Professional Body: ICA (Ghana)

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  • 20 Marks

TAI – Feb 2020 – L1 – Q3 – Audit Evidence Sources

List and explain five significant sources of audit evidence and the nature of evidence expected from each.

a) The auditor should obtain sufficient and appropriate audit evidence in order to be able to form an audit opinion.

Required: a) Enumerate five (5) significant sources of audit evidence and for each source explain briefly the nature of evidence expected.

b) What is sufficient audit evidence depends upon auditor’s judgment. Explain three matters which influence such judgment.

c) Identify and explain three situations which restrict the auditor’s ability to obtain sufficient appropriate audit evidence. Give two examples for each situation.

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  • 20 Marks

SCS – Mar2025 – L3 – Q4 – Financial Management

AML evaluates money market and forward contract hedges to mitigate USD/GHS exchange rate risk on USD 10M gold export revenue, with calculations and internal hedging strategies.

Akosa Minerals Limited (AML) exports a significant portion of its gold production, making its revenue highly sensitive to global gold prices and exchange rate fluctuations. Recently, gold prices have surged to a six-month high of USD 2,904.4 per troy ounce, creating an opportunity for AML to maximize export earnings. However, the company also faces foreign exchange risk, as the Ghanaian cedi (GHS) may depreciate before AML receives its USD payments.
To mitigate this risk, AML’s finance team is considering two hedging strategies: money market hedge and forward contracts. The company must determine which approach provides the best protection against exchange rate fluctuations while optimising its financial position.
AML expects to receive USD 10 million from gold exports in three months. The company is concerned that the USD/GHS exchange rate may depreciate and is evaluating both a money market hedge and a forward contract. The following information is available:

  • Current spot exchange rate: 1 USD = 12.50 GHS
  • Three-month forward rate: 1 USD = 12.20 GHS
    Three-month interest rates:
  • USD borrowing rate: 4% per annum
  • USD deposit rate: 3% per annum
  • GHS borrowing rate: 23% per annum
  • GHS deposit rate: 18% per annum

Required:
a) Explain the concept of both the money market hedge and forward contract hedge, and how AML can use each to mitigate its exchange rate risk.
(6 marks)
b) Calculate the amount AML needs to borrow or invest today in both USD and GHS under the money market hedge to fully hedge the future receipt of USD 10 million.
(4 marks)
c) Calculate the GHS amount AML would receive if it chooses the forward contract hedge instead.
(2 marks)
d) Compare the GHS amounts received under the money market hedge and forward contract hedge. Recommend the better option for AML based on the calculations.
(2 marks)
e) Discuss THREE internal hedging techniques AML can employ to mitigate the depreciation of the Ghana Cedi against the US Dollar.
(6 marks)

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  • 20 Marks

SCS – Mar 2025 – L3 – Q3 – Competitive advantage, International financial

Analyze AML's employee management using IR Framework and evaluate the appropriateness of its diversification strategy into lithium mining.

a) Akosa Minerals Limited (AML) operates in both local and international mining markets, with operations spread across different regions, including Ghana, Mali and Burkina Faso. AML faces pressures for local adaptiveness, such as meeting the specific needs of employees in diverse communities, and global integration, which requires maintaining consistent HR policies and performance standards across all operations. The IntegrationResponsiveness (IR) Framework helps organisations determine how to balance these competing pressures to achieve strategic objectives.

Required:

i) Explain the Integration-Responsiveness (IR) Framework, and show how AML can manage its employees across various locations by balancing the pressures for local adaptiveness and global integration. (6 marks)

ii) Suggest TWO situations where AML should emphasise local adaptiveness and TWO where it should prioritise global integration. Provide examples to support your response. (4 marks)

b) AML diversified its operations by integrating lithium extraction into its core business. Diversification is appropriate in some situations but not in others.

Required: Explain FIVE reasons why the diversification strategy of AML is appropriate and THREE factors that could make the diversification strategy inappropriate. (10 marks)

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  • 20 Marks

POT – Mar 2025 – L2 – Q5 – Withholding Tax

State five payments exempt from withholding taxes in Ghana.

a) The Managing Director of Kantorse LTD is worried about the amount of withholding tax deductions the company suffers when the company receives payment for the supply of goods to some customers. He has heard that some payments could be exempted from withholding taxes.

Required: State FIVE payments that are exempt from withholding taxes.

b) State FIVE responsibilities of a VAT Withholding Agent.

c) The Ghana Revenue Authority (GRA) has implemented an online tax filing system that allows taxpayers to submit their tax returns through the GRA portal. This system is part of the broader digitalization effort aimed at enhancing tax compliance and administration in Ghana.

Required: i) Discuss FOUR benefits of using the GRA online tax filing system for both taxpayers and tax administrators.

ii) Identify TWO challenges that taxpayers may face when using the online tax filing system and recommend possible solutions.

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  • 20 Marks

SCS – Mar 2025 – L3 – Q2 – Change Management

Explain leadership's role in change management and three of Kanter's skills for AML's diversification strategy.

a) Akosa Minerals Limited (AML) has undergone significant transformations in its operations, particularly with the integration of lithium extraction into its core business. This shift has presented both opportunities and challenges, including regulatory compliance, technological advancements and stakeholder management. Successfully navigating these changes requires effective leadership and change management.

Rosabeth Moss Kanter suggests that managers in change-adept organisations must possess key skills to drive transformation effectively. As AML continues its diversification efforts, the company’s leadership must demonstrate these skills to sustain growth and maintain a competitive edge.

Required:

Identify and explain the critical role of leadership in managing change and THREE out of five key change management skills suggested by Kanter that AML’s leadership should exhibit to effectively manage its diversification and growth strategies.

b) Akosa Minerals Limited (AML) recently engaged a risk consultant from Isodek Consultants to conduct a comprehensive risk assessment and provide recommendations on managing the transformational changes the company is undergoing. The consultant’s report highlights key risks and challenges related to AML’s diversification strategy, operational restructuring, stakeholder engagement and compliance with global sustainability standards.

To navigate these challenges effectively, AML’s leadership needs to apply the Gemini Consultants’ 4Rs model which provides a structured framework for managing large-scale organisational change.

Required:

Using the Gemini Consultants’ 4Rs model, discuss how each component can be applied to address the operational and environmental risks identified in the consultant’s report.

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  • 20 Marks

SCS – Mar 2025 – L3 – Q1 – Employee Satisfaction

Identify two key concerns from AML's employee satisfaction survey and their impact on competitive advantage.

a) Akosa Minerals Limited (AML) recently conducted an employee satisfaction survey to address ongoing challenges in attracting and retaining skilled labour. The survey evaluated staff experiences across five critical areas: conditions of service, career development, performance support, work environment and work satisfaction. The survey revealed key issues related to job security, career progression and employee welfare. AML’s leadership is now focused on implementing strategic measures to enhance employee satisfaction and engagement to reduce turnover risks and improve productivity. Required: Identify and explain TWO key areas of concern from the employee satisfaction survey. How might these concerns impact AML’s ability to maintain a sustainable competitive advantage?

b) AML has expanded its operations beyond Ghana, securing mining concessions in Mali and Burkina Faso. The company’s international growth has been driven by rising global demand for gold and lithium, particularly for use in battery production and renewable energy technologies. However, AML must navigate various external factors such as economic fluctuations, trade policies, global commodity pricing, and regulatory frameworks in different countries. To maintain its competitive advantage, AML’s leadership must evaluate external business conditions using tools such as Porter’s Diamond Model, which assesses factors influencing national competitiveness, and broader international economic analysis to identify key opportunities and threats. Required: Using Porter’s Diamond Model, analyse THREE factors that contribute to Ghana’s competitiveness in the global mining industry. How can AML leverage these factors for long-term success?

c) AML has evolved through various strategic phases over the last decades, including modernization, diversification and international expansion. The company is evolving and strengthening its governance, financial structure and operational processes. As AML continues to grow in a competitive mining industry, selecting an appropriate strategic approach is crucial for sustaining long-term success. The board of AML must consider different organisational strategy approaches to align with its corporate objectives, resource capabilities and industry trends. These approaches include the systems-based approach, resource-based approach, core competencies approach, rational strategy and adaptive/emergent strategy. Required: Using AML’s strategic journey as a reference, explain each of the FIVE strategic approaches and how they are relevant to AML’s organisational strategy.

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  • 20 Marks

POT – Mar 2025 – L2 – Q4- Partnership Taxation

Compute Nmani Pharmacy’s chargeable income for 2023.

a) Three pharmacy students, Abanga, Banzey and Chambas who completed the Tamale Technical University have teamed up to undertake a business venture in the pharmaceutical sector under a Trading Name Nmani Pharmacy. They agreed to share profit and losses in the ratio 3:2:1 for Abanga, Banzey and Chambas respectively. The details provided below relate to the business financial performance for the year 2023.

 

Details GH¢
Sales 663,400
Cost of goods sold:
Opening inventory 150,000
Purchases 300,000
450,000
Closing inventory (120,000)
330,000
Gross profit 333,400
Less expenses:
Staff cost 102,000
Business promotions 58,100
Depreciation 98,200
Electricity and water 53,000
Expired drugs 12,100
Donation 78,000
Rent and rates 15,000
Sundry expenses 50,000
Vehicle running cost 63,000
(529,400)
Net profit 134,000
Tax paid (15,200)
Net profit after tax 118,800

Additional Information:

  1. Staff cost includes monthly stipend allocations to the aged parents of the partners totaling GH¢18,000.
  2. All three Partners are taking care of their aged parents who are more than 60 years.
  3. Business promotions include lunch expenses of the partners amounting to GH¢21,200.
  4. Donations include funeral donation made during the funeral of the mother of the Vice Chancellor of the Tamale Technical University amounting to GH¢20,000.
  5. Sundry expenses include fine amounting to GH¢32,000 imposed by the Food and Drugs Authority for failure to remove some expired drugs from shelves.
  6. The Partners received Withholding Tax Certificates indicating an amount of GH¢15,200 from the Binabaani European Hospital for medical consumables supplied to the hospital.
  7. Capital allowance has been agreed with the Ghana Revenue Authority at GH¢104,200.

Required: i) Compute the chargeable income for Nmani Pharmacy for the 2023 Year of Assessment.

(ii) Compute the net tax payable by each partner for the year 2023.

(b) In line with the provisions of the Income Tax Act, 2015 (Act 896), partnership and limited liability companies in Ghana are taxed in accordance with their residency status in a year of assessment.

Required: State the criteria for the determination of the residency status of partnership and limited liability companies.

(c) All over the world, countries have introduced policies to guarantee income for their hard-working workforce who may go on retirement to enable them to live meaningful lives after retirement. Ghana’s pension system aims to provide personal financial security for employees in their retirement years.

Required: Describe the current pension system in Ghana.

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  • 20 Marks

POT – Mar 2025 – L2 – Q3 – Taxation of Individuals

Determine Selassi Afolabi’s chargeable income for 2023.

a) Selassi Afolabi was employed as the Personnel Manager of Tano North District Assembly on 1 March 2021 on salary scale of GH¢72,000, which is expected to increase by GH¢4,000 annually to a maximum of GH¢84,000. As part of his conditions of employment, he is entitled to the following: i) He has a fully furnished accommodation. ii) He has a vehicle, fuel and driver for official use only. iii) Risk allowance of GH¢2,000 a month. iv) Inconvenience allowance of GH¢1,500 a month. v) Professional allowance of GH¢2,500 a month. vi) He was paid a bonus of GH¢16,000. vii) He had the services of a gardener who receives monthly salary of GH¢800, paid by the employer. viii) He is divorced with three children who are schooling in government approved schools in Ghana. ix) He contributes 5.5% of his salary to the Social Security Scheme. x) He contributes 8% of his salary to an approved Provident Fund and his employers also contributes 10% on his behalf to the Provident Fund. xi) He received a net dividend of GH¢12,800 in 2023 from shares owned in a resident company. xii) He received a director’s fee of GH¢16,000 net of 20% WHT in 2023 from being a Board member in a private company.

Required: Determine his chargeable income for the 2023 year of assessment.

b) Adwoa Ntowbea is an investor in several companies in Ghana and abroad. Below are details of ordinary share dealing of Adwoa Ntowbea in Amaraaba LTD, a limited liability company in Ghana which is not listed on the Ghana Stock Exchange.

 

Date Details
1 Jan 2023 Bought 500 shares at GH¢11 each
18 Sept 2023 Bought 1500 shares at GH¢12 each
30 Dec 2023 Bought 800 shares at GH¢10 each
19 Nov 2024 Sold 500 shares for GH¢12 each

Required: i) Determine the gains on the shares sold

ii) Determine the tax, if any, on the shares sold.

iii) Explain the withholding tax regime on realization of capital assets.

iv) What are the tax return requirements on realization of capital gains?

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  • 20 Marks

MA – Mar 2025 – L2 – Q5 – Decision making techniques

Determine whether Moree Engineers LTD should make or buy extra seating assemblies for scooters, considering costs and opportunity costs.

a) i)
Moree Engineers LTD (MEL) makes electrically-driven disability scooters aimed at elderly and/or disabled customers. At present, wheels and tyres are bought from external suppliers but all other parts are manufactured in-house. The scooters have a strong reputation due mainly to innovative designs, special power units that can be recharged at home and seats that enable easy access for a wide range of disabilities. MEL also sells power units to other firms.
Current monthly costs are as follows:

Seating Department Power Unit Department
Costs GH¢ GH¢
Direct Materials 9,300 4,140
Direct Labour 12,600 9,450
Apportioned overheads 26,700 17,200
48,600 30,790
Production level 60 units 90 units

The power unit department currently produces 90 units a month, 60 units are used in MEL’s own scooters while 30 units are sold externally at GH¢376 each.
A contract has been won to supply an additional 10 scooters per month. However, the directors are considering how best to meet the additional demand.
Sufficient capacity exists for the company to increase its monthly production to 70 scooters, except that making an extra 10 seating assemblies would require reallocation of labour and other resources from the power unit to the seating department. This would cut power unit output by 20 units per month.
The alternative course would be to buy 10 seating assemblies from an outside supplier and fit the 10 power units from the present production of 90 units. The cheapest quote for seating assemblies is GH¢610 per assembly.

Required:
Based on the figures given, show whether Moree Engineers LTD should make or buy the extra seats.

a) ii) Discuss FOUR other factors that should be considered before a final decision is taken to make or to buy the extra seats.

b) i). Bambo LTD produces three medical products namely, gloves, bandages and syringes. The budgeted sales in the coming year for the three products is GH¢4,530,000. The company accordingly projected GH¢750,000 post-tax profit on the three products for the period.
Detailed budgeted Cost and sales data for the coming year are as follows:

Gloves Bandages Syringes
Sales Volume (%) 40% 25% 35%
Variable cost to Sales ratio 60% 67.5% 54.5%

The fixed cost for Bambo LTD amounted to GH¢1,330,000.
Other information:
Corporate tax rate is 25%

Required:
Calculate margin of safety in percentage (%) terms.

b) ii) Calculate post-tax revenue to achieve the projected profit.

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  • 20 Marks

PSAF – Mar 2025 – L2 – Q3- Public sector fiscal planning and budgeting

Examine implications of Ghana's 2025-2028 fiscal policy proposals per PFM Act 2016.

a) The Government has unveiled its transformative agenda, driven by its fiscal strategy, covering the period 2025 -2028. In the Agenda 2028 document released by the government, the following strategies were outlined:

  1. Taxes on individual income (referred to as pay-as-you-earn) will be suspended until 2029.
  2. Development will be driven by debt, with the government leveraging its goodwill to borrow from development partners and investors to fund its development programmers and projects. By the end of 2024, the debt-to-GDP ratio was projected to reach 80%.
  3. There will be significant government expenditure aimed at boosting development and enhancing citizens’ living conditions. Data from 2024 indicate that the fiscal balance relative to GDP stands at 17%.
  4. All forms of extravagance and wastefulness within the public sector will be eradicated to ensure efficiency, effectiveness, and value for money across all government operations.
    The statement also noted that the government reserves the right to suspend the fiscal rules and targets as and when necessary.

Required:
i) Examine the implications of the government’s policy propositions (1 to 4) in relation to the principles of formulating and implementing fiscal policy objectives outlined in the Public Financial Management Act 2016, (Act 921).

ii) Discuss the steps and events that will necessitate a cabinet approval for a suspension of the fiscal rules and targets under the Public Financial Management Act 2016, (Act 921).

b) The Public Expenditure and Financial Accountability (PEFA) Framework is designed to evaluate the public financial management performance of public institutions. However, some critics, including the Director of Finance of your entity, argue that PEFA represents a form of neo-colonialism repackaged for Africa, and therefore, African countries should resist its assessment.

Required:
i) Explain to the Director of Finance FOUR reasons your country’s PFM system should be subjected to PEFA assessment.

ii) Discuss FOUR limitations of the PEFA framework used to assess PFM systems.

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  • 20 Marks

FR – Mar 2025 – L2 – Q3 – Preparation of Financial Statements

Prepare Halidu LTD's financial statements for 2024, including comprehensive income, changes in equity, and financial position per IFRS.

The following trial balance relates to Halidu LTD (Halidu) at 30 June 2024:

GH¢’000 GH¢’000
Revenue 3,120,000
Cost of sales 1,757,400
Distribution costs 45,600
Administration expenses 118,800
Loan interest paid 28,800
Property – cost 1,200,000
Property – depreciation at 1 July 2023 225,000
Plant and equipment – cost 1,011,600
Plant and equipment – depreciation at 1 July 2023 291,600
Licence – cost 240,000
Licence – amortisation at 1 July 2023 96,000
Trade receivables 259,200
Inventory – 30 June 2024 112,800
Bank 78,000
Trade payables 211,200
Share capital (GH¢0.25 each) 420,000
Revaluation surplus 78,000
12% loan note (issued 1 July 2023) 240,000
Taxation 12,000
Retained earnings at 1 July 2023 68,700
4,774,200 4,774,200

The following notes are relevant:
i) Halidu made credit sales for GH¢196 million on a sale or return basis and this is currently included in revenue in the trial balance. At 30 June 2024 customers who had not paid for the goods, had the right to return GH¢62.4 million of them. Halidu applied a mark-up on cost of 30% on all these sales. In the past Halidu’s customers have sometimes returned goods under this type of agreement.
ii) On 1 July 2023, Halidu revalued its property to GH¢1,440 million, of which GH¢360 million relates to the land. This property was acquired 10 years ago at a cost of GH¢1,200 million which included GH¢300 million for the land. The building had an estimated life of 40 years when it was acquired and this has not changed as a result of the revaluation. Depreciation is charged on a straight line basis. The revaluation has not yet been recorded in the books. Halidu has a policy of transferring any excess depreciation to retained earnings.
iii) During the year, Halidu sold some plant that cost GH¢120 million on 1 December 2020. The proceeds of this sale were GH¢72 million and these have been credited to cost of sales. No other entries have been made relating to the disposal. Plant and equipment is to be depreciated on the reducing balance basis at a rate of 20% per annum. Halidu charges a full year’s depreciation in the year of acquisition and none in the year of disposal.
iv) The licence is being amortised on the straight line basis at a rate of 20% per annum. All depreciation and amortisation is to be charged to cost of sales.
v) The directors have estimated the provision for income tax for the year ended 30 June 2024 at GH¢76.2 million. The balance of taxation in the trial balance relates to over/under provision of tax in the previous year. The only deferred tax consequence relates to those mentioned in note (ii) above. The company pays tax on profit at the rate of 25%.
vi) Halidu intends to dispose of a major line of its business operations in the course of the year. At the date the held for sale criteria were met, the carrying amount of the assets and liabilities comprising the line of business were:

GH¢’000
Plant and equipment 138,000
Trade receivables 9,000
Trade payables 7,000

It is anticipated that Halidu will realise GH¢135 million for the business. No entries have yet been made in respect of this information.

Required:
Prepare and present a statement of comprehensive income, a statement of changes in equity and a statement of financial position at 30 June 2024 in a form suitable for presentation to the shareholders and in accordance with the requirements of International Financial Reporting Standards (IFRS).

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  • 20 Marks

FR – Mar 2025 – L2 – Q2 – Inventories

Identify four situations where net realisable value is likely less than cost per IAS 2.

a) IAS 2: Inventories prescribes the accounting treatment for inventories; it provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realisable value. Mrs. Christiana Addo, the Managing Director of Malik LTD has a number of specific queries in relation to inventory and has asked you for professional advice in relation to IAS 2. Malik LTD’s closing inventory at 31 December 2024 is GH₵345,000. This includes GH₵4,600 for items accidentally destroyed on 31 December 2024 after the count was completed. Also included is GH₵2,900 which relates to the cost of inventory damaged in October 2024, which can be reworked at a cost of GH₵600 and which can then be sold for GH₵2,400.

Required:

i) Identify FOUR situations in which net realisable value is likely to be less than cost.

ii) Calculate the closing value of inventory at 31 December 2024 and show how it should be accounted for in the statement of financial position and the statement of profit or loss.

b) IAS 23: Borrowing Costs sets out the conditions under which borrowing costs should be capitalised or expensed. On 1 August 2023, Fausty PLC commenced construction of a factory building for its own use. On the same date it issued a 5% loan notes for GH₵40 million. The entire proceeds of the loan notes were used immediately to pay for the land and to purchase building materials for the project. Construction work commenced on 1 October 2023 and continued throughout the year, except for a half-month break in December 2023 and a further half-month break in July 2024.

Required:

i) State the conditions under which borrowing costs can be capitalised.

ii) Calculate the amounts that should be capitalised as borrowing costs for the financial year end July 2024. (3 marks)

c) IAS 12: Income Taxes prescribes the accounting treatment of income taxes, including how to account for the current and future tax consequences of assets, liabilities and transactions recognised in the financial statements. IAS 12 requires entities reporting under IFRS to disclose certain items.

Required:

Identify THREE disclosure requirements of IAS 12. (3 marks)

d) Akweley LTD issued GH₵20 million of GH₵100 9% bonds at par on 1 January 2023. The maturity date of the bonds is 31 December 2026. At that date the bonds are redeemable at par or convertible to ordinary shares on the basis of 14 ordinary shares for each GH₵100 bond. The market interest rate for identical bonds with no conversion rights would have been 5.5% every six months. Coupon interest is paid in two instalments of 4.5% in arrears on 30 June and 31 December. The following are cumulative discount factors (which you should use where appropriate):

| | 4.5% | 5.5% | 9% | 11% | | 3 periods | 2.7490 | 2.6979 | 2.5313 | 2.4437 | | 4 periods | 3.5875 | 3.5052 | 3.2397 | 3.1024 | | 7 periods | 5.8927 | 5.6830 | 5.0330 | 4.7122 | | 8 periods | 6.5959 | 6.3346 | 5.5348 | 5.1461 |

Required: i) Determine the value of the liability component and the equity component of the bonds at 1 January 2023 (to the nearest GH₵1). ii) Determine the value of the liability component of the bonds at 31 December 2024 (to the nearest GH₵1).

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  • 20 Marks

PSAF – Mar 2025 – L2 – Q2 – International public sector accounting standards

Explain the meaning of a qualifying asset per IPSAS for Ghana Highway Authority.

Ghana Highway Authority prepares its financial statements in accordance with International Public Sector Accounting Standards (IPSAS). The Government of Ghana has approved the sum of GH¢678,000 to the Ghana Highway Authority for the construction of a qualifying infrastructural asset.
The following costs were incurred during the construction of the Asset:
i) The sector minister in the process recommended his brother as a consultant to conduct feasibility analysis on the construction of the asset. The consultant charged the Authority the sum of GH¢350,000.
ii) An installation of platforms to enable the project to be undertaken were designed and built at a cost of GH¢225,900.
iii) Some foreign elements of the service required that Letter of Credit was processed to enable execution of the project, and the legal fees charged was GH¢275,000.
iv) Importation of specific components from Germany to execute the project in question cost the Authority €58,890.
v) Haulage and Freight charges cost €5,725.
vi) Cleaning and engine oil for first testing of equipment at the project site amounted to GH¢19,430.
vii) The cost of warranty on the asset was €3,400 should the Authority take advantage of the warranty agreement.
viii) Delivery, handling and other overhead amounted to GH¢156,800 out of which 60% were attributable.
ix) The Ghana Highway Authority consequently incurred cost of GH¢398,560 in modification of an adjoining infrastructure to facilitate the project.
The Government of Ghana was not able to provide all the amount hence the Minister for Finance gave approval to the Chief Executive Officer (CEO) of the Authority to borrow the excess amount from open market which a financial institution provided at a commercial rate of 35% per annum. Government of Ghana (GoG) accounting policy adopts the allowed alternative approach of borrowing costs under IPSAS 5: Borrowing Costs.
A check from the professional website of the Institute of Architects and Engineers in Ghana indicates that the professional fee that can be charged under the service rendered by the consultant would cost only GH¢195,000.
To the extent that the funds borrowed was not GoG funds, and the fact that the funds would be required after 100 days to pay for the cost of the asset, which was provided earlier than envisaged, the CEO took advantage of the 14 weeks’ grace period for payment and invested the funds in a 91-day investment which yielded a return of 24.09% per annum at first maturity when the funds were held in anticipation of payment.
The prevailing exchange rate on the date of the contract was GH¢13.50 to €1.00, however on the day of payment the exchange rate shot up to GH¢15.57 to €1.00.

Required:
a) Explain what is meant by a qualifying asset.

b) Determine the cost of the qualifying asset for capitalization.

c) Based on the information provided, indicate FIVE notes to the accounts in the books of the Ghana Highway Authority.

d) Explain another method or approach by which the borrowing cost could be recognized under IPSAS 5: Borrowing Costs.

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  • 20 Marks

FR – Mar 2025 – L2 – Q1 – Consolidated Financial Statements

Prepare consolidated financial statements for Aba LTD, including adjustments for acquisition, intra-group sales, government grants, and impairment.

Aba LTD (Aba), a technology company, acquired 60% of the share capital of Boafo LTD (Boafo) on 1 January 2024. There are two elements to the purchase consideration – a share exchange transaction of three shares in Aba for every five shares acquired in Boafo, and a cash consideration of GH¢20.4 million on the date of acquisition. The share price of Aba at the acquisition date was GH¢1.2 per share. Only the cash consideration of GH¢20.4 million has been recorded in the books by Aba. The market price of Boafo’s shares just before the acquisition was GH¢1.015.
The summarised draft Financial Statements of both companies as at 31 December, 2024 are as follows:

Statement of Profit or Loss for the year ended 31 December 2024

Aba (GH¢’000) Boafo (GH¢’000)
Sales revenue 200,500 50,500
Cost of sales (110,000) (24,000)
Gross profit 90,500 26,500
Admin expenses (50,300) (15,700)
Finance cost (1,200) –
Profit before tax 39,000 10,800
Income tax expense (5,450) (2,200)
Profit for the year 33,550 8,600

Statement of Financial Position as at 31 December 2024

Aba (GH¢’000) Boafo (GH¢’000)
Non-current assets:
Property, plant & equipment 40,500 35,000
Investment in Boafo 20,400 –
60,900 35,000
Current assets
Inventories 10,500 12,000
Trade and other receivables 20,000 2,500
Cash and cash equivalents 12,500 550
43,000 15,050
103,900 50,050
Equity
Share capital (GH¢1 per ordinary shares) 50,000 35,000
Retained earnings as at 31 December 2023 10,000 5,000
Retained earnings for year ended 31 December 2024 33,550 8,600
93,550 48,600
Non-current liabilities
Long-term borrowings 5,600 800
Current liabilities
Trade and other payables 4,750 650
10,350 1,450
103,900 50,050

The following information is relevant:
i) The fair values of Boafo’s net assets were equal to their carrying amounts at the date of acquisition with the exception of a plant which was valued at GH¢4 million below its carrying amount. The remaining useful life for this plant is four (4) years and this period has not changed as a result of the acquisition. Depreciation of plant is on a straight-line basis and charged to cost of sales. The fair value of the plant has not been incorporated in the financial statements.
ii) In the post-acquisition period, Aba sold goods to Boafo at a total value of GH¢4.6 million. These goods cost Aba GH¢3 million. During the year, Boafo had sold GH¢2.5 million out of the GH¢4.6 million goods from Aba for GH¢3.2 million.
iii) On the first of July 2024, Aba received a grant from the Government in the form of a building. The value of this building was GH¢5 million with a useful life of 20 years. The Accountant of Aba who is not a Chartered Accountant credited the value of the building to revenue. It has been advised that the recognition of this transaction should be done in line with the provisions of IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. It is the group’s policy to recognise grants relating to assets as deferred income.
iv) Aba’s policy is to value non-controlling interest at fair value at the date of acquisition. For this purpose, Boafo’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
v) Goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss equivalent to 10% of goodwill at acquisition which is to be treated as an operating expense.

Required:
Prepare for Aba LTD a Consolidated Statement of Profit or Loss for the year ended 31 December 2024 and a Consolidated Statement of Financial Position as at 31 December 2024.

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  • 20 Marks

FM – Mar2025 – L2 – Q5 – Working Capital Management

Compute Gagba LTD's working capital requirement after a 15% sales increase using provided financial and operational data.

a) Gagba LTD, a manufacturing company, is planning to expand its operations to meet increasing demand for its products. As part of this expansion, the company needs to determine its working capital requirements to ensure smooth operations and avoid liquidity issues. The company has provided the following financial and operational data for the year ended 31 December 2023:

  1. Sales Data:
  • Annual Sales: GH₵18,000,000
  1. Cost Data:
  • Cost of goods sold (COGS): 70% of sales
  • Inventory turnover ratio: 8 times per annum
  • Accounts receivable turnover ratio: 6 times per annum
  • Accounts payable turnover ratio: 4 times per annum
  1. Operation Data:
  • Average inventory: GH₵1,500,000
  • Average Accounts receivable: GH₵2,000,000
  • Average accounts payable: GH₵1,200,000
  1. Additional Information:
  • Desired Cash balance: GH₵500,000
  • Projected Increase in Sales due to expansion: 15%
  • Cost of capital: 12% per annum Required: Compute the working capital requirement for Gagba LTD after the planned expansion. (10 marks)

b) The Ministry of Health in Ghana is conducting a review of its procurement practices and the overall performance of its Public Financial Management (PFM) system. The review aims to enhance value for money in public spending while adhering to the principles outlined by the Public Expenditure and Financial Accountability (PEFA) framework. You are provided with the following data for the fiscal year 2023:

    1. Budgeted Public Expenditure: GH₵50 billion
    2. Actual Public Expenditure: GH₵52 billion
    3. Total Procurement Expenditure: GH₵25 billion
    4. Value of Contracts Awarded through Competitive Tendering: GH₵15 billion (60 contracts)
    5. Value of Contracts Awarded through Restricted Tendering: GH₵5 billion (20 contracts)
    6. Value of Contracts Awarded through Single-Source Procurement: GH₵5 billion (20 contracts)
    7. Number of Procurement Violations Detected: 15 (with a total value of GH₵300 million)
    8. Disposal of Stores and Equipment: GH₵100 million Required: i) Analyse the variance in the public expenditure and its implications for the PFM system in Ghana. (3 marks) ii) Discuss which procurement method appears to provide the best value for money with suitable computations. (7 marks)

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  • 20 Marks

FM – Mar2025 – L2 – Q4 – Business valuations

Estimate the value of Obuorba LTD's stock at the end of Year 4 using dividend valuation model.

a) Mama Lomo is trying to value Obuorba LTD’s stock. She uses a spreadsheet model to easily see how a change in one or more assumptions affects the stock’s estimated value. The model has projections for the next four years based on the following assumptions.

  • Sales will be GH₵300 million in Year 1.
  • Sales will grow at 15% in Years 2 and 3 and 10% in Year 4.
  • Operating profits (EBIT) will be 17% of sales in each year.
  • Interest expense will be GH₵10 million per year.
  • Income tax rate is 30%.
  • Earnings retention ratio will stay at 60%.
  • The per-share dividend growth rate will be constant from Year 4 onwards, and the final growth rate will be 200 bps (2%) less than the growth rate from Year 3 to Year 4. This final growth rate should be used to derive the dividend growth from year 4 onwards.
    The company has 10 million shares outstanding. Mama Lomo has estimated the required return on Obuorba LTD’s stock to be 13%.
    Required:
    i) Estimate the value of the stock at the end of Year 4 based on the foregoing assumptions. (6 marks)

ii) Estimate the current value of the stock using the foregoing assumptions. (4 marks)

b) State THREE limitations of the dividend discount model of stock valuation. (5 marks)

c) In the healthcare sector, efficient inventory management and resource utilisation are critical to providing timely and high-quality patient care. The Korle-Bu Teaching Hospital, the largest teaching hospital in West Africa, has recently implemented a Just-in-Time (JIT) system to enhance its operational efficiency. The hospital adopted JIT production and purchasing strategies to manage its medical supplies and pharmaceuticals more effectively. The goal is to reduce inventory holding costs, minimise wastage and ensure that critical medical supplies are available when needed without overstocking.

However, the implementation of JIT systems in a healthcare setting like Korle-Bu Teaching Hospital presents several challenges. While JIT aims to streamline operations and reduce costs, it also introduces potential risks and problems, particularly in an environment where the timely availability of medical supplies is crucial for patient care.

Required:

i) Explain JIT purchasing. (2 marks)

ii) Discuss TWO potential problems associated with implementing JIT systems in a hospital environment. (3 marks)

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  • 20 Marks

PSAF – Mar 2025 – L2 – Q1- Preparation and presentation of financial statements for covered entities

Prepare the Statement of Financial Performance for Hamile Teaching Hospital for 2023 per IPSAS and related regulations.

The Trial Balance below relates to Hamile Teaching Hospital, a public hospital.

Trial Balance for the year ended 31 December 2023
Debit Credit
GHc’000 GHc’000
Government subvention 100,750
Out-patient services fees 35,000
In-patient services fees 40,000
Development Partner grants (ii) 16,000
Established position salaries 62,000
Casual Labour 5,600
Contract appointment (local and foreign) 1,400
Limited engagements 200
Rent (iii) 500 150
Insurance 340
Consultancy services 120
Conferences, workshops and training 4,500
Purchase of drugs 60,000
Purchase of medical consumables 80,000
Office expenses 20,000
Repairs and maintenance 6,000
Interest on loan 10,000
Pharmacy sales 180,000
Diagnostic 85,000
Mortuary Services 9,400
Cafeteria and Canteen 4,650
Extension services 14,500
Furniture and office equipment (iv) 200,000 40,000
Medical equipment & accessories (iv & v) 420,000 120,000
Motor vehicles (iv) 120,000 20,000
Land and buildings (iv) 300,000 70,000
Bank and Cash 30,000
Receivable from National Health Insurance Scheme (vi) 65,000
Receivable from patients 15,000
Payables 26,000
Loan from foreign Institution (2028) (vii) 350,000
Inventory of drugs 22,000
Inventory of medical consumables 12,000
Accumulated Fund 336,210
Other expenses 13,000
1,447,660 1,447,660

Additional Information:
i) The hospital prepares its financial statements in accordance with the International Public Sector Accounting Standards (IPSAS), the Public Financial Management Act 2016, (Act 921), the Public Financial Management Regulation 2019, L.I 2378, and the current Chart of Accounts of the Government of Ghana.
ii) The Development Partner grants received from the Health Care Fund, an international organization that provides free medical care to the rural poor and vulnerable individuals, are typically unconditional. However, 40% of this year’s grant is subject to certain conditions, which had not been met as of December 31, 2023.
iii) Rent received in advance during the year amounted to GH¢20,000 while rent owed by the hospital for the year amounts to GH¢300,000.
iv) The hospital charges consumption of fixed assets on straight line basis as follows

Non-current Assets Estimated Useful Life
Furniture and office equipment 5 years
Medical equipment and accessories 4 years
Motor vehicles 5 years
Buildings 10 years

Land constitutes 30% of the amount of land and building shown in the trial balance.
v) A medical equipment valued at GH¢20,000,000 which is included in the medical equipment and accessories listed on the trial balance, was completely damaged due to consistent power fluctuations. The value of this equipment should be written off.
vi) The hospital submitted a claim of GH¢11,000,000 to the National Health Insurance Scheme for services provided to patients in the last quarter of 2023, but the payment has not yet been received. This transaction has not yet been reflected in the trial balance.
vii) The hospital took a loan of $100,000,000 from Health World Bank on January 1, 2023, when the exchange rate was $1 to GH¢3.50. The exchange rate on 31 December 2023 is $1 to GH¢5.
viii) The inventories on 31 December 2023 were as follows:

Inventory type Cost Net Realizable Value Current Replacement
GHc’000 GHc’000 GHc’000
Drugs 15,000 16,000 14,000
Medical consumables 10,000 11,000 9,000

Required:
Prepare for Hamile Teaching Hospital:
a) Statement of Financial Performance for the year ended 31 December 2023.

b) Statement of Financial Position as of 31 December 2023.

c) Disclosure notes to the financial statements.

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  • 20 Marks

FM – Mar 2025 – L2 – Q3 – Foreign exchange risk and currency risk management

Determine outcomes of forward contract and money market hedge for GPL's USD payment and recommend the best technique.

a) Gyenyame Pharmaceuticals LTD (GPL), a Ghanaian company, imports raw materials from the United States of America to produce generic drugs for the local market. Due to recent fluctuations in the foreign exchange market, the company’s management is concerned about the impact of exchange rate movements on its costs and profitability.
The company is expected to pay USD750,000 in three months for a shipment of Active Pharmaceutical Ingredients (APIs). GPL also exports locally produced herbal medicine called ‘Koo-pile’ to the Ghanaian community in Oklahoma, USA on credit basis. The company is expecting a receipt of USD250,000 in three months for a consignment exported a month ago.
GPL is considering two hedging strategies to manage the foreign exchange risk: a forward contract and a money market hedge.
The following financial information is available:

  • Current Spot Rate (GHS/USD): 12.00
  • 3-Month Forward Rate (GHS/USD): 12.20
  • 3-Month USD Interest Rate: 3% per annum
  • 3-Month GHS Interest Rate: 14% per annum
  • Expected Future Spot Rate in 3 Months (GHS/USD): 12.50

Required:
i) Determine the outcome of the two hedging techniques and recommend the appropriate technique to GPL based on your computations.
(9 marks)

ii) Explain THREE internal hedging techniques that GPL could use to manage its foreign exchange risk.

b) Technological advancements have significantly transformed financial markets, enhancing the way transactions are conducted, information is accessed and risks are managed. As financial institutions and individual investors increasingly depend on digital tools and innovative technologies, financial markets have become more efficient, accessible and transparent.

Required:
Explain FIVE positive impacts of technological development on financial markets.
(5 marks)

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  • 20 Marks

FM – Mar 2025 – L2 – Q2 – Investment Appraisal and Financing Options

Compute loan balance, bond redemption, and NPV for a university hostel project with two financing options

The Governing Board of Dominase Agriculture University is considering a capital project and related financing options. The project involves the construction of a candidate hostel, which requires capital outlays of GH¢20 million in the first year and GH¢30 million in the second year.

The hostel will become operational in the third year. Net operating cash flows from the hostel are expected to be GH¢20 million annually for the first three years of operation (i.e. Years 3, 4, and 5) and then begin to grow at a constant rate of 10% annually to perpetuity.

The project finance advisory team has presented the following two financing options for the consideration by the Governing Board:

Option 1: A Syndicated Bank Loan

Through a syndication arrangement led by the National Investment Bank, the university can borrow the required GH¢50 million from five local banks at an annual interest rate of 28% with quarterly compounding. The loan amount will be released to the university immediately. The university will be given a moratorium (grace period) of two years to complete the construction of the hostel before it is required to start paying off the loan balance in equal instalments at the end of each quarter for ten years. Interest will accumulate on the loan during the grace period.

Option 2: Bond Issuance

The university can issue a bond to raise the GH¢50 million required to finance the construction of the hostel. The bonds will be issued in 50,200 units of GH¢1,000 face value each. The annual coupon rate on the bond will be set at 26%, but coupons will be paid semiannually starting as soon as the bond is issued. The bonds will be issued now and redeemed in 15 years at a premium of 10%. Although the total redemption value will be paid to the bondholders at maturity, the university will be required to establish a sinking fund to raise enough money to redeem the bonds. The university can deposit equal sums of money into the fund at the beginning of every six months, starting from the third year until the fifteenth year when the bond will be redeemed. The fund will be invested at an annual interest rate of 20%.

Required:

a) Regarding the syndicated loan,

i) Compute the loan’s balance at the end of the moratorium.

(3 marks)

ii) Compute the quarterly instalment required to amortise the loan over the ten-year repayment period.

(4 marks)

b) Regarding the bond issue,

i) Compute the total redemption value of the bond.

(3 marks)

ii) Compute the size of each semi-annual instalment into the sinking fund.

(4 marks)

c) Compute the project’s net present value (NPV) and provide an investment recommendation based on it. Assume the required rate of return on the project is 30%.

(6 marks)

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