Program (SQ): PROFESSIONAL PROGRAM
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- 10 Marks
Calculate the NPV of a project for CVB Ltd, considering tax, capital allowances, and cash flows over five years with a 15% cost of capital.
Question
CVB Ltd is considering whether to invest in new equipment costing GH¢600,000. The equipment is expected to have an economic life of five years and will have no disposal value at the end of Year 5 (and no disposal costs).
CVB’s after-tax cost of capital is 15%. Tax is charged at an annual rate of 35% and is payable in the year following the year in which the taxable profits arise.
The following forecasts relate to the project under consideration:
| Year | GH¢000 | ||||
|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | 5 | |
| Sales income | 250 | 250 | 300 | 350 | 400 |
| Direct materials | 50 | 55 | 58 | 64 | 70 |
| Direct labour | 25 | 25 | 30 | 30 | 35 |
| Total direct costs | 75 | 75 | 88 | 94 | 105 |
| Depreciation | 120 | 120 | 120 | 120 | 120 |
There will be tax allowances on the cost of the equipment, calculated at 25% each year on the reducing balance basis. The first depreciation tax allowance (capital allowance) would be claimed in year 0 (or very early in year 1).
Assume that:
(1) taxable profits are defined as income minus direct costs and capital allowances
(2) cash profits in each year = sales minus direct costs
Required
Calculate the net present value of the project and recommend whether or not the project should be undertaken.
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- 20 Marks
Discuss financial reporting as a means to an end in the context of public sector objectives.
Question
(a) Financial reporting is an obligation of every entity; however, “it is not an end in itself but a means to an end.”
Required:
Discuss the statement “it is not an end in itself but a means to an end,” relating it to the objectives of financial reporting in the public sector.
(b) Unity Hospital is a regional public hospital established by an Act of Parliament and operated under the National Health Services. It serves the health needs of the region as a referral hospital. The hospital raises money for its operations from the Government of Unity subvention, user charges, bank facilities, and foreign donors, including the Universal Fund, which always requires customised financial reports on a quarterly basis. Its accounts are audited annually by the Auditor General, who reports findings to Parliament. Due to the critical role of the hospital, the media and civil society organisations pay serious attention to its activities and frequently report on their performance. The hospital also has a very proactive labour union.
Required:
(i) Identify and explain the information needs of four primary users of the financial reports of Unity Hospital.
(ii) Discuss the application of general purpose financial reporting and special purpose financial reporting in Unity Hospital.
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- 15 Marks
Discuss five roles of IPSASB in global financial reporting.
Question
The International Public Sector Accounting Standards Board (IPSASB) plays a critical role in regulating public sector accounting and reporting practices worldwide.
Required:
(a) Discuss five roles played by the IPSASB in the financial reporting space globally.
(b) Discuss the position of the Government of Kapania on the IPSAS.
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- 20 Marks
Discuss the object of the Public Procurement Act 2003, Act 663, as amended by Act 914 in 2016.
Question
The Public Procurement Act 2003, Act 663 (amended by the Public Procurement Amendment Act, 2016, Act 914) was enacted to establish an oversight authority and regulate public procurement activities within the public sector.
Required:
(a) Discuss the object of the Public Procurement Act 2003 Act 663 (Public Procurement Amendment Act, 2016, Act 914).
(b) Explain the functions of the Public Procurement Authority in terms of
(i) procurement policy making;
(ii) capacity building of procurement practitioners;
(iii) procurement information system;
(iv) anti-corruption in public procurement; and
(v) monitoring and evaluation of public procurement.
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- 20 Marks
Name and explain objects of enactments for external and internal audit in public sector.
Question
Audit is a very important vehicle for accountability in the public sector. Therefore, appropriate enactment is made to govern and regulate external audit and internal audit in the public sector of the Republic of Takoradi.
Required:
(a) Name and explain the objects of the two enactments that govern and regulate external audit and internal audit in the public sector respectively.
(b) Discuss four responsibilities each of the following institutions under the respective enactments:
(I) Audit Service.
(ii) Internal Audit Agency.
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- 5 Marks
Calculate NPV for a four-year project with equipment purchase, tax, and capital allowances.
Question
Zest Ltd is considering whether or not to invest in a four-year investment project. The project will require the purchase of equipment costing GH¢800,000. This will have an estimated residual value of GH¢200,000 at the end of Year 4. The equipment will be depreciated by the straight-line method.
The profits before interest and tax from the project are expected to be GH¢400,000 each year. Tax is payable at 30% one year in arrears.
The equipment will qualify for capital allowances (tax depreciation allowances) of 25% each year, using the reducing balance method. The first claim for an allowance would be made against Year 0 profits.
The after-tax cost of capital is 15%.
Required:
Calculate the NPV of the project.
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- Tags: capital allowances, Discounted cash flow, investment appraisal, NPV, Taxation
- Level: Level 2
- Topic: Discounted cash flow
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- 15 Marks
Calculate NPV for Unified Energy Ltd's project with given cash flows and 10% discount rate.
Question
Unified Energy Ltd is evaluating a project with the following cash flows:
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|---|
| GH₵000 | GH₵000 | GH₵000 | GH₵000 | GH₵000 | GH₵000 | |
| Sales | 7,400 | 8,300 | 9,800 | 5,800 | ||
| Wages | (550) | (580) | (620) | (520) | ||
| Materials | (340) | (360) | (410) | (370) | ||
| Licence fee | (300) | (300) | (300) | (300) | (300) | |
| Overheads | (100) | (100) | (100) | (100) | ||
| Equipment | (5,200) | (5,200) | 2,000 | |||
| Specialised equipment | (150) | |||||
| Working capital | (650) | 650 | ||||
| (5,200) | (6,150) | 5,960 | 6,960 | 8,370 | 7,160 | |
| Discount factor at 10% | 1.000 | 0.909 | 0.826 | 0.751 | 0.683 | 0.621 |
The company’s cost of capital is 10%.
Required:
Calculate the net present value (NPV) of the project and recommend whether it 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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- 20 Marks
Explain the objective of the Public Financial Management Act 2016, Act 921.
Question
The 1992 Constitution of the Republic of Takoradi provides a broader framework for public financial management in the country. These provisions are crucial and cannot be undone by any enactments.
Required:
Discuss its provisions on the following:
(i) taxation;
(ii) budgeting;
(iii) public funds; and
(iv) audit of public funds.                                                                                                                                                                                                                       (b)
The Public Financial Management Act 2016, Act 921, was promulgated to serve as the primary enactment of public financial management in the entire public sector of the Republic of Takoradi.
Required:
(I) Explain the objective of the Public Financial Management Act 2016, Act 921.
(ii) Discuss how the objective in (I) is met.
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- 20 Marks
Discuss views on ineffective PFM laws in Ghana and justify need for reforms.
Question
A leader of a prominent Accountability Civil Society Organisation remarked, “Laws don’t work in Ghana. We have all the laws in public financial management but they do not have any effect, so I don’t see the need to waste more resources on reforming our public financial management enactments.”
Required:
(a) Discuss the views expressed in the quote above and explain why reforms of public financial management laws are necessary.
(b) Explain the limitations of public financial management laws in Ghana.
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