Question Tag: Performance Evaluation

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  • 5 Marks

MA – Nov 2024 – L2 – Q4b – Standard Costing and Variance Investigation

Explanation of the use of standard costing in decision-making and key factors to consider before investigating variances.

Standard costing has been employed by organizations as a control technique to analyze the deviation of results from those that are expected.

Required:

i) Explain TWO ways managers have effectively deployed standard costing as a tool in decision-making analysis.

ii) Explain THREE key factors a manager should consider before deciding to institute an investigation into reported variances.

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  • 10 Marks

FR – Nov 2024 – L2 – Q4b – Financial Performance Assessment of Acquisition Targets

Assessment of financial performance and position of Suah LTD and Nagbe LTD to assist Dukuly LTD in an acquisition decision.

Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, both operating in the same industry.

The financial statements of Suah LTD and Nagbe LTD for the year ended 30 September 2024 have been provided, along with a set of financial ratios calculated for Suah LTD.

Required:
Using the calculated ratios for Nagbe LTD from Question 4a, assess the relative financial performance and financial position of Suah LTD and Nagbe LTD, to assist the directors of Dukuly LTD in making an acquisition decision.

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  • 20 Marks

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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  • 15 Marks

FM – Nov 2016 – L3 – SC – Q6 – Strategic Performance Measurement

Evaluate Osamco Limited’s financial performance compared to industry benchmarks and discuss reasons for considering stock exchange listing.

Osamco Limited, manufacturer of wire and cables, was bought from its conglomerate parent company in a management buyout deal in August 2010. Six years later, the managers are considering the possibility of listing the company’s shares on the Nigerian Stock Exchange.

The following information is made available:

OSAMCO LIMITED
INCOME STATEMENT FOR THE YEAR ENDED JUNE 30, 2016

N’million Amount
Turnover 91.25
Cost of sales (79.00)
Profit before interest and taxation 12.25
Interest (3.25)
Profit before taxation 9.00
Taxation (1.25)
Profit attributable to ordinary shareholders 7.75
Dividend (0.75)
Retained profit 7.00

STATEMENT OF FINANCIAL POSITION AS AT JUNE 30, 2016

N’million Amount
Non-current assets (at cost less accumulated depreciation)
Land and buildings 9.00
Plant and machinery 24.75
Total non-current assets 33.75
Current assets
Inventories 11.00
Accounts receivable 11.75
Cash at bank 2.50
Total current assets 25.25
Total assets 59.00
Equity
Ordinary shares of N1 each 6.75
Reserves 24.25
Total equity 31.00
Non-current liabilities
Accounts payable due after more than one year: 12% Debenture 2018 5.50
Current liabilities
Trade accounts payable 17.50
Bank overdraft 5.00
Total current liabilities 22.50
Total equity and liabilities 59.00

Industry sector ratios:

Metric Industry Average
Return before interest and tax on long-term capital employed 24%
Return after tax on equity 16%
Operating profit as percentage of sales 11%
Current ratio 1.6:1
Quick (acid test) ratio 1.0:1
Total debt: equity (gearing) 24%
Dividend cover 4.0
Interest cover 4.5

Required:
a. Evaluate the financial state and performance of Osamco Limited by comparing it with that of its industry sector. (10 Marks)

b. Discuss FOUR probable reasons why the management of Osamco Limited is considering Stock Exchange listing. (5 Marks)

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  • 20 Marks

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

Chisom Plc experienced rapid growth in recent years through the acquisition and integration of other companies. Chisom Plc is interested in acquiring Oyowood Limited, a retailing company, which is one of several companies owned and managed by the same family.

The summarized financial statements of Oyowood Limited for the year ended December 31, 2022, are as follows:

From the above financial statements, Chisom Plc has calculated for Oyowood Limited the ratios below for the year ended December 31, 2022. It has also obtained the equivalent ratios for the retail sector average, which can be taken to represent Oyowood‟s sector.

Additional Information:

  1. Oyowood Limited buys all inventories from family companies at a 10% discount below market prices.
  2. Post-acquisition, Chisom Plc would replace the board of directors with a new board at a remuneration cost of ₦2.5 million per annum.
  3. Directors’ loan accounts will be refinanced through a 10% interest-bearing commercial loan of the same amount.
  4. The purchase price for Oyowood Limited is expected to be ₦30 million.

Required:

a. As the financial analyst for Chisom Plc, recalculate the ratios for Oyowood Limited after adjustments based on points (i) to (iv) above. (10 Marks)

b. Draft a memo to the managing director of Chisom Plc commenting on the adjusted performance of Oyowood Limited. (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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  • 10 Marks

FR – May 2020 – L2 – Q4b – Financial Performance Analysis

Write a report analyzing Adenta Ltd's financial performance in comparison to industry averages for 2018.

As the Financial Controller of Adenta Ltd, write a report to the Board of Directors analyzing the financial performance of Adenta Ltd based on a comparison with the industry averages. (10 marks)

 

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  • 20 Marks

PM – May 2018 – L2 – Q2 – Standard Costing and Variance Analysis

Calculate sales variances and discuss their significance in standard costing.

Nwokocha and Sons Bakery Limited uses absorption costing technique in its
accounting system. The company produces and sells three bakery products, namely
four corner loaf (F), round corner loaf (R) and executive loaf (E) which are
substitutes for each other. The following standard selling prices and cost data
relate to these three products:

Annual budgeted fixed production overhead was N3,840,000. The company policy
is that overhead will be absorbed on a machine hour basis. The standard machine
hour for each product and the monthly budgeted level of production and sales for
each product are as follows;


Actual volumes and selling prices for the three products in a particular month are
as follows:

a. Calculate the following variances for overall sales for the particular month:
i. Sales price variance; (2 Marks)
ii. Sales volume profit variance; (2 Marks)
iii. Sales mix profit variance; and (3 Marks)
iv. Sales quantity profit variance. (3 Marks)
b. Determine the monthly budgeted profit for the company. (6 Marks)
c. Discuss the significance of mix variances in a standard costing system?
(4 Marks)

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  • 30 Marks

PM – May 2018 – L2 – Q1 – Divisional Performance Measurement and Transfer Pricing

Differentiate responsibility centres, explain divisional structure, recommend transfer prices, and consider qualitative factors.

DASET DRINKS NIGERIA PLC.
(30 MARKS)
Daset Drinks Nigeria Plc. has been operating in the Nigerian food and beverages
industry as an entity with three distinct factories across the country. One of the
factories bottles soft drink while the other two produce bottles and crown corks for
the soft drink factory.
The company has recently been experiencing problems with its performance
evaluation system across the three factories. Each factory manager is of the
opinion that his factory is the one contributing the most to the overall performance
of the company.
In a recent management retreat, the guest speaker, a performance management
expert, emphasised the need to develop Key Performance Indicators (KPI) for each
of the factories and departments in the company. According to him, this will
enhance performance evaluation of all the managers in the company and will also
make performance management easier. He suggested that the company should
adopt a divisional structure whereby each of the factories will become an
autonomous division with responsibilities for investment, revenues, profits and
costs.
At the last Executive Management meeting, after the retreat, the company‟s top
management decided to adopt the recommendations of the guest speaker. The top
management agreed transfer prices acceptable to each of the divisional managers
and also the needs to decide whether the two factories manufacturing bottles and
corks cocks could sell to external markets.
The top management has mandated you, as the company‟s management
accountant, to supply necessary data that will assist them in taking appropriate
decisions.

Financial data collected about the company‟s operations are as follows:
The costs and selling prices of the divisions are:

This includes costs of bottle and crown cork. To produce one bottle of soft drink
requires one bottle and one crown cork.
The bottling division has the choice to buy its bottle and crown cork requirements
from the external market.
The variable costs of production for external sales and internal transfers are the
same and bottles and crown corks are being transferred to the bottling division at
these costs.
For brand protection, the soft drink factory is not willing to buy bottles and crown
corks from any external supplier.
Required:
a. Differentiate among an investment centre, a profit centre, a revenue centre
and a cost centre, in a divisional organisation giving one example of each.
(8 Marks)

b. Explain a divisional structure, stating the problems associated with this type
of structure in an organisation. (8 Marks)

c. Advise the top management on the transfer prices that will maximise the
company‟s profit and be acceptable to the factory managers.
(10 Marks)
d. Discuss TWO qualitative factors that the top management needs to consider
in taking these decisions. (4 Marks)

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  • 4 Marks

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

Explain TWO attributes of a good transfer pricing policy.

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  • 5 Marks

CR – May 2016 – L3 – Q5b – Analysis and interpretation of financial statements

Evaluate significance of various accounting items

Evaluate with examples, the significance of each of the following to an analyst seeking to estimate the effect on future cash flows or liquidity of a company:
i) a commitment and a contingent liability. (2 marks)
ii) income in advance and a deposit (1.5 marks)
iii) an accrual and a provision (1.5 marks)

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  • 20 Marks

CR – Dec 2022 – L3 – Q5 – Analysis and Interpretation of Financial Statements

Evaluate Partey Ltd's performance using key financial ratios for profitability, liquidity, efficiency, and gearing.

Partey Ltd is a company engaged in continuous casting and cold rolling of aluminum products in Ghana. The company has been in operation for several decades, and its operations did not change in the year ended 31 December 2021.

Below are financial statements for the years 2021 and 2020:

Statement of Profit or Loss and Other Comprehensive Income

2021 (GH¢000) 2020 (GH¢000)
Revenue 389,507 445,963
Cost of sales (240,731) (237,345)
Gross profit 148,776 208,618
Other income 19,315 10,983
Distribution costs (76,366) (108,137)
Administrative expenses (74,520) (46,216)
Operating profit 17,205 65,248
Finance cost (21,287) (21,537)
Profit before tax (4,082) 43,711
Tax expense – (16,521)
Profit for the year (4,082) 27,190

Statement of Financial Position

2021 (GH¢000) 2020 (GH¢000)
Non-current assets:
Property, plant and equipment 196,784 183,190
Investment securities 137 348
Total non-current assets 196,921 183,538
Current assets:
Inventories 50,400 66,351
Trade receivables 23,769 27,688
Other receivables 9,343 1,833
Cash and cash equivalents 45,969 20,699
Total current assets 129,481 116,571
Total assets 326,402 300,109
Equity and Liabilities:
Stated capital 10,000 10,000
Retained earnings 124,575 111,676
Total equity 134,575 121,676
Non-current liabilities:
15% Loan notes 8,580 10,247
20% Loan notes (NGIC Pension Fund) 100,000 100,000
Total non-current liabilities 108,580 110,247
Current liabilities:
Trade payables 80,182 65,082
Current tax – 3,104
Accrued expenses 3,065 –
Total current liabilities 83,247 68,186
Total equity and liabilities 326,402 300,109

Required:

a) As the Finance Manager of Partey Ltd, you have been tasked by the Board of Directors to produce a report. Assess the performance of the company over time based on profitability, liquidity, efficiency, and gearing.
(Note: Your report should include TWO (2) ratios each of profitability, liquidity, efficiency, and gearing).
(16 marks)

b) Management of the company wants to achieve improvement in technology and production processes to stimulate growth. However, this will require further injection of funds and less strain on operating cash flows. To achieve this, the Board of Directors of the company has resolved to convince the company’s largest debtholder, NGIC Pension Fund, to exercise the conversion right attached to the debt. The total value of the debt included in the financial statements for both financial years is GH¢100 million. The debt was issued at a coupon rate of 20% per annum. The annual coupon payments are also included in the financial statements above for both financial years. NGIC Pension Fund is also the second-largest shareholder of the company.

The estimated tax expense on the company’s profit for the year ended 31 December 2021, if the debt owed to NGIC Pension Fund is converted, is GH¢3.172 million. Current tax liability at 31 December 2021 is expected to increase by the same amount.

Required:
Assess the performance of the company for the year ended 31 December 2021 upon conversion of the debt owed to NGIC Pension Fund on 1 January 2021 at its carrying amount.
(4 marks)

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  • 5 Marks

MA – Nov 2018 – L2 – Q1b – Divisional Performance

Evaluate the impact of scrapping an inefficient bus on the ROI of a transportation business unit.

Super Express Transport Company runs a fleet of buses on the Accra-Sunyani route, which is considered a business unit.

The following is an extract from the final accounts of the company as at the last operating year:

  • Stock of buses on that route at cost less depreciation is GH¢660,000.
  • Net operating profit is GH¢198,000.

One of the buses, bought three years ago at the cost of GH¢150,000, was not performing efficiently because it got involved in an accident just a year after it was purchased. Although the damage was minor, the Operations Manager suggested that the bus be scrapped, in spite of the fact that it earned a profit of GH¢6,000 in the year. Depreciation is at the rate of 20% p.a. on a straight-line basis.

Required:
Evaluate the effect of this proposal on the performance of the business unit, if Return on Investment (ROI) is used to measure the performance of subunits. (5 marks)

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  • 15 Marks

CSEG – Nov 2017 – L2 – Q5a – Strategy evaluation and control

Explain the limitations of financial measures for evaluating performance and describe financial and non-financial measures that can be used.

During the past year, the management of Doncat Limited faced many challenges, including several customer complaints, loss of some key customers, and a high level of employee turnover. At a meeting of the Board of Directors, the Chief Executive Officer presented a report on the financial performance of the company during the period and, in his closing remarks, he said, “Overall, we have done very well, notwithstanding the challenges we faced.” Some members of the Board were not happy with these remarks and accused him of doing a “partial evaluation” of the company.

Required:

i) Explain FOUR limitations of the use of financial measures for evaluating the performance of the company. (6 marks)

ii) Describe THREE financial measures and THREE non-financial measures that Doncat Limited may use to evaluate its performance. (9 marks)

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