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  • 15 Marks

FM – L2 – Q21 – Discounted cash flow

Calculate NPV for a machine investment at Tema Electrical Plc and recommend if it should be undertaken, considering cash flows, WACC, and tax.

Tema Electrical Plc is considering whether to purchase a machine for the manufacture of a new product, Product X. It has been estimated that Product X would have a life of four years and at a selling price of GH¢8 per unit, annual sales demand would be 400,000 units in Year 1, 600,000 units in Year 2 and 800,000 in each of Years 3 and 4.

Variable production and selling costs would be GH¢6 per unit. Incremental annual fixed cost expenditures (all cash cost items) would be GH¢500,000 in Year 1, rising by GH¢20,000 each year.

The machine, which has an annual output capacity of 700,000 units of Product X, would cost GH¢1,200,000 and would have a resale value of GH¢200,000 at the end of Year 4. Capital allowances would be available on a 25% annual reducing balance basis, with a balancing charge or allowance in the year of disposal. Tax at 25% is payable one year in arrears of the profits to which it relates.

Tema Electrical Plc is financed 70% by equity capital and 30% by debt capital. The equity has a cost of 10% and the debt has a cost of 8.9% (before tax).

Required

Calculate the net present value of the proposed project and recommend whether the investment in the machine should be undertaken.

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  • 10 Marks

FM – L2 – Q11 – Economic and regulatory environment

Explain five areas where government action impacts financial management decisions.

The economic environment within which the financial manager must operate is subject to a variety of influences, a major one is from the government.

Required:

Explain FIVE areas in which government action might affect the problem solving and decision making roles of a Finance Manager.

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  • 20 Marks

FA – L1 – Q99 – Statement of Cash Flows

Prepare a statement of cash flows for Nordex Limited for 20X9 using financial statements and non-current asset details.

The following information has been extracted from the draft financial information of Nordex Limited.

Statement of Profit or Loss for the Year Ended 31 December 20X9

GH¢’000 GH¢’000
Sales revenue 1,350
Administration costs (346)
Distribution costs (246)
Operating profit 758
Interest expense (110)
Profit before tax 648
Taxation (208)
Profit after tax 440
Dividends paid (120)
Retained profit for the year 320

Statements of Financial Position

31 December 20X9 31 December 20X8
GH¢’000 GH¢’000 GH¢’000 GH¢’000
Non-current assets 1,145 957
Current assets
Inventory 157 142
Receivables 203 184
Cash and cash equivalents 41 10
401 401 336 336
Total assets 1,546 1,293
Equity and liabilities
Equity
Share capital 200 200
Revaluation surplus 170 100
Retained earnings 604 404
974 974 704 704
Non-current liabilities
Loans 350 450
Current liabilities
Trade payables 43 43
Taxation 29 36
Accruals 150 100
222 222 179 179
Total equity and liabilities 1,546 1,293

Note on Non-Current Assets

Land and Buildings Machinery Fixtures & Fittings Total
GH¢’000 GH¢’000 GH¢’000 GH¢’000
Cost or Valuation
At 31 December 20X8 830 470 197 1,497
Additions – 43 55 98
Disposals – (18) – (18)
Adjustment on revaluation 70 – – 70
At 31 December 20X9 900 495 252 1,647
Depreciation
At 31 December 20X8 (90) (270) (180) (540)
Charge for the year (10) (56) (8) (74)
Disposals – 12 – 12
Adjustment on revaluation 100 – – 100
At 31 December 20X9 0 (314) (188) (502)
Carrying Amount
At 31 December 20X8 740 200 17 957
At 31 December 20X9 900 181 64 1,145

You have been informed that included within distribution costs is GH¢4,000 relating to the loss on a disposal of a non-current asset.

Required
Prepare a statement of cash flows for Nordex Limited for the year ended 31 December 20X9.

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  • 20 Marks

FA – L1 – Q98 – Statement of cash flows

Prepare a statement of cash flows for Tango Limited for 20X9 using the direct method, based on provided financial statements.

The following information has been extracted from the financial statements of Tango Limited for the year ended 31 December 20X9.

Statement of profit or loss for the year ended 31 December 20X9

GH¢ GH¢
Sales
Cost of sales
Gross profit
Loss on disposal of non-current asset (4,000)
Wages and salaries (137,000)
Other expenses (including depreciation GH¢46,000) (193,000)
Interest charges (19,000)
Profit before tax
Tax on profit
Profit after tax

The asset disposed of had a carrying amount of GH¢31,000 at the time of the sale.

Extracts from the statements of financial position:

At 1 January 20X9 At 31 December 20X9
GH¢ GH¢
Non-current assets 157,000 142,000
Inventory 42,000 45,000
Receivables 43,600 51,000
Cash and cash equivalents 4,000 11,200
Trade payables 45,000 41,000
Taxation payable 10,000 12,000
Interest payable 3,000 2,000

Note on non-current assets

Land and buildings Machinery Fixtures & fittings Total
GH¢000 GH¢000 GH¢000 GH¢000
Cost or valuation
At 31 December 20X8 830 470 197 1,497
Additions – 43 55 98
Disposals – (18) – (18)
Adjustment on revaluation 70 – – 70
At 31 December 20X9 900 495 252 1,647
Depreciation
At 31 December 20X8 (90) (270) (180) (540)
Charge for the year (10) (56) (8) (74)
Disposals – 12 – 12
Adjustment on revaluation 100 – – 100
At 31 December 20X9 0 (314) (188) (502)
Carrying amount:
At 31 December 20X8 740 200 17 957
At 31 December 20X9 900 181 64 1,145

You have been informed that included within distribution costs is GH¢4,000 relating to the loss on a disposal of a non-current asset.

Required
Prepare a statement of cash flows for Tango Limited for the year ended 31 December 20X9.

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  • 20 Marks

FA – L1 – Q76 – Preparation of limited liability company financial statements

Prepare Etabila Travel Limited's statement of profit or loss for 20X9 and statement of financial position as at 31 December 20X9 per IAS 1.

The trial balance of Etabila Travel Limited as at 31 December 20X9 is as follows:

DR (GH¢000) CR (GH¢000)
Ordinary share capital (GH¢1 shares) 600
Cash at bank 23
Tax (over-provision in 20X8) 25
10% loan notes (repayable in 2020) 300
General administrative expenses 300
Administrative salaries 46
General distribution expenses 160
Distribution salaries 24
Directors’ remuneration 35
Loan notes interest paid 10
Development costs (incurred during 20X9) 30
Dividend paid 15
Dividends received 30
Investments 45
Land and buildings – at cost 2,600
– accumulated depreciation at 1 January 20X9 200
Plant and machinery – at cost 320
– accumulated depreciation at 1 January 20X9 75
Retained earnings at 1 January 20X9 64
Purchases and sales 1,250 2,250
Profit on disposal of factory 60
Trade receivables and trade payables 100 220
Inventory at 1 January 20X9 60
Irrecoverable debts 5
Total 4,824 4,824

Additional Information:
(1) Closing inventory is valued at the lower of cost or net realisable value. At 31 December 20X9 it amounted to GH¢55,000.
(2) Non-current assets are depreciated on a straight-line basis assuming no residual value. The following depreciation rates are to be applied:

  • Buildings: 5%
  • Plant and machinery: 20%
    The depreciation charge for the year is to be apportioned as follows:

Distribution costs Administrative expenses
Buildings 70% 30%
Plant and machinery 75% 25%

The cost of the land was GH¢3,200,000. There were no purchases or sales of non-current assets during the year.
(3) Development costs are an intangible asset and are to be amortised (depreciated) over a three-year period. The amortisation (depreciation) charge is to be allocated to cost of sales.
(4) The profit (after tax) on disposal of the factory is considered to be a material amount for which separate disclosure is required.
(5) Tax on the profits for the year is estimated at GH¢95,000.
(6) Directors’ remuneration is to be analysed between distribution costs and administrative expenses as follows:

  • Distribution: GH¢15,000
  • Administration: GH¢20,000

Required:
Prepare the company’s statement of profit or loss for the year ended 31 December 20X9 and statement of financial position as at 31 December 20X9.

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  • 20 Marks

FA – L1 – Q73 – Preparation of limited liability company financial statements

Prepare Kamisa Health Limited's statement of profit or loss and financial position for 31 March 20X9 per IAS 1, using trial balance and additional info.

The following trial balance has been extracted from the books of account of Kamisa Health Limited, a limited liability company, at 31 March 20X9.

Description ZMW ‘000 (DR) ZMW ‘000 (CR)
Administrative expenses 210
Share capital (ordinary shares of ZMW 1 fully paid) 600
Trade receivables 470
Bank overdraft 80
Income tax (overprovision in 20X8) 25
Retirement benefit liability 180
Distribution costs 420
Non-current asset investments 560
Investment income 75
Plant and equipment (At cost) 750
Accumulated depreciation (at 31 March 20X9) 220
Accumulated profit (at 1 April 20X8) 240
Purchases 960
Inventories (at 1 April 20X8) 140
Trade payables 260
Revenue 1,950
Dividend paid 120
Total 3,630 3,630

Additional Information
(1) Inventories at 31 March 20X9 were valued at ZMW 150,000.
(2) The following items are already included in the balances listed in the above trial balance.
(3) The income tax expense based on the profit on ordinary activities is estimated to be ZMW 54,000.
(4) The retirement benefit liability is to be increased by ZMW 16,000. The increase should be charged to administrative expenses. No retirement benefits are expected to be paid for the foreseeable future.

Required:
Prepare the company’s statement of profit or loss for the year to 31 March 20X9 and a statement of financial position at that date in accordance with IAS 1 Presentation of Financial Statements.

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