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  • 5 Marks

FA – Nov 2024 – L1 – Q5c – Profitability vs Liquidity Ratios

Explain the difference between profitability and liquidity ratios and provide two examples of each.

Accounting ratios cover a wide array of ratios that are used by accountants and act as different indicators that measure profitability, liquidity, and potential financial distress in a company’s financials.

Required:

Differentiate between profitability ratios and liquidity ratios and give TWO examples each.

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  • 10 Marks

FA – Nov 2024 – L1 – Q5a – Inventory Loss and Statement of Profit or Loss

Compute inventory loss due to fire and prepare a statement of profit or loss for a sole trader.

Mawulolo Enterprise is a retail business that prepares its accounts on 31 March each year. The business maintains a standard gross profit margin of 30% on sales.

The following financial information was extracted from its records as at 31 March 2024:

Item GH¢
Inventory at 1 April 2023 254,000
Operating Expenses 378,000
Finance Cost 58,000
Purchases 1,306,000
Sales 1,900,000
Inventory in good standing at 31 March 2024 192,000

On 31 March 2024, a fire outbreak in the warehouse destroyed some of the inventory records and goods.

The tax charge for the year is estimated at GH¢30,000.

Required:

i)Calculate the amount of inventory lost.

ii) Prepare the Statement of Profit or Loss for the year ended 31 March 2024

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  • 20 Marks

FA – Nov 2024 – L1 – Q4- Preparation of Financial Statements for a Sole Trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for a sole trader from given financial data and adjustments.

The following list of assets, liabilities, and equity as at 30 June 2023 was extracted from the books of Akuorkor, a sole trader:

Trial Balance as at 30 June 2023

Item GH¢
Plant and equipment – cost 100,000
Accumulated depreciation – Plant & Equipment 36,000
Office fixtures – cost 25,000
Accumulated depreciation – Office Fixtures 2,500
Inventory 15,250
Trade receivables and prepayments 17,500
Trade payables and accrued expenses 8,800
Bank overdraft 4,425
Loan (10% interest per annum) 47,500
Capital 58,525

Summary of Receipts and Payments for the Year Ended 30 June 2024

Receipts GH¢
Capital introduced 11,000
Cash from customers 213,750
Total Receipts 224,750
Payments GH¢
Cash drawings (Note 5) 11,225
Loan repayments (Note 7) 10,000
Payment to suppliers 87,800
Rent 11,000
Wages 45,000
Office expenses 6,250
Total Payments 171,275

Additional Information:

  1. Closing inventory on 30 June 2024 was GH¢13,925.
  2. Depreciation policies:
    • Plant & Equipment: 20% per annum reducing balance.
    • Office Equipment: 10% per annum on cost.
    • Fixtures & Fittings: Straight-line method over 4 years with a full year’s charge in the year of acquisition.
  3. GH¢2,500 worth of fixtures & fittings was introduced into the business.
  4. Prepayments and accrued expenses as at 30 June 2023:
    • Rent paid in advance: GH¢1,250
    • Accrued wages: GH¢2,150
  5. Cash drawings included:
    • Wages: GH¢3,375
    • Payments to suppliers: GH¢2,100
    • Advertising leaflets: GH¢1,300 (Half not yet distributed).
  6. Bank balance per statement: GH¢53,350 after adjusting for unpresented cheques.
  7. Loan repayments include GH¢4,750 in interest payments.
  8. Assets and liabilities as at 30 June 2024:
    • Rent paid in advance: GH¢1,350
    • Accrued wages: GH¢2,625
    • Amounts due to suppliers: GH¢6,100
    • Amounts due from customers: GH¢11,150
  9. Major customer went into liquidation owing GH¢8,000; only 20% recoverable.

Required:

Prepare:
i) Statement of Profit or Loss for Akuorkor for the year ended 30 June 2024. 
ii) Statement of Financial Position as at 30 June 2024.

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  • 10 Marks

FA – Nov 2024 – L1 – Q3b – Bank Reconciliation

Prepare an adjusted cash book and reconcile it with the bank statement balance.

The cash book of Lawra Ltd as at 31 December 2023 shows a balance of GH¢36,900, which does not match the bank statement balance of GH¢41,100. Investigation revealed the following discrepancies:

  1. Cheques received of GH¢104,000, GH¢10,000, and GH¢24,900 were still in the business drawer.

  2. Standing orders for electricity charges (GH¢2,400) and insurance (GH¢3,600) were paid by the bank but not recorded in the cash book.

  3. The bank charged GH¢300 for a cheque book issued to Lawra Ltd.

  4. The bank incorrectly debited GH¢9,910 to Lawra Ltd’s account, which was intended for another customer.

  5. A credit transfer of GH¢10,000 was received but not recorded in the cash book.

  6. A cheque for GH¢140,000 drawn by Lawra Ltd was correctly recorded in the cash book but was debited as GH¢14,000 by the bank.

  7. The following cheques, paid in November 2023, remained unpresented:

    Cheque Number Amount (GH¢)
    0000111 4,000
    0000117 10,000
    0000120 9,310

Required:

i) Prepare the adjusted cash book for Lawra Ltd as at 31 December 2023.

ii) Prepare a bank reconciliation statement reconciling the adjusted cash book balance to the bank statement balance.  

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  • 5 Marks

FA – Nov 2024 – L1 – Q2b – Allowance for Receivables and Irrecoverable Debt

Prepare the allowance for receivables and irrecoverable debt expense accounts for a financial period.

At 1 August 2023, the balance on the allowance for receivables account was GH¢12,600.

At 31 August 2023, the company’s management decided that the revised balance should be 10% of the month-end accounts receivable.

Required:

Prepare the Allowance for Receivables and Irrecoverable Debt Expense accounts, showing the necessary entries for the financial period ending 31 August 2023.

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  • 5 Marks

ICMA – Nov 2024 – L1 – Q5b – Budgeting Models and Systems

Explain the benefits of GIFMIS to the government of Ghana.

Efforts to improve Public Financial Management (PFM) Systems in Ghana led to the Ghana Integrated Financial Management Information System (GIFMIS), which is an adaptation of the Integrated Financial Management Information System (IFMIS). The rationale of GIFMIS is to establish an integrated ICT-based PFM system in Ghana at national, regional, and district levels.

Required:

State FOUR benefits of GIFMIS to the government of Ghana.

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  • 15 Marks

ICMA – Nov 2024 – L1 – Q5a – Cost Segregation and Estimation

Determine fixed and variable cost components using regression analysis and estimate total cost for a given production level.

Ebo LTD is planning to determine its variable and fixed cost elements for its planned activity level for the next year. The company has recorded the following costs and production units in the past six months:

Month Units (X) Cost (Y)
January 5.8 40.3
February 7.7 47.1
March 8.2 48.7
April 6.1 40.6
May 6.5 44.5
June 7.5 47.1

Required:

i) Construct the least square regression model. 
ii) Determine the variable cost per unit of output using the model. 
iii) Determine the fixed cost for the month using the model. 
iv) Estimate the total cost if the company plans to produce 6,200 units.

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  • 6 Marks

ICMA – Nov 2024 – L1 – Q4b – Day-Rate Incentive Scheme Calculation

Calculates the cost per unit for both low and high day-rate incentive schemes.

Amanda LTD – Day-Rate Incentive Scheme
Amanda LTD is a manufacturing company and its management is considering the introduction of a high day-rate incentive scheme. During one of such production periods, record shows that, if an employee makes 100 units in a 40-hour week, the employee is paid GH¢2 per hour, but if 120 units are made, the employee is paid GH¢2.50 per hour. Production overhead is added to cost at the rate of GH¢2 per direct labour hour.

Required:
i) What is the cost per unit for the low day-rate scheme?
ii) What is the cost per unit for the high day-rate scheme?

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  • 14 Marks

ICMA – Nov 2024 – L1 – Q4a – Apportionment of Overheads

Apportion overhead costs across departments based on the most appropriate bases.

: Apportionment of Overheads
The following expenses were estimated for the month of June 2024:

Item GH¢
Electricity 80,000
Rent 18,000
Property rate 6,000
Insurance premium (office equipment) 15,000
Internet and communication 25,000
Indirect wages 60,000

There are three departments: A, B, and C. The following additional information has been provided:

Department Area occupied (sq. metres) Number of customers Number of employees Value of office equipment (GH¢)
A 300 700 120 50,000
B 450 600 150 40,000
C 250 500 130 60,000

Required:
Apportion the above overheads using the most appropriate base and determine the total overhead for each department.

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  • 4 Marks

ICMA – Nov 2024 – L1 – Q3d – Fixed Overhead Volume Variance

Explains the concept of fixed overhead volume variance and lists potential causes for such variances.

Fixed Overhead Volume Variance
Fixed overhead volume variance (FOVV) measures the difference between the actual fixed overheads incurred and the fixed overheads that should have been incurred at the actual level of activity.

Required:
Explain fixed overhead volume variance and TWO possible causes of such variances.

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  • 6 Marks

ICMA – Nov 2024 – L1 – Q3c – Material and Labour Variances

Calculates material and labour variances based on given actual and standard cost data.

Material and Labour Variances
The data below relates to Agbamame Enterprise for its flagship product, “Herb of Life”:

Standard Cost Card – Per Unit of Herb of Life

Description Cost (GH¢)
Direct materials 5 kg at GH¢4 per kg = GH¢20
Direct labour 4 hours at GH¢15 per DLH = GH¢60
Variable overhead 4 hours at GH¢20 per DLH = GH¢80
Fixed overhead GH¢50 per unit

Budgeted production: 600 units
Actual sales and production: 550 units

Actual cost of:

Actual Costs Cost (GH¢)
Labour (1650 hours) 16,500
Materials (1650 kg) 5,775
Fixed overhead 15,000
Variable overhead 13,275

Data shows that 5% of labour hours paid for was idle, and 10% of materials bought was in stock at the end of the period.

Required:
i) Calculate the material variances.
ii) Calculate the labour variances.

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  • 4 Marks

ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts

Explains two key concepts of relevant cost used in decision-making.

Relevant Cost
Relevant cost should be used for assessing the economic and financial consequences of any decision made by management. Only relevant cost and benefits should be taken into consideration when evaluating the financial consequences of a decision.

Required:
Explain TWO key concepts of relevant cost.

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  • 6 Marks

ICMA – Nov 2024 – L1 – Q3a – Value for Money (VFM)

Explains the components of Value for Money (VFM) in the public sector.

Value for Money (VFM)
Value for Money (VFM) is an objective that can be applied to any organization whose main objective is non-financial but has restrictions on the amount of finance available for spending, which the public sector is no exception.

Required:
Explain the components of VFM.

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  • 5 Marks

ICMA – Nov 2024 – L1 – Q2c – Government Budgeting Challenges

Identifies and explains the challenges or limitations in government budgeting.

Challenges in Government Budgeting
Budgeting in the public sector relates to a process of translating government plans and policies into financial terms by systemically relating cost to attaining the objectives of government plans and policies. As important as this process is, there are some challenges and limitations associated with government budgeting.

Required:
State FOUR challenges (limitations) of government budgeting.

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  • 8 Marks

ICMA – Nov 2024 – L1 – Q2b – Working Capital

Calculates total amount held in working capital excluding cash and equivalents.

Working Capital Calculation
A company has annual sales revenues of GH¢45 million and the following working capital periods:

Working Capital Item Period (months)
Inventory conversion period 2.5
Accounts receivable collection period 2.0
Accounts payable payment period 1.5

Production costs are 70% of sales revenue.

Required:
Calculate the total amount held in working capital excluding cash and cash equivalents.

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  • 10 Marks

ICMA – Nov 2024 – L1 – Q2a – Cash Collection and Payment

Calculates cash collected from debtors and payments made to creditors.

Cash Collected from Debtors and Payments to Creditors
The following balances have been extracted from the Statement of Financial Position of Zena LTD as at 31 December 2023:

Account Amount (GH¢)
Debtors 55,000
Creditors 60,000

Additional information from the 2024 budget:

  • Sales are GH¢250,000 out of which 25% is cash. The sales are evenly distributed and the business gives one-month credit to its customers.
  • Total purchases of GH¢180,000, evenly distributed, are all on credit. Suppliers allow two months’ credit.

Required:
i) The cash to be collected from debtors during the year.
ii) The cash to be paid during the year.

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  • 20 Marks

ICMA – Nov 2024 – L1 – Q1a – Marginal and Absorption Costing

Prepares profit or loss statements using both marginal costing and absorption costing methods.

Profit or Loss Statement using Marginal and Absorption Costing
The following data has been extracted from the operating records of Agongon LTD for the last two quarters of the year to 31 December, 2023:

Quarter 3 4
Production units 8,400 10,200
Sales units 6,600 11,400

GH¢
Selling price per unit 120
Variable manufacturing cost per unit:

  • Direct material cost 24
  • Direct labour cost 18
  • Variable overheads 12

Fixed production overheads are budgeted at GH¢144,000 for a budgeted production of 9,600 units per quarter. These overheads are absorbed on a per-unit production basis.

Non-production overheads comprised:

  • Fixed administration expenses of GH¢48,000 per quarter
  • Selling and distribution expenses 10% of sales.

Required:
Prepare a statement of profit or loss for each quarter using:
a) The Marginal Costing technique
b) The Absorption Costing technique

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