Level: Level 3

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PBL – OCT 2022 – L3 – Q7 – Legal Mortgage over Leasehold Interest

Outline key considerations for taking a legal mortgage over leasehold property and steps to perfect it for a sole proprietorship loan.

Question

Amoasi Enterprise is a sole proprietorship owned and controlled by John Amoasi. The business is engaged in the supply of chips and stones for building projects. John Amoasi has applied for a loan of GHC 500,000 for the purchase of a used tipper truck. He shows you an Indenture covering his Leasehold interest in a property located a Winneba valued GHC 1,000,000.00.

(a) What key consideration would you have in mind in taking a legal mortgage over a leasehold interest? [8 Marks]

(b) Outline the steps which you would take to acquire a legal mortgage over the property in such a manner that the bank’s interest is absolutely protected. [12 Marks]

[Total marks:20]

Answer

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Tags: Collateral Protection, Indenture Review, Key Considerations, Land Registration, Leasehold Mortgage, Perfection Steps, Sole Proprietorship Lending
Level: Level 3

Topic: Leasehold Interests
Series: OCT 2022

PBL – OCT 2022 – L3 – Q6 – Alternative Securities for Construction Loans and Lender Remedies

Identify alternative security for a construction loan where traditional assets are unsuitable, and outline steps to perfect it; list key remedies under the Borrowers and Lenders Act 2020 for borrower default.

Question

(a) Your key customer BBA Construction Ltd. is engaged in a contract for the construction of a 200 kilometer road in the Central Region. He has completed over 60 % of the project and has certified works of GHC 800,000 to be paid. He is applying for working capital loan of GHC 500,000 to purchase materials for the project.

He has no security to offer save the assets of the company which comprise a one storey office building and the road construction equipment. Your managing director is not enthused about taking a fixed and floating charge over the assets of the company as they are subject to rapid wear and tear. The key person Mr. Aras also does not have any personal landed property to offer.

From the above, identify what alternative security may be available in the circumstances and how you would proceed to take the security to ensure that the bank’s interest is protected. [16 Marks]

(b) You have been asked to deliver a lecture on the remedies of a lender in the event of a borrower defaulting in the servicing of a facility. Mention the four key remedies provided under the Borrowers and Lenders Act (2020) Act 1052. [4 Marks]

[Total marks:20]

Answer

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Tags: Alternative Securities, Assignment of contracts, Borrowers and Lenders Act, Collateral Registry, Construction Loans, Default Enforcement, Floating Charges, Lender Remedies
Level: Level 3

Topic: Securities Acceptable to Bankers
Series: OCT 2022

POB – LP OCT 2022 – L3 – Q4 – Collecting Bank Duties and Protections in Cheque Collection

A bank collects a stolen cheque for a fraudulent customer, opens an account after clearance, allows withdrawal, and faces a lawsuit from the drawer; questions cover definition of collecting bank, duties, statutory protections, common law defences, and applicability of protection.

Question

As a new Manager at the Edubiase branch of your bank, in the course of your work, your branch has collected a cheque for the account of a customer who turned out not to be the true owner of the cheque. Your Operations Manager did not open the account straightaway but for reasons unknown to you, he told the customer Timothy Ankrah that the bank would not open the account immediately but would only open the account if the cheque of GHC 500,000 the prospective account holder presented was cleared. After the cheque had cleared, your Operations Manager proceeded to open the account and the very next day, Timothy withdrew an amount of GHC 400,000.00 which he claimed was for the purchase of a car.

It transpires that the cheque had been stolen and Timothy was only an impersonator. Timothy is nowhere to be found.

The drawer of the cheque Mr. Banson has sued the bank for refund of the monies he has lost.

(a) What is a collecting bank? [2 Marks]

(b) Mention three duties of a collecting bank. [3 Marks]

(c) Mention and explain the statutory protection available to a collecting bank that collects a cheque for a party who is not the true owner of the cheque? [9 Marks] (d) What are the common law defences available to a collecting bank? [4 Marks]

(e) Will the bank be able to avail itself of the statutory protection? [2 Marks]

[Total marks:20]

Answer

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Tags: Bills of Exchange Act, Cheque Collection, collecting bank, common law defences, Conversion, Duties, Statutory Protection
Level: Level 3

Topic: Payments and collection of cheques and other instruments
Series: OCT 2022

PBL – OCT 2022 – L3 – Q3 – Company Objects Amendment and Cheque Handling Policies

Legal principles for advising on amending company objects for new business ventures and handling a cheque payable to a related company for crediting to a personal account.

Question

State the legal principles you would take into consideration in resolving the following legal matters that have come to your attention.

(a) Mr. Nkumsah is majority shareholder and Chairman of the Board of Directors of Nkumsah Trading Ltd, which has an account with you for the past twenty years. The company issued debentures secured by a floating charge over the company’s assets three years ago. Mr. Nkumsah has 60% shares in the company and is also the sole signatory of the account. Nkumsah Trading Ltd. was established with a registered constitution with the objects of importing medical equipment and ancillary materials. He has applied for a loan of GHC 400,000 for the importation of baby pampers as he claims baby pampers move faster than medical equipment. In appraising the facility, your attention is drawn to the fact that since the company has incorporated with registered objects the company must amend the constitution to enable the company to undertake the new venture. In your discussion with him he asks you of advice of how he could amend the objects of the company’s constitution to enable him to enter into the new venture. He also asks you

what legal difficulties may arise if he engaged in business outside the established objects of the company. [10 Marks]

(b) Secondly Mr. Nkumsah has a cheque payable to a sister company Jamsah Ltd., in which he has shareholding of 50%. His lifelong friend owns the remaining 50%. You advise him that it is a company policy not to credit a cheque payable to a company into a personal account of a director or employee of that company. He argues with you and tells you that since he is the one of the key shareholders he has the right to do so as it is an internal arrangement for him to undertake a specified transaction for the company. [10 Marks]

[Total marks: 20]

Answer

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Tags: Cheque crediting policies, Companies Act 2019, Company constitution amendment, Director Authority, Shareholder Rights, Ultra vires transactions
Level: Level 3

Topic: Ultra Vires Doctrine
Series: OCT 2022

PBL – OCT 2022 – L3 – Q2 – Banker-Customer Confidentiality and Law Enforcement Demands

Scenario involving police demanding customer account information; identify duty of confidentiality, its exceptions, and how to handle the situation.

Question

You enter your office as Retail Manager this morning to find commotion at the front desk of your branch. As you enter you see three persons in police uniforms claiming to be from the National Investigations Bureau (NIB). They claim they have got wind that one Mr. Mahama Obeng who is under investigation for drug trafficking has an account with your branch where he has lodged his ill-gotten gains. They are demanding that your Operations Manager produce the information immediately or he would be hauled to the NIB for impeding an investigation.

(a) What rule of law do you require to resolve this problem? [2 Marks]

(b) Discuss the four (4) exceptions to the duty a bank owes its customers identified in (a) [8 Marks]
(c) How would you deal with the situation that is before you?[10 Marks]

[Total marks: 20]

Answer

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Tags: Banker-customer duty, Confidentiality, Disclosure obligations, Exceptions to confidentiality, Law enforcement, Tournier case principles
Level: Level 3

Topic: Banker and Customer Relationship
Series: OCT 2022

ITF – OCT 2022 – L3 – Q8 – Remedies to Fraud in International Contracts

State five remedies to fraud in international contracts based on a copper blister fraud case.

Question

During the summer of 2020, Geneva-based Mercuria Energy Group said it had been the victim of cargo fraud following its purchase of 10,000 tons of copper blister. When the cargoes started arriving in China, it found containers full of painted stones instead. The bizarre case happened despite security and inspection controls. About 6,000 tons were loaded for shipment in more than 300 containers on eight vessels. But before its journey from a port near Istanbul, the copper was switched with paving stones, spray-painted to resemble the semi-refined metal. Once the vessels were at sea, Mercuria paid $36m over five installments. The fraud wasn’t discovered until the ships began arriving in the Chinese port of Lianyungang. Mercuria, one of the five-biggest energy traders in the world, is seeking redress in Turkish and UK courts against the copper supplier, Bietsan Bakir. Turkish police have taken a number of people into custody in relation to the fake copper scheme. “Suspects have been taken under custody who are thought to be involved in the various parts of this organised crime against Mercuria,” the company said in a statement while thanking the Istanbul Financial Crimes Department.

Note: All parties in all commercial transactions should be aware of the potential for fraud. In some cases, those parties you negotiate with may not even be aware of the liability they pose. The above fraud case gained global attention through social media on March 9, 2021.

REQUIRED

State five (5) remedies to fraud in international contracts.

[Total Marks 20]

Answer

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Tags: Cargo Fraud, Documentary Verification, Fraud Remedies, Inspection, International Contracts
Level: Level 3

ITF – OCT 2022 – L3 – Q7 – Role of Banks in International Trade

List the roles of banks in international trade in bullet points for SMEs under AfCFTA.

Question

The African Continental Free Trade Area (AfCFTA) is organizing training programs to grow the Small and Medium-sized Enterprises (SMEs) and most importantly to deepen their understanding on international trade and how they can take advantage of the banking system for efficient operation and expansion of their businesses. As Head of Trade Finance of your bank, you have been engaged as a resource person by (AfCFTA) to take Chief Operating Officers of these SMEs on the following topic: “The Role of Banks in International Trade”

REQUIRED:

List these roles (in bullet points only) under the various roles for one mark each.

Note: Long and detailed descriptions are not required.

[Total marks 20]

Answer

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Tags: AfCFTA, Banks Role, Financing, International trade, Payment Services, Risk Management, SMEs
Level: Level 3

Topic: Banking services available from banks and other sources abroad
Series: OCT 2022

ITF – OCT 2022 – L3 – Q6 – Issuing Bank’s Undertaking under UCP 600 Article 7

State the issuing bank's undertaking as per UCP 600 Article 7 a (i-v), b, and c.

Question

State the “Issuing Bank’s Undertaking” as enshrined in Article 7 a (i – v), b and c when it issues a credit on behalf of its customer under the current International Chamber of Commerce (ICC) Publication in respect of Uniform Customs and Practice for Documentary Credit – UCP 600.

[Total Marks 20]

Answer

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Tags: Article 7, documentary credit, Honour, Issuing Bank Undertaking, Reimbursement, UCP 600
Level: Level 3

ITF – OCT 2022 – L3 – Q5 – D/A Collections and Buyer Protection

Explain D/A terms, expected instructions on collection order, address suggestion on refusing non-spec goods, and ways for drawee protection in D/A collections.

Question

Mr. Bob Ferguson, senior director of your customer, Adelaide Ltd is negotiating for the first time with suppliers abroad to purchase some outwear garments, which are at present unobtainable in the UK. The terms of payment which the sellers have suggested are a 90 days’ sight draft D/A with presentation through a UK bank. You understand that the presentation will be subject to Uniform Rules for Collections (and the shipping terms are to be CFR UK port). Your customer believes that he will have the opportunity of examining the goods when they are received in the UK and that, if they are not in accordance with specification, he can refuse the goods and will not be liable to pay the sellers, since all charges will be against the goods.

Required

a) Write brief notes on the terms of payment mentioned above; [4 marks]

b) Indicate the instructions you would expect to see on the collection order; [8 marks]

c) What would say to the suggestion by Mr. Bob Ferguson that, if goods were not in accordance with specification, the company could refuse to take up and pay for them? [6 marks]

d) How can the drawee obtain a measure of protection with D/A collections? [2 marks] [Total Marks 20]

Answer

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Tags: Bill of Exchange, Buyer Protection, CFR Terms, Collection Order, Documents Against Acceptance, Specification Compliance
Level: Level 3

Topic: Uniform Rules for Collections
Series: OCT 2022

ITF – OCT 2022 – L3 – Q4 – Back-to-Back Credits for Import Financing and Cash Flow

Describe back-to-back credits to protect the customer and assist cash flow, assess appropriateness for German supplier in Euros, and suggest a compromise for compliance.

Question

Builders Merchants Ltd, customers of your bank, supply the building construction industry with a wide range of building materials and products. Their Financial Director, Mr. Kwame Annoh, calls to see you to discuss a CIF contract, which has been signed, to supply a range of fittings and building materials to an overseas buyer. During the conversation you discover that all the goods will be bought from overseas and that all the suppliers are insisting upon secured methods of payment. The Financial Director asks you to suggest a method by which his company can be fully protected, since cash flow considerations are causing some concerns at the present time. The overseas CIF contract is expressed in sterling but one supplier based in Germany, is insisting upon being paid in Euros.

Required

a) A brief description of basic instrument which would be appropriate in answering the needs of the Builders Merchants Ltd. Indicate why your suggestion will cater for your customer by assisting them to overcome their cash flow difficulties and why it will also give some comfort to their potential suppliers. [12 marks]

b) State briefly whether the method described by you in (a) is or is not, appropriate to the contract with the German supplier. Give reasons for your answer. [2 marks]

c) A compromise that you would consider arranging for Builders Merchants Ltd. which would assist them in complying with the request of the German supplier, bearing in mind that the German company requires security of payment.

[6 marks] [Total Marks 20]

Answer

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Tags: Back-to-Back Credits, Cash Flow Management, Multi-Currency Contracts, Secured Payment, Supplier Security
Level: Level 3

Topic: The main types of documentary letters of credit
Series: OCT 2022

ITF – OCT 2022 – L3 – Q3 – Hedging Export Proceeds with Forward Contracts and Extension

Calculate foreign currency amounts from export contracts, applicable forward rates, GHS credited from received currencies, and close out/extend the New Zealand transaction to show total GHS received.

Question

Agribusiness Plc. is a large corporate in the commodity industry specializing in mango production around Somanya and Afram Plains. After surviving the Covid-19 pandemic, which nearly collapsed the company, Agribusiness is on its feet firmly and now leading the export of fresh mangoes in the West African sub-region. Taking advantage of the African Continental Free Trade

Area (AfCFTA), the company is now looking beyond its European buyers to meet the demand needs of other African countries.

Last week, the Chief Executive Officer and the Chief Operating Officer invited you to their warehouse to discuss their export contracts with you. Both you and your customers were very happy because this transaction will enable them to start paying off the loan facilities your bank has extended to them. These four contracts are for the export of 20 tons of fresh mangoes to

Switzerland, New Zealand, Zambia and Botswana in the ratios of 0.35; 0.30; 0.15 and 0.20 respectively. One month after the meeting at the warehouse, Agribusiness engaged Sintim Freight Forwarders to handle the export orders to the buyers. Goods were eventually shipped and related documents submitted through your counters for payments which were expected in exactly one month’s time in Ghana Cedi for your customer’s account. On 1st September, the company entered into one-month forward exchange contract with your bank to hedge their eventual expected proceeds.

Price per ton at CIF values to their respective destinations are:

Switzerland New Zealand Zambia Botswana
CHF 3, 410 NZD 5, 783 ZMW 58, 765 BWP 44, 970

September 1st rates quoted by your bank are as follows:

Spot Rates One Month Forward

CHF/GHS 8.2350 – 8.2365 0.047 – 0.053 Cedis dis.

NZD/GHS 4.8610 – 4.8625 0.023 – 0.032 Cedis dis.

USD/GHS 7.8530 – 7.8545 0.032 – 0.040 Cedis dis.

GHS/ZMW 2.1000 – 2.1015 0.025 – 0.035 Kwa. dis.

GHS/BWP 1.5715 – 1.5725 0.040 – 0.053 Pula. dis.

October 1st Spot Rate One Month Forward

USD/GHS 7.8450 – 7.8465 0.35 – 0.45 Cedis dis.

NZD/GHS 4.8590 – 4.8610 0.018 – 0.022 Cedis dis

All the expected export proceeds were received by your bank on due date except the one from New Zealand where the buyer could not clear the goods due to problems at Port Nicholson, Wellington. Agribusiness has accordingly extended the forward contract by one month with your bank.

REQUIRED

a. Calculate the amount of foreign currency from each buyer. [4 marks]

b. Calculate the applicable forward rates. [8 marks]

c. Calculate the amount credited to your customer’s GHS account from the foreign currencies received on their behalf. [4 marks]

d. Close out and extend the New Zealand transaction and show the total GHS your customer received under the four export contracts. [4 marks]

[Total Marks 20]

Answer

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Tags: AfCFTA, Close Out and Extension, export proceeds, Forward Exchange Contracts, Hedging, Multi-Currency Calculations
Level: Level 3

Topic: Trade promotion services
Series: OCT 2022

ITF – OCT 2022 – L3 – Q2 – Forward Cover for Documentary Credit Receivables in JPY to EUR

Calculate the Euro amounts received by the beneficiary on presentation dates after arranging forward cover for JPY receivables under a documentary credit, including close outs for differences in actual shipments.

Question

Farm Technologies Ltd is an agrochemical company in Tokyo, Japan dealing in wholesale distribution. The company has entered into a contract to import agricultural chemical products from Bayer AG in Leverkusen, Germany. The suppliers have insisted on the use of documentary credit which has been agreed by Farm Technologies Ltd. Some of the major terms under this credit are as follows:

• In favour of : Bayer AG, Leverkusen.

• For the account of : Farm Technologies Ltd, Tokyo

• Expiring : November 25

• Amount :About JPY12,900,000

• Covering : About 600 metric tons of agrochemicals to be shipped in

two approximately equal installments, one during the first half of July and one during the first

half of August

• Price : JPY21, 500 per metric ton CIF Tokyo.

Drawings under the credit will be as follows:

• 95% of the value of a provisional invoice upon presentation of documents strictly in order.

The remaining 5% will be available against final invoice accompanied by an independent weight and analysis certificate showing the final weight and chemical analysis.

On 25 May the beneficiary asks you to cover their receivables forward in the foreign exchange market as follows:

i. Arrange forward cover immediately in respect of each of the value of 300 metric tons shipment.

ii. Upon presentation of documents, close out any differences between the forward contract amounts and the actual values claimed.

iii. Ignore forward cover for the balance to be claimed in October.

The documents were presented in order on the following dates:

15 July: Documents showing shipment of exactly 294 metric tons

10 August: Documents showing shipment of exactly 315.79 metric tons

31 October: Final invoice claiming an agreed figure of JPY48, 950. This figure represents the

net settlement of the remaining 5%.

You were asked in early May to confirm this irrevocable documentary credit on behalf of a Japanese correspondent bank.

REQUIRED

Using the following rates of exchange between Euro and JPY displayed by Commerzbank, Frankfurt, where you work at the Trade Finance Department, calculate the Euro sums Bayer AG will receive on the appropriate presentation dates.

25 May Spot 134.95 135.45

1 month forward 1.30 yen 1.15 yen premium

2 months forward 2.15 yen 1.95 yen premium

3 months forward 2.50 yen 2.30 yen premium

6 months forward 4.75 yen 4.65 yen premium

15 July Spot 130.00 132.00

10 August Spot 140.50 142.25

31 October Spot 133.80 135.25

Note:

For the purpose of this question, Commerzbank and the beneficiary assume that shipments and presentation of documents will be made on the same day.

Ignore letter of credit charges as these are for buyer’s account.
Ignore any close out of figures of less than 100 yen.

[Total Marks 20]

Answer

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Tags: Close Out, documentary credit, Forward Exchange Cover, JPY to EUR Conversion, Provisional Invoice, Shipment Installments
Level: Level 3

ITF – OCT 2022 – L3 – Q1 – Financing Export Transaction with Bill of Exchange and FX Risk Protection

Advise on methods to protect from FX risks for an export to South Africa using bill of exchange, outline contractual obligations, calculate proceeds and cedis from forward and currency borrowing, and formula to compare borrowing costs.

Question

Your customer, Adonteng Traders Limited has finished all the registration formalities to take advantage under the new continental trading booming in Africa. Specializing in export of food throughout the continent, Adonteng Traders have negotiated with South African buyers for supply of assorted foodstuff. The arrangement allows them to draw bill of exchange on buyers immediately after shipment for full payment after 90 days. Because of restricted profit margins over the past few months due to the Russian-Ukraine problem, and a shortage of working capital, the customers called to see you on 30 March to seek your advice on how best they can finance this transaction worth USD250, 000 falling due on 30 June. The credibility of the South African buyers is highly undoubted. Adonteng Traders are seeking funding from your bank for three months in either Ghana Cedi equivalent or USD250, 000 and would pay off when final proceeds are due from the buyers. Additional information available on 30 March is as follows:

(i) USD/GHS

Spot 7.7120 7.7160

1 month forward 0.035 0.043 Cedis disc

2 months forward 0.051 0.063 Cedis disc

3 months forward 0.060 0.065 Cedis disc

(ii) Base rate is 19.0%

(iii) US 3 month LIBOR rate is 5.25%

(iv) Adonteng Traders is borrowing dollars from your US correspondent bank at 1.5% over US LIBOR rate.

(v) For interest on USD borrowing, kindly use mid-rate to convert.

(vi) Your customers do not purchase goods for which they have to pay in foreign currency.

REQUIRED:

(a) By what methods can your customers be protected from foreign exchange risks whilst preserving their profit margins? [2 marks]

(b) Outline any contractual obligations in respect of foreign exchange that your customers would have to undertake. [2 marks]

(a) above, and the cedis proceeds which each method would produce, stating which of the two options is better for Adonteng Traders. [10 marks]

(d) Set out a formula which your customers would use to compare cedis and foreign

currency borrowing costs, taking into account, where appropriate, the advantages or disadvantages of forward cover. [6 marks]

Notes: (2) Base your calculations on a 30 day month and a 360 day year.

[Total Marks 20]

Answer

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Tags: AfCFTA, Bill of Exchange, Currency Borrowing, Export Financing, Foreign Exchange Risk, Forward Contracts, Interest Calculations, Profit Margins
Level: Level 3

Topic: The meaning of International Trade Finance/Payment and Risk Management Services
Series: OCT 2022

CIBG – FRPA 2022 – L3 – Q6 – Characteristics of Good Corporate Governance

Explain five characteristics of a good corporate governance system.

Question

Explain FIVE (5) characteristics of a Good Corporate Governance System.

(Total: 20 marks)

Answer

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Tags: Accountability, Characteristics, Corporate Governance, Fairness, Transparency
Level: Level 3

Topic: Audit and Corporate Governance
Series: OCT 2022

CIBG – FRPA 2022 – L3 – Q5 – Abenwooha Ltd Budgets Preparation

Prepare production, direct materials cost, purchases, labour utilization, and wages cost budgets for Abenwooha Ltd using the given data.

Question

Abenwooha Ltd. produces two products: products Asana and Pito. The two products use two materials: A and B in their production. Employees engaged to produce both products work in two departments: Dept. X and Dept. Y. The company uses a marginal costing system.

You have just assumed the post of Management Accountant at Abenwooha Ltd. After your induction week, the Financial Controller gives you the data below:

Budgeted Data Product Asana Product Pito GH¢’000 GH¢’000

Sales for the year 15,000 20,000

Standard data per unit of product: Standard price Product Asana Product Pito Direct materials GH¢ Per Kg Kg Kg A 2 50 100 B 4 100 50

Wages to direct workers: Standard wage rate Product Asana Product Pito GH¢ Per hour hours required hours required Dept. X 20 5 4 Dept. Y 40 4 5 The company’s budgeted total variable production overheads and fixed production overheads are GH¢6,000,000 and GH¢3,000,000 respectively. Budgeted labour hours is 600,000 hours. The company earns a markup of 20% on marginal production cost.

Finished goods inventories are valued at standard marginal production cost per unit and are as follows:

Product Asana Product Pito GH¢’000 GH¢’000

Opening inventories 720 840 Closing inventories 432 798

You are required to: Use the data given above to prepare the following budgets:

(a) Production budget in units

(b) Direct materials cost budget

(d) Direct labour utilization budget

(e) Direct wages cost budget

(Total: 20 marks)

Answer

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Tags: labour utilization budget, Marginal Costing, materials cost budget, materials purchases budget, Production Budget, wages cost budget
Level: Level 3

Topic: Management Control
Series: OCT 2022

CIBG – FRPA 2022 – L3 – Q4 – OJB Ltd Transactions Treatment Report

Present a report on the treatment of specified transactions in OJB Ltd's financial statements per appropriate accounting standards.

Question

At the last Annual General Meeting of OJB Ltd. the shareholders were unhappy about the delay in submitting the audited accounts to them for study before the meeting. Management of OJB Ltd attributed the delay in finalizing the accounts to the time spent by the External Auditors in auditing the accounts. It has been discovered that the delay in presenting the accounts for audit is because the Accounts Officer was not sure of the treatment of the following transactions in the financial statements of OJB Ltd. for the year ended 31st December 2016.

Stocks of raw materials and finished goods in the company’s warehouse have the following details: GH¢000 Stocks of finished goods Direct cost 50,000 Proportion of fixed overhead 10,000 Proportion of selling expenses 5,000 Net Realizable Value 62,000
A customer who owed OJB Ltd. an amount of GH¢25,000,000 lost all his business assets through a fire outbreak. OJB Ltd. had not taken an insurance cover over receivables.
Research and Development expenditure capitalized during the year amounted to GH¢100,000,000. On further examination, it was noted that an amount of GH¢25,000,000 relating to market research was included in the Research and Development cost capitalized.
The company entered into a non-cancellable lease which covered the useful life of the asset. At the inception of the lease, the fair value of the asset was GH¢45,000,000 and was equal to the present value of the minimum lease rentals. The lessee was responsible for both insurance and maintenance of the lease asset. The accounts officer has included only the annual lease rentals of GH¢9,000,000 as a charge in the Statement of Profit and Loss.

You are required to:

Present a report that details out the treatment of the above transactions in accordance with appropriate accounting standards. (20 marks)

Answer

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Tags: Bad Debts, IAS 16, IAS 2, IAS 38, IFRS 16, IFRS 9, Inventory Valuation, Lease Accounting, R&D capitalization
Level: Level 3

Topic: aluation of Tangible Assets
Series: OCT 2022

CIBG – FRPA 2022 – L3 – Q3 – Smart Co Ltd Financial Position Report

Prepare a report commenting on the financial position of SMART Co Ltd using gearing and liquidity ratios, highlighting areas for further investigation.

Question

SKY CO LTD. is considering acquiring an interest in its competitor. SMART Co LTD. The managing director of SKY Co LTD. has obtained the statements of financial position of SMART Co LTD. for the last three years as shown below. SMART Co LTD. – Statement of financial position at 31st December

	2019 (GH¢000)	2020 (GH¢000)	2021 (GH¢000)
Non-current assets
Land and buildings	11,460	12,121	11,081
Plant and equipment	8,896	9,020	9,130
	20,356	21,141	20,211
Current assets
Inventories	1,775	2,663	3,995
Trade receivables	1,440	2,260	3,164
Cash	50	53	55
	3,265	4,976	7,214
Total assets	23,621	26,117	27,425
Equity
Share capital	8,000	8,000	8000
Retained earnings	6,434	7,313	7,584
	14,434	15,313	15,584
Non-current liabilities
12% debentures 2022-2025	5,000	5,000	5,000
Current liabilities
Trade payable	390	388	446
Bank	1,300	2,300	3,400
Income taxes payable	897	1,420	1,195
Dividend payable	1,600	1,696	1,800
	4,187	5,804	6,841
Total equity and liabilities	23,621	26,117	27,425

You are required to: Prepare a report for the managing director of SKY Co LTD. commenting on the financial position of SMART Co Ltd. and highlight any areas that require further investigation (using gearing and liquidity ratios only). (20 marks)

Answer

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Tags: areas for investigation, financial position analysis, Gearing Ratios, Liquidity Ratios, Report
Level: Level 3

Topic: Liquidity Ratios
Series: OCT 2022

CIBG – FRPA 2022 – L3 – Q2 – Adjebinge Ltd Cash Flow Statement

Prepare the statement of cash flows for Adjebinge Ltd for the year ended 31 March 2022 using the provided financial extracts.

Question

ADJEBINGE LTD. (a) Adjebinge Ltd. is a wholesaler and retailer of office furniture. Extracts from the company’s financial statements are set out below:

Statement of comprehensive Income for the year ended:

	31 March 2022	31 March 2021
	GH¢ ‘000	GH¢ ‘000
Revenue:
— cash	12,800	26,500
— credit	53,000	28,500
	65,800	55,000
Cost of sales	(43,800)	(33,000)
Gross profit	22,000	22,000
Operating expenses	(11,200)	(6,920)
Finance costs:
— loan notes	(380)	(180)
— overdraft	(220)	(180)
	(600)	(360)
Profit before tax	10,200	14,900
Income tax expense	(3,200)	(4,400)
Profit for the year	7,000	10,500
Other comprehensive income:
Gain on property revaluation	5,000	1,200
Total comprehensive income	12,000	11,700

Statement of changes in equity for the year ended 31 March 2022

	Stated Capital	Capital Surplus	Income Surplus	Total
	GH¢ ‘000	GH¢ ‘000	GH¢ ‘000	GH¢ ‘000
Balances b/f	8,500	2,500	15,800	26,800
Share issue	12,900			12,900
Comprehensive income		5,000	7,000	12,000
Dividends paid			(4,000)	(4,000)
Balances c/f	21,400	7,500	18,800	47,700

Statements of financial position as at 31 March:

	2022	2021
	GH¢ ‘000	GH¢ ‘000
Asset
Non-current assets (see note)
Cost	93,500	80,000
Accumulated depreciation	(43,000)	(48,000)
	50,500	32,000
Current assets
Inventories	5,200	4,400
Trade receivables	7,800	2,800
Bank		700
	13,000	7,900
Total assets	63,500	39,900
Stated capital	21,400	8,500
Capital surplus	7,500	2,500
Income surplus	18,800	15,800
	47,700	26,800
Non-current liabilities
10% loan notes	4,000	3,000
Current liabilities
Bank overdraft	3,600
Trade payables	4,200	4,500
Taxation	4,000	5,600
	11,800	10,100
Total equity and liabilities	63,500	39,900

You are required to:
Prepare a statement of cash flows for Adjebinge Ltd. for the year ended 31 March 2022 in accordance with IAS 7: Statement of Cash Flows. (20 marks)

Answer

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Tags: Cash Equivalents, Financing Activities, IAS 7, Investing Activities, Operating Activities, Statement of Cash Flows
Level: Level 3

Topic: Cash Flow Statement and Cash Flow Analysis
Series: OCT 2022

CIBG – FRPA 2022 – L3 – Q1B – Easy Way Limited Financial Statements

Prepare the statement of comprehensive income and statement of financial position for Easy Way Limited as at 31 December 2021 using the given trial balance and additional information.

Question

EASY WAY LIMITED

The list of balances of Easy Way Limited shows the following balances at 31st December 2021.

Dr GH¢000	Cr GH¢000
Share capital (600,000 shares)	320
General reserve	20
Accumulated profit 1 January 2021	50
Inventory (goods for resale) at 1 January 2021	60
Revenue	1,000
Purchases	540
Purchases returns	26
Sales returns	28
Carriage outwards	28
Warehouse wages	80
Sales representatives salaries	60
Administrative wages	40
Warehouse plant and equipment cost	126
Accumulated depreciation — 1 January 2021	50
Delivery vehicle hire	20
Goodwill	100
Distribution expenses	10
Administrative expenses	30
Directors’ salaries (charge to administrative expenses)	30
Rental income	16
Trade receivables	330
Cash at bank	60
Trade payables	60
1,542	1,542

The following additional information has been provided: (1) Inventory of goods for resale at 31 December 2021 amounted to GH¢100,000. (2) Annual depreciation on warehouse plant and equipment of GH¢32,000 should be provided. (3) Income tax expense for 2021 amounts to GH¢50,000. (4) The recoverable amount of goodwill was GH¢90,000.

You are required to prepare: a) the company’s statement of comprehensive income for the year to 31 December 2021; and b) a statement of financial position at that date in accordance with IAS 1: Presentation of Financial Statements. (20 marks)

Answer

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Tags: Depreciation, Goodwill Impairment, IAS 1, Statement of Comprehensive Income, Statement of Financial Position, Tax Expense
Level: Level 3

Topic: Financial Statements - Form and Content
Series: OCT 2022

CIBG – FRPA 2022 – L3 – Q1A – IAS 2 Inventories Treatment and Disclosure

Explain the treatment of fixed production overheads, valuation of closing inventories, cost identification methods under IAS 2, and state four disclosure requirements.

Question

IAS 2: Inventories, prescribes the accounting treatment for inventories in financial statements.

You are required to:

(a) Briefly explain how IAS 2: Inventories requires the following to be dealt with.

(i) Fixed production overhead costs.

(ii) The valuation of closing inventories.

(iii) The method to use in the identification of costs when there are large numbers of items which are ordinarily interchangeable. (12 marks)

(b) State four disclosure requirements of IAS 2: Inventories, in respect of closing inventories. (8 marks)

(Total: 20marks)

Answer

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Tags: cost identification, Disclosure Requirements, fixed production overheads, IAS 2, Inventories, Valuation
Level: Level 3

Topic: Financial Reporting Framework
Series: OCT 2022

Level: Level 3

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Prepare the statement of cash flows for Adjebinge Ltd for the year ended 31 March 2022 using the provided financial extracts.

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Prepare the statement of comprehensive income and statement of financial position for Easy Way Limited as at 31 December 2021 using the given trial balance and additional information.

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Explain the treatment of fixed production overheads, valuation of closing inventories, cost identification methods under IAS 2, and state four disclosure requirements.

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