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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Has Case Study
  • 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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Has Case Study
  • 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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Has Case Study
  • 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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Has Case Study
  • 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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  • 20 Marks

CR – Mar 2023 – L3 – Q1 – Consolidated Financial Statements

Prepare a consolidated statement of financial position for Abuakwa Group as at 31 December 2021.

Below are statements of financial position of three companies: Abuakwa, Tanoso, and Kwadaso as at 31 December 2021:

Statements of Financial Position as at 31 December 2021

Abuakwa (GH¢ million) Tanoso (GH¢ million) Kwadaso (GH¢ million)
Non-current assets
Tangible assets 358.0 169.5 120.0
Investments 170.0 6.5 –
Total Non-current assets 528.0 176.0 120.0
Current assets 264.0 172.0 116.0
Total assets 792.0 348.0 236.0

Equity and Liabilities

Abuakwa (GH¢ million) Tanoso (GH¢ million) Kwadaso (GH¢ million)
Equity
Share capital – Ordinary shares (GH¢2 each) 180.0 50.0 30.0
Preference shares (GH¢2 each) – 40.0 13.0
Retained earnings 330.0 66.0 56.0
Other reserves 50.0 23.0 8.0
Total equity 560.0 179.0 107.0
Current liabilities 232.0 169.0 129.0
Total equity and liabilities 792.0 348.0 236.0

Additional Information:

  1. Abuakwa acquired 20 million shares in Tanoso on 1 January 2019. The consideration, which has been correctly accounted for, was settled by Abuakwa issuing its own ordinary shares of 7.5 million. The fair value of non-controlling interest of Tanoso at the date of acquisition was GH¢25 million.
  2. The brand name of Tanoso had a fair value of GH¢2 million with a useful life of 5 years. At 31 December 2021, the brand’s recoverable amount was GH¢1.1 million.
  3. Abuakwa acquired 10.5 million shares in Kwadaso on 31 December 2019. Abuakwa satisfied this consideration by deferring cash payment for a year.
  4. Kwadaso’s net assets were uplifted by GH¢3 million on a non-depreciable land.
  5. Tanoso acquired 1.5 million shares of Kwadaso for immediate cash consideration of GH¢6.5 million.
  6. On 1 January 2021, Tanoso sold machinery to Abuakwa at a 20% profit on cost. Abuakwa depreciates this type of machinery at 10% per annum.
  7. Goodwill in Tanoso was impaired by 10%.
  8. Trade payables in Abuakwa include GH¢7 million due to foreign suppliers, with an unaccounted exchange loss of GH¢2 million.

Required:
Prepare the consolidated statement of financial position as at 31 December 2021 for the Abuakwa Group. (All figures should be stated in nearest GH¢0.1 million).

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  • 10 Marks

AT – March 2023 – L3 – Q5b – Tax planning

Discuss the tax-efficient investment opportunities available to Ghanaians in the diaspora under the Income Tax Act, 2016 (Act 896).

Ghana celebrated the “Year of Return with FANFARE” in 2019. The program was said to be a huge success.

The Year of Return Committee has asked you, a tax expert, to give a talk at the Ghana UK Based Achievement (GUBA) program to be held at the Accra International Conference Centre (AICC) on tax benefits for Ghanaians in the diaspora who are interested in doing business in Ghana.

Required:
Discuss the tax-efficient investment opportunities available to Ghanaians in the diaspora under the Income Tax Act, 2016 (Act 896). (10 marks)

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  • 10 Marks

AT – March 2023 – L3 – Q5a – Business income – Corporate income tax

Compute the income tax payable by the trustees of Randy Koomson’s trust for the 2021 year of assessment.

Randy Koomson, who hails from Cape Coast in the Central Region, died in January 2021 and left his businesses and estates with trustees, who happened to be non-residents. Randy Koomson has two children: Araba Koomson and Kwamina Koomson. These two children were made the beneficiaries, and each of them is entitled to 1/3 of the net distributable income of the trust with the rest for administrative expenses.

The terms of the trust deed provided for discretionary payments to the beneficiaries and donations towards worthwhile causes. During the year 2021, discretionary payments of GH¢300,000 each were made to the children.

Gross Profit, before discretionary payments and other expenses below, for the year 2021 was GH¢3,500,000.

The following expenses were incurred:

The Ghana Revenue Authority has agreed on a capital allowance of GH¢72,550.

Required:
Compute the income tax payable by the trustees on the income for the 2021 year of assessment. (10 marks)

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  • 20 Marks

AT – March 2023 – L3 – Q4 – Minerals and mining

Compute the taxes payable by Crystal Mining Ltd and advise on tax payment timelines and consequences of non-compliance.

Crystal Mining Ltd is a resident mining company operating in two mining areas in the Eastern and Western parts of Ghana under the name Alpha Ltd and Beta Ltd respectively. Crystal Mining Ltd has a shared processing facility for the two mining areas.

As part of efforts to increase its market share in the sector, it acquired a 40% stake in the operation of Omega Ltd, also a mining company in the Western part of Ghana.

Omega Ltd’s operations are in their early years, hoping to start production in the next three years. Crystal Mining Ltd commenced commercial operations in 2021.

The operational activity of Crystal Mining Ltd for the 2021 year of assessment is as follows:

Description GH¢
Gross Revenue 1,000,000,000
Cost of Operation (300,000,000)
Gross Operating Margin 700,000,000
Operating and Other Costs (340,000,000)
Net Margin 360,000,000
Add: Interest (net of taxes) on current account 1,000,000

Additional Information:

  • Gross Revenue included the sale of an asset worth GH¢2,000,000, whose cost of acquisition was GH¢1,287,000.
  • Gross dividend of GH¢400,000 was received from Axum Ltd, a company resident in Ghana, in which Crystal Mining Ltd holds 40% voting power. Axum Ltd engages in commerce. The dividend was added to the gross revenue above.
  • Revenue from tailings amounting to GH¢1,000,000 was added to the cost of operation.
  • Included in the cost of operation is the excess of financial cost from derivative of GH¢2,000,000 over financial gain from hedged arrangement of GH¢890,000.
  • For the acquisition of a 40% stake in Omega Ltd, Crystal Mining Ltd paid GH¢4,000,000. The amount was added to the cost of operation.
  • Research and development cost amounting to GH¢1,000,000 has been included in operational cost.
  • Depreciation, depletion, and amortization of GH¢6,000,000 were included in the operational cost above.
  • Overburdening stripping and shaft sinking cost of GH¢3,000,000 was added to Gross Revenue as a way of tax planning, according to the accountant. This cost was incurred prior to access to the resource in 2021.
  • Further information:
    • Reconnaissance and prospecting cost up to 2020 in respect of Alpha Ltd amounted to GH¢80,000,000 and was added to the cost of operation.
    • Reconnaissance and prospecting cost up to 2020 in respect of Beta Ltd amounted to GH¢78,000,000 and was added to the cost of operation.
    • Apart from Pay As You Earn (PAYE) from the staff, Crystal Mining Ltd has never paid taxes to the Ghana Government. This is a big concern to the Ministry of Lands and Natural Resources.

Required:
a) Compute the taxes payable by Crystal Mining Ltd and state any assumptions if any. (16 marks)
b) Advise the management of the company on when it must pay its taxes to the Ghana Revenue Authority. (2 marks)
c) What are the sanctions for non-adherence to the obligation of payment of taxes? (2 marks)

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  • 3 Marks

AT – March 2023 – L3 – Q3f – International taxation

Discuss two harmful effects of double taxation on international trade and investment.

Evaluate TWO (2) harmful effects of double taxation. (3 marks)

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  • 2 Marks

AT – March 2023 – L3 – Q3e – International taxation

Assess the reasons for countries entering into tax treaties and their importance in reducing tax barriers.

Countries have enjoyed tax treaties while others have criticised the whole idea of tax treaty arrangements. Treaties may be bilateral or multilateral. Many countries weigh the benefits of treaties before they enter into them in order not to lose out.

Required:
Assess the rationale for tax treaties. (2 marks)

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  • 4 Marks

AT – March 2023 – L3 – Q3d – Business income – Corporate income tax

Discuss how tax laws treat business losses and support business growth through loss carry forward.

ou have been asked to contribute to a public forum on the topic “business losses though not good have a direct effect on business development and growth as they are deductible allowances.”

When businesses make losses, to the extent that the losses are allowable, management becomes happy from the standpoint of taxation while shareholders are not too happy about the losses as these may make it impossible for them to receive dividends.

Required:
How are tax losses treated in businesses and how do the tax laws support the growth of businesses in loss-making?

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  • 3 Marks

AT – March 2023 – L3 – Q3c – International taxation

Discuss the extent to which foreign companies are liable to tax in Ghana.

“Foreign companies which are non-resident can ply their businesses in Ghana and will not pay taxes in Ghana but rather in their home countries.” This was a statement that was made at a tax forum in Ghana as part of tax planning measures by a young tax graduate, who was asked to share his thoughts on non-resident persons and their tax issues. This created some arguments at the programme.

Required:
To what extent should foreign companies be liable to tax in Ghana?

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  • 3 Marks

AT – March 2023 – L3 – Q3b – Tax administration in Ghana

Explain the steps required for a business to benefit from temporary tax concessions in Ghana.

Businesses which fall under the temporary concessions enjoy tax incentives. Failure to apply for the temporary concession will not mean the denial of the benefit by the Ghana Revenue Authority.

Required:
Explain the steps persons in temporary concession should take to benefit from this dispensation.

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  • 5 Marks

AT – March 2023 – L3 – Q3a – International taxation

Evaluate the taxation of global income of Ghanaian businesses in accordance with the Income Tax Act, 2015 (Act 896).

In an ICAG taxation lecture, the class captain said he read an article from the internet that states, “Ghanaian business entities which conduct businesses across the globe are subject to tax in Ghana.”

This statement ignited a debate in the class. Your class lecturer walked into the classroom to witness this argument and decided to show interest in the topic. He has asked that the class should take up the issue as a class assignment.

Required:
Evaluate this statement in the light of the Income Tax Act, 2015 (Act 896).

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