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  • 8 Marks

MA – L2 – Q58 – Performance analysis

Calculate and define financial ratios for Akwasi and Kofi, two manufacturing companies, using their financial statements.

The statements of profit or loss and statements of financial position of two manufacturing companies in the same sector are set out below.

Statement of profit or loss for Akwasi

ZC¢
Revenue 150,000
Cost of sales (60,000)
Gross profit 90,000
Interest payable (500)
Distribution costs (13,000)
Administrative expenses (15,000)
Profit before tax 61,500
Income tax expense (16,605)
Profit for the period 44,895

Statements of financial position for Akwasi and Kofi

Akwasi Kofi
ZC¢ ZC¢
Assets
Non-current assets
Property 280,000
Plant and equipment 190,000 500,000
190,000 780,000
Current assets
Inventories 12,000 26,250
Trade receivables 37,500 105,000
Cash at bank 22,000
49,500 153,250
Total assets 240,000 933,250
Equity and liabilities
Equity
Share capital 156,000 174,750
Retained earnings 51,395 390,830
207,395 565,580
Non-current liabilities
Long-term debt 10,000 250,000
Current liabilities
Trade payables 22,605 117,670
Total equity and liabilities 240,000 933,250

Required:

Define and calculate the following ratios for each company:

(a) Gross profit percentage (2 marks)

(b) Net profit percentage (2 marks)

(c) Return on capital employed (2 marks)

(d) Asset turnover (2 marks)

The statements of profit or loss and statements of financial position of two manufacturing companies in the same sector are set out below.

Statement of profit or loss for Akwasi

ZC¢
Revenue 150,000
Cost of sales (60,000)
Gross profit 90,000
Interest payable (500)
Distribution costs (13,000)
Administrative expenses (15,000)
Profit before tax 61,500
Income tax expense (16,605)
Profit for the period 44,895

Statements of financial position for Akwasi and Kofi

Akwasi Kofi
ZC¢ ZC¢
Assets
Non-current assets
Property 280,000
Plant and equipment 190,000 500,000
190,000 780,000
Current assets
Inventories 12,000 26,250
Trade receivables 37,500 105,000
Cash at bank 22,000
49,500 153,250
Total assets 240,000 933,250
Equity and liabilities
Equity
Share capital 156,000 174,750
Retained earnings 51,395 390,830
207,395 565,580
Non-current liabilities
Long-term debt 10,000 250,000
Current liabilities
Trade payables 22,605 117,670
Total equity and liabilities 240,000 933,250

Required:

Define and calculate the following ratios for each company:

(a) Gross profit percentage (2 marks)

(b) Net profit percentage (2 marks)

(c) Return on capital employed (2 marks)

(d) Asset turnover (2 marks)

The statements of profit or loss and statements of financial position of two manufacturing companies in the same sector are set out below.

Statement of profit or loss for Akwasi

ZC¢
Revenue 150,000
Cost of sales (60,000)
Gross profit 90,000
Interest payable (500)
Distribution costs (13,000)
Administrative expenses (15,000)
Profit before tax 61,500
Income tax expense (16,605)
Profit for the period 44,895

Statements of financial position for Akwasi and Kofi

Akwasi Kofi
ZC¢ ZC¢
Assets
Non-current assets
Property 280,000
Plant and equipment 190,000 500,000
190,000 780,000
Current assets
Inventories 12,000 26,250
Trade receivables 37,500 105,000
Cash at bank 22,000
49,500 153,250
Total assets 240,000 933,250
Equity and liabilities
Equity
Share capital 156,000 174,750
Retained earnings 51,395 390,830
207,395 565,580
Non-current liabilities
Long-term debt 10,000 250,000
Current liabilities
Trade payables 22,605 117,670
Total equity and liabilities 240,000 933,250

Required:

Define and calculate the following ratios for each company:

(a) Gross profit percentage

(b) Net profit percentage

(c) Return on capital employed

(d) Asset turnover

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  • 21 Marks

FM – L2 – Q2 – Economic and regulatory environment

Explain why managers and owners may have different objectives, with examples of conflicts.

(a) Managers and owners of businesses may not have the same objectives. Explain this statement, illustrating your answer with examples of possible conflicts of interest.

(b) In what respects can it be argued that companies need to exercise corporate social responsibility?

(c) How do the objectives of public sector organisations differ from those of private sector companies?

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  • 8 Marks

FM – L2 – Q1 – Sources of finance: equity

Calculate and comment on ratios relevant to investors for SunnyCorp, including EPS, PE ratio, dividend yield, dividend cover, interest yield, and gearing.

The following figures have been extracted from the annual accounts of SunnyCorp:

Item Amount
Issued share capital 1,000,000 ordinary shares of ZAR 1 each, fully paid
Issued debt capital ZAR 250,000 10% debentures
Reserves
Capital (share premium reserve) ZAR 200,000
Accumulated profits
Profit and distributions
Profit for the year ZAR 600,000 (before interest and tax)
Ordinary dividend payments ZAR 0.20 per share

The current market price of SunnyCorp’s equity shares is ZAR 3.20 each. Its debentures are priced at ZAR 90 per cent. The company’s rate of corporation tax (income tax) is 30%.

Required:
Calculate the ratios that are likely to be of interest to an investor or potential investor in SunnyCorp.
Comment on each:
(8 marks for calculations, 8 marks for comments)

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  • 18 Marks

MA – L2 – Q57 – Performance analysis

Evaluate KINTAMPO LTD's performance using financial ratios for two divisions, Amir and Mo.

Zestco is an importer and retailer of vegetable oils. Extracts from the financial statements for this year and last are set out below.

Statements of profit or loss for the years ended 30 September

Year 7 Year 6
ZC¢’000 ZC¢’000
Revenue 2,160 1,806
Cost of sales (1,755) (1,444)
Gross profit 405 362
Distribution costs (130) (108)
Administrative expenses (260) (198)
Profit before tax 15 56
Income tax expense (6) (3)
Profit for the period 9 53

Statements of financial position as of 30 September

Year 7 Year 6
ZC¢’000 ZC¢’000
Assets
Non-current assets
Property, plant and equipment 78 72
Current assets
Inventories 106 61
Trade receivables 316 198
Cash 6
428 259
Total assets 506 331
Equity and liabilities
Equity
Ordinary shares 110 85
Preference shares 23 11
Share premium 15
Revaluation reserve 20
Retained earnings 78
Current liabilities
Bank overdraft 49
Trade payables 198
Current tax payable 7
Total equity and liabilities

Required:

Define and calculate the following ratios for each year:

(a) Gross profit percentage

(b) Net profit percentage

(c) Return on capital employed

(d) Asset turnover

(e) Current ratio

(f) Quick ratio

(g) Average receivables collection period

(h) Average payables period

(i) Inventory turnover.

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  • 18 Marks

FA – L1 – Q104 – Statement of Cash Flows

Explain terms from IAS 7: statement of cash flows, cash, cash equivalents, operating, investing, and financing activities.

ZOE INFANT CO LTD

(a) Explain what is meant by the following terms from IAS 7:

(i) Statement of cash flows

(ii) Cash

(iii) Cash equivalents

(iv) Operating activities

(v) Investing activities

(vi) Financing activities

(b) Calculate the following ratios:

(i) Current Ratio

(ii) Quick Ratio

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  • 10 Marks

FA – L1 – Q103 – Interpretation of Financial Statements

Calculate five financial ratios for KK Enterprises based on its 20X8 financial statements.

KK is the owner of a business supplying goods to other traders. He has just received the financial accounts for his business for the year ended 31st December 20X8 from his accountant. These are reproduced below.

Statement of profit or loss for the year ended 31st December 20X8

GH¢ GH¢
Sales
Cost of sales
Gross profit
Expenses
Net profit

Statement of financial position as at 31st December 20X8

GH¢ GH¢
Non-current assets (net)
Current assets
Inventory 52,000
Receivables 15,000
Cash 100
Total assets
Current liabilities
Payables 6,000
Bank 2,500
Capital
Balance b/d 200,000
Net profit 30,000
Drawings (21,400)
Total capital and liabilities

Note: Inventory on 1st January 20X8 was valued at GH¢ 48,000.

Required:
Calculate for KK Enterprises each of the following ratios for the year ended 31st December 20X8 (where appropriate, calculations should be approximated to two decimal places):
(i) Net profit margin.
(ii) Return on capital employed (using the closing year-end value for capital employed).
(iii) Current ratio.
(iv) Liquid (acid test) ratio.
(v) Rate of inventory turnover.

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  • 20 Marks

FA – L1 – Q102 – Statement of cash flows

Prepare a statement of cash flows for ZA Ltd for the year ended 31 May 20X9 using the indirect method per IAS 7.

The statements of financial position for the last two years for ZA Ltd are shown below. ZA Ltd implemented an expansion programme during the year ended 31st May 20X9.

20X8 20X9
GH¢ GH¢ GH¢ GH¢
Non-current assets (net) 380,000 530,000
Current assets
Inventory 80,000 108,000
Receivables 32,000 37,000
Bank 13,000 –
Cash 1,000 3,000
Total assets 506,000 678,000
Current liabilities
Payables 26,000 30,000
Corporation Tax 22,000 28,000
Overdraft – 5,000
Dividends – 21,000
Accruals – 4,000
Total liabilities 68,000 88,000
Capital and Reserves
Ordinary shares 350,000 490,000
General reserve 62,000 62,000
Revaluation reserve – 10,000
Retained earnings 26,000 28,000
Total capital and liabilities 506,000 678,000

Additional information:
(i) The total depreciation provision incorporated in the statements of financial position was GH¢48,000 at 31st May 20X8 and GH¢122,000 at 31st May 20X9.
(ii) During the year ended 31st May 20X9 a non-current asset costing GH¢22,000 with a carrying amount of GH¢6,000 was sold for GH¢1,000. No other disposals took place.
(iii) The revaluation surplus represents a revaluation of premises during the year ended 31st May 20X9.

Required:
(a) Prepare a statement of cash flows for ZA Ltd for the year ended 31st May 20X9 in accordance with IAS 7. (Use the indirect method).

(b) State the effects of the expansion policy on ZA Ltd.

Answer:

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  • 15 Marks

MA – L2 – Q56 – Performance analysis

Discuss methods and qualities of good performance measurement in management accounting.

PERFORMANCE MANAGEMENT
Methods used in measuring performance
Financial Performance: analyse profitability, liquidity and risk. Financial Indicators include Profit, Revenue, Costs, Share Price and cash flow.
Non-Financial Performance: This can usefully be applied to employees and product/service quality. Non-Financial Indicators may include Quality of Service, Measures of customer satisfaction, Lateness.
Qualities of Good Performance Measurement

A GOOD MEASURE: DESCRIPTION:
Is quantitative The measure can be expressed as an objective value
Is easy to understand The measure conveys at a glance what it is measuring, and how it is derived
Encourages appropriate behaviour The measure is balanced to reward productive behaviour and discourage “game playing”
Is visible The effects of the measure are readily apparent to all involved in the process being measured
Is defined and mutually understood The measure has been defined by and/or agreed to by all key process participants (internally and externally)
Encompasses both outputs and inputs The measure integrates factors from all aspects of the process measured
Measures only what is important The measure focuses on a key performance indicator that is of real value to managing the process
Is multidimensional The measure is properly balanced between utilisation, productivity, and performance, and shows the trade-offs
Uses economies of effort The benefits of the measure outweigh the costs of collection and analysis
Facilitates trust The measure validates the participation among the various parties

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  • 20 Marks

FA – L1 – Q101 – Statement of cash flows

Prepare a statement of cash flows for StarPharma Ltd for the year ended 30 June 20X9 using the indirect method.

The financial statements of StarPharma Ltd, a limited liability company that operates in the pharmaceuticals sector, at 30 June were as follows.

20X9 20X8
GH¢000 GH¢000 GH¢000 GH¢000
Assets
Non-current assets
Property cost 22,000 12,000
Depreciation (4,000) (1,000)
Plant and equipment 18,000 11,000
Cost 5,000 5,000
Depreciation (2,250) (2,000)
2,750 3,000
20,750 14,000
Current assets
Inventories 16,000 11,000
Trade receivables 9,950 2,700
Cash and cash equivalents – 1,300
25,950 15,000
Total assets 46,700 29,000
Equity and liabilities
Capital and reserves
Equity capital 3,000 3,000
Accumulated profits 16,200 3,800
19,200 6,800
Non-current liabilities
Loan 6,000 10,000
Current liabilities
Operating overdraft 11,000
Trade payables 8,000 11,000
Income tax payable 1,800 1,000
Accrued interest 700 200
21,500 12,200
Total equity and liabilities 46,700 29,000

Statement of profit or loss (extracts)
Operating profit
Financing cost (Interest)
Profit before tax
Income tax expense
Net profit for the year

Equipment of carrying amount GH¢250,000 was sold at the beginning of 20X9 for GH¢350,000. This equipment had originally cost GH¢1,000,000.
In recent years, no dividends have been paid.

Required
Prepare a statement of cash flows, under the indirect method, for the year ended 30 June 20X9.

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  • 20 Marks

FA – L1 – Q100 – Statement of cash flows

Prepare a statement of cash flows for SpicyFlare Limited for the year ended 31 December 20X9 using provided financial data.

SpicyFlare Limited
SpicyFlare Limited summarised final accounts are as follows:

Statements of financial position

31 December 20X8 31 December 20X8
GH¢000 GH¢000 GH¢000
Non-current assets:
Plant and machinery at cost 2,700
Accumulated depreciation (748)
Carrying amount 1,952
Current assets:
Inventory 203
Receivables 147
Bank 51
401
Total assets 2,353
Ordinary share capital (GH¢1 shares) 740
Share premium account
Retained earnings 671
1,411
Non-current liabilities:
Loans
Current liabilities:
Bank overdraft
Trade payables and accruals 152
Current taxation 470
Total equity and liabilities 2,353

Statement of profit or loss for year ended 31 December 20X9
Profit before tax
Taxation
Profit after tax
Dividend payments during the year were GH¢230,000.

The following information is also available:
(1) The only new loan raised during the year was a five-year bank loan amounting to GH¢65,000.
(2) Interest charged during the year was GH¢156,000. Interest accrued was GH¢24,000 last year and GH¢54,000 this year.
(3) Depreciation charged during the year amounted to GH¢401,000. This does not include any profit or loss on disposal of non-current assets.
(4) During the year plant which originally cost GH¢69,000 was disposed of for GH¢41,000.
(5) During the year the company issued 200,000 new shares.

Required
Prepare a statement of cash flows.

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