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CIMA Fundamentals of Ethics - Corporate Governance and Business Law Sample Questions:

1. Which of the following statements are correct in relation to a misrepresentation?
1. A misrepresentation is a false statement of fact or law but not a mere expression of opinion by someone having no expertise in the subject matter of the contract
2. A misrepresentation renders a contract voidable
3. As a general rule silence can amount to a misrepresentation.

A) 2 only
B) 1 only
C) 1 and 2 only
D) 2 and 3 only

2. Which of the following is incorrect in relation to the remedy of damages?

A) Damages are designed to compensate the innocent party and to punish the contract breaker.
B) A contract breaker is liable for losses which arise naturally from the breach.
C) A contract breaker is liable for special losses which are within his contemplation.
D) Damages will not normally be awarded for the distress caused to the innocent party by the breach.

3. You work for a manufacturing company and are told that one of the line managers made a genuine mistake that led to the discharge of waste material into a local river. Your managing director says that the company cannot afford a large fine and demands that no one reports the waste spillage or mentions it again. Is this an ethical issue and why?

A) Yes - the company has a duty to report something that might breach environmental legislation and could cause environmental damage
B) No - the leak was a mistake, so this is not an ethical issue
C) Yes - the manager who created the spill has behaved unethically and should be disciplined
D) Yes - but only if the waste causes damage to the local environment

4. A is about to register a new company limited by shares, "A Ltd", in order to carry on a retail business. A has ordered a quantity of goods from a supplier "for and on behalf of A Ltd". Which of the following is correct?

A) A Ltd can ratify the contract following registration.
B) The contract is void.
C) A is personally liable for the order.
D) A Ltd is liable to pay for the order as soon as it is registered.

5. Adam, Brian, Charles and David each held 25% of the issued share capital of ABCD Ltd. Adam has recently issued further shares to himself in order to increase his voting power. Which of the following is incorrect?

A) The company may proceed against Adam for breach of fiduciary duty.
B) The shareholders may ratify the share issue by ordinary resolution.
C) The share issue is automatically invalid.
D) The shareholders may challenge the validity of the share issue using Section 994 of the Companies Act
2006, on the ground that the issue is "unfairly prejudicial to the interests of the shareholders".

Solutions: