Series: JULY 2023

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SCS – July 2023 – L3 – Q6b – Conflicts of Interest and Ethical Conflict Resolution

Explain the ICSA guidance on decisions that the board should reserve for itself and not delegate to individual or executive managers.

The Director of Human Resources and Organisational Development is concerned that her recent presentation about matrix management structure and performance management should be sent to the board for approval. Prof. Ernest Kofi Mensah vehemently disagrees. He referred her to the Institute of Chartered Secretaries and Administrators (ICSA) guidance.

Required:
Identify and explain FOUR (4) of the Institute of Chartered Secretaries and Administrators (ICSA) guidance on decision-making responsibilities that the board should reserve to itself and should not be delegated to individual or executive managers to confirm and comment on the view that the Director of Human Resources and Organisational Development’s matrix structure presented is not one of the issues which require board approval before implementation.

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SCS – July 2023 – L3 – Q6a – Professional Practice and Codes of Ethics

Explain five reasons why the Director of Finance and Operations might project finance over other functions.

Some of the SavvyTech plc management team is concerned that the Director of Finance and Operations is domineering during the acquisition engagement processes at meetings. The Director of Finance and Operations mentioned in anger that ‘arguably, accountancy has an influence on business and government and that is both:
i) continuous and
ii) more extensive than any other profession’.

Required:
As a newly qualified Chartered Accountant responsible for code of ethics in SavvyTech plc, identify and explain FIVE (5) reasons in support of why the Director of Finance and Operations seems to be projecting finance over other functions.

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SCS – July 2023 – L3 – Q5b – Sources of Finance

Explain two benefits of increasing long-term capital using retained profits.

When companies retain profits in the business, the increase in the retained profits adds to equity reserves. This view was suggested by SavvyTech plc management team to the board. The Board is not convinced and seek further explanation.

Required:
Explain TWO (2) benefits to the board of directors on what it means to increase long-term capital using retained profits in SavvyTech plc.

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SCS – July 2023 – L3 – Q5a – International financial management

Calculate the group profits from the sale of HVSC based on the transfer price set at market price and 25% of Utopia's unit cost.

As the Head of Finance of SavvyTech plc, the Director of Finance and Operations has assigned you to use the forecast data (Table 8) and the “additional information” provided to calculate the following to support engagement by the management team with the Board.

Required:
Calculate the group profits to be realised from the sale of HVSC, if the transfer price for the component is set at its market price, which is GH¢26 per unit (total Ghana cost) plus 25% of Utopia’s unit cost.

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SCS – July 2023 – L3 – Q4 – Controlling Risk

Prepare an internal memo on how SavvyTech's board can show commitment to risk management and create a risk-aware culture.

Essential aspects of risk management and control are the culture within the organisation. The culture within the organisation is set by the board of directors and senior management (the tone at the top), but it should be shared by every manager and employee.

Required:
You are the ‘Risk and Assurance Manager’ of SavvyTech plc with the responsibility of creating a culture of risk awareness in the organisation. Prepare an internal memo for the management team to be discussed with the board of directors on what they must do to show their own commitment to risk management in the things that they say and do.

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SCS – July 2023 – L3 – Q3b – Strategy Implementation

Identify and explain four reasons why SavvyTech needs to research, innovate, and develop existing and new products.

Business entities must innovate to survive and grow. The Director of Marketing and Sales, in a meeting, presented a product market annual performance analysis report and highlighted that the sales trend of the ‘Wrist Organiser 3b’, introduced in 2018, reduced by 75% in 2022 and by 50% in 2021.

Required:
As a member of SavvyTech plc management team, identify and explain FOUR (4) reasons why it is necessary to research, innovate and develop existing and new products as an organisation.

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SCS – July 2023 – L3 – Q3a – Strategy Implementation

Identify and explain five internal triggers of change at SavvyTech plc with examples from the case study.

Change happens continually within organisations, and the markets within which SavvyTech plc operate are not an exception. Strategic development inevitably results in some changes, which need careful management. Some of SavvyTech plc’s internal triggers of change are motivated or caused by developments within the organisation.

Required:
Review SavvyTech plc case study, identify, and explain FIVE (5) internal triggers of change with specific examples from the case.

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SCS – July 2023 – L3 – Q2b – Strategy Implementation

Explain three broad corporate parenting styles described by Goold and Campbell that SavvyTech might adopt.

SavvyTech plc’s management team is debating the corporate parenting strategy that should be adopted. Corporate parenting refers to the relationship between the Head Office and the strategic business unit staff in Utopia.

Required:
As a lead consultant, explain to SavvyTech plc management team THREE (3) broad parenting styles that might be adopted as described by Goold and Campbell (1991).

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SCS – July 2023 – L3 – Q1b – Controlling Risk

Explain why FCA might be difficult to use for the HVSC discussion at SavvyTech.

After the presentation of the SAM four-step approach to the management team, the Director of Finance and Operations made the following statement: ‘The data required for FCA is usually only available in organisations that are at the forefront in responding to the environmental agenda’ (Bebbington, Gray, Hibbitt, and Kirt, 2001).

Required:
Explain to the management team why it might be difficult to use FCA to support the ongoing discussion about the new product HVSC.

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PT – July 2023 – L2 – Q2d – Income Tax Liabilities

Explanation of the basis for calculating pension benefits under the National Pensions Act, 2008 (Act 766).

Explain the basis for calculating pension benefits under the National Pensions Act, 2008 (Act 766). (5 marks)

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PT – July 2023 – L2 – Q2c – Value-Added Tax (VAT), Customs, and Excise Duties

Breakdown of VAT and other taxes included in a phone bill using a given total amount.

Kingsly Atakora is a postpaid customer of MTN Ghana Ltd. He received his July 2022 billing from MTN Ghana Ltd amounting to GH¢3,121 inclusive of all taxes and levies. He is worried about the amount charged for his telephone usage for the month and wants to know the tax composition in the charge.

Required:
Compute the amounts of the following taxes included in the bill for July 2022:
i) VAT
ii) National Health Insurance Levy (NHIL)
iii) Ghana Education Trust Fund Levy (GETL)
iv) Covid-19 Levy
v) Communication Service Tax (CST)

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PT – July 2023 – L2 – Q2b – Value-Added Tax (VAT), Customs, and Excise Duties

Explanation of three situations where a taxpayer cannot claim an input tax under VAT rules.

State THREE (3) situations under which a taxpayer cannot claim an input tax. (3 marks)

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PT – July 2023 – L2 – Q2a – Value-Added Tax (VAT), Customs, and Excise Duties

Explanation of five circumstances under which the Commissioner-General may cancel a VAT registration.

State FIVE (5) circumstances under which the Commissioner-General may cancel a VAT registration of a taxable person. (5 marks)

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PT – July 2023 – L2 – Q1c – Tax Administration

Explanation of self-assessment, pre-emptive assessment, administrative assessment, and tax audit assessment.

Explain the following as used in tax administration:
i) Self-Assessment
ii) Pre-emptive Assessment
iii) Administrative Assessment
iv) Tax Audit Assessment

(10 marks)

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PT – July 2023 – L2 – Q1b – Overview of the Ghanaian Tax System and Fiscal Policy

Explanation of four functions of the District Assembly Common Fund (DACF).

Explain FOUR (4) functions of the District Assembly Common Fund (DACF). (5 marks)

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PT – July 2023 – L2 – Q1a – Overview of the Ghanaian Tax System and Fiscal Policy

Explanation of how the characteristics of a good tax system can improve Ghana’s tax system.

Adam Smith, reputed as the father of economics, postulated the characteristics of a good tax system as: “equity”, “certainty”, “convenience”, and “economy”. These postulates are still as relevant today as they were in Adam Smith’s days.

Required:
Explain how these characteristics of a good tax system can be employed by the Finance Minister of Ghana to improve the tax system of Ghana. (5 marks)

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CR – July 2024 – L3 – Q5 – Analysis and Interpretation of Financial Statements

Analyze Towobo Ltd’s financial health and provide advice on whether ABC Mutual Funds should invest.

Presented below are the common-sized financial statements of Towobo Ltd over the last five years:

Vertical Common-Sized Statements of Profit or Loss for the Years Ended 31 December

% 2022 2021 2020 2019 2018
Revenue 100.00 100.00 100.00 100.00 100.00
Cost of sales (88.58) (85.45) (84.92) (87.36) (92.70)
Gross profit 11.42 14.55 15.08 12.64 7.30
Distribution & marketing costs (1.00) (0.86) (0.83) (1.15) (0.87)
Administrative expenses (0.74) (0.79) (0.88) (0.85) (0.73)
Other operating income 2.06 1.78 0.77 0.58 0.69
Other operating expenses (1.36) (0.86) (1.21) (1.20) (0.94)
Profit from operations 10.38 13.82 12.93 10.02 5.45
Finance cost (0.02) (0.04) (0.02) (0.05) (0.10)
Profit before tax 10.36 13.78 12.92 9.97 5.35
Tax (3.25) (3.98) (4.05) (3.25) (2.61)
Profit after tax 7.11 9.80 8.86 6.72 2.74

Vertical Common-Sized Statements of Financial Position as at 31 December

% 2022 2021 2020 2019 2018
Non-current assets
Property, plant & equipment 8.49 8.55 15.50 20.27 23.33
Intangible assets 0.52 0.72 0.44 0.51 0.70
Capital work-in-progress 0.13 0.39 7.39 0.28 0.66
Long-term loans & advances 0.33 0.22 0.52 3.20 3.65
Total non-current assets 9.47 9.88 23.85 24.26 28.31
Current assets
Inventories 14.20 13.19 25.51 40.61 32.25
Receivables 0.16 0.09 0.53 0.32
Prepayments, advances, & other receivables 22.33 17.65 6.21 10.69 20.33
Short-term investments 35.15 40.67 7.10
Cash and bank balances 18.69 18.52 36.80 24.12 19.11
Total current assets 90.53 90.12 76.15 75.74 71.69
Total assets 100.00 100.00 100.00 100.00 100.00
Equity
Issued, subscribed & paid-up capital 2.43 2.77 8.81 10.25 11.59
Retained earnings 16.50 10.69 18.24 3.78 0.62
Other reserves 10.10 11.91 21.95 22.74 7.20
Total equity 29.03 25.37 49.00 36.77 19.41
Non-current liabilities
Pensions liabilities 0.16 0.12 0.51 0.38 0.36
Deferred tax 0.74 0.71 0.83
Deferred revenue 0.02 0.02 0.06 0.08 0.10
Total non-current liabilities 0.92 0.85 1.40 0.46 0.46
Current liabilities
Trade, dividend & other payables 70.04 73.15 49.60 62.73 80.02
Current portion of deferred revenue 0.01 0.01 0.04 0.03
Income tax 0.62 0.01 0.11
Total current liabilities 70.05 73.78 49.60 62.77 80.13
Total equity & liabilities 100.00 100.00 100.00 100.00 100.00

Required:
As the Financial Advisor to ABC Mutual Funds, report on the financial health or otherwise of Towobo Ltd based on the vertically analysed financial statements and advise ABC Mutual Funds on whether to invest in Towobo Ltd. Your report should focus on the profitability and cost control analysis, asset structure, capital structure, and working capital structure.

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CR – July 2024 – L3 – Q4b – Business combinations and consolidation

Explanation on how an acquirer can obtain control of an acquiree without transferring consideration.

An acquirer may obtain control of an acquiree without transferring consideration. In such cases, IFRS 3 requires an acquirer to be identified, and the acquisition method to be applied.

Required:
Briefly explain how this situation may come about and highlight the appropriate consolidation treatment required.

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CR – July 2024 – L3 – Q4a – Business Valuation

Determine a range of values for Alomo's equity in Bediako Metals Ltd using three valuation bases: Net assets, Earnings, and Dividend yield.

Question:

Alomo Investments and Financial Services (Alomo) is a locally based investment portfolio firm which holds several financial assets across different industries in Ghana. Alomo holds some equity assets in Bediako Metals Ltd (Bediako). Currently, Alomo is preparing its financial statements and would like to know the fair value of its current year-end 20% equity holdings in Bediako based on the latter’s recently available financial data (for the year ended 31 December 2021) provided below:

Items GH¢ million
Tangible assets 895
Non-current financial assets 150
Current assets 485
Total liabilities (including all redeemable preference share capital) 750
Irredeemable preference share capital 100
Draft profit after tax 170

Additional information:

  1. At year-end, the entity had to make a downward revision of decommissioning provision relating to one of its plants as both the expected cash outflows and the current-market rate discount rate were reassessed. Reduction of GH¢40 million (appropriately discounted) has been used to revise the liability and same credited to profit or loss.
  2. Bediako holds some 3-year bonds which are measured at fair value through other comprehensive income. Coupon and effective interest rates, which are the same, have been correctly dealt with. The carrying value of these bonds is GH¢92 million, and the bonds are yet to be revised to reflect their year-end fair value. For the purpose of obtaining the appropriate fair value in line with IFRS 13: Fair value measurement, the following information has been obtained:
Reference to most advantageous market GH¢ million
Quoted market prices 120
Quoted market prices (with minor adjustment) 85
Based on own model 140
  1. The directors of Bediako Ltd have refused to agree with their external auditors to a reduction in the year-end inventory value for the firm’s main product. As a result, the auditors have issued a qualified opinion on the financial statements. The items in question are being included in current assets at the cost of GH¢200 million. The auditors noted during their subsequent event procedures that 90% of these items had been sold for 95% of their cost.
  2. The directors also failed to cooperate with the Finance Director (FD) over how the issued 5-year bonds should be accounted for. The FD’s position is that, though the firm has clear intention to pay all interests and principal on the bonds to the bondholders, such treatment would result in a very huge measurement mismatch. Hence, the fair value option should be taken. Taking that option would have created a fair value gain on the bond by GH¢12 million (including a credit-worthiness element of GH¢5 million).
  3. On 30 June 2021, Bediako Ltd made an issue of 30 million new ordinary shares to a venture capital firm to raise GH¢120 million. Later, on 1 November 2021, the entity also made a capitalisation issue on the basis of one new share for every four shares held at that time. Bediako has correctly accounted for these issues in its financial statements. Its total number of ordinary shares outstanding as at 31 December 2021 was 200 million.
  4. Ordinary dividends for the current period, when compared to the draft profit attributable to ordinary shareholders, translate into a dividend cover of 5:1. The following details relate to preference dividends paid by Bediako during the current year:
Class of shares Type of dividend GH¢ million
Irredeemable preference shares (non-cumulative) Final 10
Redeemable preference shares (non-cumulative) Final 15

Bediako has correctly accounted for these dividends.

  1. A comparable listed firm provides a price/earnings ratio of 12 and dividend yield of 4%. A risk factor of 20% should be assumed.

Required:
Determine a range of values for Alomo’s equity investment in Bediako using the following bases:
i) Net assets basis
ii) Earnings basis
iii) Dividend yield basis

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