Cash Flow – Knowsia

SCS – L3 – Q16- Internal analysis

Explain how BCG Matrix analyzes business portfolio and strategic options for SBUs.

Question

16 Boston Consulting Group

The Boston Consulting Group (BCG) Matrix is a model which plots Strategic Business Units’ (SBUs) market growth and relative market share.

Many public sector organisations are now experiencing increasing levels of competition for the supply of their services. This competitive environment has resulted in the need for such public sector organisations to develop analytical techniques which previously operated mainly within the private sector.

Required:

(a) Explain how the BCG Matrix could be used to analyze, business portfolio and strategic options.

(b) Explain how a corporate parent can use envisioning and intervention as strategies for value creation for its Strategic Business Units.

Answer

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Tags: BCG Matrix, Cash Flow, Market share, Portfolio Analysis, Strategic Options
Level: Level 3

Topic: Internal analysis

FM – L2 – Q104 – Working Capital Management

Analyze Peak Enterprises Limited's financial statements to determine if it is overtrading and discuss its implications.

Question

Peak Enterprises Limited is a small manufacturing company. Its summarized accounts for the last two years are presented below:

Statements of Financial Position as at 31st March

	Year 5 (GH¢’000)	Year 6 (GH¢’000)
Fixed Assets	1,130	1,080
Current Assets
Inventory	210	260
Trade Receivables	120	160
Cash	30	–
Total Current Assets	360	420
Total Assets	1,490	1,500
Equity and Liabilities
Equity Shares of GH¢0.25	200	200
Accumulated Profits	680	500
Total Equity	880	700
Medium-Term Bank Loan	200	150
Current Liabilities
Bank Overdraft	140	250
Trade Payables	200	280
Other Payables	70	120
Total Current Liabilities	410	650
Total Equity and Liabilities	1,490	1,500

Statements of Profit or Loss for the Year Ending 31st March

	Year 5 (GH¢’000)	Year 6 (GH¢’000)
Sales	1,800	2,900
Gross Profit	210	260
Profit Before Tax	120	160
Taxation	(30)	(40)

Required
(a) Comment on whether there is any evidence that Peak Enterprises Limited is overtrading.
(b) Discuss the implications of overtrading for Peak Enterprises Limited.

Answer

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Tags: Bank Overdraft, Cash Flow, Equity financing, Financial Ratios, Inventory Management Civilian Financial Statements, Overtrading, Trade Payables, Trade Receivables, Working Capital
Level: Level 2

Topic: Working capital management

PSAF – L2 – Q9.3 – Employee Benefits

Show financial statement extracts for Ministry of Transport and Infrastructure's defined benefit plan for 2024 per IPSAS 39.

Question

As at 31st December 2023, the following balances were outstanding in respect of employee pensions which are determined based on a formula that considers number of years of service and the best last six months remuneration of the employee:

GHC million
Pension plan assets	65
Pension liabilities	85

During the year ending 31st December 2024, the following transactions occurred:

GHC million
Transfers into the investments of the scheme	15
Pension payments made	29
Investments liquidated to support pension payments	11
Current service cost	10
Cost resulting from improvement to the plan formula	6

At 31st December 2024, the present value of pension liabilities was computed at GHc127 million (using a discount rate of 15%) and the fair value of plan assets estimated at GHc98 million.

Required:
You are required to show extracts of the financial statements in respect of employee benefits for the year ended 31st December 2024.

Answer

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Tags: Actuarial Difference, Cash Flow, Defined Benefit Plan, Employee Benefits, Financial Statements, IPSAS 39, Pension Expense, Pension Liability
Level: Level 2

Topic: International Public Sector Accounting Standards

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

FA – L1 – Q96 – Preparation of accounts from incomplete records

Prepare statement of profit or loss and financial position for Kofi's business for 20X9 using incomplete records.

Question

Kofi is in business but does not keep proper books of account. In order to prepare his income and expenditure account for the year ended 31 December 20X9 you are given the following information.

| | 1 Jan 20X9 | 31 Dec 20X9 | | | GH¢000 | GH¢000 | | Inventory on hand | 1,310 | 1,623 | | Receivables | 268 | 412 | | Payables for goods | 712 | 914 | | Payables for expenses | 116 | 103 |

In addition you are able to prepare the following summary of his cash and bank transactions for the year.

| Cash account | | | | | — | GH¢000 | — | GH¢000 | | Balance 1 January | 62 | Payments into bank | 3,050 | | Shop takings | 4,317 | Purchases | 316 | | Cheques cashed | 200 | Expenses | 584 | | | | Drawings | 600 | | | | Balance 31 December | 29 | | | 4,579 | | 4,579 |

| Bank account | | | | GH¢000 | | Balance 1 January | 840 | Cash withdrawn | 200 | | Cheques from customers | 1,416 | Purchases | 2,715 | | Cash paid in | 3,050 | Expenses | 519 | | | | Drawings | 400 | | | | Delivery van (purchased 1 September) | 900 | | | | Balance 31 December | 572 | | | 5,306 | | 5,306 |

In addition Kofi says that he had taken goods for personal consumption and estimates that those goods cost GH¢100,000.
In considering accounts receivable Kofi suggests that a provision is to be made of 5% of amounts due after writing off a specific irrecoverable debt of GH¢30,000.
Depreciation on the delivery van is to be recognised at 20% per annum.

Required:
Prepare the statement of profit or loss and a statement of financial position at 31 December 20X9.

Answer

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Tags: Capital account, Cash Flow, Depreciation, Financial Statements, Incomplete records, Inventory, Payables, Receivables, Statement of Financial Position, Statement of profit or loss
Level: Level 1

Topic: Preparation of accounts from incomplete records

MA – L2 – Q13 – Cash budgets and master budgets

Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

Question

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

Month	IGF GHC000	GoG releases GHC000	Donation GHC000	Wages and salaries GHC000	Goods and services GHC000	Office equipment GHC000	Advances GHC000
Jan	4,100	2,000		1,200	1,000		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) is made up of 70% cash and 30% receivables. The receivables are collectible as follows: 60% in the month following the service delivery and the remaining 40% in the second month following the service delivery. The department is entitled to retention of 80% of IGF collected and the remaining 20% is payable into the National Treasury Fund in the month in which it was collected.
(ii) The department also enjoys a budget allocation from the Government of Ghana (GoG) and the government promises to make payments according to the schedule shown.
(iii) The department anticipates that it will receive some donations as scheduled 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) Wages and 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% of cost per month.
(viii) Staff of the department are granted advances under an advance scheme approved by the government. The advances will be recovered in four equal instalments beginning from the month following the month in which the advance is granted.

Required:
Prepare a cash budget for the department for the Second Quarter of 202X showing clearly the cash forecast for individual months and the total for the quarter as a whole.

Answer

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Tags: Advances, Budgetary Control, Cash Budgeting, Cash Flow, Consolidated Fund, Donations, Government Grants, Internally Generated Funds, Payments, Receipts
Level: Level 2

Topic: Cash budgets and master budgets

AAA – L3 – Q59 – Going Concern

Identify factors indicating that a company may not be a going concern.

Question

You are responsible for the audit of Asante Co, a limited liability company, for the year ended 31 December 20X8. The principal activity of Asante Co is the provision of high-quality packaging services for manufacturing companies. The company was established 3 years ago and has significantly exceeded its growth targets in each subsequent year.

Historically, the packaging process was labour-intensive, but in September 20X8, in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan repayable in monthly instalments over four years. The loan covenant agreement includes a covenant specifying that the company’s debt:equity ratio should not exceed 1:1.

A comparison of the draft financial statements for the year ended 31 December 20X8 with the previous year indicates a significant increase in revenue with a small increase in profitability. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency and reduction in labour costs will be achieved.

The company struggles to meet the weekly wage bill and has fallen behind with its payments to the taxation authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last 3 months’ instalments.

Required:

(a) Identify, and explain, from the information provided above, factors which indicate that Asante Co may not be a going concern. (b) Outline the matters to which you would direct your attention in the period after the end of the reporting period in order to determine whether Asante Co can continue as a going concern for the foreseeable future.

Answer

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Tags: Audit Procedures, Cash Flow, Debt Covenant, Financial Distress, Going Concern, Overdraft, Taxation Liabilities
Level: Level 3

Topic: Evaluation and review

Tag (SQ): Cash Flow

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SCS – L3 – Q16- Internal analysis

Explain how BCG Matrix analyzes business portfolio and strategic options for SBUs.

FM – L2 – Q104 – Working Capital Management

Analyze Peak Enterprises Limited's financial statements to determine if it is overtrading and discuss its implications.

PSAF – L2 – Q9.3 – Employee Benefits

Show financial statement extracts for Ministry of Transport and Infrastructure's defined benefit plan for 2024 per IPSAS 39.

L2 – Q73 – Cash Budgets and Master Budgets

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

FA – L1 – Q96 – Preparation of accounts from incomplete records

Prepare statement of profit or loss and financial position for Kofi's business for 20X9 using incomplete records.

MA – L2 – Q13 – Cash budgets and master budgets

Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

AAA – L3 – Q59 – Going Concern

Identify factors indicating that a company may not be a going concern.

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SCS – L3 – Q16- Internal analysis

Explain how BCG Matrix analyzes business portfolio and strategic options for SBUs.

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FM – L2 – Q104 – Working Capital Management

Analyze Peak Enterprises Limited's financial statements to determine if it is overtrading and discuss its implications.

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PSAF – L2 – Q9.3 – Employee Benefits

Show financial statement extracts for Ministry of Transport and Infrastructure's defined benefit plan for 2024 per IPSAS 39.

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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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FA – L1 – Q96 – Preparation of accounts from incomplete records

Prepare statement of profit or loss and financial position for Kofi's business for 20X9 using incomplete records.

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MA – L2 – Q13 – Cash budgets and master budgets

Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

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AAA – L3 – Q59 – Going Concern

Identify factors indicating that a company may not be a going concern.

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