PROFESSIONAL PROGRAM – Page 57

SCS – L3 – Q28 – Environment analysis

Comment on the value and purpose of SWOT analysis in GlobalCom's corporate review process.

Question

(a) Comment on the value and purpose of the SWOT analysis in the process of corporate review.

(b) Explain what other charging systems Tech Trend could adopt for supplying Nexus Com. Discuss how your proposals would affect the remit under which Tech Trend currently operates.

(d) Discuss the considerations which a buyer is likely to consider when constructing its bid price.

(e) Suggest, and briefly justify, alternative strategies which Nexus Com could implement in Tech Trend in order to increase its competitiveness, and to identify more clearly its performance.

Answer

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Tags: charging systems, Cost allocation, internal efficiency, market-based pricing, profit centre
Level: Level 3

Topic: Competitive advantage, Functional strategies

FR – L2 – Q18 – Inventories

Calculate the value of raw materials and finished goods inventories for Tamasi Manufacturing at 31 Dec 20X5 per IAS 2 using FIFO.

Question

Tamasi Manufacturing was formed on 1 January 20X5. The entity manufactures and sells a single product and values it on a first-in, first-out basis.
One tonne of raw material is processed into one tonne of finished goods.
The following details relate to 20X5.

Purchases of raw materials
Purchases:
Price: GH¢100,000 per tonne on 1 January, increasing to GH¢150,000 per tonne on 1 July
Import duties: GH¢10,000 per tonne
Transport from docks to factory: GH¢20,000 per tonne

Production costs
Production capacity: 1,000 tonnes of raw materials per week
Variable costs: GH¢25,000 per tonne
Fixed costs: GH¢30,000,000 per week
Sales details
Selling price: GH¢240,000 per tonne
Delivery costs to customers: GH¢8,000 per tonne
Selling costs: GH¢4,000 per tonne

Inventories at 31 December 20X5
Raw materials: 2,000 tonnes
Finished goods: 2,000 tonnes

There is a ready market for raw materials and the NRV of the raw materials is higher than its cost.

Required
Calculate and disclose the value of inventories at 31 December 20X5 in accordance with IAS 2.

Answer

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Tags: Cost Valuation, FIFO, IAS 2, Inventories, Manufacturing, Net Realisable Value
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q17 – Inventories

Explain IAS 2 requirements for inventory measurement and state disclosure requirements for Kintampo Limited.

Question

MEASUREMENT OF INVENTORIES

IAS 2 inventories prescribes the accounting treatment for inventories under the historical cost system.

Required

(a) Explain briefly how IAS 2 requires the following to be dealt with.

(i) Fixed production overheads.

(ii) The determination of the lower of cost and net realisable value.

(iii) The identification of costs when there are large numbers of items which are ordinarily interchangeable.

(b) State four disclosure requirements of IAS 2 in respect of inventories.

Answer

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Tags: Cost Measurement, Disclosure Requirements, FIFO, IAS 2, Inventories, Net Realisable Value
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

Title: FR – L2 – Q16 – Inventories

Calculate inventory value at 31 Dec using FIFO, NRV, and IAS 2 for Bolga Limited.

Question

Bolga Limited has the following purchases and sales of a particular product line.

	Units purchased	Purchase price per unit	Units sold	Selling price per unit
		GH₵’000		GH₵’000
2 December	100	500	60	530
16 December	60	503	80	528
30 December	70	506	50	524
14 January	50	509	70	524
28 January	80	512	50	520
11 February	40	515	40	520

At 31 December the physical inventory was 150 units. The cost of inventories is determined on a FIFO basis. Selling and distribution costs amount to 5% of selling price and general administration expenses amount to 7% of selling price.

Required
(a) State any three reasons why the net realisable value of inventory may be less than cost.

(b) Calculate to the nearest GH₵’000 the value of inventory at 31 December
(i) at cost
(ii) at net realisable value
(iii) at the amount to be included in the financial statements in accordance with IAS 2

Answer

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Tags: Cost Valuation, FIFO, Financial Statements, IAS 2, Inventories, Net Realisable Value
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q15 – Financial Reporting Standards

Calculate revenue, costs, and financial statement balances for four construction contracts using cost proportion method.

Question

On 31 March 20X9, Annabel Ltd had four construction contracts in progress. Details are set out below.

	Contract A	Contract B	Contract C	Contract D
	GH¢000	GH¢000	GH¢000	GH¢000
Contract price	1,850	750	960	800
Costs to date	1,490	590	405	120
Estimated future costs		25	600	480
Revenue taken in earlier years	990	100
Cost of sales recognised in earlier years	800	100
Progress billings to date	1,850	690	650	100
Cash received to date	1,850	600	600	100

Contract A was completed during the year.
Contract C commenced on 1 May 20X8.
Contract D commenced on 1 January 20X9. It is not considered possible on 31 March 20X9 to assess the outcome of Contract D with any certainty.
Annabel Ltd recognises revenue based on the proportion of costs incurred to date to expected total costs.

Required:
Show the amounts that would be recognised and presented for each contract in the financial statements of Annabel Ltd for the year ended 31 March 20X9 and show the total balances in those financial statements. Work to the nearest GH¢000.

Answer

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Tags: Construction Contracts, Contract Assets, Contract Liabilities, Financial Statements, IFRS 15, Progress Billings, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q14 – Financial Reporting Standards and Their Applications

Discuss accounting for a repurchase agreement and consignment arrangement for Accra Healthcare Manufacturing Limited per IFRS standards.

Question

The following transactions took place at Accra Healthcare Manufacturing Limited in the year ended 31 March 20X9.

(1) On 1 January Accra Healthcare Manufacturing Limited sold goods to a bank for GH₵18m cash and agreed to repurchase the personally identifiable information repurchase the goods for GH₵20m cash on 31 December 20X9.

(2) On 31 March Accra Healthcare Manufacturing Limited consigned several motorised mobility aids to independent medical salespeople for sale to third parties. The sales price to the dealer is Accra Healthcare Manufacturing Limited’s list price at the date of sale to third parties. If a mobility aid is unsold after six months, the medical rep has a right to return it to Accra Healthcare Manufacturing Limited.

Required
Discuss how the above transactions should be accounted for in the financial statements of Accra Healthcare Manufacturing Limited for the year ended 31 March 20X9.

Answer

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Tags: Consignment Arrangements, Financing Transactions, IFRS 15, Repurchase Agreements, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q13 – Revenue Recognition

Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

Question

13 Davies Ltd

Davies Ltd manufactures and sells machines and has a 31 December year-end.

Customers are required to pay a deposit of 10% on order. The remaining 90% is paid on delivery.

Machines are delivered to customers by a third party. Within one week after delivery, Davies Ltd’s employees install the machines on customers’ premises. The installation required is not complex and is capable of being performed by several alternative service providers. Installation costs 1% of the transaction price.

A fee for a three year servicing contract amounting to 6% of the transaction price, are included in the final invoice.

Required

(a) Explain how performance obligations are identified when deciding how to account for a contract to supply goods and services in accordance with IFRS 15.

(b) Identify and explain the performance obligations that should be identified in the above contract.

Construct journals for the year end to 31 December to account for a sale of a single machine with a selling price of GH¢1,000,000 in each of the following circumstances.

(d) Circumstance 2: A customer orders the machine on 30 November. It is delivered on 20 December and installed on 10 January.

(e) Circumstance 3: A customer orders the machine on 30 November. It is delivered on 20 December and installed on 30 December.

Answer

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Tags: Accounting Standards, Financial Reporting, IFRS 15, Performance Obligations, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

SCS – L3 – Q27- Strategy, stakeholders and mission

Identify strategic issues for Zuri Enterprises' board and explain how the balanced scorecard measures performance.

Question

(a)

(i) Identify strategic issues that should engage the attention of the Board of Directors of Zuri Enterprises.

(ii) Explain how the balanced scorecard can be used to measure performance in Zuri Enterprises.

(b) Discuss measures which shareholders may seek to resolve any agency problems in Zuri Enterprises.

Answer

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Tags: Balanced Scorecard, Business Environment, Corporate Strategy, CSR, KPIs, Performance Measurement, Strategic management
Level: Level 3

Topic: stakeholders and mission, Strategy

SCS – L3 – Q26 – Professional practice and codes of ethics

Advise Unity Aid on four fundamental principles for its code of ethics.

Question

Unity Aid (UA) is a non-governmental organisation that provides charitable support to disadvantaged families. It is currently involved in a number of community projects to assist in the provision of clean water supply to families in Sierra Leone, Kenya, and Senegal. In its home country, Uganda, it focuses more on assisting clients in accessing state-granted financial support as well as providing counselling and psychological support to less privileged people.

The NGO has grown very rapidly in recent years as demand for its services has increased. In line with this rising demand, it has begun to slowly evolve from an enterprise primarily run by volunteers to an institution employing professional managers from the private sector. These changes are considered essential in supporting the sustainability of the charity.

The board of trustees at the NGO recognize the need to adopt a relevant code of ethics as part of necessary governance support structures. They are, however, concerned about recent criticism of such codes and wish to ensure that any code developed is effective throughout the organization.

Required:

(a) Advise UA on FOUR fundamental principles to be included in its code of ethics.

(b) Explain FOUR benefits of good corporate governance to UA.

Answer

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Tags: Code of Ethics, Confidentiality, Governance, Integrity, NGO, Objectivity, Professional Competence
Level: Level 3

Topic: Professional practice and codes of ethics

FR – L2 – Q12 – Revenue Recognition

State IFRS 15's core principle for revenue recognition and list the five steps to apply it.

Question

12 SALE OF GOODS AND LEISURE FACILITIES
“Revenue is income arising in the course of an entity’s ordinary activities.”
IFRS 15 sets out principles to be applied in order to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Required
(a) State the core principle described by IFRS 15 in the recognition of revenue and list the five steps to be followed in applying this core principle.

(b) Zest Ltd runs a health club which provides sports and leisure facilities. It charges a fixed annual subscription, payable in advance, which entitles members to use most of the facilities (e.g. gym, swimming pool). Additional fees are payable for specific activities (e.g. sauna, squash courts) as used.
Explain in detail how Zest Ltd should recognise revenue from membership subscriptions and additional activities.

Answer

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Tags: Accounting Standards, Financial Reporting, Health Club, IFRS 15, Performance Obligations, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

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SCS – L3 – Q28 – Environment analysis

Comment on the value and purpose of SWOT analysis in GlobalCom's corporate review process.

FR – L2 – Q18 – Inventories

Calculate the value of raw materials and finished goods inventories for Tamasi Manufacturing at 31 Dec 20X5 per IAS 2 using FIFO.

FR – L2 – Q17 – Inventories

Explain IAS 2 requirements for inventory measurement and state disclosure requirements for Kintampo Limited.

Title: FR – L2 – Q16 – Inventories

Calculate inventory value at 31 Dec using FIFO, NRV, and IAS 2 for Bolga Limited.

FR – L2 – Q15 – Financial Reporting Standards

Calculate revenue, costs, and financial statement balances for four construction contracts using cost proportion method.

FR – L2 – Q14 – Financial Reporting Standards and Their Applications

Discuss accounting for a repurchase agreement and consignment arrangement for Accra Healthcare Manufacturing Limited per IFRS standards.

FR – L2 – Q13 – Revenue Recognition

Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

SCS – L3 – Q27- Strategy, stakeholders and mission

Identify strategic issues for Zuri Enterprises' board and explain how the balanced scorecard measures performance.

SCS – L3 – Q26 – Professional practice and codes of ethics

Advise Unity Aid on four fundamental principles for its code of ethics.

FR – L2 – Q12 – Revenue Recognition

State IFRS 15's core principle for revenue recognition and list the five steps to apply it.

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Comment on the value and purpose of SWOT analysis in GlobalCom's corporate review process.

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Calculate the value of raw materials and finished goods inventories for Tamasi Manufacturing at 31 Dec 20X5 per IAS 2 using FIFO.

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Explain IAS 2 requirements for inventory measurement and state disclosure requirements for Kintampo Limited.

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Calculate inventory value at 31 Dec using FIFO, NRV, and IAS 2 for Bolga Limited.

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Calculate revenue, costs, and financial statement balances for four construction contracts using cost proportion method.

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Discuss accounting for a repurchase agreement and consignment arrangement for Accra Healthcare Manufacturing Limited per IFRS standards.

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Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

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Identify strategic issues for Zuri Enterprises' board and explain how the balanced scorecard measures performance.

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Advise Unity Aid on four fundamental principles for its code of ethics.

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