Level (SQ): Level 2

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  • 20 Marks

PSAF – L2 – Q5.1 – Public expenditure and financial accountability framework

Discuss four unethical problems in public financial management in Unity with examples.

(A) Ethics in public administration has become a serious concern in recent times as the public sector has turned into a fertile space for unethical activities and behaviours. Many believe that ethics should be managed in the public sector to reduce corruption and other unethical behaviours.

(ii) Explain ethics management in the public sector and its approaches.

(B) In dealing with ethical issues, professional skepticism and judgment are required of professional accountants in the public sector.

Required:

Explain professional skepticism and judgment and illustrate how they apply to the public sector.

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  • 12 Marks

FM – L2 – Q59 – Discounted Cash Flow

Calculate NPV of a project by Zenith Ltd, ignoring and including inflation effects.

ZENITH LTD
(a) Calculate the NPV of an investment with the following estimated cash flows, assuming a cost of capital of 8%:

Years Annual cash flow
0 (3,000,000)
1–4 500,000
5–8 400,000
9–10 300,000
11 onwards 100,000

ZENITH LTD
(b) The cash flows for an investment project have been estimated at current prices, as follows:

Year Equipment Revenue Running costs
0 (900,000)
1 800,000 (400,000)
2 800,000 (350,000)
3 400,000 (300,000)
4 400,000 (300,000)

It is expected that the cash flows will differ because of inflation. The annual rates of inflation are expected to be:
Equipment value: 4% per year
Revenue: 3% per year
Running costs: 5% per year.
The cost of capital is 12%.

Required
(a) Calculate the NPV of the project ignoring inflation.
(b) Calculate the NPV of the project allowing for inflation.

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  • 20 Marks

PSAF – L2 – Q4.4 – General purpose financial reporting framework

Explain measurement in financial reporting, its objectives, and appropriate measurement bases for legacy assets in a public hospital.

(a) Unity Regional Hospital has many assets which do not carry value in the books of accounts, termed legacy assets. These legacy assets include land and buildings, motor vehicles, equity investment in a special purpose vehicle, and specialized biomedical equipment. Migrating to an accrual basis requires that these assets be measured and recognized in the financial statement. The major concern of the Director of Finance, Ms. Ama Kweku is how to measure these legacy assets to achieve values that will be agreeable to the Auditor.

Required:

(I) Explain measurement in financial reporting.

(ii) Discuss the objective of measurement that should guide the Director of Finance in the measurement of the legacy assets.

(iii) Explain the appropriate measurement basis for each component of the legacy assets of the hospital.

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  • 12 Marks

FM – L2 – Q58 – Discounted Cash Flow

Calculate NPV for a project by Apex Ltd involving a new machine, considering tax, capital allowances, and working capital.

Apex Ltd is considering whether to invest in the purchase of a new machine costing GH¢250,000. The machine will have a four-year life and a net disposal value of GH¢100,000 at the end of Year 4.
In addition, GH¢38,000 of working capital will be required from the start of the project, increasing to GH¢50,000 at the beginning of the second year. All the working capital will be recovered at the end of Year 4.
The project is expected to generate extra annual revenues of GH¢200,000 and incur annual cash operating costs of GH¢80,000 for each year of the project. Apex Ltd’s cost of capital is 10% after tax.
Corporation tax is charged on profits at 35%. Tax is payable in the year following the year in which the profits occur. There will be a 25% annual writing-down allowance on capital expenditure, for tax purposes. The tax-allowable depreciation is calculated by the reducing balance method.

Required
Calculate the NPV of the project and state whether or not it should be undertaken.

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  • 20 Marks

PSAF – L2 – Q4.3 – General purpose financial reporting framework

Discuss how five issues in a government department's financial reporting affect specific qualitative characteristics of financial statements.

(a) The following issues were identified in the financial reporting processes of a government department.

(b) Discuss the three constraints on information included in the general purpose financial reports.

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  • 10 Marks

FM – L2 – Q57 – DCF: Taxation and Inflation

Calculate the NPV of a project for CVB Ltd, considering tax, capital allowances, and cash flows over five years with a 15% cost of capital.

CVB Ltd is considering whether to invest in new equipment costing GH¢600,000. The equipment is expected to have an economic life of five years and will have no disposal value at the end of Year 5 (and no disposal costs).
CVB’s after-tax cost of capital is 15%. Tax is charged at an annual rate of 35% and is payable in the year following the year in which the taxable profits arise.
The following forecasts relate to the project under consideration:

Year GH¢000
1 2 3 4 5
Sales income 250 250 300 350 400
Direct materials 50 55 58 64 70
Direct labour 25 25 30 30 35
Total direct costs 75 75 88 94 105
Depreciation 120 120 120 120 120

There will be tax allowances on the cost of the equipment, calculated at 25% each year on the reducing balance basis. The first depreciation tax allowance (capital allowance) would be claimed in year 0 (or very early in year 1).
Assume that:
(1) taxable profits are defined as income minus direct costs and capital allowances
(2) cash profits in each year = sales minus direct costs
Required
Calculate the net present value of the project and recommend whether or not the project should be undertaken.

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  • 20 Marks

PSAF – L2 – Q4.2- General purpose financial reporting framework

Discuss financial reporting as a means to an end in the context of public sector objectives.

(a) Financial reporting is an obligation of every entity; however, “it is not an end in itself but a means to an end.”

Required:

Discuss the statement “it is not an end in itself but a means to an end,” relating it to the objectives of financial reporting in the public sector.

(b) Unity Hospital is a regional public hospital established by an Act of Parliament and operated under the National Health Services. It serves the health needs of the region as a referral hospital. The hospital raises money for its operations from the Government of Unity subvention, user charges, bank facilities, and foreign donors, including the Universal Fund, which always requires customised financial reports on a quarterly basis. Its accounts are audited annually by the Auditor General, who reports findings to Parliament. Due to the critical role of the hospital, the media and civil society organisations pay serious attention to its activities and frequently report on their performance. The hospital also has a very proactive labour union.

Required:

(i) Identify and explain the information needs of four primary users of the financial reports of Unity Hospital.

(ii) Discuss the application of general purpose financial reporting and special purpose financial reporting in Unity Hospital.

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  • 15 Marks

PSAF – L2 – Q4.1- International Public Sector Accounting Standards

Discuss five roles of IPSASB in global financial reporting.

The International Public Sector Accounting Standards Board (IPSASB) plays a critical role in regulating public sector accounting and reporting practices worldwide.

Required:

(a) Discuss five roles played by the IPSASB in the financial reporting space globally.

(b) Discuss the position of the Government of Kapania on the IPSAS.

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  • 20 Marks

L2 – Q3.4- Public Procurement

Discuss the object of the Public Procurement Act 2003, Act 663, as amended by Act 914 in 2016.

The Public Procurement Act 2003, Act 663 (amended by the Public Procurement Amendment Act, 2016, Act 914) was enacted to establish an oversight authority and regulate public procurement activities within the public sector.

Required:

(a) Discuss the object of the Public Procurement Act 2003 Act 663 (Public Procurement Amendment Act, 2016, Act 914).

(b) Explain the functions of the Public Procurement Authority in terms of

(i) procurement policy making;

(ii) capacity building of procurement practitioners;

(iii) procurement information system;

(iv) anti-corruption in public procurement; and

(v) monitoring and evaluation of public procurement.

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  • 20 Marks

FM – L2 – Q3.3 – Public expenditure and financial accountability framework

Name and explain objects of enactments for external and internal audit in public sector.

Audit is a very important vehicle for accountability in the public sector. Therefore, appropriate enactment is made to govern and regulate external audit and internal audit in the public sector of the Republic of Takoradi.

Required:

(a) Name and explain the objects of the two enactments that govern and regulate external audit and internal audit in the public sector respectively.

(b) Discuss four responsibilities each of the following institutions under the respective enactments:

(I) Audit Service.

(ii) Internal Audit Agency.

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