STRICTLY CONFIDENTIAL

THE PUBLIC ACCOUNTANTS EXAMINATION

COUNCIL OF MALAWI

2010 EXAMINATIONS

CERTIFICATE IN FINANCIAL ACCOUNTING

PROGRAMME

PAPER FA 3: BUSINESS KNOWLEDGE

(DECEMBER 2010)

TIME ALLOWED: 3 HOURS

SUGGESTED SOLUTIONS

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SECTION A

Answer TWO questions ONLY from this section

1. (a) (i) Land – it is the ultimate source of all materials and natural resources, and provides space where production can be carried out.

(ii) Labour – the physical and mental human resources are required to transform raw materials into finished products, that will be

available to the consumer.

(iii) Capital – is required to acquire raw materials, and machinery for

production processes.

(iv) Entrepreneur – coordinates the factors of production.

(b) Direct production is where a person produces everything he needs to satisfy his/her own needs or wants while indirect production is when a producer specializes in one product which he/she produces in excess for

exchange with other producers’ products.

2. (a) Functions of a retailer are:

(i) Storage

(ii) Grading, packing and sorting

(iii) Anticipation of consumer’s demand

(iv) Buying large and selling small

(v) He makes goods immediately available to customers.

(b) Functions of a wholesaler:

(i) Warehousing as some manufacturers and retailers do not have

warehouses.

(ii) Buying goods in anticipation of demand.

(iii) Grading, sorting and packing goods

(iv) Delivery of goods to customers/retailers.

(v) Finances trade by buying cash from manufacturers and giving trade

credit to retailers.

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(c) Reasons why large scale retailing is a threat to the wholesaler are:

(i) Large scale retailers bypass the wholesalers and buy directly from the manufacturer.

(ii) Large scale retailers are able to sell smaller quantities than the

wholesaler at relatively low prices.

3. (a) Protection of home industry:

(i) Import duties - Increases the cost of imports making them sell less

because they are expensive. (ii) Quotas - These limit imports by restricting the total quantities of

designated commodities that may be bought.

(iii) Subsidies – These allow home producers to offer goods at competitive prices by subsidizing their costs.

(b) A Bill of Lading is said to be:

(i) Clean if there are no damages in transit title to the goods is passed as such.

(ii) Dirty if the bill has an endorsement of damaged goods.

(c) Aids to trade are:

(i) Transport (ii) Warehousing

(iii) Advertising (v) Insurance

(d) Nsanje port is the inland port in Malawi that will assist in importing and exporting goods.

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SECTION B

Answer THREE questions ONLY from this Section

4. (a) Insurance terms:

(i) Proposal Form - is an official document with details of

property or person to be insured which is sent to the insurance company when asking

for an insurance.

(ii) Insurance Policy - are the details of the contract of insurance.

(iii) Premiums - are the payments made by the insured into

a fund or pool from which payments are made by the insurer to compensate losses of

the insured.

(iv) Insured - is the person wishing to be insured.

(v) Insurer - is the organisation giving the protection.

(b) Types of assurance policies:

(i) Whole life policy - these provide for a payment of a certain sum on the death of the assured person to his beneficiary.

(ii) Term policies – these provide benefits only if death occurs during

a specified period.

(iii) Endowment policies – claims are paid on death of the assured or at

the end of a stipulated period, whichever occurs earlier.

(c) Principles of insurance are:

(i) Utmost good faith (uberrima fides)

(ii) Contribution and subrogation

(iii) Indemnity.

5. (a) A partnership deed is a written partnership agreement.

(b) Contents of a partnership deed are:

(i) The name of the firm and the names and addresses of the partners.

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(ii) The nature of the business.

(iii) The capital of the partnership and how much each partner is supposed to contribute.

(iv) The role to be played by each partner in the business.

(v) The profit and loss sharing arrangements.

(vi) The duration of the partnership and the conditions under which it may be brought to an end.

(c) Types of partners are:

(i) Active partners – partners who take a full part in the running of the

business.

(ii) Dormant partners – those that agree to contribute to capital and to

receive their share of profits but to take no part in the running of the business.

(iii) Limited partners: - these are partners whose liabilities are limited to the amount of capital contributed to the business.

6. (a) A contract of sale of goods is a contract whereby the seller transfers or

agrees to transfer the property in goods to the buyer for a money consideration called price.

(b) Terms implied by the Sale of Goods Act are:

(i) That the seller has the right to pass good title to the goods.

(ii) An implied warranty that the buyer shall enjoy quiet possession of

the goods.

(iii) An implied term that the goods shall be free from any charges or encumbrances of any third party.

(iv) That the goods shall be of merchantable quality.

(v) Where goods are sold by sample:

- An implied condition that the bulk shall correspond with the

sample in quality. - The buyer shall have the reasonable opportunity of comparing

the bulk with the sample.

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- An implied condition that the goods shall be free from any defect rendering them unmerchantable which would be

apparent on reasonable escamination of the sample.

(c) Remedies of unpaid seller are:

(i) A possession on the goods or the right to retain them for the price while he is still in possession of them.

(ii) Stoppage in transit.

(iii) The right of resale.

(iv) An action for the price.

(v) Damages for non-acceptance.

(d) Remedies of the buyer are:

(i) Rejection of the goods.

(ii) Damages for non-delivery or breach of a condition or warranty.

(iii) Sue for damages for non-delivery

(iv) Sue to recover any money paid to the seller.

(v) Repudiate the contact for breach of a condition by seller.

(vi) Sue for specific performance

7. (a) An offer is a definite promise to be bound on specific terms.

(b) An offer can no longer be accepted:

(i) If it has expired by lapse of specified or reasonable time. Case: Remsgate Victoria Hotel Company v Montefiore (1866).

(ii) If the offeror has revoked it before it has been accepted.

Case: Routtedge v Grant (1928).

(iii) If the offeree has rejected it.

Case: Hyde v Wrench (1840).

(iv) If the offeree dies before acceptance or the offeror dies.

Case: Bradbury v Morgan

(c) Misrepresentation is a false

statement of fact intended to

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induce a person to enter into

a contract.

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