Series: JULY 2023

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  • 10 Marks

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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  • 10 Marks

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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  • 5 Marks

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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  • 15 Marks

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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  • 10 Marks

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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  • 10 Marks

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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  • 10 Marks

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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  • 10 Marks

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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  • 4 Marks

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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  • 10 Marks

AT – July 2023 – L3 – Q3a – Tax planning

Analyzing the tax implications of providing assets as equity or loan and determining the best option for tax purposes

Kinky Ltd is a manufacturing entity resident in Ghana. Mr. Andre Camil, a citizen and resident of France, owns 90% of the company’s shares. Mrs. Claude Camil, a citizen and resident of France and wife of Mr. Andre Camil, also owns 5% of the shares of the company. Mr. Francois Camil, the son of Mr. Andre Camil, holds the remaining 5% of the shares in the company.

As at 1 June, 2021, the company had a share capital of GH¢400,000. A report submitted by the management to the Board of Directors indicated that the company needs to acquire a plant valued at GH¢1,000,000 to enable the company to increase its production capacity. Mr. Andre Camil, the majority shareholder, has offered to finance the purchase of the plant for the company but his challenge is whether to provide the asset to the company as a loan or as equity.

Required:
Advise Mr. Andre Camil on:

  1. The income tax treatment of providing the asset to the company as equity contribution.
  2. The income tax treatment of providing the asset to the company as a loan.
  3. The preferable option for providing the asset to the company in order to derive the maximum tax benefits.

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  • 2 Marks

AT – July 2023 – L3 – Q2c – Anti-avoidance measures

Explaining the effectiveness of the Transactional Net Margin Method in combating pricing abuse.

Transactional Net Margin Method under transfer pricing has proven useful in combating abuse and manipulation in the invoicing regime in the commercial world.

Required:
What makes the Transactional Net Margin Method very effective?

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  • 10 Marks

AT – July 2023 – L3 – Q2b – Anti-avoidance measures

Discussing the key factors the Commissioner-General considers when evaluating price manipulation among connected persons.

The Commissioner-General would review certain essential factors in an attempt to consider price differentials for possible adjustment in price to protect revenue when there is clear evidence to suggest price manipulation between and among connected persons.

Required:
Discuss FOUR (4) considerations the Commissioner-General may place reliance on as part of measures to be convinced that there is no price manipulation.

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  • 8 Marks

AT – July 2023 – L3 – Q2a – Mergers, amalgamation, and reorganization

Evaluating the tax impact of acquiring interest in a Ghanaian company and strategies to reduce tax exposure

Cradle Ltd, a company based in the United Kingdom, has proposed to acquire interest in Mamen Ltd, a company incorporated in Ghana and engaged in the sale of ceramics in Ghana. As part of Cradle Ltd’s investigation to acquire Mamen Ltd, the following financial indicators caught the attention of the management of Cradle Ltd:

  1. The company has large staff numbers made up of fresh graduates and employees with enormous work experience.
  2. There is a bad debt in the books of Mamen Ltd amounting to GH¢20 million.
  3. The company has a financial cost from arbitrage arrangements amounting to GH¢14 million.
  4. Tax loss unrelieved and unexpired was GH¢2 million.
  5. According to the Accountant, carryover loss amounted to GH¢1 million.

Required:
Evaluate the tax impact of the above financial indicators on the operations of Cradle Ltd and advise the management of Cradle Ltd on how to reduce its tax exposure if any.

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  • 8 Marks

AT – July 2023 – L3 – Q1b – International taxation

Calculating the tax payable for a resident company with cross-border income from Ghana and Nigeria.

Libir Ltd is a resident company incorporated in Ghana. Its trading partners have been customers and suppliers from Ghana and also from Nigeria. The company supplies animal feed.

Its operation for 2021 year of assessment is as follows:
Income from Ghana: GH¢10,000,000
Income from Nigeria: ₦1,000,000,000

Additional information:

  1. Allowable expense granted by the Ghana Revenue Authority is GH¢6,000,000.
  2. The allowable expense in 1 does not include capital allowance of GH¢1,200,000 which was legitimately claimable by the company.
  3. The tax paid in Nigeria amounted to ₦40,000,000. The withholding taxes paid in Ghana with evidence of tax credit certificates amounted to GH¢1,000,000.
  4. The taxpayer has written to the Commissioner-General to relinquish its right under the double taxation arrangement.
  5. Exchange rate is GH¢1 = ₦60.

Required:
Compute the tax payable.

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  • 12 Marks

AT – July 2023 – L3 – Q1a – International taxation

Analyzing the tax implications of share capital, loan interest, revaluation reserves, and thin capitalization

On 1 January 2022, Frost Ltd based in the United States of America acquired 100% shares in Nzungu Ltd in the Gambia. Also, Nzungu Ltd acquired 60% shares in Gyakye Ltd in Ghana.

Frost Ltd granted a loan equivalent of GH¢100 million to Nzungu Ltd. The loan was subsequently passed on to Gyakye Ltd in Ghana to strengthen its capital structure.

The interest equivalent on the loan from Frost Ltd to Nzungu Ltd was GH¢6,000,000. Gyakye Ltd ended up paying GH¢8,000,000 as interest to Nzungu Ltd. The difference in interest payment was a service charge for the role played in transferring the loan to Ghana by Nzunga.

Gyakye Ltd has the following extracts from its Statement of Financial Position as at 2022:

Required:
Evaluate the tax implications of the following:

  1. The movement in the Share Capital.
  2. The loan interest paid.
  3. The movement in the retained earnings.
  4. The movement in the revaluation reserves.
  5. Thin capitalization implications from the above.

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  • 20 Marks

MA – July 2023 – L2 – Q5 – Relevant cost and revenue, Decision making techniques

Calculate the minimum price for a special order using relevant costing principles, and discuss the relevance of fixed costs in decision-making scenarios.

You are the Management Accountant for Darkoah Publishing Ltd which has been asked to send a quotation for the production of a programme for the local village fair. The work would be carried out in addition to the normal work of the company. Because of existing commitments, employees would be required to work during weekends to complete the printing of the programme. A trainee accountant has produced the following cost estimate based upon the resources required as specified by the production manager:

You are aware that considerable publicity could be obtained for the company if you are able to win this order, and the price quoted must be very competitive.

The following notes are relevant to the cost estimate above: i) The paper to be used is currently in stock at a value of GH¢5,000. It is of an unusual colour and has not been used for some time. The replacement price of the paper is GH¢8,000, whilst the scrap value of what is in stock is GH¢2,500. The production manager does not foresee any alternative use for the paper if it is not used for the village fair programme.

ii) The inks required are not held in stock. They would have to be purchased in bulk at a cost of GH¢3,000. However, only 80% of the ink purchased would be used in printing the programme. No other use is foreseen for the remainder.

iii) Skilled direct labour is currently at full capacity, but additional labour can be hired. To accommodate the printing of the programmes, 50% of the time required would be worked at weekends, for which a premium of 25% above the normal hourly rate is paid. The normal hourly rate is GH¢4.00 per hour.

iv) Unskilled labour is presently under-utilised, and at present 200 hours per week are recorded as idle time. If the printing work is carried out at a weekend, 25 unskilled labour hours would have to occur at this time, but the employees concerned would be given two hours’ time off (for which they would be paid) in lieu of each hour worked.

v) Variable overhead represents the cost of operating the printing press and binding machines.

vi) When not being used by the company, the printing press is hired to outside companies for GH¢6.00 per hour. This earns a contribution of GH¢3.00 per hour. There is unlimited demand for this facility.

vii) Fixed production costs are those incurred by and absorbed into production, using an hourly rate based on budgeted activity.

viii) The cost of the estimating department represents time that has already been incurred during discussions with the village fair committee concerning the printing of its programme.

Required: a) Prepare a revised cost estimate using a relevant cash flow approach, showing clearly the minimum price that the company should accept for the order. Give reasons for each resource valuation in your cost estimate. (17 marks)

b) Briefly discuss the statement “fixed costs are never relevant for decision making scenarios”.

(3 marks)

 

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  • 5 Marks

MA – July 2023 – L2 – Q4b – Budgetary Control

Outline the advantages and disadvantages of employee participation in budgeting processes within an organization.

b) It is argued that the extent of budget performance is influenced largely by the extent of involvement of all persons connected with the budgeting process.

Required: Outline THREE (3) advantages and TWO (2) disadvantages of employee participation in budgeting. (5 marks)

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  • 15 Marks

MA – July 2023 – L2 – Q4a – Discounted cash flow

Calculate the cost of capital for a delivery van investment using IRR, and compare payback and discounted cash flow methods of investment appraisal.

a) Johnson & Co is a medium sized company that is engaged in delivery services. As a result
of the recent increase in the demand for services, the Managing Director (MD) is planning
for the future business performance. The MD plans to acquire a delivery van at the cost of
GH¢85,000. The expected net cash flow per year are as follows:

The Sales Manager has indicated to the MD that he will recoup his investment in less than four years and for that reason, it’s a good investment.

The Management Accountant has however drawn his attention to the fact that the manager has not factored time value of money and the cost of capital in his analysis. He could not however suggest the cost of capital since financial institutions are charging different interest rates.

Required:

i) Calculate the cost of capital when used would result in a break-even, when the useful life of the van is five years with residual value of GH¢8,500. (11 marks)

ii) Using TWO (2) points each, compare and contrast the payback method of investment appraisal and the discounted cash flow method.

(4 marks)

 

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  • 10 Marks

MA – July 2023 – L2 – Q3b – Cash budgets and master budgets

Prepare a monthly cash budget for the first quarter of 2023 for GoGo Ltd, including debtors collection and creditors payment schedules.

b) An extract from the accounts of GoGo Ltd for the last quarter of 2022 is as follows:

The selling price for the products is expected to be GH¢2.5 for the first quarter of 2023. Generally, 60% of sales is collected in the month of sale while 35% is collected in the following month, with the remaining debts declared as bad thereon. The company introduced a debt recovery strategy in the third quarter of 2022 which yielded a collection of 75% of outstanding debts in the first month after being declared as bad debt.

ii) One kilogramme of the raw material can be used to produce two products. A kilogramme of the raw material cost GH¢1.30. Due to an anticipated shortage in raw materials, the company plans to pay for all purchases of raw materials, one month ahead of time.

iii) Wages and variable production overheads are charged at GH¢0.50 and GH¢0.25 respectively per unit produced. Wages and all overheads are paid in the month in which they are incurred. Included in fixed overheads is a monthly depreciation of GH¢750. All other owings are due for payment in the month of January.

Required: Prepare the monthly cash budget for the first quarter of 2023, showing the sub-totals.

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