Tag (SQ): Advantages
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- 20 Marks
BCL – L1 – Q61 – Alternative forms and constitutions of business organisations
Recommend whether Hajia Amina’s business should remain a sole proprietorship or convert to a private limited company.
Question
Your mother trades in locally made fruit juice in a container at the front of the house at Adiembra-Zongo. The booming business is putting pressure on her working capital. But she plans to open two new retail branches and a semi-wholesale by the end of the year using sale proceeds of her private car which will not be enough. A bank manager working on her personal loan application advised her to convert the sole proprietorship into a private limited liability company, but your mother thinks that will reduce her power and influence. She adores the business name registration certificate with her name boldly engraved ‘HAJIA AMINA SIEDU ENTERPRISE’.
(a) Which of the options will you recommend?
(b). Discuss why you would support your mother’s position or that of the bank manager.
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- 10 Marks
BCL – L1 – Q52 – Alternative forms and constitutions of business organisations
State two advantages and two disadvantages of forming a sole proprietorship.
Question
It appears that many residents of Kumasi prefer to own their businesses without going through the cumbersome details of forming an incorporated company limited by shares.
Required:
State TWO (2) advantages and TWO (2) disadvantages of forming sole proprietorship.
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- 15 Marks
FM – L2 – Q112 – Management of receivables and payables
Calculate the profit impact of using a debt factor for Nsawkaw Tech Solutions Limited and comment on the findings.
Question
Nsawkaw Tech Solutions Limited is a software business owned and managed by computer software specialists. Although sales have remained stable at GH¢40,000,000 per annum in recent years, the level of trade receivables has increased significantly. A recent financial report submitted to the owners indicates an average settlement period of 60 days for trade receivables compared with an industry average of 40 days. The level of bad debts has also increased in recent years, and the company now writes off approximately GH¢40,000 in bad debts each year.
The recent problems experienced in controlling credit have led to a liquidity crisis for the company. At present, the company finances its trade receivables by a bank overdraft at an interest rate of 14% a year. However, the overdraft limit has been exceeded on several occasions in recent months, and the bank is now demanding a significant decrease in the size of the overdraft.
To meet this demand, the owners of the company have approached a factor who has offered to make an advance payment equivalent to 85% of trade receivables, based on the assumption that the level of receivables will be in line with the industry average.
The factor will charge a rate of interest of 12% a year for this advance. The factor will take over the sales records of the company and, for this service, will charge a fee based on 2% of sales. The company believes that the services offered by the factor should eliminate bad debts and lead to administrative cost savings of GH¢52,000 per year.
Required
(a) Calculate the effect of employing a debt factor on the profit of Nsawkaw Tech Solutions Limited. Comment on your findings.
Note: You may assume 360 days in a year.
(b) State FIVE potential advantages and TWO disadvantages of using the services of a debt factor by a business organisation.
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- Tags: Advantages, Business Operations, Credit Control, Debt Management, Disadvantages, Factoring
- Level: Level 2
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- 10 Marks
FM – L2 – Q30 – Financial markets
Outline advantages/disadvantages of stock exchange listing and types of issue costs associated.
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- Tags: Advantages, Disadvantages, Equity Finance, issue costs, listing, public quotation, Stock exchange
- Level: Level 2
- Topic: Financial markets
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- 20 Marks
FA – L1 – Q53 – Control accounts and account reconciliations
Prepare a revised sales ledger control account for Biomed Supplies Ltd for 20X8, correcting identified errors.
Question
The sales ledger control account of BioHealth Solutions Ltd for the year ended 31st December 20X8 has been prepared from the following information:
| GH¢ | |
|---|---|
| Debit balance b/d 1st January 20X8 | 128,540 |
| Credit balance b/d 1st January 20X8 | 2,800 |
| Total for the year 1st January 20X8 to 31st December 20X8 | |
| Credit Sales | 1,144,200 |
| Cheques received from customers | 1,046,200 |
| Cash received from customers | 7,100 |
| Sales returns from customers | 12,000 |
| Discounts allowed | 2,480 |
| Dishonoured cheques | 5,000 |
| Contras purchases ledger | 10,640 |
| Irrecoverable debts | 6,500 |
The sales ledger control account balance, which is part of the double entry system, failed to agree with the total receivables of GH¢189,380 as shown by the schedule of receivables. The following errors were subsequently discovered:
(i) A customer had returned goods to BioHealth Solutions Ltd at the selling price of GH¢2,400. The goods had been bought on credit. No entries had been made to record the return of the goods in the accounts of BioHealth Solutions Ltd.
(ii) The discounts allowed column in the cash book had been overcast by GH¢1,080.
(iii) No contra entry had been made in the receivables account in the sales ledger in respect of purchases by BioHealth Solutions Ltd of goods at a list price of GH¢2,000. PC Ltd received a trade discount of 10% on these goods. This transaction had been correctly dealt with in the Sales Ledger Control Account.
(iv) A credit sale of GH¢3,520 to JT Private Health Ltd was correctly recorded in the sales ledger control account, but no other entry had been made.
(v) A cheque received from a customer for GH¢6,900, correctly processed through the books, had subsequently been dishonoured. No entries have yet been made to record this dishonoured cheque.
(vi) DT Medical Ltd, a customer, has recently been declared bankrupt and the debt of GH¢3,500 is to be written off, but no entries have yet been made.
Required:
(a) Prepare a revised sales ledger control account for the year ended 31 December 20X8.
(b) Prepare a statement showing the correct total of the Schedule of Receivables for the year ended 31 December, 20X8.
(c) Discuss TWO advantages to BioHealth Solutions Ltd of using control accounts.
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