their understanding of certain concepts like nominal value and surrender value. Unfortunately, many candidates avoided the question. The question was attempted by only 36 candidates, out of which 20 passed. This performance is not too impressive because, unlike the other questions attempted, there is no single distinction in this question. Candidates are advised to read and understand the available manuals and textbooks to have a sound knowledge of insurance law, especially as it relates to banking. Answer (a). The statement is apt, true and correct. Life Assurance policies for a banker, represent a good collateral for loans and advances. In accepting them, however, banks must:

i Ensure that the insurance company is acceptable. ii Confirm the age of the insured. iii Ensure prompt and up-to-date payment of premiums. iv Enquire if the policy has acquired surrender value. v Examine the beneficiary ‘s means. (10 marks)

(b) Surrender Value- In relation to title insurance, it is the sum payable on the policy after 2 or 3 years of successive payment of premium. It represents the amount the insured will receive if he decides to terminate the policy after 2 or 3 years of consistent payment of premium.

The surrender value of a life policy increases as further premiums are paid.

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It is important to a lending bank because it is the worth of the policy and therefore provides a ceiling to the level of advances the bank should make on the security of a life policy . (5 marks)

ii Nominal Value- This is the sum assured under a life policy which has to be determined upon the occurrence of the event insured against. Note that it is not of importance to the bankers (lenders) because it does not accrue until premium has been successfully paid and the event insured against has occurred. (5 marks)

(Total = 20 marks)

Question 6 (a). What would you consider to be the points of emphasis and purposes of a sound code of conduct for practitioners in the financial services industry in Nigeria?

(b). Chief Alayabiagba is one of the Directors of Unity Trust Bank Limited. His senior brother,

Otunba Yerie, had applied for a loan from one of the branches of the bank. At a meeting of the Board of Directors of the bank where loan applications are usually considered, Chief Alayabiagba participated actively and persuaded the board of directors of the bank to ratify and approve Otunba Yerie’s application without disclosing their relationship.

Discuss the ethical issues involved in view of the provisions of the Companies and Allied Matters Act and the Banking and Other Financial Institutions Act.

Comment The question borders on sound code of conduct and ethical standards as regulatory devices in corporate governance. The second part seeks to test the candidates’ knowledge on conflict of interest in corporate governance. A total of 37 candidates (which translates to 62%) recorded pass marks with 3 in distinction category, out of the 60 candidates that attempted the question. Candidates are advised to extend their reading radar to newspapers, journals, bulletins and magazines that are relevant to banking ethics. Answer (a). A professional code of conduct for practitioners in the financial services industry in Nigeria will typically deal with the issues of integrity, honesty, professional competence, conflict of interest, confidentiality of information, trust, personal standards and service to community.

The purposes of sound code of conduct for financial service practitioners are:

i. To set out good banking standards to guide banks in their daily operations;

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ii. To provide guidelines for banks to make them act fairly and reasonably in all their dealings with customers and other banks;

iii. To maintain good integrity and confidentiality between banks and their

customers.

(b). The ethical issue involved has to do with conflict of interest. Conflict of interest occurs where two or more distinct and separate interests cannot be advanced contemporaneously without one of such interests having an advantage over the other. It is unethical when the personal interest of an employee comes into conflict with that of an employer, and this will affect the obligations expected of him.

Any action or deliberate omission and/or inaction of an employee which tends to advance his personal interest over and above the interest of his employer amounts to display of conflict of interest. Since Alayabiagba is the younger brother of Otunba Yerie who had used his position as a Director of the bank to influence the loan approval, Otunba Yerie has displayed a conflict of interest and as such his action is unethical. (10 marks) (Total = 20 marks)

Question 7

(a). What do you understand by the term ‘Corporate Governance’? (b). Examine the importance of Corporate Governance

Comment The question is directly on Corporate Governance, which is germane to any sound corporate organisation. Corporate governance is the barometer for gauging the compliance or otherwise of the various players with the prescribed ethical standards. A total of 91 candidates attempted the question, out of which 55 (representing 61%) recorded pass marks. Candidates should attach more importance to the mastery of knowledge in this area of the syllabus. The knowledge displayed by this performance is not particularly impressive. Answer

(a) Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as the board of directors, managers, shareholders, creditors, auditors, regulators and other stakeholders and specifies the rules and procedures for making decision in corporate affairs.

Governance provides the structure through which corporations set and pursue their objectives, while reflecting the context of social, regulatory and market environments. Governance involves the alignment of interests among the stakeholders.

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(b) Importance of Corporate Governance

i It paves the way for disclosure and transparency in governance. ii It promotes integrity and ethical behaviours. iii It gives the board sufficient and relevant skill and understanding to review and

challenge management performance. iv It protects the interests of other stakeholders. v It provides a platform for the respect of rights of shareholders and it helps them to

openly and effectively communicate information. vi It provides the structure through which corporations set and pursue their objectives.

(20 marks) Question 8

(a) Examine Corporate Social Responsibility and its benefits to Financial Institutions. (b) Enumerate eight (8) examples of Corporate Social Responsibility. Comment The question borders on the role of Corporate Social Responsibility to the host society and the benefits to the Financial Institutions offering it. The candidates performed fairly well in this question as they seem to have a good grasp of the topic. Out of the 82 candidates that attempted the question, a total of 63 passed (representing 77%) 7 of them in the distinction category. Candidates are expected to go beyond textbooks by reading relevant write-ups in journals, periodicals and magazines. Answer

(a) Corporate Social Responsibility refers to what companies and non-governmental profit -making organisations should contribute to the development of communities in which they operate. Failure to discharge such responsibility may lead to friction and hostility between organisations and their host communities.

Corporate Social Responsibility is crucial for good corporate governance as it enhances the development of the host communities.

(b) Examples of CSR include: i Donation of books to libraries; ii Award of Scholarships to indigent students; ii Road construction;

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iv Provision of potable water/borehole; v Beautification, landscaping, and provision of parks for leisure; vi Erection of bus stops; vii Provision of transportation; viii Employment; ix Provision of E-learning centre.

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MARKETING OF FINANCIAL SERVICES

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A. GENERAL OVERVIEW The questions set reflected a good coverage of the market – a good spread of the syllabus. The time allocated was adequate for the questions to be answered. The consistency of the required number of questions was observed. The instructions to candidates were clear and well understood.

B. COMMENTS ON THE QUESTIONS The quality of questions was of high standard and applicable in nature, reflecting the current working/banking situations.

C. EVALUATION OF SCRIPTS

The scripts were objectively rated despite the fact that they were conference- marked.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE The total number of candidates for the paper MFS (OLD) was 61, out of which 40 passed, making it a percentage pass rate of 66%. It’s an improvement over the last examination.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES Total No of Candidates

Total No of Distinctions

Total No of Passes

Pass Rate in Percentage

Failures

F1 F2 F3

61 - 40 65.6 - 17 04 F. ANALYSIS OF ATTEMPTS PER QUESTION

Question No

Total No of Candidates that

Attempted Question

No of Distinctions

No of Passes No of Failures

1 60 - 43 17 2 32 - 21 11 3 35 - 05 30 4 40 - 34 06 5 44 - 25 19 6 38 - 17 21 7 57 - 40 17

Question 1 Discuss factors that customers consider in choosing their most preferred banks. (20 marks)

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Comment All candidates but one, answered the question. The question was practical enough to reflect current happenings (60 out of 61) almost 100%, in the banking sector. A good performance of 43 passes and 17 failures was recorded, i.e. 71% pass rate. The candidates could do better by taking note of events in the banking sector. Answer Factors customers consider in choosing their most preferred banks include:

i. Availability of different financial products ii. Location of bank iii. Reputation of the bank iv. Marketing activities of the bank, e.g. sales promotion v. Competitive strength of the bank vi. Quality of customer service vii. Financial status viii. Industry rating and standing ix. Referral from family, friends, associates, and other people. x. Good customer/employee relationship xi. Good parking space in busy areas xii. Easy accessibility xiii. Simple opening of account process xiv. Attractive interest rates, etc.

Question 2 No bank can survive without the application of marketing techniques. Explain. (20 marks) Comment This question required candidates to indicate how banks have adopted or can adopt different aspects of marketing in their operations. About 50% (32) of the candidates attempted the question, out of which 21 candidates passed and 11 failed. Candidates are advised to observe the practices in bank marketing to prove that they are marketing-oriented. Answer No bank can survive without marketing application because marketing application contributes to survival of banks by:

i. Informing customers what they are buying in terms of benefits. ii. Giving banks the opportunity to compete effectively through formulation and implementation of

good marketing mix. iii. New product innovation and commercialisation. iv. Promoting bank’s image. v. Selling of bank products.

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vi. Attracting new customers and retaining existing ones. vii. Generating sales for banks. viii. Generating profits. ix. Increasing market share of banks.

(8 points x 2 ½ marks = 20 marks)

Question 3 In your opinion as a marketing officer, what should bank consider in order to give their services good packaging. (20 marks) Comment This question was not taken by many candidates. Some of those who did even misconstrued it as relevance of marketing in banks instead of packaging demands. Out of 35 candidates who attempted the question, only 05 passed, giving a 13% pass rate. The expected answers are concerned with how a bank can package itself for better patronage. Answer To give their services good packaging, banks should consider:

i. Use of well-trained staff; ii. Good car park; iii. Attractive building; iv. Provision of security personnel and facilities to protect customers; v. Good branding; vi. Quality customer service; vii. Use of superior quality letterheads for all correspondence; viii. Regular advertising, public relations/publicity and other promotional activities; ix. Involvement in corporate social responsibility to boost company’s reputation.

Question 4 Nigerian banks often participate in trade fair or exhibition. Of what significance is this to the marketing of financial services? (20 marks) Comment This question expected candidates to discuss various benefits of trade fair or exhibition to a bank. About 66% of the total candidates,(40 out of 61) answered the question, and 56% passed while 44% failed. The question was simple and direct and almost all candidates were expected to attempt it as it was supposed to be a bonus question to all. Answer

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Banks participation in trade fair or exhibition has a significant effect on marketing of financial services by:

i. Providing opportunities for banks to meet potential and established customers. ii. Creating relationship leading to exchange. iii. Assisting banks in opening new accounts. iv. Giving leads and meeting prospective customers. v. Creating corporate identity and reinforcing it. vi. Allowing banks to obtain enquiries on financial products. vii. Making banks to meet lapsed customers. viii. Giving banks the opportunity to launch new products. ix. Generating more deposit. x. Countering activities of competing banks.

(8 points x 2 ½ marks = 20 marks)

Question 5 Some banks are extending their operations beyond the shores of Nigeria. What do you think is responsible for this development? (20 marks) Comment The question centred on the benefits of the global aspect of bank marketing across border – i.e. globalisation of banking services. This makes a bank’s customer to be serviced anywhere and everywhere; so no limitations as it was before, e.g. bank’s mastercard is accepted anywhere. Still, the question was expected to be highly patronised as a bonus to the candidates but only 44 of them attempted out of 61 and 25 passed, giving it a pass rate of 56% while 19 candidates failed. Answer Banks extending their operations beyond the shores of Nigeria do so for the following reasons:

i. To generate more sales revenue in the foreign market; ii. To make more profit; iii. To follow competitors; iv. To enjoy foreign government incentives to the financial sector; v. To gain international recognition; vi. To explore foreign market opportunities; vii. To sell existing products (that have reached the decline stage at home) in the overseas market

as new products.

Question 6 a. The intense rivalry among Nigerian banks has given rise to the use of convectional and

unconventional promotion. What do you understand by the term “promotion”. b. Briefly explain any five (5) variables that your bank can use as promotional support for its products.

(20 marks)

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Comment This is a two-part questions. The questions are very simple and direct and should have enjoyed a better patronage but out of 61 candidates only 38 (62%) attempted it, out of which 17 passed and 21 (72%) failed. It shows lack of adequate preparation on the part of the students, as the (a) & (b) parts only called for the definition of promotion and its components. These are the cheapest set of questions and there is no how a candidate would prepare adequately for the examination without considering the promotional aspect of marketing. Answer

a. Promotion can be defined as the means by which banks communicate their operational activities to their target audience for the purpose of selling their products.

b. Promotional variables a bank can use to support its products include: i. Advertising: Use of mass media to create awareness of product among the target audience. ii. Sales Promotion: Rewarding of customers and encouraging them to purchase the product within

a short time. iii. Public Relations and Publicity: Establishment of various forms of interaction among members

of the public. iv. Personal Selling: Application of direct selling of financial services via employees of the bank. v. Packaging: Presenting financial products in a special way that differentiate them from competing

ones. vi. Sponsorship: Organisation of payment for special events to achieve marketing objectives. vii. Direct Marketing (DM): Use of media that excludes intermediates in transaction of business with

customers. It includes direct mail, use of the Internet, telemarketing, personal selling etc. (3 ½ x 5 = 17 ½ marks)

Question 7 Many new financial products die no sooner than they are introduced into the Nigerian market. What, in your opinion, as a banker, is responsible for this unfortunate incidence? (20 marks) Comment This question required candidates to present causes of new product failure. It was the second most popular after question 1 as 93% of all candidates attempted it out of which 66% passed, while 34% failed. The question was very easy and direct, hence the high rate of success. Answer

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Many new financial products die no sooner than they are introduced into the Nigerian market for the following reasons:

i. Inadequate demand for the products from the target customers. ii. Failure of bank management to release funds for investment in the products’ promotion. iii. Lack of good management policy in support of the new products. iv. Wrong timing in new product introduction. v. Poor positioning of the products. vi. Attack from competing banks. vii. Lack of support from employees of the firm. viii. Government policy on the new product via CBN regulation, e.g. cashless policy. ix. Inadequate market research leading to development of products that do not meet the needs of

customers. (2 ½ marks x 8points = 20 marks)

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RESEARCH METHODOLOGY

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A. GENERAL OVERVIEW

(i) It is our opinion that, in content and number, the questions have adequately covered the prescribed syllabus for the subject.

(ii) The required number of questions to be answered, (i.e. 4 out of 6), appeared adequate and acceptable, especially with due cognisance of the expected coverage, level and required depth of knowledge of the subject by the average student of the Institute’s examinations. The time allowed for the examination (i.e. 3 hours) also appears to be adequate and realistic.

(iii) It is also our candid opinion that the questions have clearly demonstrated a thorough requirement for both theoretical and practical mastery of the subject by the candidates and students of the Institute.

(iv) The instructions to the candidates, as stipulated on the question papers, are undoubtedly clear, adequate and satisfactory.

B. COMMENTS ON THE QUESTIONS

The questions were generally well constructed, without any areas of ambiguity or avoidable grammatical errors. Two (2) of the six (6) questions were quantitative in nature. This is a good departure from some past papers where quantitative questions were deliberately avoided by examiners in favour of qualitative ones. The depth, quality and flow of the questions were also generally satisfactory. The marking scheme was also of a high standard.

C. EVALUATION OF SCRIPTS

The evaluation of the scripts was done by highly qualified and experienced examiners. The quality of assessment of the scripts was undoubtedly high.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE

It is noted with great delight, that the students’ performance has improved considerably, when compared with the performance in recent past examinations. For example, we have on record the following:-

Diet Pass Rate October 2010 – 38.2% April 2012 – 14.01% October 2012 – 28.2% Two (2) of the twenty four (24) candidates in this examination, October 2014, had distinctions in the subject. This is a great positive departure from the October 2010 diet examination where only one (1) out of the one hundred and ninety-nine (199) candidates came out with a in distinction in the subject. The pass rate of 75% in this examination can be considered to be generally satisfactory. It was notedhowever, like in case of previous examinations, that the candidates’ standard of use of English Language was generally poor. This is certainly unacceptable, especially at the PE II stage of candidates’ progression in the CIBN examinations. It is suggested that necessary steps should be taken to address this obvious anomaly.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES

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Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rates (%)

Failure F1 F2 F3

24 2 16 75.0 2 3 1 Highest score – 71% by Candidate No. 28470 (Jos) Lowest Score – 30% by Candidate No. 81208 (Lagos)

Candidate No 28470 (71%) (Jos) and Distinctions by Candidate No 100008 (70%) (Abuja).

F. ANALYSIS OF ATTEMPTS PER QUESTION

Question No.

Total No. of Candidates that

Attempted Question

No. of Distinctions

No. of Passes

No. of Failures

1 24 11 12 1 2 16 3 5 8 3 9 1 1 7 4 22 6 12 4 5 8 1 - 7 6 17 8 3 6 7 - - - - 8 - - - -

G. EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS

Question 1

(a) List and explain briefly five (5) characteristics of a good questionnaire. (5 marks)

(b) State and explain clearly, five methods for the collection of data for a research. (10 marks)

(c) Outline and explain briefly five (5) different types of Research Design. (10 marks)

(Total = 25 marks) Comment This is a generally popular question. It was attempted by all 24 candidates, with only one (1) failure and eleven (11) distinctions. It is a straightforward question that also came out in the October 2010 diet examinations. Answer

(a) (i) Should not be unduly too long. (ii) Should be devoid of technical terms, unless it will be completed by a specialist in the subject

of enquiry. (iii) Should, as much as possible, avoid calculations.

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(iv) Should not contain offensive questions. (v) Should not contain leading questions. (5 marks)

(b) (i) Use of questionnaire

(ii) Use of personal interview (iii) Use of postal interview (iv) Use of personal observation (v) By experimental process.

(10 marks)

(c) (i) Descriptive Design: This is a cross-sectional survey research design involving single element observation.

(ii) Explorative and Explanative Designs: These are also cross-sectional surveys used to explain rather than describe.

(iii) Cohort Research Design: This is one in which the researcher observes the relevant independent variables over a given period of time. The emphasis is usually on the sampling procedure.

(iv) Experimental Research Designs: These usually use a form of control group, which will allow the researcher to isolate the causal relationship.

(v) Ex Post Facto Research Design: In this case, also known as a single case design, an existing case is observed for some time to allow for evaluation. (10 marks)

(Total = 25 marks) Question 2

(a) Identify and discuss five (5) different types of research known to you. (10 marks)

(b) Distinguish between qualitative and quantitative research. (10 marks)

(c) Define the concept of triangulation in social research and identify its various strands. (5 marks)

(Total = 25 marks) Comment This is also a straightforward textbook question that was fairly popular among the candidates. It was attempted by sixteen (16) candidates, with 3 distinctions and a pass rate of 50%. This question is an indirect repeat of one of the questions in the April 2012 diet examination. Part (c) of the question, on the concept of triangulation, was poorly answered by the candidates, only one (1) out of the sixteen (16) who attempted it appeared to have a good grasp of the concept. Answer

(a) The different types of research here are: (i) Descriptive research;

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(ii) Exploratory research; (iii) Explanatory research; (iv) & (v) Two (2) other types of research. (i) Descriptive Research: This is a situation whereby a researcher sets out to do a study with

the aim of describing some phenomena, a particular situation or a subject, usually in its current state in terms of its attributes, frequency, characteristics and functions. The outcome of a descriptive study is a detailed picture of the subject or phenomenon or situation.

(ii) Exploratory Research: Social inquiries that seek to gain new insights on a phenomenon are usually described as exploratory research. Exploratory research is propelled by the curiosity or urge to find out more about a phenomenon on which little or nothing has been documented.

(iii) Explanatory Research: This entails the identification, specification and demonstration of causation. That is, it seeks to answer the question: what caused what or why is a situation the way it is? In other words, the desire to know “why”, to explain a thing, is the purpose of explanatory research.

(10 marks)

(b) Qualitative and quantitative researches differ in some ways; but they also complement each other in many ways. One of the differences between them comes from the nature of data. Qualitative data are in form of impressions, words, sentences, photos and symbols, gestures that convey important messages about people’s everyday life. On the other hand, quantitative data rely on numbers and statistical imperatives and precision as the basis of knowledge generation. Quantitative research emphasises objectivity, precisely measuring variables and testing hypotheses that are linked to general causal explanations. By contrast, qualitative research relies on subjective interpretations. (10 marks)

(c) Triangulation, simply put, means the combination of several methods in the process of knowledge production. It is an attempt to study or observe a situation from three or more angles. In social research, it means it is better to look at something from several angles than to look at it from only one angle. It’s various strands include: Triangulation of Measure: This involves a researcher taking multiple measures of the same

phenomenon. When researchers measure something in more than one way, they are more likely to see all aspects of the thing.

Triangulation of Observers: This is a situation where a phenomenon is observed by different people. In many studies, one researcher conducts interviews and serves as the sole observer of people’s behaviour. A single person means the limitations of the single observer become the limitations of the study. Therefore multiple observers add alternative perspectives.

Triangulation of Theory: This occurs when a researcher uses eclectic theoretical perspectives.

Triangulation of Method: This means combining qualitative and quantitative styles of research and data.

(5 marks)

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(Total = 25 marks) Question 3 Given that a random sample of 80 students from professional training centre “A” has a mean score of 23 and a standard deviation of 4 in an examination, while professional centre “B” has a mean score of 21 and a standard deviation of 5 from a random sample of 50 students. Using the technique of test of hypothesis, determine if we can conclude that the students in the professional centre “A” are better than those of “B” at 5% level of significance. Hint: Ho ∶ µA − µB = 0

Ho ∶ µA − µB > 0

(25 marks) Comment This is a quantitative question that, expectedly, appears not very popular among the candidates. Only nine (9) candidates attempted this question, with only two (2) them earning a pass mark (i.e. 22.22%). This is certainly not impressive, especially as professional bankers cannot be expected to shy away from problems that involve computations. This evident anomaly needs to be addressed accordingly. Answer Step 1

CENTRE A CENTRE B 𝑥𝑥𝐴𝐴 = 23 𝑥𝑥𝐵𝐵 = 21 бA = 4 бB = 5 nA = 80 бB = 50 Step 2 Ho: µA − µB = 0 H1: µA − µB > 0 (2 marks) Step 3

𝑍𝑍 =𝑥𝑥𝐴𝐴 − 𝑥𝑥𝐵𝐵 − (µA − µB)

�бA2

nA + б

2

nB

(3 marks)

𝑍𝑍 =(23 − 21) − 0

�42

80 + 5

2

50

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𝑍𝑍 = 2

�1680 + 2550

= 2√0.2 +0.5

𝑍𝑍 = 2

√0.7 = 2

0.83666

𝑍𝑍 = 2.390 (5 marks) Step 4 Z tab 1 – α = 1 – 0.05 = 0.95 (5 marks) Checking 0.95 from Z normal distribution table = 1.64 Hence Z tab 1 – α = 1.64 (5 marks) Step 5 Z cal˃ Z tab i.e. 2.390 ˃ 1.64 Step 6 Accept H1 and Reject Ho, i.e. We can conclude that students in professional centre A are better than those in B (5 marks) (Total = 25 marks) Question 4 Literature review is an investigative process which provides researchers with the opportunity to look into a “pool of knowledge” available in respect of the study. In the light of the above:

(a) Discuss the concept of plagiarism (10 marks)

(b) Identify possible strategies available to researchers for avoiding plagiarism. (5 marks)

(c) Differentiate briefly but clearly between Reference and Bibliography. (10 marks) (Total= 25 marks)

Comment This question undoubtedly calls for a good knowledge of the concept of plagiarism and referencing. Twenty-two (22) candidates attempted the question, with six (6) distinctions, and overall pass rate of eighteen (18) out of twenty two (22). The performance in this question was generally satisfactory.

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Answer

(a) Plagiarism is using other peoples’ ideas and words without clearly acknowledging the source of that information. To avoid plagiarism, a researcher must give credit to the originating author whenever he uses: (i) Another person’s idea, opinion or theory; (ii) Any facts, statistics, graphs, drawings or any pieces of information that are not common

knowledge; (iii) Quotations of another person’s actual spoken or written words; (iv) Paraphrase of another person’s spoken or written words; Plagiarism is a serious misconduct in research methodology and punishable under the relevant appropriate codes of ethics and misconducts guiding research endeavours. (2 marks for each of 5 points

i.e. total of 10 marks)

(b) Possible strategies available to researchers for avoiding plagiarism are; (i) The researcher should put in quotations everything that comes directly from the text,

especially when taking notes. (ii) The researcher should paraphrase and be sure that he is not just re-arranging or replacing

a few words from the text. (iii) The researcher should read over the text to be paraphrased carefully, write out the words in

his own words without pecking. (iv) The researcher should check the text paraphrased against the original text to be sure of not

using the same words as the original text. (v) The researcher must ensure that the information contained in the paraphrased text is

accurate with the original text. (vi) The researcher must read wide all available and relevant literature to the study under

investigation. (vii) The researcher should cite the name of the author and year of publication, depending on the

style of referencing adopted. (1 mark each = 5 marks)

(c) References refer to works consulted and cited in the text (the body of the research proposal).

References are usually placed at the end of the report and refers to those works cited in the report and would not include works not cited, while Bibliography lists out other relevant works in addition to the references. It is a list of all relevant works to the research, those cited and not cited. (10 marks)

(Total = 25 marks) Question 5

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Due to continuous drive for corporate merger and acquisition activities in Nigeria, the management of Few Bank Plc intends to establish whether a valid relationship exists between asset quality and earning performance of its 10 branches. The following data were obtained for the study: Correlation co-efficient (y) = 0.78 Level of significance = 0.05 Degree of freedom = 8 Critical value = 2.306 Required: (i) What type of research approach is required for this study and why?

(5 marks) (ii) Formulate a hypothesis for the study. (5 marks)

(iii) Estimate coefficient of Determination and interpret your result.

(5 marks) (iv) Test the hypothesis. (10 marks) (Total = 25 marks) Comments A very good question, it combines the requirements for a qualitative and quantitative approach for the solution. Unfortunately, it was not popular among the candidates, eight (8) of who attempted it, with only one (1) person passing, who incidentally came out with a distinction in the question. This is a standard question, the type of which should be further encouraged in future examinations. Answer (i) Due to the study under investigation, the appropriate research approach is survey research and Ex

post facto research. Survey research with focus on population or the universe. Survey research selects sample from the population using the technique of sampling and uses the carefully selected sample for intensive study of the characteristic of the population. The survey research sample in this study is 10 branches of Few Banks Plc existing among banks in the Nigerian banking industry. The expost factor research is a fact-finding research based on already existing data and information. The information on asset qualities and earning performance is required for review and study. (5 marks)

(ii) Hypothesis:

Ho: There is no significant relationship between asset quality and earning performance of the 10 branches of Few Bank Plc.

Hi: There is significant relationship between asset quality and earning performance of 10 branches of Few Bank Plc. (4 marks)

(iii) Coefficient of determination is square of correlation coefficient, i.e.

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r = 0.78, r2 = 0.61 (61%), the result indicates 61% of explained variable while the remaining 39% remaining represent the unexplained variation in the study under investigation.

(6 marks)

(iv) To test the hypothesis, test of significance is appropriate.

𝑡𝑡𝑐𝑐 = ± 𝑟𝑟�𝑁𝑁−21−𝑟𝑟2

(2 marks)

where r = correlation coefficient = 0.78 n = sample size = 10

𝑡𝑡 = ± 0.78�10 − 2

1 − (0.78)2

= ± 0.78�8

1 − 0.6084

= ± 0.78�8

0.3916

= ± 0.78(�20.429)

= ± 0.78(4.52) = 3.5256 (2 marks) (ii) Critical Value t tabulated = 2.306 (2 marks) Since t calculated is greater than t tabulated, i.e. 𝑡𝑡𝑐𝑐 (3.5256) ˃ t tab (2.306), therefore we reject the null hypothesis and accept the Hi that there is significant relationship between asset quality and earning performance of the 10 branches of Few Bank Plc. The test is significant at 5% level of significance. (4 marks)

(Total = 25 marks) Question 6 Starlink Associates is a Marketing Research Consulting firm, and you are the firm’s Senior Research Executive. LIPEDE and Co, a manufacturer of a new cosmetic product, has requested that your firm should conduct a marketing research on the acceptability of their new product by the public. Outline and explain clearly the research process you will implement. (25 marks)

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Comment This is a practically oriented question that calls for the candidates’ ingenuity and originality in response. The performance in the question was satisfactory, with seventeen (17) attempts, eleven (11) passes, including eight (8) distinctions. Answer Marketing Research Process

(a) Problem definition: Objectives of the research must be clearly presented at the beginning. (b) The Research Design must be clearly set out and well defined. This will give a clear focus and

direction to the research project. (c) Data collection must be done using appropriate element samples and research instruments that have

been confirmed to be valid and reliable. (d) Data analysis will be carried out meticulously with appropriate and tested statistical analytical

instruments. (e) Findings and discussions will be well stated and articulated bearing in mind the peculiarities of the

research results. (f) Conclusions will be drawn in line with the research objectives and findings. (g) Recommendations are often made to enhance future researches or studies on the subject of enquiry

and any associated subject of interest. 3 marks for each correct explanation (3x7 = 21 marks) 4 marks for good use of English and examples

(Total = 25 marks)

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PROFESSIONAL EXAMINATION III

BANK LENDING AND CREDIT ADMINISTRATION

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A. GENERAL OVERVIEW A brief overview of the subject in terms of: (i) Syllabus Coverage: The questions set for this diet were in consonance with the subject

syllabus because they cover all the relevant sections. (ii) Adequacy of Time Allowed: Time allowed for this paper was adequate for the

candidates to answer five questions in all. (iii) Consistency in Required Number of Questions: Some candidates failed to attempt the

required number of questions while others did not adhere to the instruction of the examiner to attempt one question in section A, two questions in section B and two questions in section C. Clarity of Instructions to Candidates: There was no ambiguity in the instructions to candidates.

B. COMMENTS ON THE QUESTIONS The questions set were of high quality, well-structuredbut there was an error in Question 5 for capital figures instead of N10 million for year 2011 and 2013 N1 million was typed in thefinal production. However, the error has been corrected in this report.

C. EVALUATION OF SCRIPTS The examiners are competent because all the questions attempted by candidates were well assessed by them.

D. GENERAL COMMENTS ON CANDIDATES’ PERFORMANCE A total of 196 candidates sat for the subject this diet as against 186 in the April 2014 diet. Out of this number, 115 candidates, representing 58.67%, passed the subject with a record of 5 distinctions compared with 122 candidates, representing 65.59%, that passed the paper with a record of 4 distinctions last diet. The usual deficiencies in the performance of candidates were noticeable in Questions 6 and 7. This depicts the level of preparedness on the part of the candidates. Candidates at this sitting did not show much understanding of the concept of will and trusteeship which can be inferred from their scripts.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES

Total No of Candidates

Total No of Distinctions

Total No of Passes

Pass Rates in Percentages

Failure

F1 F2 F3 196 5 110 58.67 - 42 39

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F. ANALYSIS OF ATTEMPTS PER QUESTION uestion No. Total No. of

Candidates that Attempted Question

No. of Distinctions

No. of Passes

No. of Failures

1 127 - 121 06 2 69 - 51 18 3 122 - 71 51 4 155 - 64 91 5 116 - 24 92 6 124 - 06 118 7 174 - 53 121 8 82 - 45 37

SECTION A Question 1 The acting Registrar/Chief Executive Officer of The Chartered Institute of Bankers of Nigeria was invited as a guest speaker to the Annual Week-Long Programme of the Banking and Finance Students of Mallam Gaya Polytechnic, Kaduna. He was asked to speak on “Bank Lending Policies”. At the end of his talk, the students were invited to ask him questions. One of the students asked him to explain why banks need lending policies. Another student requested toknow the elements in bank lending policies. REQUIRED: Suggest the responses of the Acting Registrar/Chief Executive Officer (Guest Lecturer) to these questions. (16 marks) Comment This question was popular with an impressive performance as 95.28% of the candidates who attempted it passed it. 127 candidates answered the question but only 6 failed it. This was a straightforward answer-question relating to bank lending policies. ANSWER Why Banks Need Lending Policies

I. To promote uniformity of credit management. II. To define the attitude of the individual banks to different types of credit.

III. To specify the types of collateral acceptable to the bank. IV. To define rules and guidelines for good risk taking. V. To ensure that they conform to government guidelines.

Elements of Bank Lending Policies 265

How much to lend, loan/deposit ration. Who to lend to, what sectors, etc. Who to lend to in terms of character/nature of business. Who to lend to in terms of capacity. Who to lend to in terms of capital. Who to lend to in terms of collateral. Who to lend to in terms of condition. Security. Structure of approval limits. Funds use. Capital funds requirements. Problem/Delinquent loan management. Implementation, including communication of policy. Periodic review and revision.

(2 marks each for any 8 points)

Question 2 Mr Ibrahim Chibok has just joined the staff of your branch straight from the University. He is a brilliant young man and he comes to you that you shouldexplain the importance of liquidity in appraising a loan application. (16 marks) Comment The performance in this question was not bad. The question had a focus on the importance of liquidity in appraising a loan application. Only 69 candidates attempted the question with a pass rate of 73.91%. Candidates failed this question because they derailed entirely by looking at the importance of liquidity from the perspective of the bank’s position rather than the customers’ position. ANSWER Liquidity and How It Arises i The liquidity of an organisation is the ability to make payments as they fall due; ii More important are the consequences of illiquidity which are likely to lead to a business ceasing to trade; iii A company may be highly profitable in an accounting sense; but this is of no use if there is no cash to pay employees, suppliers and no cash to make further investments; iv Conversely, a company which is making large accounting losses may be generating substantial cash; v This may be the result of writing off assets or by crediting accounting provisions as well as high levels of depreciation; vi Although the availability of liquidity to a company is the prime objective that liquidity also requires active management not only to benefit the company in a financial sense but also to avoid or minimise risk;

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vii In order to manage effectively a company’s liquidity, there is need to understand the dynamics of the business, particularly in so far as these affect the cash flow; viii As part of the normal business cycle, liquidity arises by generating profits in cash terms through selling goods for cash in excess of that required to produce them; ix This will be made up of a number of cash flows, both in and out, such as cash sales receipts from debtors, payments to creditors, operating costs, capital invested, dividend and interest payments; x Naturally, it follows that if the business is either growing or inefficient, then liquidity is consumed rather than generated; xi Inefficiency includes increasing stock levels greater than needed to meet sales, by selling for cash assets that are no longer necessary and raising funds in excess of the amount needed for investment by the company at that time; xii Liquidity is consumed by making new investments in fixed assets, or acquiring businesses increasing working capital in order to expand sales or improve margins and making losses in excess of the depreciation charge; xiii These are factors that affect liquidity over a long term in the business cycle, but on day-to- day basis, more significant factors are likely to be receipts and major payments to suppliers or for payroll; xiv The amount of cash used in working capital is very important and in situations of illiquidity it is often working capital that can be squeezed first to generate liquidity where other assets will take longer to realise; xv However, the key feature of liquidity management is the availability; xvi Therefore, for businesses which are not trading at their limit, this is often the borrowing facilities available or investments that are liquid such as bank certificates of deposit or quoted securities.

(2 marks each for any 8 points) SECTION B Question 3 You have been the only banker to an influential club named WAZOBIA TENNIS CLUB in the Federal Capital Territory for over 10 years. This account has almost always run in credit and members are well-known figures in the society, including the business community as well as in the political circle. A cheque for N2 million has been presented today when the balance of the account is about N750, 000. No previous arrangement has been agreed with the Club from the payment of the N2 million cheque. On enquiry from the Treasurer, who is a customer of your branch, it was learnt that the cheque is for a 10% deposit on the purchase of the land occupied by the Club. You also found out that the Club has no constitution but by mutual agreement, the Treasurer has been authorised by the Committee of the Club to make payment. There is a mandate for cheques to be signed by the Honorary Treasurer alone.

267

REQUIRED: How would you deal with a request to lend N2 million to the Club against a mortgage of the land, repayable over 10 years? What action would you take on the cheque? (25 marks) Comment A total of 122 candidates, representing 62.25%, attempted the question with only 71 of them representing 58.20%, passing and 51, representing 41.80%, failing. Candidates could not answer the question correctly because it is a mortgage question that examines how to handle influential customers in need of credit facility without formal application or request to the bank. Answer WAZOBIA TENNIS CLUB

(a) Obviously, the bank would not wish to break the relationship; so, it would be necessary to return the cheque pending a lending agreement being reached.

(b) The cheque should therefore be returned marked “Please Represent”. (c) The only exception to this would be if another responsible Club official, who was known

to the bank, would be willing to immediately give a personal indemnity against this payment. They would only accept such an indemnity if the official was known to be good for the liability.

(d) The club account has always been in credit and no facility granted in the past; hence the bank would require the past three years’ accounts to be analysed to establish if there is a surplus of income over expenditure and, if so, by what amount.

(e) Can the income be increased through increased subscription and membership? (f) If membership/income did not increase, it would be necessary to establish how

repayment would be made. (g) Has the club any plans for bar or other fund-raising activities which would help raise

fund. (h) Are any loans/grants available through affiliation with the Lawn Tennis Association? (i) Will any interest-free (or low-interest) loans be available from any none governmental

organisation or wealthy members of the club? (j) Why is the club purchasing the land? (k) Is it a discounted price? Are any other immediate or medium-term plans or alterations

envisaged? (l) Although the bank would accept the land as security, it may also have a hidden value

and this should be checked or valued. (m) However, a ten-year loan is longer than normal for an unincorporated association, but

depending upon the status of members in the club, which have been established to be influential, the bank may be willing to assist, provided that any of the leading members will be prepared to give a personal indemnity/security to cover the possibility of repayment programme going wrong.

(n) Searches should be conducted on the land in order to ensure that it is not encumbered. (o) There is a need to check documents of title to the land. (p) If the lending is agreed as the club is not a separate legal entity, the following must be

in place:

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The club must draw up a set of rules outlining their constitutions authorising the committee (or part of it) to sanction borrowing requirements.

That members; on joining the club, automatically agree that any borrowing will be binding on them as individuals.

The rules should refer to any property held (or to be held) by the club would have to be vested in the name of the trustees.

A trust deed should be drawn up and borrowing and charging powers adequately covered and these should refer to the rules.

(2 marks each for any 12 points and 1 mark for good presentation)

Question 4 (a) ChukwuObele intends to go into merchandising business. He was able to mobilise N50

million from private sources on 2nd June, 2013. For the first seven months of the year, Chukwu estimates the scale of business operation as follows:

Sales Purchases Salaries & Wages Other Expenses N’000 N’000 N’000 N’000

June 40,000 25,000 12,000 600 July 50,000 32,000 19,000 500 August 55,000 27,000 18,000 500 September 72,000 35,000 18,000 600 October 60,000 30,000 11,000 550 November 65,000 33,000 10,000 550 December 53,000 35,000 17,000 500

Sales and purchases are paid for in the month following the transactions. Chukwu is apprehensive that in case his expectation comes true, he may go out of funds. Prepare Chukwu’s cash budget for the months of July to December 2013 to allay his fears.

(b) It is evident that where a bank’s credit appraisal process is faulty or misconceived, the qualities of the lending decisions taken are bound to be affected.

Required: Discuss the consequences of poor or bad appraisal on lending decision. (25 marks) Comment In this section, the question was the most popular, as it was attempted by 155 candidates but only 64 were successful, and this translates to 41.29% pass rate. It can be concluded that students’ performance in this question was not up to average. Majority of the candidates that attempted the question displayed poor knowledge of cash budget preparation. Answer

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a) CHUKWU OBELE CASH BUDGET FOR JULY – DECEMBER 2013

RECEIPTS JULY N000

AUG N000

SEPT N000

OCT N000

NOV N000

DEC N000

TOTAL N000

Debtors 40,000 50,000 55,000 72,000 60,000 65,000 342,000 TOTAL 40,000 50,000 55,000 72,000 60,000 65,000 342,000 PAYMENTS Trade Creditors

25,000 32,000 27,000 35,000 30,000 33,000 182,000

Salaries & Wages

19,000 18,000 18,000 11,000 10,000 17,000 93,000

Other Expenses

500 500 600 550 550 500 3,200

TOTAL PAYMENTS

44,500 50,500 45,600 46,550 40,550 50,500 278,200

Receipts minus Payments

(4,500) (500) 9,400 25,450 19,450 14,500 63,800

Balance B/F 37,400 32,900 32,400 41,800 67,250 86,700 37,400 Balance C/F 32,900 32,400 41,800 67,250 86,700 101,200 101,200

COMPUTATION OF OPENING BALANCE AS AT 1ST JULY, 2013

N000 Capital Introduced 50,000 Less Salaries & Wages (12,000) Other Expenses (600)

37,400 In order to formulate all the necessary questions concerning the business the customer will have to provide Balance Sheets and Accounts since inception/past 3 years and also interim figures. b) Consequences of Poor or Bad Appraisal on Lending Decision • Increase in bad and doubtful debts provision. • Increased cost of monitoring, managing and recovery of bad debts. • Reduction in profitability of the bank. • Reduction in staff motivation, morale, etc. • Long-run continuity and stability of the bank could be affected as profitability reduces. • Inability of staff to negotiate for better welfare packages. • Inability of the bank with high history of bad debt to compete with its peers and growth will be affected. • It reduces growth and development of the economy. • Increase in bank failure and distress. • A slide in the general standard of living. • A reduction in the level of social responsibility that the bank can implement. (20 marks for the calculation and 1 mark each for any 5 points)

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Question 5 ALABADON MERCHANTS LIMITED who are retailers of domestic durable goods of all kinds have been your customers for some years and are well known in the community. They operate as supplier to the low- and middle-class population. They have an overdraft limit of N10 million which is secured by a mortgage over the warehouse shown in the Balance Sheet as N5 million, but currently valued at N7 million, and a joint and several guarantee by the two Directors for N10 million. The guarantee is supported by life policies with a total surrender value of N6 million. The Directors have no other assets apart from their shares in the business and their houses, which are mortgagedelsewhere, and in which there are no encumbrances and is free from equities. Comprehensive figures extracted from the latest series of Balance Sheets and Profit & Loss accounts are set out below.

ALABADON MERCHANTS LIMITED

BALANCE SHEET AS AT 30TH APRIL 2011 N’000 N’000N’000 Fixed Assets Fixtures/Fitting 3,725 Freehold warehouse 5,000 Leasehold Property 2,000 10,725 Current Assets Stock 1,800 Debtors 700 Loan to Directors 18,700 Current Liabilities Creditors 8,000 Banks 6,500 14,500 Liquid surplus 4,200 14,925 Capital 10,000 Loan by Director 2,725 Reserve for Tax 100 P&I Account 2,100 14,925 Sales 80,000 Purchases 54,000 Gross Profit 16,000 Overheads 9,000 Depreciation 600 Directors’ Remuneration 6,000 Net Profit 400 Net Loss -

2012 N’000 N’000N’000

3,660

5,000 1,600

10,260 18,500 400 18,900 7,600 7,000 14,600 4,300 14,560 10,000 2,000 150 2,410 14,560 72,000 48,000 15,500 8,500 540 6,000 460 -

2013 N’000 N’000N’000

3,635 5,000 1,200 9,835

22,000 400 1,800 27,800 1,400 9,800 23,800 4,000 13,835 10,000 1,700 - 2,135 13,835 65,000 45,000 14,000 7,795 480 6,000 - (275)

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In an effort to offset the trend in sales, the directors have decided that they must adopt a more aggressive selling policy and sell slightly more expensive goods and at the same time offering items on credit to their customers. This policy will necessitate carrying higher stocks and claiming that the figures for the past six months, during which they have been pushing their new policy forward, have shown an increase in sales of approximately 50%. They are therefore seeking your agreement to increase the overdraft limit to N15 million. They produced their own figures for the past six months- sales -N65 million. Purchase - N45 million and gross profit -N14.0 million. REQUIRED How would you deal with their request? Give your reasons setting out what you can learn from the figures. (25 marks)

Comment The emphasis of this question is largely on how to help customers solve their problems in the course of there doing business with banks.A total of 116 candidates wrote on it, out of which 24 scaled through for a pass rate of 20.69%. Those who attempted it misunderstood it. Answer A review of the past accounts reveals several disturbing features which require explanation by directors.

a) The company is losing ground and is making insufficient profits to service existing bank facility. b) The sales have fallen by almost 20% over the past 3 years. c) Over the same period the stock has risen against falling purchases. d) Stocks now turnover only once in every 6 months as compared with once every 4 months in

2011. It could be that the 2013 year and figure for stock was inflated by the initial build-up of the more expensive new lines.

e) Likewise, the sudden appearance of a large debtors’ figure could have been connected with the commencement of the new credit selling policy. Confirmation must be obtained on these points.

f) In view of the company’s serious cash shortage, the loan of N1.8 million to a director was untimely. Has this loan now been paid? If not, what are the conditions attached?

g) At the same time, the progressive withdrawal of loan moneys by the director and continued drawing of substantial annual fees makes one wonder whether the directors care much about the financial position of the company.

h) The draft figures for the past 6 months must be thoroughly scrutinised for validity. i) If correct, there is vast improvement in sales and gross profit which if, maintained for the year,

would produce figures of N100 million and N21 million respectively. j) If the overheads and directors’ fees remain the same as in 2013 (year-end), this would leave a

net profit of N7 million before tax. k) The directors have to provide figures for interim overheads which may likely increase with

turnover. l) The component of current stock must be verified as it may include old unsalable stock which will

need to be written off.

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m) The leasehold appears to expire within the next 3 years, going by the balance sheet figure. Can it be renewed on reasonable terms or will a move of premises be necessary bringing extra cost and disruption of business?

n) The directors must produce their cash budget covering expected receipts and expenditures for the next 6 months and to show how they arrive at the borrowing requirement of N15 million.

o) The additional N5 million has been requested for buying stock but surely further finance will be required to help pay off creditors and to cover credit sales.

p) As the company has had no experience in selling on credit, the directors may be advised on the need to put in place methods of credit control. The guarantee offered should have an indemnity clause inserted in the agreement.However, depending on the responses by the directors on issues raised, it may not be possible to decide on the best course of action which may include the option of stock financing by a finance company.

(2 marks each for any 12 points and 1 mark for logical presentation) SECTION C Question 6 Colonel OlatundeAbubakar, a very good customer of your branch, calls to see you today. He informs you that his co-trustee in the family, Mr John Abubakar, has died. The trust maintains an account with you and the Colonel tells you that they are having difficulty in finding a member of the family to take over as co-trustee, while he himself is finding management of the trust increasingly onerous. What opportunities, if any, does the situation offer to the bank? (17 marks) Comment This question recorded the highest failure rate of 95.16%, A total of 124 candidates attempted the question but only 6 passed, representing 4.84%. This question tested the knowledge of candidates on continued management of family trust, but majority of the students did not understand the concept at all. Answer (1) Colonel OlatundeAbubakar’sproblem clearly relates to the continued management of the family trust which willinclude management of the assets in which the trust funds are invested and payments to beneficiaries under the trust. (3 Marks) (2) In the case of both investment decisions and payments to beneficiaries, the terms of the trust deed must be strictly followed. (3) The bank could capitalise on the opportunity these problems have created by offering an introduction to its trustee service. (4) The bank could act as trustee managing the assets and making disbursements in accordance with the trust deed. (2 marks each for the 3 other points) Particular Advantages of Appointing the Bank as Trustee

i. Bank as a corporate trustee never dies. Thus, the present problem caused by the death of a trustee, and difficulty in replacing him will not arise again.

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ii. It is essential that the present trustees and beneficiaries repose complete confidence in the integrity and good faith of a new trustee. This is particularly important if the family trust is discretionary giving the trustee wide powers over the management of the trust assets and the payments to beneficiaries. The bank is an organisation whose integrity is beyond question.

iii. Banks have a long track record in trusteeship. iv. Banks have considerable in-house expertise when it comes to resolving problems relating

to the trust, such as the effective management of the trust assets and taxation. v. Trusteeship is expensive to operate; consequently, the bank should be sure the trust fund is

sufficiently large to be remunerative to the bank. However, in the present case, there seems every likelihood that this is so.

(2 marks each for any 4 points) Question 7

(a) What are the advantages of appointing a bank as an executor under a Will? (b) Is there any way that the bank can assist even if it has not been appointed to act? (17 marks)

Comment The question was straightforward, and was set to test candidates’ knowledge and understanding of appointing a bank as an executor under a WILL. It was the most patronized question. Out of 174candidates that attempted it,however, only 53 of them were successful, which translated to30.46% success rate. Answer (a) Advantages of Appointing a Bank as an executor under a Will

i. Continuity: The bank is a corporate entity capable of perpetual succession; it never dies, unlike human beings. The estate is never left without an executor.

ii. Impartiality: The bank is above family disagreements and sentiments. iii. Expertise: Banks can always offer in-house expertise on the management and

realisation of assets and on the taxation and other implications of winding up an estate. iv. Knowledge of customer affairs, thereby making winding up of the estate easy to

expedite, that is where there is need to settle estate duty, taxes, etc. v. Confidentiality: Banks are known to keep the affairs of their customer confidential; hence

this will be assured. vi. There is the assurance that the taxation will be carried out as specified in the Will.

(b) Ways Bank can Assist even if it has not been Appointed to Act Appointing the bank as an executor is a labour-intensive assignment and will only attract the bank if the estate is relatively large. Where the bank is not appointed, it may still administer the estate if the next of kin of the deceased agrees and applies to the probate registry of the High Court requesting for a letter of administration appointing the bank as administrator. This will happen if: The deceased died intestate;

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He left a Will but did not appoint an executor; He left a Will but the executor appointed predeceased him or does not wish to act and there is no chain of executorships’; He left a Will but the executor appointed has become incapacitated either because he/she was adjudicated bankrupt by a court of competent jurisdiction, became permanently of unsound mind, or was convicted of a criminal offence by a court of competent jurisdiction.

(Part A of the question carries 2 marks each for any 5 points while part B has 3 marks for understanding banks’ appointment and 1 mark each for any 4 points)

Question 8 In line with the current trend of events in the banking industry in Nigeria, the CBN recently gave the minimum disclosure requirements in offer letters for loans to all banks. Explain these disclosure requirements in offer letters for the following types of credits:

I. Consumer Loan II. Mortgage Loans

III. Overdrafts. (17 marks)

Comment Over 40% of the candidates who sat for the examination attempted this question, but only 54.88% of them did well. The question appears simple and straightforward, requiring knowledge of current publication of the Central Bank of Nigeria on minimum disclosure requirements in offer letters for loans to all banks. Answer a) Disclosure Required in offer Letter in Consumer Loan • Name and address of creditor • Item financed • Itemisation of amount financed • Annual percentage rate (APR) • Variable rate information • Payment schedule • Prepayment terms • Late payment policy • Collateral • Insurance • Repayment terms • Loan tenor • Conditions precedent to drawdown b) Mortgage Loans Name and address of creditor Description of property financed Itemisation of amount financed Annual percentage rate (APR)

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Variable rate information Payment schedule Prepayment terms Late payment policy Collateral Insurance requirements Repayment terms Loan tenure c) Overdrafts Name and address of creditor Reason for the overdraft Overdraft limits Annual percentage rate (APR) Variable rate information Latepayment policy Collateral Insurance Repayment terms Overdraft tenure.

(1 mark each for any 17 points, subject to proper classification)

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CORPORATE FINANCE

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General Overview A total number of one hundred and thirty-one (131) candidates attempted this diet’s examination, out of which seventy-nine (79), or 60%, made the pass mark. It thus represented an improvement over the immediate past diet’s performance wherein 46% pass rate was recorded. The questions adequately covered the syllabus and were reasonable enough for candidates to perform well above average. It was obvious that while majority of the candidates who availed themselves of this came up with impressive performance, others failed to score the pass mark because they lacked basic understanding of certain concepts of the subject. In addition, they greatly demonstrated impaired ability to apply the principles required for informed financial decisions. The least popular among the questions was Question 3, attempted by thirty-two (32) candidates, out of which only two (2) passed. Though the question was simple and straightforward, as it called for effects of stock dividend and split issues on capital structure of a company, the woeful performance was obviously not unconnected with the reason adduced above. On the other hand, Question 4 was best attempted as a 57.8% pass rate was recorded. The most attempted question was Question 7 with 113 candidates out of which 48 passed. Below is a more detailed analysis and comment:

ANALYSIS OF GENERAL PERFORMANCE

Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rate in Percentage Failure

F1 F2 F3 131 0 79 60% - 12 40

ANALYSIS OF ATTEMPTS PER QUESTION

Question Total No. of Attempts

No. of Distinctions

No. of Passes

No. of Failures

1 40 - 4 36 2 121 - 20 101 3 32 - 2 30 4 109 - 63 46 5 82 - 14 68 6 49 - 8 41 7 113 - 48 65 8 98 - 23 75

Examination questions, comments and suggested answers are highlighted below SECTION A Question 1

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Abbey Plc, a manufacturer of hair care products, produces and markets 2,000,000 bottles of hair shampoo annually. For each bottle produced, it incurs a variable operating cost of N190 and sells it at N300. Fixed operating costs amount to N280,000. The firm currently incurs N60,000 interest charges on its long-term debt and will pay a preference dividend of N20,000 for the current year. Tax is paid at the rate of 40% per annum. Required: (a) Calculate the firm’s operating break-even point in units.

(b) Calculate its Degree of Operating Leverage (DOL) and Degree of Financial Leverage (DFL) and

explain the results obtained.

(c) Calculate its degree of total or combined leverage.

(d) Briefly explain what is meant by cost of capital. Comment The question was attempted by 40 candidates, out of which only 4 passed, representing a pass rate of 10%. The question, which tested candidates’ knowledge of break-even analysis, capital structure and leverage, required good understanding and application of appropriate formulas. Regrettably, majority of the candidates failed to identify the correct formulas, hence the abysmally poor performance. Answer

a. Break-even point = fixed cost/contribution margin = 280,000/300-190 = 280,000/110 = 2545.45 units

b.

i. Degree of operating leverage (DOL) = contribution margin/EBIT Computation of EBIT:

N’’000 Sales revenue = 300x2,000,000 = 600,000 Less: variable costs = 190x2,000,000 = 380,000 Contribution 220,000 Less: fixed operating cost 280 EBIT 219,720

DOL = 220,000,000/219,720,000 = 1.00 The degree of operating leverage (DOL) of 1.00 implies that a 100% increase in sales will produce a 100% increase in operating earnings (i.e. EBIT). ii. Degree of financial leverage (DFL) = EBIT/[EBIT- Interest charges – Before-tax Preference dividends]

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= EBIT/[EBIT-I-{PD x 1/(1-t)}] Where I = Interest charge, PD = Preference shares dividend, t= tax rate DFL = 219,720,000/[219,720,000 -60,000 – {20,000 x 1/(1-t)}] = 219,720,000/[219,660,000 – 33,333] = 219,720,000/219,626,667 = 1.00 The degree of financial leverage (DFL) of 1.00 indicates that a 100% increase in EBIT will produce a 100% increase in earnings per share (i.e. EPS).

c. Degree of total leverage (DTL) or Combined leverage (DCL) =DOL x DFL = 1.00 x 1.00 = 1.00

d. Cost of capital is the minimum rate of return required by the providers of long-term sources of capital, such as ordinary share capital, preference share and debenture capital. In other words, it is the discount rate that equates the current market value with the present value of future cash flows of overall long-term capital.

Question 2 (a) Below is an extract from the most recent annual report and accounts of DENDE NIGERIA PLC.

Authorised Share Capital: N’000 Ordinary Shares of 50k each 100,000 Issued and fully paid Share Capital: Ordinary Shares of 50k each 50,000 Retained Earnings 208,960 Shareholder’s Funds 258,960 Profit on Ordinary Activities before tax 150,451 Taxation (30,538) Profit after Tax 119,913 Payable Dividend 53,000 Retained Profit for the year 66,913

You are required to calculate: (i) Earnings Per Share

(ii) Dividend Payout Ratio (iii) Dividend Growth Rate using Gordon’s model (iv) Returns on Equity

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(b) “CREDIT BUREAU AND DISCOUNT HOUSES” are integral part of the financial institutions that play vital roles towards the development of sound financial system in the country.

(c) State any five (5) roles played by each of the financial institutions within the context of the Nigerian

financial system. Comment The question tested candidates’ ability to calculate financial ratios that are primarily relevant to investors on the one hand and their understanding of the roles of two financial institutions, namely Discount Houses and Credit Bureaus, on the other hand. Out of 121 candidates that attempted this question, only 20 passed, representing a pass rate of 16.5%. Though the question was straightforward enough to enable candidates score high marks, the poor performance was attributable, in the main, to wrong application of formulas in answering part ‘a’. Answer DENDE NIGERIA PLC a. i. Earnings Per Share = PAT/Number of ordinary shares in issue = 119,913,000/100,000,000 = N1.20 ii. Dividend Payout Ratio = Proposed Dividend/PAT = 53,000,000/119,913,000 = 44.20% iii. Dividend Growth Rate using Gordon’s model: g = r x b = 46.31% x 0.558 = 25.84%

r = return on equity, b = earnings retention rate b = (1 – 0.442) = 0.558 r = 119,913,000/258,960,000 = 46.31% iv. Returns on Equity, r = PAT/Shareholders’ funds =119,913,000/258,960,000

= 46.31% b. Roles of Discount Houses i. They facilitate the issue and sale of short-term government securities and other eligible bills. ii. They act as major dealers in money market securities in Nigeria. iii. They provide discounting and rediscounting services which will assist in providing liquidity for the

rest of the banking system. iv. Discount houses also provide financial advisory services to their various clients, especially on money

market securities. v. They serve as a link between the CIBN-licensed banks and other financial institutions. vi. They also assist in the implementation of CBN monetary policy through the use of open market

operations. c. Roles of Credit Bureau i. Strengthening the credit appraisal procedures of banks. ii. Providing storage and dissemination of facilities for credit data.

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iii. Assisting banks to identify and monitor borrowers who have contracted debts in excess of their repayment capabilities.

iv. In conjunction with credit risk management system, facilitating regulators’ consistent classification of credits granted to the same borrowers by different banks.

v. Assisting banks to obtain firsthand information on a customer’s global debt profile. Question 3

The capital structure of Lambeth Plc is given as follows:

N’000

Ordinary share of N1 each 10,000 Share Premium 9,000 Capital Reserves 15,000 Revenue Reserves 16,000 50,000 The current market price per share of the company is N7.50 and earnings after tax is N150,000.000. Required: Show the effects on capital structure, earnings per share, and market price per share of: (i) A stock dividend of 40%. (ii) A 2 for 1 stock split. Comment This question was the least popular as only 32 candidates attempted it. The performance was equally the worst as only 2 out of the candidates (6.25%) were able to score the pass mark. The question called for sound understanding of financial statements and effects of different dividend decisions on the capital structure and market capitalisation. Unfortunately, almost all the candidates lacked the required knowledge, hence the poor performance. Answer

a. A Stock Dividend of 40% Number of outstanding shares in issue = N10,000,000/N1

= 10,000,000 shares Stock dividend of 40% = 0.4(10,000,000)

= 4,000,000 shares Total outstanding shares after the stock bonus = 14,000,000 shares

Effect of the stock dividend of 40% on capital structure

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Before Stock Dividend After Stock Dividend N’000 N’000 Ordinary shares@N1each 10,000 Ordinary shares@N1each 14,000 Share premium 9,000 Share premium 35,000 Capital reserves 15,000 Capital reserves 1,000 Revenue reserves 16.000 Revenue reserves -- 50,000 50,000

A total of N30m (i.e. N4m+N26m) was transferred and capitalised out of revenue reserves (i.e. N16m) and capital reserves (i.e. balance of N14m). The payment of stock dividend has not changed the capital structure of the firm, instead, funds have been redistributed among the shareholders’ equity account. Workings 1. Ordinary share capital = N1x 14,000,000 = N14,000,000 2. New share premium = (N7.50-N1.00)x 4,000,000 = N26,000,000 3. Existing share premium = N9,000,000 4. Total share premium after stock dividend = N(9+26)million = N35million Effect of the stock dividend of 40% on earnings per share (EPS) EPS = PAT/ Number of outstanding shares in issue Before stock dividend After stock dividend EPS = N150m/10m = N15.00 N150m/14m = N10.71 Effect of the stock dividend of 40% on Market price per share (MPPS) Before stock dividend After stock dividend MPPS = N7.50m x 10m/10m = N7.50 N7.50m x 10m/14m = N5.36 b. A 2:1 Stock Split Number of outstanding shares in issue stock split = N10,000,000/N1 =10,000,000 shares New number of shares after stock split = 2(10,000,000) = 20,000,000 shares New shares par value after the stock split = N1/2 = N0.50 Ordinary share capital @N0.50 = 20m x N0.50 = N10m Effect of the 2:1 stock split on capital structure

Before After N’000 N’000 Ordinary shares@N1each 10,000 Ordinary shares@N1each 10,000 Share premium 9,000 Share premium 9,000 Capital reserves 15,000 Capital reserves 15,000 Revenue reserves 16.000 Revenue reserves 16,000 50,000 50,000

*No effect on capital structure

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Effect of the 2:1 stock split on earnings per share (EPS) EPS = PAT/ Number of outstanding shares in issue Before stock dividend After stock dividend EPS = N150m/10m = N15.00 N150m/20m = N7.50 Effect of the 2:1 stock split on Market price per share (MPPS) Before stock dividend After stock dividend MPPS = N7.50m x 10m/10m = N7.50 N7.50m x 10m/20m = N3.75 Question 4 You have just been employed by TISCO NIGERIA PLC, a company operating in the financial services industry, to head their finance department. You have also been offered a fat salary package with an instruction that you maximise the market value of the company. (a) Discuss specifically which decision areas you will be concerned with in order to justify the confidence

reposed in you. (b) In outline form, discuss the factors to consider when developing a medium term financial plan of a

manageable time horizon of, say, 3 years. Comment This question was obviously aimed at testing knowledge of firms’ wealth maximisation concept and medium term financial plan development. It was a popular question as 109 candidates attempted it. 63 out of these (or 57.8%) passed. Answer

a. The theory of company finance is based on the fact that the objective of management is to maximise the market value of the company. To achieve this objective, the finance manager must be concerned with:

1. Planning Financial Strategy: Planning the financial strategy of the business entails deciding on the financial objectives and reviewing them from time to time in the light of current economic realities and environment.

2. Investment decisions: Investment decisions involve or concern the line of action to commit the organisation’s financial resources into both internal and external projects, with the expectation of generating returns on investments.

3. Financing Decisions: Financing decision entails developing a strategy to determine the best mix or combination of equity and debt capital to be used in financing the identified projects. It also involves the cost consideration and the different sources of obtaining the funds.

4. Dividend Decisions: The level of dividend directly affects the value of the company and hence shareholders’ wealth. The decision of the level of retained earnings, which is an important source of finance, and the impact of dividend policy must be carefully watched.

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b. The financial planning of the firm usually takes the form of comprehensive budgeting which is a formalised form of the firm’s objectives and the means of attaining them. Hence, a medium 3-year financial plan will take into consideration the following:

1. The financial objectives of the company must be known and brought into focus. This objectives are usually based on how to maximise the value of the firm.

2. Planning horizon must be specified and in this particular case must be assessed to ensure that the plan conforms to the lead time of the strategy and investment being envisaged.

3. The key variables to be used in forecasting must be considered. The variables include cost of funds, interest rate on lending and borrowing, benchmark rate, etc.

4. The various risks and uncertainties involved or envisaged must be critically assessed and provided for in the whole exercise.

5. Inflation, both anticipated and unanticipated, must be considered.

6. The effect of government policies, most especially taxation, can affect the level of dividend payment to shareholders and, by extension, the value of the firm.

7. The need to synchronise financial plan with the strategic plan. 8. Setting up a contingency plan. Question 5 (a) The cash flows of two projects with unequal time horizons given below are to be discounted at a cost

of capital of 10%.

Project X Y

Year 0 N’000 N’000

(10,000) (10,000)

“ 1 12,000 -

“ 2 - -

“ 3 - -

“ 4 - 18,000

Using the annual equivalent value (AEV) method which project should be undertaken?

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(b) Within the context of capital budgeting decisions, identify the major causes of conflict in the ranking of two or more mutually exclusive projects by the Net Present Value (NPV) and Internal Rate of Return (IRR) methods.

(c) Why are market values and not book values preferred in the estimate of the weighted average cost

of capital? (d) Define Capital Budgeting and explain why it is important for the Finance Manager to understand its

process. Comment This question tested candidates’ knowledge and understanding of capital budgeting decision, including its associated issues. It was also a popular question in terms of attendance with eighty-two (82) participants. However, performance was poor as only 14 candidates passed. This translated to a 17.1% pass rate. Most of the candidates displayed poor understanding of parts (i) and (ii) of the question in spite of the fact that they are fundamental to the topic being tested and solutions to which are available in any typical textbook on corporate finance and allied subjects. Answer NPV = ∑CF/(1+r)n - ICO NPVX = ∑12,000/(1.1) – 10,000 = N909.09 NPVY = ∑18,000/(1.1)4 – 10,000 = 18,000/1.4641 – 10,000 = N2,294.24 Annual Equivalent Value (AEV)= NPV/Annuity factor AEVx = 909.09/0.9090 = N1,000.10 AEVy = 2294.24/3.170 = N723.74 Based on Annual Equivalent Value (AEV), project X is preferred because it has higher Annual Equivalent Value (AEV) when compared with project Y. (b) The following are the instances when both NPV and IRR can give conflicting results in the ranking

of mutually exclusive projects: (i) When the projects scale of investment are different. (ii) When the projects patterns of cash flows are different. (iii) When the projects lives or time horizons are different.

c. Market values are preferred to book values in the determination of weight for the estimation of project

WACC due to the following reasons: (i) Market values reflect the current or economic value of the business unlike book values. (ii) Book values are quite historical and may not show the true value of the business (iii) Book values are highly subjective, however, where the company is not quoted, book values

may be used.

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d. Capital budgeting may be defined as the firm’s decision to commit its current fund most efficiently in long-term assets in anticipation of an expected flow of benefits over a series of years. It is essential for the finance manager to understand the capital budgeting process due to the following:

(i) To achieve effective financial plan (ii) To achieve effective management control because capital budget usually involves large sum

of capital (iii) The decision is usually strategic and more often than not cannot be reversed once taken.

SECTION B Question 6

(a) ATT Plc has in issue 8% redeemable loan stock with a pull to maturity of 20 years. The stock is currently quoted at N900.

You are required to:

(i) Calculate the yield to maturity using approximate method.

(ii) Determine the yield to maturity using DCF method.

(b) What do you understand by convertible debenture stock? State two main reasons why a company

may prefer it to be straight.

(c) Distinguish between a callable bond and a puttable bond. Comment The question tested candidates’ knowledge of long-dated fixed income securities, specifically, yield to maturity of redeemable loan stock. It also tested understanding of convertible debenture stock, callable bonds and puttable bonds. Only 49 candidates attempted the question, thus making it the second least popular with 16.3% pass rate. The reason for the poor performance was not far-fetched. Most candidates failed to display a good grasp of the appropriate formulas required for (i) and (ii) subsections of (a) part of the question. Also, they exhibited unpardonable mix-up of callable and puttable bonds in spite of the clear distinction between them. Answer (a)i. Yield to maturity (YTM) using Approximate method:

YTM = [C +(FV+PV)/n]/(FV+PV)/2 Where, C = Annual coupon, FV = Face value, n = maturity in years C = Annual coupon 8% of N1000 = N80, FV = Face value = N1000, n =20years

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YTM = [80 +(1000+900)/20]/(1000+900)/2 = 85/950 = .0894 = 8.94% (a)ii Yield to maturity (YTM) using DCF method Year Cash Flow DCF@5% PV DCF@10% PV 0 (900) 1.0000 (900) 1.0000 (900) 1-20 80 12.4622 996.98 8.5136 681.09 20 1000 0.3769 376.90 0.1486 148.60 473.88 (70.31) YTM = 5 + [473.88/(473.88+70.31)][10.5] = 9.35% (b) A convertible bond can be defined as a hybrid bond in which the holder has an option to convert the

bond into a specified number of ordinary shares within a predetermined future date. Convertible bond can be issued due to the following reasons: i. to act as a sweetener to fixed income bond; ii. the interest rate on a convertible bond is usually lower when compared with a straight bond.

(c) A callable bond is a bond with embedded option in which the issuer of the bond has the rights to callup or retire the bond before the redemption date, whereas a puttable bond is a type of bond with embedded option in which the holder of the bond has the right to return the bond to the issuer before the maturity date.

Question 7

(a) Define the types of resolutions passed at company’s meetings. (b) Itemize the circumstances in which a special resolution is required by the Companies and Allied

Matters Act (CAMA).

(c) What do you understand by ‘Shareholders’ Pre-emptive Rights? In what ways does it differ from Rights Issue?

(d) State any five (5) functions of the Securities and Exchange Commission. Comment The question tested candidates’ knowledge of provisions of Companies and Allied Matters Act (CAMA) on meetings, resolutions and shareholders’ rights as regards new issues. It was the second most popular question as 113 candidates attempted it, 48 out of whom passed, representing 42.5%. Most candidates demonstrated good understanding of parts (i), (ii) and (iv) of the question, although some mix-ups were observed in their answers to (ii). Part (iii) was not well attempted.

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Answer (a.) The following are the types of resolutions that can be passed at a company’s meeting.

i. Ordinary Resolution: This is a resolution passed by a simple majority of members present and voting either in person or by proxy at a general meeting.

ii. Special Resolution: This is a resolution passed by a majority of not less than three-quarters of members of a company voting in person or by specifying the intention to propose the resolution as a special resolution.

(b.) Circumstances under which a special resolution is required:

i. Alteration of the object clause contained in memorandum of association ii. Alteration of the articles of association iii. Change in company’s name iv. Reduction of share capital v. Re-register of private company as Plc vi. Re-registration of a plc as a private company.

(c.) A pre-emptive right is the right of a shareholder of a company to the first refusal when new issues of

shares are made by his company. The right assures the shareholder the opportunity to maintain his/her proportionate equity in earnings as well as pro-rata voting power. The pre-emptive right of a shareholder is different from rights issue in the sense that rights issue is an offer made to existing shareholders to take up their company additional shares, usually at a discounted price.

(d). Functions of Securities and Exchange Commission (SEC)

i. To register all public securities, stock exchange and all other capital market operators; ii. To ensure professionalism and proper business conduct at the market; iii. To uphold the market integrity by protecting it from abuses such as the use of privileged

information to effect transactions in the market; iv. To review, approve and regulate business combination as well as provide the required

environment for the ordinary growth and development of the market; v. To ensure that participants in the market comply with the securities’ law by instituting

penalties and remedial actions if violation is established. Question 8

(a) Describe the risks involved in holding each of the types of Securities listed below and suggest how the risks may be minimised: (i) Ordinary Shares in publicly quoted companies (ii) Commercial paper issued by a blue-chip company (iii) Federal Government of Nigeria (FGN) dated bonds.

(b) A company has just paid dividend of N1.10 per ordinary share. The dividend is expected to grow at

10% per annum to infinity. The required rate of return by shareholders is 20%. 289

Required: Calculate the intrinsic value of the shares. Comment The question was attempted by 98 candidates, out of which 23 passed, representing a pass rate of 23.5%. It tested candidates’ understanding of risks associated with capital market instruments and their ability to calculate true value of quoted equities. Majority of the candidates actually understood the first part of the question and scored pass marks therein. However, the second part of the question was badly attempted as most of them could not state and apply the required formula correctly. Answer (a.) i. Ordinary shares in PLCs face the following risks:

1. Possible loss of capital 2. Loss of income, eg dividend 3. Market fluctuation 4. Liquidation of the company. The risk minimisation strategy in ordinary shares: 1. Effective portfolio diversification 2. Active portfolio management.

ii. Commercial paper attracts the following risks:

1. Possible loss of capital/investment 2. Management and financial risk 3. Due to unsecured nature of CP, the liquidation of the issuer company can result to total loss

of investment. 4. Default in interest payment.

The risk minimisation strategy in CP:

1. Effective portfolio diversification 2. Provision of a realizable collateral by the issuer

iii. Federal Government of Nigeria (FGN) dated bonds attract the following risks:

1. Interest rate risk 2. Inflation risk 3. Reinvestment risk 4. Political risk 5. Credit risk

The risk minimisation strategy in FGN dated bonds:

1. Hedge the bond portfolio by immunisation 2. Invest in inflation-linked bond 3. Active portfolio management

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b. PV = A/r – g = 121/(0.20 – 0.10) = N12.10

where A = expected dividend, r = required rate of return, g = growth rate in dividend A = 110(1.1) = 121kobo

The intrinsic value of the shares is N12.10

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PRACTICE OF BANKING

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GENERAL OVERVIEW Questions set covered the syllabus and the time allowed for students to answer them is adequate. There is consistency in the required number of questions. The questions are cleared and straightforward with the exception of Question 1b(v) in section A which is ambiguous. The word ‘Alternative’ should have read ‘Alteration’. A thorough proofreading is necessary to avoid such mistakes in the future. QUALITY, STRUCTURE AND PRODUCTION OF QUESTIONS The quality of all questions set in both sections complied with the required standard; they were of high and well structured. However, great attention should be paid to the final proofreading of the questions to ensure the use of correct word(s) in order to guard against ambiguity and misinterpretation of question(s) among students. QUALITY OF MARKING BY EXAMINERS Marking of answer scripts was consistent with the marking scheme provided. A good number of candidates provided qualitative answers to the questions. The deviations of awarded marks, and the corrections by the Chief Examiner is generally marginal and insignificant. GENERAL PERFORMANCE OF CANDIDATES The general performance of candidates in this paper this diet is quite better than that of the last diet. The number of candidates that passed the paper increased considerably when compared with previous diets. Out of 214 candidates, however, only one distinction was recorded while 136 passed, representing 64%. It is hoped that this good performance by candidates will not only be retained but improved upon in subsequent diets. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES

Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rates in

Percentage

Failure

F1 F2 F3 214 01 136 64 - 46 31

ANALYSIS OF ATTEMPTS PER QUESTIONS

Question No. Total No. of Candidates that

Attempted Questions

No. of Distinctions

No. of Passes No. of Failures

1 198 - 188 10 2 116 - 30 52 3 180 - 67 113 4 101 - 24 77 5 145 - 84 61 6 60 - 12 48 7 180 - 124 56 8 83 - 36 47

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EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS

SECTION A Question 1 (a) Your customer, Jolayemi Owoyemi has deposited a locked box at your bank and has written to authorise

his son, Eniola Owoyemi to withdraw it. He enclosed a specimen signature of his son and he also asked you to ensure that, in the event of death, the box should be handed over to his son.

State, with reasons, how you will deal with the situation (10 marks) (b) Oyeyemi Bode, who is on industrial attachment, joined your branch last month and was posted to your

clearing department. He is very earger to learn. In the course of his duties he came across various cheques that were returned from the clearing with the following expressions written on them and signed by the Head of Clearing Unit:

(i) ‘Effect uncleared’ (ii) ‘Refer to Drawer’ (ii) ‘Out of date or Stale’ (iv) ‘Payee’s Name Required’

(v) ‘Alteration Required Drawer’s Confirmation’ He comes to you for the explanation of these expressions. As the manager of the branch, you are required to explain the meaning of these expressions to Oyeyemi Bode. (10 marks) (Total = 20 marks)

Comment Both questions are direct and on banker-customer relationship. The (a) part tested candidates’ knowledge and understanding of the effect of death on a customer’s mandate on release of safe custody item. Almost all the candidates lacked the understanding that the death of Mr. Owoyemi automatically determines his second mandate as they were of the opinion that the locked box should be released to the son after death. However, candidates showed good understanding of the (b) part of the question as correct answers were given by them, thus compensating for their poor performance in the (a) part. It was attempted by 92.5% of the entire candidates, with 95.1% meeting the pass standard while only 5% failed. Students are advised to have a deep knowledge and understanding of basic principles guiding banking operations. Answer (a)(i) The first mandate (i.e authority to let the son withdraw the deposited locked box) is in order and must be accepted as long as the son’s identity is established. (ii) However, on the death of the customer, the second mandate (i.e authority given to his son to withdraw a locked box) is cancelled - S.75 Bill of Exchange Act 1990. Hence, the bank cannot accede to the second request. (iii) The bank should ensure that the box is released to the executor or administrator after producing a probate or letter of administration.

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(iv) If the bank releases the locked box to the son and same property is willed to another person by the deceased, the beneficiary will accuse the bank of conversion. (b) The meaning of the technical phrases are as follows: (i) ‘Effect Uncleared’: The cheque paid is not yet cleared, i.e. it has not become a cleared fund. This arises when the customer pays in a crossed cheque and the cheque is yet to be cleared or become matured, i.e. normal working days has not elapsed; the customer cannot draw on an uncleared effect if no prior arrangement has been made for direct credit. The cheque can be returned and marked ‘Effect Uncleared’. (ii) ‘Refer to Drawer’: When there is no sufficient fund in the account of the customer to meet the cheque drawn on it. The cheque will be returned unpaid and marked ‘Refer to Drawer, i.e. go back to the drawer of the cheque to ask why the bank refused to pay. (iii) ‘Out of date or Stale’: When a cheque presented for payment by the customer has been in circulation for six months and above, such cheque will not be paid because it has stayed beyond the statutory period for presentation. Being such been a long time that the cheque is drawn, there is the probability that the drawer might have been died, became insane or bankrupt, etc. (iv) ‘Payee’s Name Required’: The name of the payee or beneficiary of the cheque, which is paramount, is omitted on the cheque, hence the cheque is incomplete. (v) ‘Alteration Requires Drawer’s Confirmation’: There has been a material alteration on the cheque, e.g.name of payee, signature of drawer, or amount payable has been altered without the necessary signature or initials of the drawer to confirm such alteration. Question 2 (a) Your customer, Tola Ojo, made arrangements last year for Kunle Aina to operate his account while her

(Tola) was away on a business trip. This arrangement was cancelled on Tola’s return, but you now received a letter from Kunle asking you to send him a cheque of N2,000.

He explains that during the period he was operating the account he paid in N3,500 of his money and only drew cheques totalling N1,500 in respect of his own liabilities. The balance of the account is now N1,100 credit and, on examining the vouchers, you find credits of N1,250 and N2,250 which are marked ‘Kunle Aina’ What action would you take in response to the letter? (10 marks) (b) A customer calls and says that he has just inherited N100,000 which he wishes to invest in a well-known successful public company. He has no other investments but he is confident that if he does this, he will double his money in the next two years and asks whether you think that this would be a prudent purchase. State, with reasons, how you would deal with the situation. (10 marks) (Total = 20 marks) Comment The (a) part of the question was not well answered by students as they failed to realise that it is improper for the agent to mix his own money with that of his principal. Students’ performance in the (b) part was fair and many of them cited the required case of Woods V Martins Bank (1958). In all, 54% of the whole students attempted the question, out of which 55.8% got pass marks while 48.8% scored less than the pass mark.

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Answer a(i) The bank can no longer accept any instruction regarding the account from Kunle Aina following the cancellation of the third party mandate under which he operated. (ii) He should therefore be advised of this and told that he must pursue his claim of the N2,000 directly with Tola Ojo, the account holder. (iii) It was wrong for the bank to have accepted the agent’s funds into the principal’s account. (iv) It if came to litigation between Tola and Kunle, the legal presumption would be that, out of the funds paid into the account, Kunle had withdrawn his own money in priority to that of his principal, Tola. Re Hallet Estate (1880). (v) It would be up to him to rebut this presumption, but this of course is not the concern of the bank. b(i) While a banker is expected to have a good general knowledge of the various types of investment

available and their relative attractions and disadvantages, it is not part of his role to give specific advice on one particular share, as is requested here.

(ii) While a banker is expected to have a good general knowledge of the various types of investment available and their relative attractions and disadvantages, it is not part of his role to give specific advice on one particular share, as is requested here. (iii) Indeed, there is a considerable risk in becoming involved in any such recommendation or warning as

undoubtedly there is a duty of care owed to the customer and any negligence could lead to the bank and employee being sued for damages for any loss arising out of action on that advice.

(iv) The case of Wood V Martins Bank (1958) clearly illustrates this principle, although the facts there were special in that the customer was advised to put money into a company, which was a customer of the bank, and the bank wished to see the overdraft reduced. (v) The bank, at this instance, should ascertain the customer’s need-income or - capital appreciation and could be warned generally that, with this share or any other share, there can be no guarantee that even if the company’s own record is impressive its share price would reflect that in two years’ time as other market factors operate. (vi) In any event, to expect 100 per cent appreciation in two years is highly optimistic. (vii) Steps should be taken to ascertain what other savings and assets the customer has, if any, and `what his tax rate is. (viii) The bank could then offer to obtain a stockbroker’s opinion on the share in question to assist the customer in his decision; and also, a balanced portfolio could be drawn up by the brokers for consideration. (ix) Similarly, the advantages of unit trust could be pointed out for spreading of risk. (x) The customer is also capable of obtaining the benefit of expert management of portfolio. (xi) Perhaps the bank’s own investment management services could be mentioned if the amount to be invested is high enough. Question 3

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(a) Your customer, Mallam Abdulahi Yahaya, the Imam and Chairman of the Muslim Society, deposited N500,000 into his account at Wisdom Bank Plc, Lagos where Joy Beer Plc and Naira Pools Ltd have their accounts. Mallam Yahaya instructed his banker not to lend his money to the pool company and breweries because of his religious belief. He equally said he would want his money back in the same denomination if the bank violates his instruction. Required: Advise whether it is practicable for the bank to comply with the instruction given by Mallam Yahaya. (8 marks) (b) Chief Oladimeji Balogun has maintained his personal current and deposit accounts in your branch for the past two years. Shortly after his accounts were opened, he wrote giving strict instructions that you should not answer any enquiry, including requests for bankers’ opinion which you might receive. Whilst you were surprised at this, you agreed in view of the substantial balance on the account. This morning, at about 10.00 a.m, you received a letter from the Board of Inland Revenue asking you to supply a list of all bank accounts in Chief Balogun’s name for the last six months. It also asks you to forward all paid cheques and list of all securities held by the bank for Chief Balogun in that period. How are you going to deal with this situation? Give reasons for your answer. (12 marks) (Total = 20 marks) Comment Question (a) tested student understanding of general relationship between a banker and a customer which is basically that of debtor and creditor, respectively, as upheld in Foley V Hills (1848). Once a customer pays in money into the bank, the control of the money is given to the banker who can use it as he likes. Adequate answer was given by a few students. The (b) part is on bankers duty of secrecy. Majority of the students that who answered the question identified the principle upon which the question was based, i.e. duty of secrecy, but they could not apply the principle correctly in answering the question. Instead, they went on discussing the duty of secrecy in general. In all 83.7% of the entire students attempted the question, 37.2% met the pass standard while 62.8% failed. Students are advised to read and understand questions well to know what is required of them in order to ensure good performance. A greater percentage of passes is expected in a straightforward questions of this nature Answer a(i) The question is based on the principle guiding the general nature of the relationship that exists between

a banker and customer during the course of operation. (ii) However, the general relationship refers to the fundamental relationship between the banker and

customer which is a debtor-creditor relationship. (iii) The banker is a debtor when he receives the customer’s money and becomes a creditor when the

customer borrows from him; Foley v Hills & Others (1848).

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(iv) Immediately Mallam Abdulai Yahaya deposited his money in his bank account, the general relationship has been established, i.e. the bank has become the debtor and can use Mallam Yahaya’s money as its own.

(v) In this case, Mallam Yahaya’s demand from the bank may not be possible due to the following: - the relationship between the bank and Yahaya in respect of the money deposited is not in the nature

of agent, fiduciary trust-like or custodian but debtor. This was affirmed in the Royal Bank of Scotland V Skimmer (1831).

(vii) Also, a banker is not a trustee for money deposited and is therefore not accountable to the customer for use. The money at once becomes that of the banker; the customer cannot direct him as to how the money should or should not be used: R.V Davenport (1954).

Therefore, money deposited in the ordinary course of business over the counter is not for safe custody; hence, the customer cannot demand to be paid with the exact note that he paid in.

b(i) The bank is primarily responsible to its customer, i.e. the bank is not bound to dishonour cheques or

other instructions duly given by its customer on the instruction of a third party. (ii) Therefore, a bank owes a duty of secrecy to its customer and should not reveal details of their account

or financial affairs to the third party. (iii) This was supported in Tassel V Copper (1850) where it was held that third parties can not properly

intervene between the banker and his customer. (vi) However, in Turnier V National Provincial and Union Bank of England (1924), it was established that duty of secrecy is not absolute but qualified. (i) This means, that there are situations under which a bank may disclose without incurring any liability

and these situations are: - where disclosure is under compulsion of law; - where the disclosure is in the bank’s interest; - where customer gives his express or implied consent to disclose.

(ii) In this case, the bank has specific instruction from Chief Oladimeji not to answer any enquiry on his account. The bank’s action will depend on whether the request of the Board of Inland Revenue falls within the exceptions above or not. For example,

- if the request is under the tax law duly backed up with related documents the bank owes it a duty to disclose.

- if it is a mere request without any legal tenable document the bank must not disclose. (iii) As for Chief Balogun’s request not to answer any status enquiry on his account, the bank cannot

comply because reply to status enquiry is an implied duty of the bank and could also be regarded as in the bank’s interest.

(iv) Therefore, the bank should disregard the instruction of Chief Balogun and supply all necessary information to the Board of Inland Revenue.

Question 4 (a) Tijani Bello has been abroad for six months and on his return he complained that a standing order for N5,000 a month in favour of Johnson Adio which he signed before he left has been debited each month as N25,000.

You examined the authority and pointed out that the typewritten amount in words and figures is N25,000. He says that when he signed the order it was for only N5,000 and that the word ‘Twenty’ and

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the figure ‘2’ must have been subsequently inserted with the same typewriter in the spaces which had been left. Tijani Bello has put up a claim on the bank for the refund of the excess of N20,000 paid by the bank.

Discuss the bank’s position (14 marks) (b) Mention four (4) objectives of the Nigerian Bankers’ Clearing House (NBCH). (6 marks) (Total = 20 marks) Comments Question (a) is on the duty of a customer to draw an instrument for payment carefully to prevent fraudulent alteration of the instrument so as not to mislead the banker to pay above what the customer intends to pay out of his bank account. Many students realised that the alteration was non-apparent but failed to realise that the alteration was facilitated by the customer who left a gap that allowed alteration while drawing the cheque. Thus, they mistakenly found the bank liable and urged the bank to refund the excess payment of N20,000. The (b) part is a textbook question on objectives of the Nigeria Bankers Clearing House (NBCH). It is disgusting to note that students did not know the objectives of NBCH as revealed by the wrong answers provided by them. Out of 101 (or 47.2%) students that attempted the question, only 24 (or 23.8%) passed while 77 (or 76.2%) failed. Every serious banker is expected to be conversant with the new Clearing House rules and objectives. Also, students are advised to answer questions as set and understand how to relate relevant banking principles to the concept tested. Answer a(i) The bank is faced with a claim that is has paid a standing order in which the mandate authorising payment has been fraudulently increased. (ii) The principle here is that the bank only has the right to debit customer’s account subject to authority given by the customer. (iii) Any alteration on the payment instrument makes it inoperative, therefore, the bank should not accept it unless the alteration is confirmed by the customer’s signature. (iv) In this case, the alteration is non-apparent because it had been done on the same typewriter. The bank will only be able to debit N5,000 per month to Mr. Bello’s account if it has not been facilitated by him. (v) The bank should have therefore refunded the N20,000 being the excess payment to Bello’s account. (vi) However, the alteration is facilitated by Mr. Bello who left a gap that allowed for the insertion of ‘twenty’ and ‘2’ when the cheque was drawn. The customer will be liable for negligence. Thus, the bank should debit the full amount of N25,000. to Bello’s account and he will have no claim for refund. (vii) This was supported by the London Joint Stock Bank V Macmillan and Arthur (1918), where it was established that the customer owes a duty of care when drawing a cheque so as not to facilitate fraud or alteration. (v) Customer to pursue action for recovery of N20,000. from Johnson Adio, the beneficiary. (b) Objectives of the Nigerian Bankers’ Clearing House (NBCH) (i) To provide a forum for the speedy and efficient collection of cheques, bills and other payment instruments payable or deliverable at or through offices of member banks of NBCH by a system of clearing;

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(ii) To draw up and prescribe, from time to time, standards for the use of the member banks of the NBCH by a system of clearing; (iii) To provide a mechanism for the settlement of clearing activities among member banks; (iv) To facilitate the implementation of an effective and efficient payment system in the Nigerian banking industry; (v) To do all such other lawful things as are incidental or conducive to the attainment of all or any of the above objectives. Question 5 Sincerity Ltd has banked with you for 50 years and has never borrowed. An overdraft facility of N500,000 has recently been sanctioned, provided that a legal mortgage is given over the company’s factory premises. The directors refused, on the ground that the account has been with you for many years, they have a good record and the facility will only be used occasionally. They said they would approach another bank if you insist on this form of security, but they offer to deposit the Certificate of Occupancy with you, and undertake to give a legal mortgage if there is borrowing in 12 months’ time. No security is available. Consider the situation and suggest ways in which it might be resolved. (20 marks) Comment This is a straightforward question on the procedure to take an equitable mortgage on Certificate of Occupancy of a long-standing corporate customer. It is a popular question attempted by 67.8% of the entire students. However, 42.1% scored pass marks while 57.9% failed. Only a few students answered the question satisfactorily while many did not take into cognisance the long-relationship between the customer and the bank. Some did not know the various forms of equitable mortgage and methods used. It is unbelievable that majority of the students could not distinguish between procedures for taking legal mortgage and equitable mortgage of certificate of occupancy respectively. Students should preparedly well for this core subject. Answer (i) The bank would not wish to lose a corporate company customer after 50 years of association, and will clearly handle this position very carefully even if the original decision only to lend against a valid security was justified and sound. (ii) The company has offered equitable mortgage of the factory premises against the legal mortgage demanded by the bank. (iii) Mere deposit of title deed constitutes an equitable mortgage once there is a clear indication that the title deed deposited is to secure a loan and not for safe custody. Russell V Russell (1783), Chief S.L Edu V National Bank of Nigeria Ltd (1975) (iv) The position of the bank is strong and watertight with the director’s undertaking to give a legal mortgage if there is any borrowing in the future; hence they would be ready to execute a memorandum of deposit which will adequately protect the bank. (v) The bank should therefore be ready to grant the request of the corporate customer to grant the overdraft considering the long-standing relationship with them. This is can do by taking an equitable mortgage of the company’s factory premises as follows:

• Ask the directors to produce the Certificate of Occupancy, examine it and ensure it is in the name of the company;

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• Its legal department to carry out necessary searches at both state, land and company registries and this must be properly executed by them;

• Obtain Governor’s cousent to mortgage: Savannah Bank V. Ajilo (1980); • Register a caution over the property at both state land registry concerned and Company

Registry; • Ask the Director to execute a memorandum of deposit in the bank premises duly witnessed and

under company seal duly signed by the company secretary; • Register the executed memorandum of deposit within 90 days of execution at the Corporate

Affairs Commission; • Keep safe the title documents together with the memorandum of deposit. • Ensure that all rates and insurance premium on the land are paid regularly

Question 6 A limited liability company which banks with you has a substantial unsecured overdraft. Lately there have been excess and the company appears to be having some difficulties in operating within the limit. Upon enquiry, you are told that these difficulties are due to labour dispute and are only of temporary nature, but you feel that the time has come to secure the account. You offered a debenture incorporating a floating charge over the company’s assets and you decide to accept it. (The company operates from a rented premises and the plant and machinery, being of a specialised nature, will fetch little in liquidation). What precautions are necessary in taking such security and what advantages are inherent in it? (20 marks) COMMENT The question demanded for precautions and advantages of floating charge as a bank cannot take fixed charge on a rented premises. Students were expected to be concerned with those aspects of floating charge that are beneficial to the bank and take cognisance of those areas that are capable of making the bank to lose its security and take necessary action to prevent this. It is not a popular question as only 28% of the entire students attempted it, out of which 20% got pass marks and 80% failed. It was observed that students misinterpreted the question as many of them described the procedure for taking fixed and floating charge. Students are advised to read and understand questions adequately before attempting them. Answer (i) As the company operates from a rented premises, its plant and machinery would have little value for

realisation purposes. The bank could therefore place little reliance upon the fixed charge in the debenture and for its security would have to look chiefly to the floating charge.

(ii) While this type of security is advantageous from the company’s point of view since it leaves it free to deal with its assets from day to day unencumbered by the charge, so long as the company remains a going concern, there are however a number of disadvantages.

(iii) As the floating charge is being taken to secure an already existing debit, it may be void. (S. 498 CAMA 1990) if the company goes into liquidation within three (3) months prior to the commencement of winding up, except for advances at the time of, or subsequent to, the creation of and in consideration for the charge.

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(iv) It was, however, demonstrated in the case of Re Thomas Mortimer Ltd (1925) that the rule in Clayton’s case operates in favour of the bank under these circumstances since any payment in go to extinguish part of the debit existing at the date of execution of the charge and any subsequent cheques paid constitute new advances fully covered by the floating charge.

(v) If the account is active, credits received may equal the debt outstanding when the charge was created in a comparatively short period and make the floating charge fully effective; but if turnover is slow and the bank suspects the company’s solvency, the best precaution is to do everything possible to keep the company out of liquidation for 3 months.

(vi) Any subsequently created specific or fixed charge, whether legal or equitable, has priority over a floating charge, whether the specific mortgagee had notice of the charge or not.

(vii) Fortunately, this disadvantage my be overcome quite easily by inserting a clause in the debenture in which the company covenants not to create any mortgage on any of its assets to rank in priority to or pari passu with the floating charge.

(viii) Alternatively, the company may sanction the creation of the floating charge by special resolution referring specifically to the restriction. The restriction requires registration at company registry and fully protects the bank.

(ix) If and when it becomes necessary to realise the security, the value of the assets covered will almost certainty be greatly affected.

(x) Before the change crystallizes, the company is free to sell any of the assets covered by the floating charge and it is not uncommon to find that a company in difficulty has sold a certain part of its asset to obtain cash to meet pressing creditors.

(xi) Moreover, such assets that remain may well be greatly reduced in value as repairs and replacement of the assets covered by a floating charge will certainly be least when the bank is obliged to look to its security.

(xii) It will be seen, therefore, that while much can be said regarding the dangers inherent in this type of security offered, there is much less to say regarding the precautions necessary. In conclusion, it should perhaps be pointed out that the one precaution which certainly must not be overlooked is the registration of the debenture at company registry within 90 days of creation.

Question 7 You have granted unsecured overdraft facility to Mr. Hammed Kabiru whose account has been dormant for months at slightly over the limit of N650,000. He calls to discuss the matter with you but you are unable to agree on a satisfactory repayment programme. He mentioned that he has a life insurance policy with surrender value of N1,200,000 but when asked to produce it, he tells you it is deposited with the company to secure a small loan he took some years ago. He is sure that the surrender value will cover both advances and you decided to take it as security. The policy is on his own life and in his name. Required: (a) How will you proceed to ensure that your bank has an effective security? (16 marks) (b) State two (2) weaknesses of this type of security for the bank’s loans and advances . (4 marks) (Total = 20 marks)

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Comment This is a direct question on procedure to take second legal mortgage or assignment on life policy coupled with weaknesses as of such security. Satisfactory answers were given by students, depicting a good understanding of the question. A total of 83.7% of the entire students attempted it, 68.9% got pass marks while 31.1% failed. Answer a(i) The bank can only have effective security under the circumstances of this question by taking a life policy as a second legal mortgage or assignment to secure an overdraft facility of N650,000. (ii) The customer’s (Mr. Kabiru’s) inability to produce the policy which had already been deposited with

the company to secure a small loan shows that there is a first mortgage on the policy. (iii) Even without informing the bank, absence of the policy from the customer’s possession is

constructive notice to the bank of the prior mortgage as in Spencer V. Clarke (1878). (iv) Bank should therefore proceed to take the under-listed steps so as to have an effective second legal

mortgage on life policy with surrender value of N1,200,000 to secure the overdraft: • Obtain the photocopy of the life policy from Mr. Kabiru since the original copy is with the first

legal mortgagee. • Make enquiries on standard form from the first mortgagee as to the title of the policy, type of

mortgage (equitable or legal), whether there is power to make further advance (power of tacking) and amount outstanding and monthly repayment;

• Establish and confirm the surrender value of N1,200,000. This should be compared with the existing outstanding loan with the company (i.e. first mortgage) and check if there is sufficient margin to accommodate the bank overdraft of N650,000;

• Ask Mr. Kabiru to execute the deed of second legal mortgage or assignment; • Give notice of its interest to the insurance company and this must be acknowledged; • Submit notice in duplicate to the first mortgagee who is obliged to acknowledge the notice by

returning a copy; • Ensure that premiums are paid regularly, possibly to ask Mr. Kabiru to institute a standing

order through the bank. (b) Weaknesses of Second Legal Mortgage (i) Upon default by the customer, the security document can only be realised with the mutual co-operation

and assistance of the first mortgagee who is in possession of the life policy. (ii) If the first mortgagee who is possession of the life policy gives further advances to the customer, this

will jeopardise the interest of the bank. (iii) Money realised on life policy by the first mortgagee may not be sufficient to repay the balance

outstanding to the bank. Question 8 (a) A company director wished to guarantee the company’s account for N50,000 and the bank’s usual

form for guarantee was sent to him for signature. It was returned by an official of the company. The company has failed and it is now necessary to call on the guarantor in respect oh his liability. The

director refused payment on the grounds that taking the guarantee was not in order as his

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understanding is that it is the usual practice for signatures to the guarantee to be witnessed by a bank official and an explanation given as regards the liability involved.

What is the bank’s position? (12 marks) (b) An arrangement was made for a local tennis club to borrow N60,000 to carry out improvements. The

five members of the committee were to sign a bank’s form of guarantee for N60,000. Four signatures only were obtained since the bank had difficulty in contacting the fifth member who, in any event, was not regarded as good for any part of the guarantee

With a balance of N56,000 debit on the club’s account, there has been a difference of opinion in the committee as the four signatories denied liability because of the absence of the fifth signature.

What is the bank’s position? (8 marks) (Total = 20 marks) Comment Question (a) is on the validity of the guarantee upon the error made by the bank. Many students based their arguments on the error made by the bank in signing the guarantee but not mindful of the fact that the guarantor is not disputing the genuiness of his signature which is capable of voiding the guarantee. They considered the guarantee as not binding and enforceable against the director. Part (b) tested students’ knowledge of joint guarantee. Few students gave correct answers while many of them gave wrong answers as they believed that the four members that signed were liable to the bank. This shallow knowledge is least expected of students at this level. It is not a popular question as only 38.8% of the entire students attempted it, 43.4% met the pass standard and 56.6% failed. Students are advised to prepare adequately for the examination and devote more time to Practice of Banking. Answer a(i) The director is quite right when he says that it is normal practice for signatures on guarantee to be

witnessed by a bank official; but this is chiefly to ensure the genuineness of the signature and the omission in this case cannot affect his liability since he does not deny that the signature is his.

(ii) He is also correct when he says that it is usual for explanation to be given as to the nature of the liability; but as was shown in the case of Sauders V. The Anglia Building Society (1970), it is up to the guarantor to satisfactory himself as to the liability he undertakes, and if he fails to do so he must be responsible for the consequences.

(iii) It is only if the guarantor suffers from some physical or mental infirmity that he will be able to claim that the guarantee is void through mistake and clearly, by the very nature of his employment, the director does not fall into this category.

(iv) As he quite understands the liability without advice he remains fully liable. (v) The bank will be able to enforce the guarantee by legal action, if necessary b(i) Where an arrangement is made for a number of people to enter into a joint and several guarantee, the

bank must make absolutely certain that all the prospective guarantors have signed before the advance is made.

(ii) In the case of National Provincial Bank of England V. Brackenbury (1906), it was shown that if one party is prevented from signing, the other guarantors who have signed are discharged.

(iii) In this particular question therefore it is apparent that the four signatories are justified in disclaiming liabilities. (iv) Thus the bank will not be able to enforce the guarantee.

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STRATEGIC MANAGEMENT IN THE FINANCIAL SERVICES INDUSTRY

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A. GENERAL OVERVIEW The October 2014 diet of the examination on this subject marks the end of the old syllabus and the beginning of the new one. A further increase was observed on the number of candidates that sat for this diet of the examination from 107 recorded in the April diet this year to 113, showing a 5.6 per cent increase. The upsurge further indicates efforts of many candidates to tidy up their business in this subject with the old syllabus. Syllabus Coverage About 95 per cent of the syllabus was covered by the questions presented in this diet of the examination on the subject, which includes compulsory multiple choice questions and case analysis. The spread represents the efforts of the examiners to ensure that successful candidates on the subject acquire the professional competencies to strategically address emerging environmental uncertainties that challenge business performance in different industries of the Nigerian economy. Adequacy of Time Allowed The time allowed for the candidates to attempt the questions is confirmed adequate, considering the need to develop their ability as strategic managers and leaders to make timely decisions while under operational and performance pressure. This ability was demonstrated by all the students that passed the examination as they attempted all the questions within the time allotted. Consistency in Required Number of Questions The number of questions presented in this diet of the examination and the number expected of the candidates to attempt is consistent with the trend since the commencement of the old syllabus on the subject. Clarity of Instructions to Candidates All the instructions associated with the examinations on the subject were clearly presented to the candidates in the front page of the question paper as well as complied with by all the candidates that passed this diet of the examination.

B. COMMENT ON THE QUESTIONS The questions are considered professional in all ramifications and standard, as about 80 per cent are confirmed application questions, oriented towards testing the candidates’ skills in handling real-life day-to-day operational situations and challenges as managers in the industries. Besides, the questions captured topical issues in the Nigerian business sector such as Strategic alliance, menace of building collapse, strategic leadership, etc. The questions were professionally designed. The flow was remarkable especially in the compulsory multiple-choice section. The case study was well articulated with almost zero difference from real-life leadership issues and management challenges facing Nigerian business organisations today. The production of the questions is hereby confirmed a remarkable improvement over the April 2014 diet of the examination as printing errors were discovered to be minimal.

C. EVALUATION OF SCRIPTS

Assessment and grading of the scripts of this diet of the examination on the subject was as usual done with utmost care to ensure that no candidate was short-changed in any way. This assignment was handled by a team of highly experienced examiners under the supervision of a chief examiner.

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The environment under which marking took place was very conducive. The examiners participated in the co-ordination exercise before the actual marking started, thereby jointly reviewing the marking scheme, establishing the points on the basis of which scores should be awarded, and above all harmonising the content of the marking scheme with the marks allotted to the different questions .The scripts’ assessment and grading were done with eagle eye, under the strict supervision of the Chief Examiner. All these cautions gave rise to a high level of consistency in the awards and above all accuracy of the scores received by the candidates.

D. GENERAL COMMENT ON OVERALL PERFORMANCE

Out of the total number of 113 candidates that sat for this diet of the examination, 98, representing approximately 87 per cent, passed, showing a rise in the pass rate compared with the 62 per cents recorded during the April diet of the examination on the subject this year. Six (6) candidates made distinction on the subject. This confirms overall superior performance over the April diet of the examination on the subject during which no candidate made a distinction. The excellent performance achieved in this subject of the examination is attributed to the impressive performance of the candidates in Questions 1, 2 and 7, which were attempted by all the candidates, with outstanding performance scores. These three questions, which include the two compulsory questions of the paper, account for 70 per cent of the total examination marks on the subject.

E. ANALYSIS OF GENERAL PERFORMANCE OF CANDIDATES.

Total No. of Candidates

Total No. of Distinctions

Total No. of Passes

Pass Rate in

Percentage

Failure F1 F2 F3

113 6 92 86.7 8 5 2

F. ANALYSIS OF ATTEMPTS PER QUESTION.

Question No Total No. of Candidates that

Attempted Question

No. of Distinctions

No. of Passes No. of Failures

1 113 6 55 52

2 113 64 40 9

3 26 - - 26

4 31 - 10 21

5 82 5 18 59

6 83 20 33 30

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7 113 60 35 18

G. EXAMINATION QUESTIONS, COMMENTS AND SUGGESTED ANSWERS. SECTION A. Question 1

(i) Strategic vision without a mission is …………………………. (a) Daydreaming. (b) Chasing after the wind. (c) Stagnation. (d) All the above.

(ii) A product life cycle is the same as……………………………….

(a) its shelf life. (b) from conception to market decline. (c) from inception to its divestment. (d) None of the above.

(iii) Adjacent diversification involves the same firm producing…………………………………..

(a) hybrid product. (b) products within the firm’s core competencies. (c) family of products that have overlapping user

environments. (d) diversification through either vertical or horizontal integration.

(iv) A growing industry has the following characteristics except one ………………………..

(a) Has increasing brands of products. (b) Its products have growing market demand. (c) It has unsatisfied demand in the market-place. (d) Competitors are barred from its market segment.

(v) Additional tasks that allow employees to assume more responsibility by planning,

organising, controlling and evaluating their own work is called………………………. (a) delegation. (b) motivation. (c) job enrichment. (d) hierarchy of authority.

(vi) The translation of received message into interpreted messages is called …….. (a) encoding.

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(b) transmission. (c) response. (d) decoding.

(vii) One of the reasons for the emphasis on strategic management as distinct from operational management concerns is……………… (a) the desire for profitability (b) efficiency of the organization (c) the need for adaptability to change in the environment (d) none of the above.

(viii) Generally speaking, evaluation of a decision–making process is…….

(a) made prior to making the decision (b) continuous throughout the process (c) accomplished prior to the implementation of the decision (d) accomplished after the decision has been put into effect.

(ix). Which of the following is not a necessary characteristic of good

objectives? (a) Specific (b) Verifiable (c) Quantifiable (d) Reality-Oriented. (x) The acronym BPR means ………………………………. (a) Bargaining Power Received (b) Business Process Review (c) Business Process Redesign (d) Business Process Re-engineering. (xi) Self-constrained organisational structure consists of the following: (a) Hybrid Structure (b) Product structure (c) Flats structure (d) None of the above. (xii) The two types of influence on a business are planned and ... influenced (a) Complex (b) Competitive (c) Interactive (d) Modular.

(xiii) What is the meaning of BCG ?

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(a) Business Competitive Group (b) Boston Consulting Group (c) Business Counselling and Guidance (d) Boston Consultant Group (xiv) Business external environment is said to be ………….when it is constantly changing in nature due to the many varied influences operating in it.

(a) complex (b) stable (c) dynamic (d) simple. (xv) Reason why some managers do not delegate duties………………….. (a) Fear of redundancy (b) Incompetence (c) (a) and (b) above (d) None of the above.

(xvi) The hallmarks of associated risks in high-tech products include these but one: (a) technological uncertainty (b) Market uncertainty (c) High business success rate (d) Competitive volatility. (xvii) Competition forces organisations to compete as closely as possible on… (a) cost (b) price (c) brand (d) quality. (xviii) The following are factors resisting change except one: (a) Habit (b) Quality of work life (c) Sunk cost (d) Economic reasons. (xix) The following are Michael Porter’s five competitive forces except one: (a) New brand products (b) Buyer’s power (c) Rivalry (d)Threat of substitutes. (xx) Information should have the following characteristics except one: (a) Relevance (b) Timeless

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(c) Inaccuracy (d) Understandable. (xxi) Non-verbal communication method includes all these but one: (a) Body motion (b) Proxemics (c) Syncretism (d) Time. (xxii) Competitive success depends on the following: (a) Capabilities (b) Competencies (c) Structure (d) Position in the industry. (xxiii) The following are the factors to be considered under quality except one: (a) High performance design (b) Consistency with customer’s quality expectation (c) Quality attributes of the producer advertised (d) Channels of distribution. (xxiv) Long –term liabilities include the following except one: (a) Company tax (b) Debentures (c) Mortgages (d) Reserves. (xxv) The following are the characteristics of the core elements of Strategic Management except one: (a) Strategic vision (b) Corporate Objectives (c) Personal objective (d) Mission statement. (xxvi)Strategic vision is about the following except one: (a)Motivational to insiders (b) Primary concern of management (c) Long-term and futuristic (d) Philosophical and qualitative.

(xxvii)The CAMEL scale measuring formula by CBN and NDIC to evaluate the state of health of banks in Nigeria include all of these but one:

(a) Liquidity position (b) Money market operation

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(c) Asset quality (d) Capital. (xxviii) In management, characteristics of successful leaders are these but one: (a) Decisiveness (b) Dictatorship (c) Dependability (d) Adaptability to situations (xxix)Corporate Social Responsibility of business is …………….. (a) a legal obligation. (b) a privilege. (c) a moral compulsion. (d)All of the above.

(xxx)..........…cannot be clearly distinguished from the rest of management process. (a) Planning (b) Controlling (c) Motivating (d) Organising (30 marks) Comment About 54 per cent of all the candidates that sat for the examination on this subject performed very well in the compulsory multiple choice question. This is a slightly above-average pass rate, implying that a good number of the candidates could not demonstrate a good understanding of the basic concepts associated with strategic management. It is hereby recommended that as we step into the new syllabus, students should, while preparing for the examinations on the subject, read wide and cover the various topics to enable them perform well in the compulsory multiple-choice questions. Answers

1. a 2. c 3. a 4. d 5. c 6. d 7. c 8. b 9. c 10. d 11. b 12. c

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13. b 14. d 15. d 16. c 17. b 18. b 19. a 20. c 21. c 22. b 23. d 24. a 25. c 26. a 27. b 28. b 29. b 30. a

(1 mark each = 30 marks)

SECTION B- CASE STUDY Question 2 WINCO ELECTRIC NIG. PLC Zakk Modibo was the Chief Executive Officer (CEO) of Winco Electric Nigeria Plc from 1991 to 2001, a period of 20 years. The firm was in the business of importation of electric materials and appliances when Zakk took over the management of the company as chief executive officer (CEO). From inception, Zakk was mindful that business terrains had changed where change was rapid. Zakk therefore decided to make a change in the corporate culture of Winco. He therefore ensured that his Management team remained agile, lean and non-complacent about its competition. Within the two decades of Zakk’s tenure, he caused his management team to make change a part of working in Winco both for new and old management staff alike. He adopted the concept of a “BOUNDARYLESS” organisation for Winco. This means that people in one department or division talked with people at other departments/divisions to share ideas, resources and insight. A learning organization indeed! Ideas came from people of other levels or places within Winco (internally) or from customers, suppliers and even competitors (externally).The boundaryless organisation of Winco meant that people should be willing to listen and implement new ways of doing things, no matter where they originated. Zakk believed that kind of environment would pave the way to building an organization that could change faster and begin to learn new skills. He therefore needed to uproot and replace long standing practices and habits that inhibited change. He went on to dissolve many layers of management that separated employees from managers and each other .This resulted in large layoffs. Within his first five years as CEO, Zakk entered Winco into a Joint venture arrangement with Japanese companies.

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Meanwhile, Winco floated its shares at the stock exchange. Besides, the two Japanese firms in strategic alliance with Winco Electrical Plc were registered to manufacture, ,import and market TV sets while Win-Win Business Concept Plc was incoperated to manufacture, import and distribute CDs and DVDs in Nigeria. Meanwhile, Winco Nigeria Plc stayed on massive importation of electrical materials, appliances and local manufacture of electrical tools. Many of the Winco veteran Managers at the lower level who could not cope with the rapid rate of change in the firm left. Zakk, on his own, asked those that stayed back to join the firm’s management development programmes which he designed to convince them of their need to change. Within a short time, he instituted other practices, including extensive managerial rotation and training programmes to promote openness and idea exchange at all levels of the company. Managers who introduced new and workable suggestions were given authority to implement their recommendations. It is remarkable how the share price of Winco Nigeria Plc went up within three years from 50k to #1.50 kobo. The shares of the two new companies Winco Electrical Plc and Win Win Business Concept Plc similarly appreciated at the Nigeria Stock Exchange from 50 kobo each to 80 kobo and 90 kobo respectively. Both companies actively produced and marketed high- quality TV sets on the part of Winco Electrical Plc and CD/DVD machines by Win Win Business Concept too. Before Zakk retired in 2001, the concept of rapid adaptation to change as the ruling business culture of Winco Nigeria Plc had also been sold to the management of the joint ventures through the dynamic management activities and influence of Zakk. The move was seen to be succeeding, which led both to rapid growth in an unstable market terrain. Thus, the three companies easily stood out as market leaders in their own right. Many managers who served and imbibed the rapid change culture from Zakk vied for the position of Winco CEO as he prepared to retire. When the job eventually went to Bayo Peterside, it triggered an exodus of many leading managers in the firm. There “ex-alumni” of Winco became agents of transformation in the companies where they were employed in top management positions. In continuing the learning and boundaryless organisation culture entrenched by Zakk, Bayo decided to personally update employees each week on Winco’s latest developments, in terms of new products, missed opportunities, and suggestion of new ideas through Winco’s internal e-mail system In one of Winco’s management meetings, Bayo, at a point, exclaimed that it was not easy to succeed a successful man. He said this with reference to Zakk’s tenure as CEO. REQUIRED: (a). Write a short note on the leadership qualities of Zakk. (10 marks) (b). What internal factors contributed to the extra-ordinary performance of Winco Nig. Plc under the leadership of Zakk? (8 marks) (c). What important lessons have you learnt from the case study about management of change? (7 marks)

(Total = 25 marks)

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Comment As a compulsory question, all candidates attempted this number. The general performance was impressive. It suggests that our examination candidates are gaining more skill in case analysis. About 92 per cent of the candidates that attempted this question passed, with 45 per cent making distinction. This is commendable. Answer (a) Leadership qualities of Zakk in the case study:

The case study shows that Zakk, as the CEO of Winco, has shown strategic leadership qualities as outlined below:

i. Creation and sustenance of an atmosphere of continuous learning and enhancement of knowledge and skills in Winco;

ii. Empowerment of the rights of managers for creative use of initiative to explore opportunities;.

iii. Being brilliantly proactive, prompt in decision making and result-oriented; iv. Possession of the desire and drive to make the desired future happen; v. Ability to communicate his vision for a boundaryless organisation and

subordinates company-wide. vi. Strong ability to motivate subordinates to a point of performance; vii. Boldness in implementing delicate programmes which he considered vital

to the desired success; viii. Influencing the joint venture companies to adopt his rapid change culture in

their units; ix. Training many subordinates to acquire winning leadership qualities and

practices which they gladly planted in their new employments; x. Forthrightness in identifying business opportunities and using them well to

secure competitive advantage; xi. Zakk succeeded in making Winco a pacesetter and role model in the

industry. (b) Internal factors in Winco that gave it an extra-ordinary performance under Zakk as CEO:

- Majority of managers in Winco believed in the learning culture and boundaryless organisational philosophy and management style of Zakk.

- Zakk’s proactive skills fitted into the demands of a rapidly changing business atmosphere prevalent in the industry and these worked for him.

- There was no violent resistance to Zakk’s style of management of change. - The success of his administration created the company-wide goodwill for steady and rapid growth of

Winco. - People naturally like to associate with success, especially as Winco was a role model and pacesetter

in the industry. - Zakk had a good reward system in place for good performance of personnel.

(c) Lessons learnt about management of change from Winco’s experience:

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i. There is no universal best way to manage change in an organisation. Each organisation has some peculiarities that must be factored into the management of the change process.

ii. It is highly important that the top management have a clear understanding of the company’s internal, external environments and their points of interaction.

iii. Zakk concentrated his training and re-orientation effort on managers on the periphery and won them over.

iv. It does no good to cry over spilt milk, that is feel bad about managers who resigned because they were unable to cope within Winco anymore. Else, they would have become cogs in the wheel of progress.

Zakk was fully focused on the goal ahead without glorying in his past success. SECTION C Question 3 A management expert was recently quoted as saying that the factors of globalization, technology and internet are making irresistible challenges on strategic leadership to design and implement functional structures that will move their organization into the fast evolving virtual Organizations of the 21st century . Discuss. (15 marks)

(Total = 15 marks) Comment Only 23 per cent of all the candidates that sat for the examination on this subject attempted this question, and none of them achieved a pass score. The reason for the mass failure was that none of the candidates was able to interpret the question rightly. The question required the candidates to show how best a focused manager as a strategic leader may use today’s ICT tools to create a virtual organisation in his establishment. While some candidates gave wrong answers due to inadequate understanding of the questions, others were merely guessing what the answers could be. In the process, most candidates ended up writing out of point and context. Answer The quoted expert affirms that the trio of globalisation, technology and internet are all it will take to arrive at the ‘Promised Land’ of a winning company with excellent competitive advantage. However, much is required from the managers as strategic leaders to make their organisations part of the rapidly evolving golden age that promises handsome rewards for prepared, skilled and proactive enterprises.

i. They must of necessity transform their organisations into virtual organisations as only virtual organisation’s that adequately integrate fitting websites and Enterprise Information Portal (EIP), that is large in scope and flexible to provide active, integrated information on real-time basis to the enterprise may expect to harvest good returns of competitive advantage in the future.

ii. Integration of Enterprise Information Portal (EIP): This is an electronic gateway to a collection of information online used to aggregate and organise the content and services of an enterprise, as well as external content for use by its employees, customer’s and business partners.

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iii. Functional Internet Logistics: This is a global network linking computers of all types to a common underlying protocol called internet protocol which is a set for data transmission over the Internet.

iv. Computer Technology: The knowledge, tools, techniques and the use of computers in transforming inputs to useful outputs in their organizations.

v. Dynamic Web Sites: A place which is popularly designated as the World Wide Web (www), being the collection of resources which are connected to the Internet and can be accessed using the appropriate tools.

vi. Today’s strategic managers should, as a matter of urgency, design and implement organisational structures that will translate their firms from yesteryears simple, passive, interloped information supply chain between enterprises to become part of the up-and-coming virtual organization with simple seamless flow of real time information among a multitude of globally located persons or enterprises that share business relationships with the host enterprise.

vii. Global Mindset: The strategic managers of organisations (public and private) are encouraged to adopt a global mindset, one that values innovation, flexibility, speed and other challenges that evolve from constantly changing conditions. Through this mindset, firms learn how to compete in what are highly turbulent and chaotic environments that produce disorder and a great deal of uncertainty.

viii. Strategic Flexibility. Strategic flexibility is a set of capabilities firm require and use in responding to opportunities and challenges in a rapidly changing competitive environment. Strategic managers are hereby encouraged to develop strategic flexibility in all areas of their operation. Successful managers and corporate leaders in this millennium will be those that embrace flexibility, whilst at the same time abhorring rigidities in all ramifications.

ix. Globalisation of Operations: In a commercial sense, globalisation is the process whereby firms move their competition base in products or services beyond national boundaries to foreign lands worldwide, independent of other firms but more usually in business alliance with one or more enterprises for competitive advantage by exploring offerings of modern technology and free flow of internet based information among member enterprises and their farthest business reach. Globalisation is technically powered and propelled by the Internet.

Question 4

(a) How would you justify the claim that the dynamics of Strategic Alliance in the 21st Century has proved a viable alternative for achieving multi-pronged competitive advantage for many firms? (10 marks)

(b) Discuss the risks and challenges associated with strategic alliance (5 marks)

(Total = 15 marks) Comment About 27 per cent of the candidates that sat for the examination on this subject attempted this question, out of which 10 candidates achieved a pass score. The performance is not impressive at all, considering the fact that questions on the subject matter have been reoccurring in the recent past diets of the examination. Strategic Alliance between different blue chip organisations in different countries and continents of the world has been a topical issue and a popular strategy currently used by business firms in tapping opportunities in

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the global industries. Much are being written and discussed on daily basis by diverse winning organisations in local and foreign journals, magazines, books,.etc. This question is considered the cheapest in the subject in this diet of the examination. Surprisingly, many candidates provided very scanty answers that could not qualify them for pass scores. Answer (a) DEFINITIONS

(i). Strategic Alliance may be defined as the linkages between companies which are designed to achieve an objective faster or more efficiently than if either firm attempted to do so on its own. It stands midway between external do-it-yourself means of expansion and external full-scale acquisition of another firm. It may be practised by a single business or a diversified enterprise. (ii). The key justifications or aims for going into strategic alliance include the following: • To enter new market(s); • To shorten product development time; • To block other key rivals in the marketplace; • To learn and apply new technologies; • To serve new customers in different industries; • To share cost of expensive products with alliance partners; • To take advantage of complementary skills; • To save costs of developing, distribution and marketing products in the global market; • To share risks in a rapidly changing industry. Types of Strategic Alliance: 1. Licencing Licensing is the simpler form of strategic alliance which does not involve equity participation in each other’s business or in both parties forming another entity between them. Instead, a firm, says in country. A, grants a production licence to another in country B to produce and market its own product in country B. The firm in country B in this illustration is called the licensee. Based on the terms of the relationship, the licensee uses the skills for producing the given product(s) to produce and market the said products. Thus, the licensee, adds to their existing market a new market in the licensee’s market domain. The licensee in fulfilling the terms of the license, acquires new technology and new skills, increased product offerings and market expansion. On the other hand, the licenser receives increased sales volume and periodic fees or royalties from the licensee. Thus, both the licenser and the licensee stand to achieve competitive advantage through the arrangement. 2. Joint Venture Another form of strategic alliance in practice is called Joint Venture which involves a much closer tie between participating parties than licensing. In the first instance, joint venture arrangement involves concerned parties creating a third business entity where they invest their interest and capital funds to power the new entity. Other contributions by the parties include distinct skills, managers, reporting systems and technologies. This arrangement would involve the parties in complex co-ordination activities to make the venture work. As in the case of licensing, the partners in the venture acquire new skills and new technologies, gain access to new markets and often succeed in creating new products.

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3. Consortium and Networks This third category of strategic alliance is the most sophisticated type which involves far more complex co-ordinating functions and activities. It involves a group of companies amalgamating to form a consortium and network. Such complex arrangements often involve three basic goals: (i). To share an underlying technology; (ii). For Member groups to take up shares in one another’s equity; and (iii). To form a very vast business network that spans the entire industry. Basic to consortia and networks are the aims of value creation, product and new technology development, cost saving tendency, edging out rivals from the industry, achieving lower economies of scale, easy access to components from other members of the consortia, to explore opportunities for work interdependency in terms of drawing from one another’s specialisation, creating a new and evolving industry ecosphere.

(B) Risk and Challenges Associated with Strategic Alliance (i). increasing incompatibility of partners may result from a number of adverse factors which

include: • Partners realise that changes in the marketplace are no longer favourable. • When long-term strategies of one partner or the other are no longer relevant. • Not having adequate knowledge of a partner’s capabilities. • When cost of co-ordination rises adversely. • Over reliance on the skill and capability of a partner may cause the other party to significantly

deteriorate in what they know before they entered the relationship. (ii). Risk of knowledge and skill drain

• Partners with associated superior skills may utilise a partner’s skill to develop more sophisticated products.

• One may explore learnt skills from partners in new areas for new products. • In 2012, Yahoo sued Page face for infringing on their copyright. Both firms had previously

worked together without looking on faces. • Similarly, Oracle engaged Google in a lawsuit for alleged infringement on their patent on

Java programming language.

(iii.)OTHER RISKS; • Clash: Organisational structure and styles as between managers on both sides. • Reluctance to divulge proprietary technology, knowledge and skills. • Partners at times buy off competitor firms and turn around to compete with the alliance

partner using the new learnt skills. • Evolution in industry may render reasons for alliance unnecessary. • Disagreement over strategies that best deal with competitors or other problems.

Question 5 Write short notes on the following .

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(a) Pioneer Industry (5 marks) (b) Multi-domestic Firms (5 marks) (c) Market Penetration (5 marks)

(Total = 15 marks) Comments About 73 per cent of all the candidates that sat for this examination on the subject attempted this question, out of which only 23 per cent passed, including 5 candidates that made distinction on the question. Though majority of the candidates that attempted this question performed badly and failed, the few that excelled in the question passed very well. This is supposed to be a give away question for all students that studied widely and covered the length and breadth of the old syllabus. Regrettably, it was discovered that most of the candidates that performed poorly in the question lacked facts to present. Some wrote based on what they assumed the concepts to mean. Answer (a). Pioneer Industry

In every field of human endeavour, a pioneer is an originator, first mover, someone who is first to study and develop a particular area of knowledge, culture, technology, etc. On the other hand, it could be an industry in production of goods from raw materials, especially in a factory setting. A pioneer industry, as it were, may start in an insignificant way which decades after may look crude on hindsight. For instance, the highly sophisticated aviation industry that has given birth to jet aircrafts, jet bombers, airbus, even spacecraft started with the first helicopter which depended on large blades on top of the craft rather than wings about a century ago. This is to say that the helicopter still counts as the pioneer of the aviation industry. In a way therefore, a pioneer industry is a venture into a virgin and untraded business terrain, mostly in terms of nature and structure of business, production process and market-long established industries can also have pioneers who entered and carved out virgin areas as a subsector of the main industry. The initial constraints often include:

- Difficulties in decisions concerning design; - Problem of achieving speed and volume; - Decision on quality standards; - Installing flexibility to make room for necessary changes and modifications; - Need to control cost; - Inability to break even initially.

The extent to which these obstacles are overcome will determine how easy or otherwise it would be for new entrants to rush and take over the industry. New entrants who enter with superior technology, skills and output will soon edge out the originators of the industry. However, enters as new entrants must be adequately equipped to offer superior products that are innovative. Originators of a pioneer industry may be able to head off stiff competition by going into business alliance early to share cost, risk of strong rivals from new entrants, etc. Operators of pioneer industries are often constrained to handle problems that are unanticipated and peculiar to their industry. (b) Multi-Domestic Firms

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i. A multi-domestic firm stands mid-way between an international business venture and a national corporation. Multi-domestic firms are subsidiaries which are allowed to tailor their products, marketing and other business activities according to the needs of the specific market. Satisfying the need of the local economy is the primary goal of the multi-domestic firm. The word “MULTI” signifies that there are many of that kind which are situated in many different countries and similarly devoted to the needs of their local markets.

ii. Major characteristics of multi-domestic firms include: - Each is committed to speedy adaptation of products of their local markets. - They have limited opportunities for economies of scale - Sister units of multi-domestic firms located elsewhere duplicate value-adding activities

performed by others where they are. - Co-ordination of marketing and sales is contained within each unit’s local economy.

iii. Constraints facing multi-domestic firms

- The operating cost of multi-domestic firms may be inflated by such factors as frequent product testing, introduction and adaptation to the local needs.

- The government of the host country may require such a firm to utilise a given percentage of local raw material content as such when the Federal Government of Nigeria demanded the use of cassava in bread production.

- Multi-domestic firms in brewery and cosmetic business have to pay meticulous attention to differences in tastes in what their counterparts offer in other countries and what their consumers want.

- There is often the challenge of wide divergence in the distribution and shopping habits between market economies such as use of large supermarkets and hypermarts as opposed op small retailers and use of middlemen, market guiilds, etc

(c). Market Penetration i. Igor Ansoff’s product-market growth strategies are in four parts, including market penetration, market

development, product development and diversification, as in the diagram below. Present products New products Present market

Market Penetration Product Development

Market Development Diversification

New markets

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ii. Market Penetration strategy, according to Ansoff, concentrates attention on present products in the present markets. Thus, the strategy assertively seeks to increase market share. Secondly, it more intensively seeks to hang on to existing customers by concentrating, specialising and consolidating customer intimacy.

iii. Factors that facilitates market penetration. - There must be efforts to improve and continue to do better what the firm is already doing

well. - Efforts must be made to improve and also come up with new brands with clear brand identity. - Efforts are made to attract new users, increase consumption rate of existing customers - Embracing new technologies that would enhance product improvement in terms of design,

taste and customisation. - Monitoring competitors to ensure that any innovations they introduce would not constitute a

major threat. Question 6 (a) In the last 10 years or so, there have been reported cases of collapsed residential and commercial

buildings in many parts of Nigeria. Briefly but clearly state what you consider to be the principal causes of the ugly situation.

(6 marks) (b) What do you consider as essential measures to be taken by the following bodies and persons to

eliminatethe menace of collapsed building in Nigeria? (i) Federal Government of Nigeria (3 marks) (ii) The Council for the Regulation of Engineering in Nigeria (COREN) (3 marks) (iii) Property Owners and Landlords (3 marks)

(Total = 15 marks) Comment About 74 per cent of all the candidates that sat for this examination on the subject attempted this question, out of which 63.9 per cent passed, including 20 candidates that made distinction.. The high pass rate on the question no doubt attributes to the fact that cases of collapsed residential and commercial buildings have recurred in Nigeria for more than one decade now, especially in recent times. This shows that the candidates are abreast of the recent developments and events in the Nigerian economy which provides an essential input for effective strategic management Answer (a). Principal causes of collapsed buildings in Nigeria

The many cases and frequency of collapsed building in Nigeria since the past ten years or so continued to raise many questions and agitations in the minds of many well-meaning citizens of this country. In more than 50% of the reported cases, life is involved apart from the huge sums of money and wealth of this nation that is lost thereby. Below are what one may consider as principal causes of the rampant incidence.

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i. Fundamental defects in the buildings which may include the following: - The absence of soil test required to determine the kind of foundation that is

suitable for the terrain. This also is culpable neglect on the part of the architect/designers of the structure.

- Faulty architectural design, meaning technical errors on the part of the architect to put every detail of the soil test result, situation of the structure such as nearness to aviation flight route, depth of foundation pit, thickness of the “German floor”, etc.

- Inaccurate interpretation or reading of the architectural design by the building contractor, etc

ii. Role of Quacks - Quacks are the unqualified and incompetent practitioners in the building

industry - Quacks will include half-baked draughtsmen and others in the building industry

that parade themselves as builders and deceive the uninformed that they are competent to handle building contracts.

iii. Faulty and Counterfeit Building Materials - Many developers and potential landlords think they are saving cost by resorting

to the use of sub-standard, cheap and faulty building materials rather than use quality materials. Poor quality materials in the long run constitute danger to life and property in the building location and its neighbourhood.

- In some cases, it is as a result of fraudulent collusion between importers or local factory managers and personnel of government agencies such as SON (Standards Organisation of Nigeria).

- The nation’s land borders are very extensive and made more porous than expected because the Federal Government is not providing enough manpower to guard them. Thus, a lot of sub-standard building materials are smuggled through such routes.

- Some smuggling cases are also as a result of Customs and SON personnel looking the other way to let in sub-standard materials after they have taken money from the other party.

iv. Adamant Landlords and Adamant Tenants - There are many of such situations where the landlord alters the building plan

unilaterally by adding extra floors to the original design to create more tenant rooms without regard to the risk involved.

- Even after obvious defects are reported and the landlords are warned to evacuate the occupants, many of them would keep delaying until the structure collapses because they fear to lose rent on the building.

- On the part of tenants too, many would adamantly remain in the building, hoping the eventuality will not occur, until the building collapses over their heads.

(b). Essential measures on the part of named bodies to eliminate the menace

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i. The Federal Government of Nigeria has the obligation to do the following to correct the ugly situation:

- Initiate and institute appropriate legislation to make it a criminal offence for property owners/landlords who are owners of collapsed buildings. Where life is involved, the penalty should be long- term imprisonment of 10 years or more without option of fine. But if no loss of life is involved, the penalty may be a heavy fine or imprisonment for 2 years - 5 years, depending on the gravity of the offence.

- We also propose that special courts that try serious cases of fraud should also handle such.

- The legislation should also stipulate the category of personnel and federal agencies to approve different types of structures, especially buildings with four floors and above. In such cases, town planning authorities should provide the first level of approval and the rest approvals should come from different committee levels of COREN for instance.

- The legislation should also make it a criminal offence for government agency personnel to collude with offenders in cases of defective structures.

- The matter of “Housing For All” and “Low-Cost Housing” programmes of the federal and state governments must cease to be a political slogan.

- Situations where senior civil servants and top politicians buy up “Federal/State Low-Cost Houses” built for middle- and low-income citizens and turn around to rent them out to the low-income earners at exorbitant rent must be stopped.

ii. The Council for the Regulation of Engineering in Nigeria( COREN) The Council for the Regulation of Engineering in Nigeria (COREN) is an umbrella body with many smaller groups under it, such as the Association of Building Engineers and others. COREN, through the activities of the appropriate organ such as the association of Nigerian Builders, should do the following:

- Be directly involved in approving the architectural drawing of high-rise structures starting with four floors upwards to determine propriety of specification on the drawing.

- Should collaborate with the appropriate Town Planning Authority for structures that are four floors and above.

- Stage inspection and certification of building in progress by town planners must be a teamwork not by an individual.

- The appropriate arms of COREN and any other agencies must, as a matter of law, collaborate with town planners at various stages of construction of high- rise structures.

- Stiff penalties must be meted out for negligence of duty and proven cases of fraud prosecuted. - COREN, by legislation, should be authorised and finally empowered by the Federal Government

to gazette and also publish in national newspapers buildings that they consider dangerous for habitation.

- Deadlines should be given jointly to landlords and tenants/occupants within which to vacate the premises or be forcibly ejected by the Nigeria Police Force immediately following the expiration of the deadline.

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- COREN members, as well as town planners who collude with dishonest landlords, should be prosecuted along with the offending landlord.

(Iii) Property Owners and Landlords - Serious action must be taken to stop the sharp practices of property owners and landlords

of many different descriptions. - Landlords and property owners whose houses are considered a threat to life and property

should be issued deadlines within which to evacuate residents therefrom. - Non-compliance should result in forcing occupants therefrom - Recalcitrant landlords and property owners should be taken to court for refusing to obey

constituted authority and posing a security risk to occupants and neighbours in the vicinity. - After the expiration of the deadline, the building concerned should be sealed, cordoned off

and demolished at the owner’s expense jointly by the Nigeria Police, COREN representatives and the Nigerian Fire Brigade.

Question 7 Write short notes on any five (5) of the following stakeholders of an organisation. (a) Shareholders (b) Customers (c) Suppliers (d) Creditors (e) Employees (f) Government.

(3 marks each = 15 marks) Comment All the candidates that sat for this diet of the examination on the subject attempted this question, (which was not among the compulsory questions) out of which 84 per cent passed, including 6o candidates that made distinction on the question. Answer

(a) Shareholders: Shareholders occupy the most critical position in the life of an organisation among its many stakeholders. Shareholders of a business organisation are responsible for providing the take-off and long-term capital, and are obligated to respond promptly to subsequent call for additional capital funds and thereby enhance the perpetuity of the company. The financial benefit to the shareholder is two-directional. One is by way of dividend income which is best when regular and growing. The other benefit is growth in the market value of the shares owing to consistent good performance of the company Win Win Business concept y and steady growth of retained profit.

(b). Customers.

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These are the individuals or institutions that purchase the goods or services of the company. Customers are next in importance to shareholders on the list of stakeholders. A company must provide after-sales service and /or spare parts to customers especially in the case of plants and machinery. It should also be alert enough to anticipate change trends in taste, style or price and act promptly to satisfy the demands of existing and potential customers.

(c) Suppliers These are the individuals and organisations that supply goods and services to the company. They are of particular importance in providing material resources input for company’s output in terms of raw materials, spare parts/components of finished goods ready for the wholesale or retail market. They also provide trade credit and so enhance the day-to-day activities of the company through a sustained working capital base.

(d) Creditors. Banks are the most popular among a company’s creditors. Others includes providers of hire purchase and leasing facilities. A borrowing customer of the bank must be faithful in the proper use of the funds and prompt payment of interest and capital. Some of the suppliers fall into the category of creditors when they supply goods or services on credit to the company.

(e) Employees: Employees have been described by some authors as dependent stakeholders. Employees constitute the most important asset of the company. A company must pay adequate remuneration to employees and provide a safe and healthy working environment. It must provide training in addition to good career plan for employees. In return, employees must be honest and loyal to the company. They must protect the company’s assets from damage and loss..

(f) Government Government stands out as the strongest and the most influential among a company’s stakeholders. Government enjoys the unique responsibility and power to make and enforce laws and regulations for every conceivable facet of life in the society it governs. Government, as a stakeholder, is responsible for:

- provision of a viable political system; - establishment of an independent judiciary; - provision of basic economic infrastructure; - formulation and maintenance of policies that encourage savings and investments,

etc.

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