question 1: pressure ltd - excel professional web view2.4 financial management. ... the chairman of...

EXCEL PROFESSIONAL INSTITUTE

WEEKLY ASSIGNMENT

WEEK 5

PRINT, WORK AND SUBMIT YOUR ASSIGNMENT AT NEXT LECTURE(Ignore assignment for courses you have not registered)


1.2 QUANTITATIVE METHODS IN BUSISNESSASSIGNMENT 5

Mr. Faisal borrowed GHS 20,000 to renovate his house. He will pay it back in equal annual

payments, which begins today and every 12 months for 4 years. Interest rate on the loan is 8%

per annum.

Required

a. Calculate the annual loan payments

b. Show the amortization table


1.3 BUSINESS AND CORPORATE LAWASSIGNMENT 5

Q1. Explain the term “protected goods” under the Hire Purchase Decree 1974 (NRCD 292)

Q2. Discuss the remedies available to an unpaid seller in a sale of goods transaction.

Q3. What are the attributes of negotiable instruments?


2.1 FINANCIAL REPORTINGASSIGMENT 5

ATTEMPT ALL QUESTIONSQuestion 1: RACHEL SUPER MARKETRACHEL SUPER MARKET operates a number of retails outlets around the country. One retail outlet was closed on 31 December 2016 when trading ceased and the outlet was put up for sale. All income and expenses of the outlet are included in the trial balance. The retail outlet is regarded as a cash generating unit, all its assets are being sold as one unit. At 31 December 2016 the directors are certain that the outlet meets the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations for treatment as non-current assets held for sale.

RACHEL SUPER MARKET’s trial balance at 31 December 2016 is shown below:

Note GH₵ 000 GH₵ 000

Administration expenses (ii) 160

Cash and cash equivalents 14

Cost of goods sold (ii) 622

Distribution costs (ii) 170

Equity dividend paid 30

Inventory at 31 December 2016 65

Long term borrowings (iv) 300

Equity shares ₵1 each, fully paid 800

Property, plant and equipmet

(net book value at 31 December 2015) (i) to (iii) 2,073

Provision for deferred tax at 31 December 2015 (v) 83

Provisions for repairs under warranty at 31 December 2015 (iv) 76

Retained earnings at 31 December 2015 777

Revenue (ii) 1,120

Trade payables 51

Trade receivables 101

3,221 3,221


Further information:

(i) The book values of the property, plant and equipment at 31 December 2015 were as follows:

Asset type CostContinuing ActivitiesGHC’000

CostDiscontinued ActivitiesGHC’000

Accumulated DepreciationContinuing ActivitiesGHC’000

Accumulated DepreciationDiscontinued ActivitiesGHC’000

Net Book ValueGHC’000

Land 1,220 150 0 0 1,370Buildings 700 40 140 20 580Plant and Equipment

240 60 142 35 123

2,160 250 282 55 2,073

(ii) The fair value less cost to sell of the assets of the closed retail outlet at 31 December 2016was GH₵ 176,000.The results of the closed outlet for the period 1 April 2010 to 31 December 2016were as follows: ₵

Revenue 80,000 Cost of sales (130,000) Administration expenses (40,000) Distribution costs (90,000)

(iii) RACHEL SUPER MARKET depreciates buildings at 5% per annum on the straight-line basis and plant and equipment at 20% per annum using the reducing balance methods. Depreciation is included in cost of sales.

(iv) RACHEL SUPER MARKET sells electronic goods with a one year warranty. At 31 December 2015 RACHEL SUPER MARKET created a provision if ₵76,000 for the cost of honoring the warranties at that date. On 31 December 2016the outstanding warranties were reviewed and the following estimates prepared:

Scenario Probability Anticipated cost

Worse case 10% ₵190,000 Best case 15% ₵ 20,000 Most likely 75% ₵ 80,000

All warranties relate to continuing activities. Actual repair costs incurred during the year were charged to cost of sales.


(v) The directors estimate the income tax charge on the year’s profits at ₵67,000, of this a tax reduction of ₵10,000 relates to discontinued operations.

(vi) The deferred tax provision is to be reduced to ₵78,000.

(vii) The long term borrowings incur annual interest at 4% per year paid annually in arrears.

Required: Prepare RACHEL SUPER MARKET’s statement of comprehensive income and statement of changes in equity for the year to 31 December 2016 AND a statement of financial position at that date, in a form suitable for presentation to the shareholders and in accordance with the requirements of International Financial Reporting Standards.

Total marks=25 marks

Question 2Below is the summarised draft statement of financial position of JE Ltd, a company listed on the Ghana Stock Exchange, as at 31 March, 2015:

GHS’000 GHS’000 GHS’000 ASSETS Non-current Assets Property at valuation (land GHS20, 000; buildings GHS165, 000) 185,000 (note ii) Plant (note ii) 180,500 Financial assets at fair value through profit or loss at 1 April 2014 (note iii) 12,500

378,000 Current assets Inventory 84,000 Trade receivables (note iv) 52,200 Bank 3,800 140,000 Total assets 518,000 EQUITY AND LIABILITIES Equity Stated capital 290,000 Capital surplus 18,000 Income surplus - At 1 April 2014 12,300 - For the year ended 31 March 2015 96,700 127,000 417,000 Non-current liabilities Deferred tax – at 1 April 2014 (note v) 19,200 Current liabilities 81,800 Total equity and liabilities 518,000


The following information is relevant: (i) JE Ltd’s statement of profit or loss includes GHS8million of revenue for credit sales made on a ‘sale or return’ basis. At 31 March 2015, customers who had not paid for the goods, had the right to return GHS2.6million of them. JE Ltd applied a mark-up on cost of 30% on all these sales. In the past, JE Ltd’s customers have sometimes returned goods under this type of agreement. (ii) The non-current assets have not been depreciated for the year ended 31 March 2015. JE Ltd has a policy of revaluing its land and buildings at the end of each accounting year. The values in the above statement of financial position as at 1 April 2014 when the building had a remaining life of 15 years. A qualified surveyor has valued the land and buildings at 31 March 2015 at GHS180million. Plant is depreciated at 20% on the reducing balance basis. (iii) The financial assets at fair value through profit or loss are held in a fund whose value changes directly in proportion to a specified market index. At 1 April 2014 the relevant index was 1,200 and at 31 March 2015 it was 1,296. (iv) In late March 2015 the directors of JE Ltd discovered a material fraud perpetrated by the company’s credit controller that had been continuing for some time. Investigations revealed that a total of GHS4million of the trade receivables as shown in the statement of financial position at 31 March 2015 had in fact been paid and the money had been stolen by the credit controller. An analysis revealed that GHS1.5million had been stolen in the year to 31 March 2014 with the rest being stolen in the current year. JE Ltd is not insured for this loss and it cannot be recovered from the credit controller, nor is it deductible for tax purpose. (v) During the year, the company’s taxable temporary differences increased by GHS10miiion of which GHS6million related to the revaluation of the property. The deferred tax relating to the remainder of the increase in the temporary differences should be taken to profit and loss. The applicable income tax rate is 20%.

(vi) The above figures do not include the estimated provision for income tax on the profit for the year ended 31 March 2015. After allowing for any adjustments required in terms (i) to (iv), the directors have estimated the provision of GHS11.4million (this is in addition to the deferred tax effects of item (v).

(vii) During the year, dividends of GHS15.5million were paid. These have been correctly accounted for in the above statement of financial position. Required: Taking into account any adjustments required by items (i) to (vii) above: (a) Prepare a statement showing the recalculation of JE Ltd’s profit for the year ended 31 March 2015; and (7 marks) (b) Redraft the statement of financial position of JE Ltd as at 31 March 2015. (13 marks)

(Notes to the financial statements are not required). (Total: 20 marks


2.2 MANAGEMENT ACCOUNTINGASSIGNMENT 5

Question 1:EasiIT

EasiIT Ltd operates a standard costing system. The company provides the following cost and revenue extract for the year 2016 for their product, Easistick

Budgeted Actual

Sales value 3,000,000 3,020,800Sales price (per unit) 120 118

Production (units) 25,000 26,000Opening Inventory (units) 200 300Fixed Production overheads 300,000 320,000Fixed Administration overheads 40,000 50,000Direct material per unit 20Direct Labour 48Variable production overheads 24

Required

a. Prepare profit statement for EasiIT Ltd using marginal costing and full costing technique10 marks

b. Reconcile the two profits 4 marks

c. If the company experience 20% growth in sales, by what percentage will their profit increase6 marks

d. Explain Batch costing and give three instances that will warrant its use 4 marks


2.3 AUDIT AND ASSURANCE

ASSIGNMENT 5

Q1. Explain the following terms in relation to ISA 200;

Professional skepticism

Professional judgment

Ethical requirement

Q2. Outline the risk assessment process.

Q3. What is audit planning and its importance?


2.4 FINANCIAL MANAGEMENT

ASSIGNMENT 5

Q1

Entity X borrows on overdraft at an annual interest rate of 15%. It has annual credit sales of

GHS5 million, and all customers buy on credit. Customer are normally required to pay within 45

days. Entity X offers a 1.5% discount if payment is made within ten days. 60% of customers take

the discount.

What is the annual cost of the discount policy? (6 marks)

Q 2

Blue Company has annual credit sales of GHS1,000,000. Credit customers take 45 days to pay.

Bad debts are 2% of sales. The company finances its trade receivables with a bank overdraft, on

which interest is payable at an annual rate of 15%.

A factor has offered to take over administration of the receivables ledger and collections for a fee

of 2.5% of the credit sales. This will be a non-recourse factoring service. It has also guaranteed

to reduce the payment period to 30 days. It will provide finance for 80% of the trade receivables,

at an interest cost of 8% per year. Blue Company estimates that by using the factor, it will save

administration costs of GHS 8,000 per year.

Required

What would be the effect on annual profits if Blue Company decides to use the factor’s services?

(Assume a 365-day year). (14 marks)


2.5. PUBLIC SECTOR ACCOUNTINGASSIGMNENT 5

Question 1

a. Highlight five (5) factors that cause increases in public expenditure. Suggest five means through which public expenditure can be controlled.

b. The Consolidated Funds is divided into four classification, namely Above-the- line accounts, Below- the- line accounts, general revenue balance . Give five reasons for this classification

c. The consolidated funds serve as a central mechanism for controlling funds. i. Explain three mains receipts into consolidated fundsii. Identify two funds which is not consolidated funds receipts

Question Two

The following are the balances extracted from the Public Accounts on the Consolidated Fund for the year ended 31 December 2014.

GH¢’000Direct Tax 1,044,460Compensation of Employees 808,672Goods & Services 404,336Non-Financial Assets 134,779Indirect Tax 939,556Grants 28,110Interest Expenses 398,138Social Benefit 238,882Other Expenses 159,255Other Revenue 50,928National Health Insurance Levy 79,368Depreciation and Amortization 20,524Loan Repayments 3,056,000Levies 27,184Loans Received 4,245,150Loan Recoveries 1,166Other Payments 68,428Cash and Bank Balances as at 1/1/2012 813,462Required:

(a) Prepare Receipts and Payments of the Consolidated Fund for the year ended 31st December 2014.


(b) Statement of Cash and Bank balances at the beginning and end of year ended 31st December 2014.

(c) State the five (5) components of the financial statements of the Public Accounts of the Consolidated Fund.(20 marks)


2.6 CORPORATE STRATEGY, ETHICS AND GOVERNANCE

ASSIGNMENT 5

QUESTION 1

West Networks is a well-established company which is providing telecommunications services both

nationally and internationally. Its business has been concerned with telephone calls, the provision of

telephone lines and equipment, and private telecommunication networks. West Networks has

supplemented these services recently by offering mobile phone, which is an expanding market

worldwide

The company maintains a diverse customer base, including residential users, multi-national

companies, government agencies and public sector organisations. The company handles

approximately 100,000 million calls each working day, and employs nearly 140 personnel.

Strategic development

The Chairman of West Networks stated within its latest Annual Report that there were three main

areas in which the company aimed to develop in order to remain a world leader in the

telecommunications market. He believes that the three main growth areas reflect the evolving nature

of the telecommunications market and will provide the scope for development.

The areas in which development is planned are:

expansion of the telecommunications business in the national and overseas markets, both by

the company acting on its own and through partnership arrangements with other suppliers

diversification into television and multi-media services, providing the hardware to permit

telephone shopping from home and broadcasting services

extension of the joint ventures and strategic alliances which have already been established

with companies in West Africa.

The Chairman explained that the company is intent on becoming a world leader in communications.

This will be achieved through maintaining its focus on long-term development by improving its

services to customers, developing high quality up-to-date products and being innovative, flexible and

market-driven. His aim is to deliver a world-class service at competitive cost.

Financial information


The following comparative statistics show extracts from the company’s financial performance in its

national telecommunications market over the last two years:

Last year Previous year

GHS’000 GHS’000

Revenue/Turnover 16,613 15,977

Profit before interest and tax 3,323 2,876

Capital employed 22,150 21,300

The company estimates its cost of capital to be approximately 18%.

The Chairman expressed satisfaction with the increase in turnover and stated that cost efficiencies

were now being generated following the completion of a staff reduction programme. This would

assist the company in achieving a target return on capital employed (ROCE) of 20% in this market

over the next three years.

Business opportunities

The Chief Executive of West Networks has stated that the major opportunities for the company lie in

the following areas:

encouraging greater use of the telephone

provision of advanced services, and research and development into new technology,

including the internet and systems integration

the increasing freedom from government control of worldwide telecommunication services.

An extensive television and poster advertising campaign has been used by the company. This was in

order to penetrate further the residential market segment by encouraging greater use of the telephone

with various charging incentives being offered to residential customers.

To further the objective of increasing long-term shareholder value, the company is actively

considering an investment of GHS200 million in each of the next three years in new technology and

quality improvements in its national market. Because of its specialist technical nature, the investment

is not expected to have any residual value at the end of the three-year period.


Following the investment, the directors of West Networks believe that its rate of profit before interest

and tax to turnover in its national telecommunications market will remain constant. This rate will be

at the same level as last year for each of the three years of the investment.

Markets and competition

The company is currently experiencing an erosion of its market share and faces increasingly strong

competition in the mobile phone market. While West Networks is the leader in its national market,

with an 85% share of the telecommunications business, it has experienced a reduced demand for the

supply of residential lines in the last five years as competition has increased.

The market for the supply of equipment in the national telecommunications market is perceived to be

static. The investment of GHS200 million in each of the next three years is estimated to increase

West Networks’ share of this market to a level of 95%. The full improvement of 10% is expected to

be received by West Networks next year, and its market share will then remain at this level for the

full three-year period. It is anticipated that unless further investment is made after the three-year

period, West Networks’ market share will revert to its current level as a consequence of the expected

competitive response.

Industry regulation

The government has established an industry regulatory organisation to promote competition and

deter anti-competitive behaviour.

As a result of the activities of the regulator and aggressive pricing strategies, it is anticipated that

charges to customers will remain constant for the full three-year period of the new investment.

All cash flows can be assumed to occur at the end of the year to which they relate. The cash flows

and discount rate are in real terms.

Future outlook

The business still remains under family control, but the board is considering an expansion

programme for which and that the family would need to raise GH¢200 million in equity or debt

finance. One of the possible risks of expansion lies in the fact that the market for fixed telephone

lines is falling. New income is being generated by expanding the product range to include mobile

money transfer. The key to profit growth for West Networks is the ability to generate sales growth,

but the company recognizes that it faces stiff competition from large telecom companies in respect of

the prices charged.


In planning its future, West Networks is advised to look carefully at a number of external factors

which may affect the business including government economic policy. In recent months the

following information has been published in respect of key economic data.

i) Bank base rate has been reduced from 22% to 20%, and the forecast is for a further 0.5% reduction

within six months.

ii) The annual rate of inflation is now 12%, down from 14% in the previous quarter, and 16% 12

months ago. No further falls in the rate are expected over the medium term.

iii) Personal and corporate tax rates are expected to remain unchanged for at least twelve months.

Required:

a) Explain the nature of the political, economic, social, and technological forces which will influence

West Networks in developing its business and increasing its market share. [8marks]

b) Apply Ansoff’s Product/Market Growth matrix to assess the extent of the potential market

development opportunities available to West Networks [12marks]

QUESTION 2

The Boston Consulting Group (BCG) Growth Share 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 Growth Share Matrix could be used to analyse, business portfolio and

strategic options. (12 marks)

b) Explain how a corporate parent can use envisioning and intervention as strategies for value

creation for its Strategic Business Units. (8 marks)


3.1 CORPORATE REPORTING

ASSIGNMENT 5

Question 1: Pressure Ltd

(a) On 1 October 2014 Pressure Ltd, a public limited company with a 30 September year end, granted to each of its senior management team either 6,500 shares in Pressure or a cash equivalent equal to the market price of 6,000 shares. The right is conditional on the managers remaining in employment at Pressure until 30 September 2016. Pressure Ltd reserves the right to choose whether to settle the scheme in cash or shares. However, in the past, Pressure Ltd has always opted to settle similar schemes in cash. If the shares are issued, they must be held for two years from 30 September 2016 before being sold. Pressure's share price was GHS8.50 on the 1 October 2014 and GHS9.00 on 30 September 2015. It rose to GHS9.25 on 20 October 2015, the date the financial statements were authorised for issue. The fair value of the shares alternative was calculated at GHS8.10, GHS8.60 and GHS8.85 at the same dates respectively.

At 1 October 2014, there were 30 members of the senior management team. As at 1 October 2014 no members of the team were expected to leave during the vesting period. However, due to a buoyant job market, two managers left in September 2015 and as at 30 September 2015, a third manager was expected to leave within a few months of the year end.

The new finance director is unsure how to account for the above scheme. He is also aware that because tax relief will be granted on exercise (based on the entity's share price at the date of exercise), there might be some deferred tax implications.

Assume a tax rate of 30%.

Required

Discuss, with suitable computations, the accounting treatment for the above scheme in the financial statements of Pressure for the year ended 30 September 2015, taking into account any deferred tax implications and the impact of events occurring after the end of the reporting period.

(10marks)


(b) Pressure Ltd acquired a new subsidiary on 1 January 2015. The subsidiary operated a defined benefit pension plan for its senior management. As part of the fair value exercise, an actuarial valuation was carried out on the defined benefit pension plan at that date. The plan assets had a fair value of GHS72,600 and the present value of the pension obligation was GHS116,500.

The following information has been provided for nine months to 30 September 2015:

GHS Plan assets at 30 September 2015 at fair value 102,100 Present value of obligation at 30 September 2015 119,500 Current service cost 15,500 Contributions paid into the fund by Pressure 48,200 Benefits paid to pensioners 10,600 Yield on high quality corporate bonds (per annum) 6%

The group accountant of Pressure Ltd is unfamiliar with accounting for defined benefit plans, as the other plans within Pressure are defined contribution plans. She has been advised that the directors must account for the plan in accordance with IAS 19 Employee benefits as revised in 2011.

Required

Prepare the extracts from the consolidated statement of profit or loss and other comprehensive income and statement of financial position for the year ended 30 September 2015.

(9 marks)


3.2 ADVANCED AUDIT AND ASSURANCEASSIGNMENT 5


3.3 ADVANCED FINANCIAL MANAGEMENT

ASSIGNMENT 5

Green Co has in issue 8 million shares with an ex-dividend market value of GHC7.16 per share. A dividend of 62 pesewas per share for 2016 has just been paid. The pattern of recent dividends is as follows:Year 2013 2014 2015 2016Dividends per share (pesewas) 55.1 57.9 59.1 62.0Green Co also has in issue 8.5% bonds redeemable in five years’ time with a total nominal value of GHC5 million. The market value of each GHC100 bond is GHC103.42. Redemption will be at nominal value.Green Co is planning to invest a significant amount of money into a joint venture in a new business area. It has identified a proxy company with a similar business risk to the joint venture. The proxy company has an equity beta of 1.038 and is financed 75% by equity and 25% by debt, on a market value basis.The current risk-free rate of return is 4% and the average equity risk premium is 5%. Green Co pays profit tax at a rate of 30% per year and has an equity beta of 1.6.Required:

(a) Calculate the cost of equity of Green Co using the dividend growth model. (b) Calculate the weighted average after-tax cost of capital of Green Co using a cost of equity of 12%.(c) Calculate a project-specific cost of equity for Green Co for the planned joint venture.


3.4 TAXATION AND FISCAL POLICY

ASSIGNMENT 5

Question 1Mr. K Moro was employed by Excel Ghana Ltd on 1st October 2014 on salary scale of GH¢9,000 x 1,500- 15000 as the financial controller of the company. He is provided with the following as part of his conditions of service for 2016 Year of Assessment. i) Well-furnished rented flat by his employers in respect of which he pays GH¢100 per month as rent by way of deductions at source. ii) Watchman allowance of GH¢300 per annum, paid directly to Mr. K Moro. iii) Risk allowance of GH¢1,100 per annum iv) Leave allowance of GH¢500 per annum v) Garden boy allowance of GH¢500per quarter paid directly to Mr. K. Moro. vi) Medical allowance of GH¢800 per annum vii) Meals allowance of GH¢90 per month viii) Two maidservants each on wages of GH¢200 per annum. The amount is paid to the maid servants directly by the company. ix) Bonus of 30% on annual basic salary x) Entertainment allowance of GH¢400 a year (accountable) xi) Duty post allowance of GH¢100 per month. xii) He has Life Assurance Policies with QIC ltd. Below are the details: Policy Sum Assured (GH¢) Annual Premium (GH¢) A 8,000 840 B 5,600 480 C 16,000 1,650 D 10,000 1050 xiii) He is entitled to a company car and fuel for both official and private use. xiv) He has two wives and ten children; four of whom are in SHS in Accra, and the rest are gainfully employed; he caters for 3 of his aged relatives. xv) He contributes 7% of his salary towards the company’s Provident Fund which has been approved by the National Pension Authority, he also contributes 5.5% of salary to the SSNIT. Required: a) Compute his tax liabilities for 2014 Year of Assessment using 2016 rates. (15 marks) b) Determine his take home pay for the 2016 Year of Assessment. (5 marks)

question 1: pressure ltd - excel professional web view2.4 financial management. ... the chairman of...

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