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

FR – April 2022 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare consolidated statement of financial position for Stalky Ltd and its subsidiary Fanny Ltd as of 31 December 2020, including necessary adjustments.

The following financial statements relate to Stalky Ltd and Fanny Ltd:

Additional information:
1. Stalky Ltd acquired 30 million ordinary shares of Fanny Ltd on 1 January 2019 when the book value of Fanny Ltd’s share capital (including preference share capital) plus reserves stood at GH¢58 million. The recorded investment includes GH¢1.5 million due diligence costs incurred by Stalky Ltd to facilitate its acquisition of Fanny Ltd. Stalky Ltd has no interest in Fanny Ltd’s issued preference shares.

2. Fair value exercise conducted at the time of Fanny Ltd’s acquisition revealed the following:

  • A piece of equipment with a carrying amount of GH¢10 million had an assessed fair value of GH¢16 million. Estimated remaining useful life: six years.
  • An in-process research and development project valued at GH¢5 million was identified. It started generating economic benefits a year ago and is expected to continue for four more years.
  • Deferred tax provision of GH¢1 million was required. By 31 December 2019, the provision required had reduced to GH¢0.9 million, and by 31 December 2020 had decreased further to GH¢0.7 million.

3. During the year, Stalky Ltd sold goods worth GH¢25 million to Fanny Ltd with a mark-up of one-third. At 31 December 2020, Fanny Ltd’s inventories included GH¢4.8 million of these goods. At 31 December 2019, Fanny Ltd’s inventories included GH¢3 million worth of goods purchased from Stalky Ltd at the same mark-up. Ignore deferred tax implications on these items.

4. The trade receivables of Stalky Ltd included GH¢8 million receivable from Fanny Ltd. This balance did not agree with the equivalent trade payable in Fanny Ltd’s books due to payment of GH¢2 million made on 30 December 2020 by Fanny Ltd to Stalky Ltd.

5. The group’s policy is to measure the non-controlling interests in subsidiaries at fair value. The fair value per ordinary share in Fanny Ltd at acquisition was GH¢1.50. Goodwill was impaired by 10% for the year ended 31 December 2019. A further impairment of 10% of the remaining goodwill is required in the current period. All impairment losses are charged to operating expenses.

Required:
Prepare the Consolidated Statement of Financial Position as at 31 December 2020 for Stalky Ltd Group.

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  • 4 Marks

FR – April 2022 – L2 – Q2d – Conceptual Framework for Financial Reporting

Explain the definition of investment property under IAS 40 and discuss the differences between the fair value model and revaluation model for investment properties.

d) The recognition, measurement, and disclosure of an Investment Property in accordance with IAS 40: Investment Property appears straightforward. However, this could get complicated when measured either under the fair value model or under the revaluation model.

Required:
i) Define Investment Property under IAS 40 and explain the rationale behind its accounting treatment. (2 marks)

ii) Explain how the treatment of an investment property carried under the fair value model differs from an owner-occupied property carried under the revaluation model. (2 marks)

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  • 20 Marks

FR – April 2022 – L2 – Q3 – Preparation of Financial Statements and Adjustments

Prepare the statement of comprehensive income and statement of financial position for Caput Plc for the year ended 31 December 2020, incorporating necessary adjustments.

The trial balance of Caput Plc, as at 31 December, 2020 is provided below:


Additional Information:
1. An inventory count at 31 December 2020 amounted to GH¢15,750,000. This includes damaged goods with a cost of GH¢1,200,000. These will require remedial work costing GH¢675,000 and could be sold for GH¢1,425,000.
2. Finance cost is made up of the full year’s preference and ordinary dividends paid.
3. Non-Current Assets:

  • Land and Building were revalued at GH¢22,500,000 and GH¢72,000,000 respectively on 1 January 2020, resulting in revaluation gain of GH¢11,000,000 for the current year. At that date, the remaining life of the building was 15 years. Depreciation is on a s

    • traight-line basis. Ignore deferred tax implications.

  • Depreciation on Plant and Equipment is at 12.5% on a reducing balance basis.
  • Investment Property: On 31 December 2020, a qualified surveyor valued the property at GH¢20,250,000. Caput Plc uses the fair value model under IAS 40: Investment Property to value its investment property.
  • It is the policy of the company to charge depreciation on a full-year basis

    • .

4. The directors have estimated the provision for income tax for the year ended 31 December 2020 at GH¢12,000,000. The deferred tax for the year ended 31 December 2020 is to be adjusted so that the tax base of the company’s net assets is GH¢18,000,000 less than the carrying amount. Assume the rate of tax is 30%.
5. On 1 October 2020, Caput Plc imported a piece of equipment from a European supplier for €1 million and agreed to settle the bill in six months’ time. The relevant exchange rates are provided below:

No entries have been made for the above transaction. Any exchange difference on translation should be debited or credited to operating expenses.
Required:
Prepare for Caput Plc:
a) Statement of Comprehensive Income for the year ended 31 December 2020. (10 marks)
b) Statement of Financial Position as at 31 December 2020. (10 marks)

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  • 10 Marks

FR – April 2022 – L2 – Q5a – Conceptual Framework for Financial Reporting

Justify how qualitative characteristics of financial information apply to tangible non-current assets using examples.

The IASB’s Conceptual Framework identifies, among others, the qualitative characteristics of relevance, faithful representation, comparability, and understandability.

Required:
Justify with an example each how the qualitative characteristics will apply to the treatment of tangible non-current assets. (10 marks)

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  • 20 Marks

FR – April 2022 – L2 – Q4 – Financial Statement Analysis

Analyze the performance and position of Abayie Ltd based on its financial statements, comparing it with key sector ratios, and prepare a report for shareholders.

Abayie Ltd is a listed company in Ghana and operates many supermarkets in Ghana. The following statements relate to Abayie Ltd for the year 2020:

Statement of Profit or Loss for the year ended 31 December 2020




Additional Information:
Key ratios for the supermarket sector (based on the latest available financial statement of 12 listed entities in the sector) are as follows:

  • Gross Profit margin: 5.9%
  • Return on Capital Employed (ROCE): 3.9%
  • Net Assets Turnover: 1.93 times

Required:
Prepare a report addressed to the shareholders of Abayie Ltd, analyzing the performance and position of Abayie Ltd based on the financial statements and additional information provided. The report should also include comparisons with key sector ratios (where appropriate). (Total: 20 marks)

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  • 5 Marks

FR – April 2022 – L2 – Q5b – Financial Reporting Standards and Their Applications

Outlines mandatory testing requirements for impairment of certain assets under IAS 36.

In accordance with IAS 36: Impairment of Assets, an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indications exist, the entity shall estimate the recoverable amount of the asset. However, some assets would require mandatory testing for impairment.
Required:
Outline assets that require mandatory testing for impairment in accordance with IAS 36: Impairment of Assets. (5 marks)

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  • 5 Marks

FR – April 2022 – L2 – Q5c – Professional and Ethical Issues in Financial Reporting

Discuss safeguards for mitigating threats to ethical behavior in the context of tax compliance.

Question:
Michael Onipa, a Chartered Accountant, is under pressure from his employees to under declare sales for the year ended 2021 to save the company from paying the due tax for the year. He has evaluated the threat to his professional obligations to comply with the fundamental principles of good ethical behavior, as significant. He has therefore considered safeguards to eliminate or reduce the threat to an acceptable level.

Required:
Discuss TWO (2) safeguards Michael Onipa could consider to either eliminate or reduce the threats to an acceptable level.
(5 marks)

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  • 5 Marks

PT – April 2022 – L2 – Q1a – Income Tax Liabilities

Explain taxation principles for resident and non-resident individuals.

a) Explain the taxation principles of the following:

i) Resident individual
ii) Non-resident person
(5 marks)

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  • 5 Marks

PT – April 2022 – L2 – Q1b – Overview of the Ghanaian Tax System and Fiscal Policy

Justify the use of public debt as an alternative to taxation in Ghana's development agenda.

b) The development agenda of a developing country like Ghana can only be brought to reality through the availability of funds. The two (2) main sources of government revenue are taxation and debt. In spite of the fact that taxation remains the most reliable source of government revenue for government plans, projects and programmes, it is said to be limited in its role and function in the economy.

Required:
Justify the use of public debt as an alternative to taxation.
(5 marks)

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  • 9 Marks

PT – April 2022 – L2 – Q2a – Value Added Tax (VAT)

Describe activities under VAT that do not require meeting the threshold rule before registration is done.

a) Meeting the threshold is a requirement for VAT registration. Others may come under voluntary registration. However, certain activities must be registered despite the above rules.

Required:
Describe activities under VAT, which do not require meeting the threshold rule before registration is done.
(9 marks)

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