Professional Body: ICA (Ghana)

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PSAF – Nov 2020 – L2 – Q3a – The Budgeting Process in the Public Sector

Explain the factors militating against the budgeting system in the public sector.

Question

The budgeting process is a cycle of events which occur sequentially every
year and which results in the approved budgets in ministries and extra ministerial departments.

Required:
Explain five factors militating against the budgeting system in the public sector.

Answer

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Tags: Budget Process, Government Expenditure, Public Sector Budgeting
Level: Level 2

Topic: The Budgeting Process in the Public Sector
Series: NOV 2020

BMIS – Nov 2019 – L1 – Q1a – The Business Organization and its Stakeholders

Explain three business types available to individuals venturing into business.

Question

Kofi Stone, Ama Black and Adwoa Sika who were your students at the Ultimate Business School have decided to venture into business after their National Service which ends in the next three months. They have approached you for your advice on the type(s) of business(es) which they should invest in, considering the country’s economic environment.

Required:
Explain THREE (3) business types available to them. (6 marks)

Answer

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Tags: Business Types, Limited Liability Company, Partnership, Sole Proprietorship
Level: Level 1

Topic: The Business Organisation and its Stakeholders
Series: NOV 2019

BMIS – Nov 2019 – L1 – Q1c – Organization culture in business

Explains centralization, decentralization, and three advantages of decentralization for a company.

Question

At the last Management meeting of Cool Hearts Ltd, which is a fast-moving consumer product firm with outlets throughout the country, it came out that sales and other targets were being missed as a result of the failure of top managers to involve subordinates in decision-making. You have just joined the company as an Organizational Analyst and have decided to submit a proposed solution to the problem to your Board at its next meeting to be held in two weeks’ time.

Required:
Explain the following:
i) Centralization (2 marks)
ii) Decentralization (2 marks)
iii) THREE (3) advantages Cool Hearts Ltd would gain from decentralizing its operations. (6 marks)

Answer

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Tags: Centralization, Decentralization, Decision Making, Management Decisions, Organizational Structure
Level: Level 1

Topic: Organisation culture in business
Series: NOV 2019

BMIS – Nov 2019 – L1 – Q1b – Characteristics of a Private Limited Company

Explain two characteristics of a private limited liability company.

Question

Explain TWO (2) characteristics of a Private Limited Liability Company. (4 marks)

Answer

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Tags: Company Characteristics, Private Limited Liability
Level: Level 1

Topic: The Business Organisation and its Stakeholders
Series: NOV 2019

BMIS – Nov 2019 – L1 – Q2ai – Leadership Definition

Explain the term leadership in relation to its influence on group behavior.

Question

Explain the term Leadership. (2 Marks)

Answer

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Tags: Group Dynamics, Influence, Leadership
Level: Level 1

Topic: Management and leadership
Series: NOV 2019

BMIS – Nov 2019 – L1 – Q2aii – Theories of Leadership

Explain the Trait, Style, and Contingency Theories of Leadership.

Question

Explain the following Theories of Leadership:

Trait (3 Marks)
Style (3 Marks)
Contingency (3 Marks)

Answer

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Tags: Contingency Theory, Leadership Theories, Style Theory, Trait Theory
Level: Level 1

Topic: Management and leadership
Series: NOV 2019

BMIS – Nov 2019 – L1 – Q2bi – Extrinsic Rewards

Explain extrinsic rewards in relation to employee motivation.

Question

Explain the following in relation to the motivation of employees:
i) Extrinsic rewards (2 Marks)

Answer

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Tags: Employee Compensation, Motivation, Rewards
Level: Level 1

Topic: Motivation
Series: MAY 2019, NOV 2019

BMIS – Nov 2019 – L1 – Q2bii – Intrinsic Rewards

Explain intrinsic rewards in relation to employee motivation.

Question

Explain the following in relation to the motivation of employees:
ii) Intrinsic rewards (2 Marks)

Answer

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Tags: Job Satisfaction, Motivation, Psychological Rewards
Level: Level 1

Topic: Motivation
Series: NOV 2019

BMIS – Nov 2019 – L1 – Q2c – Group Development Stages

Outline the stages of group development in an organizational context.

Question

Outline the stages of group development. (5 Marks)

Answer

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Tags: Group Development, Organizational Behavior, Team Formation
Level: Level 1

Topic: Teams
Series: NOV 2019

BMIS – NOV 2019 – L1 – Q3a – Mission Statement

Write a mission statement for Hard Leather Limited, a footwear manufacturing company with products for middle and upper classes.

Question

a) Hard Leather Limited is a footwear manufacturing company with a wide range of products for middle and upper classes.

Required: Write a mission statement for the company. (5 marks)

Answer

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Tags: Company objectives, Mission Statement, Strategic Planning
Level: Level 1

Topic: Introduction to Business Strategy
Series: NOV 2019

CR – Nov 2020 – L3 – Q3a – Equipment Purchase via Share-Based Payment

Demonstrate with calculations how to account for a share-based payment with a choice of settlement in financial statements.

Question

Tato Company (Tato), a listed company, purchased a significant item of equipment on 1 July 2018. The list price of the equipment was GH¢12 million, although the supplier always gives Tato a 10% discount on its list prices. Tato was unable to finance the purchase outright and the supplier therefore agreed to accept an arrangement whereby the amount of the payment would be determined by Tato’s share price on 30 June 2020.

At 30 June 2020, under the terms of the agreement, the supplier can choose to receive either:

Cash, equal to the value of 500,000 of Tato’s shares on that date; or
540,000 Tato’s shares on 30 June 2020, provided that they cannot be sold for 1 year after that date.

Tato’s share price was GH¢19.80 per share on 1 July 2018 and GH¢20.40 on 30 June 2019.

Required:
Demonstrate with suitable calculations how the arrangement should be accounted for in Tato Company’s financial statements for the year ended 30 June 2019.

Answer

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Tags: Accounting Treatment, Equity Component, IFRS 2, Liability Component, Share-Based Payments
Level: Level 3

Topic: IFRS 2: Share-Based Payments
Series: NOV 2020

CR – Nov 2020 – L3 – Q3b – Convertible Loan Accounting under IFRS 9

Accounting treatment of investment in a convertible bond under IFRS 9.

Question

During the year ended 31 December 2018 Pakyi Ltd invested in a convertible bond on its issue date. The bond matures four years after the issue date and at that date the bond can be converted into ordinary shares of the investee or repaid at par. The entity’s plan for the bond is to hold it until it matures and collect the cash flows.

Required:

Advise the directors of Pakyi Ltd of the accounting treatment on the above transaction under IFRS 9: Financial Instruments for the year ended 31 December 2018.
(4 marks)

Answer

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Tags: Convertible Loans, Financial Asset Measurement, Financial Asset Recognition, Financial instruments, IFRS 9
Level: Level 3

Topic: Financial instruments: Recognition and measurement Corporate reporting
Series: NOV 2020

CR – Nov 2020 – L3 – Q3c – Ethical Issues Facing Accountant in Costing Task

Ethical issues faced by an accountant pressured to produce a costing exercise under tight deadlines.

Question

Goodman recently qualified as accountant with the Institute of Chartered Accountants (Ghana). He works with a manufacturing company in Tamale, Ghana, and he has been asked, by his line manager, to complete a costing exercise and given a very short deadline as well as limited resources for the exercise. Goodman thinks that the President of the company is planning to use this information to restructure the company, including making some of Goodman’s close colleagues redundant. Goodman is very worried that the outcome of his work cannot be robust enough to be used for such a big business decision by the company, but his line manager is putting him under a lot of pressure to complete the work pretty much quickly.

Required:
Evaluate FOUR (4) ethical issues facing Goodman and recommend FOUR (4) possible courses of action Goodman should consider taking. (10 marks)

Answer

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Tags: Corporate Governance, Ethics, Professional Responsibility
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: NOV 2020

CR – Nov 2020 – L3 – Q5b – Investment Ratios

Calculate two investment ratios of interest to a potential investor for two years.

Question

Calculate, for both years, TWO (2) investment ratios of interest to a potential investor.

Answer

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Tags: Dividend Cover, Dividend per share, Earnings Per Share, Financial Analysis
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2020

CR – Nov 2020 – L3 – Q5c – Ratios for Lenders

Calculate two ratios of interest to a potential long-term lender for two years.

Question

Calculate, for both years, TWO (2) ratios of interest to a potential long-term lender.

Answer

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Tags: Debt ratio, Financial Analysis, Gearing, Interest Cover
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2020

CR – Nov 2020 – L3 – Q4a – Business Valuation

Determine share value of Anidaso Ltd using multiple valuation methods including net assets, P/E ratio, dividend yield, and discounted cash flow.

Question

Anidaso Ltd operates in the manufacturing industry in Ghana. The company is in the process of selling some of its shares to the general public to raise funds to expand its operations. Below are the financial statements of the company:

Statement of profit or loss for the year ended 30 September, 2019

	GH¢’000
Revenue	122,900
Cost of sales	(58,650)
Gross profit	64,250
Selling, general & administration expenses	(43,570)
Profit before interest & taxes	20,680
Finance cost	(1,680)
Profit before taxation	19,000
Taxation @ 20%	(4,750)
Profit after tax	14,250

Statement of changes in equity (extracts) for the year ended 30 September, 2019

	GH¢’000
Retained Earnings at October 1, 2018	47,970
Profit for the year	14,250
Dividend paid	(6,200)
Retained Earnings at 30 September, 2019	56,020

Statement of Financial Position as at 30 September, 2019

	GH¢’000	GH¢’000
Non-current assets
Development expenditure	13,050
Patents	8,200
Property, plant, and equipment	98,750	120,000
Current assets
Inventories	21,700
Trade receivables	12,501
Bank and cash	5,944	40,145
Current liabilities
Trade payables	(15,400)	24,745
Net current assets	144,745
Non-current liabilities
10% Debenture loan stock	(12,000)	132,745
Equity
Share capital	50,000
Revaluation Surplus	26,725
Retained Earnings	56,020	132,745

Additional relevant information:

The share capital of the company is composed of:
- GH¢000
- 20% redeemable preference shares 10,000
- Ordinary shares (issued @GH¢0.20 each) 40,000
- Total share capital: 50,000
A review of the development expenditure indicated that only 50% of it is worthwhile.
An independent valuer has placed values on some of the assets of Anidaso Ltd below:
- Property, plant & equipment: GH¢111,000
- Inventories: GH¢16,200
- Trade receivables: GH¢10,000
- Total value: GH¢137,200
Profit forecasts for the next five years of Anidaso Ltd are as follows:

Year-end 30 September Profit before Tax (GH¢’000) Depreciation Charge (GH¢’000)

2020 14,900 1,100

2021 16,000 1,225

2022 19,250 1,550

2023 19,800 2,025

2024 21,550 2,130
The patents in the statement of financial position represent a license to produce an improved variety of a product and is expected to generate a pre-tax profit of GH¢10,000 per year for the next five years.
Abiola Limited is a competitor company listed on the Ghana Stock Exchange, and data extracted from its recently published financial statements revealed the following details:
- Market capitalization: GH¢1,000,000
- Number of ordinary shares: 800,000
- Earnings per share: GH¢0.20
- Dividend payout ratio: 80%
The cost of capital of Anidaso Ltd is 10%.

Year-end 30 September	Profit before Tax (GH¢’000)	Depreciation Charge (GH¢’000)
2020	14,900	1,100
2021	16,000	1,225
2022	19,250	1,550
2023	19,800	2,025
2024	21,550	2,130

Required:
Determine the value to be placed on each share of Anidaso Ltd using the following methods of valuation: i) Net assets
ii) Price-earnings ratio
iii) Dividend yield
iv) Discounted cash flow

Answer

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Tags: Business Valuation, Discounted Cash Flow, Dividend Yield, Net Asset Valuation, Price-Earnings ratio, Share Valuation
Level: Level 3

Topic: Business valuations
Series: NOV 2020

CR – Nov 2020 – L3 – Q4b – Fair Value in Consolidation

Explain why a fair value exercise is performed when a parent acquires a controlling stake in a subsidiary.

Question

Under IFRS 3: Business Combinations, the identifiable assets, liabilities, and contingent liabilities of subsidiaries are required to be brought into the consolidated financial statements at their fair value rather than their book value.

Required:
Explain the justification for undertaking a fair value exercise when a parent acquires a controlling stake in a subsidiary company.

Answer

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Tags: Business Combinations, Consolidation, Fair Value, IFRS 3, Subsidiary valuation
Level: Level 3

Topic: Business combinations and consolidation
Series: NOV 2020

CR – Nov 2020 – L3 – Q5a – Return on Equity & Return on Capital Employed

Calculate and interpret return on equity and return on capital employed for Bounce Back Ltd for two years.

Question

Bounce Back Ltd Financial Information:

Statement of Comprehensive Income for the year ended 30 November:

	2019	2018
Profit before interest and tax	GH¢2,200,000	GH¢1,570,000
Interest expense	(GH¢170,000)	(GH¢150,000)
Profit before tax	GH¢2,030,000	GH¢1,420,000
Taxation	(GH¢730,000)	(GH¢520,000)
Profit after tax	GH¢1,300,000	GH¢900,000
Dividends paid	(GH¢250,000)	(GH¢250,000)
Retained profit	GH¢1,050,000	GH¢650,000

Statement of Financial Position as at 30 November:

	2019	2018
Non-current assets (written-down value)	GH¢6,350,000	GH¢5,600,000
Current assets
Trade receivables	GH¢2,100,000	GH¢2,070,000
Inventories	GH¢1,710,000	GH¢1,540,000
Total current assets	GH¢3,810,000	GH¢3,610,000
Creditors: amounts due within one year
Trade payables	GH¢1,040,000	GH¢1,130,000
Taxation	GH¢550,000	GH¢450,000
Bank overdraft	GH¢370,000	GH¢480,000
Total current liabilities	GH¢1,960,000	GH¢2,060,000
Net current assets	GH¢1,850,000	GH¢1,550,000
Total net assets	GH¢8,200,000	GH¢7,150,000
Creditors: amounts due after more than one year
10% debentures	GH¢1,500,000	GH¢1,500,000
Equity
Share capital (ordinary shares of 50p fully paid up)	GH¢3,000,000	GH¢3,000,000
Retained earnings	GH¢3,700,000	GH¢2,650,000
Total equity	GH¢6,700,000	GH¢5,650,000
Total long-term liabilities and equity	GH¢8,200,000	GH¢7,150,000

Required:

Calculate, for both years, the return on equity and the return on capital employed.

Answer

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Tags: Financial Analysis, Profitability Ratios, Return on Capital Employed, Return on Equity
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2020

CR – Nov 2020 – L3 – Q5d – Performance Analysis

Report on the performance and state of the business using calculated ratios from the viewpoint of shareholders and lenders.

Question

Report on the performance and state of the business from the viewpoint of a potential shareholder and lender using the ratios calculated above and explain any weaknesses in these ratios.

Answer

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Tags: Business performance, Financial Performance, Profitability analysis, Ratio Analysis
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2020

CR – May 2021 – L3 – Q1 – Consolidation with Subsidiaries and Associate

Prepare consolidated statement of financial position including two subsidiaries and an associate. Adjust for goodwill, non-controlling interest, and contingent consideration.

Question

Required:
Prepare a consolidated statement of financial position as of 31 May 2020 for the Blavo Group.

Answer

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Tags: Associates, Business Combinations, Consolidation, Deferred Tax, Financial Statements, Goodwill, Non-Controlling Interests, Subsidiaries
Level: Level 3

Professional Body: ICA (Ghana)

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PSAF – Nov 2020 – L2 – Q3a – The Budgeting Process in the Public Sector

Explain the factors militating against the budgeting system in the public sector.

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BMIS – Nov 2019 – L1 – Q1a – The Business Organization and its Stakeholders

Explain three business types available to individuals venturing into business.

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BMIS – Nov 2019 – L1 – Q1c – Organization culture in business

Explains centralization, decentralization, and three advantages of decentralization for a company.

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BMIS – Nov 2019 – L1 – Q1b – Characteristics of a Private Limited Company

Explain two characteristics of a private limited liability company.

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BMIS – Nov 2019 – L1 – Q2ai – Leadership Definition

Explain the term leadership in relation to its influence on group behavior.

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BMIS – Nov 2019 – L1 – Q2aii – Theories of Leadership

Explain the Trait, Style, and Contingency Theories of Leadership.

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BMIS – Nov 2019 – L1 – Q2bi – Extrinsic Rewards

Explain extrinsic rewards in relation to employee motivation.

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BMIS – Nov 2019 – L1 – Q2bii – Intrinsic Rewards

Explain intrinsic rewards in relation to employee motivation.

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BMIS – Nov 2019 – L1 – Q2c – Group Development Stages

Outline the stages of group development in an organizational context.

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BMIS – NOV 2019 – L1 – Q3a – Mission Statement

Write a mission statement for Hard Leather Limited, a footwear manufacturing company with products for middle and upper classes.

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CR – Nov 2020 – L3 – Q3a – Equipment Purchase via Share-Based Payment

Demonstrate with calculations how to account for a share-based payment with a choice of settlement in financial statements.

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CR – Nov 2020 – L3 – Q3b – Convertible Loan Accounting under IFRS 9

Accounting treatment of investment in a convertible bond under IFRS 9.

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CR – Nov 2020 – L3 – Q3c – Ethical Issues Facing Accountant in Costing Task

Ethical issues faced by an accountant pressured to produce a costing exercise under tight deadlines.

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CR – Nov 2020 – L3 – Q5b – Investment Ratios

Calculate two investment ratios of interest to a potential investor for two years.

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CR – Nov 2020 – L3 – Q5c – Ratios for Lenders

Calculate two ratios of interest to a potential long-term lender for two years.

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CR – Nov 2020 – L3 – Q4a – Business Valuation

Determine share value of Anidaso Ltd using multiple valuation methods including net assets, P/E ratio, dividend yield, and discounted cash flow.

Statement of profit or loss for the year ended 30 September, 2019

Statement of changes in equity (extracts) for the year ended 30 September, 2019

Statement of Financial Position as at 30 September, 2019

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CR – Nov 2020 – L3 – Q4b – Fair Value in Consolidation

Explain why a fair value exercise is performed when a parent acquires a controlling stake in a subsidiary.

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CR – Nov 2020 – L3 – Q5a – Return on Equity & Return on Capital Employed

Calculate and interpret return on equity and return on capital employed for Bounce Back Ltd for two years.

Bounce Back Ltd Financial Information:

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CR – Nov 2020 – L3 – Q5d – Performance Analysis

Report on the performance and state of the business using calculated ratios from the viewpoint of shareholders and lenders.

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CR – May 2021 – L3 – Q1 – Consolidation with Subsidiaries and Associate

Prepare consolidated statement of financial position including two subsidiaries and an associate. Adjust for goodwill, non-controlling interest, and contingent consideration.

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