December 20, 2022

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PUBLIC FINANCE AND TAXATION DECEMBER 2022 PAST PAPER

TUESDAY: 6 December 2022. Afternoon Paper. Time Allowed: 3 hours. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper. RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax). Year of income 2021. Assume that the following rates of tax applied throughout the year of income 2021: QUESTION ONE 1. Explain the following types of funds: The contingency fund. (2 marks) The equalisation fund. (2 marks) 2. An accounting officer of a procuring entity is empowered at any time, prior to notification of tender award, to terminate or cancel procurement or asset disposal proceedings without entering into a contract. Highlight SIX circumstances under which the procurement or asset disposal proceedings may be terminated or cancelled as provided under the Public Procurement and Asset Disposal Act, 2015. (6 marks) 3. Outline SIX contents that should be included in development plan prepared by every county government as specified under Section 126 (1) of the Public Finance Management Act, 2012. (6 marks) 4. “Each year, the county treasury shall submit to the county assembly a statement setting out the debt management strategy of the county government”. With reference to the above statements, identify FOUR items that the county treasury should include in the statement. (4 marks) (Total: 20 marks) QUESTION TWO 1.  The Revenue Authority is empowered to undertake different types of tax audit to ascertain the actual tax liability of the tax payers involved. The tax audit may be triggered by general or specific details that come to the attention of the Commissioner. With reference to the above statement, suggest FOUR triggers of PAYE audit. (4 marks) 2. A contracting authority is empowered to use direct procurement method as one of the Public Private Partnerships (PPPs) procurement methods by the Act. In relation to the above statement, summarise SIX circumstances under which a contracting authority could use direct procurement as one of the PPPs procurement method. (6 marks) 3. The following are the transactions of Starlite Traders for the month of August 2022. The business is registered for value added tax (VAT) purposes: 1. The reported sales to unregistered customers include goods sold to a customer in South Sudan of Sh.536,000. 2. An invoice of Sh.160,000 issued to Wema Traders has been omitted from the records during the month. 3. Motor vehicle fuel and repairs and maintenance relates to the van used to supply goods to customers. 4. Water bill related to the water supplied by the county government during the month. All transactions are inclusive of value added tax (VAT) at the standard rate of 16% where applicable. Required: A value added tax (VAT) account for the month of August 2022 for Starlite Traders. (10 marks) (Total: 20 marks) QUESTION THREE 1.  Explain the term “Certificate of Origin” as used under customs and excise taxes. (2 marks) 2.  Identify FOUR categories of information the Commissioner should include in the default assessment sent to the taxpayer. (4 marks) 3.  Henry Mwala who holds a dual citizenship, had been living in Denmark since September 2014. He returned to the country on 17 December 2020 and opened a hardware shop on 2 January 2021. On 1 July 2021, he secured a formal employment with Bestfreight Ltd. a logistic company as a fleet manager. He provided the following information relating to his income for the year ended 31 December 2021: 1. Basic salary Sh.180,000 per month (PAYE Sh.46,000 per month). 2. He was paid overtime amounting to Sh.30,000 per month and risk allowance of Sh.25,000 per month during the year. 3. The employer provided him with meals worth Sh.5,000 per month. 4. He received house allowance of Sh.60,000 per month. 5. Up to 30 September 2021, he used his personal car for official duties and the employer reimbursed a monthly mileage allowance of Sh.40,000. 6. On 1 October 2021, he was provided with a saloon car of 2400cc purchased by the company in year 2019 at a cost of Sh.2,000,000. 7. He was out of office on official duties for five days and received a per diem of Sh.6,000 from the employer. 8. The company paid school fees of Sh.80,000 for each of his three children during the year. This was included in the employer’s books of accounts. 9. The employer bought a Sh.120,000 air ticket to facilitate Henry Mwala to visit the rest of his family in Denmark during his annual leave. 10. With effect from 1 July 2021, he contributed Sh.15,000 (monthly) as pension contribution and Sh.92,000 for life insurance annual premium respectively. 11. He bought a residential house on 1 September 2021 through mortgage of Sh.6,000,000 provided by Excel Bank Ltd. at an interest rate of 16% per annum. He moved into the house on 2 October 2021. 12. The net loss from the hardware shop during the year amounted to Sh.370,000. This was after deducting the following:\ Required: Determine total taxable income for Henry Mwala for the year ended 31 December 2021. (12 marks) Compute tax payable (if any) from the income computed in (c) (i) above. (2 marks) (Total: 20 marks) QUESTION FOUR 1.  Explain the term “Railway development levy” as used in taxation. (2 marks) 2. Highlight THREE benefits derived by member countries of the East African Community from use of the Single Customs Territory. (3 marks) 3. Identify THREE objectives of fiscal policies adopted by most developing countries. (3 marks) 4. Leeds Manufacturing Ltd. commenced operations on 1 January 2021 after incurring the following expenditure: Additional information: 1. The factory building includes the cost of a showroom and a retail shop of Sh.1,850,000 and Sh.1,690,000 respectively. 2. A perimeter wall was constructed at a cost of Sh.4,200,000 and utilised from 1 October 2021. 3. The company acquired the following additional assets during the year ended 31 December 2021: 4. In June 2021, one of the saloon cars

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CORPORATE FINANCE DECEMBER 2022 PAST PAPER

WEDNESDAY: 7 December 2022. Afternoon Paper. Time Allowed: 3 hours. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper. QUESTION ONE 1. Explain THREE ways in which goals of a firm may overlap. (6 marks) 2. Summarise FOUR hindrances to international standardisation of Islamic Finance. (4 marks) 3. Hekima Ltd. has a capital structure consisting of Sh.250 million in 12% debentures and Sh.150 million in ordinary shares of Sh.10 par value. The company distributes all its net earnings as dividends. The financial analyst of Hekima Ltd. intends to raise an additional Sh.50 million to finance an expansion programme and is considering three financing options. Option I: Issue an 11% debenture stock. Option II: Issue 13% cumulative preference shares. Option III: Issue additional ordinary shares of Sh.10 par value. The corporation tax rate is 30%. Required: Calculate the earnings before interest and tax (EBIT) and the earnings per share (EPS) at the point of indifference between the following financing options: Option I and option III. (5 marks) Option II and option III. (5 marks) (Total: 20 marks) QUESTION TWO 1.  “Provision for depreciation is an internally generated source of finance to a firm”. By giving TWO reasons, justify the above statement. (4 marks) 2.  Explain THREE challenges facing green finance in your country. (6 marks) 3.  Adopt Ltd. has a target capital structure of 60% equity and 40% debt. The schedule of financing costs for the firm is shown below: Required: Determine the breakpoints for both equity and debt component. (2 marks) Calculate the marginal cost of capital (MCC) at each break points computed in (c) (i) above. (4 marks) Marginal cost of capital schedule for (c) (ii) above. (4 marks) (Total: 20 marks) QUESTION THREE 1. Explain the differences between the following approaches to post merger integration: Absorption approach. (2 marks) Preservation approach. (2 marks) Symbiosis approach. (2 marks) 2. Daycare enterprises is considering undertaking a special project requiring an initial outlay of Sh.90,000,000. The project would have a two year life after which there will be no expected salvage or terminal value. The possible incremental after tax cash flows and associated probabilities of occurrence are as follows: The company’s required rate of return for this investment is 8%. Required: Calculate the expected net present value (ENPV) for the project. (8 marks) Suppose that the possibility of abandonment exist and that the abandonment value of the project at the end of the first year is Sh.45,000,000 after taxes. Advise the management of Daycare Enterprises whether abandonment is the right choice. (6 marks) (Total: 20 marks) QUESTION FOUR 1. Highlight FOUR objectives of an effective inventory management system. (4 marks) 2. The following financial statement data relates to Fastline Ltd.: Required: The net operating cycle of Fastline Ltd. (6 marks) 3. Upendo Ltd. is considering acquiring Maridadi Ltd., a firm operating in the same industry so as to consolidate its market share. Given below are financial information relating to Maridadi Ltd. for the next five years: Additional information: 1. Maridadi Ltd. will retain Sh.20 million for internal expansion each year. 2. The cost of equity capital is 24%. 3. After the fifth year, the cash flows available to Upendo Ltd. from Maridadi Ltd. are expected to grow by 8% per annum to perpetuity. 4. Corporation tax rate applicable is 30%. 5. The number of ordinary share in issue at Maridadi Ltd. is 10 million shares. Required: The dividend per share (DPS) payable by Maridadi Ltd. in each year if the firm adopts a residual dividend policy. (6 marks) The maximum price payable by Upendo Ltd. to acquire a share of Maridadi Ltd. (4 marks) (Total: 20 marks) QUESTION FIVE 1. Cite FOUR reasons why firms find it difficult to achieve expected synergy as a result of mergers and acquisitions. (4 marks) 2. Orange Ltd. and Rainbow Ltd. are companies operating in the same line of business. In the past few years, Orange Ltd. has experienced stiff competition from Rainbow Ltd. to an extent that Orange Limited is now contemplating acquiring Rainbow Ltd. to consolidate its market share. If Orange Ltd. acquires Rainbow Ltd., the expected results of Rainbow Ltd. for the next three years will be as follows: Additional information: 1. From year 4 onwards, it is expected that the annual cash flows from Rainbow Ltd. will increase by 6% each year into perpetuity. 2. Tax is payable at the rate of 30% and this tax is paid in the same year the profits to which it relates are earned. 3. If Orange Ltd. acquires Rainbow Ltd., its overall cost of capital (WACC) will be 12.4%. Required: The offer price that Orange Ltd. should offer to Rainbow Ltd. using discounted cash flow method. (6 marks) 3. Zedo Ltd.’s existing debt to equity ratio is 0.5 and its asset beta (unlevered equity beta) is 0.4. The firm decides to undergo a financial reconstruction during which it would repurchase its outstanding shares using borrowed debt. This will effectively increase the firm’s debt to equity ratio to 0.8. Additional information: 1. The risk free rate of return is 10%. 2. The return of market portfolio is 14%. 3. The corporation tax rate applicable is 30%. 4. The current earnings per share (EPS) is Sh.4 and the company adopts 50% payout ratio as its dividend policy. Required: The firm’s equity beta before and after the financial reconstruction. (3 marks) The firm’s cost of equity before and after financial reconstruction using capital asset pricing model (CAPM). (3 marks) The share price of the firm before and after financial reconstruction. (3 marks) Advise the management of the company on whether they should carry out financial reconstruction based on your answer in (iii) above. (1 mark) (Total: 20 marks)

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EQUITY INVESTMENTS ANALYSIS DECEMBER 2022 PAST PAPER

WEDNESDAY: 7 December 2022. Morning Paper. Time Allowed: 3 hours. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper. QUESTION ONE 1.  Explain TWO limitations of industry life cycle models in relation to fundamental analysis. (4 marks) 2. Highlight FIVE reasons for increased use of enterprise value multiples in equity valuation. (5 marks) 3. The following information relates to Ukunda Ltd.: 1. Earnings per share (EPS) in the year 2021 was Sh.4. 2. The retention ratio is 70%. 3. The company expected to earn a return on equity of 16% on its investments. 4. The required rate of return is 12%. 5. The dividends are paid at the end of the year. Required: Using Gordon’s constant growth model: Determine the company’s sustainable growth rate. (2 marks) Estimate the value of the company’s share at the beginning of the year 2022. (3 marks) Calculate the present value of growth opportunities assuming no growth. (3 marks) 4. Outline THREE methods used to estimate the required rate of return to the private company equity. (3 marks) (Total: 20 marks) QUESTION TWO 1. Highlight FOUR methods that may be used to invest in foreign equities. (4 marks) 2. In relation to industry and company analysis, assess THREE generic competitive strategies. (6 marks) 3. Jeremy Owuor is preparing a valuation report of Maximum Exports Ltd. He has decided to use a three stage free cash flow to equity (FCFE) valuation model and he has made the following estimates: 1. The FCFE per share for the current year is Sh.1.00. 2. The FCFE is expected to grow at 10% for next year then at 26% annually for the following three years and then at 8% in year 5 and thereafter. 3. Maximum Exports Ltd. estimated beta is 2.00 and the current market conditions favours a 5% risk free rate of return and a 5% equity risk premium. Required: Estimate the value of a share of maximum Export Ltd. (7 marks) 4. A stock has a dividend payout ratio of 40%, return on equity (ROE) of 8.3, an earnings per share of Sh.4.25, sales per share of Sh.218.75 and an expected growth rate in dividends and earnings of 5%. Shareholders require a return of 10% on their investment. Required: Calculate the justified price-to-sales (P/S) multiple based on these fundamentals. (3 marks) (Total: 20 marks) QUESTION THREE 1.  George Nyamu has concluded that two stage dividend discount model (DDM) is the most appropriate for valuing Blue Energy Ltd. The current dividend paid by the company is Sh.5.00. The analyst wants to value the company’s shares using the following approaches separately: 1. The dividend growth rate will be 12% throughout the first stage of four years. The dividend growth rate thereafter will be 6%. 2. Instead of using the estimated stable growth rate of 6% in the second stage, George wants to use his estimate that four years later Blue Energy stock will be worth 15 times its earnings per share. He expects that the earnings retention ratio at that time will be 0.60. 3. In contrast to the above approach in which growth rate declines abruptly from 12% in the fourth year to 6% in the fifth, the growth rate would decline linearly from 12% in first year to 6% in the fifth year. The current share price is Sh.100. The required return is 14%. Required: Estimate the present value of the terminal value of the share. (6 marks) Advise whether the investor should purchase the company’s shares using the H-model. (4 marks) 2.  Chris Sifuna of XYZ pension plan has historically invested in the shares of only Kenya-domiciled companies. Recently he has decided to add international exposure to the plan portfolio. Required: In relation to the above statement, explain THREE challenges that Chris Sifuna of XZY pension plan may encounter while investing in foreign equity securities. (6 marks) 3. An investor gathers the following data estimates for a company from the energy sector. It includes projected earnings and dividends over a three year period. The required rate of return of the project is 10%. Average dividend payouts rate for mature companies in the market is 0.45. The industry average return on equity is 0.13. The earnings per share in year 3 is Sh.4.00. The industry average price earnings ratio is 24.0. Required: Estimate the terminal value of the share using the Gordon Growth Model. (4 marks) (Total: 20 marks) QUESTION FOUR 1. The following selected information is gathered from financial records of Oanda Ltd.: An analyst estimates that sales for 2022 will grow at an average annual growth rate in net sales over 2019 – 2021 period and the year 2022 operating expenses/net sales ratio will be the same as the average ratio over the year 2019 and 2021 time period. Required: Estimate the year 2022 operating expenses. (6 marks) 2. Jamal Hassan has gathered the following data for XXT Ltd. for the year ended 30 September 2022: Required: Compute the normalised EBITDA for: Financial buyer. (3 marks) Strategic buyer. (4 marks) 3. Describe TWO drawbacks to using enterprise value to earnings before interest, taxes, depreciation and amortisation (EV/EBITDA). (4 marks) 4. Explain the term “Tobins q”. (3 marks) (Total: 20 marks) QUESTION FIVE 1. In private company valuation, describe instances when the following valuations are applied: Discount for lack of marketability. (2 marks) Discount for lack of control. (2 marks) Control premium. (2 marks) 2. An equity analyst gathers the following information: Required: Calculate the required rate of equity using the expanded capital asset pricing model (CAPM). (2 marks) 3. Highlight FOUR applications of equation valuation models. (4 marks) 4. The following financial information relates to Beth PVT Ltd. for the year ended 31 December 2020 and 31 December 2021: Pre-tax accounting profit is taken after deducting the economic depreciation of the company’s non-current assets (also the depreciation used for tax purposes). Additional information: 1. Economic deprecation

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PORTFOLIO MANAGEMENT DECEMBER 2022 PAST PAPER

THURSDAY: 8 December 2022. Morning Paper. Time Allowed: 3 hours. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper. QUESTION ONE 1. Explain THREE behavioural factors that affect portfolio construction. (6 marks) 2.  Johnson Sakwa and Alex Mwiti both have Sh.100,000 each split evenly between a tax deferred account and a taxable account. Johnson Sakwa chooses to put shares with an expected rate of return of 7% in the tax deferred account and bonds yielding 4% in the taxable account. Alex Mwiti chooses the reverse, putting shares in the taxable account and bonds in the deferred account as follows. Additional information: 1. When held in taxable account, equity returns will be taxed entirely as capital gains at a 5% rate while interest income is taxed annually at 15%. 2. The tax rate applicable to withdrawals from the tax deferred account will be 30%. 3. Cost basis is equal to market value on asset held in taxable account. Required: Calculate the after tax accumulation after 20 years for: Johnson Sakwa. (3 marks) Alex Mwiti. (3 marks) 3. Nancy Wafula estimates that her revised annual living expenses including a new studio and an apartment will average Sh.132,500 (excluding her child education costs). If necessary, she could combine her apartment and studio to reduce spending by Sh.32,500. She does not want her financial security to be dependent on further gifting from her parents and is pleased that, after the sale of Sawa apartment, she will be able to meet her new living expenses with proceeds from art sales amounting to Sh.50,000 and the expected total return of the proposed investment portfolio of Sh.82,500. Because of the uncertainty of art sales, Nancy plans to establish an emergency reserve fund equal to one year’s living expenses. Her after tax proceeds from the sale of Sawa apartment are expected to be Sh.1,200,000 (1 – 0.15) = Sh.1,020,000. She also holds Sh.75,000 in balanced mutual funds and Sh.25,000 in a money market fund. Nancy intends to revaluate her policy statement and asset allocation guidelines every three years. Required: Discuss Nancy’s liquidity requirements. (4 marks) Determine Nancy’s return requirement. (2 marks) Evaluate whether Nancy’s portfolio can satisfy that requirement if inflation average 3% annually and she reduces her annual living expenses to Sh.100,000 by combining her apartment and studio. (2 marks) (Total: 20 marks) QUESTION TWO 1. Propose THREE key trends in the global asset management industry. (6 marks) 2. Explain THREE differences between individual investors and institutional investors. (6 marks) 3. Two assets A and B are known to lie on the security market line (SML). Asset A has a beta of 0.5 and a risk premium of 4%. Asset B has an expected rate of return of 20% and a beta of 1.75. You are considering the following securities which are available in the market: Security Expected return (%) Beta A 20 2.00 B 14 0.75 C 15 1.25 D 12 –0.25 E 31 3.25 Required: Determine the risk free rate of return. (2 marks) Calculate the required rate of return of each security. (4 marks) Identify which security is undervalued, overvalued or correctly valued. (2 marks) (Total: 20 marks) QUESTION THREE 1. Describe TWO approaches for undertaking stress testing in portfolio risk management. (4 marks) 2. The following data relates to portfolio L return: The risk free rate is 1%. Required: Calculate portfolio L Sortino ratio. (4 marks) 3. Michael Bundi wants to invest in stock market. He has gathered the following information about individual securities: The market variance is 10% and the risk free rate is 7%. Required: Excess return to beta ratio. (4 marks) Cut-off point. (6 marks) Optimum portfolio assuming no short sales. (2 marks) (Total: 20 marks) QUESTION FOUR 1. Explain the following types of asset allocation: Tactical asset allocation. (2 marks) Dynamic asset allocation. (2 marks) Insured asset allocation. (2 marks) 2. Highlight SEVEN stages of a typical client interaction cycle with respect to documentation. (7 marks) 3. The following information relates to the market price per share of Nebo Limited over a period of five years: Required: The expected return of the shares of the company. (5 marks) Comment on the performance of the company based on the movement of its share price over the last five years. (2 marks) (Total: 20 marks) QUESTION FIVE 1.  Simon Mwakirungo is an investment manager of Heko Investment Ltd. Simon manages portfolio of three investors; Paul Wafula, Stephen Nabukwesi and Solomon Njoroge. Paul, Stephen and Solomon has risk aversion coefficient of 1, 0 and –1 respectively. Required: Identify the risk category of each investor, giving ONE reason. (6 marks) 2. James Mwathi is a market timer who makes monthly asset allocation decisions. His decisions are based on his forecast of the direction of the market. James Mwathi’s forecast are right 72% of the time. James normally constructs unconstrained portfolio. Required: The information ratio for James Mwathi. (4 marks) 3. The following information is available for Milele fund for the year 2021: 1. On 1 January 2021, Milele fund had a market value of Sh.100 million. 2. During the period, 1 January 2021 to 30 April 2021, the stock in the fund showed a capital gain of Sh.10 million. 3. On 1 May 2021, the stocks in the fund paid a total dividend of Sh.2 million. All dividends were reinvested in additional shares. 4. As the fund performance has been exceptional, investors invested an additional Sh.20 million in the fund on 1 May 2021. 5. On 31 December 2021, the fund received total dividends of Sh.2.64 million. The fund’s market value on 31 December 2021, not including the Sh.2.64 million in dividends was Sh.140 million. 6. The fund made no other interim cash payments during the year 2021. Required: Calculate: The time weighted rate of return (TWRR). (4 marks) The money weighted rate of return (MWRR). (4 marks) Outline TWO differences between time weighted

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INTRODUCTION TO FINANCE AND INVESTMENTS DECEMBER 2022 PAST PAPER

WEDNESDAY: 7 December 2022. Afternoon Paper. Time Allowed: 3 hours. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper. QUESTION ONE 1. The goal of wealth maximisation is considered to be the modern approach to finance and any organisation should strive to ensure it maximises the wealth of its shareholders. Required: Argue FOUR cases in support of the above statement. (4 marks) 2. Explain TWO differences between forwards contracts and futures contracts as types of derivatives. (4 marks) 3. Hazina Microfinance Limited intends to borrow Sh.10,000,000 from Pesa Limited. The loan will attract an interest rate of 14% per annum on reducing balance basis. The loan will be repaid in four equal annual instalments. Required: Prepare a loan amortisation schedule for Hazina Microfinance Limited. (6 marks) 4. Define the following terms as used in foreign exchange markets in your country: Bid price. (1 mark) Ask price. (1 mark) Bid-Ask spread. (1 mark) Initial margin. (1 mark) 5. With reference to time value of money, define the following terms: Compounding. (1 mark) Future value. (1 mark) (Total: 20 marks) QUESTION TWO 1. With reference to cost of capital: Explain the term “cost of capital” to a firm. (2 marks) Highlight THREE purposes of cost of capital to a firm. (3 marks) 2. Summarise FIVE advantages of investing in mutual funds as an alternative investment. (5 marks) 3. Outline FOUR challenges facing Islamic banking in your country. (4 marks) 4. Poa Ltd. made profits before tax in the financial year ended 31 December 2021 of Sh.9,320,000. The current market price per share of the company is Sh.60. An extract of the capital structure as at 31 December 2021 is as follows: Required: Earnings per share (EPS). (2 marks) Price/earnings (P/E) ratio. (2 marks) Return on investment (ROI). (2 marks) (Total: 20 marks) QUESTION THREE 1. Highlight FOUR characteristics of a good investment appraisal method. (4 marks) 2. Distinguish between a “Eurobond market” and “foreign exchange market”. (2 marks) 3. Market risk is the risk that the value of an investment will decrease due to changes in market conditions. In relation to the above statement, summarise FOUR types of market risks that could affect an investment. (4 marks) 4. Zamu Ltd. is considering its budget for the year 2023. The following information relates to four mutually exclusive projects that the management is contemplating to undertake: Additional information: 1. The cost of capital for Zamu Ltd. is 10%. 2. The cash flows are assumed to occur at the end of each year. Required: Net present value (NPV) of each investment. (4 marks) Advise Zamu Ltd. on the best alternative to choose using the NPV criteria. (1 mark) 5. Majibu investments account was analysed for performance in the last three years each ending 31 December and the data tabulated as below: Required: The geometric mean (GM) rate of return. (3 marks) The arithmetic mean (AM) rate of return. (2 marks) (Total: 20 marks) QUESTION FOUR 1.  Distinguish between “primary markets” and “secondary markets”. (4 marks) 2. With reference to agency theory, explain the following terminologies: Agency relationship. (2 marks) Agency costs. (2 marks) 3. Jawabu Ltd. is a wholly equity financed company. The shares of the company are currently trading in the securities exchange at a price of Sh.60 per share. The company’s earnings per share is Sh.10 and growth in earnings is expected to remain at 10% per annum for the foreseeable future. Jawabu Ltd. has a policy of paying 30% of the profits after tax as dividends to the shareholders. The company’s cost of capital is 16%. Required: The theoretical value of the company’s share using the Gordon’s model. (3 marks) Comment on its valuation on the securities exchange. (1 mark) Outline THREE drawbacks of the Gordon dividend growth model. (3 marks) 4. The following information relates to the capital structure of Kora Limited as at 31 December 2021: Additional information: 1. Mortgage bonds of similar quantity could be sold at a yield of 8%. 2. The ordinary shares sell at Sh.120 each. 3. The ordinary shareholders have just received a dividend of Sh.4 per share. Earnings grow at the rate of 6% per annum. 4. Corporation tax rate is 30%. Required: After-tax cost of mortgage bonds. (1 mark) Cost of equity. (2 marks) Weighted average cost of capital (WACC) for the firm. (2 marks) (Total: 20 marks) QUESTION FIVE 1. Outline FOUR advantages of investing in bonds. (4 marks) 2. Assess three objectives of using a prospectus by companies intending to list at the stock market. (6 marks) 3. The following information relates to the prices of a share of Delight Ltd. under various states of nature: The current share price of Delight Ltd. is Sh.261.25. Required: The rate of return for each state of nature. (4 marks) The expected rate of return. (3 marks) The standard deviation. (3 marks) (Total: 20 marks)

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QUANTITATIVE ANALYSIS DECEMBER 2022 PAST PAPER

WEDNESDAY: 7 December 2022. Morning Paper. Time Allowed: 3 hours. Answer any FIVE questions. ALL questions carry equal marks. Show ALL your workings. Do NOT write anything on this paper. QUESTION ONE 1. State FOUR characteristics of a good measure of dispersion. (4 marks) 2. Explain the meaning of the following terms as used in set theory: Venn diagram. (2 marks) Complement of a set. (2 marks) Union of a set. (2 marks) 3. The management team of Stage Supermarket is interested in determining whether there is any relationship between the distance from customers’ residences to the supermarket and the number of visits made to the supermarket in a particular period. The following results were obtained: Required: Determine whether there is any relationship between the number of visits made to the supermarket and the distance from customers’ residences to the supermarket. (8 marks) Calculate the decrease in the number of visits to the supermarket with each unit increase in distance of customers’ residences from the supermarket. (2 marks) (Total: 20 marks) QUESTION TWO 1.  Shoetec Ltd., a manufacturer of stylish shoes, estimates that at full scale production, it would sell between 2,000 and 3,000 pairs of shoes. The total monthly revenue in thousands of shillings over this range is represented by the function Required: Derive the average cost and average revenue functions of the firm. (4 marks) Calculate the profit maximising output. (4 marks) Calculate the price charged upon maximising profit and how much each pair of shoes would cost. (2 marks) 2. An examination was administered to a group of students and the results were as summarised below: Result                                            % of candidates Passed with distinction                        10% Passed with credit                                60% Failed                                                      30% A candidate fails the examination if he/she obtains less than 40% in the examination. In order to pass with distinction, the candidate must obtain at least 75% in the examination. Required: Calculate the mean and standard deviation of the distribution of marks assuming that the marks scored are normally distributed. (10 marks) (Total: 20 marks) QUESTION THREE 1. Distinguish between the following terms as used in probability: “Conditional probability” and “marginal probability”. (4 marks) “Discrete probability distributions” and “continuous probability distributions”. (4 marks) 2. The banking industry in a given country is controlled by three banks Faida Bank, Akiba Bank and Ahadi Bank. As at 31 December 2020, Faida Bank controlled 30% of the market share, Akiba Bank controlled 50% of the market share and Ahadi Bank controlled 20% of the market share. A survey was conducted on the market shares of the three banks as at 31 December 2021 and revealed the following: 1. Faida Bank had retained 80% of its market share and lost 15% and 5% to Akiba Bank and Ahadi Bank respectively. 2. Akiba Bank had lost 10% and 20% of its market share to Faida Bank and Ahadi Bank respectively. 3. Ahadi Bank had lost 5% of its market share to Faida Bank and 5% to Akiba Bank. 4. There were no significant changes in the banking habits of the customers during the year ended 31 December 2021. Required: Determine the transition matrix from the above information. (2 marks) Determine the market shares of the three banks as at 31 December 2021. (3 marks) The steady state market shares of the three banks. (7 marks) (Total: 20 marks) QUESTION FOUR 1. The Production Manager of Mechtex Ltd., a manufacturer of machines, is investigating a claim by customers about machine A and machine B that it manufactures. The claim is that machine A has a longer useful life than machine B. A sample of 60 machine As taken from the market reveals that the machine has a mean useful life of 28,000 hours with a standard deviation of 900 hours. A sample of 80 machine Bs has a mean useful life of 30,000 hours with a standard deviation of 1,000 hours. Required: Advise the Production Manager of Mechtex Ltd. if there is a significant difference in the useful lives of the machines. (8 marks) Use a significance level of 5%. 2.  The following data relate to the number of computers sold each day over the last 240 working days by a leading computer firm. Required: The modal number of computers sold. (2 marks) The quartile deviation of the number of computers sold. (6 marks) The quartile coefficient of skewness of the number of computers sold. Interpret your results. (4 marks) (Total: 20 marks) QUESTION FIVE 1. Highlight FOUR advantages of decision tree analysis as a tool for decision making. (4 marks) 2. State FOUR characteristics of the binominal distribution. (4 marks) 3. The management of a wall paint manufacturing company is faced with the problem of choosing one of three products to add to its existing product line. The potential demand for each product may turn out to be good, moderate or poor with probabilities estimated as 0.75, 0.15 and 0.10 respectively. The estimated profit or loss under the three states of demand with respect to each product is outlined below: Required: Advise the management on the choice of product based on the expected monetary valve (EMV) criterion. (4 marks) Compute the expected opportunity loss for each decision. Which decision would you recommend based on the expected opportunity loss? (4 marks) Compute the expected value of perfect information. (4 marks) (Total: 20 marks) QUESTION SIX 1. Explain THREE roles of quantitative analysis in the decision making of organisations. (6 marks) 2. The data below relate to the profits of Soko Yetu Groceries (in thousands of shillings) over a period

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ECONOMICS DECEMBER 2022 PAST PAPER

TUESDAY: 6 December 2022. Afternoon Paper. Time Allowed: 3 hours. Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper. QUESTION ONE 1. Enumerate FIVE functions of the World Trade Organisation (WTO). (5 marks) 2. Describe THREE ways that banks create credit. (6 marks) 3. List FOUR characteristics of economic resources. (4 marks) 4. Outline FIVE ways in which a government could interfere with the price mechanism. (5 marks) (Total: 20 marks) QUESTION TWO 1. List FOUR components of disposable national income. (4 marks) 2. Explain SIX problems that an economist could encounter when comparing welfare between different countries. (6 marks) 3. Outline FIVE factors that determine the level of demand in an economy. (5 marks) 4. Identify FIVE reasons why unemployment is a major policy issue in developing countries. (5 marks) (Total: 20 marks) QUESTION THREE 1. Enumerate FIVE factors that could limit consumer sovereignty. (5 marks) 2. With the aid of a well labelled diagram, explain the THREE stages of production according to the law of diminishing marginal returns. (9 marks) 3. Explain THREE limitations of the consumer price index. (6 marks) (Total: 20 marks) QUESTION FOUR 1. Using a well labelled diagram, distinguish between “price floor” and “price ceiling”. (8 marks) 2. Explain THREE factors that influence the level of interest rates in an economy. (6 marks) 3. State SIX policy measures that a country could adopt to avoid the risk of not being able to honour her foreign debts. (6 marks) (Total: 20 marks) QUESTION FIVE 1.  Explain the following types of inflation: Cost push. (2 marks) Credit. (2 marks) Demand pull. (2 marks) 2.  State SIX policy measures that could be adopted by developing countries to encourage industrial development. (6 marks) 3. Enumerate FOUR factors that could determine the effectiveness of trade unions. (4 marks) 4. Outline FOUR features of isoquant curves. (4 marks) (Total: 20 marks) QUESTION SIX 1.  Outline FOUR disadvantages of a controlled market system. (4 marks) 2. The demand and total cost function for a certain firm are represented as follows: Required: The marginal cost function. (2 marks) The marginal revenue function. (2 marks) The average variable cost function. (2 marks) The profit maximising level of output. (2 marks) The maximum profit. (2 marks) 3. Discuss THREE motives of holding money as advanced by the Keynesian liquidity preference theory. (6 marks) (Total: 20 marks) QUESTION SEVEN 1.  Outline SIX characteristics of a good economic development plan. (6 marks) 2. The following data relates to the national income of a certain country in billions of shillings: Required: The equilibrium level of national income. (3 marks) The equilibrium level of consumption expenditure. (3 marks) The multiplier. (2 marks) 3. Explain the law of variable proportions. (2 marks) Enumerate FOUR assumptions underlying the law of variable proportions. (4 marks) (Total: 20 marks)

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REGULATION OF FINANCIAL MARKETS DECEMBER 2022 PAST PAPER

TUESDAY: 6 December 2022. Morning Paper. Time Allowed: 3 hours. Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper. QUESTION ONE 1. Highlight SIX functions of a securities exchange in your country. (6 marks) 2. Analyse THREE vitiating factors that may undermine in a financial contract. (6 marks) 3. Explain how a financial contract may be discharged through the following ways: Performance. (2 marks) Agreement. (2 marks) Breach. (2 marks) Operation of law. (2 marks) (Total: 20 marks) QUESTION TWO 1.  Summarise FIVE instances where an agent may become personally liable to third parties on a contract on behalf of his principal. (5 marks) 2.  In determination of a commercial disputes in your country, Commercial Courts (or their equivalent) have power to make any order and grant any relief as they deem fit and just. Required: Outline FIVE orders a court can make in exercise of its jurisdiction over commercial contracts. (5 marks) 3. With reference to the International Organisation of Securities Commissions (IOSCO): State the rationale for the existence of IOSCO. (2 marks) Give THREE objectives that IOSCO members have resolved to. (3 marks) 4. With reference to the capital market intermediaries that require authorisation from the Capital Markets Authority (CMA), or an equivalent in your country: Distinguish between a “dealing online foreign exchange broker” and a “non-dealing online foreign exchange broker”. (4 marks) State the minimum number of unimpaired shareholders’ funds (paid up share capital and reserves) and the minimum amount of liquid capital for a dealing online foreign exchange broker. (1 mark) (Total: 20 marks) QUESTION THREE 1. The Central Securities Depository operates as a self-regulator body as per the rules approved by the Capital Market regulator. Required: In light of the above statement, highlight FOUR areas covered by the rules of the Central Securities Depository. (4 marks) 2. State FOUR conditions that must be fulfilled before admission to listing of real estate investment trust (REIT). (4 marks) 3. A fund manager manages discretionary funds and has appointed a custodian for the assets of the fund. Explain THREE duties of a custodian. (6 marks) 4. Discuss THREE obligations of licensed financial market intermediaries. (6 marks) (Total: 20 marks) QUESTION FOUR 1.  In relation to regulation of financial market intermediaries and operation of collective investment schemes in your country, explain the role of: Real Estate Investment Trusts (REIT) manager. (2 marks) REIT trustee. (2 marks) 2. In relation to investment of funds: Explain the term “Exchange Traded Fund” (ETF). (2 marks) Examine THREE requirements that an ETF must meet before being listed in the securities exchange as applicable in your jurisdiction. (6 marks) 3. Steve Johnson is a European investor who has recently expressed desire to invest in the Kenyan financial services space. He has analysed recent market discussions and identified Credit Information Sharing as a critical emerging issue that may impact his investments. He has tasked you to keep him abreast on these discussions around Credit Rating Agencies. Required: In your presentation to Steve Johnson: Explain the term “Credit Information Sharing” (CIS) in respect to Credit Rating Agencies. (2 marks) Highlight TWO benefits of CIS with respect to each of the following headings: • Customer. (2 marks) • Lender. (2 marks) • Economy. (2 marks) (Total: 20 marks) QUESTION FIVE 1. As part of the investment advice process, the client’s risk profile must be undertaken by a market intermediary. Explain THREE components of client’s risk profile. (6 marks) 2. Analyse THREE ways in which an intermediary can eliminate conflict of interest or minimise its effect on decision making with reference to corporate governance and conduct of business of market intermediaries in your jurisdiction. (6 marks) 3. With respect to the law of agency: Highlight FOUR ways in which an agency can be terminated by agreement between the agent and the principal in the absence of express provisions in the agency agreement. (4 marks) Describe TWO ways in which an agency relationship can be created. (4 marks) (Total: 20 marks) QUESTION SIX 1. A venture capital company can apply to the Capital Markets Authority (CMA), or an equivalent in your country, for authorsation provided it meets certain eligibility requirements. Required: Highlight FOUR details that a venture capital company must include in the application for authorisation in order to meet CMA eligibility requirements in your country. (4 marks) Outline TWO prohibitions placed upon a venture capital company once authorised and registered. (2 marks) 2. Explain THREE powers of the Financial Reporting Centre to take administrative action for non-compliance. (6 marks) 3. With reference to licensing requirements on the obligations of licensed intermediaries in record keeping and reporting obligations, discuss FOUR records that are to be maintained by an investment adviser and fund manager. (8 marks) (Total: 20 marks) QUESTION SEVEN 1. Adopting a structured and disciplined approach to investment advice is essential in these days of increasing professionalism and regulatory scrutiny. Required: List FIVE distinct stages that a structured and disciplined approach investment advice process can be divided into. (5 marks) 2. With respect to customer due diligence (CDD) requirements for natural persons, legal persons, partnerships and trusts. Required: Name THREE activities that are involved in CDD. (3 marks) Enumerate SIX factors that customers might possess which present a higher risk of money laundering. (6 marks) 3. Discuss THREE responsibilities of senior management in discharging the obligations placed on them in developing Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) processes and procedures. (6 marks) (Total: 20 marks)

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PROFESSIONAL ETHICS AND GOVERNANCE DECEMBER 2022 PAST PAPER

MONDAY: 5 December 2022. Afternoon Paper. Time Allowed: 3 hours. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper. QUESTION ONE 1. Highlight FOUR ways of building a culture of integrity in an organisation. (4 marks) 2. In relation to ethical decisions in the securities exchange market, explain the following terms: Pump and dump. (2 marks) Bucketing. (2 marks) 3. Explain the following terms as used in ethical judgements: Obligatory. (2 marks) Permissible. (2 marks) Supererogatory. (2 marks) 4. Discuss THREE signs of high emotional intelligence. (6 marks) (Total: 20 marks) QUESTION TWO 1. Outline the FOUR steps process identified by Allan Meder as a framework for ethical decision making. (4 marks) 2. Highlight FOUR roles of the board in promoting ethical conduct in an organisation. (4 marks) 3. In relation to stakeholders management: Examine THREE types of stakeholder groups. (6 marks) Explain THREE roles of stakeholders in relation to stakeholder obligation. (6 marks) (Total: 20 marks) QUESTION THREE 1. The Institute of Investment and Financial Analysts (ICIFA) has developed a Code of Conduct for its members. The essence of this Code of Conduct and Ethics is to promote ethics and professionalism in the investment profession. In light of the above statement, examine THREE compliance standards expected from ICIFA members. (6 marks) 2. Describe THREE characteristics of ethical leaders. (6 marks) 3. In reference to business ethics: Outline TWO benefits of maintaining business ethics in an organisation. (2 marks) Describe THREE ways in which firms can demonstrate ethics and integrity in their operations. (6 marks) (Total: 20 marks) QUESTION FOUR 1. Outline FOUR components of an integrated report. (4 marks) 2. Highlight FOUR reasons for unethical behaviour among the finance professionals. (4 marks) 3. Explain THREE ways of measuring emotional intelligence. (6 marks) 4. Examine THREE types of internal controls in an organisation. (6 marks) (Total: 20 marks) QUESTION FIVE 1. The Enron Corporation was regarded as a corporate giant. But after a good run, it failed miserably and ended up as a bankrupt business. The failure and bankruptcy of the Enron Corporation jolted Wall Street as well as it put several employees on the verge of the financial crisis. Required: In relation to the above statement: Summarise FOUR causes of Enron Scandal. (4 marks) Evaluate THREE effects of the Enron Scandal in the financial sector. (6 marks) 2. Based on resource dependency theory, describe FOUR categories of managers. (4 marks) 3. Explain THREE main principles of social media ethics and etiquette. (6 marks) (Total: 20 marks)

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FINANCIAL ACCOUNTING DECEMBER 2022 PAST PAPER

MONDAY: 5 December 2022. Morning Paper. Time Allowed: 3 hours. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper. QUESTION ONE 1. The following balances were extracted from the books of Jiwe Traders for the month of November 2022: Required: Sales ledger control account for the month ended 30 November 2022. (6 marks) Purchases ledger control account for the month ended 30 November 2022. (5 marks) 2. Ujenzi Enterprises is a small retail firm. The trial balance of the firm failed to agree on 30 June 2022. The difference was transferred to a suspense account and financial statements prepared. On detailed review of the books, the following errors were revealed: 1. The purchases daybook had been undercast by Sh.1,200,000. 2. Purchases on credit from Demario Ltd. for Sh.600,000 had been posted to their account as Sh.6,000,000. 3. A purchase of a machine worth Sh.8,400,000 had been posted to repairs of machinery account. 4. A customer returned goods worth Sh.1,200,000. This transaction had been entered in the sales returns daybook and posted to the debit of the customer’s account. 5. Sh.7,200,000 owed by Jeru Ltd., a customer, had been omitted when drawing up a schedule of debtors from the ledger. 6. A cash discount of Sh.240,000 had been correctly entered in the cashbook, but has not been posted to the customer’s account. Required: 1. Journal entries to correct the above errors. (Narrations not required). (6 marks) 2. Suspense account duly balanced (including the opening balance). (3 marks) (Total: 20 marks) QUESTION TWO 1. Explain the following terms as used in company accounts: Discount on shares. (2 marks) Allotment of shares. (2 marks) Share premium. (2 marks) 2. The following information was extracted from the books of Viki Ltd. as at 30 September 2021 and 30 September 2022: Statement of financial position as at 30 September: Additional information: 1. Profit after tax for the year ended 30 September 2022 was Sh.84,000,000. 2. Interest expense for the year ended 30 September 2022 charged to the statement of profit or loss was Sh.12,000,000. 3. All the taxes and interest for the year ended 30 September 2022 were paid. Total tax for the year ended 30 September 2022 amounted to Sh.48,000,000. 4. Proposed dividends for the year ended 30 September 2022 amounted to Sh.24,000,000. 5. Land and buildings were acquired during the year ended 30 September 2022 at a cost of Sh.360,000,000. 6. During the year ended 30 September 2022, some motor vehicles which had a net book value of Sh.60,000,000 were disposed of for Sh.72,000,000. 7. Motor vehicles are depreciated at 10% on reducing balance. Required: Statement of cash flows in accordance with the requirements of “International Accounting Standard (IAS) 7, “Statement of Cash Flows”, for the year ended 30 September 2022. (14 marks) (Total: 20 marks) QUESTION THREE Kate, Mercy and Nickson have been trading as partners under the name Komon Partnership. The partners share profits and losses in the ratio of 4:3:2 respectively. On 1 November 2021, an employee, Oliver, was admitted as a partner. He was to bring Sh.1,750,000 as capital and Sh.1,680,000 as his share of goodwill. The partners do not intend to open a goodwill account. The admission of Oliver has not been fully recorded in the books of account other than the cash record. The following trial balance was extracted from the books of Komon Partnership as at 31 October 2022: Additional information: 1. The new profit or loss sharing ratio was agreed at 4:3:2:1 for Kate, Mercy, Nickson and Oliver respectively. 2. On 31 October 2022, inventory was valued at Sh.5,780,000. 3. As at 31 October 2022, accrued salaries and wages and accrued advertising expenses amounted to Sh.1,790,000 and Sh.1,680,000 respectively. 4. As at 31 October 2022, prepaid insurance amounted to Sh.660,000. 5. It was further agreed that since Oliver was a former employee, he would be entitled to a salary of Sh.853,000 per annum with effect from 1 November 2021. 6. The partners resolved that they would receive an interest of 10% per annum on their respective balances of fixed capital at the beginning of the year. 7. Depreciation is to be provided per annum on cost as follows: Asset                                   Rate per annum Furniture and fittings            12% Motor vehicles                         25% Required: 1. Statement of profit or loss and appropriation account for the year ended 31 October 2022. (10 marks) 2. Partners’ current accounts. (4 marks) 3. Statement of financial position as at 31 October 2022. (6 marks) (Total: 20 marks) QUESTION FOUR Blaze Sports Club is a members only club. The club generates income through member subscriptions, bar sales and sale of sports shoes. The following information relates to Blaze Sports Club for the year ended 30 September 2022: Statement of affairs as at 1 October 2021: Additional information: 1. The building was constructed by the club and completed on 30 September 2021. It was commissioned on 1 October 2021 and was estimated to have a useful life of 40 years. 2. Life membership subscriptions are brought into income equally over 10 years in a scheme that begun a few years ago. Since the scheme began, the subscription of Sh.3,000,000 per person has been constant. Prior to the year ended 30 September 2022, eleven (11) life membership subscriptions had been received. 3. As at 30 September 2022, closing bar inventory was valued at Sh.12,750,000 and Sh.1,200,000 was due to the bar suppliers. 4. Four annual subscriptions of Sh.300,000 each had been promised relating to the year ended 30 September 2021, but had not yet been received. Annual subscriptions promised, but not paid, are carried forward for a maximum of 12 months and written off thereafter. 5. As at 30 September 2022, inventory of sports shoes

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CERTIFIED INVESTMENT AND FINANCIAL ANALYSTS DECEMBER 2022 PAST PAPERS

FINANCIAL ACCOUNTING DECEMBER 2022 PAST PAPER – Click to view PROFESSIONAL ETHICS AND GOVERNANCE DECEMBER 2022 PAST PAPER – Click to view REGULATION OF FINANCIAL MARKETS DECEMBER 2022 PAST PAPER – Click to view ECONOMICS DECEMBER 2022 PAST PAPER – Click to view QUANTITATIVE ANALYSIS DECEMBER 2022 PAST PAPER – Click to view INTRODUCTION TO FINANCE AND INVESTMENTS DECEMBER 2022 PAST PAPER – Click to view PORTFOLIO MANAGEMENT DECEMBER 2022 PAST PAPER – Click to view EQUITY INVESTMENTS ANALYSIS DECEMBER 2022 PAST PAPER – Click to view CORPORATE FINANCE DECEMBER 2022 PAST PAPER – Click to view PUBLIC FINANCE AND TAXATION DECEMBER 2022 PAST PAPER – Click to view LEADERSHIP AND MANAGEMENT DECEMBER 2022 PAST PAPER – Click to view FIXED INCOME INVESTMENTS ANALYSIS DECEMBER 2022 PAST PAPER – Click to view ALTERNATIVE INVESTMENTS ANALYSIS DECEMBER 2022 PAST PAPER – Click to view ADVANCED PORTFOLIO MANAGEMENT DECEMBER 2022 PAST PAPER – Click to view DERIVATIVES ANALYSIS DECEMBER 2022 PAST PAPER – Click to view

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DEBT RECOVERY MANAGEMENT DECEMBER 2022 PAST PAPER

TUESDAY: 6 December 2022. Afternoon Paper. Time Allowed: 3 hours. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper. QUESTION ONE 1. Distinguish between “debt management” and “debt protection plan”. (4 marks) Outline FOUR elements of a debt management plan. (4 marks) 2. Identify THREE instances when mediation is deemed to have been terminated. (6 marks) 3. Describe THREE instances where the provisions of modern laws on cross border insolvency by United Nations Commission on International Trade Law (UNCITRAL) are applicable in your country jurisdiction. (6 marks) (Total: 20 marks) QUESTION TWO 1. With reference to Insolvent Act 2015, state FOUR characteristics of a company in financial distress. (4 marks) 2. Explain THREE ways that could be used to expel a partner in a partnership. (6 marks) 3. Describe the process of raising complaints against a licensed auctioneer. (10 marks) (Total: 20 marks) QUESTION THREE 1. Enumerate FOUR techniques used to avoid bankruptcy. (4 marks) 2. With reference to alternatives to bankruptcy: Explain the term “summary instalment order”. (2 marks) State SIX types of information contained in an application for summary installment order. (6 marks) 3. Examine FOUR general principles of Alternative Dispute Resolution (ADR). (8 marks) (Total: 20 marks) QUESTION FOUR 1. Explain the following terms: Foreign limited partnership. (2 marks) Stay of legal proceedings. (2 marks) 2. Mauzo Sacco is an employee-based Sacco for employees of DTN Company Limited. DTN Company Ltd. deals in manufacturing and packaging business at the EPZ industrial park. The company’s major source of raw materials is Eastern Europe. Due to the ongoing Russia-Ukraine war, the firm has been out of production since Mid-March 2022. Barley, a major raw material, has been in short supply. Due to these disruptions, the employees have not been paid for the last six months. A corporate loan of Sh.400 million and suppliers bills of Sh.2 billion are outstanding. The net salaries and Sacco employees’ deductions to the Sacco for six months have not been paid. Some of the creditors have applied for creditors’ liquidation as a way of recovering their debts. Required: As an expert in debt management appointed by the Chief Executive Officer of the Sacco, assess FOUR effects of liquidation on the outstanding employees’ compensation (8 marks) 3. Describe FOUR offences under the Insolvency Act, 2015 for which an undischarged bankrupt could be found liable. (8 marks) (Total: 20 marks) QUESTION FIVE 1. List FOUR circumstances that may lead to a break-up of a partnership. (4 marks) 2. Examine FOUR aspects that are generally covered by insolvency law in your country. (8 marks) 3. Describe FOUR features that would be embedded in a security rights system to protect the interests of persons who avail immovable property as security. (8 marks) (Total: 20 marks)

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