Series: APR 2022

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  • 10 Marks

SCS – Apr 2022 – L3 – Q8 – Controlling risk

Explain five factors of internal control that HPC can implement to strengthen governance.

The Accountant advised the CEO that to strengthen governance, the Board should concern itself with the establishment of strong internal control systems. Failures or weaknesses in internal controls will have adverse consequences for HPC’s finances, financial reporting, operational efficiency and effectiveness, or regulatory compliance.

Required:
Write a paper, explaining FIVE (5) factors to the Board the nature of internal controls that could be instituted by HPC to strengthen governance. (10 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q7 – Professional practice and codes of ethics

Discuss key governance issues based on Ghana’s Code of Best Practices considering the Board Chairman’s intentions.

In reference to Ghana’s Code of Best Practices in Corporate Governance, discuss FOUR (4) key issues that could determine how well or badly HPC is governed, taking into consideration the intention and business relationship of the Board Chairman. (10 marks)

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  • 20 Marks

SCS – Apr 2022 – L3 – Q6 – Investment decisions

Compute NPV for two investment options and evaluate potential benefits and difficulties for HPC.

a) For the two strategic development options being considered by HPC, compute:
i) the Net Present Value of Option 1.
ii) the Net Present Value of Option 2.
iii) the Net Present Value for the worst-case outcome for Option 1. (10 marks)

b) Discuss THREE (3) potential benefits and TWO (2) difficulties for HPC of undertaking each of the strategic development options. Your answer should include an evaluation of the calculations of the profitability index of each option. (10 marks)

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  • 20 Marks

SCS – Apr 2022 – L3 – Q5 – Identifying and assessing risk

Discuss eight business risks faced by HPC and recommend mitigation strategies based on the Turnbull Report.

In their Annual Business Review meeting, the Board of HPC discussed a report on Internal Controls and Risk Management, presented by the Internal Auditor. The Board Chairman in his comments mentioned that he would have been more comfortable with a Risk Management report categorized according to the Turnbull Report.

Required:
With reference to the Turnbull Report and the comments made by the Board Chairman, write a report discussing EIGHT (8) categories of business risks faced by HPC and recommendations to mitigate the identified risks. (20 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q4 – Strategy implementation

Explain why HPC’s decentralized system is preferable to a centralized system.

The Chief Executive Officer is concerned that with the expansion of the operations of HPC to other countries, she would further have to divulge authority and power to other Managers because of how the company would grow in size and complexity.

Required:
Explain to the CEO why HPC’s decentralized system of internal organizational relationship is preferable to a centralized system. (10 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q3 – Competitive advantage

Analyse how HPC can achieve competitive advantage using Porter’s six principles when expanding to Nigeria and Togo.

Consistent with its strategic ambition to expand its business into other countries, HPC is considering expanding to Nigeria and Togo.

Required:
Using Porter’s six principles of strategic positioning, analyse how HPC can achieve sustainable competitive advantage if it decides to expand the business to Nigeria and Togo. (10 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q2 – Environment analysis

Discuss HPC’s external business environment using PESTEL and evaluate limitations of PESTEL.

favourable or unfavourable to its present survival and future success. The influences (current influences and possible future influences) of the business environment of HPC need to be analysed to ensure that none are over-looked.

Required:

a) Using PESTEL analysis, discuss HPC’s external business environment that appears to be either favourable or unfavourable to its present survival and future success. (8 marks)

b) Discuss TWO (2) limitations of PESTEL as a technique in analysing the environmental influences of HPC. (2 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q1 – Strategy, stakeholders and mission

Discuss stakeholder groups' influence on business decisions using Mendelow's matrix.

As part of a review of the strategic position of HPC and its move to expand the business, management identified its major stakeholder groups, their power, and their expectations that could either fast-track or delay the implementation of the decision. These major stakeholder groups are the employees, farmers, regulatory authorities, and customers.

Required:
Using two matrices of approach to stakeholder mapping, discuss and show (with diagrams) the relative significance of stakeholder groups identified and their real and potential influences over HPC and its expansion strategies. (Use the stakeholder position/importance matrix and the stakeholder power/interest matrix – Mendelow matrix.) (10 marks)

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  • 3 Marks

FR – April 2022 – L2 – Q2c – Conceptual Framework for Financial Reporting

Determine the appropriate accounting treatment for a government grant received by Karikari Ltd for the purchase of a new plant and its impact on the financial statements.

c) On 1 June 2020, Karikari Ltd received a Government of Ghana grant of GH¢8 million towards the purchase of a new plant with a gross cost of GH¢64 million. The plant has an estimated life of 10 years and is depreciated on a straight-line basis. One of the terms of the grant is that the sale of the plant before 31 May 2024 would trigger a repayment on a sliding scale as follows:

The directors propose to credit the statement of profit or loss with GH¢2 million (GH¢8 million @ 25%) being the amount of the grant they believe has been earned in the year ended 31 May 2021. Karikari Ltd accounts for government grants as a separate item of deferred credit in its statement of financial position. Karikari Ltd has no intention of selling the plant before the end of its useful economic life.

Required:
Explain with computations, the appropriate accounting treatment of the above transaction in accordance with IAS 20 Government Grants and Disclosure of Government Assistance in the financial statements of Karikari Ltd for the year ended 31 May 2021. (3 marks)

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  • 6 Marks

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

b) Kundugu Ltd (Kundugu) is a manufacturing company located in the Savannah Region. The reporting date of Kundugu is 31 December, and the company reports under International Financial Reporting Standards (IFRSs). Kundugu intends to expand its production to take advantage of emerging economic activities in the new region.

On 1 January 2020, the company entered into a lease agreement for production equipment with a useful economic life of 8 years. The lease term is for four years, and Kundugu agrees to pay annual rent of GH¢50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5%, and the lessee’s incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GH¢130,026. Kundugu paid legal fees of GH¢1,000 to set up the lease.

Required:
Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for 2020 and 2021, showing how Kundugu should account for this transaction. (6 marks)

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  • 20 Marks

FA – April 2022 – L1 – Q4 – Accruals and prepayments | Bad and doubtful debt | Non-current assets and depreciation | Preparation of financial statements of a sole trader

Preparation of the Statement of Profit or Loss and Statement of Financial Position for a sole trader, including adjustments for depreciation, doubtful debts, and prepayments.

The following trial balance was extracted from the books of Nsaa Zolko, a sole trader, on 31 December 2020:

Account Debit (GHȼ) Credit (GHȼ)
Land 251,200
Equipment 202,220
Accumulated depreciation on equipment 62,830
Inventory 49,620
Receivable and Payable 124,200 104,350
Value Added Tax (refund due) 10,320
Deposit on rented premises (security deposit) 17,900
Bank and Cash balances 15,640
Allowance for doubtful debt 11,250
Tax Liability 7,420
Business Rent 30,000
Sales 804,500
Purchases 390,200
Returns 8,300 7,500
Discount 4,300 6,240
Distribution and Advertising 8,900
Power 4,200
Communication 1,540
Insurance 22,500
Wages and Salaries 164,380
Employers Social Security contribution 16,560
4% Long term loan 182,500
Long term loan interest 3,520
Bad debt 2,240
Drawings 10,580
Retained Earnings 44,820
Capital 103,710
Suspense 3,200
Total 1,338,320 1,338,320

Additional Information: i) The inventory count as at 31 December 2020 showed closing inventory value at GHȼ42,390. ii) Nsaa Zolko has agreed an annual rent of GHȼ40,000 with his landlord. iii) Included in insurance above is an amount of GHȼ18,000 paid to insure the equipment. The policy year ends 28 February 2021. iv) Nsaa Zolko has specific concerns over GHȼ5,120 of receivables balance and wishes to set up a specific provision with respect to these balances. The general provision on the remaining receivable balance should be at 5%. v) Depreciation is to be charged as follows:

  • Land: No Provision
  • Equipment: 15% reducing balance method (Depreciation should be calculated to the nearest whole number). vi) The suspense account balance above relates to sales of GHȼ1,600 which was recorded as purchases in error. The receivables and payables balances are correct.

Required:
a) Prepare a Statement of Profit or Loss for the year ended 31 December 2020.
(10 marks)

b) Prepare a Statement of Financial Position as at 31 December 2020.
(10 marks)

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  • 20 Marks

FA – April 2022 – L1 – Q2 – Bad and doubtful debt | Preparation of Partnership accounts

Preparation of bad debts, provision for bad debts accounts, and accounting for the admission and retirement of partners in a partnership.

a) Nkrumah runs a small business with total annual sales of GHȼ50,000. He has been reviewing the outstanding balances on his customers’ accounts and has provided the following aged analysis of trade receivables as at 31 March 2020.

Nkrumah’s credit policy is payment within 30 days. The provision for bad debt as at 1 April 2019 was GHȼ880. Nkrumah’s policy for overdue and irrecoverable debts is to:

  • Write off as an irrecoverable debt any debt outstanding for over 12 months.
  • Create specific provision for any debts outstanding between 4 and 12 months.
  • Make no provision for debts up to 1 month old.
  • Create a general provision of 4% for all other debts.

Required:
i) Prepare and balance off the following ledger accounts for Nkrumah for the year ended 31 March 2020:

  • Tetteh
  • Abena
  • Irrecoverable Debts
  • Provision for Bad Debts
    (6 marks)

ii) Prepare the Statement of Profit and Loss extract for irrecoverable debts and provision for bad debts for the year ended 31 March 2020.
(2 marks)

iii) Prepare the Statement of Financial Position extract for receivables as at 31 March 2020.
(2 marks)

b) The admission and retirement of a partner in a firm can only be done if all the existing partners have given consent unless otherwise agreed upon. At the time of admitting or retiring a partner, a new agreement is entered into and the firm is redesigned.

When a partner is admitted or retired in a partnership, some steps (procedures) are followed when accounting for his/her admission or retirement.

Required:
i) Detail the steps required when accounting for admission of a new partner.
(6 marks)
ii) Detail the steps required when accounting for the retirement of a partner.
(4 marks)

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  • 20 Marks

IMAC – APRIL 2022 – L1 – Q4 – Standard Costing and Variance Analysis

Factors for deciding time-based reward systems, measures to ensure task completion, challenges in implementing group bonus schemes, and uses of standard costing.

a) Most organisations use time as a basis to reward their employees, hence they pay their staff on a time basis using clock-in devices. Employers are therefore likely to pay for attendance instead of tasks performed. Accountants believe that employees should be rewarded based on tasks, however, not all tasks can easily be rewarded on a time basis.

Required:
i) State THREE (3) factors that should be considered when deciding to use a time-based reward system. (6 marks)
ii) State THREE (3) measures that can be put in place to ensure that employees do not only report for work but execute their tasks as required. (6 marks)

b) State THREE (3) challenges management may face in implementing group bonus schemes. (3 marks)

c) Standard costing among other advantages is used for performance measurement and control reporting.

Required:
Explain how the above uses of standard costing are measured. (5 marks)

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  • 20 Marks

IMAC – APRIL 2022 – L1 – Q5 – Standard Costing and Variance Analysis

Computation of variances for a product, derivation of a cost prediction formula using the high-low method, and explanation of seasonal variation models.

a) Magawa Ltd operates a standard variables costing system and manufactures a single product called “Magic Touch”.

The following quantities, costs and prices data have been extracted for the period just ended March 31, 2021 in respect of Magic Touch:

Standard cost card:

GH¢
Direct materials 15g at GH¢10/g = 150
Direct labour 8 hours at GH¢6/hour = 48
Variable overheads 8 hours at GH¢4/hour = 32
Standard contribution 25
Standard selling price per unit 255

Budgeted production units: 1,500

Actual results for the period ended March 31, 2021 were as follows:
Production and sales units 1,650
Selling price per unit GH¢278
Direct materials used 23,760g
Direct materials costs GH¢308,880
Direct labour hours worked 10,725
Direct labour costs GH¢85,800
Variable overheads GH¢68,000

Required: i) Compute the following variances for Magawa Ltd for the period ended March 31, 2021:

  1. Direct materials price variance. (1 mark)
  2. Direct materials usage variance. (1 mark)
  3. Direct labour rate variance. (1 mark)
  4. State ONE (1) possible reason for the material price variance calculated. (1 mark)
  5. State ONE (1) possible reason for the labour rate variance calculated. (1 mark)

b) The Valuation Department of a large firm of surveyors wishes to develop a method of predicting its total costs in a period. The following past costs and activity levels have been recorded.

Period Number of Valuations (V) Total Cost (TC) GH¢
1 420 82,200
2 515 90,275
3 425 82,900
4 500 90,000

Required: i) Derive a formula for the total cost model for a period. (4 marks) ii) Evaluate the usefulness of the high-low method. (4 marks)

c) The trend line on its own is not sufficient to make forecasts for the future. Estimates of the size of the ‘seasonal’ variation for each of the different seasons are needed. The seasonal variation is then used to adjust a forecast trend.

Required: Explain TWO (2) models used to estimate seasonal variations. (7 marks)

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  • 20 Marks

IMAC – April 2022 – L1 – Q3 – Cost Segregation and Estimation | Process Costing

Determination of prime and full costs of living room furniture and features of a process costing system.

a) Frankadua Furniture Works located at Bomaa in the Ahafo Region has a rough estimate of the materials and labour cost of a set of living room furniture. It is expected that 8 cubic metres of timber, 6 cubic metres of foam and 12 square metres of fabric can be used. Glue, screws and other accessories will also cost GH¢80.

The Carpenters who will do the cutting, joining and finishing will use 35 hours. Since the company is fairly new, it will engage a tailor to sew the fabric to fit the sizes of the units of the chairs. For each set the tailor will charge GH¢150. Labour is paid at GH¢12 per hour plus a premium of GH¢5 per hour when the job requires more than 20 hours.

Timber is priced at GH¢25 per cubic metre, foam is GH¢20 per cubic metre while the fabric is GH¢15 per square metre. The Accountant has estimated overhead absorption rate of 20% on direct material cost.

Required:
i) Determine the prime cost of a set of living room furniture. (10 marks)
ii) Determine the full cost of a set of living room furniture. (5 marks)

b) Kempion Breweries Ltd has just commenced business in the alcoholic beverage sector of Ghana producing a local gin called Pitoo and is desirous of having a good grasp of its costs for product costing, valuation and pricing purposes.

Required:
State FOUR (4) features of a process costing system to be used by Kempion Breweries to arrive at the total cost of Pitoo. (5 marks)

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  • 20 Marks

IMAC – April 2022 – L1 – Q2 – Budgeting

Preparation of functional budgets for Dampare Ltd and explanation of principal budget factor.

a) Dampare Ltd manufactures three products namely A, B, and C. The information given below relates to the month of November 2020.

Product Quantity (Units) Price/Unit (GH¢)
Sales:
A 1,200 80
B 2,400 96
C 1,800 112

Materials used in company’s Products:

Material MA MB MC
Unit cost GH¢3 GH¢5 GH¢8
Quantity used in: MA (Units) MB (Units) MC (Units)
Product A 5 3 1
Product B 4 4 3
Product C 3 2 2

Finished Stock:

Product A (Units) Product B (Units) Product C (Units)
Opening stock 1,200 1,800
Closing stock 1,320 1,980

Material Stock:

Material MA (Units) MB (Units) MC (Units)
Opening stock 31,200 24,000 14,400
Closing stock 37,440 28,800 17,280

Required: Prepare the following functional budget for the month of November 2020 for: i) Sales in quantity and value, including total value ii) Production quantities iii) Material usage in quantities iv) Material purchases in quantities and value, including total value. (15 marks)

b) Principal budget factor is such an important factor in the budgetary control process. It is essential to identify the principal budget factor before the preparation of budgets.

Required: i) Explain the term “Principal budget factor” as used in budgetary control. (2 marks) ii) Identify THREE (3) examples of Principal budget factor from financial institution. (3 marks)

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