Program (SQ): PROFESSIONAL PROGRAM
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- 14 Marks
Explain four differences between forward and futures contracts for AB Enterprises.
Question
AB Enterprises, a company whose domestic currency is the cedi, has imported a consignment of tomato paste from Spain at a cost of EUR540,000, which is payable in three months’ time. Ama Kofi, the company’s finance director, is concerned about the company’s exposure to currency risk, and she is considering the use of forward contracts or currency futures to hedge the risk.
Required:
(i) Explain to Ama Kofi FOUR differences between a forward contract and a futures contract.
(ii) Currency risk exposure may be transaction risk, economic risk, or translation risk. Which of the three kinds of currency risk exposure is AB Enterprises facing in relation to the EUR540,000 tomato paste consignment?
(iii) Explain to Ama Kofi, THREE disadvantages of hedging the euro exposure with futures hedge.
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- 20 Marks
Prepare 2023 financial performance statement for Republic of Zamara Consolidated Fund.
Question
(a) Prepare the Republic of Zamara Consolidated Fund Account: Statement of financial performance for the year ended 31st December 2023.
(b) Prepare the Republic of Zamara Consolidated Fund Account: Statement of financial position as at 31st December 2023.
(c) Prepare the Kwevadum District Assembly: Statement of financial performance for the year ended 31st December 2024.
(d) Prepare the Kwevadum District Assembly: Statement of financial position as at 31st December 2024.
(e)Prepare the Kwevadum District Assembly: Statement of changes in net assets for the year ended 31st December 2024.
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- 6 Marks
Briefly describe a forward contract as a financial instrument.
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- Tags: Currency Risk, Financial instruments, Hedging, Options
- Level: Level 2
- Topic: Hedging with options
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- 7 Marks
Calculate NPV and estimate IRR for a project with given cash flows and discount rates.
Question
A company is considering whether to invest in a new item of equipment costing GH₵45,000 to make a new product. The product would have a four-year life, and the estimated cash profits over the four-year period are as follows.
| Year | GH₵ |
|---|---|
| 1 | 17,000 |
| 2 | 25,000 |
| 3 | 16,000 |
| 4 | 4,000 |
The project would also need an investment in working capital of GH₵8,000, from the beginning of Year 1.
The company uses a discount rate of 11% to evaluate its investments.
Required
Calculate the NPV of the project at the discount rate of 11%.
Using the NPV you have calculated at 11%, and the NPV at a discount rate of 15%, estimate the internal rate of return (IRR) of the project.
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- Tags: Capital Budgeting, Discounted cash flow, investment appraisal, IRR, NPV
- Level: Level 2
- Topic: Discounted cash flow
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- 16 Marks
Determine recoverable amount of three intangible assets for Nandom Technical University.
Question
The following information relates to three intangible assets in respect of Nandom Technical University.
| Brands (GHC) | Software (GHC) | Trade Marks (GHC) | |
|---|---|---|---|
| Carrying amount | 200,000 | 300,000 | 240,000 |
| Net realisable value | 220,000 | 250,000 | 200,000 |
| Value in use | 240,000 | 260,000 | 180,000 |
Required:
(a) What is the recoverable amount of each asset?
(b) Calculate the impairment provision for each of the assets.
(c) Explain the treatment of impairment losses.
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- 4 Marks
Calculate NPV of a project with given cash flows and 10% cost of capital, and state if it should be undertaken.
Question
A company has a cost of capital of 10%. Calculate the NPV of an investment project with the following estimated cash flows:
| Years | Cash flow each year |
|---|---|
| GH₵ | |
| 0 | (70,000) |
| 1 | 15,000 |
| 2–4 | 12,000 |
| 5–10 | 8,000 |
State whether the project should be undertaken.
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- Tags: Cash Flows, Cost of Capital, Discounted cash flow, investment appraisal, NPV
- Level: Level 2
- Topic: Discounted cash flow
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- 10 Marks
Account for the treatment of a property reclassified as investment property in 2024 financial statements of the National Retirement Oversight Agency.
Question
The National Retirement Oversight Agency acquired a property on 1 January 2021 at a cost of GHc40,000,000 and immediately occupied it as office premise. On acquisition, it was estimated to have a useful life of 50 years. Subsequent to its acquisition, the asset was measured at depreciated cost until 1 October 2024 when management decided to use the building mainly for rentals. Following this decision, the property was fair valued at GHc38,000,000. The National Retirement Oversight Agency adopted the fair value model for subsequent measurement. At 31 December 2024, it was fair valued at GHc39,000,000.
Required:
Account for the treatment of this property in the 2024 financial statements of The National Retirement Oversight Agency.
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- 17 Marks
Calculate loan repayment schedule for a GH₵300,000 loan and list advantages of term loan over overdraft.
Question
(a) Dinco Supermarket is considering acquiring a loan of GH₵300,000 from Abrempong Bank Ltd. The loan is payable in five equal annual instalments at an interest rate of 25%. Dinco Ltd has consulted you to determine their annual repayment amount and the interest thereon.
Required:
(i) Prepare a repayment schedule for Dinco indicating clearly the interest payment and the principal repayment
(ii) State THREE (3) advantages of a term loan over an overdraft facility
(b) On 1st January 20X4, Exchequers Insurance issued a 15% convertible bond quoted at GH₵123. The nominal value for each bond is GH₵100 and the conversion date for the bond is 31st December 20X9 after interest has been paid. The bond is convertible at 20 ordinary shares per GH₵100 bond. The current price per share is GH₵6.
Required:
(i) Determine the conversion rate.
(ii) Determine the conversion premium.
(iii) Comment on the possibility of bond holders converting for shares.
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- Tags: Conversion Premium, Conversion Rate, Convertible bonds, Debt financing, Equity Conversion
- Level: Level 2
- Topic: Sources of finance: debt
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- 10 Marks
Prepare financial statement extracts for a new technology acquisition by the Office of Business Registry for 2023 and 2024, considering delayed deployment.
Question
The Office of Business Registry has successfully acquired a new technology that will transform the landscape of business registration in the Republic of Zamara and make the Republic of Zamara a preferred destination for business.
The cost of the technology is GHc375 million. Professional advisers charged GHc5 million for providing advice in the acquisition of the technology which was estimated to have a useful life of 20 years effective from 1 January 2023.
Delay for the construction of the supporting infrastructure meant that the new technology could not be deployed until 1 January 2024.
Required:
Show extracts of the financial statements of the Office of Business Registry for the years ending 31st December 2023 and 2024.
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