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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  • 7 Marks

CR – Apr 2022 – L3 – Q2c – Earnings Per Share

Calculate and restate earnings per share (EPS) for the current and previous year, factoring in rights and bonus issues under IAS 33.

On 1 January 2020, Kalimba Ltd had 2 million ordinary shares in issue. On 30 April 2020, the company issued 270,000 ordinary shares at full market price. On 31 July 2020, the company made a rights issue of 1 for 10 at GH¢2. The fair value of the shares on the last day before the rights issue was GH¢3.10. On 30 September 2020, the company made a 1 for 20 bonus issue. Profit for the period was GH¢400,000. The reported earnings per share for the year ended 31 December 2019 was GH¢0.186.

Required:
Calculate the earnings per share (EPS) for the year ended 31 December 2020, and the restated EPS for the year ended 31 December 2019, in accordance with relevant International Financial Reporting Standards (IFRS).

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  • 7 Marks

CR – Apr 2022 – L3 – Q2b – IAS 19: Employee benefits

Recommend accounting treatment for pension obligations and restructuring costs in financial statements in accordance with relevant IFRS.

Kaase Ltd, a public limited company, operates in the technology sector in Ghana. The company has decided to restructure one of its business segments, affecting employees in two locations. In the first location (A), half of the factory units were closed by 31 March 2021, and the affected employees’ pension benefits were frozen. After restructuring, the present value of the defined benefit obligation in this location was GH¢8 million. Before restructuring, the value was GH¢10 million, and the fair value of plan assets was GH¢7 million, resulting in a net pension liability of GH¢3 million.

In the second location (B), all activities were discontinued, and employees will receive GH¢4 million in exchange for a pension liability of GH¢2.4 million. Kaase Ltd estimates that restructuring costs excluding pension costs will be GH¢6 million. No formal announcement has been made due to a planned rights issue. The pension liability is currently included in non-current liabilities.

Required:
Recommend the accounting treatment of the above transaction in the financial statement of Kaase Ltd, including financial statement extracts for the year ended 31 March 2021, in accordance with relevant International Financial Reporting Standards (IFRS).

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  • 6 Marks

CR – Apr 2022 – L3 – Q2a – Impairment of assets, IAS 36

Discuss the significance of three factors affecting impairment testing under IAS 36, including market capitalization and allocation of goodwill.

An assessment of accounting practices for asset impairments is important in the context of financial reporting quality, especially during periods of economic uncertainty. The exercise of management judgment in impairment accounting is crucial. There are several factors that can influence the quality of impairment accounting and disclosures, including changes in circumstances, market capitalization, and the allocation of goodwill to cash-generating units.

Required:
Discuss the significance of the THREE (3) factors above when conducting an impairment test under IAS 36: Impairment of Assets.

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  • 20 Marks

CR – Apr 2022 – L3 – Q1 – Consolidated financial statements, Business combinations and consolidation,

Prepare a consolidated statement of financial position for a group of companies considering complex adjustments for goodwill, impairments, and non-controlling interests.

Below are the statements of financial position for three companies as of 31 July 2021:

Statements of Financial Position as at 31 July 2021 Papa Plc GH¢’million Mama Plc GH¢’million Bebe Plc GH¢’million
Non-current assets:
Property, plant, and equipment 3,888 1,680 1,224
Investments 3,560 2,600 200
Total non-current assets 7,448 4,280 1,424
Current assets:
Inventories 1,080 368 300
Trade receivables 1,376 416 100
Cash & bank 368 104 64
Total current assets 2,824 888 464
Total assets 10,272 5,168 1,888
Equity:
Share capital of GH¢1 each 4,000 1,200 640
Revaluation surplus 2,400 960 400
Retained earnings 1,432 800 760
Total equity 7,832 2,960 1,800
Current liabilities:
Trade payables 1,144 1,080 56
Taxation 1,296 1,128 32
Total current liabilities 2,440 2,208 88
Total equity and liabilities 10,272 5,168 1,888

Additional information:

  1. Papa Plc bought 720 million shares in Mama Plc on 1 August 2019 at GH¢2.50 per share in cash. On that date, Mama’s retained earnings were GH¢480 million, and net assets equaled their carrying amounts except for property, plant, and equipment, which had a fair value excess of GH¢320 million.
  2. Papa implements a policy of carrying property, plant, and equipment at fair values across group companies from the date of acquisition.
  3. On 1 August 2020, Mama bought 512 million shares in Bebe Plc. The consideration was GH¢3 per share in cash with an additional payment of GH¢1 per share due on 31 July 2022. The fair value of the contingent consideration was GH¢320 million on 1 August 2020 and GH¢416 million on 31 July 2021. Bebe’s retained earnings were GH¢664 million, and the revaluation surplus was GH¢360 million.
  4. Bebe controls the brand “Y start,” with a fair value of GH¢40 million and a useful life of 20 years. This has not been recognized in the accounts.
  5. Papa uses the fair value method for non-controlling interests, using GH¢2.50 per share for this purpose.
  6. Goodwill impairment loss of GH¢40 million for Mama and GH¢20 million for Bebe was recognized on 31 July 2021.
  7. Mama bought goods from Bebe for GH¢16 million, with 60% unsold at year-end. These goods cost Bebe GH¢12 million.

Required: Prepare the Consolidated Statement of Financial Position for Papa Group as of 31 July 2021, in accordance with IFRS.

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  • 20 Marks

AT – April 2022 – L3 – Q3 – International taxation | Tax planning

Analyze tax implications for Jones Addoteye and Maame Abrefa's company Addofa Ltd, including working time sharing, export activities, and tax planning opportunities.

Jones Addoteye is a Ghanaian Citizen by birth but has also acquired a British Citizenship. He has lived in Britain for several years and relocated to Ghana in January 2015. He decided to invest his life-long savings in Ghana by incorporating a company limited by shares with his wife, Maame Abrefa who also happens to be a Ghanaian/British. Jones and his wife are the only shareholders of the company called Addofa Ltd which was registered with the Registrar Generals Department in January 2016.

Jones and his wife Maame Abrefa continue to maintain links with Britain even though they have relocated to Ghana. This is because they still have some economic interest in Britain. In view of this, they decided to share their working time in both Ghana and Britain following an advice from a Junior Tax Consultant of one of the Ghanaian Tax Firms. The junior tax consultant informed them they will be tax efficient if they share their working time.

Part of their object for setting up Addofa Ltd was to produce poultry for sale to the Ghanaian market in the first few years and later export the poultry products to other countries. It is also part of Addofa Ltd’s growth strategies that after five (5) years, it will process and package the poultry in an edible manner for export to other African markets. This poultry processing business will be carried out in a new company which they intend to set up. Both companies will be located at Cape Coast, the Central Regional Capital. Business for Addofa Ltd is expected to grow significantly in 2021.

Addofa Ltd also invested 37% equity in another Ghanaian company from which they received dividend of GH¢50,000 in 2018.

Mr. Jones Addoteye intimated to you that even though he had some initial advice, he was still not sure if his wife and himself were making optimal tax decisions for themselves and for the company. He has therefore approached you as an experienced Tax Consultant for advice. They wish to take advantage of the beneficial provisions of the Income Tax Laws to arrange their personal and company affairs to be tax efficient.

Required:

a) Evaluate the tax implications on Jones Addotey and Maame Abrefa sharing their working time between Ghana and Britain. (8 marks)

b) Explain the tax implications available to Addofa Ltd if it goes into export or sell in the local market. (4 marks)

c) Explain the tax planning opportunities available to the new company to be set up. (4 marks)

d) Discuss the tax compliance obligations for Addofa Ltd at the time of commencement of operations in Ghana. (4 marks)

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  • 20 Marks

AT – April 2022 – L3 – Q4 – Capital allowance | Business income – Corporate income tax

Calculate capital allowance and chargeable income for Joefel Company Ltd. Explain sources of revenue from upstream petroleum operations in Ghana.

a) Joefel Company Ltd, manufacturer of fruit juice for local consumption commenced business on 1 October 2019, with accounting year-end at 31 December each year. The company submitted its accounts for 2019 and was assessed accordingly. The company submitted its tax returns for 2020 year of assessment to the Ghana Revenue Authority on 30 April 2021. Below are the details:

Additional information:
1) Advert and publicity
Radio and television 3,300
Newspaper advert 2,400
Permanent signboard at the company’s entrance in 2020 18,000

2) Installation of plant and others
Installation of plant 21,500
Heavy duty Generator bought in 2019 to support Plant and Machinery 20,500
General maintenance before the use of the plant 18,000

3) Staff Welfare
Staff medical bills 3,700
Safety wear for staff 10,500
Canteen Equipment purchased on 30 November 2020 12,000

4) Donation and Subscription
Goods given as gratis to customs officials 13,000
Donation of goods to SOS Children Village 10,000
Subscription to Association of Ghana Industries 5,000

5) Wages and Salaries
Old staff 120,000
Fresh graduates employed by Joefel Company Ltd. (Fresh graduates
constitute 1% of total workforce) 26,000

6) Other Income
Compensation from a customer for cancellation of a sale order 8,000
Compensation for loss of trading stock of the company 10,000
Compensation for cancellation of purchase order by supplier 5,000

Note 2) above has not been included in the plant and machinery acquired.

Required:

a
i) Compute the appropriate capital allowance for 2019 and 2020 years of assessment.
(8 marks)
ii) Calculate the chargeable income of the company for the 2020 year of assessment.
(6 marks)
b) Explain of the following sources of revenue accruing to the Government of Ghana from the upstream petroleum operations in Ghana:
i) Royalty.
ii) Carried Interest.
iii) Additional Interest.
iv) Additional Oil Entitlement.
(6 marks)

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  • 6 Marks

AT – April 2022 – L3 – Q2c – Tax planning | Business income – Corporate income tax

Explain tax incentives for farming, agro-processing, and rental income from cocoa farming activities.

Tax incentives have traditionally been used by governments as tools to promote a particular economic goal. They are preferential tax treatments offered to a selected group of taxpayers and may take the form of tax exemptions, tax holidays, preferential tax rates, and others.

Required:
Explain the tax implications of the following:
i) A person engaged in Farming activity
ii) A person engaged in Agro-Processing activity
iii) The rental income of a person engaged in Cocoa Farming activity

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  • 6 Marks

AT – April 2022 – L3 – Q2b – Tax planning

Explain how a Free Zone Enterprise can mitigate its tax liabilities and benefit shareholders.

Free Zone means area or building declared as a free zone by publication in commercial and industrial bulletins. It includes Single Factory Zones, Free Ports, Free Airports, and other specified areas. Free Zone operations are export-led and aimed at promoting foreign earnings for Ghana.

Required:
What mitigation measures will a Free Zone Enterprise adopt to reduce its tax liabilities and raise enough benefits to the shareholders?

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  • 8 Marks

AT – April 2022 – L3 – Q2a – Anti-avoidance measures

Discuss four factors the Commissioner-General will consider in comparability analysis for transfer pricing arrangements.

In response to some taxpayers’ behaviour, transfer pricing regulation has been passed to ensure that all arrangements are conducted at arm’s length. The Commissioner-General in his dealings with taxpayers must ensure that market price drives business transactions. The Commissioner-General reserves the right to allege abuse of transfer pricing if certain factors point to the fact that there is an arrangement not in accord with the dictate of market forces.

Required:
Explain FOUR (4) factors the Commissioner-General will rely on in his comparability analysis in Transfer Pricing arrangements.

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  • 8 Marks

AT – April 2022 – L3 – Q1c – International taxation

Calculate chargeable income, tax payable, and foreign tax credit for Lawaaba Guo.

Lawaaba Guo is a Ghanaian born in Nigeria and has lived all his life there. He got an opportunity to relocate to Ghana and took up an appointment as a lecturer in one of the prestigious universities within the first three months of his arrival in Ghana in 2018.

He took up employment with ABB Ltd as a procurement officer. The following relates to his employment details for 2020 year of assessment:

  • Salary: GH¢200,000
  • Commission from employers: GH¢10,000
  • Interest on savings from a Bank in Ghana (Gross): GH¢1,000

His investment income and other returns received from Nigeria are as follows:

  • Dividend of US$ 12,000 net of tax. Tax of US$ 1,000 was paid.
  • Rental Income of USD 6,000 gross with tax at the rate of 10%.
  • On-line consultancy fee USD 20,000 net of tax. Tax of USD1,500 was paid.

Additional information:

  • He is married.
  • Children (2): both schooling in Nigeria.
  • Contributes to Social Security at 5.5%.
  • Exchange Rate USD1 = GH¢5.2.

Required:
Determine the following:
i) Chargeable Income
ii) Tax Payable
iii) Amount of foreign credit relief granted

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