Subject: BUSSINESS, MANAGEMENT & FINANCE

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  • 10 Marks

BMF – May 2024 – L1 – SB – Q3c – Basics of Business Finance and Financial Markets

Benefits and limitations of retaining profits in a business and reasons for limiting earnings retention.

c. When companies retain profits in the business, the increase in retained profits adds to equity reserves.
i. Explain TWO benefits of retaining profits in the business. (4 Marks)
ii. Explain THREE reasons why there could be a limit to the amount of earnings available for retention. (6 Marks)

i. Benefits of retaining profits in the business:

  1. Self-financing for growth: Retaining profits allows a company to fund its expansion without needing external financing. This can be used for investment in assets, new products, or entering new markets.
  2. Strengthening financial stability: Retained profits improve the financial stability of the company, acting as a reserve for any unforeseen expenses or financial downturns.

ii. Reasons why there could be a limit to the amount of earnings available for retention:

  1. Shareholder expectations: Shareholders often expect regular dividend payments. Retaining too much profit can lead to dissatisfaction among shareholders who prefer immediate returns.
  2. Capital expenditure requirements: A company might have high capital expenditure needs, which would limit the amount of cash available to retain as profits.
  3. Legal and regulatory limitations: Some jurisdictions have regulations limiting how much profit a company can retain, requiring that a portion be distributed to shareholders or reinvested.
  • 5 Marks

BMF – May 2024 – L1 – SB – Q3b – Investment Decisions

Explaining the steps in investment appraisal within capital budget and strategic planning.

b. Within the framework of a capital budget and strategic planning, state the FIVE steps of investment appraisal. (5 Marks)

The five steps of investment appraisal within the framework of a capital budget and strategic planning are:

  1. Generating investment proposals: Identify potential investment opportunities in line with the company’s strategic objectives.
  2. Estimating cash flows: Forecast the relevant cash inflows and outflows associated with each investment proposal.
  3. Evaluating proposals: Assess the financial viability of each proposal using techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.
  4. Implementing the project: Once a proposal is accepted, allocate the necessary resources and begin execution.
  5. Monitoring and review: Regularly monitor the performance of the investment to ensure it aligns with initial expectations and make adjustments if necessary.
  • 5 Marks

BMF – May 2024 – L1 – SB – Q3a – The Role of Professional Accountants in Business and Society

Discuss the ethical threats faced by professional accountants and their impact on compliance with laws and regulations.

a. Explain briefly FIVE ethical threats that could compromise a professional accountant’s ability to comply with relevant laws and regulations. (5 Marks)

a. Ethical threats that could compromise a professional accountant’s ability to comply with relevant laws and regulations include:

  1. Self-interest threat: When a personal financial or other interest may influence the accountant’s judgment or behavior.
  2. Self-review threat: Occurs when a professional accountant does not properly evaluate their previous judgment or work when performing a new service.
  3. Advocacy threat: Arises when an accountant promotes a client’s or employer’s position to the point that objectivity is compromised.
  4. Familiarity threat: Long-standing relationships with a client or employer that can lead to a biased decision.
  5. Intimidation threat: External pressures or threats that could deter the accountant from acting objectively and independently.
  • 20 Marks

BMF – May 2024 – L1 – SB – Q2a – Basics of Business Finance and Financial Markets

Explanation of financial engineering, bond markets, and financial concepts.

a. Briefly explain the term “Financial engineering”. (3 Marks)

b. Describe the relationship between financial accounting and management accounting. (4 Marks)

c. State FIVE examples of Nigerian bond markets hosted by the Nigerian Exchange Limited (NGX). (5 Marks)

d. Explain briefly the following financial concepts:
i. Certificate of deposits (CDS);
ii. Commercial paper (CP);
iii. Treasury bills (TB);
iv. Banker’s acceptances (BAs). (8 Marks)

a. Financial engineering is the use of mathematical techniques and innovative financial instruments to solve complex financial problems and to create new financial products. It involves utilizing tools from economics, statistics, and computer science to design solutions for risk management, investment strategies, and corporate financing.

b. Relationship between financial accounting and management accounting:

  • Financial accounting focuses on providing historical financial information to external stakeholders such as investors and regulators, adhering to standardized guidelines like IFRS or GAAP.
  • Management accounting, on the other hand, is internally focused, providing detailed reports to assist management in decision-making, planning, and controlling operations. It is more flexible and forward-looking.

c. Examples of Nigerian bond markets hosted by NGX:

  1. Federal Government Bonds
  2. FGN Savings Bonds
  3. State and Local Government Bonds
  4. Corporate Bonds
  5. Supranational Bonds

d. Financial Concepts:
i. Certificate of Deposits (CDS): These are savings certificates with a fixed maturity date and specified interest rate. They are issued by commercial banks and are considered low-risk investments.
ii. Commercial Paper (CP): A short-term unsecured promissory note issued by corporations to finance their short-term liabilities. It is typically issued at a discount and matures within a short period.
iii. Treasury Bills (TBs): Short-term debt instruments issued by the government to manage short-term liquidity. They are sold at a discount and redeemed at face value.
iv. Banker’s Acceptances (BAs): A short-term credit instrument that guarantees payment by a bank at a future date. BAs are commonly used in international trade to facilitate payments.

  • 20 Marks

BMF – May 2024 – L1 – SB – Q1 – Management, Individual, and Organizational Behavio

Explanation of self-efficacy and management concepts such as MBO, intrinsic rewards, and queuing theory.

a. Define the term “Self-efficacy”. (2 Marks)

b. Briefly explain FOUR ways in which self-efficacy impacts human functions. (8 Marks)

c. Briefly explain the following concepts:
i. Management by objectives (MBO);
ii. Intrinsic rewards;
iii. Unity of direction;
iv. Communication style;
v. Queuing theory. (10 Marks)

a. Self-efficacy is the belief in one’s own ability to succeed in specific situations or accomplish a task. It plays a major role in how individuals approach goals, tasks, and challenges.

b. Ways in which self-efficacy impacts human functions:

  1. Motivation: Individuals with high self-efficacy are more motivated to take on challenges and persist in their efforts to achieve goals.
  2. Thought Patterns: High self-efficacy enhances positive thinking and the perception of tasks as challenges rather than threats.
  3. Emotional Reactions: Those with high self-efficacy are likely to remain calm under pressure and handle stress effectively.
  4. Behavioral Choices: People with high self-efficacy are more likely to engage in difficult tasks and set higher goals for themselves.

c. Concepts:
i. Management by Objectives (MBO): A management technique where employees and managers agree on specific objectives that must be achieved within a set timeframe.
ii. Intrinsic Rewards: Internal rewards that come from the satisfaction of completing a task or achieving a goal, such as personal fulfillment or a sense of accomplishment.
iii. Unity of Direction: This principle states that all activities in an organization should be aligned and directed toward the same objectives.
iv. Communication Style: The manner in which individuals convey messages and engage in communication, including verbal, non-verbal, written, and listening styles.
v. Queuing Theory: A mathematical approach used to analyze the waiting times in queues, optimizing processes in areas like telecommunications and customer service to reduce delays and increase efficiency.

  • 1 Marks

BM – May 2024 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Understanding the terminology used for the difference between assets and liabilities in nonprofit organizations.

The difference between the assets and liabilities of a not-for-profit organization is called:
A. Net asset
B. Net liability
C. Accumulated fund
D. Working capital
E. Net capital

Answer:
C. Accumulated fund

Explanation:
In nonprofit organizations, the difference between assets and liabilities is referred to as the “accumulated fund.” This term reflects the net worth of the organization and is similar to “equity” in for-profit entities. It indicates the organization’s surplus or deficit over time.

  • 1 Marks

BMF – May 2024 – L1 – SA – Q19 – Basics of Business Finance and Financial Markets

Understanding the role of the statement of changes in equity in financial reporting.

What role does the statement of changes in equity play in a company’s financial reporting and decision-making?
A. It helps in assessing a company’s non-current assets and depreciation methods
B. It provides a detailed breakdown of a company’s cash flows from operating, investing, and financing activities
C. It presents a summary of a company’s equity transactions, aiding stakeholders in understanding financial performance and ownership changes over time
D. It shows the company’s income and expenses, enabling stakeholders to evaluate profitability and cash generation
E. It outlines a company’s long-term debt obligations and interest expense, assisting stakeholders in assessing capital structure and financial stability

Answer:
C. It presents a summary of a company’s equity transactions, aiding stakeholders in understanding financial performance and ownership changes over time

Explanation:
The statement of changes in equity provides a detailed summary of changes in a company’s equity during a financial period. This includes information about transactions like dividends, retained earnings, issuance or buyback of shares, and any other changes in owners’ equity. This is vital for stakeholders to understand ownership shifts and financial performance over time.

  • 1 Marks

BM – May 2024 – L1 – SA – Q17 – Basics of Business Finance and Financial Markets

Calculating the present value of receiving a fixed amount of money discounted at a specific rate.

Calculate the present value, discounted at 15 percent, of receiving ₦500,000 at the end of year 4.
A. ₦245,836.22
B. ₦255,846.32
C. ₦265,856.42
D. ₦275,866.52
E. ₦285,876.62

Answer:
E. ₦285,876.62

Explanation:
The present value is calculated by discounting the future value (₦500,000) using the given rate (15%) for the specified period (4 years). Using the present value formula PV=FV(1+r)nPV = \frac{FV}{(1+r)^n}, where r=0.15r = 0.15 and n=4n = 4, the present value is ₦285,876.62.

  • 1 Marks

BM – May 2024 – L1 – SA – Q16 – Management, Individual, and Organizational Behaviour

Identifying an incorrect strategy for IT risk tolerance.

Strategies of IT risk tolerance does NOT include which of the following?
A. Mitigation
B. Transference
C. Eradication
D. Elimination
E. Avoidance

Answer:
C. Eradication

Explanation:
IT risk tolerance strategies commonly include mitigation (reducing risk impact), transference (shifting risk to another party), elimination (removing the risk entirely), and avoidance (taking steps to prevent risk). “Eradication,” however, is not a recognized term in IT risk management, as it implies total removal, which may not always be possible or practical in the context of IT risks.

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