PRACTICE & REVISION KIT

CA SRI LANKA CURRICULUM 2020

BL 3 Business Law

(English)
 Fifth Edition 2020

www.casrilanka.com

2020

ii
Contents

Page
Chapter
Questions Answers

Chapter 1 3 5
Chapter 2 6 14
Chapter 3 15 21
Chapter 4 22 25
Chapter 5 26 30
Chapter 6 31 36
Chapter 7 37 41
Chapter 8 42 45
Chapter 9 46 49
Chapter 10 50 53
Chapter 11 54 57
Chapter 12 58 61
Chapter 13 62 66

iii
Contents
How to use this Practice & Revision Kit

This Practice & Revision Kit comprises banks of practice questions of the style that
you will encounter in your exam. It is the ideal tool to use during the revision phase of
your studies.
Questions in your exam may test any part of the syllabus so you must revise the
whole syllabus. Selective revision will limit the number of questions you can answer
and hence reduce your chances of passing. It is better to go into the exam knowing a
reasonable amount about most of the syllabus rather than concentrating on a few
topics to the exclusion of the rest. You should at all costs avoid falling into the trap of
question spotting, that is trying to predict what are likely to be popular areas for
questions, and restricting your revision and question practice to those.
Practising as many exam-style questions as possible will be the key to passing this
exam. You must do questions under timed conditions and ensure you write full
answers to the discussion parts as well as doing the calculations.
Planning your revision
When you begin your course, you should make a plan of how you will manage your
studies, taking into account the volume of work that you need to do and your other
commitments, both work and domestic.
In this time, you should go through your notes to ensure that you are happy with all
areas of the syllabus and practise as many questions as you can. You can do this in
different ways, for example:
 Revise the subject matter a module at a time and then attempt the questions
relating to that module; or
 Revise all the modules and then build an exam out of the questions in this
Practice & Revision Kit. Review the exam structure and then group together the
relevant number of MCQs and longer questions from different syllabus areas to
create a practice exam.
Using the practice questions
The best approach is to select a question and then allocate to it the time that you
would have in the real exam. All the practice written response questions in this
Practice & Revision Kit have mark allocations, so you can calculate the amount of time
that you should spend on the question.
However, this is an approximate guide: for example, some MCQs are very short and
just require a factual response, which you either know or you don’t, while others are
more complex, requiring calculations, which will inevitably take more time.

iv
Using the suggested solutions
Avoid looking at the answer until you have finished a question. It can be very
tempting to do so, but unless you give the question a proper attempt under exam
conditions you will not know how you would have coped with it in the real exam
scenario.
When you do look at the answer, compare it with your own and give some thought to
why your answer was different, if it was.
In multiple choice questions if you did not reach the correct answer make sure that
you work through the explanation or workings provided, to see where you went
wrong. If you think that you do not understand the principle involved, go back to your
own notes or your study materials and work through and revise the point again, to
ensure that you will understand it if it occurs in the exam.
Passing the [Business Level [I or II] – Business Environment and Economics
If you have honestly done your revision then you can pass this exam. What you must
do is remain calm and tackle it in a professional manner. There are a number of
points which you should bear in mind.
 You must read the question properly. Students often fail to read the question
properly and miss some of the information. Time spent reading the question a
second time would be time well spent. Make yourself do this, don't just rush into
it in a panic.
 Stick to the timings and answer all questions. Do not spend too long on one
question at the expense of others. The number of extra marks you will gain on
that question will be minimal, and you could have at least obtained the easy
marks on the next question.

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Format of the exam

Mode: Computer based examination

Time: 2 hours
Pass Mark: 50%

The exam comprises of fifty (50) multiple choice, drag & drop, fill in the blanks,
matching questions, etc. of two marks each (including mini scenario based/functional
scenario-based questions).

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Exam techniques

Using the right techniques in the real exam can make all the difference between
success and failure.
Here are a few pointers:

1. Allocate the time available to the questions. You have 120 minutes to answer
50 questions which is an average 2.4 minutes per question, however this should
only be taken as a rough guide as some questions may require less time to
answer than others.
2. Make sure that you attempt every objective test question. Do not leave any
blank. If you run out of time or are not sure of an answer you should select the
option you think is most suitable. You can come back to the question later if
time permits.
3. Read the question. Read it carefully once, and then read it again to ensure that
you have picked everything up. Make sure that you understand what the
question wants you to do, rather than what you might like the question to be
asking you.
4. If you finish the exam with time to spare, use the rest of the time to review your
answers and to make sure that you answered every objective test question.

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 Action verbs checklist

Knowledge Process Verb List Verb Definitions

Tier - 1 Remember Define Describe exactly the nature, scope or meaning

Recall important
information Draw Produce (a picture or diagram)

Identify Recognise, establish or select after consideration

List Write the connected items one below

the other
Relate To establish logical or causal connections

State Express something definitely or clearly

Tier - 2 Calculate/Compute Make a mathematical computation

Comprehension
Explain important Discuss Examine in detail by argument showing
information different aspects, for the purpose of arriving at a
conclusion
Explain Make a clear description in detail
revealing relevant facts
Interpret Present in understandable terms or to translate

Recognise To show validity or otherwise, using knowledge

or contextual experience
Record Enter relevant entries in detail

Summarise Give a brief statement of the main points

(in facts or figures)

Classify Allocate into categories

Describe Communicate the key features

Provide Give illustrations to support or illuminate

a point or assertion

Tier - 3 Application Apply Put to practical use

Use knowledge in a
Assess Determine the value, nature, ability
setting other than the or quality
one in which it was
learned/solve close- Demonstrate Prove, especially with examples
ended problems
Graph Represent by means of a graph
Prepare Make ready for a particular purpose

Prioritise Arrange or do in order of importance

Reconcile Make consistent with another

Solve To find a solution through calculations and/
or explanations

viii
Knowledge Process Verb List Verb Definitions

Conduct Organize and carry out a task

Communicate Transmit thoughts or knowledge

Display Make evident or noticeable

Perform Do or execute, usually in the sense of

a complex procedure

Reconcile Make or prove consistent or compatible

or show differences

Set Fix or establish

Select Choose from a range of options

or possibilities
Support Assist to make decisions by providing
appropriate information about
respective concepts
Use Apply in a practical way
Undertake Commit to do or perform
Tier - 4 Analysis Analyse Examine in detail in order to determine
the solution or outcome
Draw relations among
Compare Examine for the purpose of
ideas and to compare
discovering similarities
and
Contrast Examine in order to show
contrast/solve open- unlikeness or differences
ended problems
Construct Build or make a diagram, model
or formula

Differentiate Constitute a difference that

distinguishes something
Outline Make a summary of significant features

Write Provide word descriptions to express an opinion

or idea
Tier - 5 Evaluate Advise Offer suggestions about the best course of
Formation of action in a manner suited to the recipient
judgments and Convince To persuade others to believe something
decisions about the using evidence and/or argument
value of methods, ideas, Criticise Form and express a judgment
people or products
Comment Provide written remarks expressing an opinion
in both positive and negative perspectives
Evaluate To determine the significance by careful appraisal

Conclude Form a judgment about, or determine or resolve

the outcome of, an issue through a process
involving reasoning
Determine Ascertain or conclude after analysis and
consideration; judge

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Knowledge Process Verb List Verb Definitions
Justify Give valid reasons or evidence for

Review Study critically with a view

to correction or improvement
Recommend A suggestion or proposal as to the
best course of action
Resolve Settle or find a solution to a
problem or contentious matter
Validate Check or prove the accuracy

Tier - 6 Synthesis Compile Produce by assembling information

Solve unfamiliar problems by collected from various sources
combining different aspects Design Devise the form or structure according to
to form a unique or novel a plan
solution Develop To disclose, discover, perfect or unfold a
plan or idea

Propose To form or declare a plan or intention

for consideration or adoption

Anticipate Foresee, or experience or realise

beforehand

Draft Write original material for the scrutiny

of others

Formulate Devise and put into words

Plan Devise the plan for an assurance

engagement

Report Give the formal final conclusion for an

assurance engagement

Submit Send a completed document to a

particular party

Suggest Put forward an idea or give reasons

Synthesize Make or propose a new concepts or ideas

by combining existing knowledge in
different aspects

x
QUESTIONS
2 CA Sri Lanka
 Chapter 1
INTRODUCTION TO THE LAWS AND REGULATORY FRAMEWORK OF
SRI LANKA
(1) The ……………… has exclusive jurisdiction to determine whether any Bill of Parliament
or any provision of such Bill is inconsistent with the Constitution of Sri Lanka.
A. Court of Appeal
B. Supreme Court
C. Commercial High Court
D. High Court

(2) The following statements are in relation to the powers / jurisdiction of the Provincial
High Court.

i. It can exercise original criminal jurisdiction, with respect to offences committed within its
province.
ii. It has appellate and revisionary jurisdiction, relating to orders given by Magistrate’s
Courts and Labour Tribunals.
iii. It can issue Habeas Corpus orders and writs, on certain matters specified in the Provincial
Council List.
iv. It has the jurisdiction to try petitions relating to the election of the Presidential of the
country.

Which of the above statements are correct?

A. Only i and ii.

B. Only iii and iv.
C. Only i, ii and iii
D. Only i, iii and iv.

(3) Which of the following is correct, in relation to the “commercial law” applicable in Sri
Lanka?
i. Commercial law affects the rights, duties, and obligations of only incorporated companies
involved in commerce and trade.
ii. In Sri Lanka, any area of commercial law which is not covered by English law is covered
by Roman Dutch law.
iii. The commercial law applicable in Sri Lanka is purely based on the principals of Roman
Dutch law.
iv. In Sri Lanka, legal action for all commercial disputes must be filed at the Commercial High
Court.

CA Sri Lanka 3
 (4) The Sri Lankan legal system is based on the “rule of law”.
The “rule of law” consists of certain tenets or principles.
Which of the following is correct in relation to these tenets or principles?
(i) The law is supreme, and there is no place for arbitrary power in society.
(ii) All resident citizens of Sri Lanka are equal before the law.
(iii) The rights of citizens are enforceable only in certain in courts.
(iv) A person can be convicted without being heard under special circumstances.

(5) The following statements are in relation to the Institute of Chartered Accountants of Sri
Lanka (CA Sri Lanka).

i. CA Sri Lanka was established under the old Companies Act (ie: No. 17 of 1982).
ii. It is responsible for the regulation of the auditing and accounting professions in Sri Lanka.
iii. Setting of accounting and auditing standards in Sri Lanka is done by CA Sri Lanka.
iv. It is responsible for the control and maintenance of professional standards and discipline
of its members.

Which of the above statements are correct?

A . Only i, ii and iii.

B. Only ii, iii and iv.
C. Only iii and iv.
D. Only ii and iv.

(6) The following statements are relating to the matters on which the Supreme Court of the
Democratic Socialist Republic of Sri Lanka can exercise its jurisdiction on.
i. Constitutional matters
ii. Protection of Fundamental Rights
iii. Final appellate jurisdiction (on both civil and criminal matters)
iv. Matters relating to the granting of writs of habeas corpus.
The correct ones would be :
A. Only i, ii & iii
B. Only ii & iv
C. Only iii
D. Only iv

(7) The following statements are relating to the regulatory role and functions of Sri Lanka
Customs.

(i) To encourage exports and increase the flow of foreign exchange to Sri Lanka.
(ii) To encourage the increase of non-traditional exports from Sri Lanka by granting incentives.
(iii) To exercise limited police powers such as arresting suspects and
confiscating contraband.
(iv) To promote Sri Lanka as a trading hub.

4 CA Sri Lanka
 Which of the above statement/s is/are correct?
A i & iii
B ii & iii
C ii & iv
D Only iii

(8) Which of the following statements is the most accurate?

A. The world is subject to rapid changes due to human activities, but there are hardly any
changes to the existing laws.
B. Some societies in the modern world assume that, a violation of the law should be treated
as punishable only if such violation relates to a criminal offence.
C. There is a presumption in society that every person knows the law, therefore ignoring or
breaking the law is not an excuse to anyone.
D. Although law is a very important part of any society, it is seen that underdeveloped societies
ignore the law the most.

CA Sri Lanka 5
ANSWERS

(1) b
(2) c
(3) ii
(4) i
(5) b
(6) a
(7) d
(8) c
 Chapter 2
LAW OF CONTRACTS

(1) The following statements are in relation to the ways of forming a legally valid contract.

i. It can be made by an oral agreement.

ii. It can be made only in writing.
iii. It can be made by implied conduct.
iv. It must be made through a court order.
The correct ones would be:
a. Only i and ii.
b. Only i and iii.
c. Only ii and iv.
d. Only iii and iv.

(2) The following are relating to the requirements or elements which must be present for a
contract to be treated as a valid contract in law.

i. The offeror must at all times be over 18 years of age.

ii. There should be a valid offer and acceptance.
iii. The parties must have an intention to create legally binding relations.
iv. It is not mandatory, for a contract to always have a lawful objective.

The correct ones would be:

a. Only ii and iii.

b. Only iii and iv.
c. Only i, ii and iii.
d. Only ii,iii and iv.

(3) The following are relating to “invitations to treat”.

i. It is another termfor an offer.

ii. It is merely an invitation to the public to make an offer.
iii. You make an offer when you act on an “invitation to treat”.
iv. An advertisement is an “invitation to treat”.

The correct ones would be:

a. Only i and ii.

b. Only ii and iv.
c. Only i, ii and iii.
d. Only ii, iii and iv.

6 CA Sri Lanka
 (4) Which of the following most accurately describes the main principle discussed in the
case, Carlill v Carbolic Smoke Ball Company?

i. It described the postal rule on acceptance.

ii. It is about an offer made to the world at large.
iii. It specifies the capacity of the parties to contract.
iv. It is about the intention of the parties to contract.

(5) Medi Research Ltd. puts a newspaper advertisement offering to pay a reward of
Rs. 100,000 to anyone who contracts influenza after using their unique medical product
“Neversick” as prescribed.

This is an offer ………………………………………………….

i. made to a single person.

ii. made to the world at large.
iii. made to a certain class of people.
iv. made to no one in particular.

(6) X and Y are partners of XY Enterprises which engages in buying and selling 2nd hand
cars.

Kamal (K) who wished to buy a Honda CRV 2018 model car, visited XY Enterprises and
inquired about the price from X.
X quoted a price of Rs 5 M.
In this scenario, the offeror would be :

i. X.
ii. XY Enterprises.
iii. Kamal.
iv. Y.

(7) Shyama (S) engages in buying and selling garments.

Varuni (V) who wished to buy a wedding dress inquired about one from S.

S quoted a price of Rs 25,000/- for it.

V said that she is ready to buy it for Rs 20,000/-.

The following statements are in relation to the above scenario.

i. The offer made by S has been accepted by V.
ii. V has made a counter-offer.
iii. There is no valid offer in this scenario
iv. A valid contract has been formed between S and V.

CA Sri Lanka 7
 The correct statements would be:

a. Only i and ii.

b. Only i and iv.
c. Only ii and iii.
d. Only ii and iv.

(8) The following statements are in relation to ‘acceptance in a postal contract’, (which is
also known as the‘postal rule relating to acceptance’).

i. An offer which comes by post must always be accepted by post in order to constitute a
valid acceptance.
ii. The mere posting of the letter of acceptance by the offeree amounts to a valid acceptance.
iii. The letter of acceptance which is put to the post must reach the offeror, for it to be a valid
acceptance.
iv. If the letter of acceptance is properly addressed and stamped, but gets lost in the post, it
still amounts to a valid acceptance.

The correct ones would be:

a. Only i and ii.
b. Only i and iii.
c. Only ii and iv.
d. Only iii and iv.

(9) Freddy (F) wrote to Barry (B), offering to buy B’s car, and saying that “if I hear no
more about this offer, I shall consider that the car is mine for Rs. 1.5 million.”

B did not respond, but verbally told his auctioneer that B’s car has been sold to F, and
therefore not to sell it through the auction.

But by mistake, this car was sold to another person through the auction.
Thereafter F sued B, saying that the car belongs to F.

The following statements are in relation to the above scenario.

i. The silence of B to F’s offer, is not treated as a valid acceptance.

ii. As the car belonged to F, he has a right to sue B.
iii. As B accepted the F’s offer, B is liable to F for the loss F suffered.
iv. F’s letter to B, cannot be treated as a valid offer.

The correct statement/s would be:

a. Only i.
b. Only iv.
c. Only ii and iii.
d. Only i and iv.

8 CA Sri Lanka
 (10) The statements below are relating to the different ways an offer can be terminated.

i. By the acceptance of the offer.

ii. By making a counter-offer.
iii. By the breach of a warranty.
iv. By the revocation of the offer.

The correct ones would be:

a. Only i and iii.

b. Only ii and iv.
c. Only i, ii and iii.
d. Only i, ii and iv.

(11) On the occurrence of certain events an offer will lapse.

Given below are some of these events.

i. When the offeror dies before the offer is accepted.

ii. When the offeree dies after the offer is accepted.
iii. When the offeree does not accept the offer within the prescribed time period.
iv. When the offeror goes bankrupt before the offer is accepted.

The correct ones would be:

a. Only i and iii.
b. Only ii and iv.
c. Only i, ii and iii.
d. Only ii, iii and iv.

(12) P posted a letter to Q on 1st October, offering to sell some goods.

Q received this letter on 11th October, and immediately telegraphed his acceptance.

On 8th October, P posted another letter to Q, revoking his earlier offer, and this letter
was received by Q, on 20th October.

The following statements are relating to the above scenario.

i. A valid contract had already been formed between P & Q.

ii. The acceptance of P’s offer on 8thOctober amounts to a valid acceptance.
iii. P’s offer has been properly revoked on the 20th October.
iv. No acceptance can be made on a revoked offer.

The correct ones would be:

a. Only i and ii.
b. Only iii and iv.
c. Only ii and iii.
d. Only i, iii and iv.

CA Sri Lanka 9
 (13) X offered to sell his property to Y, and the offer letter stated that “this offer is to be left
over until Friday, 9 a.m.”

However, on Thursday, X sold this property to Z.

Y learned about the contract between X and Z from B, a reliable source as far as Y was
concerned.

The following statements are relating to the above scenario.

i. A valid offer has been made by X.

ii. The offer to Y does not lapse until 9 a.m. on Friday.
iii. Y cannot accept the X’s offer, as it has already lapsed due to the sale of the property to Z.
iv. As the offer is open till 9 a.m. on Friday, this property cannot be sold to Z before that.

The correct ones would be:

a. Only i and ii.

b. Only i and iii.
c. Only ii and iv.
d. Only iii and iv.

(14) In the eyes of the law, a valuable consideration to one party may consist of either some
………….

i. right or title.
ii. title or interest.
iii. benefit or right or interest.
iv. right or title or interest or benefit.

The most accurate answer would be :

a. Only i.
b. Only ii.
c. Only iii.
d. Only iv.

(15) The following statements are in relation to “consideration”.

i. Consideration has to be adequate but need not be sufficient.

ii. A past consideration is not a consideration.
iii. Consideration must move from the promise.
iv. Consideration is an essential requirement of a valid contract under English law.

The correct ones would be:

a. Only i and ii.
b. Only ii and iii.
c. Only i, ii and iii.
d. Only i, iii and iv.

10 CA Sri Lanka
 (16) The law protects certain persons with specified contractual disabilities, by denying them
full contractual capacity.

Given below are some of these persons.

i. Minors.
ii. Persons who are of unsound mind, drunkards and prodigals.
iii. Persons who are insolvent.
iv. Persons who are above the age of 70 years.

The correct parties would be :

a. Only i.
b. Only iv.
c. Only i, ii and iii.
d. Only ii, iii and iv.

(17) The following are relating to instances where the law treats the minority of a person as
having coming to an end.
i. Upon attaining the majority age of 16 years.
ii. Upon the granting of letters of venia aetatis.
iii. On the marriage of the minor.
iv. On the attaining of puberty by a minor (Muslim)

The correct ones would be :

a. Only i.
b. Only iv.
c. Only ii and iv.
d. Only ii, iii and iv.

(18) The following are in relation to the Unfair Contract Terms Act No. 26 of 1997 (“UCTA”)

i. UCTA imposes limits on the extent to which civil liability for a breach of a contract can
be avoided by contract terms.
ii. UCTA applies to many types of contracts, including contracts of insurance, sale of land
and intellectual property.
iii. UCTA gives protection to the consumers.
iv. UCTA mostly applies to “business liabilities” as defined in UCTA.

The correct statements would be:

a. Only ii.
b. Only i and ii.
c. Only iii and iv
d. Only i, iii and iv.

CA Sri Lanka 11
 (19) X and Y entered into a contract where X agreed to pay Z upon Y performing a specified
task.

Y performed as stipulated, but X did not pay Z.

Under ……………………………………, Z cannot enforce X’s obligation to pay Z, as Z was not

a party to the original contract.

i. the doctrine of privity

ii. the principal of ‘quantum meruit’
iii. unjust enrichment
iv. misrepresentation

(20) In some instances a court will not grant relief under the ‘principle of unjust
enrichment’.

The following statements are in relation to such instances :

i. When a party makes a payment or delivery under a mistake of law.

ii. When there is an error arising from gross negligence.
iii. When the right to recover has not been specifically renounced.
iv. When there was knowledge that the debt was due at the time of payment.

The correct statement/s would be:

a. Only ii.
b. Only i and ii.
c. Only iii and iv
d. Only i, iii and iv.

(21) Which of the following is an instance where specific performance of the contract may be
granted by a court of law, as a remedy for a breach of a contract.

a. When damages are not an adequate remedy.

b. When the court cannot supervise the execution of the contract.
c. When the contract is not fair.
d. To enforce an illegal contract.

(22) The following are instances where a contract will be discharged or terminated.

i. By the merger of an inferior right of the contract with a superior right.

ii. Due to the insolvency of either the offeror or the offeree.
iii. Due to the lapsing of the prescribed period.
iv. By the performance of the contract by the parties.

12 CA Sri Lanka
 The correct one/s in relation to a termination by the operation of the law would be :

a. Only iii.
b. Only i.
c. Only ii and iii.
d. Only i, ii and iii.

(23) X and Y entered into a contract where X agrees to supply lunch packets to Y on a daily
basis for five months.

After two months, they both agreed through another contract to terminate the first contract.

In the given scenario, the first contract has been terminated by ……………………

a. novation.
b. the merger of rights under the second contract.
c. agreement of the parties.
d. frustration.

(24) Given below are some contracts which are considered as ‘illegal contracts’ under
common law.

i. A contract to commit a crime.

ii. A contract to terminate an existing commercial contract.
iii. A contract to promote sexual immorality.
iv. A contract that promotes corruption in public life.
Such illegal contracts are :
a. Only i.
b. Only iii.
c. Only ii and iii.
d. Only i, iii and iv

CA Sri Lanka 13
 ANSWERS

(1) b
(2) a
(3) d
(4) b
(5) b
(6) b
(7) c
(8) c
(9) a
(10) d
(11) a
(12) a
(13) b
(14) d
(15) c
(16) c
(17) d
(18) d
(19) a
(20) b
(21) a
(22) d
(23) c
(24) d

14 CA Sri Lanka
 Chapter 3
SALE OF GOODS
(1) The Sale of Goods Ordinance (No. 11 of 1896) applies to most of the following ‘goods’.
i. All movable items.
ii. Money.
iii. Crops which are grown on land and agreed to be severed and sold.
iv. All immovable items.

The correct ones would be:

a. Only i and ii.
b. Only i and iii.
c. Only ii and iv.
d. Only iii and iv.

(2) Most of the following are elements required to form a contract of sale of goods under the Sale of
Goods Ordinance (No. 11 of 1896).
i. A seller and a buyer.
ii. Goods, both movable and immovable.
iii. A money consideration called the price.
iv. Transferring of the property in goods.

The correct ones would be:

a. Only i and ii.
b. Only i, ii and iii.
c. Only i, iii and iv.
d. Only iii and iv.

(3) The following statements are in relation to existing and future goods.

i. One of the classifications of goods in a contract for the sale of goods, is existing
and future goods.
ii. Existing goods are those which will be owned or possessed by the seller, after the making of
the contract for sale.
iii. Future goods are those which are to be manufactured or acquired by the seller, after the
making of the contract of sale.
iv. A contract for the present sale of future goods, is treated as a sale of goods.

The correct ones would be:

a. Only i and iv.
b. Only i and iii.
c. Only ii and iii.
d. Only iii and iv.

CA Sri Lanka 15
 (4) The following statements are in relation to various types of goods.
i. Specific goods, are the goods identified and agreed upon at the time a contract of sale is made.
ii. Ascertained goods, are the goods that are identified and agreed upon after entering a contract
of sale.
iii. Unascertained goods are the same as specific goods.
iv. Future goods are goods that will be manufactured or acquired by the seller, at the time of
making the contract of sale.

The correct statements would be:

a. Only i and ii.
b. Only ii and iv
c. Only iii and iv.
d. Only i, ii and iii.

(5) A sale of 200kgs of potatoes, which are to be grown on a piece of land, is a contract for the sale
of ………………
a. specific goods.
b. ascertained goods.
c. unascertained goods.
d. future goods.

(6) X formed a contract with Y, to buy 20 boxes of fish from Y.

Y loaded 190 boxes into a train, with the instructions that 20 boxes were to be delivered to X.

This is a contract for the sale of ……………… goods.

a. specific
b. ascertained
c. unascertained
d. future

Answer questions 7-10 based on the information given below.

Place the question no. in the correct cage of the grid.
How would you categorize the following scenarios in the grid given below ?
(7) A contract to sell 100 tons of wheat, which is to be harvested from a field next year.
(8) A contract to sell a second-hand tractor, which will have to be acquired by the seller prior to
the sale.
(9) A contract to sell a book, which is ordered from an internet bookseller.
(10) A purchase of a packet of flour taken from the shelf in a supermarket by a customer.
Specific Unascertained

Existing ………… ……………….

Future ………… ……………….

16 CA Sri Lanka
 (11) Terms that are included in a contract for the sale of goods, by mutual agreement of the parties
are known as ‘express terms’.
Given below are some classifications of these express terms.
(i) Conditions
(ii) Warranties
(iii) Implied Terms
(iv) Fundamental Terms

The correct ones would be:

a. Only i, ii and iii.
b. Only i, ii and iv.
c. Only i,iii and iv.
d. Only ii,iii and iv.

(12) The following are in relation to the ‘implied terms in a sale by sample’ according to section 16(2) of
the Sale of Goods Ordinance (No. 11 of 1896).
(i) The bulk of the goods should correspond with the sample in quality.
(ii) The buyer shall have a reasonable opportunity to compare the bulk with the sample.
(iii) The goods are free from any defect which will make them unmerchantable.
(iv) Any defect in the goods should be obvious to the buyer upon a reasonable examination of the
sample.

The correct ones would be :

a. Only i and ii.
b. Only ii and iii.
c. Only iii and iv.
d. Only i, ii and iii.

(13) The following statements are in relation to the passing of property in unascertained goods.
(i) In a contract for the sale of unascertained goods, the property in the goods is transferred to the buyer
when the goods are ascertained.
(ii) In a contract for the sale of specific goods, where the seller is bound to do something to the goods for
the purpose of putting them into a deliverable state, the property will pass as soon as such thing is done, even
though the buyer has not informed of such.
(iii) In a contract for the sale where the goods are delivered to the buyer on a "sale or return" basis, the
property passes to the buyer when he signifies his acceptance to the seller.
(v) In an unconditional contract for the sale of specific goods in a deliverable state, the property
in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment
is postponed.
The correct ones would be :
a. Only i and iii.
b. Only ii and iv.
c. Only iii and iv.
d. Only i, iii and iv.

CA Sri Lanka 17
 (14) Anil imported a Honda CRV 2020 jeep through its local agent.
When placing the order Anil specifically mentioned that the vehicle should contain an original ‘Honda’
music setup.
But when the vehicle arrived Anil realized that what was fixed to the vehicle was not an original
‘Honda’ music setup.
What is the type of term that the seller had failed to meet in this contract ?
(a) A condition.
(b) A warranty.
(c) A fundamental term.
(d) An implied term.

(15) Anil imported a Honda CRV 2020 jeep through its local agent.
The seller delivered to Anil, a Honda Civic car instead of a Honda CRV 2020 jeep.
The most accurate answer, in relation to the term that was breached by the seller in this instance would
be :

(a) A condition.
(b) A warranty.
(c) An innominate term.
(d) A fundamental term.

Answer questions 16-18 based on the information given below.

The following are some of the rules for ascertaining the intention of the parties as to the time at which
the property in the goods is to pass to the buyer.
Select the correct rule relevant for each of the questions 16 to 18.
(16) Under ……………………, in an unconditional contract for the sale of specific goods, in a deliverable
state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the
time of payment or the time of delivery, or both, are postponed.
(a) Section 19 Rule 1
(b) Section 19 Rule 2
(c) Section 19 Rule 3
(d) Section 19 Rule 4

(17) Under …………………………., in a contract for the sale of specific goods, and the seller is bound to do
something to the goods for the purpose of putting them into a deliverable state, the property does not pass
until such thing is done and the buyer has notice thereof.
(a) Section 19 Rule 1
(b) Section 19 Rule 2
(c) Section 19 Rule 3
(d) Section 19 Rule 4

18 CA Sri Lanka
 (18) Under …………………………., in a contract for the sale of specific goods in a deliverable state, where
the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the
purpose of ascertaining the price, the property does not pass until such act or thing has been done and the
buyer has notice thereof.
(a) Section 19 Rule 1
(b) Section 19 Rule 2
(c) Section 19 Rule 3
(d) Section 19 Rule 4

(19) Select the correct statement in relation to the rule of ‘nemo dat quad non habet’.
(a) This rule means, that no one can give what he doesn't have.
(b) Under this rule a thief can give a good title to the purchaser.
(c) There are no exceptions to this rule.
(d) Under this rule, an innocent buyer can never get a clear title to stolen goods which were
bought by him.

(20) The following statements are in relation to the remedies available to a buyer, against a seller
who has breached a contract for the sale of goods.
(i) To maintain an action for damages for the non-delivery of goods, when the goods were not
delivered.
(ii) To maintain an action for damages for non-acceptance of delivery, when the goods were
refused to be accepted.
(iii) To maintain an action for the recovery of the price of the goods, when the property in the
goods has passed on to the buyer.
(iv) To maintain an action for damages, for the breach of a warranty in the contract of sale.

The correct ones would be:

a. Only i and iii.
b. Only i,ii and iv.
c. Only i and iv.
d. Only ii and iii.

(21) The Sale of Goods Ordinance(No. 11 of 1896),allows an unpaid seller (US) of goods to exercise
certain rights, even when the property in the goods has passed to the buyer.
The following are in relation to these rights.
(i) The right to retain the goods for the price, if the US is in possession of the goods.
(ii) A right of stopping the goods in transit, after the US has parted with the possession of the
goods.
(iii) A limited right of re-selling the goods.
(iv) After parting with the possession of the goods, the US cannot exercise the right of stopping the goods
in transit.

The correct ones would be:

a. Only i and ii.
b. Only ii and iii.
c. Only i,ii and iii.
d. Only ii,iii and iv.

CA Sri Lanka 19
 (22) The following statements are in relation to the remedies available to an unpaid seller, when there is
a breach of a contract of sale by the buyer.
i. To maintain an action for the recovery of the price of the goods.
ii. To maintain an action for damages for non-acceptance of delivery.
iii. To maintain an action for damages for non-delivery of goods.
iv. A right of stopping the goods in transit.

The correct ones would be :

a. Only i and iii.
b. Only ii and iv.
c. Only iii and iv.
d. Only i, ii and iv.

(23) The following statements are in relation to the sale of goods.

(i) Future goods are acquired or manufactured by the seller, after the making of the contract of
sale.
(ii) That the bulk of goods should correspond to the sample as well as the description, is an
implied condition in a sale of goods contract.
(iii) The general rule relating to a contract of sale of unascertained goods is that the property in
goods is not transferred to the buyer until the goods are ascertained.
(iv) A contract of works and material is one where the contract is for the exercise of a specialized
skill.

The correct ones would be :

a. Only ii and iii.
b. Only iii and iv.
c. Only i, ii and iii.
d. Only ii, iii and iv.

20 CA Sri Lanka
 ANSWERS
(1) b
(2) c
(3) b
(4) a
(5) d
(6) c
(7)-(10)

Specific Unascertained

Existing (10)
(7)/(9)
Future (8)

(11) b
(12) d
(13) d
(14) b
(15) d
(16) a
(17) b
(18) c
(19) b
(20) c
(21) c
(22) d
(23) c

CA Sri Lanka 21
 Chapter 4
NEGOTIABLE INSTRUMENTS
(1) Which of the following is an acceptable characteristic of a negotiable instrument?
(i)The title to an “order instrument” passes to the transferee upon the mere delivery of the
instrument.
(ii)The holder for the time being cannotsue in his own name, until the transfer is confirmed by
the transferor.
(iii)Notice of assignment must be given to the person who is liable to pay on the instrument.
(iv)A bona fide holder for value takes free from any defect in the title of his predecessors.

(2) Ranil (R) has given his apartment on rent to Banu (B), for a monthly rental of Rs.50,000/-.
B gives R a negotiable instrument (NI) for Rs.50,000 as the rental for March 2020.
Subsequently Rgets to know that B had stolen this NI from Amal (A).

Since R accepted this bill without knowing of the theft and in good faith, he became
……………………… and is therefore allowed to keep it.

i. a holder in due course

ii. a holder
iii. an acceptor
iv. an indorsee

(3) The following statements are in relation to negotiable instruments (NI) .

i. In Sri Lanka the law governing NI is the Bills of Exchange Ordinance No. 25 of 1927.
ii. A drawer of a NI is liable on the NI, irrespective of whether he has signed the NI or not.
iii. The title to a NI(bearer instrument) passes on delivery.
iv. A bona fide holder of a NI gets title to the NI even though there is a defect in the title of his predecessors.

The correct statements would be :

a. Only i,ii and iii.

b. Only i,ii and iv.
c. Only i,iii and iv.
d. Only ii and iii.

(4) The following statements are in relation to dividend warrants.

i. They are not recognized as negotiable instruments in Sri Lanka.

ii. It is a document which shows that a shareholder is entitled to a dividend.
iii. It includes the amount of dividends and the dividend tax deducted on this dividend.
iv. Dividend warrants are governed by the Bills of Exchange Ordinance No. 25 of 1927.

The correct ones would be :

a. Only i and iii.
b. Only i and iv.
c. Only ii and iv.
d. Only ii and iii.

22 CA Sri Lanka
 (5) A ……………………………………… is an instrument of short-term borrowing of the
government, which is issued at a discount for a specified period of less than one year and
contains a promise to pay the specified amount on the specified date to the bearer.

i. treasury bill
ii. bank draft
iii. share warrant
iv. debenture payable to the bearer

(6) The following statements are on bills of exchange (bill).

i. A bill is an unconditional written order.

ii. A bill must clearly specify the amount to be paid.
iii. A bill must always be addressed by one person to another.
iv. The acceptor of a bill should always be a banker.

The correct ones would be :

a. Only i,ii and iii.
b. Only i,ii and iv.
c. Only ii,iii and iv.
d. Only ii and iii.

(7) The following statements are relating to crossings on a cheque.

i. A crossed cheque can be paid over the counter in a bank.

ii. A crossing protects the rights of the true owner of the cheque.
iii. Two parallel lines drawn across the face of a cheque is considered a crossing.
iv. The name of a banker is written within the crossing in a generally crossed cheque.

The correct ones would be :

a. Only i,ii and iii.
b. Only i,ii and iv.
c. Only ii and iii.
d. Only ii and iv.

(8) A bill of exchange can be avoided if a material alteration is made to it without the assent
of all the parties liable on the bill.

The following statements refer to some of the alterations that can be made on a bill.

i. An alteration of the date.

ii. An alteration of the sum payable.
iii. An alteration of the time of payment.
iv. An alteration of the payee.

CA Sri Lanka 23
 The material alterations from the ones above would be :
a. Only i, ii and iii.
b. Only i and ii.
c. Only ii and iii.
d. Only ii, iii and iv.

(9) Berti, the holder of the bill, makes an indorsement on the bill saying “Pay Charlie
only.”

This is a ………………………………indorsement as Charlieis prohibited from negotiating on

this bill any further.

i. restrictive
ii. blank
iii. special
iv. conditional

(10) The statements below are relating to the rules for the presentment of a bill for
acceptance.

i. Presentment must be made at a reasonable hour on a business day and before the bill is overdue.
ii. Where the day on which a bill should be presented is a bank holiday, the bill must be presented
on the succeeding business day.
iii. Where the drawee is bankrupt, presentment cannot be completed.
iv. Where it is authorized by agreement, a presentment through the post office is sufficient.

The correct ones would be :

a. Only i, ii and iii.
b. Only i, ii and iv.
c. Only ii and iii.
d. Only ii and iv.

24 CA Sri Lanka
 ANSWERS

(1) d
(2) a
(3) c
(4) d
(5) a
(6) a
(7) c
(8) a
(9) a
(10) c

CA Sri Lanka 25
 Chapter 5
LAW OD AGENCY
(1) The following statements are relating to the law of Agency.
(i) An “agency” refers to a consensual relationship created by contract or by law.
(ii) The principal is the person who gives authority to an agent.
(iii) An “agent” is a person who is authorized to act on behalf of his principal.

(iv) An agency relationship is not fiduciary in nature.

Which of the above statements are correct?

a. Only i, ii and iii.

b. Only i, iii and iv.
c. Only i and ii.
d. Only ii and iv.

(2) The statements given below are relating to the duties of an agent towards his/her
principal.
(i) To act in the best interest of the principal.
(ii) Not to let the agent’s personal interest conflict with his / her duties as an agent.
(iii) To exercise a lien over the principal’s goods.
(iv) Not to make secret profits.

The correct ones would be:

a. Only i, ii and iv.
b. Only i, iii and iv.
c. Only ii, iii and iv.
d. Only ii and iii.

(3) The following statements are in relation to the capacity of the parties in an agency
relationship.
i. The general rule is that the principal must have full contractual capacity in order to enter into a
contract of agency.
ii. Generally a third party must have full contractual capacity for the contract with the principal to
be enforceable.
iii. Since the agent does not contract for himself, he need not have full contractual capacity.
iv. A minor or a bankrupt person cannot function as an agent, as they do not have contractual
capacity.

Which of the above statements are correct?

a. Only i, ii and iii.

b. Only i, iii and iv.
c. Only i and ii.
d. Only iii and iv.

26 CA Sri Lanka
 (4) X owns a house in Sri Lanka and wishes to sell it to Y.
But, X is abroad and is unable to come to Sri Lanka for the signing of the deed of transfer.
Therefore through a power of attorney, X appoints his brother Z to sign the deed on behalf of
him.

The type of agency that has been created between X and Z in this instance is, an agency by
……..……….

i necessity
ii ratification
iii. implication
iv. express agreement

(5) An agency can be terminated by the “act of parties” in different ways.

The statements below are in relation to these ways.
i. By the agent completely performing the agency contract.
ii By the principal revoking the agent’s authority.
iii By the dismissal of the agent by the principal, upon discovering a breach of duty by the agent.
iv By the death of the principal or the agent.

The correct ones would be:

a. Only ii and iii.

b. Only i, iii and iv.
c. Only i and ii.
d. Only i, ii and iii.

(6) An agency relationship has been created by the operation of law when ……………
A. an express agreement exists between the principle and the agent.
B. an implied agreement exists between the principle and the agent.
C. the agency contract has been performed by the agent.
D. there is a valid marriage and co-habitation between a husband and wife.

(7) The agent contracts on behalf of the principal without having any authority to do so. But
subsequently the principal adopts this contract and makes it binding on himself.
The type of agency that has been created in this instance is an agency by ……………
A. necessity.
B. ratification.
C. estoppel.
D. marriage & co-habitation.

CA Sri Lanka 27
 (8) X met with an accident and was taken to hospital in an unconscious state. The doctors
wanted to operate on him, in order to save his life.
Under normal circumstances, X would have to give his consent, for this operation to be
performed on him. But in this instance as such is not possible, X’s wife, Y, decides on behalf of
X.
In this scenario Y is an agent by …………………………….
A. necessity.
B. ratification.
C. estoppel.
D. express agreement.

(9) Without X`s knowledge, Y purchases a car saying that he is purchasing it on behalf of X.
Subsequently X approves this transaction.
This results in Y becoming the agent of X, and X being bound by the contract to purchase this car.
What is the type of agency that has been created between X and Y in this instance?
A. Agency by necessity.
B. Agency by ratification.
C. Agency by estoppel.
D. None of the above answers are correct.

(10) ……………………………. has authority either, to sell goods or to consign goods for the
purpose of sale, or to buy goods or to raise money on the security of goods, on behalf of his
principal.
A. An auctioneer
B. A mercantile agent
C. A confirming house
D. A del credere agent

(11) Which of the following is an instance where an agency is terminated by the act of the
parties?
A. The death of the principal or the agent.
B. The bankruptcy of the principal or of the agent.
C. The mental incapacity of the principal or of the agent.
D. The principal revoking the agent’s authority.

(12) The following statements are in relation to instances where the agent is personally liable
on the contract with the third party.
i. When the agent does not indicate to the third party that he is contracting as an agent.
ii. When the agent is contracting on behalf of an existing principal.
iii. When the agent is in fact the principal, but contracts as an agent.
iv. When the agent, though claiming to act as an agent, has in fact no authority to enter into the
contract.

28 CA Sri Lanka
 Which of the above are correct?

a. Only i and iii.

b. Only i, iii and iv.
c. Only I, ii and iii.
d. Only i, ii and iv.

(13) The State (Liability in Delict) Act (No. 22 of 1969) gives instances where the State is not held
liable for the acts or omissions of its agents.
The following statements are relating to these instances.
i. When a function is conferred on an agent by a written law and that agent commits a delict, while
performing such function.
ii. The infringement of a trademark by an agent with the authority of the State.
iii. An act or omission by the agent whilst discharging responsibilities of a judicial or quasi-judicial
nature.
iv. An act by the agent whilst discharging his responsibilities in the execution of a judicial process.

Which of the above statements are correct?

a. Only I and ii.

b. Only iii and iv.
c. Only i, ii and iii.
d. Only ii, iii and iv.

(14) Which of the following is an instance where the agent cannot delegate the authority given to
him by the principal?
A. When the principal has not permitted such delegation.
B. When the principal is aware of the agent’s intention to delegate and does not object.
C. When delegation becomes necessary due to an emergency.
D. Where delegation is the usual practice in the profession or trade.

(15) Courts have emphasized on some requirements which are necessary to create an agency by
estoppel.
The following statements are on these requirements.
I. A representation to the outside world by the principal.
II. A representation to the outside world by the agent.
III. A reliance by a third party on that representation.
IV. An alteration of the third party’s position resulting from such representation.

The correct ones would be:

a. Only i and iii.
b. Only i, iii and iv.
c. Only ii and iii.
d. Only ii, iii and iv.

CA Sri Lanka 29
 ANSWERS

(1) A
(2) D
(3) A
(4) D
(5) D
(6) D
(7) B
(8) A
(9) B
(10) B
(11) D
(12) B
(13) B
(14) A
(15) B

30 CA Sri Lanka
 Chapter 6
Partnership Law
(1) The following statements are in relation to partnerships.
(i) The law applicable to a partnership in Sri Lanka is the
Partnership Ordinance (No. 21 of 1866).
(ii) Partnership is a relationship, which subsists between persons
carrying on a business in common, with a view of profit”.
(iii) A partnership is a concept derived from Roman Dutch Law.
(iv) A partnership can also be referred to as a “joint venture”.

The correct ones would be :

a. Only i and ii.

b. Only i and iv.
c. Only ii and iii.
d. Only iii and iv.

(2) The statements given below are relating to some of the mandatory requirements of a
valid partnership.

i. There should be one or more partners.

ii. It should be a commercial business.
iii. There should be a written agreement between the partners.
iv. The business should be carried on in common.

The correct ones would be :

a. Only i and ii.
b. Only ii and iv.
c. Only ii and iii.
d. Only i, ii and iv.

(3) Which of the following could be considered as a partnership ?

a. Holding property jointly.

b. A joint account at a bank.
c. A joint business formed to buy and sell sugar for profit.
d. A joint relationship which shares gross returns.

CA Sri Lanka 31
 (4) …..………………….is a relationship formed by two or more parties, having a business
with a common view of earning profit.

The most accurate wording to fill in the blanks above would be :

a. An association
b. A partnership
c. A club
d. A society

(5) When a partnership wants to register its name under the Business Names Act (No. 7 of
1987), it has to first submit an application to the relevant authority.

The following are relating to some of the information that should be given in that
application.

i. The name of the business

ii. The nature of the business
iii. The principal place of business and the address of any branch office.
iv. The date of the expected closure of the business.
The correct ones would be :
a. Only i and ii.
b. Only ii and iii.
c. Only i, ii and iii.
d. Only i, iii and iv.

(6) In certain instances, the Companies Act (No. 7 of 2007) allows the number of partners
in a partnership in Sri Lanka to be more than 20.

The following statements are in relation to these instances.

i. If the partnership is carrying on the practice as attorneys-at-law, and all the partners are
attorneys-at-law.
ii. If the partnership is carrying on the practice as accountants, and all the partners are chartered
accountants.
iii. If the partnership is carrying on the practice as accountants, and all the partners are management
accountants.
iv. If the partnership is carrying on the practice as members of a licensed stock exchange, and all
the partners are members of that licensed stock exchange.

The correct ones would be :

a. Only i and iii.
b. Only ii and iii.
c. Only ii, iii and iv.
d. Only i, ii and iv.

32 CA Sri Lanka
 (7) The following statements describe ‘partnership property’.

i. The Partnership Act of 1890 does not formally recognize the concept of ‘partnership property’.
ii. Property originally brought into the partnership stock are not considered as ‘partnership property’.
iii. Property purchased on account of the firm and in the course of the partnership business are
considered as ‘partnership property’.
iv. Such property must be applied by the partners exclusively for the purposes of the partnership.

The correct ones would be:

a. Only i and ii.

b. Only i and iii.
c. Only ii and iii.
d. Only iii and iv.

(8) The following statements are in relation to the partnership deed.

i. The relationship between partners in a partnership business is generally governed by the

partnership deed.
ii. A partnership deed is a written agreement which outlines the basic understanding between the
partners.
iii. It is mandatory to have a partnership deed for each and every partnership.
iv. If there is no written partnership deed, the relationship between the partners is governed by the
course of dealing among the partners.

The correct ones would be:

a. Only i and iii.

b. Only ii and iii.
c. Only ii and iv.
d. Only i, ii and iv.

(9) Given below are some of the duties of a partner in a partnership.

i. All partners are entitled to an equal share in the capital and profits of the partnership.
ii. Every partner must disclose any secret profit he makes in dealing with the firm, and account for
that profit to the firm.
iii. It is optional for a partner to render to the partnership full information on all things affecting the
partnership.
iv. Every partner should account to the firm for any benefit, derived by him without the consent of the
other partners, from any transaction concerning the partnership.

The correct ones would be:

a. Only i and iii.
b. Only ii and iii.
c. Only ii and iv.
d. Only iii and iv.

CA Sri Lanka 33
 (10) The following statements are relating to the rights of a partner in a partnership.

i. All partners are entitled to an equal share in the capital and profits of the partnership.
ii. A partner is entitled to interest on his capital, after the profits/losses of the partnership are
ascertained.
iii. A partner is entitled for remuneration for acting in the partnership business.
iv. Every partner must render true accounts and full information on all things affecting the firm.

The correct ones would be:

a. Only i and iii.

b. Only ii and iii.
c. Only ii, iii and iv.
d. Only i, ii and iii.

(11) Bennet (B) and Cyril(C) were partners in a partnership which engaged in the business of
a sugar refinery.
C was entrusted to buy sugar for the partnership.
C, without informing B, bought sugar on his own account and later sold it to the partnership at
a considerable profit.
What is the duty breached by C in the scenario above ?
a. The duty of taking part in the management of the firm.
b. The duty of disclosing and accounting for a secret profit.
c. The duty of not competing with his own firm.
d. The duty of inspecting the accounting books of the partnership.

(12) The following statements are relating to a new partner in a partnership.

i. A new partner refers to a person who is admitted as a partner into an existing firm.
ii. A new partner is liable to the creditors of the firm for anything done by the firm before he
became a partner.
iii. A new partner is liable only for the creditors of the firm, after he joined the firm.
iv. A new partner can agree to take over the liabilities which were incurred by the firm before he
joined it.

The correct ones would be:

a. Only i and ii.

b. Only i and iii.
c. Only iii and iv.
d. Only i, iii and iv.

34 CA Sri Lanka
 (13) The following statements are in relation to a partnership’s ability to sue and to be sued.
i. To sue is to take legal action against another person, for some harm caused to you by that
person, by making a legal claim for money or damages.
ii. As a partnership does not have a separate legal identity from its partners, it cannot sue or be
sued in its own name.
iii. A partnership can also sue or be sued in the name of the main partner of the firm.
iv. Any legal action by the partnership or against the partnership, will have to be made in the
individual names of all the partners of the firm.
The correct ones would be :
a. Only i and iii.
b. Only ii and iv.
c. Only i, ii and iv.
d. Only ii, iii and iv.

(14) Given below are instances where a partnership can be dissolved.

i. Expiration of the term of the partnership.

ii. Bankruptcy or death of any partner of the firm.
iii. When the nature of the firm’s business becomes illegal.
iv. When a partner becomes permanently incapable of performing his duties.

The instances where it can be dissolved without a court order would be:

a. Only i and iii.

b. Only ii and iii.
c. Only ii and iv.
d. Only i, ii and iii.

(15) The following statements are relating to the treatment of assets of the partnership on its
dissolution.

i. On the dissolution of a partnership the partners will be settled their dues first, before settling any
other debt of the firm.
ii. The liability of partners to contribute towards the settlement of debts of a partnership at its
dissolution is unlimited.
iii. The liability of partners to contribute towards the settlement of debts of a partnership at its
dissolution is limited to the amount they have invested in the firm.
iv. The application of assets in a dissolution will be used first to pay the debts or liabilities of third
parties.
The correct ones would be :
a. Only i and ii.
b. Only i and iii.
c. Only ii and iv.
d. Only iii and iv.

CA Sri Lanka 35
 ANSWERS

(1) a
(2) b
(3) c
(4) b
(5) c
(6) d
(7) d
(8) d
(9) c
(10) d
(11) b
(12) d
(13) c
(14) d
(15) c

36 CA Sri Lanka
 Chapter 7
INSURANCE

(1) ……………………………………...is not an important element for a contract of

insurance.

a. Premiums
b. Uncertainty
c. Insurable interest
d. The total annual turnover of the insurance company

Which of the above, most accurately fills in the blanks of the given statement.

(2) The following statements are relating to insurance.

i. Wagering is a special type of insurance contract.

ii. In insurance, you must have an “insurable interest” in what you insure.
iii. A contract of insurance can be enforced through courts.
iv. You can never insure the same risk, with two insurers.
Which of the above are correct ?
a. Only i and ii.
b. Only i and iv.
c. Only ii and iii.
d. Only iii and iv.

(3) The following statements are relating to wagering contracts (gambling).

i. In gambling, you try to make a bargain or winning.

ii. In gambling, you can bet on anything.
iii. Wagering contracts can be enforced through a court of law.
iv. In gambling, you can place bets with more than one bookmaker for the same item.

Which of the above are correct ?

a. Only i,ii and iii.

b. Only i,ii and iv.
c. Only ii,iii and iv.
d. Only ii and iv.

CA Sri Lanka 37
 (4) The following statements are on life insurance contracts.

i. Life insurance is different from all other types of insurance, in that death is certain, with the
only uncertainty being as to when death will occur.
ii. In a life insurance contract, upon the payment of premiums by the insured, the insurer agrees to
pay a pre-agreed sum of money upon the death of the person whose life is insured.
iii. Life insurance can be classified as a contingency insurance, since it is a contract to pay a sum of
money when the event insured against (i.e. death) occurs.
iv. Though life insurance is sometimes referred to as life assurance, the use of the word “assurance”
is legally not acceptable.
The correct ones would be :
a. Only i, ii and iii.
b. Only ii, iii and iv.
c. Only ii and iii.
d. Only i and iv.

(5) The following statements are relating to the obligations of a hirer in a hire-purchase
agreement.

i. To comply with the hire-purchase agreement.

ii. To give information to the owner on the whereabouts of the goods.
iii. To purchase the goods, at any time, by paying the balance due on the hire- purchase price, with
a rebate.
iv. To assign his rights under the hire-purchase agreement to another party.

Which of the above are correct?

a. Only i and ii.

b. Only ii and iii.
c. Only ii,iii and iv.
d. Only I, ii and iii.

(6) The following statements are on leasing.

i. Leasing is governed in Sri Lanka by the Consumer Credit Act, (No. 29 of 1982).
ii. In leasing, profits are made through the use of an asset and not by owning it.
iii. A lessor will always have the right of undisturbed and peaceful possession of the leased asset.
iv. “Lessor” is “the person, who transfers the right to possession and use of an equipment under lease,
to a lessee.”

38 CA Sri Lanka
 Which of the above are correct ?

a. Only I and ii.

b. Only ii and iii.
c. Only ii and iv.
d. Only iii and iv.

(7) The following statements are relating to “parate execution” which is a debt recovery
process available to financial institutions.

i. “Parate” is a term which has derived from English Law.

ii. In a parate execution, the financial institute which gave the loan, has tofirst demand payment
from the defaulting customer.
iii. A “parate notice” is one which is sent by the defaulting customer to the financial institution
which gave the loan.
iv. The directors of the financial institution which gave the loan, must adopt a resolution before
taking steps to auction the mortgaged property.

Which of the above are correct ?

a. Only i and iii.

b. Only I and iv.
c. Only ii and iv.
d. Only ii and iii.

(8) The statements given below are on the Recovery of Loans by Banks (Special Provisions)
Act No. 4 of 1990.
i. The concept of “parate execution” was introduced by this Act.
ii. This Act applies to the recovery of loans where the outstanding capital amount is not less than
Rs.5 million.
iii. The object of this Act is to provide for the recovery of loans granted by banks for the economic
development of Sri Lanka.
iv. This Act applies to all registered banks and finance companies in Sri Lanka.

Which of the above statements are correct?

a. Only i,ii and iii.

b. Only i,ii and iv.
c. Only ii,iii and iv.
d. Only ii and iii.

CA Sri Lanka 39
 (9) The following statements are on insurance.

i. In a marine insurance voyage policy, there is an implied warranty that the ship should be
seaworthy for the adventure insured for.
ii. A contingency insurance is a type of insurance which provides a payment on the occurrence of a
contingent event.
iii. If the insurable interest ceases to exist after the insurance policy is obtained, then the policy will
be affected.
iv. A life insurance policy is an example of an indemnity insurance.

Which of the above are correct?

a. Only I and ii.

b. Only ii and iv.
c. Only ii and iii.
d. Only iii and iv.

(10) The following statements are in relation to mortgages.

i. Mortgages are governed in Sri Lanka by the Mortgage Act, (No. 6 of 1949).
ii. A mortgage is a security furnished by the person giving the loan as a guarantee for the
repayment of the loan.
iii. A “mortgagee” is the person who borrows money to buy a property.
iv. Neither the ownership nor the possession of the mortgaged property changes, due the mortgage.

Which of the above are correct?

a. Only i,ii and iii.

b. Only i and iv.
c. Only ii, iii and iv.
d. Only I and iii.

40 CA Sri Lanka
 ANSWERS

(1) d
(2) c
(3) b
(4) a
(5) a
(6) c
(7) c
(8) a
(9) a
(10) b

CA Sri Lanka 41
 Chapter 8
LABOUR LAW
(1) An employment contract generally contains terms and conditions.

i. Scope of work.
ii. Working hours and leave.
iii. Salary increments and bonuses.
iv. Qualifications of the employee.

Which of the above are generally accepted as terms and conditions of an employment contract?
a. Only i, ii and iii.
b. Only i, ii and iv.
c. Only i, iii and iv.
d. Only ii and iii.

(2) Given below are some of the tests available to identify whether a worker is an
independent contractor or an employee.

i. Control Test
ii. Integration Test
iii. Duality Test
iv. Economic Reality Test
The correct ones recognized under the Sri Lankan labour law would be:
a. Only i,ii and iii.
b. Only i, ii and iv.
c. Only i,iii and iv.
d. Only ii and iii.

(3) The following statements are on the Employees’ Provident Fund Act (No. 15 of 1958).

i. The Employees Provident Fund Act came into effect in 1958, and it has been amended many
times up to this day.
ii. The main objective of the Act is to ensure that an employee gets a lump sum payment in his old
age/retirement.
iii. “The Commissioner of Labour shall be in charge of the general administration of this Act.
iv. As per the Act, it is only the employer that has to contribute monthly to the Fund in relation to
the account allocated to the employee.

42 CA Sri Lanka
 The correct ones would be :

a. Only i,ii and iii.

b. Only ii, iii and iv.
c. Only iii and iv.
d. Only ii and iii.

(4) Section 47of the Employees’ Provident Fund Act (No. 15 of 1958) defines “earnings”.

i. Basic wage or salary.

ii. Cost of living allowance.
iii. Payment in respect of holidays
iv. Overtime payment.

Which of the above items fall within the definition of “earnings”?

a. Only i, ii and iii.
b. Only i, ii and iv.
c. Only i, iii and iv.
d. Only ii and iii.

(5) The Employees’ Provident Fund Act (No. 15 of 1958) allows a member to withdraw
prematurely from his/her account in the Fund in certain instances.

The statements given below are relating to these instances.

i. After a female member ceases to be employed in consequence of her marriage.

ii. After the member ceases to be employed, by reason of a permanent and total incapacity for work
and is therefore certified as medically unfit to work anymore.
iii. When a member goes abroad, with the intention of returning back to Sri Lanka.
iv. After a member ceases to be employed in a covered employment and takes up pensionable
employment in the public service.
The correct instances would be :
a. Only i and ii.
b. Only i, ii and iv.
c. Only ii, iii and iv.
d. Only ii and iii.

CA Sri Lanka 43
 (6) The following statements are relating to the contribution by the employer to the
Employees’ Trust Fund (ETF).

i. The contribution made by the employer is 8% of the total earnings of the employer.
ii. The contribution made by the employer is 3% of the total earnings of the employer.
iii. The contribution for May 2020 must be remitted to the Fund before 30th June 2020.
iv. The contribution for May 2020 must be remitted to the Fund before 15th June 2020.

The correct ones would be :

a. Only i and iii.

b. Only ii and iii.
c. Only i and iv.
d. Only ii and iv.

(7) Amila was working for XY Limited (XY) since 1st of January2010 as its Accountant.
Her present salary is Rs 100,000 per month.
She has now decided to resign from XY at the end of this month.

What is the amount of gratuity Amila is entitledto get from XY ?

i. Rs 1,000,000
ii. Rs 500,000
iii. Rs 250,000
iv. Amila is not entitled for gratuity

(8) “A female person shall not be employed in a shop or office, before 6 a.m. or after 6 p.m.
on any day. But there are exemptions to this rule, for any female who has attained 18 years of
age.”
[Shop and Office Employees (Regulation of Employment and Remuneration) Act, No. 19 of
1954.]

The following statements are relating to these exemptions.

i. She can be employed in a restaurant, between 6 p.m. and 12 p.m. on any day.
ii. She can be employed in any prescribed work in a residential hotel before 6 a.m. or after 6 p.m.
on any day.
iii. She can be employed in a shop or office, between 6 p.m. and 8 p.m.
iv. If she is employed as an air hostess (in any office maintained by an airline at an airport).
The correct ones would be :
a. Only i,ii and iii.
b. Only ii,iii and iv.
c. Only i,iii and iv.
d. Only ii and iii.

44 CA Sri Lanka
 ANSWERS

(1) a
(2) b
(3) a
(4) a
(5) b
(6) b
(7) b
(8) b

CA Sri Lanka 45
Chapter 9
OFFENCES RELATING TO THE BUSINESS ENVIRONMENT and
NEW LAWS
(1) Given below are different forms of signatures.

i. A scanned image of a person’s ink signature.

ii. A hand-signature created on a tablet using your finger.
iii. A signature at the bottom of your email.
iv. A signature placed on a letter which is sent via registered post.
Which of the above are recognized as electronic signatures by the Electronic Transactions Act,
No 19 of 2006?
a. Only i,ii and iii.
b. Only i,ii and iv.
c. Only i,iii and iv.
d. Only ii and iii.

(2) The statements given below are in relation to the objectives of the Electronic
Transactions Act, No 19 of 2006.

i. To give legal recognition to electronic signatures.

ii. To encourage the use of reliable forms of electronic commerce.
iii. To facilitate electronic filing of any application, petition, plaint, answer, written submission or
any other document with any court
iv. To protect the public from electronic crimes.
Which of the above are correct ?
a. Only i, ii and iii.
b. Only i,ii and iv.
c. Only i,iii and iv.
d. Only ii and iii.

(3) Which of the following is covered by the Electronic Transactions Act, No. 19 of 2006?

i The creation or implementation of a last will of a person.

ii. A contract for the sale of a land.
iii. An e-commerce contract formed by two people using electronic means.
iv. A bill of exchange, as defined in the Bills of Exchange Ordinance

46 CA Sri Lanka
 (4) The following statements are relating to computer crimes.

i. Stealing a computer from a retail computer shop.

ii. An act to secure unauthorized access to information held in a computer.
iii. Selling information obtained unlawfully from a computer.
iv. Illegal interception of data, to or from a computer.
Which of the above are recognized as computer crimes under the Computer Crimes Act (No.
24 of 2007)?
a. Only i and iii.
b. Only ii and iii.
c. Only i, ii and iv.
d. Only ii, iii and iv.

(5) Intellectual Property is traditionally divided into two categories. One such category is
copyrights and related rights.

The other category is ……………

i. geographical indications.
ii. intellectual property.
iii. patents for inventions.
iv. industrial property.

(6) The following statements are relating to the investigation of computer crimes under the
Computer Crimes Act (No. 24 of 2007).

i. Investigations for computer crimes are generally conducted under the Code of Civil Procedure.
ii. The procedure to be followed in conducting an investigation is also laid out in the Computer
Crimes Act.
iii. The Minister in charge of the subject of Science and Technology, in consultation with the
Minister in charge of the subject of Justice, may appoint through a Gazetted Order, any public
officer to assist the police in the investigation of an offence under this Act.
iv. An “expert” appointed under this Act, will have powers to enter into any premises along with a
police officer.
The correct ones would be :
a. Only i, ii and iii.
b. Only i, ii and iv.
c. Only ii ,iii and iv.
d. Only ii and iv.

CA Sri Lanka 47
 (7) The following statements give the objects of certain institutions/authorities.

i. To protect consumers by implementing proper accounting standards for the traders.

ii. To ensure that wherever possible, consumers have sufficient access to goods and services at
competitive prices.
iii. To seek damages against unfair trade practices, restrictive trade practices or any other form of
manipulation of consumers by traders.
iv. To create a platform for consumers to discuss their consumer needs.

Which of the above are objects of the Consumer Affairs Authority ?

a. Only i and iii.
b. Only ii and iv.
c. Only iii and iv.
d. Only ii and iii.

(8) The following statements are in relation to the obligations of traders under the
Consumer Authority Act, (No. 9 of 2003).

i. To exhibit conspicuously in his place of business, a price list containing the maximum retail
or wholesale price of goods available for sale in his place of business.
ii. To issue a receipt for any goods sold by him at his place of business, whether the consumer
requests for one or not.
iii. To keep a notice board at a prominent place in his place of business for displaying the notices,
warnings etc. issued by the Authority.
iv. Not to mislead or deceive any customer or trader, in the course of his business.
The correct ones would be :
a. Only i, ii and iii.
b. Only i, iii and iv.
c. Only ii and iii.
d. Only ii and iv.

48 CA Sri Lanka
 ANSWERS

(1) A
(2) D
(3) C
(4) D
(5) D
(6) A
(7) D
(8) B

CA Sri Lanka 49
 Lesson 10
INTERNATIONAL TRADE

(1) The following statements are in relation to “Incoterms” published by the International
Chamber of Commerce (ICC) in relation to international trade.

i. Incoterms give internationally accepted definitions and rules of interpretation, to most of the
common commercial terms used in international trade.
ii. Parties to an international trade transaction have the option of incorporating Incoterms into
their contract.
iii. Incoterms are internationally recognized trade terms which have different meanings in
different countries.
iv. “Cost insurance and freight” contracts, are those where the contract is performed by the
seller, by the delivery of the shipping documents to the buyer.

The correct ones would be :

a. Only i, ii and iii.

b. Only i, ii and iv.
c. Only i, iii and iv.
d. Only ii and iii.

(2) In ……………………….. contracts, the cost of putting goods on board the ship has to be
borne by the seller. Also in these type of contracts the ownership of goods passes to the buyer
when the goods are placed on board the ship.

a. Free On Board
b. Freight On Board
c. Cost and Freight
d. Cost Insurance and Freight

(3) The following statements are relating to the duties of a seller under a FOB contract.

i. To ship the goods, and to supply the requested documents and invoice.
ii. To pay incidental costs of involved in the delivery of goods.
iii. To obtain export licenses and customs clearance.
iv. To nominate a ship after obtaining a contract of carriage

The correct ones would be :

a. Only i, ii and iii.

b. Only ii and iv.
c. Only iii and iv.
d. Only i, iii and iv.

50 CA Sri Lanka
 (4) Under a ………………………… contract, the property in goods generally passes when
these goods cross the ship’s rail.

a. Cost Insurance and Freight

b. Free On Board
c. Freight On Board
d. Cost and Freight

(5) In a CIF contract, the price quoted by the seller includes some of the following :
i. The cost of goods
ii. The cost of insurance
iii. The cost of freight
iv. The taxes payable in the buyer’s country.

Which of the above are correct ?

a. Only i, ii and iii.

b. Only i, ii and iv.
c. Only iii and iv.
d. Only i and iii.

(6) ………………………………... are governed by the “Uniform Customs and Practices

(UCP) for Documentary Credits” of the International Chamber of Commerce (ICC).

a. Letters of credit (LCs)

b. Cheques
c. Promissory notes
d. Pay orders

(7) Given below are some of the parties involved in transportation in international trade.

i. The ship owner

ii. The insurance agent
iii. The charterer.
iv. The consignee.

The main parties involved in the carriage of goods by sea would be :

a. Only i and ii.

b. Only ii and iv.
c. Only i, iii and iv.
d. Only i, ii and iii.

CA Sri Lanka 51
(8) The following statements are on international trade.

i. An irrevocable letter of credit can be cancelled at any time before its expiry without the prior
consent of both the buyer and seller.
ii. The bill of lading, marine insurance policy and invoice, are some of the main shipping
documents in an international trade transaction.
iii. Collection arrangements and letters of credit, are two of the main methods of finance used in
international trade.
iv. “Carriage by sea” refers to the transportation of goods only, over water channels in international
trade.

The correct ones would be :

a. Only i and ii.

b. Only i, ii and iii.
c. Only ii, iii and iv.
d. Only ii and iii.

52 CA Sri Lanka
 ANSWERS

(1) B
(2) A
(3) A
(4) B
(5) A
(6) A
(7) C
(8) D

CA Sri Lanka 53
 Chapter 11
SECURITIES REGIME IN SRI LANKA

(1) A ‘security’ can be simply defined as, any proof of ownership or debt that has been
assigned a value and may be sold.

The following are relating to such ‘securities’.

i. A ‘security’ can be treated as a negotiable financial instrument that holds some type of
monetary value.
ii. An equity security represents the ownership interest held by shareholders in an entity.
iii. A debt security represents money that is borrowed and must be repaid, as per its terms.
iv. A hybrid security refers to a security that has the combined characteristics of all types of equity
securities.
The correct ones would be :
a. Only i and ii.
b. Only i,ii and iii.
c. Only ii and iii.
d. Only ii,iii and iv.

(2) The following statements are relating to the ‘objectives’ of the Securities & Exchange
Commission of Sri Lanka (SEC).

i. The creation and maintenance of a market in which securities can be issued and traded in an
orderly and fair manner.
ii. The protection of the interests of the investors.
iii. The operation of a Compensation Fund to protect the investors.
iv. To grant licenses to body corporates to operate as stock exchanges.

The correct ones would be :

a. Only i,ii and iii.

b. Only i,ii and iv.
c. Only i,iii and iv.
d. Only ii, iii and iv.

(3) The following are in relation to “securities” which are presently traded at the Colombo
Stock Exchange.

i. Ordinary shares with voting rights.

ii. Non-voting ordinary share.
iii. Debentures.
iv. Treasury Bills.

54 CA Sri Lanka
 The correct ones would be :

a. Only i and ii.

b. Only ii and iv.
c. Only i, ii and iii.
d. Only i, ii and iv.

(4) All transactions pertaining to an account holder in the Central Depository System
(CDS) can be carried out only through a ‘Participant’.

The following are in relation to persons/institutions eligible to act as such Participants.

i. Stockbrokers
ii. All commercial banks registered in Sri Lanka.
iii. Stock dealers
iv. The custodian bank
The correct ones would be :
a. Only i and ii..
b. Only ii and iii.
c. Only i,iii and iv.
d. Only ii,iii and iv.

(5) To be eligible to be listed on the ‘DiriSavi Board’an applicant must satisfy the specified
criteria.

Given below are some of these criteria.

i. A stated capital of not less than Rs.100, 000,000/- at the time of listing.
ii. A positive Net Assets balance as per its consolidated audited financial statements for 3 financial
years immediately preceding the date of application.
iii. A positive Net Assets balance as per its consolidated audited financial statements for the
financial year immediately preceding the date of application.
iv. On the date of listing, the applicant must meet the Minimum Public Holding Requirement.
The correct ones would be :
a. Only i and ii.
b. Only ii and iv.
c. Only i, ii and iv.
d. Only i,iii and iv.

CA Sri Lanka 55
 (6) “………………………… is in essence, an offence relating to the abuse of information,
by giving an unfair advantage to the person in the financial market who is privy to such
information undisclosed by the company.”

i. Insider dealing
ii. Dumping
iii. Market abuse
iv. Fraudulent trading

(7) The following are relating to the transactions handled by the Central Depository System
(CDS).

i. The deposit of securities.

ii. The transfer of securities.
iii. Issuing of securities.
iv. Pledging of securities
The correct ones would be :
a. Only i and ii.
b. Only ii and iv.
c. Only ii, iii and iv.
d. Only i, ii and iv.

(8) Given below are some statements about the Central Depository System (CDS).

i. The CDS is a wholly owned subsidiary of the Securities and Exchange Commission of Sri
Lanka (SEC).
ii. The CDS is a licensed market intermediary and clearing house.
iii. The CDS acts as a depository in respect of securities traded on the Colombo Stock Exchange
(CSE).
iv. The CDS performs post trading functions of clearing and settlement.

The correct ones would be :

a. Only i,ii and iii.
b. Only i,ii and iv.
c. Only i,iii and iv.
d. Only ii,iii and iv.

56 CA Sri Lanka
 ANSWERS

(1) b
(2) a
(3) c
(4) c
(5) d
(6) a
(7) d
(8) d

CA Sri Lanka 57
 Chapter 12
ALTERNATE DISPUTE RESOLUTION

(1) The following statements are on Alternative Dispute Resolution (ADR) :

i. ADR is a collection of processes which are used in resolving disputes informally and
confidentially.
ii. ADR is a collection of processes that help parties to resolve disputes through trials-at-bar.
iii. ADR refers to ‘out-of-court’ dispute resolution methods which are more costly than litigation.
iv. ADR is a term that refers to several different methods of resolving disputes outside of the
traditional legal and administrative forums.

The most accurate ones would be:

a. Only i and ii.

b. Only i and iv.
c. Only ii and iii.
d. Only iii and vi.

(2) The following statements are on the processes of Alternative Dispute Resolution (ADR).

i. ADR is a system which takes a great deal of time to provide remedies for disputes.
ii. ADR can ease the duties of courts in relation to the hearing of cases regarding disputes.
iii. ADR promotes the amicable settlement of disputes, which in turn helps to maintain a better
relationship between the disputing parties.
iv. In ADR the parties involved in the dispute have to comply with strict procedures similar to those
observed in courts.

The most accurate ones would be:

a. Only i and ii.
b. Only ii and iii.
c. Only iii and iv.
d. Only ii, iii and iv.

58 CA Sri Lanka
 Answer question nos.3 and 4, based on the scenario given below:
Anura, a legal expert, did a presentation to a group of students on the merits and demerits of
Alternative Dispute Resolution (ADR).
Shehani (S) one of the students, had noted down some of these as stated below, but
unfortunately had not segregated them as merits and demerits.
i. The parties to the dispute get an opportunity to tell their side of the story as well as have a say in
the final decision.
ii. The focus is on issues that are important to the disputing parties, instead of on their legal rights
and obligations.
iii . A disputing party may have a limited bargaining ability.
iv. The relationship between the disputing parties is preserved, as co-operation between them is
promoted instead of creating a winner and a loser.
v. The disclosure of information and truthfulness of communications depends on the good faith of
the disputing parties.
vi. A disputing party can use ADR as a time wasting tactic.

(3) From the above points listed by S, the merits of ADR would be :

a. Only i,ii and iii.

b. Only i,ii and iv.
c. Only iii,v and vi.
d. Only ii, iv and v.

(4) From the above points listed by S, the demerits of ADR would be :
a. Only i,ii and iv.
b. Only ii, iii and iv.
c. Only iv,v and vi.
d. Only iii, v and vi.

(5) …………………………………. is a non-adversarial process which is managed by a

neutral third party who assists the disputing parties to reach a settlement which is acceptable
to them.

Which of the following is best suited to fill in the blanks above.

i. Arbitration
ii. Mediation
iii. Litigation
iv. A settlement

CA Sri Lanka 59
 (6) The following statements are on ‘mediation’.

i. It is an attempt to settle a legal dispute through the active participation of a third party who
works to find points of agreement and make those in conflict agree on a fair result.
ii. It is a process used to intervene between two or more disputants in order to bring about an
agreement, a settlement, or a compromise.
iii. It is a formal dispute settlement process managed by a trained third party, called a mediator.
iv. Statements made by any person at a mediation session, are admissible as evidence in civil or
criminal proceedings.

The most accurate ones would be:

a. Only i, ii and iv.
b. Only i, iii and iv.
c. Only ii and iii.
d. Only i and ii.

(7) The following statements are in relation to ‘arbitration’.

i. Arbitration is an out-of-court determination of a dispute by one or more independent third

parties called arbitrators.
ii. Lawyers cannot represent the disputing parties in an arbitration.
iii. Arbitrators are appointed by the parties in accordance with the terms of the arbitration
agreement or in default by a court.
iv. The district and place where the arbitration is to be held, will be determined by the District
Court.

The most accurate ones would be :

a. Only i, ii and iv.
b. Only i, iii and iv.
c. Only ii and iii.
d. Only i and iii

(8) Amal recently formed a contract to deliver 50kgs of rice to Nilu on a weekly basis.

After delivering for five months as agreed, Amal failed to deliver thereafter.

At the time of this breach Amal had taken an advance of Rs 10,000 from Nilu.

Nilu seeks your advice on, which of the following methods he should select to get relief in this
instance.

i. Resort to Arbitration.
ii. File an action in the District Court
iii. Refer to the Mediation Board
iv. File an action in the Magistrate’s Court

60 CA Sri Lanka
 ANSWERS

(1) b
(2) b
(3) b
(4) d
(5) b
(6) d
(7) d
(8) c

CA Sri Lanka 61
Chapter 13
ANTI - MONEY LAUNDERING

(1) Tharu is a drug dealing criminal who illegally imports and distributes narcotic drugs.

Recently he purchased a car from these proceeds and immediately sold the same car to Anil, an
unsuspecting school teacher, at a bargain price.

Which money laundering process / stage has been used by Tharu, in the transactions relating to the
car?

a) Placement.
b) Integration.
c) Layering.
d) Cleansing.

(2) Money laundering involves a few distinct processes or stages.

In the stage of ………………………………, the proceeds of a crime is injected into the formal
financial system.

i. layering
ii. placement
iii. integration
iv. bribery

(3) Money Laundering has been defined in the Prevention of Money Laundering Act, No. 5 of
2006, and the following statements are relating to that definition.

(i) Any person who engages directly, in a transaction relating to a property which is derived
from an unlawful activity, commits money laundering.
(ii) Any person who engages indirectly, in a transaction relating to a property which is derived
from an unlawful activity, commits money laundering.
(iii) Any person who aids and abets another person to commit money laundering, will not be
guilty of money laundering.
(iv) Any person who transfers out of Sri Lanka, a property which is derived indirectly from an
unlawful activity, commits money laundering.

The correct ones would be :

a. Only i, ii and iv.
b. Only ii,iii and iv.
c. Only i and iii.
d. Only ii and iv.

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 (4) The statements given below are in relation to money laundering methods.

i. Creating bogus companies and shell companies.

ii. Buying a land from the laundered money and then selling it and making the profits legal by
paying taxes on such profits.
iii. Hawala transactions.
iv. Informally lending the laundered money on interest.

The correct ones would be :

a. Only i, ii and iii.

b. Only ii, iii and iv.
c. Only i and iii.
d. Only ii and iv.

(5) Any person who is found guilty of the offence of money laundering, shall on conviction after
trial before the High Court be liable to a…………….. ………….

a. fine or rigorous imprisonment or to both fine and imprisonment.

b. fine only.
c. rigorous imprisonment only.
d. fine and rigorous imprisonment both.

(6) The following statements are on the Financial Investigation Unit of Sri Lanka (FIU).

i. The FIU was established in March 2019.

ii. The FIU was formed under the Financial Transactions Reporting Act, No. 06 of 2006.
iii. The FIU which was initially under the Ministry of Finance and Planning, was subsequently re-
organized as an independent institution.
iv. The FIU falls within the framework and administrative structure of the Central Bank.
The correct ones would be :
a. Only ii, iii and iv.
b. Only i and iv.
c. Only ii and iii.
d. Only i, ii and iv.

(7) The following statements are in relation to the objectives of the Financial Investigation Unit of
Sri Lanka (FIU).

i. To combat money laundering, terrorist financing and other related crimes in Sri Lanka.
ii. To make international recommendations and standards to combat money laundering.
iii. To strengthen anti-money laundering and to counter the financing of terrorism activities in Sri
Lanka.
iv. Upgrading of existing anti-money laundering and countering the financing of terrorism regime
in Sri Lanka.

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 The correct ones would be :
a. Only i, iii and iv.
b. Only ii and iv.
c. Only i and iii.
d. Only i, ii and iv.

(8) The statements given below are in relation to the core functions of the Financial Intelligence
Unit of Sri Lanka (FIU).

i. Receiving Cash Transactions Reports (CTR), Electronic Fund Transfers (EFT) and Suspicious
Transaction Reports (STR) from all reporting institutions.
ii. Analyzing the data collected to identify financial trails to support prosecution.
iii. Issuing rules to the financial and other reporting sectors on customer identification and record
keeping.
iv. Conducting programmes to enhance awareness among all stakeholders regarding anti-money
laundering measures.
The correct ones would be :

a. Only i and ii.

b. Only ii and iv.
c. Only iii and iv.
d. Only i, ii and iv.

(9) Which one of the following statements on ‘money laundering’, is correct?

a) The presumptions of money laundering are deliberated in the Financial Transaction Reporting
Act.
b) An order for the freezing of assets in relation to the offence of money laundering must be
given by a police officer not below the rank of Superintendant of Police.
c) No subsequent transaction on an asset on which a ‘freezing order’ has been given, can be made
null and void.
d) In special situations, the Supreme Court can permit essential transactions to be performed on
assets on which ‘freezing orders’ have been issued.

(10) The following statements are on the Commission to Investigate Allegations of Bribery or
Corruption (CIABOC).

i. The Commission was established by Act No 19 of 1994.

ii. The Commission consists of ten members, all of whom shall be retired Judges of the Supreme
Court.
iii. The appointment of members of the Commission is made by the President on the
recommendation of the Constitutional Council.
iv. The removal of members of the Commission can be done only by the President.

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 The correct ones would be :

a. Only i, ii and iii.

b. Only ii, iii and iv.
c. Only i and iii.
d. Only ii and iv.

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 ANSWERS

(1) B
(2) B
(3) A
(4) a
(5) A
(6) a
(7) a
(8) A
(9) b
(10) c

66 CA Sri Lanka