MCBFI – APR 2023 – L4 – Q1 – Rights of Ordinary Shareholders and Businesses at AGM
Discuss the specific rights of ordinary shareholders and the typical businesses handled at the Annual General Meeting for listed multinational banks in Ghana facing earnings challenges.
In the midst of the financial and economic crises in Ghana, the finance and banking sub-sector is having challenges with their earnings/income. The Shareholders of Republic Bank PLC, SG Bank PLC, and Standard Chartered Bank PLC, all listed companies on the Ghanaian Bourse are upbeat in respect of their earnings on the corporate financial performance. These Multinational Corporations are likely not to meet the expectations of their shareholders, both local and foreign. In your opinion,
(a) What specific rights do the Ordinary Shareholders have? (15 marks)
(b) What businesses are likely to be dealt with at the Annual General Meeting of these companies? (15 marks)
Potco PLC is a listed Ghanaian company that produces textile prints for both local and African markets. As at the year ended 31 March 2023, the company made a Gross Profit of GH$12,150. Cost of Sales for the year was GH$77,850 and Operating Profit Before Interest and Tax was GH$47,130. Finance Cost for the year was GH$920 and Tax Charged to Profit or Loss was GH$1,400.
The Inventory Turnover was 3.6 times. Dividend Paid Per Share was GH$0. 36 resulting in a Dividend Yield of 6 %. Current Assets consist of Inventory, Cash and Trade Receivables.
Extracts from the Statement of Financial Position as at 31 March 2023 were as follows: GH$
| Non-Current Assets | 63,320 | | Current Asset (excluding Inventory and Cash) | 18,605 | | Current Liabilities | 27,600 | | Shareholder’s Fund | 58,480 | | Cash | 6,000 | | 10% Debenture | 23,500 | | Share Capital (@ GH63) | 18,000 |
The following ratios relate to the industry in which Potco Plc belongs to:
| Profit (after Tax) Margin | 4.1% | | Current Ratio | 1.12 | | Return on Capital Employed (ROCE) | 10.0% | | Inventory Turnover | 3.47 | | Receivables Period | 87 days | | Dividend Yield | 5.8% | | EPS Ratio | 12.0 | | Debt/Equity Ratio | 32.6% |
You are required to: a) As far as the above information permits, compute the following ratios for Potco PLC. i. Profit (after Tax) Margin ii. Current Ratio iii. Return on Capital Employed (ROCE) iv. Receivables Period v. Price/Earnings Ratio vi. Debt/Equity Ratio (12 marks) b) Using the ratios above, write a report to the Board of Potco PLC to assess the Financial Performance and Financial Position of the entity, relative to its industry. (8 marks) [Total: 20 marks]
========== Question Title: MA – Mar 2025 – L2 – Q1 – Performance analysis
Level: LEVEL 2
Professional Bodies: ICAG
Programs: PROFESSIONAL PROGRAM
Subjects: Management Accounting
Topics: Performance analysis, Financial performance, Internal efficiency, External effectiveness
Series: MARCH 2025
Total Marks: 20
Question Tags: Performance analysis, Financial performance, Internal efficiency, External effectiveness, Revenue calculation, Profitability, Customer satisfaction, Operational efficiency
Question Short Summary: Analyze VAL’s 2024 performance in financial, internal efficiency, and external effectiveness using provided data.
——————————————————————— Question:
QUESTION ONE
Vovome Advisory Limited (VAL) began trading three years ago, on 1 January 2022. It specialises in the provision of expert advice to clients in accountancy, taxation and regulatory compliance. It has a team of professional advisers, each specialising in one of these three areas of advice.
VAL has a target for delivering its services to clients promptly. From the time the client asks for advice, VAL undertakes to provide a formal report to the client within 10 working days.
The following information relates to the financial year ended 31 December 2024:
i) The professional advisers are budgeted to work 220 days each year. They charge GH₵1,400 per day to new clients and GH₵1,200 to established clients.
ii) As a marketing measure intended to win new business, the advisers also give consultations to potential clients on a ‘no fee’ basis. These consultations, which are budgeted to take one day each, are accounted for as business development costs in the marketing budget.
iii) The professional advisers are also required to attend some ‘workshops’ with new clients who are having difficulties with implementing the advice that they have been given by VAL. These workshops, which are also given on a ‘no fee’ basis, are budgeted to last two days.
iv) VAL also has a help desk to provide client support. It responds to telephone and e-mail enquiries from all new and established clients.
v) The team of professional advisers is exactly 50. It is a policy of VAL to limit the team to 50, regardless of the volume of demand for its services.
vi) All professional advisers are paid a salary of GH₵100,000 per year. In addition, they are entitled to share equally in an annual bonus. The bonus is 50% of the amount by which fee income generated exceeds budget minus the revenue forgone as a result of having to give workshops for clients. This revenue forgone is assessed at a notional daily rate of GH₵1,200 per adviser/day.
vii) Operating expenses of the business, excluding salaries of the advisers, were GH₵3,100,000 in 2024. The budget for these expenses was GH₵2,800,000.
Other information:
Budget 2024
Actual 2024
Professional advisers, by category
Accounting
15
10
Tax
20
20
Compliance
15
20
Enquiries about seeking new advice
New clients
2,600
2,200
Established clients
4,000
3,700
Number of chargeable client days
New clients
2,600
2,750
Established clients
5,100
5,500
Average client days per job
4
4
Mix of chargeable client days
Accounting
1,155
1,650
Tax
1,540
3,300
Compliance
1,155
3,300
The following are actual results for each of the three years 2022-2024
2022
2023
2024
Number of clients
160
248
347
Number of complaints from clients
50
75
95
Number of accounts in dispute
10
7
5
Support desk: Percentage of calls resolved
86%
94%
97%
Percentage of jobs completed within 10 days
90%
95%
98%
Average time to complete a job (days)
12.6
10.7
9.5
Chargeable client days
7,200
7,750
8,250
Number of consultations (business development)
50
100
150
Number of workshops given
110
135
165
Revenue (GH₵000)
8,920
9,740
?
Net profit (GH₵000)
1,740
1,940
?
Required:
Using the information provided, analyse and discuss the performance of VAL for the year ended 31 December 2024, under the following headings:
a) Financial performance and competitiveness;
b) Internal efficiency; and
c) External effectiveness.
Compute adjusted financial ratios for 2022 and 2023, excluding business unit sale, and assess Ben Garzy LTD’s financial performance post-sale and IT system deployment.
Ben Garzy LTD has recently undertaken significant strategic initiatives, including the sale of a key business unit and the implementation of a new information technology (IT) system aimed at enhancing operational efficiency.
Below are excerpts from the company’s most recent financial statements:
Income Statements for the Year ended 31 December
2023 GH¢’000
2022 GH¢’000
Revenue
45,000
60,000
Cost of Sales
(27,000)
(36,000)
Gross Profit
18,000
24,000
Gain on Sale of Business Unit
2,000
–
Distribution Expenses
(4,000)
(6,000)
Administrative Costs
(5,500)
(3,800)
Finance Costs
(600)
(1,200)
Profit Before Tax
9,900
13,000
Tax Expense
(2,500)
(3,900)
Net Profit
7,400
9,100
Additional Information:
On 1 January 2023, Ben Garzy LTD completed the sale of a business unit for GH¢10 million, resulting in a gain of GH¢2 million. This sale was approved by shareholders, who received a special dividend of GH¢0.50 per share from the proceeds. The business unit’s financial performance included in the 2022 income statement was as follows:
Revenue: GH¢20,000
Cost of Sales: GH¢12,000
Gross Profit: GH¢8,000
Distribution Costs: GH¢1,500
Administrative Expenses: GH¢2,000
Profit Before Interest and Tax: GH¢4,500
During 2023, Ben Garzy LTD deployed an advanced IT system across its operations to enhance efficiency, reduce costs and improve financial reporting accuracy. This development is expected to influence the company’s financial metrics and operational outcomes.
The following financial ratios were calculated for Ben Garzy LTD for the year ended 31 December 2022:
Gross Profit Margin: 40.0%
Operating Profit Margin: 21.7%
Return on Capital Employed (ROCE): 44.38%
Net Asset Turnover: 2.73 times
Required:
a) Compute the comparable financial ratios for Ben Garzy LTD;
i) For the year ended 31 December 2022, excluding the financial contribution of the sold business unit.
(6 marks)
ii) For the year ended 31 December 2023, excluding the gain on the sale of the business unit.
(6 marks)
b) Assess the financial performance and position of Ben Garzy LTD as at 31 December 2023, taking into consideration the effects of the business unit sale and the implementation of the new IT system on the company’s operational efficiency and overall financial health.
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
Dondo LTD is a manufacturing company based in Nsawam. The following data represents the budgeted performance of Dondo LTD for the year 2025:
Amount (GH¢’000)
Profit
660
Plant and equipment (net of depreciation)
1,560
Working capital
750
Dondo LTD is considering undertaking the following separate one-off transactions:
A cash discount of GH¢16,000 will be offered to its customers annually. This will, on average, reduce the trade receivables figure by GH¢60,000.
An increase in average inventories by GH¢80,000 throughout the year. The increased inventory level is expected to increase sales, resulting in GH¢30,000 increased contribution per annum.
At the beginning of the year, the company will buy a plant worth GH¢360,000. This is expected to reduce operating costs by GH¢105,000. The plant has a five-year useful life with nil residual value.
Required:
i) Compute the ROI for each of the one-off transactions above. ii) Advise Dondo LTD on whether the above one-off transactions should be carried out.
Jack Limited is a family-owned business that has grown strongly in the last 50 years. The key objective of the company is to maximise the family’s wealth through their shareholdings. Recently, the directors introduced value-based management, using Economic Value Added (EVA) as the index for measuring performance.
You are provided with the following financial information:
Statement of Profit or Loss and Other Comprehensive Income for the year ended December 31, 2015:
₦’million
2015
Operating profit
340.0
Finance charges
(115.0)
Profit before tax
225.0
Tax at 25%
(56.3)
Profit after tax
168.7
Notes
Notes
2015 (₦’m)
2014 (₦’m)
(i) Capital employed – from the Statement of Financial Position
6,285
6,185
(ii) Operating costs:
Depreciation
295
285
Provision for doubtful debts
10
2.5
Research and development
60
–
Other non-cash expenses
35
30
Marketing expenses
50
45
(iii) Economic depreciation is assessed to be ₦415 in 2015. Economic depreciation includes any appropriate amortisation adjustments. In previous years, it can be assumed that economic and accounting depreciation were the same.
(iv) Tax is the cash paid in the current year (₦45million) and an adjustment of ₦2.5million for deferred tax provisions. There was no deferred tax balance prior to 2015.
(v) The provision for doubtful debts was ₦22.5million on the 2015 Statement of Financial Position.
(vi) Research and development cost is not capitalised in the accounts. It relates to a new project that will be developed over five years and is expected to be of long-term benefit to the company. The first year of this project is 2015.
(vii) The company has been spending heavily on marketing each year to build its brand long term.
(viii) Estimated cost of capital of the company:
Equity
16%
Debt (pre-tax)
5%
(ix) Gearing (Debt/Equity) Ratio 1.5: 1
Required: a. Calculate, showing all relevant workings, the Economic Value Added (EVA) for the year ended December 31, 2015. Make use of the adjusted opening capital employed. Comment on your result and make appropriate recommendations. (15 Marks)
b. Irrespective of your answer in (a) above, assume the company’s current EVA is ₦120million and that this will decline annually by 2% for the next ten years and then increase by 4% per annum in perpetuity. Assume the following for this part only:
Cost of equity 14%
WACC 10%
Calculate the market value added (MVA) by the company. Show all workings. (5 Marks)
The directors of Duranga Plc. have learned that corporate reporting could be improved by adopting the International Integrated Reporting Council’s Framework for Integrated Reporting. The directors believe that International Financial Reporting Standards (IFRS), which the company has recently adopted following the decision of the Federal Executive Council, are already extensive and provide stakeholders with a comprehensive understanding of its financial position and performance for the year. They believe that with over 100 countries adopting IFRS, their financial statements speak the international financial reporting language and practice. In particular, statements of cash flows, which the company prepares in accordance with IAS 7, enable stakeholders to assess the liquidity, solvency, and financial adaptability of a business. They are concerned that any additional disclosures could be excessive and obscure the most useful information within a set of financial statements. This is against the backdrop of a recent effort by the IASB on excessive disclosures in financial statements. They are therefore unsure of the rationale for the implementation of a separate or combined integrated report.
Required:
Discuss the extent to which statements of cash flow provide stakeholders with useful information about an entity and whether this information would be improved by the entity introducing an Integrated Report. (6 Marks)
An annual report is a comprehensive report on a company’s activities intended to give information about the company’s activities and financial performance. In addition to the audited financial statements, annual reports contain a great deal of extra information which could be financial and non-financial. The extra information provided may be required by law, hence, it is mandatory. However, many companies provide additional information not required by law, on a voluntary basis.
Required:
(a) Identify THREE of such reports that are voluntarily disclosed in annual reports of Nigerian companies. (3 Marks)
(b) Why would a company disclose information not required by law in its annual report? Propose FOUR reasons for and give any TWO limitations of such disclosures. (7 Marks)
The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc had sought your professional advice on the application of IAS 33.
a. You are required to advise the management of Soar Plc on the:
i. Significance of earnings per share. (5 marks)
ii. Shortcomings of earnings per share. (5 marks)
b. The directors of Soar Plc have decided to replace most of the existing plant and machinery which are now obsolete during the year ended September 30, 2015, to enhance earnings. The costs of removing existing plant and acquiring and installing new plant have been estimated at N750,000.
In order to improve liquidity, the directors decided to make a new issue of 800,000 ordinary shares at N2 per share fully paid on January 1, 2015, and a further N600,000 4% convertible loan notes on June 1, 2015. The terms of issue would provide for conversion into ordinary shares as stated below:
On September 30
Number of shares per N100 of loan stock
2015
120
2016
125
2017
118
2018
122
The ordinary shares issued would rank for dividend in the current year. The following relates to the company for the period ended September 30, 2015:
Profit before interest and tax is N850,000.
Effective rate of company tax on profit is 30% and the basic EPS for the year ended September 30, 2014, was 48 kobo.
The company had issued as at September 30, 2014, the following:
2,000,000 ordinary shares of 50 kobo each fully paid.
400,000 12% irredeemable preference shares of N1 each fully paid.
300,000 10% redeemable preference shares of N1 each fully paid.
Required:
Calculate for Soar Plc for the year ended September 30, 2015:
i. Basic earnings per share (5 marks).
ii. Fully diluted earnings per share (5 marks).
The Directors of Prochain Plc have pursued an aggressive policy of expansion in the last two years. They have developed several new products and market share has increased.
The financial statements for the year ended 31 December 2013, which will be presented to the Board of Directors at its next meeting, are being finalised. The financial statements at the year-end are presented below:
Statement of profit or loss and other comprehensive income for the year ended 31 December
The results of the company as well as certain key ratios that will form part of the covenants in respect of the loan facilities will be discussed at the Board of Directors meeting.
Notes:
The movement on the revaluation reserve relates to property, plant, and equipment revalued in the year.
The movement on other reserves relates to the gains on the investments available for sale.
The bonds are repayable on 1 July 2015.
Required:
(a) Based on the results of Prochain Plc for the year ended 31 December 2013, calculate the key ratios for the loan.
(8 Marks)
(b) Prepare a report commenting on the financial performance for the year in relation to the key ratios for the loan.
(12 Marks)
Jack Limited is a family-owned business which has grown strongly in the last 50 years. The key objective of the company is to maximize the family’s wealth through their shareholdings. Recently, the directors introduced value-based management, using Economic Value Added (EVA) as the index for measuring performance.
You are provided with the following financial information:
Statement of Profit or Loss and Other Comprehensive Income for the Year Ended December 31, 2015
Item
Amount (₦’million)
Operating profit
340.0
Finance charges
(115.0)
Profit before tax
225.0
Tax at 25%
(56.3)
Profit after tax
168.7
Notes
Description
2015 (₦’m)
2014 (₦’m)
(i) Capital employed – from the Statement of Financial Position
6,285
6,185
(ii) Operating costs: Depreciation
295
285
Provision for doubtful debts
10
2.5
Research and development
60
–
Other non-cash expenses
35
30
Marketing expenses
50
45
Economic depreciation is assessed to be ₦415 in 2015. Economic depreciation includes any appropriate amortization adjustments. In previous years, it can be assumed that economic and accounting depreciation were the same.
Tax: The cash paid in the current year is ₦45 million, with an adjustment of ₦2.5 million for deferred tax provisions. There was no deferred tax balance prior to 2015.
The provision for doubtful debts was ₦22.5 million on the 2015 Statement of Financial Position.
Research and development cost is not capitalized in the accounts. It relates to a new project that will be developed over five years and is expected to be of long-term benefit to the company. The first year of this project is 2015.
The company has been spending heavily on marketing each year to build its brand long-term.
The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc has sought your professional advice on the application of IAS 33.
Required: Advise the management of Soar Plc on the following:
i. Significance of Earnings Per Share (EPS). (5 marks)
ii. Shortcomings of Earnings Per Share (EPS). (5 marks)
a. Explain the following, stating their importance to investors in evaluating financial performance:
i. Earnings per share (EPS)
ii. Price earnings ratio (PE ratio) (6 Marks)
b. The issued and fully paid share capital of Almond Nigeria Limited, which has remained unchanged since the date of incorporation until the financial year ended March 31, 2015, includes the following:
2,400,000,000 ordinary shares
600,000,000 6% participating preference shares of N1 each
The company has been operating at a profit for a number of years. As a result of a very conservative dividend policy in previous years, there is a large accumulated profit balance on the statement of financial position.
On July 1, 2015, the directors decided to issue two bonus shares to all ordinary shareholders for every one previously held.
The following is an extract of the group statement of profit or loss and other comprehensive income for the year ended March 31, 2016:
Almond Nigeria Limited Extract of Group Statement of Profit or Loss and Other Comprehensive Income for the Year Ended March 31, 2016
2016
2015
Profit for the year
N740,000
N540,000
Other comprehensive income
–
(20,000)
Total comprehensive income
N740,000
N520,000
Total comprehensive income attributable to:
Owners of parent
N680,000
N480,000
Non-controlling interest
N60,000
N40,000
Total comprehensive income
N740,000
N520,000
The following dividends have been paid or declared at the end of the period:
Dividend Type
2016
2015
Ordinary
N330,000
N240,000
Preference
N69,000
N60,000
Note: The participating preference shareholders are entitled to share profits in the same ratio in which they share dividends after payment of fixed preference dividends. They will also share the same benefit as ordinary shareholders if the company is liquidated.
Required:
Calculate the earnings per share (EPS) in accordance with IAS 33 and the dividend per share (DPS) for the years ended March 31, 2015, and 2016. (10 Marks)
Discuss the limitations of earnings per share (EPS) as a measure of a company’s performance. (4 Marks)
You're reporting an error for "FR – May 2017 – L2 – SB – Q4 – Earnings Per Share (IAS 33)"
40 Marks
PSAF – Nov 2019 – L2 – Q1 – Public Sector Financial Statements
Prepare financial statements and journal entries for Ogogo Local Government based on trial balance and transactions provided, and identify external controls and challenges.
Ogogo Local Government is one of the 26 Local Governments in Alimosho state of
Federal Republic of Wazobia. The Local Government has adopted Treasury Single
Accounting (Direct method) and prepares its accounts using IPSAS accrual basis.
There has been wide spread fraud since the retirement of the Treasurer of the
council about two years ago. However, there was no adequate information to
suggest that there was fraud or misappropriation of funds. The Chairman invited
you to his office as the new Treasurer and handed over some of the financial data
from treasury department to you as detailed below:
The trial balance for the year ended December 31, 2017 is as follows:
The following transactions took place in the Office of the Treasurer of the Local
Government for the year ended December 31, 2018.
i. Listed below are the revenue and expenditure items for the year ended December 31, 2018
(ii) Code 1 is used as prefix for revenue, 2 for recurrent expenditure and 4 for
capital expenditure
(iii) Preliminary investigations carried out revealed the following irregularities,
which occurred and were discovered within the year:
• Included in the payments for the expenses under primary health care department were various duplicated vouchers amounting to N7million;
• There were some falsifications in the bills for items bought for the provision of water under other charges. The total discrepancies amounted to N3million.
(iv) The following agreed revenue demand notices were sent to the indigenes of the Local Government during the year.
(v) Included in the payments under works and housing is the cost of motor
vehicles of N25 million while medical equipment costing N35 million was
included in primary health care department expenses.
(vi) Included in the payments under works and housing is the cost of land
including construction of access roads, certificate of occupancy etc, amounting
to N100 million. The land was acquired by the Local Government and sold to
local prospective land owners at a cost of N520,000 per plot. The land consists
of 200 standard plots for the construction of houses of their choice. Only 150
plots were fully subscribed and paid for during the year.
(vii) Included in the payments under finance department is the cost of office
stationery of N25 million while the value of office stationery based on stock
sheet as at December 31, 2018 was N6.5 million.
viii) Capital grant from the State Government was received on December 31, 2017
and utilised in 2018.
(ix) The capital expenditure paid during the year was for the acquisition of land for the new Local Government Health Centers.
(x) Some of the accounting policies for depreciation adopted by the Government include the following depreciation rates;
Note: All non-current assets were purchased at the beginning of the
year.
(xi) The following expenses were incurred but not settled as at end of the year.
You are required to prepare:
a. The journal entries to record the loss of fund (3 Marks)
b. The statements of financial performance for year ended December 31, 2018
(15 Marks)
c. The statement of financial position as at December, 31 2018 (17 Marks)
d. Identify FIVE external controls and FIVE problems of Local Government in
Nigeria (5 Marks)
You're reporting an error for "PSAF – Nov 2019 – L2 – Q1 – Public Sector Financial Statements"
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
Lapez operates a chain of health and fitness clubs, located in state capitals in Nigeria. For easy administration, the clubs are structured into two divisions, the Northern and the Southern divisions. Each division has a General Manager who is responsible for revenue, cost, and investment decisions at their clubs. A bonus is awarded each year to the General Manager that generates the higher return on capital employed (ROCE).
The following summary information shows the results of the divisions for the past two years:
Year Ending 31st December
Northern (2018)
Southern (2018)
Northern (2017)
Southern (2017)
Revenue (N000)
2,700
3,720
2,850
3,375
Staff Costs (N000)
1,725
2,145
1,770
1,965
Other Operating Costs (N000)
690
1,012
750
930
Operating Profit (N000)
285
563
330
480
Capital Employed (N000)
750
1,350
1,125
1,800
Avg. Number of Members
6,880
9,425
7,050
8,320
Notes:
Revenue is largely comprised of income from membership fees.
Lapez uses the net book value of non-current assets as the capital employed. The capital employed figures in the table are the net book value of non-current assets for each division at the end of the year.
Non-current assets are depreciated on a straight-line basis over five years with no residual value. No additions or disposals of non-current assets occurred in 2017 and 2018.
Both divisions have a cost of capital of 15%.
Ignore taxation and inflation.
However, investigations by Lapez’s management revealed that at the end of 2017, the General Manager of the Southern division rejected the opportunity to acquire a new building and equipment to set up a new fitness club at a total cost of ₦1,200,000. The building could have been purchased for ₦525,000, and it is assumed that the building would retain its value for five years, with no depreciation charged. The equipment would have cost ₦675,000 and would have been depreciated over five years according to Lapez’s policy. The investment would have occurred on January 1, 2018.
The forecasted annual profit and number of members for the proposed new club were as follows:
Description
N000
Revenue
1,012.5
Staff Costs
(556.5)
Other Operating Costs (incl. depreciation)
(240.0)
Operating Profit
216.0
Avg. Number of Members
2,100
It is Lapez’s policy that investments of this type be appraised over five years using net present value (NPV).
Required:
a. Discuss the relative performance of the two divisions using Return on Capital Employed (ROCE) and TWO other performance measures that you think are appropriate. (15 Marks)
b. Calculate the net present value (NPV) of the investment. Ignore taxation and inflation. (5 Marks)
National Hotel, an investment unit of the Ministry of Tourism and Environment, is fifty (50) years old. It has recently been restructured from a wholly-owned government hotel to a private/government partnership. However, being the largest hotel in the country and for security reasons, the government still retains 55% of its equity.
The board of directors has decided to reposition the hotel for better performance, needing external finances amounting to N180 million, consisting of a N100 million loan over ten years and an N80 million bank overdraft. All necessary supports have been provided by the government and private equity holders.
The summarized results for the last two financial years are as follows:
Income Statement
Year ended 30 September
2013 (N’000)
2014 (N’000)
Turnover
200,000
240,000
Cost of Sales
(150,000)
(184,000)
Gross Profit
50,000
56,000
Overhead Expenses
(10,000)
(12,000)
Profit before Tax
40,000
44,000
Statement of Financial Position
You have been engaged as a consultant to assist the hotel in preparing necessary documents and reports to achieve its objectives.
Required:
a. Calculate six relevant accounting ratios covering each of the two years: 2013 and 2014 in a tabular form. (12 Marks)
b. Interpret the result of the ratios calculated in (a) above to show the financial performance and position of the entity. (12 Marks)
c. Highlight four unfavorable factors about the hotel as revealed by your interpretation. (6 Marks)
Report on the performance and state of the business from the viewpoint of a potential shareholder and lender using the ratios calculated above and explain any weaknesses in these ratios.
Shop First Ltd operates supermarket chains across the sixteen (16) regions of Ghana. The firm has been in commercial operation for more than two decades, growing its operations through an effective supply chain and financial management. However, in the last few years, keen competition and worsening general economic performance have steadied the consistent growths experienced over the years, resulting in the entity disposing off part of its operations. Below are the financial statements of Shop First Ltd:
