Technician - QA December 2016

CHARTERED ACCOUNTANTS EXAMINATIONS
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TECHNICIAN LEVEL
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T1: FINANCIAL ACCOUNTING

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MONDAY 12 DECEMBER 2016
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TOTAL MARKS – 100: TIME ALLOWED: THREE (3) HOURS
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INSTRUCTIONS TO CANDIDATES
1. You have fifteen (15) minutes reading time. Use it to study the examination paper
carefully so that you understand what to do in each question. You will be told when to
start writing.
2. This paper is divided into TWO sections:
Section A: Ten (10) multiple choice Compulsory questions.

Section B: FIVE (5) Optional questions. Attempt any FOUR (4) questions.
3. Enter your student number and your National Registration Card number on the front of
the answer booklet. Your name must NOT appear anywhere on your answer booklet.
4. Do NOT write in pencil (except for graphs and diagrams).
5. Cell Phones are NOT allowed in the Examination Room.
6. The marks shown against the requirement(s) for each question should be taken
as an indication of the expected length and depth of the answer.
7. All workings must be done in the answer booklet.
8. Present legible and tidy work.
9. Graph paper (if required) is provided at the end of the answer booklet.
1
SECTION A
Attempt all the Ten (10) Multiple choice questions in this Section.
QUESTION ONE
1.1 Income prepaid at the year-end is treated in the statement of financial position as
A. A current liability
B. Non -current asset
C. Current asset
D. Non- current liability
(2 marks)
1.2 What is the source document for the purchases journal
A. Original invoice
B. Credit note
C. Debit note
D. Copy invoice (2 marks)
1.3 V Mulenga sub-let part of his building to C Owen. During the year of 31 March 2015, he
received rent of K20,000. C Owen owed Mulenga K10,000 on 31 March 2014 and made
a prepayment at 31 March 2015 of K5,000.
Calculate how much rental income will go in the income statement.

A. K25,000
B. K15,000
C. K5,000
D. K20,000 (2 marks)
1.4 An error in which a transaction is completely omitted from the books of account is
known as:
A. Error of compensation
B. Error of original entry
C. Error of omission
D. Error of principle (2 marks)
1.5 The opening assets and liabilities for Bebe Women’s Cricket club as at 1 January 2015
were as follows:
Buildings K500,000, Inventory in the bar K20,000, Cash at bank K50,000, Subscriptions
in arrears K10,000, Owings to bar suppliers K10,000.
Calculate the value of accumulated funds.

A. K570,000
B. K550,000
C. K580,000
D. K500,000 (2 marks)
2
1.6 Which of the following ratios is not one of the investor’s ratios?
A. P/E ratio
B. EPS
C. Acid test ratio
D. Dividend yield (2 marks)
1.7 When preparing a statement of cash flow, an increase in receivables is treated as:
A. A cash inflow
B. A cash outflow
C. A liability
D. A financing activity (2 marks)
1.8 Mutale is a sole trader whose financial year ends on 31 December 2014. The following
figures were extracted from his books at the end of the year in order to calculate the
gross profit. Opening inventory 1 January 2014, K30,000, Closing inventory 31
December 2014, K60,000, Purchases K100,000 and carriage inwards K10,000.
The business uses a margin rate of 20% to calculate its profit. Find the value of the
sales figure.
A. K100,000
B. K16,000
C. K96,000
D. K80,000 (2 marks)
1.9 Which of the following statement is not true?
A. Assets = Capital – Liabilities

B. Capital = Assets – Liabilities
C. Assets = Capital + Liabilities
D. Liabilities = Assets – Capital (2 marks)
10.0 The abbreviation IASB in accounts stands for:
A. International Auditing Standards Board

B. International Accounting Supervisory Board
C. Internal Accounting Standard Board
D. International Accounting Standards Board (2 marks)
[Total: 20 Marks]
3
SECTION B
Attempt any four (4) questions in this Section
QUESTION TWO
Wezi’s ledger accounts balances extracted for the year ended 31 March 2013.
K’000
Sales 84,000
Returns outwards 2,300
Purchases 50,500
Discount allowed 3,200
Returns inwards 2,500
Discount received 2,100
Inventory at 1 April 2012 14,000
Motor van, at cost 15,500
Office equipment 12,600
Provision for depreciation on:
Motor van 1 April 2012 6,200
Office equipment 1 April 2012 2,394
Rent and rates (For 18 months) 5,400
Salaries and wages 20,700
Sundry expenses 4,200
Bad debts 2,000
Provision for doubtful debts 1 April 2012 1,500
Motor van running expenses 5,900
Receivables 14,800
Payables 11,100
Bank overdraft 10,200
Cash 8,800
Drawings 9,000
Capital 49,306
The following notes relate to Wezi as at 31 March 2013.
1. Closing inventory was valued at K18,100,000.

2. Cash purchases of K500,000 were completely omitted from the books of account.
3. Salaries and wages of K2,400,000 were accrued at the year end.
4. Rent and rates shown in the list of balances above includes a six months prepayment to
30 September 2013.
5. Make an allowance for bad debts of 10 % on receivables
6. Depreciation:
- Included in the cost of Motor van is a van which was bought on 1 April 2010 at a
cost of K1,000,000. This van was sold for cash on 30 September 2012 for
K1,500,000 and the cash amount was not included in the books of accounts.
4
The firm depreciates motor vans at 20% per annum on cost, using one month’s
ownership.
- Office equipment is to be depreciated at 10 per cent using reducing balance
method .
Required:
(a) Prepare Wezi’s statement of comprehensive income for the year ended 31 March
2013.
(12 marks)
(b) Prepare Wezi’s statement of financial position as at 31 March. 2013. (8 marks)

[Total: 20 Marks]
QUESTION THREE
A friend of yours Dalitso, who runs a small business at Kitwe’s Mukuba Mall selling assorted
Kitchenware, has recently been visited by officers from the Zambia Revenue Authority (ZRA)
during their usual tax audits to determine compliance with tax law.
Upon review and inspection of his records, ZRA officers discover that Dalitso does not keep a
full set of accounting records making it difficult for them to assess his business tax liability.
However, the following information has been produced from the business’s records.
1. Assets and liabilities at 1 July 2015 were as follows

K
(i) Motor Van at cost 50,000
(ii) Motor Van accumulated depreciation 40,000
(iii) Inventory at cost 24,500
(iv) Trade accounts receivable 36,600
(v) Trade accounts payable 23,500
(vi) Rent accrued 1,000
(vii) Insurance prepaid 800
2. Inventory at cost on 30 June 2016 was valued at K29,500.
3. At 30 June 2016, trade accounts receivables amounted to K47,500.
4. Trade accounts payable at 30 June 2016 related entirely to goods received whose list
prices totaled K12,950.
5. Rent due at 30 June 2016 amounted to K1,300 whilst insurance prepared totaled
K1,000.
6. All receipts are banked and all payments are made from the business bank account.
5
7. A trade debt of K1,500 owing by Chisha Chibiliti and included in the trade accounts
receivable at 30 June 2016 (see (3) above), is to be written off as a bad debt.
8. On 6th July 2015, bought another motor van from a reputable car dealer in Kalulushi
District costing K65,000.
9. It is Dalitso’s policy to provide depreciation at the rate of 20% on the cost of motor vans
held at the end of each financial year; no depreciation is provided in the year of sale or
disposal.
10. Discounts received during the year ended 30 June 2016 from trade accounts payable
totaled K5,500.
11. A summary of the bank account for the year ended 30 June 2016 is set out as follows.
Dr Bank Account Cr
K K
1st July 2015 Bal b/f 9,850 Payments to suppliers 360,000
Cash from trade receivables 480,000 Purchase of motor van 65,000
Sale of private House 100,000 Rent 13,000
Sale of motor van 10,500 Wages 75,500
Motor vehicle expenses 16,750
Postage and stationery 6,800
Drawings 46,000
Repairs and renewals 3,250
Insurances 4,000
30 June 2016 balance c/f 10,050
600,350 600,350
Required:
(a) Prepare Dalitso’s Income Statement for the year ended 30 June 2016 and;
(10 marks)
(b) A Statement of Financial Position as at that date. (10 marks)
[Total: 20 Marks]
QUESTION FOUR
Mwiza and Wezi are in a partnership sharing profits and losses in the ratio 2:3
Required:
(a) Give five (5) characteristics of a partnership. (5 marks)

(b) List five (5) contents of the partnership agreement. (5 marks)
6
(c) Explain the difference between a sole trader and a partnership. (2 marks)
(d) List four (4) advantages of a sole trader and four (4) advantages of a partnership.
(8 marks)
[Total: 20 Marks]
QUESTION FIVE
The financial statements of Zombe Plc have been prepared below for two years:
Zombe Plc
Statement of profit or loss for the year ended 31 December 2015.

K
Revenue 12,765
Cost of sales (9,070)
Gross profit 3,695
Distribution costs (625)
Administrative expenses (1,320)
1,750
Interest received 125
Interest paid (375)
Profit before taxation 1,500
Taxation (700)
Profit for the year __800
Zombe PLC
Statement of financial position as at 31 December 2015
2015 2014
Non-current assets: K K
Property, plant and equipment 1,900 1,525
Intangible assets 1,250 1,000
Investments ____- __125
3,150 2,650
Current assets:
Inventories 750 510
Receivables 1,950 1,575
Short-term investments 250 -
Cash in hand ___10 ____5
2,960 _2,090
Total assets 6,110 4,740
Equity and liabilities:

Equity:
Share capital K1 ordinary shares 1,000 750
7
Share premium 800 750
Revaluation reserves 500 455
Retained earnings 1,300 900
Total assets 3,600 2,855
Non-current liabilities
Loan 850 250
Current liabilities
Trade payables 635 595
Bank overdraft 425 490
Taxation _600 _550
1,660 1,635
Total equity and liabilities 6,110 4,740
The following additional information is available:
(i) The proceeds of the sale of non-current asset investments amounted to K150,000.
(ii) Fixtures and fittings, with an original cost of K425,000 and a carrying amount of
K225,000 were sold for K160,000 during the year.
(iii) The following relates to property, plant and equipment:
31 Dec 2015 31 Dec 2014

K K
Cost 3,600 2,975
Accumulated depreciation 1,700 1,450
Carrying amount 1,900 1,525
(iv) 50 000 K1 ordinary shares were issued during the year at a premium of K100 per share.
(v) Dividends amounting to K400,000 were paid during the year.
Required:
Prepare the cash flow statement in accordance with IAS 7 (Statement of cash flows).
[Total: 20 Marks]
8
QUESTION SIX
You are the Accountant of FDC Company. On 1 October 2014 while checking the books, you
ascertain that the receivables ledger balances were K40,120 debit and K285 credit, and the
payables ledger balances on the same date K31,175 credit and K525 debit.
The following are available for the year ended 30 September 2015.
K
Sales 318,640
Purchases 199,870
Cash from trade accounts receivables 276,060
Cash to trade accounts payables 186,535
Returns inwards 5,010
Returns outwards 2,675
Irrecoverable debts written off 1,630
Cash received to settle the debit balances in payable ledger 525
Amount due from customers in receivable ledger
Offset against amount due to the same firm shown in payables ledger 2,170
Allowances to customers on goods damaged in transit 1,060
On 30 September 2015 there were no credit balances in the receivable ledger except those
outstanding on 1 October 2014 and no debit balances in the payables ledger.
Required:
(a) Write up the receivable control account bringing down the balances as on September
2015. (7½ marks)
(b) Write up the payables control account. (6½ marks)
(c) A property company received cash for rent totaling K419 300 in the year ended 31
December 2015.
Figures for rent in advance and in arrears at the beginning and end of the year were:
31 Dec 14 31 Dec 15
K K
Rent received in advance 51,300 44,350
Rent in arrears (all subsequently received) 21,150 24,200
9
Required:
Calculate the amount for rental income at 31 December 2014. (6 marks)
[Total: 20 Marks]
END OF PAPER
10
December 2016 Examinations
T1 SOLUTIONS
SECTION A
SOLUTION ONE
1.1 A
1.2 A
1.3 C
1.4 C
1.5 A
1.6 C
1.7 B
1.8 A
1.9 A
1.10 D
11
SECTION B
SOLUTION TWO
a) Wezi’s statement of profit or loss account for the Year ended 31 March 2013
K’000 K’000
Sales 84,000
Less sales returns 2,500
Net sales 81,500
Less cost of sales

Opening inventory 14,000
Purchases (50,500 + 500) 51,000
Less returns inwards (2,300)
Less Closing inventory (18,100)
Cost of sales 44,600
Gross Profit 36,900
Add gains:
Decrease in provision for bad debts (1,500 – 1,480) 20
Profit on disposal of the Van (W 1) 1,000
Total income 40, 020
Less expenses:

Rent and rates (5,400 - 1,800) 3,600
Salaries and wages (20,700 + 2,400) 23,100
Sundry expenses 4,200
Bad debts 2,000

Motor van running expenses 5,900
Depreciations:
Motor van (15,500 – 1000 x 0.2 +100) 3,000
Office equipment (12,600 – 2,394 x 0.1) 1,021
Total expenses 46,021
Net Loss (6,001)
Workings
1. Van Disposal account

K’000 K’000
Van 1,000 Accumulated depreciation 500
Profit 1,000 Sale proceeds 1,500
2,000 2,000
12
Accumulated depreciation on disposed van
1 April 2010 - 31st March 2011 20% x 1000,000 = 200,000

st
1 April 2011 - 31 March 2012 20% x 1000,000 = 200,000
1 April 2012 - 30 Sep 2012(disposal) 20% x 1000,000 x 6/12 = 100,000
500,000
b) Wezi’s statement of financial position as at 31 March 2013

K’000 K’000 K’000
Non-current assets: Cost Dep NBV
Motor van 14,500 8,700 5,800
Office equipment 12,600 3,415 9,185
27,100 12,115 14,985
Current assets:
Closing inventory 18,100
Receivables (14,800 – 1,480) 13,320
Cash in hand (8,800 – 500 + 1,500) 9,800
Rent and rates prepaid 1,800
43,020
Total assets 58,005
Total equity and liabilities
Financed by:
Capital 49,306
Less Loss (6,001)
43,305
Less drawings (9,000)
34,305
Non-current Liabilities
Nil nil nil
Current liabilities
Payables 11,100
Bank overdraft 10,200
Salaries and wages owing 2,400
23,700
Total equity and liabilities 58,005
13
SOLUTION THREE
Dalitso
Income Statement for the period ended 30 June 2016
K K
Sales (W2) 490,900
Opening Inventory 24,500
Purchases (W3) 354,950
379,450
Less closing inventory (29,500)
Cost of Sales (349,950)
Gross profit 140,950
Discounts received 5,500
Profit on disposal of motor vehicle (W6) 500
146,950
Less Expenses
Rent and rates (W4) 13,300
Wages 75,500
Motor Vehicle Expenses 16,750
Postages and stationery 6,800
Repairs and renewals 3,250
Insurances (W5) 3,800
Bad Debt 1,500
Depreciation (W7) 13,000
(133,900)
Net Profit 13,050
(a) Dalitso
Statement of Financial Position as at 30 June 2016
K K
Non-Current Assets
Motor vehicles: Cost 65,000
Depreciation (13,000)
52,000
Current Assets
Inventory 29,500
Receivables (W8) 46,000
Prepayment 1,000
Cash at bank 10,050
86,550
Current Liabilities
Payables 12,950
Accruals 1,300
14,250
Net Assets 72,300
Total Assets 124,300
14
Capital Account
Balance at 1 July 2015 (W1) 57,250
Additional Capital: Sale of Private House 100,000
Net profit for the year 13,050
Less Drawings (46,000)
Retained loss for the year (32,950)
Balance as at 30 June 2016 124,300
Notes and workings
1. Capital as at 1st July 2015

K
Assets
Motor Van (50,000 – 40,000) 10,000
Inventory 24,500
Trade receivables 36,600
Prepayment 800
Bank Balance 9,850
81,750
Less Liabilities
Trade payables (23,500)
Accruals (1,000)
57,250
2. Determination of trade receivables
Receivables Control Account

K K
Balance b/f 36,600 Bank 480,000
: . Sales 490,900 Balance c/f 47,500
527,500 527,500
3. Determination of trade payables
Dr Payables Control Account

K K
Bank 360,000 Balance b/f 23,500
Discounts Received 5,500
Balance c/f 12,950 . : Purchases 354,950
378,450 378,450
4. Determination Rent and Rates

Dr Rent and Rates Cr
K K
Bank 13,000 Balance b/f 1,000
15
Balance c/f 1,300 . : Income Statement 13,300
14,300 14,300
5. Determination of Insurances
Dr Insurance Account Cr
K K
Balance b/f 800 : . Income Statement 3,800
Bank 4,000 Balance c/f 1,000
4,800 4,800
6. Profit on disposal of Motor Vehicle

K
Proceeds on disposal 10,500
Less Net Book Value K(50,000 – 40,000) (10,000)
500
7. Depreciation on Motor Van = K65,000@20%

= K13,000
8. Receivables
K
Balance as per schedule 47,500
Less Bad Debt (1,500)
46,000
SOLUTION FOUR
(a) (i) It is formed to make a profit.
(ii) It must obey the partnership Act 1890.
(iii) It should have a minimum of 2 partners and maximum of 20 partners.
(iv) Each partner must pay their share of any debts the partnership cannot pay.
(v) Partners who are not limited partners are known as general partners.
(b) (i) Capital to be contributed by each partner.
(ii) The ratio in which profits or losses are to be shared.
(iii) Rate of interest to be paid on capital if any before the profits are shared.
(iv) Rate of interest to be charged on partners drawings.
16
(v) Salaries to be paid to partners.
(vi) Arrangements for the admission on new partners.
(vii) When a partner retires or dies the procedures to be carried out.
(Any five points)
(c) A sole trader is a business owned and run by one individual employing one or two
assistants and controlling their work while a partnership is an arrangement between
individuals (two or more) to carry on business in common with a view to profit.
(d) Advantages of a sole trader
(i) Limited paper work and therefore cost less in establishing the structure.
(ii) Owner has complete control over the business.
(iii) Owner is entitled to profits and assets.
(iv) Less stringent/complex reporting obligations.
Advantages of partnership
(i) Additional capital can be raised because more people are investing in the
business.
(ii) Division of roles and responsibilities.
(iii) Sharing of risk and losses between more people.
(iv) No company tax on the business (profits to partners then subject to personal
tax).
SOLUTION FIVE
Zombe Plc
Statement of cash flows for the year ended 31 December 2015
K K
Net cash flows from operating activities:
Profit before tax 1 500
Add back non-cash items:
Depreciation charge (w1) 450
Interest expense 250
Loss on sale of PPE (225 – 160) 65
Profit on sale of non-current asset investment (150 – 125) (25)
Changes in working capital:
Increase inventories (240)
17
Increase in receivables 375)
Increase in payables __40
Cash generated from operating activities 1 665
Interest received 125

Interest paid (375)
Dividend paid (400)
Tax paid (w3) (650)
Net cash flow from operating activities 365
Cash flows from investing activities:

Purchase of PPE (w2) 1 005
Purchase of intangible non-current assets (125 – 1 000) (250)
Proceeds from sale of PPE 160
Proceeds from sale of non-current investment 150
Net cash flows from investing activities (945)
Cash flows from financing activities:

Issue of share capital (1 000 + 800 – 750 – 750) 300
Long term loan (850 – 250) 600
Net cash flows from financing 900
Increase in cash and cash equivalents 320
Cash and cash equivalent at 1 Jan 2014 (485)
Cash and cash equivalent at 31 December 2015 (165)
Workings:
K
1. Depreciation charge:
Depreciation at 31 December 2015 1 700
Depreciation at 31 December 2014 1 450
Depreciation on assets sold (425 000 – 225 000) 200
1 250
Charge for the year __450
2. Purchase of property, plant and equipment
1 Jan 15 Balance b/f 2 975 Disposal 425

Revelation (500 – 455) 45
Purchases (balance fig) 1 005 Balance c/d 3 600
4 025 4 025
Tax Paid
31 Jan Tax paid (balance 650 1 Jan 15 Balance b/f 550
15 fig)
Balance c/d _600 P&L 700
1 250 1 250
SOLUTION SIX
18
(a) Receivable Control Account
2014 K 2014 K
Oct 1 Balance b/f 40 120 Oct 1 Balance b/f 285
2015 2015
Sep Sales 318 640 Sep Cash received from
30 30 Credit customers 276 060
Balance c/f 285 Discount allowed 11 640
Returns inwards 5 010
Irrecoverable debts written 1 630
off
Contra payables control 2 170
Account
Allowance on damaged goods 1 060
Balance c/f 61 190
______ _______
359 045 359 045
(b) Payables Control Account
2014 K 2014 K
Oct 1 Balances 525 Oct 1 Balance b/f 31 175
2015 2015
Sep Cash paid to suppliers 186 Sep Purchases 199
30 535 30 870
Discount received 7 375 Cash 525
Returns outwards 2
675
Contra receivable control 2 170
A/c.
Balance c/f 32 290
______ _____
231570 23170
(c) Rental Income

K K
Arrears b/f 21 150 Prepayments/f 51 300
Statement of profit and loss 429 300 Received 419 300
Prepayments c/f _44 350 Arrears c/f _24 200
494 800 494 800
END OF SOLUTIONS
19
__________________________
TECHNICIAN LEVEL
__________________________
T2: COST ACCOUNTING

__________________________
TUESDAY 13 DECEMBER 2016
__________________________
TOTAL MARKS – 100; TIME ALLOWED: THREE (3) HOURS

__________________________
start writing.

Section A: Ten (10) multiple choice Compulsory questions.
Section B: Five (5) Optional Questions. Attempt any four (4) questions.
6. The marks shown against the requirement(s) for each question should be taken as an
indication of the expected length and depth of the answer.
20
Section A – Multiple choice
Attempt ALL multiple choice questions in this section.
Question one
Each of the following questions has only one correct answer. Write the LETTER of the correct
answer you have chosen in your answer booklet. Marks allocated are indicated against each
question.
1.1 Over which of the following is the manager of a profit centre likely not to have
control?
(i) Selling price

(ii) Controllable costs
(iii) Apportioned fixed office costs
(iv) Capital investment in the centre
A. All of the above

B. (iii) and (iv)
C. (i), (iii) and (iv)
D. (ii), (iii) and (iv) (2 marks)
1.2 A production worker is paid a salary of K1000 per month, plus an extra K50 for each unit
produced during the month. How is this type of labour cost best described?
A. A variable cost
B. A fixed cost
C. A step cost
D. A semi-variable cost
(2 marks)
1.3 Which one of the following source documents in the area of cost Accounting is aimed at
exercising control over the delivery and accurate recording of the receipt of goods?
A. Purchase requisition
B. Order to the supplier
C. Goods received note
D. Materials requisition
(2 marks)
21
1.4 The demand for a product is 25, 000 units semi- annually. Each unit of the product has
a purchase price of K15, and ordering costs are K20 per order placed.
The annual holding cost of one unit of product is 10% of the purchase price.
What is the economic order quantity (to the nearest unit)?
A. 258
B. 816
C. 1155
D. 2828
(2 marks)
1.5 A manufacturing firm is very busy and over time is being worked.
How would the amount of over time premium contained in direct wages normally be
classified?
A. Part of prime cost
B. Factory overheads
C. Direct labor costs
D. Administrative overheads.
(2 marks)
1.6 Which of the following statements about the absorption rates is false?
(i) Using a pre-determined absorption rate avoids problem of under/over absorption

of overheads because a constant overhead rate is available.
(ii) Using a predetermined absorption rate offers the administrative convenience of
being able to record full production costs sooner.
A. (i) only
B. (ii) only
C. All of the above
D. None of the above.
(2 marks)
1.7 Product Y has a standard direct material cost of K100 per unit (5 Kg @ K20 per Kg).
During the third period, 1000 units of Y were manufactured, using 5, 850 Kg of material
Z which cost K98, 600.
What is the material total variance?

A. 18, 400 (F)
B. 17, 000 (A)
C. 1, 400 (F)
D. 18, 400 (A)
(2 marks)
22
1.8 The overhead absorption rate for product T is K5 per machine Hour. Each product of T
requires 2 machine hours. The inventory of product T last period was:
Units
Opening inventory 2, 400
Closing inventory 2, 700
Compared with the marginal costing profit for the period, the absorption costing profit
for product T will be:
A. 3, 600 higher
B. 3, 600 lower
C. 3, 000 higher
D. 3, 000 lower
(2 marks)
1.9 A company needs to produce 400 units of chemical X. There is a normal loss of 10% of
the material input into the process. During a given month, the company did produce 400
units of good production although there was an abnormal loss of 10% of the material
input into the process.
How many liters of material were input into the process during the month?
A. 400 units
B. 440 units
C. 480 units
D. 500 units
(2 marks)
1.10 A product has the following costs per unit.
Direct material 8.00

Direct labor 6.00
Direct expenses 3.00
Variable overhead 10.00
Fixed overhead 12.00
What is the prime cost per unit of the product?

A. K8.00
B. K14.00
C. K17.00
D. K27.00
(2 marks)
[Total: 20 Marks]
23
SECTION B
Attempt any FOUR (4) out of FIVE (5) questions in this section.
QUESTION TWO
Sanembo Limited (SL) is an Engineering organization and has budgeted for the following
production overheads for its three production cost centres and three service cost centres for the
coming year:
Cost Centre K
Machining 36,000
Assembly 32,000
Paint shop 26,000
Engineering shop 16,800
Stores 9,000
Canteen 14,000
The product passes through the machining, Assembly and Paint shop cost centres and the
following data relates to the cost centres:
Machining Assembly Paint Eng. Stores

shop shop
Number of employees 75 55 50 35 35
Engineering shop-service house 1,800 1,200 1,000 - -
Stores (orders) 20 15 10 5 -
The following budgeted data relates to the production cost centres:
Machining Assembly Paint

shop
Machining hours 9,200 8,100 6,600
Labour hours 8,300 11,250 9,000
Required:
(a) Apportion the production overhead costs of the service cost centres to the production
cost centres and determine predetermined overhead absorption rates for the three
production cost centres using the most appropriate basis.
(12 marks)
(b) Actual results for the production cost centres were:
Machining Assembly Paint shop

Machine hours 10,000 8,200 6,600
Labour hours 4,500 7,800 6,900
Actual overheads K58,000 K33,400 K3,000
24
Required:
Prepare a statement showing the under/over absorption per cost centre for the period under
review. (8 marks)
[Total: 20 Marks]
QUESTION THREE
OLA Co Plc is a manufacturer of a product used in the Sports industry. The product is
assembled from various parts and the production operatives are paid on a piece work basis.
However the company is concerned with the high rates of rejects from the operatives and thus,
has altered the piece work payment scheme by charging a penalty of 20% of the equivalent
good unit production rate on rejects made by any of the operatives. This penalty is charged
against an operative total earned income from good units produced.
The piece work scheme to be applied to all good products in a week is as follows:
0 – 100 units K4/unit.
101 – 200 units K4.8/unit.
201 – 300 units K5.6/unit.
Over 300 units K6.4/unit
It should be noted that only additional units qualify for the higher rates in both cases (i.e. Good
units and Rejects).
The following output was achieved by three operatives during the week ending 31st May, 2016:
Operative E S J
Units Units Units
Output (excluding Rejects) 520 600 480
Rejects 119 162 100
Required:
(a) Calculate separately the earnings of each operative E, S and J for the week ending 31st
May, 2016. (14 marks)
(b) Which operative has the lowest penalty and how much was it? (2 marks)
(c) State two (2) advantages and two (2) disadvantages to an employer if they use a piece
work scheme. (4 marks)
[Total: 20 Marks]
25
QUESTION FOUR
Damu Limited is having difficulty costing its inventory to the various jobs that it is used on. The
inventory is bought in bulk and recent receipt and issues have been:
March 1 balance b/f 200 kgs at K40 per kg

March 3 Receipts 400 kgs at K50 per kg
March 9 Issue 500 kgs
March 14 Issues 700 kgs
Required:
(a) Calculate the cost of issued inventory for the first two weeks of March and calculate the
value of the closing inventory at the end of the two weeks period on the following
bases: (All workings must be shown).
(i) Last in first out (L.I.F.O) (6 marks)

(ii) Weighted Average (7 marks)
(b) Damu Limited is reviewing its inventory control policy with regard to materials. You are
told that the cost of making one order is K100, the cost of holding one Kilogram for one
year is K0.25 and the annual demand for materials is 80 000 kilos. There is neither lead
time nor buffer inventory.
(i) Determine the Economic order quantity (EOQ)

(ii) Calculate the annual holding costs and annual ordering costs using the EOQ.
(Show the formula in each part)
(7 marks)
[Total: 20 Marks]
QUESTION FIVE
A company produces and sells one product only. The standard variable cost for one unit of the
product is:
K
Direct material 11 litres at K2 per litre 22
Direct labour 5 hours at K6 per hour 30
Variable production overhead 10
Total standard variable cost 62
Standard contribution 58
Standard selling price 120
The variable production overhead is incurred in direct proportion to the direct labour hours
worked. The budgeted sales volume for May 2016 was 2,000 units.
26
The following were the actual results recorded during the month of May:
Number of units produced and sold: 1,750 units

K K
Sales revenue 218,750
Direct materials: 19,540 litres purchased and used 41,034
Direct labour: 8,722 hours 47,971
Variable production overhead 26,166
(115,171)
Contribution 103,579
Required:
(a) Calculate the following operating variances:
(i) Direct material price variance

(ii) Direct material usage variance
(iii) Direct labour rate variance
(iv) Direct labour efficiency variance
(v) Variable production overhead expenditure variance
(vi) Sales price variance
(11 marks)
(b) Prepare a statement which reconciles the budgeted and actual contribution for May
2016. (9 marks)
[Total: 20 Marks]
QUESTION SIX
You work as an Accountant in an organisation called Bunde Bwa Lapa Procurement Specialist
(BBLPS), a company specialised in general procurement on behalf of the Government of Zee
Land. Your boss has just come back from a Procurement Workshop where several cost
accounting terms and principles were used and did not fully understand their meaning.
Required:
Clearly explain to him each of the following terms and principles and where possible state how
they can be calculated:
(a) Three key principles of a Just in time (JIT) procurement system. (3 marks)
(b) Two key principles of the Economic Order Quantity (EOQ) inventory control system
(5 marks)
(c) Three key principles of an Activity Based costing (ABC) system (3 marks)
(d) An Investment Centre (2 marks)
27
(e) Labour turnover (3 marks)
(f) The difference between FIFO and LIFO methods of inventory valuation (2 marks)
(g) The difference between scrap units and by - products in process costing (2 marks)
Total:20 Marks]
END OF PAPER
28
T2 SOLUTIONS
SOLUTION ONE
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10
B D C C B A C C D C
SOLUTION TWO
(a) Overhead Analysis Statement
Productions Cost Centres Service Cost Centres

Machi- Assembly Paint Enginee stores Canteen
ning shop ring
K K K K K K
Initial Overheads 36 000 32 000 26 000 16 800 9 000 14 000
Re-apportion Canteen (No of Emp) 4 200 3 080 2 800 1 960 1 960 (14 000)
Re-apportion stores (orders) 4 384 3 288 2 192 1 096 (10 960)
Re-apportion Engineering (hours) 8 935 5 957 4 964 (19 856)
53 519 44 325 35 956
9 200 - -
- 11 250 9 000
5.82 3.94 4.00
Per Per Per
m/c labour labour
hour hour hour
(b) Under/over absorption statement

Productions Cost Centres
Machining Assembly Paint shop
K K K
Absorbed overheads (OAR x Activity hours). 58 200 30 732 27 600
Actual overheads 58 000 33 400 31 000
Under/(over) Absorbed (200) 2 668 3 400
29
SOLUTION THREE
E S J
Good units 520 600 480
0 – 100 4 X 100 = 400 4 X 100 = 400 4 X 100 = 400
101 – 200 4.8 X 100 = 480 4.8 X 100 = 480 4.8 X 100 = 480
201 – 300 5.6 X 100 = 560 5.6 X 100 = 560 5.6 X 100 = 560
Above 300 6.4 X 220 = 1, 408 6.4 X 300 = 1, 920 6.4 X180=1,152
Total wage 2, 848 3, 360 2, 592
Rejects 119 162 100
20% X K4 X 100 = 80 20% X K4 X 100 = 80 20% X K4 X 100 = 80
20% X 4.8 X 19 =18.24 20% X 4.8 X 62 = 59.52 -
Penalties 98.24 139.52 80
Net wage K2749.76 K3, 220.48 K2,512
B] Operative j and the penalty is K80
C] Advantages
 Only good output is paid for in this scheme.

 Employees are encourage to increase output ,particularly with differential scheme such
as that in use here .
 Labor costs per unit can be easily controlled.
Disadvantage
 Total labor costs increases with output.

 The employer does not benefit from a reduced unit cost for labor as output increases
 Employees may be encouraged to increase quantity at the expense of quality .
30
SOLUTION FOUR
(a) (i) Stores Ledger Card – LIFO Method
DATE RECEIPTS ISSUES INVENTORY BALANCE

MARCH QTY P A QTY P A QTY P A
1 Balance b/f 200 40 8 000
3 400 50 20 000 600 - 28 000
6 200 52 10 400 800 38 400
9 500 200 52 10 400
300 50 15 000 300 - 13 000
12 500 54 27 000 800 - 40 000
14 700 500 54 27 000
100 50 5 000
100 40 4 000 100 40 4 000
61 400
Summary
Cost of issues (10 400 + 15 000 + 27 000 + 5 000 + 4 000) = K61 400
Closing inventory 100 x K40 = K4 000
Stores Ledger Card – AVCO Method
DATE RECEIPTS ISSUES INVENTORY BALANCE

MARCH QTY P A QTY P A QTY P A
1 Balance b/f 200 40 8 000
3 400 50 20 000 600 - 28 000
6 200 52 10 400 800 48 38 400
9 500 48 24 000 300 - 14 400
12 500 54 27 000 800 51.75 41 400
14 700 51.75 36 225 100 51.75 5 175
60 225
Summary
Cost of issues (24 000 + 36 225) = K60 225

Closing inventory 100 x K5 1.75 = K5 175
(b) (i) EOQ = √2𝐷𝐶𝑂

h
= √2 𝑥 80 000 𝑥 100
0.25
31
= √16 000 000
0.25
= √64 000 000
= 8 000 kilos
(ii) Annual holding casts = EOQ x h

2
= 8 000 x 0.25
2
= K1 000
(i) Annual ordering costs = D_ x Co.

EOQ
= 80 000 x 100
8 000
= K1 000
SOLUTION FIVE
Direct material price variance

K
19,540 litres purchased should have cost ( x K2) 39,080
But did cost 41,034
Direct material price variance 1,954 adverse
Direct material usage variance

Litres
1,750 units produced should have used ( x 11 litres) 19,250
But did use 19,540
Variance in litres 290 adverse
x standard price per litre x K2
Direct material usage variance K580 adverse
Direct labour rate variance

K
8,722 hours should have cost ( x K6) 52,332
But did cost 47,971
Direct labour rate variance 4,361 favourable
Direct labour efficiency variance

Hours
1,750 units produced should take ( x 5 hours) 8,750
But did take 8,722
32
Variance in hours 28 favourable
x standard labour rate per hour x K6
Direct labour efficiency variance K168 favourable
Variable production overhead expenditure variance

K
8,722 hours of variable production overhead should cost ( x K2) 17,444
But did cost 26,166
Variable production overhead expenditure variance 8,722 adverse
Variable production overhead efficiency variance

Variance in hours (from labour efficiency variance) 28 favourable
x standard variable overhead rate per hour x K2
Variable production overhead efficiency variance K56 favourable
Sales price variance

K
1,750 units should sell for ( x K120) 210,000
But did sell for 218,750
Sales price variance 8,750 favourable
Sales volume contribution variance

Actual sales volume 1,750 units
Budget sales volume 2,000 units
Sales volume variance in units 250 adverse
x standard contribution per unit x K58
Sales volume contribution variance K14,500 adverse
Operating statement
Contribution reconciliation statement for May 2016
K K
Original budgeted contribution: 2,000 units x K58 116,000
Sales volume contribution variance (14,500)
Standard contribution from actual sales volume 101,500
Sales price variance 8,750
110,250
Cost variances
Direct material: price (1,954)
usage (580)
Direct labour: rate 4,361
efficiency 168
Variable production overhead: expenditure (8,722)
efficiency 56
Actual contribution 103,579
Note: Variances in brackets are adverse.
33
SOLUTION SIX
Part (a)
The JIT philosophy requires that products should only be produced if there is an internal or
external customer waiting for them. It aims ideally for zero stock
1. Closer relationships with suppliers maintained
2. Smaller and more frequent deliveries to plan and administrate
3. Higher quality machines with regular maintenance to avoid delays
4. Involvement and training of staff to maintain flexibility
Part (b)
The EOQ model determines a fixed quantity of stock to order which would minimise the total of
holding and ordering cost. A fixed quantity is ordered at variable intervals of time.
Part (c)
Activity based costing (ABC) looks in more detail about what causes fixed overhead to be
incurred and works out many ‘cost drivers’ (activities).
Steps in ABC:
1. Group types of fixed overhead together.

2. Calculate from fixed overhead cost pools a fixed overhead ‘cost per driver’.
3. Absorb fixed overhead using ‘multiple cost drivers’.
A cost driver is any factor that causes a change in the cost activity, so it is important to identify
a causal relationship between the cost driver and the cost.
34
Part (d)
An investment centre is similar to a profit centre but has also responsible for justifying, making
and then operating particular investments. Hence, an investment centre is responsible for the
selection and performance of particular investments. The core technique associated with this is
investment appraisal.
Part (e)
This is the number of employees leaving a company and being replaced in a given period.
Part (f)
FIFO (first in, first out) is used to price issues of goods or materials based on the cost of the
oldest units held, irrespective of the sequence in which the actual issue of units held takes
place. Closing stock is, therefore, valued at the cost of the oldest purchases while LIFO (last in,
first out) is 'used to price issues of goods or materials based on the cost of the most recently
received units. Cost of sales in the income statement is, therefore, valued at the cost of the
most recent purchases.'
Part (g)
Joint products are two or more products produced by the same process and separated in
processing, each having a sufficiently high saleable value to merit recognition as a 'main
product'. A by-product is a product which is similarly produced at the same time and from the
same common process as the 'main product' or joint products. The distinguishing feature of a
by-product is its relatively low sales value in comparison to the main product.
Sometimes the loss in process results in something that can be sold for a small fee. For
example in a wooden furniture manufacturer business, the sawdust may be sold for a small
amount. We call this fee the ‘scrap value’. Scrap units refer to discarded material having some
value.
END OF SOLUTIONS
35
________________________
TECHNICIAN LEVEL
________________________
T3: MATHEMATICS AND STATISTICS

________________________
WEDNESDAY 14 DECEMBER 2016

________________________

________________________
start writing.

Section A: Ten (10) Multiple Choice Compulsory Questions.
Section B: Five (5) Optional questions. Attempt any four (4) questions.
8. Formulae are provided in a separate booklet.
36
SECTION A
Attempt ALL Multiple choice questions in this section.
QUESTION ONE
1.1 Find the value of the expression

𝑚+𝑛 −1
√𝑚−2𝑛 , if 𝑚 = 2 𝑎𝑛𝑑 𝑛 =
2
A. 0.70
B. 0.177
C. 0.71
D. 7.1 (2 marks)
1.2 The price of a 5 liter container of cooking oil in the year 2016 is 45% higher than in the
year 2013. If the 2016 price is K120, calculate the price in 2013.
A. K54
B. 𝐾66
C. K74
D. K 82.76 (2 marks)
1.3 If 𝐴 and 𝐵 are two independent events, which of the following is not true?
A. P(A/B) = P(A)
B. P(A ∪ B) = P(A) × P(B)
C. P(B/A) = P(B)
D. The events A and B are said to be independent if the probability of event B occurring
is not influenced by event A occurring. (2 marks)
1.4 The correlation coefficient 𝑟 ranges between;

A. 0 and 1
B. -1 and 0
C. -1 and 1
D. Greater than 0 (2 marks)
1.5 At a discount rate of 10% the NPV is K9, 000.00 and at 12% the NPV is − K600.00. The
Internal Rate of return is
A. 12.14%
B. 12.28%
C. 10.08%
D. 11.88% (2 marks)
37
1.6 The value of 𝑥 satisfying the equation 2𝑥 2 − 6𝑥 − 13 = 0 is;
−6±√140
A. 4
6±√140
B. 2
6±√140
C. 4
−6±√140
D. 2
(2 marks)
1.7 Find the sum of money which is 𝐾500 when reduced by 10%
A. 𝐾555.56
B. 𝐾50.00
C. K450.00
D. K444.44 (2 marks)
1.8 New orders received by five salesmen last months were 5, 1, 3, 9, 7. Calculate variance
of the orders.
A. 10.5
B. 11
C. 3.2
D. 10 (2 marks)
1
1.9 Evaluate log 2
16
A. 8
B. -1.2
C. 32
D. -4 (2 marks)
1.10 A Financial institution on average receives two bad cheques in a year. What is the
probability that at least three bad cheques were received the previous year?
A. 0.6767
B. 0.3233
C. 0.1804
D. 0.8196 (2 marks)
38
SECTION B
Attempt any FOUR questions in this section.
QUESTION TWO
(a) The correlation for advertising expenditure and revenue is 0.283. Other details are:
∑𝑥 = 500, ∑𝑦 = 200, ∑𝑥 2 = 35000, ∑𝑦 2 = 900 , 𝑛 = 10,
(i) Calculate the value of ∑𝑥𝑦. (5 marks)

(ii) Write down the equation of line of regression (4 marks)
(b) What is the present value of annuity of K50, 000.00 due at the end of 5 years at interest
rate of 5% Compounded quarterly? (5 marks)
(c) A welder works independently on two separate burglar bar jobs. The probability that the
entire job will be finished on time is 0.40.
(i) Find the probability that both jobs are finished on time. (3 marks)
(ii) What is the probability that one job is finished on time? (3 marks)
[Total: 20 Marks]
QUESTION THREE
2𝑦
5𝑥 + 3 = −4
(a) Solve the simultaneous equation: (4 marks)
4𝑥 + 𝑦 = 2
(b) During an election 35% of the people in a town favored the fishing restrictions at Lake
Mweru. Eight people were randomly selected from the town.
Find the probability that:
(i) 3 people favored fishing restrictions. (3 marks)
(ii) At most 3 of the eight favored fishing restrictions. (4 marks)
(iii) There was a majority in favor of fishing restrictions. (5 marks)
(c) Find the value(s) of 𝑥, if log √𝑥 = √log 𝑥 . (4 marks)
[Total: 20 Marks]
39
QUESTION FOUR
(a) Cash flows of a project with Initial Capital of K5,000.00 are: K3,000.00 in year 1 and
K4,000.00 in year 2, at cost of capital of 15%:
(i) Calculate Net Present Value. (3 marks)
(ii) Comment on year result. (1 mark)
(b) Height of students at Emusa College are given below:-
Height cm 140-150 150-160 160-170 170-180 180-190
Number of
Students 1 5 7 12 5
(i) Determine standard deviation of heights. (5 marks)

(ii) Construct histogram (2 marks)
(iii) Estimate Modal height from your Histogram (1 mark)
(c) (i) List the four components of time series. (2 marks)

(ii) Part of the information on time series is given below:-
Quarter
1 2 3 4
2013 - - 10 15
2014 17 20 24 11
2015 13 12 - -
Using addictive model, find the seasonal variations. (6 Marks)

[Total: 20 Marks]
40
QUESTION FIVE
(a) Mr Majuwaka invested K8, 000 for five years at 9% per annum compounded semi-
annually.
(i) Calculate the total investment value. (2 marks)
(ii) Compare the return on the investment when the interest is compounded
annually to that when interest is compounded semi-annually. (2 marks)
(iii) Calculate the total value of investment when compounded monthly and daily.
(3 marks)
(b) The scores of 100 students in a test out of 10 were:
Score 3 4 5 6 7 8 9 10
Frequency 5 11 19 24 21 12 6 2
(i) Find the median. (2 marks)

(ii) Find the upper and lower quartiles. (4 marks)
(iii) State the range. (1 mark)
(iv) State the inter-quartile range. (1 mark)
(v) Calculate the mean. (3 marks)
𝑥 −1 +𝑦 −1
(c) Simplify 𝑥 −1 𝑦 −1
. (2 marks)
[TOTAL: 20 MARKS]
QUESTION SIX
(a) Time taken to process an email enquiry is normally distributed with mean time of 500
seconds and a standard deviation of 20 seconds.
41
(i) What is the probability that a randomly selected email enquiry will be processed
between 485 and 505 seconds? (4 marks)
(ii) Within what time should 94% of emails be processed? (4 marks)
(b) A soft drink company has a fixed cost of 4 for their products. If variable cost per unit is
1 and the demand function is
𝑃 = 10 − 2𝑄
(i) Write down the profit function 𝜋 in terms of 𝑄. (4 marks)
(ii) What values of 𝑄 does the company break even? (4 marks)
(c) A financial institution pays 7% interest compounded annually. How long will it take for
K5, 000 to grow to K10, 000. (4 marks)
[Total: 20 Marks]
END OF PAPER
42
T3 SOLUTIONS
SECTION A
1.1
−1
2+( )
√ 2
−1
2−2( )
2
1.5
√
3
√0.5
0.707
0.71
Correct answer is C
1.2 I = new price*100/old price

145= 120*100/old price
Old price=K82.76 Therefore; D
1.3 The correct equation for independent events is:

𝑃(𝐴 ∩ 𝐵) = 𝑃(𝐴) × 𝑃(𝐵), Thus;
𝑃(𝐴 ∪ 𝐵) = 𝑃(𝐴) × 𝑃(𝐵) is Not true.
Therefore; B
1.4 C
1.5 irr = a + A (b - a ) %
A–B
=10 + 9000 (12 - 10) %

9000-(-600)
= 11.88%
Correct answer is D
1.6
43
−𝑏±√𝑏2 −4𝑎𝑐
2𝑎
a=2, b=-6, c=-13
−(−6)±√−62 −4×2×−13
= 2×2
6±√140
= 4
Correct answer is C
1.7
90
× 𝑥 = 500
100
500×100
𝑥= 90
= 555.56
Correct answer is A
1.8 Variance = ∑x2 – (∑x)2

n .
n–1
= 165 – (25)2
5 .
4
= 10
Correct answer is D
1
1.9 Let 𝑥 = log 2 16
1
2𝑥 = 16
2𝑥 = 16−1
2𝑥 = (24 )−1
2𝑥 = 2−4
𝑥 = −4 Therefore; D
1.10 Pr (x ≥ 3 ) = 1 – [ Pr (0) + Pr (1) + Pr (2) ]
Pr (0) = 20 xe -2
= 0.1353
0!
Pr (1) = 21 xe -2
= 0.2707
44
1!
Pr (2) = 22 xe -2
= 0.2707
2!
1 - 0.6767
0.3233
Correct answer is B
SECTION B
SOLUTION TWO
(a) (i)
r= n∑xy - ∑x∑y .
[ (n∑x2 – (∑x)2 ] [ (n∑y2 – (∑y)2 ]
0.283 = 10 (∑xy) - 500 (200) .
[ (10(35,000) – (500)2 ] [ (10(9,000) – 200)2 ]
0.283 = 10 (∑xy) - 100,000 .
[ 350,000 – 250,000 ] [ 90,000) – 40,000 ]
0.283 = 10 (∑xy) - 100,000 .
100,000 x 50,000
0.283 x 70, 710.68 = 10 (∑xy) - 100,000
10 ∑xy – 100,000 = 20,011.12
10 ∑xy = 20,011.12 + 100, 000
∑xy = 1,200
45
(ii) b = n∑xy - ∑x∑y
n∑x2 – (∑x)2
= 10 (1200) – 500 (200)

10 (35000) – (500)2
= - 88,000 = - 0.88
100,000
a = ∑y - b∑x
n n
a = 200 - - 0.88 (500)

10 10
a = 20 + 44
= 64
y = 64 – 0.88x
–n
(b) Present value of annuity = A I – (I + r )
r
– 20
= 50,000 I – (I + 0.05 )
4 .
0.0125
= 879,965.81
(c) (i) 0.40 x 0.40 = 0.16
(ii) 0.40 x 0.60 + 0.60 x 0.40

= 0.24 + 0.24
= 0.48
46
SOLUTION THREE
2𝑦
5𝑥 + = −4
a. 3
4𝑥 + 𝑦 = 2
Let 𝑦 = 2 − 4𝑥 …………….. (i)

2(2−4𝑥)
⟹ 5𝑥 + 3
= −4
Multiplying throughout the equation by 3 we have;
15𝑥 + 4 − 8𝑥 = −12
7𝑥 = −16
−16
𝑥= 7
From (i), we have:

−16 78
𝑦 = 2 − 4( 7
) = 7
.
b. Let 𝑋 denote the number people who favoured the fishing restrictions.
Therefore, we have that;
𝑛 = 8 , 𝑃(𝑠𝑢𝑐𝑐𝑒𝑠𝑠) = 𝑝 = 0.35 ( 𝑞 = 1 − 𝑝 = 0.65) , So that 𝑋~𝐵(8, 0.35).

𝑛 𝑛
And we know that: 𝑃(𝑋 = 𝑥) = ( ) 𝑝 𝑥 𝑞 𝑛−𝑥 = ( ) 𝑝 𝑥 (1 − 𝑝)𝑛−𝑥 , 𝑥 = 0,1,2, … , 𝑛.
𝑥 𝑥
8
i. 𝑃(𝑋 = 3) = ( ) (0.35)3 (1 − 0.35)8−3
3
8
= ( ) (0.35)3 (0.65)5
3
= 0.2786
ii. 𝑃(𝑋 ≤ 3) = 𝑃(0) + 𝑃(1) + 𝑃(2) + 𝑃(3)
8
𝑃(𝑋 = 0) = ( ) (0.35)0 (1 − 0.35)8−0 = 0.03186
0
8
𝑃(𝑋 = 1) = ( ) (0.35)1 (1 − 0.35)8−1 = 0.13726
1
8
𝑃(𝑋 = 2) = ( ) (0.35)2 (1 − 0.35)8−2 = 0.25869
2
8
𝑃(𝑋 = 3) = ( ) (0.35)3 (1 − 0.35)8−3 = 0.2786
3
47
Therefore;
𝑃(𝑋 ≤ 3) = 0.03186 + 0.13726 + 0.25869 + 0.2786 = 0.7064
iii. The probability that there was a majority in favour of the fishing restriction is equivalent to
𝑃(𝑋 > 4):
Therefore;
𝑃(𝑋 > 4) = 1 − 𝑃(𝑋 ≤ 4)
But 𝑃(𝑋 ≤ 4) = 𝑃(0) + 𝑃(1) + 𝑃(2) + 𝑃(3) + 𝑃(4)

= 𝑃(𝑋 ≤ 3) + 𝑃(𝑋 = 4)
8
Where 𝑃(𝑋 = 4) = ( ) (0.35)4 (1 − 0.35)8−4 = 0.18751
4
Therefore;
𝑃(𝑋 ≤ 4) = 0.7064 + 0.18751 = 0.8939
Hence 𝑃(𝑋 > 4) = 1 − 𝑃(𝑋 ≤ 4) will be;

= 1 − 0.8939
= 0.1061.
c. log √𝑥 = √log 𝑥
1
log 𝑥 0.5 = √log 𝑥 ⟺ log 𝑥 = √log 𝑥
2
1
Let 𝑦 = log 𝑥 ⟹ 𝑦 = √𝑦
2
Squaring both sides we have: Therefore:
1 2 2
(2 𝑦) = (√𝑦) log 𝑥 = 0 ⟹ 𝑥 = 100
𝑦 2 − 4𝑦 = 0 𝑥 = 1.
𝑦(𝑦 − 4) = 0 and log 𝑥 = 4 ⟹ 𝑥 = 104
𝑦=0 𝑎𝑛𝑑 𝑦=4 𝑥 = 10000.
48
SOLUTION FOUR
(a) (i)
Yr Cash Flow Present Value

0 (5,000) (5,000)
1 3,000 2,608.70
2 4,000 3,024.57
NPV 633.27
(iii) Project is worthwhile since NPV › 0
(b) (i)
2
Class Central Value Frequency fx f (x – x )
(x) (f)
140-150 145 1 145 1 (145-170)2 = 625
150-160 155 5 775 5 (155-170)2 = 1125
160-170 165 7 1155 7 (165-170)2 = 175
170-180 175 12 2100 12 (175-170)2 = 300
180-190 185 5 925 5 (185-170)2 = 1125
∑f = 30 ∑fx = 5100 ∑f( x – x )2 = 3350
Ẍ = 5100 = 170
30
$ = ∑f( x – x )2
∑f = 3350
30 = 10.57
49
(b) (ii)
14
12
10
140 150 160 170 174 180 190 Height
(iii) Modal height = 174cm
C) (i) The four components are:- Cyclic, Trend, Random, Seasonal Variants.
(ii)
Qtr
1 2 3 4
2013 - - 10 15
2014 17 20 24 11
2015 13 12 - -
Total : 30 32 34 26
Average : 15 16 17 13 = 61 /4 = 15.25
Adjust : -0.25 0.75 1.75 -2.25 = 0
50
SOLUTION FIVE
9
a. i. 𝑃0 = 𝐾8000𝑟 = 100 = 0.09 𝑡=5 𝑠𝑒𝑚𝑖 𝑎𝑛𝑛𝑢𝑎𝑙𝑙𝑦 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝑚 = 2
𝑟
𝑃𝑡 = 𝑃0 (1 + 𝑚)𝑚𝑡
0.09 (2)(5)
𝑃5 = 8000(1 + 2
)
10
= 8000(1.045)
= 𝐾12423.76
ii. annually; 𝑃𝑡 = 𝑃0 (1 + 𝑟)𝑡
= 8000(1 + 0.09)5
= 𝐾12308.99
The gain is 𝐾12423.76 − 𝐾12308.99 = 𝐾114.77 over when compounded semi-annually.

0.09 (12)(5)
iii. Monthly 𝑃𝑡 = 8000(1 + 12
) = 12525
0.09 (365)(5)
Daily 𝑃𝑡 = 8000(1 + ) = 12545.8
365
b.
Score 3 4 5 6 7 8 9 10
Frequency 5 11 19 24 21 12 6 2
𝑛+1 𝑛+1
i. Median = ( )th value ii. Lower Quartile = ( )th value
2 4
100+1 100+1
=( 2
)th value =( 4
)th value
= 55.5 th value = 25.25 th value
(Average of 55th and 56th values) (Average of 25th and 26th values)
6+6 5+5
= 2
= 2
=6 =5
3
ii. Upper Quartile = 4 (𝑛 + 1)th value
3
= 4 (100 + 1)th value
= 75.75 th value
51
(Average of 75th and 76th values)
7+7
= 2
=7
iii. Range = 𝑟 = 𝑋𝑚𝑎𝑥 − 𝑋𝑚𝑖𝑛

= 10 − 3
= 7.
iv. Inter-quartile range = 𝑈𝑝𝑝𝑒𝑟 𝑄𝑢𝑎𝑟𝑡𝑖𝑙𝑒 − 𝐿𝑜𝑤𝑒𝑟 𝑄𝑢𝑎𝑟𝑡𝑖𝑙𝑒

=7−5
= 2.
𝑓 𝑥
v. 𝑋̅ = 𝑖 𝑖
𝑓𝑖
(3×5)+(4×11)+(5×19)+(6×24)+(7×21)+(8×12)+(9×6)+(10×2)
=
100
615
=
100
= 6.15 .
𝑥 −1 +𝑦 −1
d. 𝑥 −1 𝑦 −1
1 1 1
= (𝑥 + 𝑦) ÷ 𝑥𝑦
𝑥+𝑦 𝑥𝑦
= 𝑥𝑦
× 1
=𝑥+𝑦
SOLUTION SIX
A. (i) let x be time taken on atm.
458 − 500 505 − 500

𝑃(485 < 𝑋 < 505) = 𝑃 ( <𝑍< )
20 20
= 𝑃(−2.1 < 𝑧 < 0.25)
= 1 − 𝑝(𝑧 < 0.25) − 𝑝(𝑧 < −2.1)
= 1 − 0.413 − 0.0179
= 0.5808
52
ii)
𝑥−500
𝑝 (𝑧 < 20
) = 0.94
𝑧 𝑖𝑠 𝑝𝑜𝑠𝑖𝑡𝑖𝑣𝑒 𝑟𝑖𝑔ℎ𝑡 𝑡𝑎𝑖𝑙 𝑤𝑖𝑡ℎ 𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 1 − 0.94 = 0.06
therefore 𝑧 = 1.55
𝑥−500
therefore 20
= 1.55
𝑥 = 20(1.55) + 500
𝑥 = 531
B. i. Fixed cost 𝐹𝐶 = 4 and variable cost 𝑉𝐶 = 1
Total Cost: 𝑇𝐶 = 𝐹𝐶 + 𝑉𝐶(𝑄) = 4 + 𝑄
Given demand function 𝑃 = 10 − 2𝑄
Total revenue 𝑇𝑅 = 𝑃𝑄
𝑇𝑅 = (10 − 2𝑄)𝑄 = 10𝑄 − 2𝑄 2
Profit is given by:
𝜋 = 𝑇𝑅 − 𝑇𝐶
= (10𝑄 − 2𝑄 2 ) − (4 + 𝑄)
= −𝟐𝑸𝟐 + 𝟗𝑸 − 𝟒
ii. Breakeven point is when profit 𝜋 = 0
−2𝑄2 + 9𝑄 − 4 = 0
−9±√92 −4(−2)(−4) −9±7

𝑄= 2(−2)
= −4
𝑸 = 𝟎. 𝟓 𝒂𝒏𝒅 𝑸=𝟒
7
C. 𝑃0 = 500, 𝑃𝑡 = 10000, 𝑖 = 100 = 0.07
𝑃𝑡 = 𝑃0 (1 + 0.07)𝑡
10000 = 5000(1 + 0.07)𝑡
53
10000
1.07𝑡 =
5000
𝑙𝑜𝑔1.07𝑡 = 𝑙𝑜𝑔2
𝑡𝑙𝑜𝑔1.07 = 𝑙𝑜𝑔2
𝑙𝑜𝑔2
𝑡=
𝑙𝑜𝑔1. 𝑜7
𝑡 = 10.24
Investment takes over 10years.
END OF SOLUTIONS
54
_______________________
TECHNICIAN LEVEL
_______________________
T4: BUSINESS ECONOMICS

_______________________
MONDAY 12 DECEMBER 2016

_______________________

_______________________
start writing.

Section A: Attempt any TWO (2) Microeconomics questions.
Section B: Attempt any TWO (2) Macroeconomics questions.
55
SECTION A: MICROECONOMICS
Answer any two (2) questions from this section.
QUESTION ONE
(a) The Competition and Consumer Protection Commission (CCPC) has a mandate to
enforce competition policy in Zambia, among other things.
Discuss any four (4) aims of competition policy in Zambia. (8 marks)
(b) Outline any two (2) motives for privatisation and any two (2) limitations of privatisation.
(4 marks)
(c) Suppose you manage a monopolistic firm with an exclusive license to produce medical
tablets for high blood pressure. The demand curve is P = 900 – 1.5Q, total cost is:
TC = 100 + Q2, marginal revenue is MR = 900 – 3Q, and marginal cost is MC = 2Q.
(i) Determine the output that the firm should produce. (3 marks)
(ii) What price should the firm charge for the product? (2 marks)
(iii) Find the firm’s profits. (4 marks)
(iv)Outline two (2) advantages in favour of such a firm in the market. (4 marks)
[Total: 25 Marks]
QUESTION TWO
(a) Using your knowledge of elasticity, answer the following questions:

(i) Define the concept of price elasticity of demand. (3 marks)
(ii) With the aid of diagrams show and explain the extremes of elasticity of demand
where there is perfect elasticity and perfect inelasticity. (4 marks)
(iii) The demand function for a firm’s product is shown as Qd = 12 500 – 500P. If the
price of the product is K10 per unit, find the price elasticity of demand at this price.
(5 marks)
(b) Using supply and demand analysis, graphically:
(i) Explain what happens to equilibrium price and quantity of maize traded when
government increases maize subsidy to small scale farmers in Zambia. (4 marks)
(ii) Explain what happens to equilibrium price and quantity traded in a market when the
price of a substitute good rises. (4 marks)
(c) Many entrepreneurs in Zambia are being encouraged to convert their small unregistered
businesses into limited liability companies.
List any five (5) advantages of a limited liability form of business organisation.
(5 marks)
[Total: 25 Marks]
56
QUESTION THREE
(a) A shop owner notices that an increase in the price of hamburger patties from K4 to K6
causes a decrease in the demand for hamburger buns from 240 to 192.
Calculate the cross price elasticity of demand and interpret the elasticity figure.
(4 marks)
(b) Draw a diagram to show a profit maximising monopoly in long run equilibrium.
(5 marks)
(i) From the diagram, identify and explain the deadweight welfare loss. (4 marks)
(ii) Explain why this firm will produce a less than socially efficient level of output.
(4 marks)
(c) Identify whether the statements below are positive or normative and give a reason for
your answer.
(i) Taxes on wealthy people in Zambia are supposed to be higher. (2 marks)

(ii) Acquisitions of small firms by larger ones should always be allowed. (2 marks)
(iii) The use of solar power will be used increasingly in Zambia over the next fifty years.
(2 marks)
(iv)If the Zambian government removes subsidies on fuel, the price of fuel will rise and
increase the cost of transport. (2 marks)
[Total: 25 Marks]
57
SECTION B: MACRO ECONOMICS
Answer any two (2) questions from this section.
QUESTION FOUR
(a) The Net National Expenditure (NNE) or Net National Income (NNI) at factor cost of
country Z is $200 billion. The following data items are given in $ billions:
Tax: 10; Subsidy: 15; Capital consumption: 20; Net property income from abroad: 30.
Determine the Gross Domestic Product (GDP) at factor cost. (4 marks)
(b) Explain the following macroeconomic concepts:

(i) Marginal propensity to consume (MPC) (3 marks)
(ii) Financial intermediation (3 marks)
(iii) Business cycle (3 marks)
(iv)Inflation (3 marks)
(v) Aggregate demand (3 marks)
(c) Briefly outline the role globalisation can play to enhance regional integration in Southern
Africa in terms of reducing transaction and production costs, expanding markets, and
fostering economic and political stability. (6 marks)
[Total: 25 marks]
QUESTION FIVE
(a) Classify the following as money, not money, M1, M2, or M3 money to describe the
items listed below. Provide a justification for your choice.
(i) A Visa or Master card. (2 marks)
(ii) A fixed deposit with maturity of 6 months. (2 marks)
(iii) A pack of 20 ngwee coins. (2 marks)
(b) Consider a large firm which is intending to build a manufacturing factory.
(i) Assuming the firm needs to borrow funds in the bond market, explain why an
increase in the interest rates would affect the firm’s decision to build the factory.
(5 marks)
(ii) If the firm can finance the new factory using its own funds, explain whether an
increase in interest rates would still affect the firm’s decision to build the factory.
(5 marks)
(c) Explain how the Bank of Zambia can use contractionary monetary policy to counter
inflation. (Use a well labeled Keynesian AD-AS graph). (9 marks)
[Total: 25 Marks]
58
QUESTION SIX
(a) If the banking system has liquid reserves of $300 billion and seeks to maintain a reserve
ratio of 25%, calculate the money supply (total deposits). (4 marks)
(b) State three (3) advantages of obtaining a stock market listing. (6 marks)
(c) Briefly explain three (3) limitations of commercial banks to create credit (i.e. money).
(6 marks)
(d) Describe three (3) main sources of credit available to business. (9 marks)
[Total: 25 Marks]
QUESTION SEVEN
(a) Explain any three (3) protectionist policies that a government could introduce to reduce
a deficit on the current account of the balance of payments. (9 marks)
(b) Outline any two (2) advantages and any two (2) disadvantages of fixed exchange rate
regime. (8 marks)
(c) Describe two (2) factors which influence a country’s economic growth. (4 marks)
(d) Outline three (3) areas in which China has become a major player in Zambia’s economic
development. (4 marks)
[Total: 25 Marks]
END OF PAPER
59
T4 SOLUTIONS
SOLUTION ONE
(a) Competition policy is a set of legal regulations that seeks to prevent firms from engaging in
abuse of monopoly positions in their markets. It entails the enforcement of laws that encourage
competition and discourage anti-competitive behaviour by firms. It aims to:
 Prohibit restrictive trade practices. This means the careful inspection of any
agreements between firms or practices that restrict free trading and competition
between businesses or exclude new entrants from the market. It includes assessing
and stopping efforts to rig the outcome of tender bids.
 Ban abuse of dominant market position by leading firms. Competition policy

attempts to prevent the use of predatory pricing such as selling products at below
production cost to bankrupt rivals, overcharging for products needed by competitors,
or refusing to deal with rivals.
 Supervise mergers and acquisitions. This involves using the law to limit
consolidations which would eliminate effective competition. Competition policy
scrutinises mergers and take-overs between firms which would result in their
dominating the market.
 Encourage business activity. Competition policy aims to enable small and

medium sized businesses to have an opportunity to participate in the economy.
Firms are more likely to participate in markets where there are fewer barriers.
 Protect consumers from abuse in uncompetitive markets. It means that

competition policy seeks to help consumers with access to competitive prices and
various product choices which an uncompetitive environment would not provide.
 Foster market liberalisation. Competition policy aims to ensure that all markets
are free and open to all prospective entrants. Liberalisation of the markets involves
introducing competition in previously monopolistic sectors such as energy supply,
retail banking, postal services, mobile telecommunications and air transport.
(b) Motives of privatisation
 To improve efficiency: the profit objective and the presence of competition usually
drives firms to be more efficient in their production processes.
 To attract investments: privatization my attract investment from private firms in areas

where the state may not be efficient.
60
 To raise funds for the state: the funds raised from the sell-off can be used by the state
in priority areas and debt management.
Limitations of privatisation
 Creates private sector monopoly: there is a danger that private investors may create
monopolies ad charge very high prices for their goods.
 Danger of under-investment: private investors may under invest in certain industries and
sell off the industries after stripping off valuable assets from the company
 Unemployment: in a bid to cut costs, private investors may cut down some jobs leaving
a number of people unemployed.
(c) As the firm’s manager, you will know that:

(i) PROFIT MAXIMISING CONDITION; MR = MC
900 – 3Q = 2Q
5Q = 900
Q = 180
(ii) P = 900 – 1.5Q

P = 900 – 1.5(180)
P = 900 – 270
P = 630
(iii) Profit = TR – TC
Profit = (PQ) – (100 + Q2)
Profit = (630*180) – (100 + 1802)
Profit = 113400 – 32500
Profit = 80900
(iv)This is a monopolistic firm. Advantages favouring a monopoly include:

i) Market power. A monopolistic firm has the ability to markup price over marginal cost
without attracting entry into the market.
ii) The potential for large profit through economies of scale. To the extent that a
monopolistic firm can reduce fixed costs by increasing output, it can continue to earn
profits in the long run.
iii) The financial ability to invest heavily in innovation and research and development.
Due to the high profits, a monopolistic firm can have excess funds to channel to
research and development.
61
iv) Price discrimination is possible under this type of market structure. Price
discrimination is the act of charging different prices for one commodity in different
market segments.
SOLUTION TWO
(a) (i) Price elasticity of demand. This is a measure of the responsiveness of the
quantity demanded to a change in price. Specifically, price elasticity of demand is the
ration of the percentage change in quantity demanded to the percentage change in
price.
(ii) Perfectly elastic demand. This is a condition in which a small percentage change
is price brings about an infinite percentage change in quantity demanded. The demand
curve is a horizontal straight-line. Consumers are very responsive to a change in price.
Price elasticity of demand (Ed) = ∞.
Price
0
Quantity
Perfectly inelastic demand. This is when the quantity demanded does not respond to
a change in price. The same quantity is demanded does not change as the price
changes. For this reason, the demand curve is a vertical straight-line. Thus, elasticity of
demand (Ed) = 0
Price D
0
Quantity
62
(iii) A look at the demand function shows that it is linear with a constant slope (∂Q/∂P)
equal to -500. Now, the quantity demanded at K10 is obtained by substituting P = 10 in
the demand function as follows: Qd = 12 500 – 500(10) = 7 500 as Q.
Now, ep = ∂Q/∂P .P/Q. This gives -500 x 10/7 500 = -0.67.
Thus, price elasticity is -0.67 indicating the inverse relationship between price and
quantity demanded.
(b) (i) In the diagram below, the market is initially in equilibrium at (price, output)
combination (Pe,Qe). The increase in government subsidy will cause the supply curve to
shift outwards leading to a new equilibrium with the higher (price, output) combination
(P1, Q1). This is because an increase in subsidy leads to a decrease in the cost of
production for maize. Hence many farmers will afford to buy the inputs so that the
supply curve shifts to the right as more maize will be produced.
Price Supply
Pe -------------------------●
P1 -------------------●------------●
Demand
O
Qe Q1
Quantity
(ii) In the diagram below, the market is initially in equilibrium at (price, output) combination
(Pe,Qe). The rise in the price of a substitute good will cause the demand curve to shift outwards
leading to a new equilibrium with the higher (price, output) combination (P1, Q1)
Price Supply
P1 -----------------------------●
Pe -------------------●
Demand
O
Qe Q1
Quantity
63
(c) The following are the advantages of limited company form of business enterprise:
 There is limited liability for the shareholders (owners)

 Continuity is not affected by the death of a shareholder
 More able to raise funds for expansion
 The profile of the company and management is raised
 Existence is legally recognized
 They are usually well organized as specific documents must be prepared and kept by the
company. This improves accountability and transparency.
SOLUTION THREE
(a) Cross price elasticity (EC) = % change of quantity demanded for good A
% change of the price of good B
EC = [(192 – 240)/240]*100
[(6 – 4)/4]*100
EC = –20%
50%
EC = – 0.4
The elasticity coefficient of – 0.4 shows that the two goods are complements. This is
because a change in the price of the one good has led to a change in the opposite
direction in the quantity demanded of the other. Total revenue TR in each market:
(b) Profit maximising monopoly
64
i) The area of deadweight loss for a monopolist can be shown, comparing perfect
competition with monopoly.
When a market does not produce at its efficient point there is a deadweight loss to
society represented by area ABC. The lost consumer surplus plus the lost producer
surplus is the total deadweight loss to society.
ii) Socially efficient level of output will be attained when the firm operates at a level of
output where AR = MC. We assume that the monopolist is a profit maximiser,
hence it will operate at an output where MR = MC. At this level of output the
monopolist would set the price at P* which would not be equal to the marginal cost,
therefore socially efficient output would not be achieved.
(c) A positive statement is objective and based on fact, while a normative statement is
subjective and based on value judgement. Positive economic statements do not have to
be correct but must possess the ability to be tested and proved or disproved. Normative
economic statements are opinion based so they cannot be proved or disproved. The
statements in the question are classified as follows:
(i) A normative statement. It is a statement of value judgement which suggests that

wealthy individuals in Zambia have a duty to pay more taxes.
(ii) A normative statement. It is a subjective statement to suggest that there is no problem
with large firms acquiring smaller firms.
(iii) A positive statement. It is a statement based on the fact that more energy sources are
needed in Zambia and solar energy is being used increasingly in the country.
65
(iv)A positive statement. This is a statement that can be proved since subsidies naturally
reduce costs and their removal is likely to increase costs.
SOLUTION FOUR
(a) Let X be the GDP at Factor Cost
So: X-30-10+15-20=200 (in USD bn)
Then: 200+20-15+10+30=245 GDP at Factor Cost
(b) Concepts discussed as follows:
(i) Marginal propensity to consume is the rate of change in consumption as a result of

a given change in income.
(ii) Financial Intermediation is the process by which funds are channeled from surplus
units to deficit units. It is done by financial intermediaries which include banks,
insurance companies, pension funds, unit trusts, building societies, etc.
(iii) A business cycle is defined as alternating periods of economic growth and contractions
which can be measured by changes in real Gross Domestic Product (GDP). The four
phases of a business cycle are peak, recession, trough and recovery.
(iv)Inflation is defined as a sustained increase in the average level of prices over time.
Inflation reduces the purchasing power of money.
(v) Aggregate demand is the total quantity of goods and services that consumers are
able and willing to buy in an economy. It is the level of real gross domestic product
(GDP) purchased by households, businesses, government, and foreigners (net exports)
at different possible price levels during a time period, ceteris paribus. It largely
determines the level of investment in an economy.
(c) Globalisation can lead to freer trade between countries. This is one of its largest benefits
to developing nations. Domestic industries see trade barriers fall and have access to a
much wider international market. The growth generated by accessing bigger markets
allows companies to develop new technologies and produce new products and services.
The access to larger markets means that firms may experience higher demand for their
products, as well as benefit from economies of scale which leads to a reduction in
average production and transaction costs
When countries trade more with each other, they will help to improve each of their
domestic economies because consumers will have more choice and producers can
66
produce for bigger markets. Moreover, countries will cooperate more and hence ensure
that they are stable politically.
SOLUTION FIVE
(a) Classifications as follows:
(i) A Visa or Master Card is not money. It is an instrument used to access money.
(ii) A fixed deposit with maturity of 6 months is M2 money. It is a deposit which is not
immediately available but whose maturity is not long term.
(iii) A pack of 20 ngwee coins is M1 money. The coins are immediately available as a
medium of exchange or a means of payment.
(b)
(i) A bond is a certificate of debt that specifies the obligations of the borrower to the holder
of the bond. In the market for loanable funds, the price of a loan is called an interest
rate, which is, both the return to saving and the cost of borrowing. The interest
represents the amount that borrowers pay for loans and the amount that lenders receive
on their saving. When the large firm wants to debt finance the construction of a new
factory, it can borrow directly from the public by selling bonds. However, its decision to
borrow depends on the interest rate. An increase in the interest rate is likely to
discourage the firm from borrowing funds for the building and may put the
building plans on hold because a high interest rate makes borrowing more expensive.
(ii) The firm can raise funds to build a new factory by selling stock in the company. Stock
represents ownership in a firm and bestows a claim to the profits of the firm upon the
stockholder. The sale of stock to raise money is called equity finance. When the firm
equity finances the building of a new factory, it does not have to go into the market for
loanable funds to borrow money. As a result, it will not be affected by an increase in
interest rates. Therefore, an increase in interest rates will not affect the firm’s decision
to build a new factory if it can finance the project using its own funds.
(c) Using the Keynesian AD-AS framework, the graph below shows how the Bank of Zambia
can reduce money supply (M) to counter inflation. The central bank can use any of the
tools at its disposal like open market operations to influence the level of money supply.
A decrease in money supply reduces aggregate demand (AD) for output at any given
price level and AD curve shifts to the left from the direction of AD2 to AD1. The fall in
aggregate demand reduces output in the short run to the below full employment level,
Y1, as shown by the shift from the initial equilibrium, A, to the short-run equilibrium at B.
At B the aggregate demand is lower than the short run aggregate supply and there is
excess supply. Therefore firms will have to lower their prices in order to sell their excess
output. This is shown by the movement of the SRAS downwards. At C, equilibrium is
restored in the long run to full employment level.
67
Price level, P
LRAS
M decreases
A SRAS2
P2 B
P slows down and falls
C SRAS1
P1
AD2
AD1
Y1 YF Output, Y
SOLUTION SIX
(a) Deposits=Initial cash deposit/cash ratio D=C/r=300/25=1,200

Total deposits (money supply) = 1,200 USDbn
(b) Advantages of obtaining a stock market listing :

 Better access to capital markets
 Ability to make share for share deals
 Ability to liquidate holdings
 Greater public scrutiny
(c) Limitations of commercial banks to create money :

 Leakages of cash out of the banking system: As borrowers borrow from the banking
system, the firms they use for their expenditure should deposit with the banking
system.
 Low demand for loans: the lower the demand, the lower the total deposit; the higher
the demand for loans the bigger the total deposit (money supply)
 Prudent lending operations: credit worthiness of borrowers, collateral and surety
requirement. Security in lending is cardinal so that default rate is minimal.
(d) Main sources of credit available to business:
 Short term credit: overdraft, trade credit and the issue of bills of exchange.
 Medium term credit: loans from banks, hire purchase and finance leases.
 Long term credit: issuing debentures and mortgages.
68
SOLUTION SEVEN
(a) Measures to correct current account deficit
Deflationary policy
Deflationary policies are aimed at reducing aggregate demand in an economy. Deflation means
falling prices. Deflation has been used as a measure to correct deficit disequilibrium. A country
faces deficit when its imports exceeds exports.
Deflation is brought through monetary measures like bank rate policy, open market operations,
etc. or through fiscal measures like higher taxation, reduction in public expenditure, etc.
Deflation would make our items cheaper in foreign market resulting a rise in our exports. At the
same time the demands for imports fall due to higher taxation and reduced income. This would
built a favourable atmosphere in the balance of payment position. However Deflation can be
successful when the exchange rate remains fixed.
Devaluation
Devaluation refers to deliberate attempt made by monetary authorities to bring down the value
of home currency against foreign currency. While depreciation is a spontaneous fall due to
interactions of market forces, devaluation is official act enforced by the monetary authority.
Generally the international monetary fund advocates the policy of devaluation as a corrective
measure of disequilibrium for the countries facing adverse balance of payment position. When
India's balance of payment worsened in 1991, IMF suggested devaluation. Accordingly, the
value of Indian currency has been reduced by 18 to 20% in terms of various currencies. The
1991 devaluation brought the desired effect. The very next year the import declined while
exports picked up.
Exchange Control
It is an extreme step taken by the monetary authority to enjoy complete control over the
exchange dealings. Under such a measure, the central bank directs all exporters to surrender
their foreign exchange to the central authority. Thus it leads to concentration of exchange
reserves in the hands of central authority. At the same time, the supply of foreign exchange is
restricted only for essential goods. It can only help controlling situation from turning worse. In
short it is only a temporary measure and not permanent remedy.
Import Substitution
A country may resort to import substitution to reduce the volume of imports and make it self-
reliant. Fiscal and monetary measures may be adopted to encourage industries producing
import substitutes. Industries which produce import substitutes require special attention in the
form of various concessions, which include tax concession, technical assistance, subsidies,
providing scarce inputs, etc.
(b) Advantages and disadvantages of fixed exchange rates
69
Advantages
 Fixed exchange rates give greater certainty, and hence encourage foreign trade,
allowing the potential gains from trade to be realised.
 Fixed exchange rates can lead to lower inflation when the domestic currency is fixed
relative to a low inflation currency. By pegging to a low inflation currency a country can
send a signal to economic agents that they need to keep their wage demands and prices
under control otherwise the country will lose some of its competitiveness and jobs.
 Fixed exchange rate can also force discipline on governments since the fear of
devaluation may prevent governments pursuing irresponsible macroeconomic policies.
Disadvantages
 A major problem with a fixed exchange rate is that the authorities will lose their
monetary autonomy if their currency is under pressure to devalue then they have to
raise interest rates to protect the domestic currency even if this is not desirable for the
domestic economy.
 Fixed exchange rates may prove inappropriate compared to floating exchange rates
when an economic shock hits the economy because the exchange rate is not free to
adjust to the shock. Instead the economic shock may require unnecessarily large
adjustments in the real economy.
(c) Economic growth

 Investment − this is current output that is not consumed. An increase in investment will
result in higher production in the future.
 Education and training − this improves the productivity of the labour force and thereby
raises the economic growth rate.
 Technological change − this increases the productive potential of an economy.
 Improved management skills − this will lead to improved efficiency, better economic
organisation and greater output.
(d) Economic development refers to the sustained and concerted actions of communities
and policymakers that improve the standard of living and economic health of a specific
locality. China has become a major player in Zambia’s economic development through:
 Infrastructure development projects like buildings and roads
 Increased trade like more importation of Zambia’s copper
 Offering more scholarships for Zambians to study in China
 Increased consumer goods from China
 Employment in Chinese firms and businesses
END OF SOLUTIONS
70
________________________
TECHNICIAN LEVEL
________________________
T5: TAXATION
_______________________
THURSDAY 15 DECEMBER 2016

_______________________

________________________
start writing.
Section A: TEN (10) multiple choice Compulsory questions.

Section B: FIVE (5) Optional questions. Attempt any FOUR (4) questions.
6. The marks shown against the requirement(s) for each question should be taken
as an indication of the expected length and depth of the answer.
9. A Taxation Table is provided on pages 2, 3 and 4 of this paper
71
Taxation Table
Income Tax
Standard personal income tax rates
Income band Taxable amount Rate

K1 to K36,000 first K36,000 0%
K36,001 to 45,600 next K9,600 25%
K45,601 to K70,800 next K25,200 30%
Over K70,800 35%
Income from farming for individuals

K1 to K36,000 first K36,000 0%
Over K36,000 10%
Gratuity
K1 to K36,000 first K36,000 0%
Over K36,000 25%
Terminal benefits
K1 to K35,000 first K35,000 0%
Over K35,000 10%
Company Income Tax rates
On income from manufacturing and other 35%

On income from farming 10%
Capital Allowances
Implements, plant and machinery and commercial vehicles:

Wear and Tear Allowance – Plant used normally 25%
Used in Manufacturing, Farming, Leasing 50%
Non- commercial vehicles
Wear and Tear Allowance 20%
Industrial Buildings:
Initial Allowance 10%
Investment Allowance 10%
Low Cost Housing (Cost up to K20,000)

Initial Allowance 10%
72
Commercial Buildings
Farming Allowances
Development Allowance 10%
Farm Works Allowance 100%
Farm Improvement Allowance 100%
Presumptive Taxes
Turnover Tax 3%
Property Transfer Tax
Rate of Tax on Realised Value of property other than mining rights 5%
Value Added Tax
Registration threshold K800,000

Standard Value Added Tax Rate (on VAT exclusive turnover) 16%
Customs and Excise

Duty rates on:
1. Motor cars and other motor vehicles (including station wagons)

principally designed for the transport of less than ten persons,
including the driver:
Customs Duty:
Percentage of Value for Duty Purposes 30%
Minimum Specific Customs Duty K6,000
Excise Duty:
Percentage of Value for Duty Purposes for Excise Duty Purposes
Cylinder capacity of 1500 cc and less 20%
Cylinder capacity of more than 1500 cc 30%
2. Pick-ups and trucks/lorries with gross weight not exceeding 20 tones:

Customs Duty
Minimum specific Customs Duty K6,000
Excise Duty:
Percentage of Value for Duty Purposes for Excise Duty Purposes 10%
3. Buses/coaches for the transport of more than ten persons
73
Customs Duty:
Minimum Specific Customs Duty K6,000
Excise Duty:
Percentage of Value for Duty Purposes for Excise Duty Purposes

Seating Capacity of 16 persons and less 25%
Seating Capacity of 16 persons and more 0%
4. Trucks/lorries with gross weight exceeding 20 tonnes

Customs Duty:
Excise Duty:
Percentage of Value for Duty Purposes for Excise Duty Purposes 0%
5. Surtax
On all motor vehicles aged more than five (5) years from year of K2,000
manufacture
74
SECTION A
Attempt all ten (10) multiple choice sub-questions in this section.
QUESTION ONE (Multiple choice)
1.1 Which one of the following taxable persons will be required to pay Turnover Tax in
the Tax year 2016?
A. Any partnership carrying on a business whose annual turnover is K800,000 and

below.
B. Any person whose business earnings are subject to withholding tax where the
Withholding is the final tax.
C. Any person who is involved in mining operations as provided under the Mines
and Minerals Development Act.
D. Any person whose income consists of amounts, which are subjected to
withholding tax, where withholding tax is not the final tax. (2 marks)
1.2 Which one of the following factors would ZRA consider in establishing whether
someone is employed or self-employed?
A. Quality of work
B. Rectification of work
C. The period
D. Qualifications (2 marks)
1.3 Agro PLC, a farming company was listed on LUSE in 2016 tax year and the company
had offered 25% of its shares to the indigenous Zambians. The company income tax
rate applicable was:
A. 8%
B. 5%
C. 3%
D. 10% (2 marks)
1.4 Mr Ndhlovu was entitled to an annual basic pay amounting to K60,000. A pension of
10% of this basic salary was deducted by the employer. The P.A.Y.E for the month of
December 2016 was:
A. K4,920
B. K410
C. K9,960
D. K284 (2 marks)
75
1.5 Mr Magande constructed a new building at a cost K600,000 including land and
showroom costing K75,000 and K50,000 respectively. The building qualifies as an
industrial building for income tax purposes. For the tax year 2016 Mr Magande
claimed capital allowance of:
A. K 137,500
B. K 131,250
C. K 136,500
D. K 165,000 (2 marks)
1.6 Zed Ltd sold the company’s assets in October 2016 valued at K300,000. The figure
includes the market value of a truck of K75,000 which was bought 5 years ago at
K60,000. The balance is the value of land; the company also purchased shares that had
an open market value of K125,000.
The total Property Transfer Tax paid by Zed Ltd company for the tax year 2015 was:
A. K 11,250
B. K 20,000
C. K 22,500
D. K 42,500 (2 marks)
1.7 Which of the following taxes can be classified as revenue tax?
A. Value Added Tax

B. Property Transfer Tax
C. Turnover Tax
D. Income Tax (2 marks)
1.8 JB Plc is a company engaged in farming, during the tax year 2016 wages and salaries
amounting to K250,000 were incurred. This figure includes K150,000 paid to the two
company’s directors as emoluments. The directors are accommodated by the company
and a Nissan car valued at K70,000 with cylinder capacity of 1500 cc is used as a
personal to holder by one of the directors:
What will be the total disallowable amount to be added back to company taxable
business profit?
A. K 45,000
B. K 59,000
C. K 54,000
D. K 65,000 (2 marks)
76
1.9 The following information relates to four (4) companies:
- Z is engaged in the growing of tea. The company is incorporated in a country

called Mana. It has a branch in Zambia as such the board of directors holds its
weekly meeting in Zambia while they hold a meeting at least once in a year in
Mana.
- W Ltd is a company that is incorporated in Zambia. The board of directors meets
every Week in a country called Taman where the company has several
branches. In Zambia the company has only the head office.
- G company is incorporated in a country called Yun. The company’s board of
directors holds its weekly meetings in Zambia and has the highest number of
branches in Zambia than in Yun.
- H was incorporated in Zambia, has management and control in Zambia and
undertakes the majority of its operations in Zambia.
Which of the above companies will be treated as being resident in Zambia for tax
purposes?
A. Z, W and G
B. W, G and H
C. H, W and Z
D. NONE
(2 marks)
1.10 Mr Mubonde makes taxable supplies, he is registered for Value Added Tax (VAT)
purposes. In the month of September 2016 he made the following supplies:
K
Zero rated VAT supplies 15,000
Exempt supplies 35,000
Standard rated exclusive sales 12,000
What will be the recoverable non- attributable input tax regarding the above
supplies?
A. 44%
B. 80%
C. 76%
D. 65% (2 marks)
[Total: 20 Marks]
77
SECTION B
Attempt any FOUR (4) questions out of FIVE (5) questions
QUESTION TWO
Chikwekwe Pwele was employed by Bulemba Ltd on 1 April 2015 under a three year non-
renewable contract as an Operations Manager. He was dismissed on 31 October 2016 due to
professional misconduct. The conditions of service on which Chikwekwe was employed were as
follows:
Annual salary 259,200
Annual housing allowance 77,760
Monthly transport allowance 2,160
Education allowance per annum 38,880
Chikwekwe’s contract provided for gratuity of 40% of the cumulative basic pay at the expiry of
contract. As Chikwekwe was dismissed before expiry of contract, the company paid him a
gratuity of 40% of the cumulative basic pay up to the date of dismissal.
On dismissal, Chikwekwe received repatriation pay of K56,000, severance pay of K15,000 and
leave pay of K31,410. On 1 May 2016, He received a labour day award consisting of cash
K14,700 and wrist watch valued at K7,800.
He made the following payments during the charge year 2016:
Professional Subscription 2,300
Medical expenses 8,750
Pay As you Earn 137,204
Political donation 3,600
School fees for Children 12,230
In the tax year 2016, he contributed NAPSA of 5% of his basic salary.
(a) Calculate the income tax payable by Chikwekwe for the charge year 2016.
(15 marks)
(b) Zambia Revenue Authority use different factors to establish whether one is an employee
or self-employed.
78
Required:
Explain each of the following factors:
(i) Engagement and dismissal
(ii) Control
(iii) Work performance
(iv) Tools and equipment
(v) Exclusivity
(5 marks)
[Total: 20 Marks]
QUESTION THREE
(a) Daka, a sole trader, imported a 3200cc Toyota Pajero Car from Japan. The cost price of
the vehicle was $25,200. He paid insurance cost of $2,100 and freight charges of
$3,000. Incidental costs incurred by Daka from the port of Dar-es-Salaam to Nakonde
border post amounted to $1,850.
Other costs incurred by Daka from Nakonde to Mpika, where his business is situated,
including motor vehicle registration amounted to $2,400. The Commissioner General
approved an exchange rate of K11.20 at the date when the vehicle arrived at Nakonde
border post.
Required:
(i) Calculate the total import taxes paid by Daka on the importation of the vehicle.
(7 marks)
(ii) Explain any four (4) documents needed to complete the clearance of the
imported motor vehicle. (4 marks)
(iii) Briefly explain the roles/functions of the Customs Division of the Zambia Revenue
Authority (ZRA). (5 marks)
(b) Explain any four (4) methods used to determine the Value for Excise Duty purposes for
locally manufactured goods. (4 marks)
[Total: 20 marks]
79
QUESTION FOUR
(a) Chombo Ltd is a manufacturing company situated in Western Province of Zambia. The
company is registered for Value Added Tax purposes. It reported a tax adjusted profit of
K392,906 for the charge year 2016. This profit figure is before capital allowances.
Chombo Ltd had the following assets on 1 January 2016:

Period in use Original cost (K)
Toyota Mark II car 6 years 60, 000
Manufacturing equipment 3 years 170, 000
Mitsubishi Canter 2 years 185, 600
Toyota Hilux van 2 years 69, 600
The amounts of original costs above are all inclusive of VAT.

The company purchased the following assets during the charge year 2016:
K
Manufacturing plant 125, 280
Range Rover car 80, 000
Computers 29, 000
The company sold the Toyota Mark II car for K15,600 excluding VAT.
The company paid provisional income tax of K62, 340
Required:
(i) Calculate the total capital allowances claimable by the company clearly showing
the capital allowances claimable on each of the above assets.
(5 marks)
(ii) Calculate the income tax payable by the company for the charge year 2016.
(3 marks)
(c) Kasenge Lungu intends to commence business in the tax year 2016. She is
considering setting up one of the following four types of businesses:
Option 1
This option will involve supplying stationery which is standard rated for Value Added Tax
purposes. She expects her monthly turnover under this option to be K410,000 (VAT
exclusive). Her monthly standard rated purchases will be K250, 000 (VAT inclusive).
Option 2
Under this option she will be supplying different types of books which are all exempt
supplies for Value Added Tax purposes. She expects her monthly turnover under this
option to be K790,000 as she has many branches in different towns. Her total monthly
80
expenses will be K560,560 consisting of standard rated expenses of K240,000 (VAT
inclusive) and exempt expenditure amounting to K320,560.
Option 3
This option will involve her business supplying specifically school exercise books which
are zero rated for Value Added Tax purposes. She expects her monthly turnover under
this option to be K490,000 (exclusive VAT). Her total monthly expenditure will be
K260,000 comprising standard rated expenses of K150,000 (VAT inclusive) and zero
rated expenditure of K110,000.
Option 4
This option will involve her business supplying, exempt children’s painting and drawing
books, zero rated school exercise books and standard rated stationery. Her monthly
sales will be K490,000 (excluding Value Added Tax).
She expects sales from children’s painting and drawing books to account for 20% of the
total sales and sales from exercise books to account for 35% of her sales while sales
from standard rated stationery will account for the remaining 45%.
The monthly standard rated expenses will be K245,000 (including Value Added Tax).
Required:
In respect of each of the four types of businesses considered:
(i) Explain the meaning and importance of the tax point for Value Added Tax
purposes. (2 marks)
(ii) Advise Lungu as to whether she will be required or permitted to register for
Value Added Tax. (4 marks)
(iii) Advise Lungu of the monthly amount of Value Added Tax payable or repayable
and recommend which business will be the most beneficial from a Value Added
Tax point of view.
(6 marks)
[Total: 20 marks]
81
QUESTION FIVE
FOR THE PURPOSES OF THIS QUESTION ASSUME THAT TODAY’S DATE IS 31st
DECEMBER 2016.
Zamefa Plc is a manufacturing company which prepares accounts to 31 December each year.
On 1 January 2016, the company listed its shares on the Lusaka Stock Exchange and
immediately offered 20% of the shares to indigenous Zambians.
Zamefa Plc made a net profit of K1,900,000 in the year ending 31 December 2016. The profit
was arrived at after accounting for the following transactions:
1. Legal and professional fees which included: K

Premium paid on the grant of a 15 year lease of new business 450, 000
Legal fees in connection with drafting of employee’s service
contract 20, 000
Costs incurred in connection with listing of shares on the
Lusaka Stock Exchange 95, 500
Costs incurred in connection with the disposal of non-current
Assets 12, 700
578, 200
2. Employees costs which included: K
Employee’s NAPSA contribution 190,000
Penalties for late payment of employer’s NAPSA contribution 35,500
Interest for late payment of PAYE 50,550
Staff training courses 64,000
Group life insurance policy premiums for employees 55,000
Write off of former Managing Director’s loan 88,000
Staff salaries and wages 4,300,000

4,783,050
The figure for salaries and wages include directors emoluments of K2,000,000, out of
which emoluments of K850,000 was paid to a new Managing Director who has been
accommodated in a company owned house for which he paid no rent.
82
3. Entertaining expenses which include, a New Year party for employees of K20,000,
Gifts of pens to customer costing K2.70 each displaying Zamefa Plc’s name at a total
costs of K3,000.
4. Depreciation on non-current assets of K75,000 and loss on disposal of non-current

assets of K15,400.
5. Initial repairs of K15,000, incurred on repairing a second hand factory building

purchased during the year, whose purchase price was reduced because it was not in
a good state.
6. Payments under the provisional tax system amounting to K950,000 in respect

of provisional tax.
7. Zamefa Plc received dividends from Shima Plc. amounting to K40,000 (gross) and
Treasury bill interest of K85,000 (gross) received during the year ended 31 December
2016.
8. Costs for damages of K40,000 paid to an employee who was injured when part of the
roof sheet of the second hand factory building collapsed. The company recovered
K36,000 from its insurance company.
Additional information:
1) Two personal to holder cars have been provided by the company to two of its
directors. The cars were provided to the commercial director and finance
director (CFO) throughout the tax year 2016 and have cylinder capacities of 2500cc
and 3000cc respectively. They were acquired at a cost of K 210,000 each.
2) Capital allowances on assets qualifying for wear and tear allowances were
determined to be K195,000 for the year ending 31 December 2016.
Required:
(a) Pre-trading expenditure depending on its nature may be deductible or may

not be deductible. Clearly state conditions a company should meet for pre-
trading expenditure to be deductible. (4 marks)
(b) Compute the taxable business profit for Zamefa Plc for tax year 2016.
(12 marks)
(c) Calculate the company’s income tax payable for the charge year 2016.
(4 marks)
[Total: 20 marks]
83
QUESTION SIX
FOR THE PURPOSES OF THIS QUESTION ASSUME THAT TODAY’S DATE IS 31st
DECEMBER 2016.
The current state of African economy leaves so much to be desired, Zambia in particular is no
exceptional. The increased cost of doing business makes it difficult for organisations to maintain
their profitability, as such businesses are now seeking cost saving measures to help the
situation.
Due to an economic recession, Mr. Mwanza Banda was declared redundant on 30th September
2016 by Landmark Limited, a company he worked for since he graduated from the University of
Zambia. His annual salary was K60,500.
Other income included:
Transport allowance K500 per month

Housing allowance K800 per month
Telephone allowance K3,600 per annum
Mr. Mwanza Banda received the following income on being declared redundant:
K
Leave pay 7, 500
Repatriation pay 13, 000
Accrued service bonus 54, 880
Salary in lieu of notice 9, 100
In addition, he received a total sum of K30,000 as pension. Half of this amount was an
employee’s pension refund and the remaining amount was an employer’s pension refund. Being
an experienced author, he received copyright royalties of K 5,000 (net) in November,2016.
The following payments were made by Mwanza during the tax year 2016:
K
P.A.Y.E 10, 720
NAPSA 1, 990
Mortgage interest 13, 340
Golf club subscription 2, 000
Professional subscription 1, 800
84
Required:
(a) Explain the impact of depreciation of the local currency on the main responsibility of
Zambia Revenue Authority (ZRA). (4 marks)
(b) Calculate the tax payable by Mwanza Banda for the tax year 2016. (16 marks)
[Total: 20 marks]
END OF PAPER
85
T5 SOLUTIONS
SOLUTION ONE
1.1 D
1.2 B
1.3 A
1.4 B
1.5 B
1.6 A
1.7 D
1.8 C
1.9 D
1.10 A
1.3
Normal income tax for farming companies 10%
Discount given for being listed on LUSE 2%
8%
NOTE: Only 25% of shares were given to indigenous Zambians, do not reach one-third
(1\3) threshold hence the further discount of 5% cannot be claimed.
K
1.4 Basic monthly salary(60,000/12) 5,000
Less: Pension (255)
4,745
Tax computation (PAYE)
K 3,000 @ 0% -
Next K 800 @ 25% 200
Balance K 945 @ 30% 284
K4,745 484
86
K
1.5 Total cost of constructing a new Building 600,000

Less: Cost of land (75,000)
Total construction costs 525,000
10% test, 10% x K525,000 = K52,500

The cost of the showroom (K50,000) does not exceeds 10% of the total construction cost
of the building as such the whole building qualifies as industrial.
K
Wear & tear allowance@ 5% x 525,000 26, 250

Initial allowance@ 10% x 525,000 52, 500
Investment allowance@ 10% x 525,000 52, 500
Total capital allowance 131, 250
1.6 Total value of Assets 300,000

Less: Value of truck (75,000)
Realised value of land 225,000
Property transfer tax =5% x 225,000 11, 250
K
1.8 Directors accommodation (K150,000 x 30%) 45,000
Personal to holder Nissan car with cylinder capacity 1500: 9,000
Total disallowable expenses 54,000
1.10 Recoverable non-attributable input tax=Taxable supplies x 100%

Total Taxable supplies
= 15,000 + 12,000
15,000 +35,000+12,000
= 44 %
87
SOLUTION TWO
a. CHIKWEKWE PWELE
INCOME TAX PAYABLE FOR THE CHARGE YEAR 2016
K K
Salary: (259,200 X 10/12) 216,000
Housing allowance: (77,760 X 10/12) 64,800
Transport allowance: (2,160 X 10) 21,600
Education allowance: (38,880 X 10/12) 32,400
Gratuity: (194,400 + 216,000) X 40 %( non- qualifying) 164,160
Repatriation pay 56,000
Severance pay 15,000
Leave pay 31,410
601,370
Less:
Professional subscription 2,300
NAPSA (216,000 X 5%) (Restricted) 3,060
(5,360)
Taxable income 596,010
Tax Computation
Taxable Income 596, 010 Tax rate Tax

First ( 36, 000) - -
560, 010
Next ( 9, 600) 25% 2,400
550, 210
Next ( 25, 200) 30% 7,560
Balance 525, 210 35% 183, 824
Total tax 193, 784
Less PAYE (137, 204)
Tax payable 56, 580
b. The following are the factors:

i. Engagement & dismissal
The employer will take on and dismiss employees by giving an appropriate
notice. Self-employed persons will normally enter into a contract with a client
specifying the beginning and the end.
88
ii. Control
The work of an employee is controlled by the employer who normally stipulate
the working hours. A self-employed person will decide when to perform the
duties and how to perform them.
iii. Work performance

Employees perform the duties assigned to them themselves, while the self-
employed person may hire helpers. The self-employed will normally have the
right to hire their helpers.
iv. Tools and equipment

An employee will provide the tools and equipment which the employees are to
use. Self-employed individuals will provide their own tools and equipment.
v. Exclusivity
Employees will normally have only one employer while a self-employed person
will normally have wider range of clients
SOLUTION THREE
a. (i) Value for Duty Purposes

$
Cost 25,200
Insurance 2,100
Freight charges 3,000
Incidental costs 1,850
VDP in US$ 32,150
Exchange rate K11.20
VDP in ZMW 360,080
89
Value of the Vehicle Total duties
K K
VDP for customs duty purposes 360,080
Customs duty @ 30% 108,024 108,024
VDP for excise duty purposes 468,104
Excise duty @30% 140,431 140,431
VDP for import VAT 608,535
Import VAT @16% 97,366 97,366
Value of the vehicle 705,901
Total duties paid 345,821
A (ii)The following are the documents needed for the clearance of the vehicle:
1. Commercial invoices
2. Bills of lading
3. Freight statements
4. Manifest or consignment notes
5. Insurance certificate
A (iii) Roles of the customs division of ZRA:
1. The division collects revenue for the central Government through customs The
division is responsible for protecting Zambian industries from unfair duty, excise duty,
Import VAT etc.
2. . E.g. Imposition of high taxes on imported goods.
i. foreign competition using various means under the customs and excise
Act
3. The division is responsible for preventing smuggling. I.e. Importation or exportation
of goods without being cleared by customs so that trade taxes are not charged on
them.
4. The division provides trade data and statistics to the Government via certain
agencies such as the Bank of Zambia, Central Statistics Office.
90
5. The division is also responsible for protecting the public by seizing harmful/dangerous
goods such as narcotic and psychotropic substances etc.
b. The following are the methods:

1. The price at which a licensed manufacturer of exercisable goods offers the goods for
sale on the open market.
2. The lowest price at which identical goods in the same quantity (or almost the same
quantities) are sold within Zambia by another manufacturer in the open market.
3. The lowest price at which identical goods in different quantities are sold within Zambia
by another licensed manufacturer in the open market.
4. The lowest price at which similar goods in the same quantity (or almost the same
quantities) are sold within Zambia by another licensed manufacturer in the open market.
5. The lowest price at which similar goods in different quantities are sold within Zambia by
another licensed manufacturer in the open market.
SOLUTION FOUR
(a) CHOMBO LTD

CAPITAL ALLOWANCES FOR THE CHARGE YEAR 2016
Cost/ITV Capital allowance
TOYOTA MARK II CAR K K
ITV b/f Nil
Disposal proceeds (15,600)
Balancing charge (15,600) (15,600)
Manufacturing Equipment
ITV b/f Nil
W & T @50% Nil Nil
Mitsubishi Canter Truck

ITV b/f (185,600 X 25/29 X 25% X 2) 80,000
W & T @25% (40,000) 40,000
91
ITV c/f 40,000
Toyota Hilux Van

ITV b/f (69,600 X 25/29 X 25% X 2) 30,000
W & T @25% (15,000) 15,000
ITV c/f 15,000
Manufacturing Equipment
Cost (125,280 X 25/29) 108,000
W & T @50% (54,000) 54,000
ITV c/f 54,000
Range Rover Car

Cost 80,000
W & T @20% (16,000) 16,000
ITV c/f 64,000
Computers
Cost (29,000 X 25/29) 25,000
W & T @25% (6,250) 6,250
ITV c/f 18,750
Total capital allowances 115,650
(b) CHOMBO LTD

INCOME TAX PAYABLE FOR THE CHARGE YEAR 2016
K
Adjusted business profit 392,906
Less:
Capital allowances (1) (115,650)

Taxable profit 277,256
Income tax @ 35% 97,040
Less: Provisional income tax (62,340)
Income tax payable 34,700
92
(c)
(i) Meaning and importance of the tax point:

The tax point is the time when a supply is deemed to have taken place for VAT
purposes.
The tax point is important in respect of supplies for VAT purposes because:
 The tax point is used for determining the tax period in which VAT relating to the supply
should be accounted for and;
 The tax point is used to decide which scheme or VAT rate will apply to a supply when
there is a change in the VAT scheme of VAT rate.
(ii) Kasenge Lungu’s position in relation to each of the four business options is as follows:
Position in regards to VAT registration:
Option 1
Under this option she will be permitted to register for VAT as all her sales will be
standard rated.
Option 2
Under this option since all sales will be exempt supplies she will not be permitted to
register for VAT and consequently she will not be able to claim any input VAT on her
expenditure.
Option 3
Under this option all sales will be zero rated and Lungu will therefore be required to register for
VAT.As a consequence she will be able to claim input VAT on her standard
rated expenses.
Option 4
Under this option Lungu will be permitted to register as a partially exempt trader,and as
such some of the sales will be taxable and others will be exempt.
(iii) COMPUTATION OF VAT PAYMENTS AND REPAYMENTS UNDER EACH OPTION
Option 1: All sales will be standard rated:

K
Output tax (K410,000 X 16%) 65,600
Less:Input tax(K250,000 X 4/29) (34,483)
93
VAT payable 31,117
Option 2:All sales will be exempt
Since all the sales under this option will be exempt, there will be no payments and
repayments of VAT. All input will be attributed to exempt supplies and it would not be
recoverable.
Option 3:All sales will be zero rated:

K
Output tax (K490,000 X 0%) Nil
Less input tax:
Standard rated expenditure (K150,000 X 4/29) (20,690)
Zero rated expenditure (K110,000 X 0%) Nil
VAT refundable (20,690)
Option 4: Part of the sales will be taxable and the other parts are exempt:
K
Output VAT
Standard rated sales (K490,000 x 45%) x 16% 35,280
Zero rated sales (K490,000 X 53%) X 0% 0
35,280
Recoverable input VAT (K245,000 X 4/29) X 80% (27,034)
VAT payable 8,246
(W1) Recoverable non-attributable input VAT= Total taxable supplies x 100%

Total supplies
-Exempt supplies (K245,000 X 20%)= K49,000
-Zero rated supplies (K245,000 X 35%)= K85,750
-Standard rated supplies (K245,000 X 45%)= K110,250
Total supplies 245,000
=85,750 +110,250 X 100%

245,000
=80%
94
SOLUTION FIVE
(a) Pre-trading expenditure is expenditure that are deductible by statute:
-The expenditure must have been incurred within a period of eighteen months prior to
the commencement of the business.
-The expenditure must be of a type that should have been allowed had the business been
carried on at that time.
(b) COMPUTATION OF TAX ADJUSTED BUSINESS PROFITS

K K
Net profit as per accounts 1,900,000 ½
Add:
Premium on grant (K450,000-(K450,000/15yrs) 420,000
Cost incurred on disposal of assets 12,700
Cost of share issued 95,500
NAPSA contribution 35,500
Interest on late payment of PAYE 50,550
Loan written off to director 88,000
Accomodation benefit (K850,000 X 30%) 225,000
Depreciation 75,000
Loss on disposal of capital assets 15,400
Initial repairs of buildings 15,000
Provisional Tax 950,000
Personal to holder cars:
-Commercial director’s car 15,000
-Finance director’s car 20,000
Insurance recoveries (K40,000-K36,000) 4,000
2,021,650
3,921,650
Less:
Capital allowances 195,000
Dividends 40,000
Treasury bill interest 85,000
(320,000)
3,601,650
95
(c) Zamefa Plc
COMPANY INCOME TAX COMPUTATION FOR THE TAX YEAR 2016
K
Business profits 3,601,650
Treasury bill interest 85,000
Total taxable profit 3,686,650
Company income tax

K3,686,650 X 33% (i.e 35%-2%) 1,216,595
Less WHT on interest (85,000 x 15%) (12,750)
Provisional income tax (950,000)
253,845
SOLUTION SIX
a) The depreciation of the kwacha may results in Government through Zambia Revenue
Authority failing to meet its target on tax revenue collection. This is because most of the
businesses are scaling down on their operations. When these business operations close
down the effect is that corporate tax(Income Tax) on such companies is lost out. The
number of retrenchments of employees comes with reduction in Pay as you earn tax
collected by organization on behalf of employees.
(b) Mwanza Banda-Tax payable 2016
K K
Basic salary( K60,500 X 9/12 ) 45,375
Transport allowance (K500 X 9) 4,500
Housing allowance (K800 X 9) 7,200
Telephone Bills (3600X9/12) 2,700
Pension refund 15,000
Leave pay 7,500
Salary in lieu of notice 9,100
91375
Add: Other Income
Royalties(K5 000 x 100/85) 5,882
97257
Less: Allowable deductions
NAPSA 1,990
Professional subscription 1,800
(3,790)
96
Taxable Income 93467
Tax computation-(on P.A.Y.E)
First K36,000 @ 0% -
Next K9,600 @25% 2,400
Next K25,200@30% 7,560
Bal K22,667@35% 7,933
17,893
Less: Tax credit
-P.A.Y.E (10,720)
-WHT-Royaties (15% X 4,882) (882)
Tax payable 6,6291
Tax on terminal benefits K
Repatriation pay 13,000
Accrued service bonus 54,880
67,880
Less: Exempt (35,000)
32,880
Tax K32,880 X 10% 3,288
Tax on Employee Pension Refund
Pension-K15,000 X 10% = 1,500
Summary of Tax K
Tax on normal-P.A.Y.E 6,291
Tax on terminal due 3,288
97
Tax on pension 1,500
Tax payable 11,079
END OF SOLUTIONS
98
_______________________
TECHNICIAN LEVEL
________________________
T6: MANAGEMENT
_______________________
TUESDAY 13 DECEMBER 2016
_______________________
________________________
start writing.
2. There are FIVE questions in this paper. You are required to attempt any FOUR. ALL
questions carry equal marks.
99
Attempt any FOUR (4) Questions
QUESTION ONE
(a) D.K company is operating as a private limited company and has intensions of
incorporating into a public limited company. As a business consultant you have been
approached by the managing director for D.K company. Advise by stating what a public
limited company is, giving its four (4) advantages and four (4) disadvantages.
(9 marks)
(b) Recent Developments in Telecommunications and Computer Technology such as video

conferencing, Skype and others have made decentralization and delegation quick, easy
and convenient.
Give four (4) reasons why modern organizations may decentralize and delegate their
business operations/activities. (8 marks)
(c) Change Management is critical because not only does it form an integral part of strategic
planning but it is also important for growth and survival of organizations that typically
operate in environments characterized by stiff competition.
Define Change Management and discuss the three (3) stages involved in planned
change processes. (8 marks)
[Total: 25 Marks]
QUESTION TWO
(a) Job analysis is used to develop a job description and person specification to guarantee
an effective recruitment and selection processes. In relation to this statement, explain
fully the following terms:
(i) Job description (2½ marks)

(ii) Person specification (2½ marks)
(b) State the arguments against job interviews as a tool used for selection of candidates for
employment. (10 marks)
(c) The Government has plans of establishing mealie-meal plants in all the provinces.
State three (3) arguments for, and two (2) against, the establishment of these plants.
(10 marks)
[Total: 25 Marks]
100
QUESTION THREE
(a) Max Weber argued that large organizations should adopt bureaucratic principles as a
system of management.
Outline any five (5) demerits leveled against bureaucratic organizations.

(10 marks)
(b) Setting goals is a powerful way of motivating people.
Discuss the characteristics of goal setting as specified by the Goal-Setting Theory.

(7 marks)
(c) In any given organization, there exists organizational cultural ‘assumptions’ but the
way organization culture manifests itself differs from one organization to another.
(i) Explain what is meant by organization cultural ‘assumptions.’ (2 marks)

(ii) Outline any six (6) ways in which organizational culture may manifest itself in the
organization. (6 marks)
[Total: 25 Marks]
QUESTION FOUR
(a) Giving pratical industrial examples, differentiate the following terms as related to
organizational change:
(i) Strategic change (4 marks)
(ii) Incremental change (4 marks)
(iii) Unplanned change (4 marks)
(b) Kuyuka Mining Company is intending to open a mine in Kabompo of North Western
Province of Zambia. Its operations will possibly attract many stakeholders.
Required:
(i) Define the term stakeholder. (3 marks)
(ii) Identify any five (5) possible stakeholders that will be attracted with the mine’s
operations and their major interest. (10 marks)
[Total: 25 Marks]
101
QUESTION FIVE
(a) Fielder, one of the supporters of the Contingency Theory, puts managers as leaders into
two groups: Psychologically Distant Managers (PDMs) and Psychologically Close
Managers (PCMs).
Discuss the key features each of these two (2) types of Contingency Leadership
styles.
(10 marks)
(b) Management Gurus argue that both internal and external environmental factors
influence strategic decision making in organizations.
Discuss this statement in relation to five (5) external environmental factors that
influence strategic decision making in organizations. (10 marks)
(c) Give an outline of five (5) core functions of Management as identified by Henri Fayol.
(5 marks)
[Total: 25 Marks]
END OF PAPER
102
T6 SOLUTIONS
SOLUTION ONE
(a) A public limited company is formed by and owned by at least two persons, but there is
maximum legal limit to the number of shareholders. Its name must end with the words
public limited company abbreviated as PLC.
Advantages
i. The shares are traded on the Lusaka Stock Exchange.
ii. Are able to raise large amount of capital through the sale of shares on the stock
market.
iii. The large of PLCs means that banks are often willing to lend them money.
iv. Large companies are also able to invest in modern equipment and technology,
and so are more efficient than most small businesses.
Disadvantages of PLCs
i. Are regulated more strictly than private limited companies. Compliance with laws
and regulations is expensive.
ii. There is little secrecy because the audited accounts must be published annually.
iii. Large companies may be difficult to manage because of their size.
iv. There is a risk of takeover bid by bigger companies when a company is listesd on
the stock market
(b) Reasons why organizations may prefer decentralization and delegation of business
activities
(i). Greater speed of Decision making:
Information Communication Technology (ICT) has made it possible for geographically

dispersed offices to easily carry out decision making or implement policies from head
office away from head office at the click of a button. For delegated offices/ branches,
this speeds up decision making process since there is no need to refer senior
management at the head office. The decisions made at the branches or regional offices
can easily be made available to the senior management at the head office thanks to
ICT.
103
(ii). Separate Spheres of Responsibility can Be Identified
Decentralization and/or delegation makes it possible to identify separate areas of

responsibility. For instance, Northern Division could be Charged with production of one
type of good and another tasked with another. With the availability of ICT, it is easy to
follow and communicate with other branches/divisions and the head office can easily
monitor. This results in better Control, performance measurement and accountability.
(iii). ICT allows decisions to be made locally, with information and input from head
office if required. This promotes flexibility and allows activities to be tailor/custom
made.
(iv). Delegation and Decentralization helps to nurture and Develop

Leadership among employees.
Decentralization promotes creativity and innovation among junior managers. That is,
delegation and decentralization helps to develop the skills of junior managers at the
branches/divisions. ICT helps them to easily consult senior management.
Decentralization and delegation supports easy and smooth succession in organizations.
(v). Improves motivation and morale of junior employees/ Managers
Delegation and decentralization builds confidence and raises morale and motivation
among junior staff/managers at the branch offices/ regional offices as they learn to
make day to day decisions with less involvement of senior Managers at the head office.
(vi). Reduces work load on senior management and thus makes them more
efficient.
Decentralization and delegation reduces the work load on senior management. This
enables senior management to have ample time to concentrate on more challenging
tasks/decision there by making them more effective and efficient.
(c) Planned Change occurs when management trigger the due to perceived benefits or short
falls in the skills. Knowledge or systems. The process typically goes through three (3)
processes:
Stage 1 : Unfreeze
This is the first stage in the planned change process. This is the process of getting
individuals in the organization to recognize that change is desirable. Given that the initial
attitudes of employees are initially ‘ frozen’ that is, they don’t see the need for any
change, there is need to unfreeze their attitudes and opinions. This done by making
employees feel dissatisfied with the current state of affairs and thus the need to be
persuaded by management that planned change will bring desirable improvements.
104
Stage2: Movement/Initiate Change
This entails initiating or implementing change. That is movement is initiated from the old
way of doing things to the new way. According to Lewin, this stage should only be
embarked upon when unfreezing is successfully done.
Stage 3: Re-freeze
This is the final stage in the planned change management. After change has been
implemented, the new way(s) of doing things should be sustained. This means that
organizational people should be prevented from going back to the old way of doing
things, attitudes and thinking. To refreeze successfully, there may be need to reward
individuals such as paying bonus or paying higher salary based on performance or
adherence to new procedures/methods.
SOLUTION TWO
(a)
i. Job description
This is a document that describes the overall purpose, duties and
responsibilities of a specific job. The contents of the document are job title,
duties and responsibilities, reporting system, authority limits, conditions of
work etc.
ii. Person specification

This is a document that gives a list of knowledge, personal qualities,
Skills,qualifications and experience a job holder must have to perform
that job in a satisfactory manner. Person specification may include
education qualifications, physical and mental fitness, emotional stability,
interpersonal skills etc
(b) Arguments against interviews
 Halo effect
This is a tendency to make a judgement on a person based on a single
favourable attribute or characteristic of another person. The interviewer will exalt
the candidate because they share something common and this will influence the
judgement.
 Horns effect
This is a tendency to make a perception and judgement on a person based on a
single unfavourable attribute of another person.The interviewer dislikes a
candidate because of certain attributes such as personality, dressing etc which
influences their judgement.
 Stereotyping
Making a judgement on someone on the basis of one’s perception of the group
to which that person belongs e.g woman, physically challenged, race, religion etc
 Unskilled and inexperienced interviewers
105
 The interview could be artificial, meaning that candidates may be nervous or at
their best behaviour.
(c)
Argument for establishment of government mealie meal plants
 The product can be distributed and made available to all places that are
considered to be non-profitable by the private sector.
 The product can be made available to the citizens at a cheaper price.
 Government may decide to have control in terms of supply and price in the
interest of the public in order to prevent exploitation from the private sector.
 Create employment for the citizens therefore reducing poverty levels.
Arguments against establishment of government mealie meal plants
(i) This may discourage investment in this industry by the private sector.
(ii) The operation of public institutions may prove to be inefficient and waste
of public resources.
(iii) There could be political interference in the management of such
institutions.
SOLUTION THREE
(a) Demerits(criticisms)leveled on Bureaucratic organizations.
 Bureaucracies may give managers the opportunity to hide from responsibility, by

following the rules and claiming that they were just following the rules.
 Impersonal relations can lead to stereotyped behavior and a lack of

responsiveness to individual incidents or problems.
 Initiative may be discouraged by existence of rules and procedures.
 Managers within a bureaucracy may have too much concern for position and
status, and may not be flexible and adaptable in their approach to management
 There is too much emphasis on conformity with rules and procedures, record
keeping. This may result in losing sight of purpose for which the rules were
made.
 Bureaucracies are slow to react to change
106
(b) The characteristics of goal setting as specified by Goal-Setting Theory.
 Clarity of goals, employees are motivated by clear goals and appropriate feedback.
Working towards the goal provides motivation to achieve it , which in turn, improves
performance.
 Complex goals are difficult goals that lead to better performance than simple or
vague goals
 Challenging goals. The more challenging the goal, the higher the performance.
 Feedback: this is information about actual performance. Feedback helps individuals

to improve performance and achieve their goals.
 Involvement: involving the employee in the goal setting process, improves

information exchange rather than securing commitment to the goal.
 Employees are most likely to buy in to a goal if they had a part to create that goal.
(c)
(i) Organization culture assumptions refer to the ‘unspoken rules’ underlie values and beliefs in
an organization. These unspoken rules are apparently no longer consciously recognized or
questioned but ‘program’ or influence the ways in which the organization and the people in it
think and behave. For instance, it is common for workers/employees in most organizations to
operate in a laissez faire manner on Fridays because they believe that Fridays signal the
beginning of weekend, and thus the thinking and behavior tends gravitate towards weekend
mood/work attitude.
(ii) Culture in any organization may manifest itself in any of the following manner or ways:
 Office layout/arrangement
 Freedom for subordinates/employees to show initiative/creativity
 Attitudes to customers/clients
 How formal the organization structure is.
 Management style( democratic, dictatorial etc)
 Type of people employed
 Communication- approachability of senior managers by subordinates( the easy or

difficulty associated with approaching senior managers)
 Attitudes to risk (taking behavior)
107
 Attitudes to quality
 Attitudes to technology
SOLUTION FOUR
(a)
 Strategic change
This alters the overall shape or direction of the organisation. This covers the
change in vision and mission of the organisation, corporate philosophy on
growth, quality, innovation and values concerning employees, customer needs
and technology used. Strategic change results into the organisation gaining a
competitive advantage that makes it to be profitable.
 Increamental change
This involves changes that take place within the subsystem of the organisation
that keep it on course. The change happens without the need for major
restructuring of the organisation.
 Unplanned change
This is the changes made in response to unexpected business environmental
events. This is reactive change to respond to change in the business
environment such as entrance of new competitors.
(b)
(i) Stakeholder
This is an individual or institution that has particular interest in the operations
and activities of the organisation or are directly or indirectly affected by the
operations of the organisation.
(ii) The following are the stakeholders
 Employees: They need better conditions of service and job security.

 Community: They expect the mining company to practice corporate social
responsibility such as construction of schools, clinics, employment of locals etc
 Government: The interest is to see the company comply with the various laws such as
tax law, environmental laws, labour laws etc.
 Shareholders: The interest is to see the company being profitable for them to recoup
the invested funds and make a positive return out of their investment.
 Creditors/ Banks: To see to it that the company is profitable and honours its financial
obligations.
108
SOLUTION FIVE
(a) Contingency Theory approaches to leadership argue that there is no one right way
to lead and that leaders need to adapt their style to the needs of the team and
situation.
Fielder identified two types of leaders as a management style
(i). Psychologically distant managers (PDMs)
These managers maintain distance from their subordinates. The following are the key
features of this leadership style
 They formalize their roles and relationships between themselves, their superiors and
subordinates
 They choose to be withdrawn and reserved in their inter-personal relationships within

the organization.( even though most of them possess good interpersonal skills)
 They prefer formal consultation methods rather than seeking opinions of their staff
informally
 This leadership style makes managers evaluate the subordinates based on the basis of
their performance.
 The managers who use this leadership style are task oriented
 This leadership style is relatively stable.
(ii). Psychologically Close Managers (PCMs)
These managers are close to their subordinates. That is they easily mingle (socialize) with their
subordinates. Key features of this leadership style include:
 Managers are supportive to their subordinates
 They do not seek to formalize roles and relationships with superiors and subordinates
 They are more concerned with maintaining good human relationship at workplaces than
ensuring that tasks are carried out efficiently
 They prefer informal contacts to regular formal staff meetings and/or consultations
 Evaluation of employee performance may be subjectively done based on how well they
get along with other employees( ability to be a team leader/team player)
 This leadership style may be difficult predict and is relatively unstable.
109
(b) Understanding the macro-environment is crucial to strategic decision-makers in the processs
of strategic planning.
The external environmental factors are macro-environmental factors

assessed using PESTEL analysis. The following are the variables or factors that are
found in the external-business environment to be considered for strategic decision
making in organizations:
(i) Political environment
Political factors have a strong influence on the business. Political parties have
different economic and social ideologies that may affect the operations of the
business in a positive or negative way. In the process of strategic planning issues
that should be considered are political stability, legislation concerning business,
governments investment policy etc.
(ii) Economic environment
The economic condition has a strong influence on strategic planning. Managers need
to consider economic factors when making strategic plans such as inflation rates,
foreign exchange rates, interest rates, economic growth rate, taxation rates,
employment levels etc. The stability of the economic indicators will enable
businesses to make strategic decisions with certainty.
(iii) Social environment
The community in which the business operates in has an influence, in terms of social
values, culture and demography. It is from the community that the business will
source for its employees and customers. Elements in the social environment include
skill levels, attitude to work, spending patterns by consumers, population
distribution, religion influence, the issue of gender in employment etc.
iv) Technological environment
Rapid advancement in technology is exerting influence on business organizations.

The level of technology determines what products and services will be produced,
what equipment will be used how operations will be managed. Development in
information, communication technology by use of computers has presented
opportunities and threats to businesses. Therefore, the company should consider
technological change in its strategic planning for it to survive in the industry.
(v) Legal environment
Strategic planning is influenced by the laws and regulations that limit the operations
of the business to protect the society at large. These laws include labor law,
company law, health and safety laws, consumer protection act, taxation law etc.
110
change in these laws should be taken into consideration during strategic planning
process.
(vi) Ecological and environmental factors
Economic activities have resulted into physical environmental degradation through

pollution, mining, lumbering etc. This has compelled the government to develop laws
to regulate and protect the environment. This has made companies to consider the
issues of the environment in their strategic planning.
(c) The Five (5) core functions of management as enumerated by Henri Fayol include:
 Planning:
Management has the responsibility of deciding objectives, strategies, policies,

programs and procedures for the organization and its various sub
units(departments).
 Organizing
This refers to establishing structures of tasks/duties/roles that need to be performed

to achieve the goals of the organization. This involves grouping tasks for individual
employees, teams/groups, delegating authority, providing systems of information
and communication ( channels of communication) among others.
 Commanding
This basically refers to issuing /giving of instructions to subordinates by senior

managers (supervisors). The manager giving out instructions should have authority
to make decisions and responsibility for performance
 Co-ordinating
This function of management implies harmonizing the goals and activities of

individuals and groups within the organization. It is the core duty/function of
management to reconcile differences in approach, effort, interest and timing, in
favor of overall shared goals.
5.Controlling; This is measuring and correcting the activities of individuals and

groups to align performance to plans. (Monitoring and evaluation) (1 mark each=
5marks
END OF SOLUTIONS
111
_______________________
TECHNICIAN LEVEL
________________________
T7: INFORMATION TECHNOLOGY AND COMMUNICATION

_______________________
WEDNESDAY 14 DECEMBER 2016
_______________________

________________________
start writing.
2. This paper is divided into TWO (2) sections:
Section A: Four (4) Optional Information Technology Questions. Attempt any three
(3) questions.
Section B: Three (3) Optional Communication Skills Questions. Attempt any two (2)
questions.
3. Enter your Student Number and your National Registration Card number on the front of
112
SECTION A
Attempt any three (3) questions from this section
QUESTION ONE
Controls are a very important aspect to restrict access to computer equipment and data.
Required:
(a) Write short notes on the following security controls:
(i) Identification and Authentication (4 marks)
(ii) Encryption (4 marks)
(iii) Physical and Environmental Security (4 marks)
(b) Give a brief explanation of any four (4) of the following key data quality principles:
(i) Relevance
(ii) Timeliness
(iii) Accuracy
(iv) Coherence
(v) Interpretability
(vi) Accessibility (8 marks)

[Total: 20 Marks]
QUESTION TWO
(a) Distinguish between Application Software and System Software, giving a typical example
for each. (4 marks)
(b) Explain the following spreadsheet features and give examples where appropriate.
(i) What-if analysis (2 marks)
(ii) Function (2 marks)
(iii) Macros (2 marks)
(iv) Consolidation (2 marks)
(v) Active cell (2 marks)
113
(c) The following is the receipt that was extracted from Mrs. Mvula’s file.
A B C D E F
1 ITEM QTY UNIT AMOUNT DISCOUNT TOTAL
PRICE 8% AMOUNT
2 SUGAR 5 K25.00 a b c
3 BREAD 4 K10.00
4 SALT 6 K8.50
5 BOOKS 8 K12.80
6
7 LOWEST DISCOUNT d
10 COUNT THE ITEMS e
(i) Insert the formulae in a, b and c to complete the receipt.

(3 marks)
(ii) Insert the function for d and e (3 marks)

[Total: 20 Marks]
QUESTION THREE
(a) One way of classifying Information Systems (IS) is by organizational level. Identify
three (3) types of IS at different organizational levels, giving an example of each and
clearly indicate their relative levels within the organizational hierarchy. (12 marks)
(b) Write brief notes on each of the following functions of the operating system.
(i) Memory management (3 marks)
(ii) File management (3 marks)
(c) Explain the term privacy as used in computer security. (2 marks)

[Total: 20 Marks]
QUESTION FOUR
Data management can be said to be a process involving collection, entry, analysis, and
presentation of data.
Required:
(a) Define the term data quality. (2 marks)
(b) Explain any two (2) advantages and one (1) disadvantage of computer-based
Databases. (6 marks)
114
(c) (i) Give two (2) advantages of using OMR for the input of lottery numbers
compared with other possible means of data capture. (4 marks)
(ii)Briefly describe one (1) other situation where OMR is ideal as a method of
data capture and give your reason. (4 marks)
(d) State any four (4) disadvantages of using spread-sheets in data management.
(4 marks)
[Total: 20 Marks]
SECTION B
Attempt any two (2) questions from this section
QUESTION FIVE
When planning communication messages, it is advisable to take into consideration the PASS
and the KISS framework.
Required:
(a) Briefly explain any five (5) purposes people communicate in business organisations.
(5 marks)
(b) State any four (4) aspects of the audience that you need to consider when
communicating. (4 marks)
(c) Briefly explain any four (4) aspects of the structure that you need to consider when
communicating. (4 marks)
(d) State any two (2) aspects of style that you need to consider when communicating.
(2 marks)
(e) Briefly explain any five (5) meaning of keeping the message short and simple.
(5 marks)
[Total: 20 Marks]
115
QUESTION SIX
SCENARIO
One of the clerical staff in the department of the organisation that you work for has been
assigned to work in the field following many customers owing the organisation. The assigned
staff is expected to prepare a written report after field work. You have been requested to hold a
brief meeting with the staff highlighting on the different sections that needs to be included in a
final report that will be required for submission.
Required:
(a) Write a memo to notify staff about a meeting to be held in preparation for the field work
regarding the content of a short formal report. (5 marks)
(b) Explain the details of the sections of a short formal report that you need to highlight to
the person who has been assigned to work in the field. (15 marks)
[TOTAL: 20 Marks]
QUESTION SEVEN
Use the following market share information in the Milling industry for company X for the year
2015 and answer the questions that follow:
Quarterly Sales Figures: (’000 X 50kg Bags sold)
QUARTER PRODUCTS
Rice Flour Stock Feed M/Meal Masembe
January – March 2015 75 160 200 300 60
April – June 2015 72 142 150 300 56
July – September 2015 70 130 145 250 48
October – December 2015 65 125 136 200 42
Required:
(a) Explain the difference in the three types of Bar Charts namely; simple, compound and
multiple. (6 marks)
(b) Illustrate the information presented in the table above in form of a multiple bar
chart. (10 marks)
(c) Interpret the results from the multiple bar chart. (4 marks)
[Total: 20 Marks]
END OF PAPER
116
(T7) SOLUTIONS
SOLUTION ONE
a)
(i) Identification and Authentication
Identification and Authentication is used to prevent unauthorized personnel from
entering an IT system. Implement strong mechanisms to identify and authenticate users
to ensure that they are authorized to access the interconnection. Mechanisms that may
be used include user identification and passwords, digital certificates, authentication
tokens, biometrics, and smart cards. If passwords are used, they should be at least
eight characters long, have a mixture of alphabetic and numeric characters, and be
changed at predetermined intervals. Master password files should be encrypted and
protected from unauthorized access.
(ii) Encryption
Encryption is used to ensure that data cannot be read or modified by unauthorized
users. When used properly, encryption will protect the confidentiality and integrity of
data during transmission and storage, and it may be used for authentication and non
repudiation. Encryption may be implemented in devices such as routers, switches,
firewalls, servers, and computer workstations. Configure devices to apply the
appropriate level of encryption required for data that pass over the interconnection. If
required, implement encryption mechanisms (e.g., digital signatures) to authenticate
users to the interconnection and to ‘shared’ applications, and to provide non repudiation.
(iii) Physical and Environmental Security
Physical security addresses the physical protection of computer hardware and software.
Place hardware and software supporting the interconnection, including interconnection
points, in a secure location that is protected from unauthorized access, interference, or
damage. Ensure that environmental controls are in place to protect against hazards such
as fire, water, and excessive heat and humidity. In addition, place computer
workstations in secure areas to protect them from damage, loss, theft, or unauthorized
physical access. Consider using access badges, cipher locks, or biometric devices to
control access to secure areas. Also, consider using biometric devices to prevent
unauthorized use of workstations.
117
b) Key data quality principles used in quality assessments and reporting
 Relevance – whether the data meets the needs of users. Data would not be
relevant if it does not meet the needs of the users because it would not give a
response to the particular needs.
 Timeliness – the time between the data being collected and being available to
users. Data should be made available on time because the needs may change.
 Accuracy – whether the data correctly describes what was measured or input.
The data should accurately set up for a pending question.
 Coherence – whether the data can be used in conjunction with other data or if
it can be used over periods of time.
 Interpretability – whether external information is available to help interpret
the data. If it lacks interpretability then it creates a problem with clarity.
 Accessibility – whether the data can be obtained by users easily. If it cannot
be accessed then it will still not meet the users’ needs.
SOLUTION TWO
a) Application software is the software that is designed for user’s problems and enables
them to use the computer. For example, word processor, spreadsheet, PowerPoint,
payroll etc.
System software is the software is designed for computer system and enables
packages to run on the computer. For example, operating system, drivers, utility
programs etc.
b)
i) What-if analysis
The process of determining the effects on outcomes in a statistical model
or spreadsheet calculation through systematic changes in the input. For
example, in the budgeting process, many factors, such as future tax
rates, interest rates, inflation rates, employee count, expenses, are
variable to the extent that they can deviate from expected values. Also
called sensitivity analysis.
118
ii) Function
Like formulas, functions begin with the equal sign ( = ) followed by the
function's name and its arguments. The function name tells Excel what
calculation to perform. The arguments are contained inside round
brackets.For example, the most used function in Excel is the SUM
function, which is used to add together the data in selected cells.
iii) Macros
An Excel macro is a set of programming instructions stored in what is
known as VBA code that can used to eliminate the need to repeat the
steps of commonly performed tasks over and over again.
iv) Consolidation
If you have related data spread out over a number of locations, it can be
difficult to keep track of it as you flip back and forth between the
different worksheets. One way to simplify such a situation is to create a
summary sheet using the consolidate feature.
This feature allows you to combine the data from different worksheets or
even different spreadsheets onto a single page.
In addition, when consolidating data, you have the option of creating a
link between the new worksheet and the original data sources.
v) The active cell is the cell surrounded by a black border. The black
border is referred to as the active cell highlight
c)
i) a:- =B2*C2 b:- =D2*8% or D2*0.08 c:- =a2-b2
ii) d:- =min(e2:e5) e:- =counta(range)
119
SOLUTION THREE
a) The following shows information systems which are classified by organizational levels:
The following are the examples of each information system:
INFORMATION SYSTEM EXAMPLES

Executive information systems i. Any customizable information
system
Decision support systems i. Group Decision Support Systems
(GDSS)
ii. Computer Supported Co-operative
work (CSCW)
iii. Logistics systems
iv. Financial Planning systems
v. Spreadsheet Models? etc
120
Management information systems i. Sales management systems
ii. Inventory control systems
iii. Budgeting systems
iv. Management Reporting Systems
(MRS)
v. Personnel (HRM) systems etc
Transaction processing systems i. Payroll systems

ii. Order processing systems
iii. Reservation systems
iv. Stock control systems
v. Systems for payments and funds
transfers etc
b) Brief notes on each of the following functions of the operating system

i) Memory management
• Memory manager is primarily concerned with the allocation of the physical main
memory to processes. Operating system enables concurrent execution of
processes.
• Operating system protects processes from each other when executing
concurrently.
• Operating system makes the addressing of memory space as transparent as

possible to the programmer
• Virtual memory allows partially loaded application programs to be executed.
ii) File management
The file management part of the operating system is charged with managing the data
that resides on secondary storage. It performs four main functions:
• Keeps track of all files in the system
• Controls sharing and enforces protection of files.
• Manages disk space and its allocation and de-allocation
• Maps logical file addresses to physical disk addresses
c) This is the security goal that restricts the number of people to view or hear sensitive
information. Data, especially personal data should not be shared with third parties.
121
SOLUTION FOUR
a) Data quality is a perception or an assessment of data's fitness to serve its purpose in a

given context and value for money (i.e., error free data).
b) The following the advantages and disadvantages of computer-based Databases:
Advantage Disadvantage
Faster Complex
Accurate Machine dependant
Cost effective Initial costs are high
Consumes space on the hard

Easy to enforce security etc disk etc
c) The advantages of optical mark reader (OMR) for lottery numbers over other data
capture methods:
(i) Less Prone To Human Errors
(ii) A Wide Range Of Documents Is Catered For
(iii) More Visible
(iv) Faster etc
Situations where OMR is ideal:
(i) Marking Grade seven (7) examinations sheet:-OMR captures the shadings
created on the sheet for processing
(ii) College or university pre-printed application forms:-OMR captures bulk data
from the students application forms
(iii) Billing forms:-OMR captures data from the billing form.
d) Disadvantages of using spread-sheets
 A spread-sheet is only as good as its original design, garbage in – garbage out!
 Formulae are hidden from sight so the underlying logic of a set of calculations
may not be obvious
 A spread-sheet presentation may make reports appear infallible
 Research shows that high proportion of large models contain critical errors
122
 A database maybe more suitable to use with large volumes of data
SOLUTION FIVE
This question was derived from unit 2A of the syllabus and was testing the
candidates on the knowledge and understanding aspects that are to be considered
in order to achieve clear and effective communication in all situations.
(a) PURPOSE
There are different purposes of communication. Some specific purposes include:
(i) To persuade, getting others to agree to do something or getting customers to buy a

product.
(ii) To raise awareness about a product

(iii) To inform people the message they need
(iv) To request for something
(v) To build effective teams
(vi) To confirm that the message has been received or verify information
(vii) To call for a meeting
(b) AUDIENCE
It is important to know the audience characteristics in terms of:
Age, attitudes, levels of education and cultural differences. Other aspects to consider Include:
The validity or relevance of the individuals needs and interest. The audience’s needs and
beliefs etc.
123
(c) STRUCTURE
Structure involves:
(i) The volume of information to be communicated.
(ii) The selection of material according to relevance and importance.

(iii) The classification of material into groups.
(iv) The ordering of groups of information so as to achieve desired results.
(v) The shape or pattern of the argument as a whole.
When structuring messages in communication, logical presentations of ideas can be achieved by
the following common options:
(i) Chronological order- that is sequence according to time and date.
(ii) Order of importance – descending and ascending order-Starting with the most important
points first and end with the less important points or vice versa.
(iii) Order of complexity- This method works better in ascending order presenting simple
ideas first and progressing to difficult ones later on.
(iv) Looking at both sides of the story- giving both sides of the story increases the messages
credibility.
(d) STYLE
The style when communicating should include the choice of vocabulary, tone, and general
grammar or use of language.
(e) The meaning of keeping messages short and simple (KISS):
(i) Planning the message well by ensuring that it is well structured
(ii) It must be very clear

(iii) Avoiding using of unfamiliar words, use simple language
(iv) Separating detailed data from the main body by using appendices or attachments.
(v) Eliminating unnecessary words and phrases
(vi) Writing in reasonably short sentences
124
SOLUTION SIX
(a) This question was derived from unit 2B of the syllabus andwas testing the
candidates on theapplication aspect of written communication skills such as
meeting documentation and formal reports.
Memorandum
To: All clerical staff (accounts)
From : Assistant Accountant
Date: Any date during examination time
Ref :Acc/124/2015
Subject: Notice for a meeting
The serves to inform you that there will a meeting on….. (any date during examination period)
to explain how a short formal report should be structured in preparation for field work. The
meeting will be held at 1000 hour in the boardroom.
(b) TITLE OF THE REPORT
This is the subject of the report. It suggests the general picture of what the report is all about.
1. TERMS OF REFERENCE/INTRODUCTION
Terms of reference usually states the purpose and scope of the report, what is to be
investigated, what kind of information is required, whether recommendations are required or
not. In most cases this section is combined with the introduction. It may include the
background information to the subject and a brief summary of what the report is all about.
2. PROCEDURES/METHODOLOGY
This section outlines the methods used to collect information in the field. You may include one
advantage or so for choosing a particular method. Some of the commonly used methods to
collect information include the following:
a. Questionnaires
b. Interviews
c. Observations
d. Literature or book review
125
3. FINDINGS
This section contains the facts in your investigation. The information is set forth with
appropriate headings & subheadings. Related items need to be classified or grouped together
under one heading or subheadings. The content should be complete, relevant, and accurate &
presented in logical manner.
4. CONCLUSION
This section allows for a summary of main findings (if a report is complex & lengthy). For a
simple report it may include action taken or decision reached if any as a result of the
investigation n it may also include the expression of the overall message
5. RECOMMENDATIONS
If asked to do so in the terms of reference, the writer of the report may suggest the solution to
the problem investigated so that the recipient may be able to make a decision if necessary.
SOLUTION SEVEN
(a)This question was derived from unit 2C of the syllabus and was testing the
candidates on the application aspect of visual communication skills.
The difference on the types of bar charts

Simple Bar Chart shows in columns on the XY plane the performance of a single item/product in
a given period, eg Performance of Rice during the year 2015:
Multiple Bar Chart shows in columns arranged in clusters (side by side) the performance of
several products during the same period of time, eg Performance of Rice, Flour and Stock Feed
during the year 2015.
Stacked/Composite Bar chart shows the performance of several products over varied periods
the performance of different products each expressed in a single column stacked according to
periods covered. Number of such columns depends on the number of products and the
stacks/divisions of each column depends on periods under consideration, eg Performance of all
the products in the 4 quarters of the year
126
(b)
The multiple bar chart showing the performance of

several products during the year 2015
200 160
142 130
150 125
100 Rice
Flour
50
Stock Feed
0
January – April – June July – October –
March 2015 2015 September Decmber 2015
2015
(c)
The demand for stock feed remained high throughout the year 2015, followed by flour. The
least performing product was rice during the same particular period. It can also be noted that
the quantities of rice remained the same for all the four quotas for 2015.there was also a slight
decrease in demand for stock feed from the first quota to the second quota
END OF SOLUTIONS
127

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CHARTERED ACCOUNTANTS EXAMINATIONS

T1: FINANCIAL ACCOUNTING

2. This paper is divided into TWO sections:

Section A: Ten (10) multiple choice Compulsory questions.

4. Do NOT write in pencil (except for graphs and diagrams).

5. Cell Phones are NOT allowed in the Examination Room.

7. All workings must be done in the answer booklet.

8. Present legible and tidy work.

Calculate how much rental income will go in the income statement.

Calculate the value of accumulated funds.

1.9 Which of the following statement is not true?

A. Assets = Capital – Liabilities

10.0 The abbreviation IASB in accounts stands for:

A. International Auditing Standards Board

Attempt any four (4) questions in this Section

The following notes relate to Wezi as at 31 March 2013.

1. Closing inventory was valued at K18,100,000.

(b) Prepare Wezi’s statement of financial position as at 31 March. 2013. (8 marks)

1. Assets and liabilities at 1 July 2015 were as follows

2. Inventory at cost on 30 June 2016 was valued at K29,500.

3. At 30 June 2016, trade accounts receivables amounted to K47,500.

30 June 2016 balance c/f 10,050

(a) Give five (5) characteristics of a partnership. (5 marks)

Statement of profit or loss for the year ended 31 December 2015.

Total assets 6,110 4,740

Equity and liabilities:

Total equity and liabilities 6,110 4,740

The following additional information is available:

(iii) The following relates to property, plant and equipment:

31 Dec 2015 31 Dec 2014

(v) Dividends amounting to K400,000 were paid during the year.

(b) Write up the payables control account. (6½ marks)

Calculate the amount for rental income at 31 December 2014. (6 marks)

Less cost of sales

Discount allowed 3,200

Bad debts 2,000

1. Van Disposal account

1 April 2010 - 31st March 2011 20% x 1000,000 = 200,000

b) Wezi’s statement of financial position as at 31 March 2013

Total equity and liabilities

Notes and workings

1. Capital as at 1st July 2015

2. Determination of trade receivables

Receivables Control Account

3. Determination of trade payables

Dr Payables Control Account

4. Determination Rent and Rates

6. Profit on disposal of Motor Vehicle

7. Depreciation on Motor Van = K65,000@20%

(a) (i) It is formed to make a profit.

(ii) It must obey the partnership Act 1890.

(iii) It should have a minimum of 2 partners and maximum of 20 partners.

(b) (i) Capital to be contributed by each partner.

(ii) The ratio in which profits or losses are to be shared.

(iv) Rate of interest to be charged on partners drawings.

(vi) Arrangements for the admission on new partners.

(vii) When a partner retires or dies the procedures to be carried out.

(Any five points)

(d) Advantages of a sole trader