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PSAF – Nov 2024 – L2 – Q4a – Financial Ratio Analysis

Compute financial ratios for Ghana Wind Farms LTD to analyze performance trends.

Ghana Wind Farms LTD, a State-Owned Enterprise (SOE), has appointed a new Board of Directors in January 2023. The new Board, after settling for a year, is interested in assessing their performance for the year 2023 against the performance of the previous Board in the year 2022 through ratio analysis. Below is the financial statement of Ghana Wind Farms LTD for the two years.


Ghana Wind Farms LTD

Statement of Profit or Loss for the Year Ended 31 December 2023

2023 (GH¢) 2022 (GH¢)
Revenue 9,860,000 6,218,000
Direct Cost (5,905,000) (5,822,000)
Gross Profit 3,955,000 396,000
Distribution Costs (297,000) (264,000)
Administrative Expenses (505,000) (455,000)
Other Income 236,000 13,000
Other Gains 1,482,000
Operating Profit 3,389,000 1,172,000
Finance Cost (1,000,000) (334,000)
Profit Before Tax Expense 2,389,000 838,000
Tax Expense (500,000) (144,000)
Profit After Tax 1,889,000 694,000

Ghana Wind Farms LTD

Statement of Financial Position as at 31 December 2023

2023 (GH¢) 2022 (GH¢)
ASSETS
Non-Current Assets
Property, Plant & Equipment 17,000,000 15,000,000
Investment 5,000 2,000
Advances & Loans 30,000
Total Non-Current Assets 17,005,000 15,032,000
Current Assets
Inventories 687,000 546,000
Trade and Other Receivables 2,829,000 1,978,000
Prepayments 87,000 42,000
Cash and Cash Equivalents 383,000 434,000
Total Current Assets 3,986,000 3,000,000
TOTAL ASSETS 20,991,000 18,032,000
EQUITY & LIABILITIES
Equity
Government Equity 8,000 8,000
Other Government Equity 613,000 306,000
Capital Surplus 8,471,000 7,599,000
Income Surplus (1,434,000) 478,000
Total Equity 7,970,000 8,697,000
Non-Current Liabilities
Deferred Credit 6,692,000 670,000
Deferred Tax Liabilities 2,498,000 2,572,000
Borrowings (Due After One Year) 1,297,000 950,000
Total Non-Current Liabilities 10,487,000 4,192,000
Current Liabilities
Bank Overdraft 166,000 180,000
Provision for Company Tax 109,000 109,000
Trade and Other Payables 1,820,000 4,516,000
Borrowings (Due Within One Year) 439,000 338,000
Total Current Liabilities 2,534,000 5,143,000
Total Liabilities 13,021,000 9,335,000
TOTAL EQUITY AND LIABILITIES 20,991,000 18,032,000

Required:

a) Compute the following ratios:

i) Current Ratio
ii) Quick Ratio
iii) Inventory Turnover (Days)
iv) Trade Receivable Collection Period (Days)
v) Trade Payables Period (Days)
vi) Working Capital Cycle
vii) Interest Cover Ratio
viii) Total Debt – Total Asset Ratio

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FR – Nov 2024 – L2 – Q4a – Financial Ratios and Performance Evaluation

Calculation of key financial ratios for Nagbe LTD to compare with Suah LTD and evaluate financial performance.

Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, which operate in the same industry. The indicative price for acquiring either entity is GH¢12 million.

The financial statements for Suah LTD and Nagbe LTD are provided as follows:

Statement of Profit or Loss for the year ended 30 September 2024

Item Suah LTD (GH¢’000) Nagbe LTD (GH¢’000)
Revenue 25,000 40,000
Cost of Sales (19,000) (32,800)
Gross Profit 6,000 7,200
Distribution & Admin Expenses (1,250) (2,300)
Finance Costs (250) (900)
Profit Before Tax 4,500 4,000
Income Tax Expense (900) (1,000)
Profit for the Year 3,600 3,000

Statement of Financial Position as at 30 September 2024

Item Suah LTD (GH¢’000) Nagbe LTD (GH¢’000)
Non-Current Assets 4,800 10,300
Current Assets 4,800 8,700
Total Assets 9,600 19,000
Equity 2,600 5,600
Non-Current Liabilities 5,000 9,200
Current Liabilities 2,000 4,200
Total Equity & Liabilities 9,600 19,000

Additional Information:

  1. Carrying Amount of Plant Assets:

    • Suah LTD: GH¢4,800,000
    • Nagbe LTD: GH¢2,000,000
  2. The following ratios for Suah LTD are provided:

    Ratio Suah LTD
    Return on Capital Employed (ROCE) 62.5%
    Net Asset Turnover 3.3 times
    Gross Profit Margin 24.0%
    Profit Margin (Before Interest & Tax) 19.0%
    Current Ratio 2.4:1
    Inventory Holding Period 31 days
    Trade Receivables Collection Period 31 days
    Trade Payables Payment Period 24 days
    Gearing Ratio 65.80%
    Acid Test Ratio 1.6:1

Required:
Using the financial statements provided, calculate the corresponding ratios for Nagbe LTD to compare with Suah LTD.

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ICMA – Nov 2024 – L1 – Q3a – Value for Money (VFM)

Explains the components of Value for Money (VFM) in the public sector.

Value for Money (VFM)
Value for Money (VFM) is an objective that can be applied to any organization whose main objective is non-financial but has restrictions on the amount of finance available for spending, which the public sector is no exception.

Required:
Explain the components of VFM.

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CR – May 2015 – L3 – Q3 – Emerging Trends in Corporate Reporting

Analyze financial statements of two companies and discuss limitations of ratio analysis.

Real Expansion Plc is a large group that seeks to grow by acquisition. The directors have identified two potential entities and obtained copies of their financial statements. The accountant of the company computed key ratios to evaluate the performance of these companies relating to:

  • Profitability and returns;
  • Efficiency in the use of assets;
  • Corporate leverage; and
  • Investor-based decisions.

The computation generated hot arguments among the directors, and they decided to engage a Consultant to provide expert advice on which company to acquire.

Extracts from these financial statements are given below:

Required:

(a) As the Consultant to the company, carry out a financial analysis on the financial statements and advise the company appropriately. (15 Marks)

(b) State the major limitations of ratio analysis for performance evaluation. (5 Marks)

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CR – May 2019 – L3 – Q2 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Assess the accounting treatment of a policy change and analyze the profitability, liquidity, and efficiency ratios of the company based on the financial statements.

Below is the draft financial statement of Lanwani Plc., a manufacturer of fast-moving consumer goods.

Statement of financial position as at

Statement of profit or loss

Additional Information:

  1. The company changed its accounting policy from the cost model to the revaluation model for its property. The revaluation reserve represents the revaluation surplus recognized in 2017. No adjustment was made for 2016.
  2. Development costs of ₦45 billion were capitalized during 2017. The related asset is not expected to generate economic benefits until 2020.

Required:
a. Assess the accounting treatment of the change in accounting policy and state the impact on the return on capital employed (ROCE). (3 Marks)
b. Analyze the profitability, liquidity, and efficiency of Lanwani Plc. (15 Marks)
c. Briefly discuss TWO limitations of the analysis done in (b) above. (2 Marks)

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AAA – Nov 2012 – L3 – AII – Q3 – Public Sector Audits

Defines an audit focused on assessing the relationship between service value and resources used.

Defines an audit focused on assessing the relationship between service value and resources used.

 

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PSAF – May 2018 – L2 – Q4 – Public Sector Audit

Explain the concept of Value-for-Money audit, its components, steps, and factors contributing to an effective VFM audit.

In relation to public sector audit:

a. Define ‘Value-for-Money’ (VFM) audit. (2½ Marks)

b. Identify and explain THREE major components of ‘Value-for-Money’ audit. (6 Marks)

c. Explain FIVE steps towards a successful ‘Value-for-Money’ audit. (2½ Marks)

d. Identify FIVE factors which contribute to an effective ‘Value-for-Money’ audit. (5 Marks)

e. Explain the precise roles of the internal audit unit in relation to ‘Value-for-Money’ audit of a Government Business Entity (GBE). (4 Marks)

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MI – May 2022 – L1 – SB – Q6d – Business Process Technologies

State and explain four benefits of office automation.

State and explain FOUR benefits of office automation.

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BMF – Nov 2022 – L1 – SA – Q5 – The Business Environment

This question examines understanding of economies of scale.

Which of the following is NOT an example of economies of scale?
A. Generate better efficiency through larger quantities of output
B. Able to employ specialist managers to increase efficiencies
C. Able to buy and sell in retail at more optimal prices
D. Able to demand better interest rates with more assets as collateral
E. Firms clustering together to develop specialized labor force

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MI – Nov 2014 – L1 – SA – Q4 – Forecasting Techniques

Calculate the capacity ratio based on the labour hours and standard hours data.

The following data were extracted from the records of ABZ Limited for the month of July:

  • Budgeted Labour hours: 6,400
  • Actual Labour hours: 6,240
  • Standard hours produced: 6,480

Calculate the capacity ratio:

A. 103%
B. 102.56%
C. 98%
D. 97.5%
E. 97%

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MA – Aug 2022 – L2 – Q3a – Standard costing and variance analysis

This question asks for the calculation of five types of fixed overhead variances based on given production data.

The data below relates to Odeneho Plc and they are in respect of the production of its product, Milcho, for the first quarter ended 31 March 2022.

  • Budgeted output: 5,000 units
  • Standard hours to produce one unit: 2 hours
  • Budgeted fixed production overhead: GH¢25,000
  • Actual fixed production overhead incurred: GH¢25,840
  • Actual hours worked: 10,500
  • Actual units produced: 4,980

Required:
Determine the following:
i) Fixed overhead expenditure variance.
(2 marks)

ii) Fixed overhead capacity variance.
(2 marks)

iii) Fixed overhead efficiency variance.
(2 marks)

iv) Fixed overhead volume variance.
(2 marks)

v) Fixed production overhead variance.
(2 marks)

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MA – Nov 2017 – L2 – Q2a – Introduction to management accounting

Identify and explain five features of a good coding system for efficient and effective information management, whether manual or computerized.

a) An efficient and effective coding system, whether manual or computerized should incorporate certain features.

Required: Identify and explain FIVE features of a good coding system.

(5 marks)

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BMIS – July 2023 – Q4b – Operations strategy

List and explain five advantages of a product layout in manufacturing.

Product layout is a production layout used for manufacturers who produce large volumes of goods to ensure smooth rapid flow of production. Required: Highlight FIVE (5) advantages of a product layout.

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AAA – May 2021 – L3 – Q4b – Public sector audit | Assurance services

Discuss the principles of performance audit and describe the documentary evidence useful during the planning stage of a performance audit.

Performance audit is an independent assessment of an entity’s operations, typically associated with government agencies. The goal is to evaluate the performance of a stated program to determine its effectiveness and to make changes if needed. Performance audits often include an analysis of the conditions necessary to ensure that the principles of economy, efficiency, and effectiveness are upheld. It is necessary in a performance audit to document the audit plan in an audit engagement.

Required:

i) Discuss the principles of performance audit. (6 marks)

ii) Describe FOUR (4) documentary evidence useful at the planning stage during an audit exercise. (4 marks)

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BMIS – May 2016 – L1 – Q1a – The Business Organisation and its Stakeholders

Identify five benefits that may accrue to an organization from outsourcing.

Your organization has outsourced most of its functions to adjust to modern trends in organizational management. Identify FIVE benefits that may accrue to your organization from this arrangement. (10 marks)

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AAA – May 2020 – L3 – Q4b -Government external audit and public accountability, Public sector audit

Discuss the role of performance audit and the Auditor-General’s concerns in auditing the construction of the Greater Accra Regional Hospital.

The Auditor-General has a responsibility to ensure that government business is being performed in a manner which will bring development and benefits to the citizens. Various aspects of the conduct of government business will engage the attention of the Auditor-General, for example execution of contracts for the construction of a regional hospital.

Required: i) Briefly discuss what performance audit entails? (2 marks)

ii) In carrying out the performance audit, evaluate the THREE (3) main factors that the Auditor-General will be concerned with in relation to the construction of the Greater Accra Regional Hospital. (8 marks)

(Total: 10 marks)

 

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PSAF – Nov 2017 – L2 – Q5c -Public sector fiscal planning and budgeting

Identifying mechanisms for achieving value for money in public sector management.

Value for money (VFM) is derived from the optimal balance of benefits and costs on the basis of total cost of ownership. The nature of public financial management is such that it involves discretionary decision-taking on behalf of government at all levels. Value for money is therefore not a choice of goods or services which is based on the lowest bid price but a choice based on the whole life costs of the project or service.

Required: Identify FIVE mechanisms that can be used to achieve “value for money” in public sector management. (5 marks)

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PSAF – May 2018 – L2 – Q5d – Financial Statements Discussion and Analysis

Discuss the basis for measuring public sector performance and justify why governments can be assessed at the end of their tenure.

One of the key performance indicators (KPI) in the private sector is to determine the profitability of a business. This is because businesses exist to make a profit. However, in the Public Sector, the objective of governments is to provide public goods and as such, satisfy the needs of the citizens. Citizens are invariably dissatisfied with government performance at the end of its term of office. This is because most of the objectives of government are social in nature and as such, it becomes very difficult to match government revenues and expenditure to determine profit or loss as a basis of measuring its performance.

Required:
Discuss the basis for measuring Public Sector performance and justify why governments can be assessed at the end of their tenure of office.

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FA – Dec 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculates and interprets financial ratios to assess the performance of a company over two years.

Below is the formatting of Question 5 from the uploaded document as per your request:

==========
Level:
Level 1

Professional Bodies:
ICAG

Programs:
Professional Program

Subjects:
Financial Accounting (Paper 1.1)

Topics:

  • Interpretation of financial statements (Financial Ratios)

Series:
Dec 2023

Total Marks:
20

Question Tags:
Financial Ratios, Performance Analysis, Profitability, Liquidity, Efficiency

Question Short Summary:
Calculates and interprets financial ratios to assess the performance of a company over two years.


Question:

a) The following summarised information has been extracted from the accounts of Kotoku Ltd for the years ended 31 December 2021 and 31 December 2020:

Statements of Profit and Loss 2021 (GHȼ’000) 2020 (GHȼ’000)
Revenue 1,150 1,766
Cost of sales (684) (1,141)
Gross profit 466 625
Expenses (338) (472)
Interest on loans (26) (33)
Profit before tax 102 120
Tax 30 36
Profit after tax 72 84

Calculate the following ratios for Kotoku Ltd for both years (2020 and 2021):

i) Return On Capital Employed (ROCE) (2 marks)
ii) Asset turnover (2 marks)
iii) Gross profit margin (2 marks)
iv) Acid test ratio (2 marks)
v) Receivables collection period (2 marks)

b) Using the additional information given and the ratios you calculated in part (a), comment on the financial performance of Kotoku Ltd. (10 marks)

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FA – Nov 2017 – L1 – Q4 – Interpretation of financial statements (Financial Ratios)

Calculate and interpret financial ratios for Kantamanto Ltd and explain why the cash flow of the company deteriorated during the financial year.

You are the Financial Accountant for Kantamanto Ltd, a company that manufactures household furniture. Kantamanto Ltd has experienced both a reduction in sales revenue and cash flow during the last financial period. You are provided with the following information regarding Kantamanto Ltd for the years ended 31 October 2016 and 2017:
Statement of Profit or Loss for years ended

Required:

a) Calculate the following ratios for the year ended 31 October 2017:

i) Gross Profit Margin
ii) Operating Profit Margin
iii) Return on Capital Employed
iv) Current Ratio
v) Quick Ratio
vi) Inventory Turnover Ratio
vii) Trade Receivables Collection Period
viii) Trade Payables Payment Period
ix) Interest Coverage Ratio
x) Debt to Equity Ratio

(10 marks)

b) Comment on the performance, liquidity, and efficiency of Kantamanto Ltd using the ratios calculated in (a). (6 marks)

c) Explain TWO reasons why Kantamanto Ltd’s cash flow may have deteriorated during the financial year ended 31 October 2017. (4 marks)

 

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