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FA – Nov 2024 – L1 – Q5c – Profitability vs Liquidity Ratios

Explain the difference between profitability and liquidity ratios and provide two examples of each.

Accounting ratios cover a wide array of ratios that are used by accountants and act as different indicators that measure profitability, liquidity, and potential financial distress in a company’s financials.

Required:

Differentiate between profitability ratios and liquidity ratios and give TWO examples each.

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FA – Nov 2024 – L1 – Q5a – Inventory Loss and Statement of Profit or Loss

Compute inventory loss due to fire and prepare a statement of profit or loss for a sole trader.

Mawulolo Enterprise is a retail business that prepares its accounts on 31 March each year. The business maintains a standard gross profit margin of 30% on sales.

The following financial information was extracted from its records as at 31 March 2024:

Item GH¢
Inventory at 1 April 2023 254,000
Operating Expenses 378,000
Finance Cost 58,000
Purchases 1,306,000
Sales 1,900,000
Inventory in good standing at 31 March 2024 192,000

On 31 March 2024, a fire outbreak in the warehouse destroyed some of the inventory records and goods.

The tax charge for the year is estimated at GH¢30,000.

Required:

i)Calculate the amount of inventory lost.

ii) Prepare the Statement of Profit or Loss for the year ended 31 March 2024

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FA – Nov 2024 – L1 – Q4- Preparation of Financial Statements for a Sole Trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for a sole trader from given financial data and adjustments.

The following list of assets, liabilities, and equity as at 30 June 2023 was extracted from the books of Akuorkor, a sole trader:

Trial Balance as at 30 June 2023

Item GH¢
Plant and equipment – cost 100,000
Accumulated depreciation – Plant & Equipment 36,000
Office fixtures – cost 25,000
Accumulated depreciation – Office Fixtures 2,500
Inventory 15,250
Trade receivables and prepayments 17,500
Trade payables and accrued expenses 8,800
Bank overdraft 4,425
Loan (10% interest per annum) 47,500
Capital 58,525

Summary of Receipts and Payments for the Year Ended 30 June 2024

Receipts GH¢
Capital introduced 11,000
Cash from customers 213,750
Total Receipts 224,750
Payments GH¢
Cash drawings (Note 5) 11,225
Loan repayments (Note 7) 10,000
Payment to suppliers 87,800
Rent 11,000
Wages 45,000
Office expenses 6,250
Total Payments 171,275

Additional Information:

  1. Closing inventory on 30 June 2024 was GH¢13,925.
  2. Depreciation policies:
    • Plant & Equipment: 20% per annum reducing balance.
    • Office Equipment: 10% per annum on cost.
    • Fixtures & Fittings: Straight-line method over 4 years with a full year’s charge in the year of acquisition.
  3. GH¢2,500 worth of fixtures & fittings was introduced into the business.
  4. Prepayments and accrued expenses as at 30 June 2023:
    • Rent paid in advance: GH¢1,250
    • Accrued wages: GH¢2,150
  5. Cash drawings included:
    • Wages: GH¢3,375
    • Payments to suppliers: GH¢2,100
    • Advertising leaflets: GH¢1,300 (Half not yet distributed).
  6. Bank balance per statement: GH¢53,350 after adjusting for unpresented cheques.
  7. Loan repayments include GH¢4,750 in interest payments.
  8. Assets and liabilities as at 30 June 2024:
    • Rent paid in advance: GH¢1,350
    • Accrued wages: GH¢2,625
    • Amounts due to suppliers: GH¢6,100
    • Amounts due from customers: GH¢11,150
  9. Major customer went into liquidation owing GH¢8,000; only 20% recoverable.

Required:

Prepare:
i) Statement of Profit or Loss for Akuorkor for the year ended 30 June 2024
ii) Statement of Financial Position as at 30 June 2024.

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FA – Nov 2024 – L1 – Q3b – Bank Reconciliation

Prepare an adjusted cash book and reconcile it with the bank statement balance.

The cash book of Lawra Ltd as at 31 December 2023 shows a balance of GH¢36,900, which does not match the bank statement balance of GH¢41,100. Investigation revealed the following discrepancies:

  1. Cheques received of GH¢104,000, GH¢10,000, and GH¢24,900 were still in the business drawer.

  2. Standing orders for electricity charges (GH¢2,400) and insurance (GH¢3,600) were paid by the bank but not recorded in the cash book.

  3. The bank charged GH¢300 for a cheque book issued to Lawra Ltd.

  4. The bank incorrectly debited GH¢9,910 to Lawra Ltd’s account, which was intended for another customer.

  5. A credit transfer of GH¢10,000 was received but not recorded in the cash book.

  6. A cheque for GH¢140,000 drawn by Lawra Ltd was correctly recorded in the cash book but was debited as GH¢14,000 by the bank.

  7. The following cheques, paid in November 2023, remained unpresented:

    Cheque Number Amount (GH¢)
    0000111 4,000
    0000117 10,000
    0000120 9,310

Required:

i) Prepare the adjusted cash book for Lawra Ltd as at 31 December 2023.

ii) Prepare a bank reconciliation statement reconciling the adjusted cash book balance to the bank statement balance.  

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FA – Nov 2024 – L1 – Q2b – Allowance for Receivables and Irrecoverable Debt

Prepare the allowance for receivables and irrecoverable debt expense accounts for a financial period.

At 1 August 2023, the balance on the allowance for receivables account was GH¢12,600.

At 31 August 2023, the company’s management decided that the revised balance should be 10% of the month-end accounts receivable.

Required:

Prepare the Allowance for Receivables and Irrecoverable Debt Expense accounts, showing the necessary entries for the financial period ending 31 August 2023.

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ICMA – Nov 2024 – L1 – Q5b – Budgeting Models and Systems

Explain the benefits of GIFMIS to the government of Ghana.

Efforts to improve Public Financial Management (PFM) Systems in Ghana led to the Ghana Integrated Financial Management Information System (GIFMIS), which is an adaptation of the Integrated Financial Management Information System (IFMIS). The rationale of GIFMIS is to establish an integrated ICT-based PFM system in Ghana at national, regional, and district levels.

Required:

State FOUR benefits of GIFMIS to the government of Ghana.

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ICMA – Nov 2024 – L1 – Q5a – Cost Segregation and Estimation

Determine fixed and variable cost components using regression analysis and estimate total cost for a given production level.

Ebo LTD is planning to determine its variable and fixed cost elements for its planned activity level for the next year. The company has recorded the following costs and production units in the past six months:

Month Units (X) Cost (Y)
January 5.8 40.3
February 7.7 47.1
March 8.2 48.7
April 6.1 40.6
May 6.5 44.5
June 7.5 47.1

Required:

i) Construct the least square regression model. 
ii) Determine the variable cost per unit of output using the model. 
iii) Determine the fixed cost for the month using the model. 
iv) Estimate the total cost if the company plans to produce 6,200 units.

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BL – Nov 2020 – L1 – SB – Q4b – Law of Contract

Define material fact in insurance and list exceptions to disclosure duty.

A contract of insurance is a contract of utmost good faith.

Required:
i. Explain briefly the term “material fact” in a contract of insurance.
ii. State THREE exceptions to the duty of disclosure of material facts.

 

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BL – Nov 2020 – L1 – SB – Q4a – Law of Trusts

Define trust and identify participants using trusteeship terminology.

There are different participants with different roles in trusteeship.

Required:
i. What is a trust?
ii. Identify the different participants using trusteeship terminologies in the situation below:
Ade instructed Segun to keep his Toyota car for the use of Tunde pending the return of Ade, who has just won a scholarship to study accountancy in a United Kingdom university.

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BL – Nov 2020 – L1 – SB – Q3c – Hire Purchase and Consumer Credit Transactions

Define hire purchase and advise on rights after repossession under partial payment.

A hire purchase agreement is a transaction with strict rules and regulations.

Required:
i. What is hire purchase?
ii. Case Scenario:
Ronke entered into a hire purchase agreement to buy a Nissan Micra car belonging to Fred. Ronke paid the sum of N900,000 out of the agreed price of N1,000,000. After unsuccessful demands by Fred for the balance of N100,000 on the car, Fred seized the car in front of Ronke’s house.

Advise Ronke on her rights, if any.

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BL – Nov 2020 – L1 – SB – Q3b – Law of Contract

Explain the capacity of specific individuals to contract, focusing on drunkenness, insanity, and infant contracts.

i. Capacity to contract is an important element of a legally enforceable contract.

Required:
Explain the capacity of the following persons to enter into a contract:

  • Drunken person
  • Insane person

ii. Explain a valid and binding contract on infants.
iii. Explain void contracts by infants.

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BL – Nov 2020 – L1 – SB – Q3a – Law of Contract

Discuss how courts assess intent to create legal relations and advise on breach in social and commercial contexts.

i. A contract may be enforced if the parties have an intention to enter into a legally enforceable agreement.

Required:
Explain ONE way by which the courts determine whether or not the parties to an agreement have an intention to create legal relations.

ii. Case Scenario:
‘A’ and ‘B’ entered into an agreement to meet at a gym for their daily physical fitness exercises. ‘B’ forgot about the agreement and kept ‘A’ waiting endlessly. ‘A’ is furious and intends to sue ‘B’ for breach of agreement.

Required:
Advise ‘A’, stating the legal issue involved.

iii. Case Scenario:
‘A’ is a dealer in textile materials. He sold ten bales of textile materials to ‘B,’ his childhood friend. ‘B’ has refused to pay for the ten bales of materials, arguing that he is a friend of ‘A.’

Required:
Advise ‘A,’ who intends to sue ‘B,’ stating the legal issue involved.

iv. Case Scenario:
‘A’ promised to attend a luncheon organized by ‘B.’ ‘B’ spent a lot of money to prepare for the luncheon. ‘A’ did not turn up as agreed. ‘B’ is aggrieved and intends to sue ‘A’ for the cost of the special dish.

Required:
Advise ‘B,’ stating the legal issues involved.

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BL – Nov 2020 – L1 – SB – Q2c – Company Law

Differentiate insolvency from bankruptcy and outline consequences of insolvency.

Insolvency occurs when a company is unable to pay its debts.

Required:
i. Distinguish insolvency from bankruptcy.
ii. Explain briefly the consequences of insolvency on a company.

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BL – Nov 2020 – L1 – SB – Q2b – Law Relating to Banking

Identify transactions under surveillance per the Money Laundering Act.

The Money Laundering (Prohibition) Act empowers the agency to place surveillance on certain bank account transactions to curb money laundering.

Required:
State FOUR transactions which require special surveillance under the Act.

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BL – Nov 2020 – L1 – SB – Q2a – Company Law

Advise on eligibility for company secretary, AGM notice recipients, and grounds for registration refusal by CAC.

Ronkey, Peace, and Victoria intend to register a limited liability company. They have consulted you as an expert for advice on the appointment and duties of the officers of the company as well as other issues pertaining to registration of companies.

Required:
i. Advise the three on FOUR categories of persons eligible for appointment as a company secretary.
ii. State FOUR categories of persons who will be entitled to receive the notice of the Annual General Meeting when the company is eventually registered.
iii. State FOUR grounds on which the Corporate Affairs Commission may refuse to register the documents of incorporation to be submitted for registration.

 

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BL – Nov 2020 – L1 – SB – Q1d – Business Ethics and Corporate Governance.

Describe ethical codes and their purpose for professional accountants.

Accountants, like most professionals, are guided by the code of ethics of their profession when dealing with clients.

Required:
Explain:
i. Ethical codes
ii. The purpose of ethical codes for a professional accountant.

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BL – Nov 2020 – L1 – SB – Q1c – Partnership Law

Assess the impact of government regulation, partner's death, and a new investor's involvement on a partnership.

Ade and Tola entered into a partnership for the sole purpose of importing cars with an engine capacity of 6-horsepower. The government has just passed a law banning the importation of cars of more than 4-horsepower. Recently, one of the partners in the firm died after the registration of the partnership. The surviving partner intends to introduce a rich man who is interested only in investing his money in the business of the firm but not in its management.

Required:
Examine the effects of the following on the partnership:
i. The law passed by the government.
ii. The death of one of the partners immediately after the registration of the firm.
iii. The status of the new partner who is interested only in investing his money in the business of the firm and not in the management.

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