Tag (SQ): Financial Performance

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  • 20 Marks

FR – L2 – Q99 – Presentation of Financial Statements

Calculate financial ratios for Jeck Ltd for the year ended 31 March 20X9 based on provided financial statements.

Jeck Ltd is a listed company that assembles domestic electrical goods which it then sells to both wholesale and retail customers. Jeck Ltd’s management was disappointed in the company’s results for the year ended 31 March 20X8. In an attempt to improve performance the following measures were taken early in the year ended 31 March 20X9:

  • A national advertising campaign was undertaken,
  • Rebates to all wholesale customers purchasing goods above set quantity levels were introduced,
  • The assembly of certain lines ceased and was replaced by bought-in completed products. This allowed Jeck Ltd to dispose of surplus plant.

Jeck Ltd’s summarised financial statements for the year ended 31 March 20X9 are set out below:

Statement of Financial Position as at 31 March 20X9

GH$’000 GH$’000
Non-current assets
Property, plant and equipment (note (ii)) 550
Current assets
Inventory 250
Trade receivables 360
Bank Nil
610
Total assets
Equity and liabilities
Stated capital (400m shares) 100
Income surplus 380
480
Non-current liabilities
8% loan notes 200
Current liabilities
Bank overdraft 10
Trade payables 430
Current tax payables 40
480
Total equity and liabilities

Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 31 March 20X9

GH$’000
Revenue (25% cash sales)
Cost of sales
Gross profit
Operating expenses
Operating profit
Profit on disposal of plant (note (i))
Financial charges
Profit before tax
Income tax expense
Profit for the year

Below are ratios calculated for the year ended 31 March 20X8:

  • Return on year-end capital employed (profit before interest and tax over total assets less current liabilities): 17%
  • Net assets (equal to capital employed) turnover: 4 times
  • Gross profit margin: 6.3%
  • Net profit (before tax) margin: Not provided
  • Current ratio: 1.6:1
  • Closing inventory holding period: 46 days
  • Trade receivables’ collection period: 45 days
  • Trade payables’ payment period: 55 days
  • Dividend yield: 3.75%
  • Dividend cover: 2 times

Notes:
(i) Jeck Ltd received GH$120m from the sale of plant that had a carrying amount of GH$80m at the date of its sale.
(ii) The market price of Jeck Ltd’s share throughout the year averaged GH$3.75 each. There were no issues or redemption of shares or loans during the year.
(iii) Dividends paid during the year ended 31 March 20Y0 amounted to GH$90m, maintaining the same dividend paid in the year ended 31 March 20X9.

Required:
(a) Calculate ratios for the year ended 31 March 20X9 (showing your workings) for Jeck Ltd, equivalent to those provided above.

(b) Analyse the financial performance and position of Jeck Ltd for the year ended 31 March 20X9 compared to the previous year.

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  • 20 Marks

PSAF – L2 – Q13.3- Financial Statements Discussion and Analysis

Compute financial ratios for two West African nations based on provided financial statements.

Nation A and Nation B are West African Nations that attained independence around the same period. Presented below are the financial statements of the two countries.

Statement of financial position as at 31 December 2023

Nation A (GH¢ million) Nation B (GH¢ million)
Current liabilities
Payables 9,300 6,150
Trust monies 2,100 1,350
Domestic debt 24,000 6,750
35,400 14,250
Non-current liabilities
Domestic debt 54,000 27,000
External debt 63,675 33,000
117,675 60,000
Total fund and liabilities 153,075 74,250

Required:
(a) From the information provided, compute for the two countries respectively:

  • Grant to Total Revenue ratio;
  • Wage Bill to Tax Revenue ratio;
  • Interest to Revenue ratio;
  • Debt to GDP ratio;
  • Capital expenditure per Capita; and
  • Wages bill to Total Expenditure ratio.                                                                                                                                                                                                                                                                                                                                                                                        (b) Based on the result in question (a), write a report discussing and analyzing the financial performance and financial position of the two countries. Include in your report the limitations of the analysis of the two countries.

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  • 20 Marks

PSAF – L2 – Q12.3 – International public sector accounting standards

Prepare consolidated financial statements and notes for National Health Services and its hospitals for 2023 per IPSAS.

GHANA HEALTH SERVICE

Statements of Financial Performance for the year ended 31st December 2023

GHS Kolebu Saint H
GHC’000 GHC’000 GHC’000
Revenue
Tax revenue 100,000
GoG receipt 2,000
Non-exchange revenue 100,000 2,000 3,000
Internally generated revenue 5,000 400 200
Exchange revenue 5,000 400 200
Total revenue 105,000 2,400 3,200
Expenses
Compensation for employees 40,000 600 500
Depreciation & amortisation 500 300 200
Goods and services 25,000 600 400
Finance costs 1,600 500 100
Total expenses 67,100 2,000 1,200
Surplus for the period 37,900 400 2,000

Statements of Financial Position for the year ended 31 December 2023

GHS Kolebu Saint H
GHC’000 GHC’000 GHC’000
Assets:
Cash & cash equivalent 25,000 800 500
Receivable: GHS 900
Receivable: Others 62,000 700 400
Inventories 12,000 300 200
Current assets 99,000 2,700 1,100
Property, plant & equipment 140,000 40,000 67,100
Investment- Saint H 60,000
Non-current assets 200,000 40,000 67,100
Total Asset 299,000 42,700 68,200
Liabilities
Payable: Kolebu 900
Payable others 60,000 8,000 3,000
Current borrowings 90,000 2,000
Current liabilities 150,900 10,000 3,000
Borrowing 45,000 10,000 5,000
Non-current liabilities 45,000 10,000 5,000
Total liabilities 195,900 20,000 8,000
Net asset (liabilities) 103,100 22,700 60,200

Net Asset/Equity:

GHS Kolebu Saint H
GHC’000 GHC’000 GHC’000
Contribution from owners 60,000
Accumulated Surplus (deficit) 103,100 22,700 200
Total Asset/Equity 103,100 22,700 60,200

Additional information
(i) The Ghana Health Services (GHS) is a government agency responsible for overseeing the health sector. The Kwadwo Teaching Hospital is funded through government appropriations and internally generated funds approved by Parliament. The GHS appoints most of the hospital’s board members on behalf of the government. All employees at Kwadwo receive their salaries from the Consolidated Fund.
(ii) On July 1, 2023, the GHS established the Blessed Hospital to provide high-quality healthcare services in the country. The GHS has fully funded the hospital’s operations through equity and debt guarantees and has also appointed the hospital’s governing board.
(iii) The appropriations to Kwadwo cover employee compensation and goods and services expenses at a ratio of 60% to 40%, respectively.
(iv) At the end of the reporting period, the GHS owed Kwadwo GHC900,000 for services rendered to its staff. The GHS has committed to paying this amount by the end of the second quarter of the following year.
(v) The separate financial statements of the GHS, Kwadwo, and Blessed Hospital are prepared using the same accounting policies.

Required:
Prepare in accordance with the relevant IPSASs:
(a) A consolidated statement of financial performance for the year ended 31 December 2023.
(b) A consolidated statement of financial position as at 31 December 2023.
(c) Note to the accounts.

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  • 10 Marks

PSAF – L2 – Q9.1 – International Public Sector Accounting Standards

Account for borrowing costs for a tunnel project by the Ministry of Transport under IPSAS 5 for 2023.

The Ministry of Transport decided to construct a tunnel that will link two major cities in the country to ease traffic congestion. The project, which commenced in January 2023, is expected to take two years to complete. The financing for the project includes the following borrowings:

  • Bank Term Loans: GHc50 million at 7% interest per annum
  • Institutional Borrowings: GHc70 million at 8% interest per annum
  • Corporate Bonds: GHc100 million at 9% interest per annum

The total borrowings amount to GHc220 million, of which GHc20 million was used for routine maintenance of existing roads, and the remaining was for the tunnel construction. During the year, the Ministry earned GHc5 million from temporary investments of the borrowed funds.

Required:
(a) Explain the accounting treatment for the borrowing costs under the benchmark treatment option (expense recognition) for the year ended 31st December 2023.
(b) Explain the accounting treatment for the borrowing costs under the alternative treatment option (capitalization of borrowing costs) for the year ended 31st December 2023.

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  • 10 Marks

PSAF – L2 – Q8.1 – International Public Sector Accounting Standards

Detail the accounting treatment of outstanding tax revenue for the Federal Government of Nigeria as at 31st December 2024.

As at 31st December 2024, corporate tax assessments amounting to NGN170 million were still outstanding to be paid by corporate entities to the Federal Government of Nigeria, whilst the total amount owed to the Federal Government of Nigeria as at 31st December 2024 in respect of taxes on goods and services stood at NGN140 million. It is estimated that, only 85% and 90% of the outstanding corporate taxes and taxes on goods and services respectively may be recovered.

Required:

Detail out the accounting treatment of tax revenue for the year ended 31st December 2024.

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  • 20 Marks

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.

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.

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  • 15 Marks

MA – L2 – Q56 – Performance analysis

Discuss methods and qualities of good performance measurement in management accounting.

PERFORMANCE MANAGEMENT
Methods used in measuring performance
Financial Performance: analyse profitability, liquidity and risk. Financial Indicators include Profit, Revenue, Costs, Share Price and cash flow.
Non-Financial Performance: This can usefully be applied to employees and product/service quality. Non-Financial Indicators may include Quality of Service, Measures of customer satisfaction, Lateness.
Qualities of Good Performance Measurement

A GOOD MEASURE: DESCRIPTION:
Is quantitative The measure can be expressed as an objective value
Is easy to understand The measure conveys at a glance what it is measuring, and how it is derived
Encourages appropriate behaviour The measure is balanced to reward productive behaviour and discourage “game playing”
Is visible The effects of the measure are readily apparent to all involved in the process being measured
Is defined and mutually understood The measure has been defined by and/or agreed to by all key process participants (internally and externally)
Encompasses both outputs and inputs The measure integrates factors from all aspects of the process measured
Measures only what is important The measure focuses on a key performance indicator that is of real value to managing the process
Is multidimensional The measure is properly balanced between utilisation, productivity, and performance, and shows the trade-offs
Uses economies of effort The benefits of the measure outweigh the costs of collection and analysis
Facilitates trust The measure validates the participation among the various parties

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  • 15 Marks

MA – L2 – Q15 – Budgetary Control

Prepare a budgeted profit or loss statement for a medical practice near Mount Adaklu based on patient mix, treatment charges, and costs.

A private medical practice based near Mount Adaklu has five full-time doctors, five full-time assistants, and two administrators.
Each doctor treats 18 patients each day on average. The medical centre is open for five days each week, 46 weeks each year.
Charges for patients vary according to the age of the patient and the nature of the treatment provided.

Charges

Adults below 65 years of age Children and individuals aged 65 years and over
No treatment: consultation only GH¢50 GH¢30
Minor treatment GH¢200 GH¢120
Major treatment GH¢600 GH¢280

The patient mix and the treatment mix are as follows:
Patients:

  • Adults: 45%
  • Children: 25%
  • Over 65 years old: 30%

Treatment:

  • No treatment: 20%
  • Minor treatment: 70%
  • Major treatment: 10%

The salary of each doctor is GH¢240,000, assistants earn GH¢100,000, and administrators earn GH¢80,000. In addition, everyone receives a 5% bonus at the end of the year.
The medical practice expects to pay GH¢414,300 for materials next year and other (fixed) costs will be GH¢733,600.
Required:
Using the information provided, present a statement of profit or loss for the medical practice for next year. (Ignore the effects of inflation.)

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  • 15 Marks

MA – L2 – Q14 – Budgetary control

Prepare a budgeted profit or loss statement for Mampong Delivery Co. for Year 2, considering revenue, salaries, fuel, and operational costs.

A company operating out of Mampong provides three types of delivery service to customers: service A, service B, and service C. Customers are a mix of firms with a contract for service with the company, and non-contract customers.
The following information relates to performance in the year to 31st December Year 1:

Service A Service B Service C
Number of deliveries made 350,000 250,000 20,000
% of deliveries to contract customers 60% 60% 80%
Price charged per delivery:
Contract customers GH¢9 GH¢15 GH¢300
Premium for non-contract customers +30% +50% +20%

The premium for non-contract customers is in addition to the rate charged to contract customers.
All employees in the company were paid GH¢45,000 per year and sundry operating costs, excluding salaries and fuel costs, were GH¢4,000,000 for the year.
The following operational data for the year relates to deliveries:

Services A and B Service C
Average kilometres per vehicle/day 400 600
Number of vehicles 50 18
Operating days in the year 300 300

For Year 2, the company has agreed a fixed price contract for fuel. As a result of this contract, fuel prices will be:
(a) GH¢0.40 per kilometre for Services A and B
(b) GH¢0.80 per kilometre for Service C.
Sales prices will be 3% higher in Year 2 than in Year 1, and salaries and operational expenses will be 5% higher. Sales volume will be exactly the same as in Year 1.
The number of employees will also be the same as in Year 1: 60 employees working full-time on Services A and B and 25 employees working full-time on Service C.
Required:
(a) Prepare a budgeted statement of profit or loss for the year to 31st December Year 2.

(b) Comment on vehicle utilisation.

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