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  • 20 Marks

CML – OCT 2022 – L3 – Q1 – Lending to Iron Rod Manufacturing Company

Evaluate a request for GHC 3.0 million working capital finance from a long-term customer manufacturing iron rods, aiming to supply government projects, considering eroded profits and provided financials.

Joojo Metals Ltd… has been your customer for the past twenty years. The company manufactures iron rods used in the construction of roads and houses and supplies wholesalers in Accera, Akim Oda, Nkawkaw, Nsawam and its environs.

The company sources its raw materials of iron scraps and ingons both locally and abroad, withThe company hasThe company has has been its profits eroded in 20221 due to the rapidly depreciating exchange rate of the cedi against foreigni currencies. The company has also faced increasing competition from other producers in Accera and Takorardi as well as cheaper imports from China China.

Joojo Banful owns $60%$ of the shares of the the company, whilst the remaining $ 40%$ is held by his childhood friend Fifii Awotwe who takes no active part in the management of the company.

Joojo serves as the CEO and General Manager of the company, whilst his wife, Mama Nelson, a chartered accountant serves as the Finance Director of the company. His factory Manager is Jonas Dadzzie, aged 62, a vastly experienced factory manager he recruited only a year ago. In addition, he has a pool of twenty skilled workers many of whom were poached from other companies.

The principal shareholder of the company, Joojo Banful is a noted supporter of the ruling government though he persistently denies that he has provided funding for the government.

The company’s factory is located at Tema in the Greater Accera Region of the country on a wide expanse of land. It is fitted with three huge warehouses, which are well stocked at all times. The company also has three articulator trucks which it uses for its supplies.

Jonas comes to you with a business proposition involving the provision of working capital finance for the supply of of iron rods to major government building construction projects running across the country. He tells you that this could give the business a major breakthrough and bring gains also to your bank. He is asking for working capital finance of GHC 3.0 million for this major expansion in scope of operations.

How would you respond to this proposition with respect to the provided financial statements and ratios on pages 3.4 & 5?

Profit and Loss Extracts for the year ending 30 Dec

Ratios

2019

2020

2021

[30 Marks]

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  • 20 Marks

FRPA – APRIL 2023 – L3 – Q4 – Ratio Analysis and Performance Report for Loan Assessment

Compute five specified ratios for 2021 and 2020 using provided financial statements and write a report analyzing the company's performance comparing the two years.

As the Credit Officer for TCB Bank, Alpha Technology Solutions Limited has submitted its financial statements as part of the process to secure a loan of GHS 5million. You are required to:
i. Compute the following ratios for 2021 and 2020.
• Gross Profit Margin
• Return on Capital Employed
• Acid Test Ratio
• Payable period
• Debt to equity

ii. Write a report to the Head of Credit analyzing the performance of the company for the 2020 and 2021. Your report should explain the ratios and analyze them in relation to the previous year.

ALPHA TECHNOLOGY SOLUTIONS LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31ST DECEMBER 2021

2021 (GHS) 2020 (GHS)
NON-CURRENT ASSETS
Property, Plant and Equipment 438,631 428,210
Fixed Deposit – 400,000
Total Non-Current Assets 438,631 828,210
CURRENT ASSETS
Inventories 2,284,401 2,409,650
Accounts Receivable 2,712,529 1,368,010
Cash on Hand and Bank 642,951 2,177,519
Total Current Assets 5,639,881 5,955,179
TOTAL ASSETS 6,078,512 6,783,389
2021 (GHS) 2020 (GHS)
LIABILITIES AND SHAREHOLDERS’ EQUITY
NON-CURRENT LIABILITIES
Loans 115,484 115,484
Deferred Tax 18,127 22,110
Total Non-Current Liabilities 133,611 137,594
CURRENT LIABILITIES
Accounts Payable 1,843,574 2,869,489
Current Tax 30,512 129,464
Total Current Liabilities 1,874,086 2,998,953
Total Liabilities 2,007,697 3,136,547
SHAREHOLDERS’ EQUITY
Stated Capital 1,240,000 1,240,000
Retained Earnings 2,830,815 2,406,842
Total Shareholders’ Equity 4,070,815 3,646,842
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 6,078,512 6,783,389

ALPHA TECHNOLOGY SOLUTIONS LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST DECEMBER 2021

2021 (GHS) 2020 (GHS)
Revenue 11,180,208 12,957,649
Direct Cost (7,446,676) (9,703,650)
Gross Profit 3,733,532 3,253,999
Other Income – 23,436
Administrative Expenses (3,168,234) (2,483,480)
Operating Profit 565,298 793,955
Income Tax Expense (141,325) (198,489)
Profit/(Loss) After Taxation 423,973 595,466

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  • 20 Marks

CML – APRIL 2023 – L3 – Q3 – Critical Examination of Agro-Processing Equipment Finance

Critically examine a USD 540,000 equipment purchase request from Pistashio Cashew Nuts Ltd, using background and financials (exchange rate GHC13/USD).

Pistashio Cashew Nuts Ltd. is a producer of roasted cashew nuts for sale in the local and international markets. The company was established fifteen years ago by Professor Joel Amo, a professor in Agriculture at the University of Ghana with some support from his expatriate friend Mr. Peter Deitrich, a German national. Mr. Deitrich aged 75 is an experienced industrialist with vast experience in many agro-based outfits. He serves as the Board Director of the Company. Mr. Joel aged 70 also serves as the CEO and COO for the business.

Mrs. Amo aged 65 a seasoned chartered accountant serves as the CFO and Head of HR for the company. She joined the company five years ago when she retired as Head of Internal Audit for Bank of Ghana.

Mr. Kweku Dadzie aged 68 has served as the factory manager for the company since his retirement from Gold Coast Aluminum Works as factory supervisor eight years ago.

The company is embarking on an expansion project in order to meet the burgeoning demand for its product which is selling very fast on the international market as well as the local market. The company supplies roasted cashew to a number of hotels and supermarkets in the country (about 40% of its output and exports the rest to UK, France, Greenland USA and South America.

The company has a state of the art factory located at Ada a few miles drive from Tema. Your visit to the premises show that the machinery in use are rather aged which Joel explains as the reason for the fast deterioration in account performance over the past year.

The customer tells you he has received an increase in orders from overseas which makes it imperative to procure a larger set of cashew roasting and packaging equipment. He shows you an invoice for a set costing in total USD 540,000 including equipment cost, transportation costs and installation costs. (USD exchange rate is GHC13.00/USD)

Critically examine this proposition using the information above and the related financial statements provided below.

Pisticashio Cashew Nuts Ltd Profit and Loss Extracts for the year ending 31 Dec

2020 GHC 2021 GHC 2022 GHC
Sales 1,850,000 2,571,500 3,985,825
Opening Inventory 245,000 289,000 442,800
Purchases & Production 1,239,500 1,748,620 2,790,078
1,484,500 2,037,620 3,232,878
Closing Inventory 289,000 442,800 770,500
Cost of Sales 1,195,500 1,594,820 2,462,378
Gross Profit 654,500 976,680 1,523,447
Overheads 175,000 298,000 476,800
Depreciation 259,000 312,400 372,400
Operating Profit 220,500 366,280 674,247
Interest Paid 125,000 145,000 158,000
Profit Before Tax 95,500 221,280 516,247
Tax 23,875 55,320 129,062
Profit After Tax 71,625 165,960 387,185
Noncurrent Assets 2020 2021 2022
Building 684,000 831,600 929,200
Plant & Machinery 360,000 240,000 390,000
Motor Vehicles 270,000 380,000 360,000
Furniture and Fixtures 110,000 160,000 110,000
Total 1,424,000 1,611,600 1,789,200
Current Assets
Inventory 289,000 442,800 770,500
Receivables 258,000 254,700 574,000
Prepayments 25,600 36,800 47,800
Bank 125,000 85,400 75,800
697,600 819,700 1,468,100
Current Liabilities
Trade Creditors 148,000 184,700 435,200
Overdraft 854,900 1,544,920 1,426,827
Total Current Liabilities 1,002,900 1,729,620 1,862,027
Net Current Assets -305,300 -909,920 -393,927
Net Assets 1,118,700 701,680 1,395,273
Capital
Share Capital 1,000,000 500,000 1,000,000
Income Surplus 118,700 201,680 395,273
1,118,700 701,680 1,395,273

Ratios

2020 2021 2022
Sales Growth 39.00% 55.00%
Receivable Days 51 36 53
Payable Days 44 39 57
Inventory Turnover Days 88 101 114
Gross Margin 35% 38% 38%
Overhead % 9% 12% 12%
Net Margin 5% 9% 13%
Interest Cover 1.76 2.53 4.27
Current Ratio 0.70 0.47 0.79
Quick Ratio 0.41 0.22 0.37
Tax Rate 25% 25% 25%
Dividend Payout RATIO 50% 50% 50%
Inventory to Sales 16% 17% 19%
Receivables to Sales 14% 10% 14%
Payables to Sales 8% 7% 11%

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  • 20 Marks

CML – APRIL 2023 – L3 – Q2 – Critical Examination of Restaurant Property Acquisition Loan

Critically examine a loan request from Aduane Restaurants and Mobile Food Ltd for 80% financing (GHC 640,000) of a new premises purchase, using company background and financials.

Aduane Restaurants and Mobile Food Ltd. has operated an account with us for the past ten years since the inception of the company. The company has ten restaurants located at strategic parts of Accra, two at Takoradi and two in Kumasi.

The CEO of the company Mr. Sampson Arthur has come to see you for a discussion about the future of the company. Due to road construction, his key head office restaurant branch located at East Legon is no longer viable. He has identified another premises located close to the center of Accra which he wishes to acquire. According to him the vendors, who are siblings who inherited the property from their deceased parents, wish to dispose of the property in order to avoid unnecessary disputes among themselves. The property is also a bit dilapidated and would need to be overhauled. The company has been given a favourable price of GHC 800,000.00 to facilitate a quick sale. The company is able to provide 20% of the purchase and is asking the bank to finance the difference.

The company provides services primarily to workers within their vicinity. The company has become a household name due to the quality of their food and services. The company has a fleet of vans which assist in the delivery, one van for each branch. The ambience of their premises is also attractive and their restaurants are always milling with clientele mostly bank staff, civil servants and staff of private companies, at lunch time. They are also a favorite choice for wedding and other social occasions.

Their bank account operations however declined due to the onset of Covid and its impact on workers having to work from home. You have nonetheless discerned a slight improvement in their operations from the current bank account operations.

Management team comprises, Mr. Samson Arthur, aged 46, Chairman and CEO of the Company, Mrs. Mary Arthur, aged 45, COO and Chief Matron of the company and Mr. Kweku Johnson, aged 32 CFO of the company. Mr., Samson Arthur is a graduate in Economics from University of Ghana Legon and an MBA in Marketing. He worked in one of the top banks in the country for ten years prior to his resigning to take over his aged mother’s restaurant. Mrs. Mary Arthur, his wife has a degree in Food Science and Nutrition from the Ho University. She served as a matron at Wesley Grammar High School prior to joining the company at its inception. Kweku Johnson is a close family friend of the CEO and holds a Diploma in Accounting from the University of Professional Studies, Accra. Prior to joining the company Kweku worked at the Labone Polyclinic as an accounts staff.

Each branch has a manager and a chief cook, supported by two matrons. In addition, they hire waiters and waitresses on temporary basis and put them through some rigorous training before deploying them.

Critically examine this proposition as per information above and the related financial statements below.

Aduane Restaurant and Mobile Food Ltd Profit and Loss Extracts for the year ending 31st Dec

2020 GHC 2021 GHC 2022 GHC
Sales 1,899,500 2,796,460 3,215,929
Opening Inventory 204,570 321,215 503,363
Production cost 968,945 1,482,124 1,768,761
1,173,515 1,803,339 2,272,124
Closing Inventory 321,215 503,363 643,186
Cost of Sales 852,300 1,299,976 1,628,938
Gross Profit 1,047,200 1,496,484 1,586,991
Overheads 44,880 235,386 268,292
Depreciation 131,000 162,500 256,500
Operating Profit 871,320 1,098,598 1,062,199
Interest Paid 38,000 54,000 102,000
Profit Before Tax 833,320 1,044,598 960,199
Tax 208,330 261,150 240,050
Profit After Tax 624,990 783,449 720,149
Noncurrent Assets 2020 2021 2022
Building 615,000 600,000 585,000
Equipment 75,000 118,500 232,000
Motor Vehicles 210,000 200,000 395,000
Furniture and Fixtures 114,000 123,000 118,000
Total 1,014,000 1,041,500 1,330,000
Current Assets
Inventory 321,215 503,363 643,186
Receivables 445,880 701,150 1,010,560
Prepayment 19,250 45,210 55,610
Bank 15,000 14,800 25,600
801,345 1,264,523 1,734,956
Current Liabilities
Trade Payables 322,915 531,327 675,345
Overdraft 125,000 15,542 270,382
Total Current Liabilities 447,915 546,869 945,727
Net Current Assets 353,430 717,654 789,229
Net Assets 1,367,430 1,759,154 2,119,229
Financed by
Capital
Share Capital 800,000 800,000 800,000
Income Surplus 567,430 959,154 1,319,229
1,367,430 1,759,154 2,119,229

Ratios

2020 2021 2022
Sales Growth 47.22% 15.00%
Receivable Days 86 92 115
Payable Days 122 131 139
Inventory Turnover Days 138 141 144
Gross Margin 55% 54% 49%
Overhead % 2% 8% 8%
Net Margin 43.87% 37.35% 29.86%
Interest Cover 22.93 20.34 10.41
Current Ratio 1.79 2.31 1.83
Quick Ratio 1.07 1.39 1.15
Tax Rate 25% 25% 25%
Inventory to Sales 17% 18% 20%
Receivables to Sales 23% 25% 31%
Payables to Sales 17% 19% 21%
Gearing 9.14% 0.88% 12.76%
Dividend Payout Ratio 50% 50% 50%

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  • 20 Marks

CML – APRIL 2023 – L3 – Q1 – Gold Coast Shipping Company Ltd Financing Proposition

Critically examine the financing proposition from Gold Coast Shipping Company Ltd for a USD 2.0 million down payment on a new ship, using provided company background, operations, and financial statements for 2020-2022.

Mr. Bampoh Humphrey is the Board Chairman and CEO of Gold Coast Shipping Company Ltd. He owns 80 percent of the shares of the company with his foreign Partner Jones Smith, a retired Chairman of Elder Dempster Shipping Company owning the remaining 20%.

The two shareholders acquired the company from the Divestiture Implementation Committee in 1995 when the government divested its shareholding in the national shipping line the Black Star Line. Mr. Bampoh is known to be highly connected with the government in power at the time of AFC.

The company is engaged in transportation of primary products such as bauxite, gold and manganese ore from the country abroad and the transportation of consumer goods in container ships throughout the world.

The company has a fleet of ten cargo ships and ten container ships. It has three main offices located in Tema, Takoradi and London in the UK.

The company has operated an impressive account with you since the acquisition of the national shipping line, until in recent times when you noticed a sharp deterioration in its account operations. Following your painstaking investigation you established that the company incurred a huge loss when a cargo of bauxite was diverted on the high seas and the goods stolen. The ship was later discovered to have been sunken in the high seas to hide the evidence. Another problem you observed was that their fleet was becoming aged and one of them needs immediate replacement.

Each office of the company has an Office Manager all of whom are experienced expatriate shipping managers poached from international shipping companies.

The cost of purchase and delivery of one ship is estimated at USD 5.0 million, and the company is requesting for financial support from the bank to make a down payment of USD 2.0 million for the ship. The company proposes to pay the bank over a period of five years whilst the remainder of the cost of the ship is to be paid over the next period of ten years.

Critically examine this proposition using the information above and the related financial statements provided below.

Gold Star Shipping Ltd Statement of Comprehensive Income as at 31 Dec 2020 GHC

Total Revenue Cost of Revenue Gross Profit Overheads Depreciation Operating Profit Interest Paid Profit Before Tax Tax Profit After Tax 2021 GHC 13,700,000 6,165,000 7,535,000 1,575,500 1,337,000 4,622,500 480,000 4,142,500 1,035,625 3,106,875 2021 GHC 14,400,000 6,912,000 7,488,000 1,843,200 1,514,000 4,130,800 352,000 3,778,800 944,700 2,834,100 2022 GHC 14,920,000 7,758,400 7,161,600 2,333,488 1,564,000 3,264,112 312,500 2,951,612 737,903 2,213,709

Gold Star Shipping Ltd Balance Sheet as at 31st Dec

Noncurrent Assets 2020 2021 2022
Building 147,000 238,000 327,000
Equipment 9,000,000 11,325,000 10,150,000
Motor Vehicles 720,000 480,000 432,000
Furniture and Fixtures 350,000 260,000 170,000
Total 10,217,000 12,303,000 11,079,000
Current Assets
Inventory 135,000 185,000 197,000
Receivables 245,000 254,000 1,998,000
Prepayments 146,200 158,400 268,700
Bank 950,800 241,250 746,805
1,477,000 838,650 3,210,505
Current Liabilities
Trade Payables 125,000 135,600 156,400
Overdraft 45,000 65,000 85,200
Total Current 170,000 200,600 241,600
Liabilities
Net Current Assets 1,307,000 638,050 2,968,905
Net Assets 11,524,000 12,941,050 14,047,905
Capital
Share Capital 10,000,000 10,000,000 10,000,000
Income Surplus 1,524,000 2,941,050 4,047,905
11,524,000 12,941,050 14,047,905

RATIOS 2020 2021 2022

Sales Growth 5.11% 3.61%

Receivable Days 7 6 49

Payable Days 7 7 7

Inventory Turnover Days 8 10 9

Gross Margin 55% 52% 48%

Overhead % 12% 13% 16%

Net Margin 30.24% 26.24% 19.78%

Interest Cover 9.63 11.74 10.45

Current Ratio 8.69 4.18 13.29

Quick Ratio 7.89 3.26 12.47

Tax Rate 25% 25% 25%

Dividend Payout RATIO 50% 50% 50%

Inventory to Sales 0.01 0.01 0.01

Receivables to Sales 0.01 0.01 0.13

Payables to Sales 0.01 0.01 0.01

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  • 30 Marks

CML – APRIL 2024 – LEVEL 3 – Q1 – BA Brazil Nuts Ltd Lending Proposition

Critically examine a request from BA Brazil Nuts Ltd for an overdraft increase to GHC10 million and a USD 500,000 term loan for new equipment, considering their financials, operations, and recent challenges like a fire outbreak.

Your valued customers of twenty years, BA Brazil Nuts Ltd was established twenty-six years ago by Herbert Obeng, aged 62 and his wife Martha Obeng, aged 58, both graduates in Agricultural Engineering from the University of Science, Industry and Technology. They also have MBA certificates in Marketing. Prior to this, they both worked with the Gold Coast Food Production and Distribution Service, a State Corporation engaged in the cultivation, purchase and distribution of food supplies. Herbert serves as both Board Chairman and CEO of the company. He is also in charge of Farming Operations. The Farm Managers at the company’s farms report directly to Herbert. Martha serves as the CFO and Executive in charge of Marketing. She is supported by an Accounts Clerk, Jones Pino, aged 25 who has just completed his professional examination in Accounting. ICA (Ghana). The company also has a pool of skilled workers poached from other reputable industrial establishments.

The company is located at Ekumfi Swedru in the Central Region of the country and boasts of a state of the art Brazil nut production plant and a five storey office building. The company has two articulator trucks which are used in the carting of the Brazil nuts to the ports for export. The company is engaged in the production, roasting, packing and export of processed Brazil nuts primarily to the EU and Great Britain which take 60% of its products. The rest is sold locally (20%) and to other parts of the world (20%) including Australia and the US.

The company has operated an impressive account over the years until a year ago when you saw a sharp dip in the company’s turnover. In your interaction with Herbert, you learnt that there had been a fire outbreak which affected a significant part of the company’s farm holdings in the Bono Region of the country. He had to replenish his stock of Brazil nuts at a higher cost from his colleagues who also have farms in this part of the country. Your latest investigations show that the company has replanted the burnt area with Brazil nut seedlings.

In one of your visits, it came to your attention that Herbert was building a new factory at Winneba about eighty (80) kilometers away. When you queried him, he told you he was anticipating expanding his market in US and Australia.

The company’s Overdraft Facility of GHC 5,000,000.00 is showing a hard core at around GHC 3,000,000.00. The company is requesting for:

  1. An increase in the Overdraft Facility to GHC10 million in support of Working Capital.
  2. A Term Loan of USD 500,000 for the purchase of new Brazil Nut Roasting and Packaging Plant for the new factory. GHS/USD = GHS 13.5/USD1

Critically examine this proposition. [30 MARKS] BA Brazil Nuts Ltd. Profit and Loss Extracts for the year ending 31 Dec

2021 2022 2023
GHC GHC GHC
5,750,000 6,900,000 7,690,000
472,610 534,100 758,420
3,150,000 4,142,000 4,605,800
3,622,610 4,676,100 5,364,220
534,100 758,420 985,400
3,088,510 3,917,680 4,378,820
2,661,490 2,982,320 3,311,180
690,000 779,700 991,580
405,000 417,400 777,400
1,566,490 1,785,220 1,542,200
439,600 574,000 684,500
1,126,890 1,211,220 857,700
281,723 302,805 214,425
845,167 908,415 643,275

BA Brazil Nuts Ltd. Balance Sheet as at 31 Dec

Ratios 2021 2022 2023 Sales Growth

20.00%

11.45%

Receivable Days

98

112

141

Payable Days

90

75

78

Inventory Turnover Days

63

71

82

Gross Margin

46%

43%

43%

Overhead %

12%

11%

13%

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  • 20 Marks

TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting

Recommend examination procedures for reviewing God’s Time Ltd.’s profit forecast for COVID-19 financial assistance.

In order to assist businesses during the COVID-19 period, the Government of Ghana has announced various packages including financial assistance to various companies and other Small and Medium Enterprises. Your firm, Prosper & Co has been approached to perform an assurance engagement for God’s Time Ltd; the engagement will be a review of prospective financial information which is needed to support the company’s application for financial assistance provided under COVID-19 facilities. God’s Time Ltd had its financial year ended 31st December each year.

The operating profit forecast for the two years to 31st December 2020 prepared by a member of the accounting team of God’s Time Ltd is shown below, along with some accompanying notes.

Six months to 30th June 2019 Six months to 31st Dec. 2019 Six months to 30 June. 2020 Six months to 31st Dec. 2020
GH¢ GH¢ GH¢ GH¢
Earnings 2,801,597 3,088,680 4,210,265 4,429,728
Direct costs 2,135,938 2,315,746 3,413,711 3,618,584
Gross Profit 665,659 772,934 796,554 811,144
Operating Exp.
Wages & Salaries 168,452 184,864 209,546 218,762
Advertising 13,840 20,542 28,548 31,540
Design costs 21,580 32,456 50,452 43,546
Marketing 10,896 12,458 16,520 34,450
Interest on Loan 45,543 48,620 51,654 60,542
Other Operating Exp 266,264 309,173 318,622 324,458
Net Profit 139,084 164,821 121,212 97,846

Additional Notes: i. God’s Time Ltd is a producer of greetings cards and giftware; the demand for which is seasonal in nature.

ii. Design costs are mostly payroll costs of the staff working in the company’s design team, and the costs relate to the design and development of new product ranges.

iii. The total ‘Other expenses’ is calculated based on 40% of the projected revenue for the six-month period.

iv. In 2019, the company was granted a loan facility to complete the ongoing factory project.

Required:

Recommend the examination procedures which should be used in the review of the profit forecast.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      (B)

You are the supervisor in-charge of the audit of Titi bidi Construction Company Limited. The audit of the company is near completion, and you are finalizing the audit report. As part of your final review, you want a confirmation that, the tax liability as reported is accurate and as such there is no liability that has not been captured.

Required:

Outline the audit steps to verify that, all tax payments and tax credits has been captured and the liability as reported is accurate.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

(a) You are a tax audit team leader responsible for the audit of Mina Macarthy Limited.

Mina Macarthy Limited owns a block of flats and earns its income through rentals and general dealing. On 1st January 2019, the ledger accounts of the company included the following balances.

Debtors’ account GH¢475,000

Provision for doubtful debts account GH¢ 42,235

The balance on the provision account consisted of the following: GH¢

Specific provision of 100% against the debt of Charles Sulemana, a tenant 31,500

General provision of 1% against remaining debts
12,235

During the year ended 31st December 2019, the following events occurred.

i. Charles Sulemana paid Mina Macarthy GH¢11,150 and then vanished without trace to new world, leaving no assets.

ii. Another tenant, Antonio Banderas, who owed GH¢3,900 fell into a river and was also found to have died penniless.

iii. Azuma Nickson returned from total obscurity and paid an amount of GH¢6,450 which Mina Macarthy Ltd had written off in 2017.

iv. Credit sales for the year amounted to GH¢8,167,400 and cash received from debtors (other than Sulemana and Azuma) totaled GH¢3,150,000

v. On 31st December 2019, Mina Macarthy Ltd decided to provide in full against a disputed debt of GH¢51,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other debtors.

Additional notes

The company has submitted its returns for 2019 which showed a profit before tax of GH¢375,650.

Required: Comment on the matters to be considered. In addition to your comments, explain the audit evidence expected to be obtained during your review of Mina Macarthy Limited’s audit working papers prepared by the audit team member in respect of each of the issues described above.                                                                                                                                                                                                                                                                                                                                                                                                                             (bi)

In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

i. Explain how a bad debt may arise for VAT.

(bii) In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

ii. Explain the circumstances under which a bad debt relief can be claimed.

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  • 14 Marks

CR – Nov 2024 – L3 – Q5b – Financial Performance & Digital Technology Integration

Evaluating the financial performance of Nsawkaw PLC and addressing challenges of digital technology integration in accounting.

(a) Compute the following ratios for the years ended 2024 & 2023:
i) Operating profit margin
ii) Return on parent’s equity
iii) Earnings per share
iv) Current ratio
v) Trade receivables days
vi) Total liabilities to total assets %

(b) Write a report to the directors of DPEF evaluating the inter-period financial performance and position of NK using the above six (6) ratios. The report should draw attention to how the non-financial metrics combine with the financial counterparts to showcase the prospects and viability of NK.                                                                      c) The concept of double materiality is relevant to sustainability impacts and dependencies. It
incorporates financial materiality and impact materiality. 

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  • 6 Marks

CR – Nov 2024 – L3 – Q5a – Financial Analysis and Investment Evaluation

Compute financial ratios for Nsawkaw PLC to evaluate its financial performance for investment recommendation.

Nsawkaw PLC (NK), a gold processing and trading company, has been identified by Djaraye Private Equity Fund (DPEF) as a target for long-term equity investment. As a financial consultant of DPEF, you have been tasked to evaluate the integrated financial condition of NK and make an investment recommendation.

Below are the summarised versions of NK’s Consolidated Financial Statements for the year ended June 30, 2024 (together with its comparative period):

Summarised Consolidated Statement of Profit or Loss for the year ended 30 June 2024

2024 (GH¢000) 2023 (GH¢000)
Revenue 2,538,000 2,125,000
Operational expenses (1,909,100) (1,592,900)
Interest costs (186,700) (157,250)
Taxation (234,000) (198,500)
Profit after tax 208,200 176,350
Other comprehensive income 17,900 10,550
Total comprehensive income 226,100 186,900

Summarised Consolidated Statement of Changes in Equity for the year ended 30 June 2024

Equity Holders of the Parent (GH¢000) Non-controlling Interests’ Equity (GH¢000) Total Equity (GH¢000)
2024
Balances b/d 457,200 65,600 522,800
Total comprehensive income 190,800 35,300 226,100
Dividends (110,000) (8,700) (118,700)
Balances c/d 538,000 92,200 630,200
2023
Balances b/d 355,000 46,650 401,650
Total comprehensive income 160,500 26,400 186,900
Dividends (58,300) (7,450) (65,750)
Balances c/d 457,200 65,600 522,800

Summarised Statement of Financial Position as at 30 June 2024

2024 (GH¢000) 2023 (GH¢000)
Non-current assets
Property, plant, and equipment 718,000 657,000
Others 156,000 99,000
Total Non-current assets 874,000 756,000
Current assets
Trade receivables 140,000 121,000
Others 236,500 123,050
Total Current assets 376,500 244,050
Total Assets 1,250,500 1,000,050
Total Equity and Liability 1,250,500 1,000,050

Additional information:

  1. The total number of equity shares outstanding was 1.2 million and 1.4 million at 30 June 2023 and 30 June 2024 respectively.
  2. Other comprehensive income attributable to non-controlling interests for the years ended 30 June 2023 and 2024 amounted to GH¢8.05 million and GH¢9.6 million respectively.
  3. Non-current liabilities at 30 June 2023 and 30 June 2024 amounted to GH¢250,800 and GH¢308,510 respectively.
  4. The following metrics have been gleaned from NK’s published sustainability reports across the two years:
Metric 2024 2023
Scope 1 & 2 carbon emissions (tonnes of CO2) 650 780
Scope 3 carbon emissions (tonnes of CO2) 2,400 2,380
Women in senior management (%) 21 16
Total recordable injury frequency rate (TRIFR) per 100 full-time workers 3.3 4.1

The scope and definitions of the above sustainability measures have remained materially unchanged across the two years.

Required:

Compute the following ratios for the years ended 2024 & 2023:

  1. Operating profit margin
  2. Return on parent’s equity
  3. Earnings per share
  4. Current ratio
  5. Trade receivables days
  6. Total liabilities to total assets %

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  • 10 Marks

PM – Nov 2019 – L2 – Q1b – Decision-Making Techniques

Discuss management accounting techniques and principles that aid decision-making in scenarios like production reduction or factory closure.

b. Discuss the management accounting technique and principle that a management accountant will apply in preparing calculations to support management decisions in such a circumstance as above. (10 Marks)

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  • 20 Marks

FR – NOV 2016 – L2 – Q3 – Presentation of Financial Statements (IAS 1)

Analysis of company's financial performance through ratio analysis and preparation of technical report evaluating liquidity, stability and performance.

Magifera Plc had been trading in merchandise for several years in Garden City. The information below relates to extracts from the Financial Statements for the past two (2) years.

Statement of Profit or Loss and Other Comprehensive Income for the year ended September 30:

2016 2015
N’ Million N’ Million
Revenue 100,000 160,000
Gross Profit 45,000 70,000
Administrative Expenses 22,500 27,500
Finance Cost:
10% Loan Note Interest 1,250 1,250
23,750 28,750
Operating Profit Before Tax 21,250 41,250
Less: Taxation Expense 8,000 16,000
Operating Profit for the year 13,250 25,250
Dividends Paid to Equity holders 6,050 8,550

Extract of Statement of Financial Position as at September 30

2016 2015
N’Million N’Million
Assets:
Non – Current Assets at Cost 50,000 70,000
Less: Accumulated Depreciation 10,000 12,500
Carrying Amount 40,000 57,500
Current Assets:
Inventory 32,500 7,500
Trade Receivables 20,000 5,000
Bank Balance 4,000 37,500
56,500 50,000
Total Assets 96,500 107,500
Equity and Liabilities:
Ordinary Share Capital @ 50k each 23,000 23,000
Retained Earnings 17,200 10,000
10% Loan notes 12,500 12,500
10% Redeemable Preference Shares _______ 2,000
52,700 47,500
Current Liabilities:
Trade Payables 7,500 10,750
Taxation 24,000 16,000
Bank Overdrafts 12,300 33,250
43,800 60,000
Total Equity and Liabilities 96,500 107,500

The Board of Directors were worried over the dwindling financial performance and precarious financial position of the company. The products are ageing; the economic depression is biting as a result of the worsening exchange rate of $1 to N400. The company imports 60% of the goods sold in Garden City. The worsening exchange rate had affected the company’s importation, consequently the revenue of the company dropped significantly. The unsafe financial performance has also affected the market price of the company’s share which dropped from 12kobo/share in the year ended September 30, 2015 to 8kobo/share in 2016.

You are required to:

a. Calculate the following ratios for the year ended September 30, 2015 and 2016 in columnar form:

i. Return on Capital Employed

ii. Total Assets Turnover

iii. Quick Ratio

iv. Debt- Equity Ratio

v. Fixed Interest Cover

vi. Earnings Yield

vii. Price Earnings Ratio

viii. Dividend Yield (12 Marks)

b. Write a brief and formal technical report to the Board of Directors to assess the performance, liquidity and stability of the Company using only: i. Return on Capital Employed

ii. Total Assets Turnover

iii. Quick Ratio

iv. Fixed Interest Cover

v. Debt Equity Ratio (8 Marks)

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  • 20 Marks

FR – Nov 2019 – L2 – Q5 – Financial Instruments (IAS 32, IFRS 9)

Analyze the performance of Sekiri Nigeria Limited and identify areas for further investigation based on financial information.

Sekiri Nigeria Limited is a major competitor to Ijor Ventures Limited. Both companies operate in the same industry over the last 20 years.

The summarised financial information of Sekiri Nigeria Limited for the last 2 years is as follows:

Summarised Profit or Loss for the Year Ended September 30:

Description 2019 (N’m) 2018 (N’m)
Revenue 4,565 4,905
Cost of Sales (2,950) (3,225)
Gross Profit 1,615 1,680
Selling, Distribution & Admin Expenses (1,095) (1,070)
Interest Expense (95) (75)
Net Profit Before Taxation 425 535
Taxation (225) (260)
Profit for the Year 200 275

Statement of Financial Position as at September 30:

Description 2019 (N’m) 2018 (N’m)
Non-Current Assets:
Intangible Assets 240 200
Tangible Assets (Carrying Amount) 1,080 1,030
Total Non-Current Assets 1,320 1,230
Current Assets:
Inventories 1,470 1,515
Trade Receivables 800 705
Bank 260 290
Total Current Assets 3,850 3,740
Total Assets 5,170 4,970

Equity & Liabilities:

Description 2019 (N’m) 2018 (N’m)
Equity
Ordinary Share Capital 500 500
Retained Earnings 1,730 1,650
Total Equity 2,230 2,150
Non-Current Liabilities 690 690
Current Liabilities:
Trade Payables 375 375
Other Payables 555 525
Total Liabilities 3,850 3,740

Sekiri Nigeria Limited declared dividend of N120m each in years 2018 and 2019

Required:

(a) As the Chief Accountant of Ijor Ventures Limited, write a report to your company’s Finance Director analyzing the performance of Sekiri Nigeria Limited.
(10 Marks)

(b) Highlight FIVE areas that will require further investigation, including reference to other pieces of information that would complement your analysis of the performance of Sekiri Nigeria Limited.
(10 Marks)

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  • 15 Marks

AA – Nov 2021 – L2 – Q5 – Audit Evidence

Discuss analytical review procedures and their purpose in auditing.

One of the audit testing procedures available to the auditor is the Analytical Review Procedure.

a. Explain what is meant by Analytical Review Procedures. (6 Marks)
b. Explain FOUR types of general Analytical Review Procedures. (4 Marks)
c. What is the purpose of performing Analytical Review Procedures at the audit planning stage? (5 Marks)

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  • 10 Marks

QTB – Nov 2015 – L1 – SB – Q5b – Statistics

Calculate Pearson’s correlation coefficient between company expenditure and income over eight years and interpret the result.

An auditing firm is carrying out an analytical review of the financial transactions of its client, XYZ Manufacturing Company Limited. In order to ascertain the relationship that exists between the company’s annual expenditure and annual income, the following information was extracted from the company’s record for eight different years:

Years 1 2 3 4 5 6 7 8
Expenditure (x) 30 25 40 35 50 30 55 20
Income (y) 42 45 55 50 60 40 70 35

You are required to:

i. Calculate the Pearson’s product-moment correlation coefficient between xx and yy. (9 Marks)

ii. Comment on the result in (i). (1 Mark)

(Total: 10 Marks)

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  • 20 Marks

CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd

This question involves analyzing the financial performance and position of Bossman Ltd over three years using ratio analysis.

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  • 4 Marks

CR – Nov 2020 – L3 – Q5a – Return on Equity & Return on Capital Employed

Calculate and interpret return on equity and return on capital employed for Bounce Back Ltd for two years.

Bounce Back Ltd Financial Information:

Statement of Comprehensive Income for the year ended 30 November:

2019 2018
Profit before interest and tax GH¢2,200,000 GH¢1,570,000
Interest expense (GH¢170,000) (GH¢150,000)
Profit before tax GH¢2,030,000 GH¢1,420,000
Taxation (GH¢730,000) (GH¢520,000)
Profit after tax GH¢1,300,000 GH¢900,000
Dividends paid (GH¢250,000) (GH¢250,000)
Retained profit GH¢1,050,000 GH¢650,000

Statement of Financial Position as at 30 November:

2019 2018
Non-current assets (written-down value) GH¢6,350,000 GH¢5,600,000
Current assets
Trade receivables GH¢2,100,000 GH¢2,070,000
Inventories GH¢1,710,000 GH¢1,540,000
Total current assets GH¢3,810,000 GH¢3,610,000
Creditors: amounts due within one year
Trade payables GH¢1,040,000 GH¢1,130,000
Taxation GH¢550,000 GH¢450,000
Bank overdraft GH¢370,000 GH¢480,000
Total current liabilities GH¢1,960,000 GH¢2,060,000
Net current assets GH¢1,850,000 GH¢1,550,000
Total net assets GH¢8,200,000 GH¢7,150,000
Creditors: amounts due after more than one year
10% debentures GH¢1,500,000 GH¢1,500,000
Equity
Share capital (ordinary shares of 50p fully paid up) GH¢3,000,000 GH¢3,000,000
Retained earnings GH¢3,700,000 GH¢2,650,000
Total equity GH¢6,700,000 GH¢5,650,000
Total long-term liabilities and equity GH¢8,200,000 GH¢7,150,000

Required:

  1. Calculate, for both years, the return on equity and the return on capital employed.

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  • 4 Marks

CR – Nov 2020 – L3 – Q5b – Investment Ratios

Calculate two investment ratios of interest to a potential investor for two years.

Calculate, for both years, TWO (2) investment ratios of interest to a potential investor.

 

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  • 4 Marks

CR – Nov 2020 – L3 – Q5c – Ratios for Lenders

Calculate two ratios of interest to a potential long-term lender for two years.

Calculate, for both years, TWO (2) ratios of interest to a potential long-term lender.

 

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  • 20 Marks

PM – May 2019 – L2 – Q4 – Balanced Scorecard

Analyze BOK's financial performance and evaluate its balanced scorecard metrics for decision-making.

BOK is an autonomous division of Large Plc. BOK carries out large engineering jobs to individual customer specifications. The manager of the division will retire within next year, and Henry Femi, the CEO of Large Plc., has used a recruitment agency to identify a suitable successor, Mary Tako. Henry believes that Mary has excellent relevant experience in another company in the country and has offered her a 4-year contract position at BOK. The terms of the offer include a generous compensation package linked to the profit earned by BOK during the 4 years. Henry believes that BOK has been a very successful division and that a high-calibre manager, such as Mary, has great potential to continue to expand that success. In order to impress Mary on the recent success of BOK, Henry provided her with the following comparative financial data about the recent performance of the division (Table 1):

Table 1: Comparative Financial Data

2018 2017
Turnover 27,000,000 26,000,000
Net profit 5,600,000 5,200,000
Bad debts 132,000 130,000

It can be assumed that the inflation rate in each of the two years was 3% per annum.

Mary indicated that she would need some additional information before deciding on whether to accept the employment offer. The following is an extract from a balanced scorecard (Table 2) which was prepared at Mary’s request:

Table 2: Balanced Scorecard Data

Theme 2018 2017
Customer theme:
Number of customers 120 100
Average revenue per customer (₦) 225,000 260,000
Market share 9% 8%
Internal process theme:
Percentage of jobs completed with errors 3% 4%
Average job completion time (days) 5.5 7
Learning & growth themes:
Staff turnover rate 10% 5%
Training expenditure (₦) 1,000,000 1,000,000

Required:

a. i. Analyze the change in the financial performance of BOK between 2017 and 2018 using the information provided in Table 1. (3 Marks)

ii. Evaluate the change in the performance of BOK between 2017 and 2018, using the information contained in the balanced scorecard (Table 2). In addition, discuss the significant reasons why this analysis may be more relevant than your answer to part (ai) in helping Mary to decide whether or not to accept the offer. (13 Marks)

b. Mary has indicated that she would only be willing to accept the employment offer if she can be convinced about the potential for growth in the division. As the outgoing manager, you are required to provide her with an analysis of BOK’s competitive position and growth prospects based on the information provided. (4 Marks)

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