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Phato Ltd, is a Public Limited Liability Company which operates in the service sector in Ghana. Phato Ltd has a business relationship with two other Ghanaian companies, Sakara Ltd and Saadi Ltd, which are public limited liability companies too. The draft statements of financial position of these three companies are as below as at 30 September 2019.
| Phato Ltd GH¢ million | Sakara Ltd GH¢ million | Saadi Ltd GH¢ million |
|---|---|---|
| Assets: | ||
| Non-current assets | ||
| Property, plant, and equipment | 460.0 | 150.0 |
| Investment in subsidiaries | ||
| Sakara Ltd | 365.0 | |
| Saadi Ltd | 160.0 | |
| Investment in Azuri Ltd | 24.0 | |
| Intangible assets | 99.0 | 15.0 |
| Total Non-current assets | 948.0 | 325.0 |
| Current assets | 447.5 | 240.0 |
| Total assets | 1,395.5 | 565.0 |
| Equity and liabilities: | ||
| Equity: | ||
| Share capital | 460.0 | 200.0 |
| Other components of equity | 36.5 | 18.5 |
| Retained earnings | 447.5 | 221.0 |
| Total equity | 944.0 | 439.5 |
| Non-current liabilities | 247.5 | 61.5 |
| Current liabilities | 204.0 | 64.0 |
| Total liabilities | 451.5 | 125.5 |
| Total equity and liabilities | 1,395.5 | 565.0 |
Additional relevant information:
Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.
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On 1 January 2018, Asankragua Ltd (Asankragua) applied to a government agency for a grant to assist with the construction of a factory in Enchi. The proposed construction cost of the factory was GH¢52 million and the company projected that 350 people would be employed after completion. The land was already owned by Asankragua.
On 1 March 2018, the government agency offered to grant a sum amounting to 25% of the factory’s construction cost to a maximum of GH¢13 million. The grant aid was to be advanced on completion and would be repayable on demand if total employment at the factory fell below 300 people within 5 years of completion.
At the financial year end, 31 March 2018, Asankragua had accepted the offer of grant aid and had signed contracts for the construction of the factory at a total cost of GH¢52 million. Construction work was due to commence on 1 April 2018.
By 31 March 2019, the factory had been completed on budget, 400 people were employed ready to commence manufacturing activities, and the government agency agreed that the conditions necessary for the drawdown of the grant had been met.
On 1 April 2019, the factory was brought into use. It was estimated that it would have a ten-year useful economic life. On 1 June 2019, the government agency paid over the agreed GH¢13 million. In addition, the company sought and was paid an employment grant of GH¢1.2 million as employment exceeded original projections. This is expected to be payable annually for 5 years in total, at a rate of GH¢12,000 per additional person employed over 300 in each year. There are no repayment provisions attached to the employment grant.
The directors of Asankragua expect employment levels to exceed 350 people for at least 4 further years from 31 March 2020.
Required:
Demonstrate, showing calculations and relevant entries, how Asankragua Ltd should record the above transactions and events in its financial statements for years ended 31 March 2018, 2019, and 2020.
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Dompoase Ltd incurred the following borrowing costs during the financial year 2018:
| GH¢’000 | |
|---|---|
| Overdraft interest | 12 |
| Foreign currency loan interest (correctly translated into GH¢) | 84 |
| Foreign currency loan exchange differences on capital | 140 |
In addition, a three-year fixed-rate GH¢2 million loan was taken out on 1 January 2018 at 6.5%. A loan set-up fee was charged at GH¢20,000. This increased the effective interest rate on the loan to 6.88%.
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Nzema prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) with a financial year end of 31 December 2018. On 1 January 2018, Nzema commenced a defined benefit pension plan for a number of head office employees. Under the pension scheme, Nzema has an obligation to provide these staff with agreed post-employment benefits. Nzema carries the actuarial and investment risk associated with the pension scheme.
The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:
| GH¢ | |
|---|---|
| Interest income on plan assets | 16,500 |
| Employer contributions to plan | 550,000 |
| Current service cost | 600,000 |
| Interest on plan liability | 18,000 |
| Fair value of plan assets at 31/12/2018 | 580,000 |
| Present value of plan obligation at 31/12/2018 | 620,000 |
The Accountant was not sure which accounting standard to apply when accounting for the pension scheme. The only adjustment made to account for the scheme was to expense the company’s contributions of GH¢550,000 for the 2018 financial year in the Statement of Profit or Loss and Other Comprehensive Income and to credit the ‘Cash’ account.
Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.
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Medina Power Ltd has carried out certain transactions denominated in foreign currency during its financial year ended 31 October 2019 and has also conducted foreign operations through a foreign entity. Medina Power Ltd.’s functional and presentation currency is the cedi.
On 31 July 2019, Medina Power Ltd purchased goods from a foreign supplier for 16 million dinars. At 31 October 2019, the supplier had not yet been paid and the goods were still held in inventory by Medina Power Ltd.
On 31 July, Medina Power Ltd sold goods to a foreign customer for 8 million dinars, and it received payment for the goods in dinars on 31 October 2019.
Medina Power Ltd had also purchased an investment property on 1 November 2018 for 56 million dinars. At 31 October 2019, the investment property had a fair value of 48 million dinars. The company uses the fair value model in accounting for investment properties.
Medina Power Ltd wants advice on how to treat these transactions in the financial statements for the year ended 31 October 2019.
Required:
Discuss the accounting treatment of the above transactions in accordance with the advice required by the directors. (You should show detailed workings as well as a discussion of the accounting treatment used.)
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You have just obtained your full membership with the Institute of Chartered Accountants (Ghana). Following this successful achievement, you have been appointed as the Head of Finance at Asasiyemedeh Company Limited, a Ghanaian company, which provides catering services. Your former employer, Akwaba Limited, is a large public sector organization operating in Accra, where, as the Financial Accountant, you had the opportunity to work on areas relating to financial accounting, procurement, contracts, and bids. One of Asasiyemedeh Company Limited’s major contracts is with Akwaba Limited, your former employer. The contract is now due for renewal, and Asasiyemedeh Company Limited is preparing a competitive bid for this contract.
You have been tasked to lead the team responsible for bidding for this contract, but you are concerned as a professional that you might breach confidentiality if you accept this role. You also suspect that your knowledge and experience of Akwaba Limited were seen as good reasons for appointing you to the position of Head of Finance at Asasiyemedeh Company Limited. You do not in any way want to let your new employer down as you are aware that the loss of such a major contract would have a significant effect on the financial performance of Asasiyemedeh Company Limited, and its performance-related bonus scheme for management members.
Required:
Discuss the ethical issues raised in the above scenario.
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Sasasila Ltd has been operating profitably for a number of years. However, in recent times, the company has been making losses. Below is the statement of financial position as at 30 June 2019:
| Assets | GH¢000 |
|---|---|
| Non-Current Assets | |
| Patents and copyrights | 75,000 |
| Land and buildings (net) | 200,000 |
| Plant and machinery (net) | 150,000 |
| Current Assets | |
| Inventories | 125,000 |
| Trade receivables | 125,000 |
| Bank | 37,500 |
| Investments (cost) | 100,000 |
| Total Assets | 812,500 |
| Equity and liabilities: | |
| Equity | |
| Ordinary share capital (issued at GH¢10 each) | 375,000 |
| 20% cumulative preference shares (issued at GH¢10 each) | 175,000 |
| Retained earnings | (75,000) |
| Non-current Liabilities | |
| 15% Debentures | 125,000 |
| Current Liabilities | |
| Interest on debentures | 18,750 |
| Trade payables | 93,750 |
| Provision for business restructuring | 50,000 |
| Provision for legal damages & claims | 12,500 |
| Provision for warranties | 37,500 |
| Total Equity and Liabilities | 812,500 |
Additional relevant information: The following scheme of reconstruction was approved by all parties as well as the High Court with the exception of only one ordinary shareholder:
Prepare the Capital Reduction Account as at 30 June 2019.
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b) The main reason why discounted cash flow methods of investment appraisal are considered theoretically superior is that they take into account the time value of money.
Required:
Explain THREE (3) elements that determine the time value of money and why it is important to take them into consideration when appraising investment projects. (6 marks)
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a) Senchi Ltd is evaluating an investment proposal to manufacture River boat, which has performed well in test marketing trials conducted recently by the company’s research and development division.
Required:
Identify and explain the stages in the capital investment decision-making process. (10 marks)
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Slab Processes (Ghana) Limited manufactures a single product. The product is manufactured in a single process, by combining three raw materials, A, B, and C.
For 2019, the standard cost of a litre of the product was established in the budget as follows:
| Material | Quantity (litres) | Price per litre (GH¢) | Standard cost (GH¢) |
|---|---|---|---|
| A | 0.7 | 2 | 1.4 |
| B | 0.4 | 4 | 1.6 |
| C | 0.1 | 8 | 0.8 |
| Total | 1.2 | 3.8 | |
| Loss in process | -0.2 | ||
| Standard cost per litre of output | 1.0 | 3.8 |
During one month in the year, 2,000 litres of finished products was the output from the process, and the actual direct material costs were as follows:
| Material | Quantity (litres) | Cost (GH¢) |
|---|---|---|
| A | 1,340 | 2,970 |
| B | 910 | 3,450 |
| C | 240 | 1,900 |
| Total | 8,320 |
Required:
a) Calculate the material price variance and the material usage variances for the period. (5 marks)
b) Analyze the operational usage variance into a materials mix and a materials yield variance. (6 marks)
c) Comment on the significance and usefulness of a materials mix and a materials yield variance, for management control purposes. (3 marks)
d) Describe briefly THREE (3) fundamental weaknesses in the traditional annual budgeting approach that exist regardless of the budgeting method that is used. (6 marks)
(Total: 20 marks)
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b) Emefa Ltd (Emefa) is in the process of preparing its budget for the month of October 2019 for its product, YEK. The Company expects to sell the product for GH¢75 but this price is expected to increase in the last quarter of 2019 by 5%. The following are the expected sales in units for the last six months in 2019.
| Month | Units |
|---|---|
| August | 7,000 |
| September | 8,000 |
| October | 9,000 |
In October 2019, a total of 9,150 units of product YEK are expected to be produced to meet demand.
Typically, cash sales represent 20% of sales. Credit sales terms are 2/10, n/30. Emefa bills customers on the first day of the month following the month of sale. Experience has shown that 60% of the billings will be collected within the discount period, 25% by the end of the month after sales, 10% by the end of the second month after the sale, and 5% will ultimately be uncollectible. The firm writes off uncollectible accounts after 12 months.
The firm uses two materials for production, Mat and Pat. The purchase terms for materials are 2/15, n/60. Experience has shown that 80% of the purchases are paid in the month of the purchase and the remainder is paid in the month immediately following. In September 2019, the firm budgeted purchases were GH¢32,000 for Mat and GH¢20,000 for Pat.
The firm’s budgeted direct material and labour budgets are as follows:
Direct Materials Purchases Budget (in Cedis) For October 2019
| Material | Budgeted Purchases (Pounds) | Expected Purchase Price per Unit (GH¢) | Total (GH¢) |
|---|---|---|---|
| Mat | 45,000 | 2.00 | 90,000 |
| Pat | 25,000 | 3.00 | 75,000 |
| Total Budgeted Purchases | 165,000 |
The production process requires direct labour at two skill levels (SL). The rate for labour at the SL1 level is GH¢45 per hour and for the SL2 level is GH¢25 per hour. The SL1 level can process one batch of YEK per hour while SL2 uses two (2) hours for the same output. Each batch consists of ten (10) units. The manufacturing of YEK also requires one-fifth of an hour of SL2 workers’ time for each unit manufactured.
Variable manufacturing overhead is GH¢100 per batch plus GH¢75 per direct labour-hour. In addition to variable overhead, the firm has a monthly fixed factory overhead of GH¢60,000, of which GH¢18,000 is depreciation expense. The firm pays all manufacturing labour and factory overhead when incurred.
Total budgeted marketing, distribution, customer service, and administrative costs for the 2019 annual budget are GH¢3,000,000. Of this amount, GH¢2,000,000 is considered fixed and includes depreciation expense of GH¢400,000. All marketing and administrative costs are paid in the month incurred.
Management desires to maintain an end-of-month minimum cash balance of GH¢100,000. The firm has an agreement with a local bank to borrow its short-term needs in multiples of GH¢10,000 up to GH¢1,000,000 at an annual interest rate of 26%. Borrowings are assumed to occur at the end of the month. Bank borrowing at October 1 was GH¢0.
Required:
Prepare the cash budget for October 2019 for Emefa Ltd. (10 marks)
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a) Given the dynamic environment within which organisations operate, the Management Accountant’s role has evolved to include providing information that would assist the firm to design strategies geared towards achieving competitive advantage through sustained customer satisfaction. These strategies target key success factors which include cost efficiency, quality, time, and innovation because of the value placed on them by customers.
Required:
i) Discuss FOUR (4) management concepts that the Management Accountant can use to achieve customer satisfaction. (8 marks)
ii) State FOUR (4) questions that a good decision maker might pose in order to make an assessment of the value of information. (2 marks)
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Volta Advisory Ltd (VAR) began trading on 1 January 2014. It specializes in the provision of expert advice to clients in accountancy, taxation, and regulatory compliance. It has a team of professional advisors, each specializing in one of these three areas of advice.
VAR has a target for delivering its services to clients promptly. From the time the client asks for advice, VAR undertakes to provide a formal report to the client within 10 working days. The following information relates to the financial year ended 31 December 2016.
i) The professional advisors are budgeted to work 220 days each year. They charge GH¢1,400 per day to new clients and GH¢1,200 to established clients.
ii) As a marketing measure intended to win new business, the advisors also give consultations to potential clients on a ‘no fee’ basis. These consultations, which are budgeted to take one day each, are accounted for as business development costs in the marketing budget.
iii) The professional advisors are also required to attend some ‘workshops’ with new clients who are having difficulties with implementing the advice that they have been given by VAR. These workshops, which are also given on a ‘no fee’ basis, are budgeted to last two days.
iv) VAR also has a help desk to provide client support. It responds to telephone and e-mail inquiries from all new and established clients.
v) The team of professional advisors is exactly 50. It is a policy of VAR to limit the team to 50, regardless of the volume of demand for its services.
vi) All professional advisors are paid a salary of GH¢100,000 per year. In addition, they are entitled to share equally in an annual bonus. The bonus is 50% of the amount by which fee income generated exceeds budget minus the revenue foregone as a result of having to give workshops for clients. This revenue foregone is assessed at a notional daily rate of GH¢1,200 per advisor/day.
vii) Operating expenses of the business, excluding salaries of the advisors, were GH¢3,100,000 in 2016. The budget for these expenses was GH¢2,800,000.
Other information
| Budget 2016 | Actual 2016 | |
|---|---|---|
| Professional advisors, by category: | ||
| Accounting | 15 | 10 |
| Tax | 20 | 20 |
| Compliance | 15 | 20 |
| Enquiries about seeking new advice: | ||
| New clients | 2,600 | 2,200 |
| Established clients | 4,000 | 3,700 |
| Number of chargeable client days: | ||
| New clients | 2,600 | 2,750 |
| Established clients | 5,100 | 5,500 |
| Average client days per job | 4 | 4 |
| Mix of chargeable client days: | ||
| Accounting | 1,155 | 1,650 |
| Tax | 1,540 | 3,300 |
| Compliance | 1,155 | 3,300 |
The following are actual results for each of the three years 2014-2016:
| 2014 | 2015 | 2016 | |
|---|---|---|---|
| Number of clients | 160 | 248 | 347 |
| Number of complaints from clients | 50 | 75 | 95 |
| Number of accounts in dispute | 10 | 7 | 5 |
| Support desk: percentage of calls resolved | 86% | 94% | 97% |
| Percentage of jobs completed within 10 days | 90% | 95% | 98% |
| Average time to complete a job (days) | 12.6 | 10.7 | 9.5 |
| Chargeable client days | 7,200 | 7,750 | 8,250 |
| Number of consultations (business development) | 50 | 100 | 150 |
| Number of workshops given | 110 | 135 | 165 |
| Revenue (GH¢000) | 8,920 | 9,740 | ? |
| Net profit (GH¢000) | 1,740 | 1,940 | ? |
Required: Using the information provided, analyze and discuss the performance of VAR for the year to 31 December 2016, under the following headings:
a) Financial performance and competitiveness;
b) Internal efficiency;
c) External effectiveness.
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Asantewaa lives in a quiet residential area. Next door, Kwickbuild Ltd, is carrying out extensive building works to a dilapidated old house. The builders who are working from dawn to dusk, seven (7) days a week, used a crane which passes over Asantewaa’s house. Asantewaa and her family are annoyed by the dust, dirt, and noise caused by the building works.
Required:
a) Identify the types of tort of nuisance.
(4 marks)
b) What TWO (2) conditions must be present for a conduct to constitute nuisance?
(6 marks)
c) Advise Asantewaa as to her legal position.
(6 marks)
d) State TWO (2) legal remedies available to her.
(4 marks)
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