MANAGEMENT ACCOUNTING

FM – L2 – Q3.3 – Public expenditure and financial accountability framework

Name and explain objects of enactments for external and internal audit in public sector.

Question

Audit is a very important vehicle for accountability in the public sector. Therefore, appropriate enactment is made to govern and regulate external audit and internal audit in the public sector of the Republic of Takoradi.

Required:

(a) Name and explain the objects of the two enactments that govern and regulate external audit and internal audit in the public sector respectively.

(b) Discuss four responsibilities each of the following institutions under the respective enactments:

(I) Audit Service.

(ii) Internal Audit Agency.

Answer

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Tags: Audit, External Audit, Internal Audit, Legislation, Takoradi
Level: Level 2

Topic: Public expenditure and financial accountability framework

FM – L2 – Q3.2 – Public expenditure and financial accountability framework

Explain the objective of the Public Financial Management Act 2016, Act 921.

Question

The 1992 Constitution of the Republic of Takoradi provides a broader framework for public financial management in the country. These provisions are crucial and cannot be undone by any enactments.

Required:

Discuss its provisions on the following:

(i) taxation;

(ii) budgeting;

(iii) public funds; and

(iv) audit of public funds. (b)

The Public Financial Management Act 2016, Act 921, was promulgated to serve as the primary enactment of public financial management in the entire public sector of the Republic of Takoradi.

Required:

(I) Explain the objective of the Public Financial Management Act 2016, Act 921.

(ii) Discuss how the objective in (I) is met.

Answer

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Tags: Act 921, Ghana, Objective, Public Financial Management
Level: Level 2

Topic: Public expenditure and financial accountability framework

L2 – Q73 – Cash Budgets and Master Budgets

Prepare a cash budget for Ministry of Commerce for April–June 202X, showing monthly and quarterly totals.

Question

On 31st March 202X the bank balance in the books of the Ministry of Commerce was GHC 900,000. The department provides you with the information below.

Month	IGF GHC’000	Govt releases GHC’000	Donations GHC’000	Salaries GHC’000	Goods and services GHC’000	Office equipment GHC’000	Advances GHC’000
Jan	4,100	2,000		1,200	1,000	600	50
Feb	900	500		320	300		40
March	1,300	500	400	320	400		50
April	1,200	600	200	620	320		40
May	1,000	600		550	220		60
June	1,000	600	200	660	420	500	50

Relevant notes to the data:
(i) The Internally Generated Funds (IGF) are made up of 70% cash receipts and 30% receivables. The receivables are collected as follows: 60% in the month following the service delivery and remaining 40% in the second month following the service delivery. The department is entitled to retention of 80% of the IGF collected and the remaining 20% is payable into the National Treasury (the central government fund) in the month in which the money is collected.
(ii) The department also enjoys budget allocation and Government promises to follow schedule.
(iii) The department anticipates some donations as shown in the table above. It is expected that 30%, 40%, and 70% of donations in March, April, and June respectively will be in cash. The remaining portions are expected to come in the form of materials.
(iv) The staff salaries will be paid at the end of each month.
(v) Goods and services are paid for one month in arrears.
(vi) The office equipment acquired in January will be paid for in the third month following the purchase, and the one to be acquired in June will be paid for immediately.
(vii) The office equipment is to be depreciated at 2.5% per month.
(viii) From January 20X0, staff of the department will be granted advances under an advance scheme approved by the government. The advances will be recovered in four equal monthly instalments, beginning in the month following the month in which the advances are granted (i.e. advances in January will be repaid in four equal monthly instalments beginning in February). Estimated advances are shown in the table above.

Required:
(a) Prepare a cash budget for the department for the Second Quarter of 202X (April – June 202X) showing the cash forecast for each individual month and the total for the quarter as a whole.

(b) Advise management based on the outcomes obtained in question (a) above.

Answer

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Tags: Advances, Budget Allocation, Cash Budgeting, Cash Flow, Consolidated Fund, Donations, Payments, Public Sector Accounting, Receivables, Short-Term Investments
Level: Level 2

Topic: Cash budgets and master budgets

MA – L2 – Q72 – Performance Analysis

Analyze Nexus Enterprises' financial performance using ratios and metrics for Years 1, 3, and 4 (forecast).

Question

The financial performance of Nexus Enterprises is summarised below. ‘Now’ is the end of Year 3.

	Year 1	Year 3	Year 4 (forecast)
Cost of sales/Sales	63%	70%	70%
Marketing costs/sales	9%	6%	5%
Distribution costs/sales	13%	8%	6%
Administration costs/sales	2%	2%	2%
Interest charges/Sales	0%	4%	8%
Operating profit/sales	13%	10%	9%
Loans/Sales revenue	0%	50%	67%
Inventory/Sales	10%	14%	18%
Sales/Non-current assets	4.7 times	1.9 times	1.2 times
Average sales per employee	600,000	1,032,000	686,000,000
Average sales per product	281,000	185,000	234,000
Average sales per supplier	750,000	726,000	651,000

Required:
Use this information to evaluate the financial performance of Nexus Enterprises.

Answer

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Tags: Borrowing, Cost Management, Employee Productivity, Financial Ratios, Inventory Management, Non-current Assets, Operating Profit, Performance Analysis, Profitability, Supplier Management
Level: Level 2

Topic: Performance Analysis

MA – L2 – Q71 – Divisional performance

Assess GSO's financial performance in Years 4 and 5, focusing on Primeland and Seconland contributions.

Question

Trading in Primeland in Year 1, and in Year 3 it opened a similar operation in a neighboring country, Scanland. The divisional managers in Primeland and Scanland have the authority to make most operational decisions, but decisions relating to acquisitions and financing are reserved for the board of directors of GSO.

Financial data is shown below for both divisions, for the years ending 31st December Year 4 and Year 5.

Actual results	Year 4			Year 5
	Primeland GH₵000	Seconland GH₵000	Total GH₵000	Primeland GH₵000	Seconland GH₵000	Total GH₵000
Revenues	4,300	950	5,250	4,500	1,200	5,700
Salaries and fees	1,400	580	1,980	1,500	600	2,100
Other direct costs	1,450	430	1,880	1,480	430	1,910
	2,850	1,010	3,860	2,980	1,030	4,010
Marketing	240	70	310	290	95	385
Depreciation/amortization	330	45	380	330	95	425
Interest cost			110			95
	570	115	800	620	190	905
Total costs	3,420	1,125	4,660	3,600	1,220	4,915
Profit/(loss)	880	(175)	590	900	(20)	785

Summary statements of financial position
Year 4

	Primeland GH₵000	Scanland GH₵000	Total GH₵000
Non-current assets	2,610	240	2,850
Net current assets	710	140	850
	3,320	380	3,700
Loan stock			1,400
			2,300
Capital and reserves			2,300

Year 5

	Primeland GH₵000	Scanland GH₵000	Total GH₵000
Non-current assets	2,600	480	3,080
Net current assets	1,250	190	1,440
	3,850	670	4,520
Loan stock			1,200
			3,320
Capital and reserves			3,320

Required:
(a) Assess the financial performance of GSO in Year 4 and Year 5, and the contribution of the operations in Primeland and Scanland to the overall performance.

(b) Suggest, with reasons, four additional items of information that you would require in order to provide a more comprehensive financial analysis of performance.

(c) Suggest, with reasons, four factors that should be taken into consideration when comparing performance in Primeland and Seconland.

Answer

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Tags: Competitor analysis, Market factors, Operational factors, Performance comparison
Level: Level 2

Topic: Divisional performance

MA – L2 – Q70 – Performance analysis

Calculate the impact of three strategies on annual profit for Kumasi Ventures Ltd, each implemented independently.

Question

Kumasi Ventures Ltd manufactures and sells a single product. Its budget for the next financial year is as follows:

Sales (80,000 units at GH₵600 per unit)	GH₵000
	48,000
Production costs: materials and labour	16,000
Other production costs	8,000
Marketing and distribution costs	12,000
Administration costs	10,000
Total costs	46,000
Profit	2,000

Materials and labour costs in production are 100% variable, and 25% of other production costs are variable. All administration costs are fixed costs and two-thirds of marketing and distribution costs are also fixed.

The directors of Kumasi Ventures Ltd are dissatisfied with the budgeted profit, and believe that annual profits should be at least double the size of the budgeted profit.

Three strategies have been proposed to improve profitability.

(1) Strategy 1. Increase sales by opening a new sales office in a neighbouring country. It is expected that this would increase annual sales by 5,000 units, but would add GH₵1.2 million to annual fixed costs.

(2) Strategy 2. Re-design the product by adding several additional features that should add value for the customer. This would have no effect on annual sales volume in units, but the company would be able to raise the sales price to GH₵625. The additional costs of producing the new product design would be GH₵1.5 million each year (all fixed costs).

(3) Strategy 3. Implement a cost reduction exercise throughout the company. It is expected that the planned exercise would reduce all variable costs by 20%, but would add to annual fixed costs by GH₵3.5 million.

Required:
(a) Calculate the effect of each individual strategy on annual profit, assuming that the strategy is implemented on its own, without the other two strategies.

(b) Show whether the three strategies, if they are all introduced together, will close the profit gap between the budgeted profit and the target profit that the directors would like to achieve.

Answer

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Tags: Contribution Analysis, Cost Management, Financial analysis, fixed costs, Profit improvement, Sales strategies, variable costs
Level: Level 2

Topic: Performance Analysis

MA – L2 – Q69 – Performance Analysis

Evaluate the performance of XYZ Group's three product segments using financial data and an analytical model.

Question

It is now the end of Year 2. XYZ Group has three divisions, each producing and selling a different group of products. Information about the financial performance of each division/product group is as follows.

Segment A	Year 1	Year 2	Year 3 (forecast)
	GH¢000	GH¢000	GH¢000
Sales	8,000	8,323	8,741
Cost of sales	4,400	4,520	4,610
Gross profit	3,600	3,803	4,131
Transport costs	400	415	430
R&D expenditure	low	low	Low
Market share	11%	10%	8%
Sales volume index	100	102	104

Segment B	Year 1	Year 2	Year 3 (forecast)
	GH¢000	GH¢000	GH¢000
Sales	10,000	11,220	12,600
Cost of sales	6,000	6,480	7,000
Gross profit	4,000	4,740	5,600
Transport costs	350	390	450
R&D expenditure	high	high	high
Market share	27%	27%	27%
Sales volume index	100	110	121

Segment C	Year 1	Year 2	Year 3 (forecast)
	GH¢000	GH¢000	GH¢000
Sales	6,000	5,600	5,400
Cost of sales	3,900	4,080	4,210
Gross profit	2,100	1,520	1,190
Transport costs	360	476	540
R&D expenditure	medium	medium	medium
Market share	20%	20%	20%
Sales volume index	100	107	114

Required:
Use this information to evaluate the performance of the three product groups. You should try to use an analytical model to support your financial analysis.

Answer

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Tags: BCG Matrix, Divisional performance, Financial analysis, Market share, Performance Analysis, R&D expenditure, Sales volume
Level: Level 2

Topic: Divisional performance, Performance Analysis

MA – L2 – Q68 – Other aspects of performance measurement

Suggest non-financial performance measures for service quality, marketing effectiveness, and personnel in a financial institution.

Question

Suggest non-financial performance measurements for a financial institution under the following headings:

Service quality
Marketing effectiveness
Personnel

Answer

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Tags: Customer satisfaction, Efficiency, Market share, Marketing effectiveness, Non-financial performance, Personnel, Service quality, Staff turnover
Level: Level 2

Topic: Other aspects of performance measurement

MA – L2 – Q67 – Performance Analysis

Evaluate financial performance of three divisions of XYZ Group using an analytical model, based on provided financial data for Years 1-3.

Question

XYZ GROUP: FINANCIAL ANALYSIS
It is now the end of Year 2. XYZ Group has three divisions, each producing and selling a different group of products. Information about the financial performance of each division/product group is as follows.

Division A	Year 1	Year 2	Year 3 (forecast)
Sales	GH₵000	GH₵000	GH₵000
	8,000	8,323	8,741
Cost of sales	4,400	4,520	4,610
Gross profit	3,600	3,803	4,131
Transport costs	400	415	430
R&D expenditure	low	low	low
Market share	11%	10%	8%
Sales volume index	100	102	104

Division B	Year 1	Year 2	Year 3 (forecast)
Sales	GH₵000	GH₵000	GH₵000
	10,000	11,220	12,600
Cost of sales	6,000	6,480	7,000
Gross profit	4,000	4,740	5,600
Transport costs	350	390	450
R&D expenditure	high	high	high
Market share	27%	27%	27%
Sales volume index	100	110	121

Division C	Year 1	Year 2	Year 3 (forecast)
Sales	GH₵000	GH₵000	GH₵000
	6,000	5,600	5,400
Cost of sales	3,900	4,080	4,210
Gross profit	2,100	1,520	1,190
Transport costs	360	476	540
R&D expenditure	medium	medium	medium
Market share	20%	20%	20%
Sales volume index	100	107	114

Required:
Use this information to evaluate the performance of the three product groups. You should try to use an analytical model to support your financial analysis.

Answer

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Tags: Divisional performance, Financial analysis, Market share, Performance Analysis, R&D expenditure, Ratio Analysis, Sales volume
Level: Level 2

Topic: Divisional performance, Performance Analysis

MA – L2 – Q66 – Performance Analysis

Evaluate if Ashanti Pharmaceuticals Ltd is on track for growth, analyzing sales, profit, and employee productivity from Year 1 to Year 2.

Question

Ashanti Pharmaceuticals Ltd has an objective in its long-term business plan of achieving significant growth in its business in the period Year 1 to Year 5. It is now the end of Year 2.

Its results for the years to 31st December Year 1 and Year 2 are summarised below.

Statement of profit or loss for the year ended 31 December

	Year 2 (GH₵)	Year 1 (GH₵)
Sales	31,200,000	26,000,000
Cost of sales	18,720,000	15,600,000
Gross profit	12,480,000	10,400,000
Operating costs	6,780,000	5,200,000
Interest charges	500,000	–
Taxation	3,000,000	3,000,000
Net profit	2,200,000	2,200,000

Statement of financial position as at 31st December

	Year 2 (GH₵)	Year 1 (GH₵)
Non-current assets	27,300,000	26,000,000
Net current assets	15,600,000	7,800,000
Total assets	42,900,000	33,800,000
Borrowings	9,000,000	–
Net assets	33,900,000	33,800,000
Share capital and reserves	19,500,000	19,500,000
Retained earnings	14,400,000	14,300,000
Total equity	33,900,000	33,800,000

Sales are seasonal, and are much higher in the first six months of the year than in the second six months. The half-yearly sales figures in the past two years have been as follows:

Sales

	Year 2 (GH₵)	Year 1 (GH₵)
First six months	21,645,000	16,900,000
Second six months	9,555,000	9,100,000
Total	31,200,000	26,000,000

The company employs part-time workers during the first six months of each year. Part-time workers operate for a full working week during the weeks that they are employed. Employee numbers have been as follows:

Employee numbers

	Year 2	Year 1
Full-time	318	260
Part-time (first six months)	494	310

The company introduced four new products to the market in Year 1 and another five new products in Year 2.

Required:
Explain with reasons whether the company appears to be on course for achievement and production.

Answer

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Tags: Employee Productivity, Financial Performance, Non-financial performance, Performance Analysis, Sales Growth, Working Capital
Level: Level 2

Topic: Performance Analysis

Subject (SQ): MANAGEMENT ACCOUNTING

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FM – L2 – Q3.3 – Public expenditure and financial accountability framework

Name and explain objects of enactments for external and internal audit in public sector.

FM – L2 – Q3.2 – Public expenditure and financial accountability framework

Explain the objective of the Public Financial Management Act 2016, Act 921.

L2 – Q73 – Cash Budgets and Master Budgets

Prepare a cash budget for Ministry of Commerce for April–June 202X, showing monthly and quarterly totals.

MA – L2 – Q72 – Performance Analysis

Analyze Nexus Enterprises' financial performance using ratios and metrics for Years 1, 3, and 4 (forecast).

MA – L2 – Q71 – Divisional performance

Assess GSO's financial performance in Years 4 and 5, focusing on Primeland and Seconland contributions.

MA – L2 – Q70 – Performance analysis

Calculate the impact of three strategies on annual profit for Kumasi Ventures Ltd, each implemented independently.

MA – L2 – Q69 – Performance Analysis

Evaluate the performance of XYZ Group's three product segments using financial data and an analytical model.

MA – L2 – Q68 – Other aspects of performance measurement

Suggest non-financial performance measures for service quality, marketing effectiveness, and personnel in a financial institution.

MA – L2 – Q67 – Performance Analysis

Evaluate financial performance of three divisions of XYZ Group using an analytical model, based on provided financial data for Years 1-3.

MA – L2 – Q66 – Performance Analysis

Evaluate if Ashanti Pharmaceuticals Ltd is on track for growth, analyzing sales, profit, and employee productivity from Year 1 to Year 2.

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FM – L2 – Q3.3 – Public expenditure and financial accountability framework

Name and explain objects of enactments for external and internal audit in public sector.

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FM – L2 – Q3.2 – Public expenditure and financial accountability framework

Explain the objective of the Public Financial Management Act 2016, Act 921.

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L2 – Q73 – Cash Budgets and Master Budgets

Prepare a cash budget for Ministry of Commerce for April–June 202X, showing monthly and quarterly totals.

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MA – L2 – Q72 – Performance Analysis

Analyze Nexus Enterprises' financial performance using ratios and metrics for Years 1, 3, and 4 (forecast).

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MA – L2 – Q71 – Divisional performance

Assess GSO's financial performance in Years 4 and 5, focusing on Primeland and Seconland contributions.

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MA – L2 – Q70 – Performance analysis

Calculate the impact of three strategies on annual profit for Kumasi Ventures Ltd, each implemented independently.

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MA – L2 – Q69 – Performance Analysis

Evaluate the performance of XYZ Group's three product segments using financial data and an analytical model.

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MA – L2 – Q68 – Other aspects of performance measurement

Suggest non-financial performance measures for service quality, marketing effectiveness, and personnel in a financial institution.

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MA – L2 – Q67 – Performance Analysis

Evaluate financial performance of three divisions of XYZ Group using an analytical model, based on provided financial data for Years 1-3.

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MA – L2 – Q66 – Performance Analysis

Evaluate if Ashanti Pharmaceuticals Ltd is on track for growth, analyzing sales, profit, and employee productivity from Year 1 to Year 2.

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