Non-Current Assets: Property, Plant & Equipment 181, ,450

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Kelley Turner
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1 FINANCIAL REPORTING, PLANNING AND ANALYSIS Q.1 a) Amma Ltd. and Ammafiik Ltd. are both manufacturers of detergents. The financial statements of the two companies for the year ended 30 September, 2017 are set out below: Statements of Profit or Loss For the year ended 30 th September 2017 Amma Ltd. Ammafiik Ltd Sales 174, ,350 Cost of sales (76,950) (129,350) Operating expenses (64,700) (120,000) Net profit before tax 33,300 58,000 Tax (10,820) (18,850) Profit after tax 22,480 39,150 Income surplus at 1/10/ ,720 22,500 Dividend (5,000) (8,000) Income Surplus at 30/09/ ,200 53,650 Statements of financial position As at 30 th September, 2017 Amma Ltd. Ammafiik Ltd Non-Current Assets: Property, Plant & Equipment 181, ,450 Current Assets: Inventories 82,500 63,500 Receivables 24,500 32,300 Cash and Bank 52,750 21, , ,500 Total Assets 341, ,950 Equity: Stated Capital 73,400 78,200 Capital Surplus 50,000 80,000 Income surplus 92,200 53, , ,850 Non-Current Liabilities: 20% Debentures 25, ,000 Current Liabilities:

2 Trade payables 91,150 71,250 Proposed dividends 3,000 4,000 Taxation 6,750 8, ,900 84,100 Total Equity and Liabilities 341, ,950 The following additional information is provided: i. A recent report published by the Ghana Association of Industries showed the following as the average results for the detergents industry: Return on shareholders capital employed 15% Current ratio 2:1 Debt/Equity ratio 35.5% Earnings per share 1,800 per share ii. The stated capital of each company is made up of 20,000,000 ordinary shares of no par value. The market price per share of Amma Ltd. and Ammafiik Ltd are 4,400 and 5,000 respectively. a) As the financial analyst of the Ghana Association of Industries, prepare a memorandum to the Executive Secretary comparing the performance of the two companies with each other and with the industry data. (15 marks) b) State five (5) limitations of your analysis. (5 marks) Q. 1 b) At the last Annual General Meeting of Dumsor Ltd., the shareholders were unhappy about the delay in submitting the audited accounts to them for study before the meeting. Management of Dumsor Ltd attributed the delay in finalizing the accounts to the time spent by the External Auditors in auditing the accounts. It has been discovered that the delay in presenting the accounts for audit is because the Accounts Officer was not sure of the treatment of the following transactions in the financial statements of Dumsor Ltd. for the year ended 30 th June a) Stocks of raw materials and finished goods in the company s warehouse have the following details: Stocks of finished goods Direct cost 50,000 Proportion of fixed overhead 10,000

3 Proportion of selling expenses 5,000 Net Realizable Value 62,000 b) A customer who owed Dumsor Ltd. an amount of GH 25,000,000 lost all his business assets through a fire outbreak. Dumsor Ltd. had not taken an insurance cover over receivables. c) Research and Development expenditure capitalized during the year amounted to GH 100,000,000. On further examination, it was noted that an amount of GH 25,000,000 relating to market research was included in the Research and Development cost capitalized. d) The company entered into a non-cancellable lease which covered the useful life of the asset. At the inception of the lease, the fair value of the asset was GH 45,000,000 and was equal to the present value of the minimum lease rentals. The lessee was responsible for both insurance and maintenance of the lease asset. The accounts officer has included only the annual lease rentals of GH 9,000,000 as a charge in the Statement of Profit and Loss. As a financial Controller who has just been engaged to help Dumsor Ltd. to resolve the issues speedily, you are required to detail out the treatment of the above transactions in accordance with appropriate accounting standards Q2. Abrefa has just set up Success Ltd. which is seeking profitable ventures to invest the capital Abrefa had accumulated during the several years of his work as a public servant through savings. The company has engaged you as a Management Accountant. Information gathered through a survey indicates that if the company introduces its new line yoryi the following is likely to result: i. Sales of 15,000 units could be achieved if the price were set at GH 200. ii. Variable cost will be GH 175 per unit. iii. Fixed costs would amount to GH 75,000 per annum. iv. The life of the project is expected to be 5 years. v. The cost of capital is 10%. vi. An additional GH 300,000 will have to be spent on development before production can commence. The amount of development cost includes of GH 200,000 representing the time spent on Research & Development personnel. If these personnel were not working on this project, they would devote their time to pure research. vii. Special plant will have to be purchased for GH 100,000 immediately. This should be depreciated at the rate of 25%. The depreciation of special plant is included in the fixed costs. Required

4 a) As the newly engaged Management Accountant, you are required to report to the Board of Success Ltd. indicating whether or not the project is worthwhile using the NPV and IRR methods of project appraisal. (14 marks) b) List three strengths and three weaknesses of the NPV method of project appraisal. (6 marks) Q.3 Agyenkwa Ltd. proposed to purchase the shareholding of Owuo Ltd. by the issue of additional shares in Agyenkwa Ltd. to the members of Owuo Ltd. Both businesses are similar in nature. The summarized statement of financial position of the two companies are as follows: Agyenkwa Ltd. Owuo Ltd. Non-Current Assets 5,250,000 10,200,000 Current Assets 3,465,000 3,680,000 Total Assets 8,715,000 13,880,000 Equity Ordinary Shares issued at GH 1.00 each 7000,000 6,000,000 Income Surplus 140,000 1,840,000 7,140,000 7,840,000 Current liabilities 1,575,000 3,640,000 Non-Current Liabilities 5% Debenture Stock - 2,400,000 Equity and liabilities 8,715,000 13,880,000 The following additional information relating to the two companies has been made available: 1. The average net profits, before charging Debenture Interest over the past five years have been: Agyenkwa Ltd. GH 90,000,000 Owuo Ltd. GH 120,000, % is considered to be a reasonable return for risks involved in the industry in which the two companies operate. 3. Goodwill is considered to be 3 years purchase of the super profits. a) Calculate the price per share of the two companies using the net assets method which includes goodwill as an asset (6 marks) b) Calculate the number of shares to be issued by Agyenkwa Ltd. (9 marks) c) Prepare the statement of financial position for Agyenkwa Ltd. after the issue has been effected. (5marks)

5 (Total: 20 marks) Q.4 The summarized accounts of Adom Ltd. are given below: Statement of Profit or Loss for the year ended 31 December 2016 Turnover 26,000 Cost of sales 9,500 Gross profit 16,500 Income from Investments 1,100 gain from disposal of assets 990 Distribution costs (1,200) Administrative expenses (7,500) Profit before interest and tax 9,890 Interest payable (900) Profit before taxation 8,990 Tax expenses (1,950) Profit after tax 7,040 Statement of Financial Position As At 31 December Non-current assets at cost 72,000 64,000 Less depreciation 14,000 12,000 58,000 52,000 Current assets: Investments 8,000 6,000 Inventories 36,000 39,000 Receivables 33,000 30,000 Cash at bank and in hand 8,000 9,740 Prepayment , ,240 Total Assets 143, ,240 Equity Ordinary share capital 60,000 75,000 Income surplus 24,600 29,140 84, ,140 Non-current liabilities Debenture loans 25,000 - Current liabilities

6 Trade creditors 30,000 28,000 Taxes payable 2,500 3,600 Proposed Dividends 1,350 33,850 1,500 33,100 Total Equity and liabilities 143, ,240 You are also given the following information 1. Non-current Assets Schedule for 2016 Cost at start of year 72,000 Impairment loss of assets (3,500) Disposals (4,500) Cost at end of year 64,000 Depreciation At start of year 14,000 Disposals (4,000) Charge to profit and loss for the year included in admin. expenses 2,000 12,000 Fixed assets disposed of during the year were sold for GH 1,490, Dividend proposed for the year 2016 amounted to 2, Income from Investments represents interest and dividends received during the reporting year. 4. The prepayment is in respect of rent which is part of the administrative expenses Prepare a Statement of Cash Flows for Adom Ltd. for the year ended 31 December 2016 in accordance with IAS 7: Statement of Cash Flows. Use the direct method to show the cash flows from operating activities and reconcile operating profit to cash flow from operating activities in the notes. Q.5 Awenboro Ltd. produces two products: products Cheng and Jam. The two products both use materials: A and B in their production. Employees engaged to produce both products work in two departments: Dept. X and Dept. Y. The company uses a marginal costing system. You have just assumed the post of Management Accountant at Awenboro Ltd. After your induction week, the financial controller gives you the data below: Budgeted Data Product Cheng Product Jam

7 GH 000 GH 000 Sales for the year 15,000 20,000 Standard data per unit of product: Standard price Product Cheng Product Jam Direct materials GH Per Kg Kg Kg A B Wages to direct workers: Standard wage rate Product Cheng Product Jam GH Per hour hours required hours required Dept. X Dept. Y The company s budgeted total variable production overheads and fixed production overheads are GH 6,000,000 and GH 3,000,000 respectively. Budgeted labour hours is 600,000 hours. The company earns a markup of 20% on marginal production cost. Finished goods inventories are valued at standard marginal production cost per unit and are as follows: Product Cheng Product Jam GH 000 GH 000 Opening inventories Closing inventories Use the data given above to prepare the following budgets: (a) Production budget in units (b) Direct materials cost budget (c) Direct materials purchases budget (d) Direct labour utilization budget (e) Direct wages cost budget Q.6 It has been suggested that corporate performance is heavily influenced by an effective Board playing its role effectively. a) Discuss the role of the Board of Directors in enhancing corporate performance (10 marks) b) Explain three reasons why the Non -executive Directors of Corporate Boards need to be independent and two ways of enhancing the independence of non-executive Directors (10 marks) (Total: 20 marks)

Consolidated Cash Flow Statement for the year ended 30th June, 2002

Consolidated Cash Flow Statement for the year ended 30th June, 2002 Notes Net cash inflow from operating activities (a) 4,916,217 6,797,641 Returns on investments and servicing of finance Interest received