In relation to company law, explain:
(a) the limitations on the use of company names; (4 marks)
(b) the tort of ‘passing off’; (4 marks)
(c) the role of the company names adjudicators under the Companies Act 2006. (2 marks)
第1题:
Churchill Ice Cream has to date made two unsuccessful attempts to become an international company.
(d) What reasons would you suggest to explain this failure of Churchill Ice Cream to become an international
company? (5 marks)
第2题:
(b) Discuss the key issues which the statement of cash flows highlights regarding the cash flow of the company.
(10 marks)
第3题:
4 (a) A company may choose to finance its activities mainly by equity capital, with low borrowings (low gearing) or by
relying on high borrowings with relatively low equity capital (high gearing).
Required:
Explain why a highly geared company is generally more risky from an investor’s point of view than a company
with low gearing. (3 marks)
第4题:
4 (a) Explain the meaning of the term ‘working capital cycle’ for a trading company. (4 marks)
第5题:
(b) ‘Strategic positioning’ is about the way that a company as a whole is placed in its environment and concerns its
‘fit’ with the factors in its environment.
With reference to the case as appropriate, explain how a code of ethics can be used as part of a company’s
overall strategic positioning. (7 marks)
第6题:
(c) Define ‘retirement by rotation’ and explain its importance in the context of Rosh and Company.
(5 marks)
第7题:
(ii) Briefly explain the extent to which the application of sensitivity analysis might be useful in deciding
which refrigeration system to purchase and discuss the limitations inherent in its use. (3 marks)
第8题:
(ii) State the taxation implications of both equity and loan finance from the point of view of a company.
(3 marks)
第9题:
(ii) The shares held in Date Inc and the dividend income received from that company. (7 marks)
第10题:
In relation to the law of contract, distinguish between and explain the effect of:
(a) a term and a mere representation; (3 marks)
(b) express and implied terms, paying particular regard to the circumstances under which terms may be implied in contracts. (7 marks)
This question requires candidates to consider the law relating to terms in contracts. It specifically requires the candidates to distinguish between terms and mere representations and then to establish the difference between express and implied terms in contracts.
(a) As the parties to a contract will be bound to perform. any promise they have contracted to undertake, it is important to distinguish between such statements that will be considered part of the contract, i.e. terms, and those other pre-contractual statements which are not considered to be part of the contract, i.e. mere representations. The reason for distinguishing between them is that there are different legal remedies available if either statement turns out to be incorrect.
A representation is a statement that induces a contract but does not become a term of the contract. In practice it is sometimes difficult to distinguish between the two, but in attempting to do so the courts will focus on when the statement was made in relation to the eventual contract, the importance of the statement in relation to the contract and whether or not the party making the statement had specialist knowledge on which the other party relied (Oscar Chess v Williams (1957) and Dick
Bentley v Arnold Smith Motors (1965)).
(b) Express terms are statements actually made by one of the parties with the intention that they become part of the contract and
thus binding and enforceable through court action if necessary. It is this intention that distinguishes the contractual term from
the mere representation, which, although it may induce the contractual agreement, does not become a term of the contract.
Failure to comply with the former gives rise to an action for breach of contract, whilst failure to comply with the latter only gives rise to an action for misrepresentation.
Such express statements may be made by word of mouth or in writing as long as they are sufficiently clear for them to be enforceable. Thus in Scammel v Ouston (1941) Ouston had ordered a van from the claimant on the understanding that the balance of the purchase price was to be paid ‘on hire purchase terms over two years’. When Scammel failed to deliver the van Ouston sued for breach of contract without success, the court holding that the supposed terms of the contract were too
uncertain to be enforceable. There was no doubt that Ouston wanted the van on hire purchase but his difficulty was that
Scammel operated a range of hire purchase terms and the precise conditions of his proposed hire purchase agreement were
never sufficiently determined.
Implied terms, however, are not actually stated or expressly included in the contract, but are introduced into the contract by implication. In other words the exact meaning and thus the terms of the contract are inferred from its context. Implied terms can be divided into three types.
Terms implied by statute
In this instance a particular piece of legislation states that certain terms have to be taken as constituting part of an agreement, even where the contractual agreement between the parties is itself silent as to that particular provision. For example, under s.5 of the Partnership Act 1890, every member of an ordinary partnership has the implied power to bind the partnership in a contract within its usual sphere of business. That particular implied power can be removed or reduced by the partnership agreement and any such removal or reduction of authority would be effective as long as the other party was aware of it. Some implied terms, however, are completely prescriptive and cannot be removed.
Terms implied by custom or usage
An agreement may be subject to terms that are customarily found in such contracts within a particular market, trade or locality. Once again this is the case even where it is not actually specified by the parties. For example, in Hutton v Warren (1836), it was held that customary usage permitted a farm tenant to claim an allowance for seed and labour on quitting his tenancy. It should be noted, however, that custom cannot override the express terms of an agreement (Les Affreteurs Reunnis SA v Walford (1919)).
Terms implied by the courts Generally, it is a matter for the parties concerned to decide the terms of a contract, but on occasion the court will presume that the parties intended to include a term which is not expressly stated. They will do so where it is necessary to give business efficacy to the contract.
Whether a term may be implied can be decided on the basis of the officious bystander test. Imagine two parties, A and B, negotiating a contract, when a third party, C, interrupts to suggest a particular provision. A and B reply that that particular term is understood. In just such a way, the court will decide that a term should be implied into a contract.
In The Moorcock (1889), the appellants, owners of a wharf, contracted with the respondents to permit them to discharge their ship at the wharf. It was apparent to both parties that when the tide was out the ship would rest on the riverbed. When the tide was out, the ship sustained damage by settling on a ridge. It was held that there was an implied warranty in the contract that the place of anchorage should be safe for the ship. As a consequence, the ship owner was entitled to damages for breach of that term.
Alternatively the courts will imply certain terms into unspecific contracts where the parties have not reduced the general agreement into specific details. Thus in contracts of employment the courts have asserted the existence of implied terms to impose duties on both employers and employees, although such implied terms can be overridden by express contractual provision to the contrary.
第11题:
Swim Co offers training courses to athletes and has prepared the following breakeven chart:
Required:
(a) State the breakeven sales revenue for Swim Co and estimate, to the nearest $10,000, the company’s profit if 500 athletes attend a training course. (2 marks)
(b) Using the chart above, explain the cost and revenue structure of the company. (8 marks)
第12题:
第13题:
(d) What criteria would you use to assess whether Universal is an ‘excellent’ company? (5 marks)
第14题:
(c) Discuss the ethical responsibility of the company accountant in ensuring that manipulation of the statement
of cash flows, such as that suggested by the directors, does not occur. (5 marks)
Note: requirements (b) and (c) include 2 professional marks in total for the quality of the discussion.
第15题:
5 The directors of Quapaw, a limited liability company, are reviewing the company’s draft financial statements for the
year ended 31 December 2004.
The following material matters are under discussion:
(a) During the year the company has begun selling a product with a one-year warranty under which manufacturing
defects are remedied without charge. Some claims have already arisen under the warranty. (2 marks)
Required:
Advise the directors on the correct treatment of these matters, stating the relevant accounting standard which
justifies your answer in each case.
NOTE: The mark allocation is shown against each of the three matters
第16题:
(ii) Explain why the disclosure of voluntary information in annual reports can enhance the company’s
accountability to equity investors. (4 marks)
第17题:
(b) Explain the roles of a nominations committee and assess the potential usefulness of a nominations committee
to the board of Rosh and Company. (8 marks)
第18题:
(b) Briefly explain THREE limitations of negotiated transfer prices. (3 marks)
第19题:
(c) State the tax consequences for both Glaikit Limited and Alasdair if he borrows money from the company, as
proposed, on 1 January 2006. (3 marks)
第20题:
(ii) Explain whether or not Carver Ltd will become a close investment-holding company as a result of
acquiring either the office building or the share portfolio and state the relevance of becoming such a
company. (2 marks)
第21题:
In relation to the courts’ powers to interpret legislation, explain and differentiate between:
(a) the literal approach, including the golden rule; and (5 marks)
(b) the purposive approach, including the mischief rule. (5 marks)
Tutorial note:
In order to apply any piece of legislation, judges have to determine its meaning. In other words they are required to interpret the
statute before them in order to give it meaning. The diffi culty, however, is that the words in statutes do not speak for themselves and
interpretation is an active process, and at least potentially a subjective one depending on the situation of the person who is doing
the interpreting.
Judges have considerable power in deciding the actual meaning of statutes, especially when they are able to deploy a number of
competing, not to say contradictory, mechanisms for deciding the meaning of the statute before them. There are, essentially, two
contrasting views as to how judges should go about determining the meaning of a statute – the restrictive, literal approach and the
more permissive, purposive approach.
(a) The literal approach
The literal approach is dominant in the English legal system, although it is not without critics, and devices do exist for
circumventing it when it is seen as too restrictive. This view of judicial interpretation holds that the judge should look primarily
to the words of the legislation in order to construe its meaning and, except in the very limited circumstances considered below,
should not look outside of, or behind, the legislation in an attempt to fi nd its meaning.
Within the context of the literal approach there are two distinct rules:
(i) The literal rule
Under this rule, the judge is required to consider what the legislation actually says rather than considering what it might
mean. In order to achieve this end, the judge should give words in legislation their literal meaning, that is, their plain,
ordinary, everyday meaning, even if the effect of this is to produce what might be considered an otherwise unjust or
undesirable outcome (Fisher v Bell (1961)) in which the court chose to follow the contract law literal interpretation of
the meaning of offer in the Act in question and declined to consider the usual non-legal literal interpretation of the word
(offer).
(ii) The golden rule
This rule is applied in circumstances where the application of the literal rule is likely to result in what appears to the court
to be an obviously absurd result. It should be emphasised, however, that the court is not at liberty to ignore, or replace,
legislative provisions simply on the basis that it considers them absurd; it must fi nd genuine diffi culties before it declines
to use the literal rule in favour of the golden one. As examples, there may be two apparently contradictory meanings to a
particular word used in the statute, or the provision may simply be ambiguous in its effect. In such situations, the golden
rule operates to ensure that preference is given to the meaning that does not result in the provision being an absurdity.
Thus in Adler v George (1964) the defendant was found guilty, under the Offi cial Secrets Act 1920, with obstruction
‘in the vicinity’ of a prohibited area, although she had actually carried out the obstruction ‘inside’ the area.
(b) The purposive approach
The purposive approach rejects the limitation of the judges’ search for meaning to a literal construction of the words of
legislation itself. It suggests that the interpretative role of the judge should include, where necessary, the power to look beyond
the words of statute in pursuit of the reason for its enactment, and that meaning should be construed in the light of that purpose
and so as to give it effect. This purposive approach is typical of civil law systems. In these jurisdictions, legislation tends to set
out general principles and leaves the fi ne details to be fi lled in later by the judges who are expected to make decisions in the
furtherance of those general principles.
European Community (EC) legislation tends to be drafted in the continental manner. Its detailed effect, therefore, can only be
determined on the basis of a purposive approach to its interpretation. This requirement, however, runs counter to the literal
approach that is the dominant approach in the English system. The need to interpret such legislation, however, has forced
a change in that approach in relation to Community legislation and even with respect to domestic legislation designed to
implement Community legislation. Thus, in Pickstone v Freemans plc (1988), the House of Lords held that it was permissible,
and indeed necessary, for the court to read words into inadequate domestic legislation in order to give effect to Community
law in relation to provisions relating to equal pay for work of equal value. (For a similar approach, see also the House of Lords’
decision in Litster v Forth Dry Dock (1989) and the decision in Three Rivers DC v Bank of England (No 2) (1996).) However,
it has to recognise that the purposive rule is not particularly modern and has its precursor in a long established rule of statutory
interpretation, namely the mischief rule.
The mischief rule
This rule permits the court to go behind the actual wording of a statute in order to consider the problem that the statute is
supposed to remedy.
In its traditional expression it is limited by being restricted to using previous common law rules in order to decide the operation
of contemporary legislation. Thus in Heydon’s case (1584) it was stated that in making use of the mischief rule the court
should consider what the mischief in the law was which the common law did not adequately deal with and which statute law
had intervened to remedy. Use of the mischief rule may be seen in Corkery v Carpenter (1950), in which a man was found
guilty of being drunk in charge of a carriage although he was in fact only in charge of a bicycle.
第22题:
John Pentanol was appointed as risk manager at H&Z Company a year ago and he decided that his first task was to examine the risks that faced the company. He concluded that the company faced three major risks, which he assessed by examining the impact that would occur if the risk were to materialise. He assessed Risk 1 as being of low potential impact as even if it materialised it would have little effect on the company’s strategy. Risk 2 was assessed as being of medium potential impact whilst a third risk, Risk 3, was assessed as being of very high potential impact.
When John realised the potential impact of Risk 3 materialising, he issued urgent advice to the board to withdraw from the activity that gave rise to Risk 3 being incurred. In the advice he said that the impact of Risk 3 was potentially enormous and it would be irresponsible for H&Z to continue to bear that risk.
The company commercial director, Jane Xylene, said that John Pentanol and his job at H&Z were unnecessary and that risk management was ‘very expensive for the benefits achieved’. She said that all risk managers do is to tell people what can’t be done and that they are pessimists by nature. She said she wanted to see entrepreneurial risk takers in H&Z and not risk managers who, she believed, tended to discourage enterprise.
John replied that it was his job to eliminate all of the highest risks at H&Z Company. He said that all risk was bad and needed to be eliminated if possible. If it couldn’t be eliminated, he said that it should be minimised.
(a) The risk manager has an important role to play in an organisation’s risk management.
Required:
(i) Describe the roles of a risk manager. (4 marks)
(ii) Assess John Pentanol’s understanding of his role. (4 marks)
(b) With reference to a risk assessment framework as appropriate, criticise John’s advice that H&Z should
withdraw from the activity that incurs Risk 3. (6 marks)
(c) Jane Xylene expressed a particular view about the value of risk management in H&Z Company. She also said that she wanted to see ‘entrepreneurial risk takers’.
Required:
(i) Define ‘entrepreneurial risk’ and explain why it is important to accept entrepreneurial risk in business
organisations; (4 marks)
(ii) Critically evaluate Jane Xylene’s view of risk management. (7 marks)
(a) (i) Roles of a risk manager
Providing overall leadership, vision and direction, involving the establishment of risk management (RM) policies,
establishing RM systems etc. Seeking opportunities for improvement or tightening of systems.
Developing and promoting RM competences, systems, culture, procedures, protocols and patterns of behaviour. It is
important to understand that risk management is as much about instituting and embedding risk systems as much as
issuing written procedure. The systems must be capable of accurate risk assessment which seem not to be the case at
H&Z as he didn’t account for variables other than impact/hazard.
Reporting on the above to management and risk committee as appropriate. Reporting information should be in a form
able to be used for the generation of external reporting as necessary. John’s issuing of ‘advice’ will usually be less useful
than full reporting information containing all of the information necessary for management to decide on risk policy.
Ensuring compliance with relevant codes, regulations, statutes, etc. This may be at national level (e.g. Sarbanes Oxley)
or it may be industry specific. Banks, oil, mining and some parts of the tourism industry, for example, all have internal
risk rules that risk managers are required to comply with.
[Tutorial note: do not reward bullet lists. Study texts both use lists but question says ‘describe’.]
(ii) John Pentanol’s understanding of his role
John appears to misunderstand the role of a risk manager in four ways.
Whereas the establishment of RM policies is usually the most important first step in risk management, John launched
straight into detailed risk assessments (as he saw it). It is much more important, initially, to gain an understanding of
the business, its strategies, controls and risk exposures. The assessment comes once the policy has been put in place.
It is important for the risk manager to report fully on the risks in the organisation and John’s issuing of ‘advice’ will usually
be less useful than full reporting information. Full reporting would contain all of the information necessary for
management to decide on risk policy.
He told Jane Xylene that his role as risk manager involved eliminating ‘all of the highest risks at H&Z Company’ which
is an incorrect view. Jane Xylene was correct to say that entrepreneurial risk was important, for example.
The risk manager is an operational role in a company such as H&Z Company and it will usually be up to senior
management to decide on important matters such as withdrawal from risky activities. John was being presumptuous
and overstepping his role in issuing advice on withdrawal from Risk 3. It is his job to report on risks to senior
management and for them to make such decisions based on the information he provides.
(b) Criticise John’s advice
The advice is based on an incomplete and flawed risk assessment. Most simple risk assessment frameworks comprise at least
two variables of which impact or hazard is only one. The other key variable is probability. Risk impact has to be weighed
against probability and the fact that a risk has a high potential impact does not mean the risk should be avoided as long as
the probability is within acceptable limits. It is the weighted combination of hazard/impact and probability that forms the basis
for meaningful risk assessment.
John appears to be very certain of his impact assessments but the case does not tell us on what information the assessment
is made. It is important to recognise that ‘hard’ data is very difficult to obtain on both impact and probability. Both measures
are often made with a degree of assumption and absolute measures such as John’s ranking of Risks 1, 2 and 3 are not as
straightforward as he suggests.
John also overlooks a key strategic reason for H&Z bearing the risks in the first place, which is the return achievable by the
bearing of risk. Every investment and business strategy carries a degree of risk and this must be weighed against the financial
return that can be expected by the bearing of the risk.
(c) (i) Define ‘entrepreneurial risk’
Entrepreneurial risk is the necessary risk associated with any new business venture or opportunity. It is most clearly seen
in entrepreneurial business activity, hence its name. In ‘Ansoff’ terms, entrepreneurial risk is expressed in terms of the
unknowns of the market/customer reception of a new venture or of product uncertainties, for example product design,
construction, etc. There is also entrepreneurial risk in uncertainties concerning the competences and skills of the
entrepreneurs themselves.
Entrepreneurial risk is necessary, as Jane Xylene suggested, because it is from taking these risks that business
opportunities arise. The fact that the opportunity may not be as hoped does not mean it should not be pursued. Any
new product, new market development or new activity is a potential source of entrepreneurial risk but these are also the
sources of future revenue streams and hence growth in company value.
(ii) Critically evaluate Jane Xylene’s view of risk management
There are a number of arguments against risk management in general. These arguments apply against the totality of risk
management and also of the employment of inappropriate risk measures.
There is a cost associated with all elements of risk management which must obviously be borne by the company.
Disruption to normal organisational practices and procedures as risk systems are complied with.
Slowing (introducing friction to) the seizing of new business opportunities or the development of internal systems as they
are scrutinised for risk.
‘STOP’ errors can occur as a result of risk management systems where a practice or opportunity has been stopped on
the grounds of its risk when it should have been allowed to proceed. This may be the case with Risk 3 in the case.
(Contrast with ‘GO’ errors which are the opposite of STOP errors.)
There are also arguments for risk management people and systems in H&Z. The most obvious benefit is that an effective
risk system identifies those risks that could detract from the achievements of the company’s strategic objectives. In this
respect, it can prevent costly mistakes by advising against those actions that may lose the company value. It also has
the effect of reassuring investors and capital markets that the company is aware of and is in the process of managing
its risks. Where relevant, risk management is necessary for compliance with codes, listing rules or statutory instruments.
第23题:
(a) List and explain FOUR methods of selecting a sample of items to test from a population in accordance with ISA 530 (Redrafted) Audit Sampling and Other Means of Testing. (4 marks)
(b) List and explain FOUR assertions from ISA 500 Audit Evidence that relate to the recording of classes of
transactions. (4 marks)
(c) In terms of audit reports, explain the term ‘modified’. (2 marks)