Series: MAR 2023

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Has Case Study
  • 8 Marks

SCS – March 2023 – L3 – Q8 – International financial management

Discusses governance structure in terms of the separation of roles between the chairman and the CEO in line with the UK and Ghana Codes of Best Practices.

Dr. Kingsley Tettey is the Chairman of the 4-member board of directors, and Dr. Joy Tettey is the Medical Director. Clearly, the Chairman is not the Chief Executive Officer (CEO) or Medical Director of LCH.

Required:
Discuss what the Ghana Code of Best Practices and the UK Corporate Governance Code state about this governance structure.
(8 marks)

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Has Case Study
  • 12 Marks

SCS – March 2023 – L3 – Q7 – Professional practice and codes of ethics

Analyzes LCH board composition using governance codes and discusses OECD principles of disclosure and board responsibilities.

a) LCH’s Board of Directors is composed of four experienced professionals.

Required:
In reference to codes of corporate governance and the composition of LCH’s Board, analyze the view that the board has a suitable balance.
(5 marks)

b) The OECD Principles (2015) provide guidance through recommendations and annotations across six chapters. Principle 5 and 6 deal with disclosure and transparency and the responsibilities of the board respectively.

Required:
Provide the guidance and recommendations given on these principles and how relevant it is to LCH.
(7 marks)

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Has Case Study
  • 20 Marks

SCS – March 2023 – L3 – Q6 – International financial management

Explains the financial reporting implications of debt exchange and compares investing in bonds versus shares

LCH has invested GH¢1,000,000 in a 5-year Government of Ghana Bond with a coupon rate of 20%. As a result of the Government of Ghana DDE programme, LCH has no option but to exchange the old bond with the new bond.

Required:
a) Explain FIVE (5) financial reporting implications of the debt exchange on the financial statements of LCH as at 31 December 2022.
(10 marks)

b) Discuss FOUR (4) advantages and TWO (2) main disadvantages of investing in bonds rather than shares.
(10 marks)

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  • 10 Marks

SCS – March 2023 – L3 – Q5 – Strategy implementation

Uses Fitzgerald and Moon’s performance measurement dimensions to link LCH’s performance assessment to corporate strategy.

Fitzgerald and Moon (1996) provided a framework for analysing performance management systems in service industries like a hospital. They suggested that a performance management system in a service organisation can be analysed as a combination of three building blocks, namely:
i) Dimensions
ii) Standards
iii) Rewards.

Required:
Using Dimensions as a tool for performance measurement, discuss how LCH could link performance assessment to corporate strategy.
(10 marks)

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  • 10 Marks

SCS – March 2023 – L3 – Q4 – Strategy, stakeholders, and mission

Compares mechanistic and organic structures and recommends which is more suitable for LCH.

An appropriate organizational structure should reflect the size and complexity of an entity.

Required:
Using the management study of Burns and Stalker that identified two categories of organization structure—a mechanistic structure and an organic structure—explain the differences between the two types of structures and determine which of the two is suitable for LCH.
(10 marks)

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  • 20 Marks

SCS – March 2023 – L3 – Q3 – Competitive advantage

Discusses the pros and cons of mergers and acquisitions and uses SWOT analysis to evaluate the business strategy

LCH is facing very stiff competition from both public and private health facilities. You have suggested that LCH consider either acquisition or mergers or both as a strategic move to survive in the industry.

a) Discuss FIVE (5) advantages and FIVE (5) disadvantages of a decision to consider acquisition and merger as a survival strategy.
(10 marks)

b) Using SWOT analysis, identify and discuss key factors that might affect LCH’s business strategy.
(10 marks)

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Has Case Study
  • 10 Marks

SCS – March 2023 – L3 – Q2 – Strategy, stakeholders, and mission

Uses the 4Ps of marketing mix and competitive environment to evaluate the feasibility of adopting telemedicine.

According to the Technical Advisor of the Board of Directors, Telemedicine, the remote diagnosis and treatment of patients by means of telecommunications technology is the way to go. This proposal has been subjected to a basic marketing feasibility analysis.

Required:
Using 4Ps of the marketing mix and the competitive environment that LCH operates, explain the factors to be taken into consideration when deciding on whether to adopt the proposal to move into Telemedicine.
(10 marks)

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  • 10 Marks

SCS – March 2023 – L3 – Q1 – Ethics and social responsibility

Explains the importance of good ethical behavior for accountants and reasons for the public’s high expectations from the accountancy profession.

a) At LCH, the Financial Accountant and the Internal Auditor have been designated as Ethics Focal Persons (EFP) to raise awareness of good ethical behavior among the staff.
As a student of ethics, explain FIVE (5) reasons why good ethical behavior (study and application of ethics) is important to today’s Accountant.
(5 marks)

b) The general public has high expectations of the accountancy profession and the idea of an ethical profession should be reinforced in their minds.
State THREE (3) reasons why the general public has high expectations of the accountancy profession to ensure good corporate governance practices.
(5 marks)

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  • 5 Marks

FR – Mar 2023 – L2 – Q5d – Business combinations and consolidation

Explains fair value in IFRS 13 and its application to assets and liabilities in business combinations.

d) IFRS 3: Business Combinations defines fair value consistently with IFRS 13: Fair Value Measurement. IFRS 3 requires the acquiree’s assets and liabilities to be incorporated into the consolidated financial statements at their fair values rather than at their carrying amounts.

Required:
i) Explain the meaning of fair value in accordance with IFRS 13. (2 marks)
ii) Explain the reasons why the acquiree’s assets and liabilities are measured and recognised at their fair value within the consolidated financial statements. (3 marks)

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  • 5 Marks

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

Lana Ltd is a public listed company in Ghana, located in the Northern Region. The company operates in the manufacturing sector and prepares its accounts to 31 December each year. During the year ended 31 December 2021, Lana Ltd built a head office. The costs associated with the construction of the head office are as follows:

GH¢ million
Fees for environmental certifications and building permits 0.5
Leasehold Land acquisition 10.0
Architect and engineer fees 1.0
Construction material and labor costs (including unused materials) 6.5

At 31 October 2021, when the head office extension became available for use, the cost of unused materials on site amounted to GH¢0.5 million. The total borrowing costs incurred on a loan specifically used to finance the head office extension amounted to GH¢0.8 million. The estimated useful life of the building was 40 years.

Required:
With reference to IFRSs, determine:
i) The initial cost to be capitalized.
ii) The depreciation charge for the year ended 31 December 2021.
iii) The carrying amount as of 31 December 2021.

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  • 5 Marks

MA – Mar 2023 – L2 – Q2b – Standard costing and variance analysis

Explain four considerations management should take into account before investigating adverse material usage variance.

PTC, for the past couple of months, recorded adverse variances in material usage for one of its products. As a result, Management is considering carrying out an investigation on these adverse variances.

Required:
Explain FOUR (4) considerations that Management should take account of before proceeding with the investigation.

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  • 10 Marks

MA – Mar 2023 – L2 – Q3b – Budgeting

Prepare a budgeted income statement for AJ Ltd based on given projections and assumptions for 2023.

The Income Statement of AJ Ltd for the year ended December 2022 was as follows:

Projections for 2023:

Sales: The current sales represent 15% of market share. Management plans to increase this to 20%. Meanwhile, industry experts are projecting a 12% growth in the sector.
Cost of Sales: Improvement in material quality will reduce cost of sales by 5% from the current level.
Other Expenses:
i) Administrative costs will increase by 20% over the 2022 actual figure.
ii) Selling and distribution costs will increase by 18% over the 2022 actual figure.
iii) Finance costs will remain at the same percentage of sales revenue as in 2022.

Required:
Prepare the budgeted income statement for the year 2023.

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  • 15 Marks

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

Determine whether Arkoo Ltd's project is viable using the NPV method.

Question:
Arkoo Ltd (Arkoo) is planning to invest GH¢5 million in its sound engineering studio with a life span of 10 years. Arkoo charges GH¢5.50 for every compact disc (CD) produced with an associated cost of GH¢4.80. The company plans to produce 8,700,000 CDs each year. Arkoo evaluates all investment opportunities against a discount factor of 21%.

Required:
i) Determine whether the project is viable or not using the Net Present Value (NPV) method.
ii) Calculate the percentage by which the following conditioning factors of Arkoo must change
in order for NPV to be zero.

  • Selling price (3 marks)

    • Variable cost (3 marks)

  • Sales Volume (3 marks)
  • Initial investment (3 marks)

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  • 5 Marks

MA – Mar 2023 – L2 – Q4b – Budgetary Control

Define budgetary control and its purpose in business operations.

i) Explain budgetary control. (2 marks)

ii) Recommend TWO (2) ways by which budgetary control can help to provide information to ensure operational continuity. (3 marks)

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  • 20 Marks

MA – March 2023 – L2 – Q5 – Cost-volume-profit (CVP) analysis

Prepare a profit statement based on demand and propose an optimal production plan considering resource limitations and price adjustments.

The following data relates to the planned activity of three products of Parlour Plc:

Demand (units):
Tintin: 15,000
Panpan: 10,000
Sonson: 12,500
i) Due to the general rise in prices, the company envisages that labour and variable production overhead costs will rise by 20% while material costs increase by 15%. It is the policy of the firm to maintain at all times the current mark-up (to the nearest whole number) on the total variable cost for each of the three products.

ii) The following resources are available to support the production:

Material: 60,000kgs
Labour hours: 65,000 hours
iii) The three products are complements, and the company envisages that 50% of the demand for all products has to be met for any operating year.

iv) The annual fixed cost, which will not be affected by the price adjustment, is estimated at GH¢42,500.

Required:
a) Prepare a profit statement assuming the company has capacity to meet all demand and considering the needed adjustments to reflect the proposed price changes. (8 marks)

b) Based on the resource limitation and proposed adjustment, what should be the optimal production plan? (10 marks)

c) Determine the associated profit from the optimal production plan. (2 marks)

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  • 10 Marks

MA – Mar 2023 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card for one door using the provided variances and actual costs.

Tsekpo produces strong and affordable doors for the Ghanaian market. The company has been operating for the past five years from its manufacturing base at Tafo.

During the year under consideration, Tsekpo invested in a new information technology system in order to improve its management accounting information. Unfortunately, there have been problems with the software since its acquisition. The standard cost card, which provides details of the standard production cost to make one door, has been lost and the company is unable to prepare its budget for the year ahead.

The Management Accountant has retrieved some information relating to actual costs and variances for the year. The budgeted production for the year was 21,000 doors. Other relevant information is shown below:

Actual Costs:

Cost Element Actual Quantity Amount (GH¢)
Direct material costs (16,200 sq. m) 16,200 sq. m 81,000
Direct labour costs (8,640 hours) 8,640 hours 108,864
Variable production overhead costs N/A 54,000
Fixed production overhead costs N/A 85,200
Variances:

Direct material price variance: GH¢4,050 (Favorable)
Direct material usage variance: GH¢5,670 (Favorable)
Direct labour rate variance: GH¢864 (Favorable)
Direct labour efficiency variance: GH¢27,432 (Favorable)
Variable production overhead expenditure variance: GH¢432 (Adverse)
Variable production overhead efficiency variance: GH¢13,392 (Favorable)
Fixed production overhead expenditure variance: GH¢3,775 (Adverse)
Additional Information:

Actual production was 600 doors above the budgeted level.
Tsekpo operates a standard variable costing system.
Required:
Using the information provided, prepare the standard cost card for the production of one door.

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  • 10 Marks

AA – Mar 2023 – L2 – Q5c – Completion Procedures and Reporting

Explain the objectives of communicating with those charged with governance and list matters to be communicated by an auditor.

In addition to the Auditor’s Report, the auditor communicates with those charged with governance and audit committees of their clients.

Required:
i) What are the objectives of an auditor communicating with those charged with governance or audit committees? (3 marks)
ii) State SEVEN (7) matters to be communicated with those charged with governance or audit committees of a non-listed company by an auditor. (7 marks)

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  • 5 Marks

AA – Mar 2023 – L2 – Q5b – Completion Procedures and Reporting

List the responsibilities of an auditor in auditing historical financial statements under ISA 700.

Your manager is presenting to the Engagement Partner the draft opinion on the financial statements of a recently audited client. Your manager has tasked you to research into the responsibilities of an external auditor for auditing historical financial statements in line with ISA 700 (Revised): Forming an Opinion and Reporting on Financial Statements.

Required:
State FIVE (5) responsibilities of an auditor in line with the above standard.

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  • 5 Marks

AA – Mar 2023 – L2 – Q5a – Audit and Assurance Risk Environment

Identify and explain the components of an entity’s internal control system.

ISA 315 (Revised): Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment requires auditors to understand the entity’s internal control. An entity’s internal control is made up of several components.

Required:
In reference to the statement above, state the FIVE (5) components of an entity’s internal control and give a brief explanation of each component.

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  • 10 Marks

AA – Mar 2023 – L2 – Q4b – Internal Audit and Its Relationship with External Audit

Explain the functions of the Internal Audit Agency (IAA) and how it facilitates the work of internal auditors in MDAs and MMDAs.

The Internal Audit Agency (IAA) of Ghana was established by the Internal Audit Agency Act 2003 (Act 658) to act as an apex oversight body for Internal Audit units working with MDAs and MMDAs. Although the Internal Audit Agency plays an important role in the country’s economy, very little is known about their operations.

Required:
As an Internal Auditor who wants to bridge this knowledge gap:
i) Explain the functions of the Internal Audit Agency (IAA). (7 marks)
ii) Explain how the IAA facilitates the work of internal auditors in MDAs and MMDAs. (3 marks)

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