Question Tag: Bank Loan

Search 500 + past questions and counting.

AA – May 2018 – L2 – Q1a – Introduction to Audit and Assurance Engagements

Explains the concept of reasonable assurance and its advantages while addressing the role of auditors in assessing the integrity of a finance manager.

Question

The Finance Manager of Nkran Ltd prepared a comprehensive cash flow forecast for the purpose of securing a loan from the bank. This was presented to the bank for evaluation and approval. The bank, after evaluating the cash flow forecast, wrote to Nkran Ltd requesting a reasonable assurance report. The Managing Director of Nkran Ltd, who was impressed with the Finance Manager’s cash flow forecast, is now questioning the integrity of the Finance Manager to the extent of considering dismissing him. The Managing Director decided to consult you, the Auditor, before taking the decision.

i) Write a letter explaining the need for reasonable assurance and its advantages to Nkran Ltd and the elements of an assurance engagement. (8 marks)
ii) Advise the Managing Director on whether his intended decision is well-founded. (2 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assurance report, Auditor's advice, Bank Loan, Engagement elements, Reasonable Assurance
Level: Level 2

Topic: Introduction to Audit and Assurance Engagements
Series: MAY 2018

AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence

Defines analytical procedures and outlines substantive procedures for revenue, profit, inventory, payables, and bank loan verification.

Question

You are the external auditor of Paa Willy Ltd (PW) for the year ended 31 March 2019. PW operates 12 convenience stores in the Greater Accra region:

Each store sells food.
Each store is responsible for its own inventory procurement and produces monthly management accounts which are sent to the centralised accounting department at PW head office.

PW is financed by a GH¢250,000 bank loan which is repayable at a rate of GH¢50,000 per annum over each of the next 5 years starting on 31 October 2019. It also has an overdraft facility of GH¢100,000, which it uses in full. The bank overdraft facility is due for renewal on 1 May 2020.

The bank has already told the company that it will need a cash flow forecast for two years from 1 February 2020 in order for the bank to decide whether or not the overdraft facility will be renewed. The bank has also said it will require a report from the external auditors to confirm the accuracy of the forecast.

Required:
a) Define the term analytical procedures.
(2 marks)

b) In relation to the work of an external auditor:
i) Describe THREE (3) analytical procedures that should be performed to confirm PW’s revenue and profit.
(3 marks)
ii) Outline THREE (3) substantive procedures that should be adopted to verify each of the following assertions:

The valuation of inventory.
(3 marks)
The completeness of payables.
(3 marks)

c) Recommend FOUR (4) appropriate substantive procedures that should be performed to confirm PW’s bank loan.
(4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Analytical procedures, Bank Loan, Inventory Valuation, Payables Completeness, Revenue and Profit, Substantive Procedures
Level: Level 2

Topic: Audit and Assurance Evidence
Series: MAY 2019

AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

Question

Abbot Ltd needs to increase its working capital by GH¢100,000. It has decided that there are essentially three alternatives of financing available. They are:

i) Borrow from a bank at 8%. This alternative would necessitate maintaining a 25% compensation balance.

ii) Issue promissory notes at 7.5%. The cost of placing the issue would be GH¢500 each six months.

iii) Forego cash discount, granted on the basis of 3/10, net 30.

The firm prefers the flexibility of bank financing, and has provided an additional cost of this flexibility to be 1%.

Required: Assess which alternative financing method should be selected.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Cash discount, Cost Analysis, Financing, Promissory notes, Working Capital
Level: Level 3

Topic: Sources of finance and cost of capital
Series: NOV 2017

FM – May 2021 – L2 – Q5b – Inventory Management

Evaluate whether the company should continue using a bank loan to finance inventory purchases and take advantage of early payment discounts.

Question

Would you advise the company to continue to take the bank loan to pay for the cost of
inventory purchases within the discount period to enjoy the supplier’s early settlement
discount? Support your answer with relevant computations.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Early Settlement Discount, Inventory Financing
Level: Level 2

Topic: Inventory Management
Series: MAY 2021

FM – DEC 2023 – L2 – Q5 – Cost of capital | Foreign exchange risk and currency risk management

Calculation of the effective cost of various financing options and explanation of internal strategies to manage foreign currency risk.

Question

a) Markwei Pharmaceuticals Ltd plans to import active ingredients to produce vitamin syrup. The company’s managers are considering three financing options for the cedi equivalent of an invoice value of GH¢2.5 million. The options are detailed below:

Option 1: Use supplier’s credit. The credit term is 1.5/10 net 45.

Option 2: Issue a commercial paper to raise the money from the Ghanaian money market. The commercial paper will pay interest at the rate of 18% per annum. Issue costs totaling GH¢15,000 will be incurred.

Option 3: Obtain a 3-month bank loan. The interest rate on the loan is 22% per annum. Loan arrangement and processing fees are expected to be GH¢5,000.

Required:
i) Compute the effective annual cost of each financing option and recommend the most cost-effective option. (10 marks)
ii) Explain TWO (2) advantages of financing the invoice through the issue of a commercial paper instead of a bank loan. (5 marks)

b) Abongo Shoes Ltd (Abongo) imports leather from Italy. Abongo’s demand for euros to settle its import bills exposes its cash flow to foreign exchange risk. Abongo’s Management is looking for internal strategies they can deploy to hedge the company’s currency risk exposure as external hedging strategies might be too expensive for the company.

Required:
Explain TWO (2) internal strategies for managing foreign currency risk exposures that Abongo’s Management can use. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Commercial Paper, Cost of Finance, Currency risk, Hedging Strategies, Trade Credit
Level: Level 2

Topic: Cost of capital, Foreign exchange risk and currency risk management
Series: DEC 2022

FM – MAR 2024 – L2 – Q5 – Working Capital Management

Evaluates different financing options for working capital requirements and compares forward and futures currency contracts.

Question

a) Edziban Foods Ltd has just signed a contract to sell food items worth GH¢120,000 per month to the School Feeding Secretariat on credit. With the average collection period expected to be 45 days, the company will increase its working capital requirement by GH¢177,534. The company’s managers are considering three options for financing the additional working capital requirement:

Option 1 – Trade credit: The company buys about GH¢72,000 of food items per month on terms of “2.5/20, net 60.” Going forward, the company may choose to forgo the discount.
Option 2 – Factoring: The company enters a non-recourse factoring contract, under which the factor takes up the receivables to be created from the credit sales under the contract (i.e., GH¢120,000 per month) for a fee of 2% of the credit sales. The average collection period for the credit sales will remain at 45 days. The factor will advance up to 80% of the face value of the average receivables at an annual interest rate of 16%. It has been estimated that the factor’s services will save the company GH¢1,500 per month in debt collection costs.
Option 3 – Bank loan: The company takes a loan of GH¢197,260 at 15% from its bankers. A 10% compensating balance will be required.

Required:

i) Recommend the best financing option to the managers of the company based on annualized percentage cost.
(11 marks)

ii) Distinguish between “without recourse” factoring agreement and “with recourse” factoring agreement.
(4 marks)

b) Explain THREE (3) differences between a forward currency contract and a futures currency contract.
(5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Factoring, Forward Contracts, Futures Contracts, Trade Credit, Working Capital
Level: Level 2

Topic: Working Capital Management
Series: MAR 2024

AA – May 2018 – L2 – Q1a – Introduction to Audit and Assurance Engagements

Explains the concept of reasonable assurance and its advantages while addressing the role of auditors in assessing the integrity of a finance manager.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assurance report, Auditor's advice, Bank Loan, Engagement elements, Reasonable Assurance
Level: Level 2

Topic: Introduction to Audit and Assurance Engagements
Series: MAY 2018

AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence

Defines analytical procedures and outlines substantive procedures for revenue, profit, inventory, payables, and bank loan verification.

Question

You are the external auditor of Paa Willy Ltd (PW) for the year ended 31 March 2019. PW operates 12 convenience stores in the Greater Accra region:

Each store sells food.
Each store is responsible for its own inventory procurement and produces monthly management accounts which are sent to the centralised accounting department at PW head office.

Required:
a) Define the term analytical procedures.
(2 marks)

The valuation of inventory.
(3 marks)
The completeness of payables.
(3 marks)

c) Recommend FOUR (4) appropriate substantive procedures that should be performed to confirm PW’s bank loan.
(4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Analytical procedures, Bank Loan, Inventory Valuation, Payables Completeness, Revenue and Profit, Substantive Procedures
Level: Level 2

Topic: Audit and Assurance Evidence
Series: MAY 2019

AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

Question

Abbot Ltd needs to increase its working capital by GH¢100,000. It has decided that there are essentially three alternatives of financing available. They are:

i) Borrow from a bank at 8%. This alternative would necessitate maintaining a 25% compensation balance.

ii) Issue promissory notes at 7.5%. The cost of placing the issue would be GH¢500 each six months.

iii) Forego cash discount, granted on the basis of 3/10, net 30.

The firm prefers the flexibility of bank financing, and has provided an additional cost of this flexibility to be 1%.

Required: Assess which alternative financing method should be selected.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Cash discount, Cost Analysis, Financing, Promissory notes, Working Capital
Level: Level 3

Topic: Sources of finance and cost of capital
Series: NOV 2017

FM – May 2021 – L2 – Q5b – Inventory Management

Evaluate whether the company should continue using a bank loan to finance inventory purchases and take advantage of early payment discounts.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Early Settlement Discount, Inventory Financing
Level: Level 2

Topic: Inventory Management
Series: MAY 2021

FM – DEC 2023 – L2 – Q5 – Cost of capital | Foreign exchange risk and currency risk management

Calculation of the effective cost of various financing options and explanation of internal strategies to manage foreign currency risk.

Question

Option 1: Use supplier’s credit. The credit term is 1.5/10 net 45.

Option 3: Obtain a 3-month bank loan. The interest rate on the loan is 22% per annum. Loan arrangement and processing fees are expected to be GH¢5,000.

Required:
Explain TWO (2) internal strategies for managing foreign currency risk exposures that Abongo’s Management can use. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Commercial Paper, Cost of Finance, Currency risk, Hedging Strategies, Trade Credit
Level: Level 2

Topic: Cost of capital, Foreign exchange risk and currency risk management
Series: DEC 2022

FM – MAR 2024 – L2 – Q5 – Working Capital Management

Evaluates different financing options for working capital requirements and compares forward and futures currency contracts.

Question

Option 1 – Trade credit: The company buys about GH¢72,000 of food items per month on terms of “2.5/20, net 60.” Going forward, the company may choose to forgo the discount.
Option 2 – Factoring: The company enters a non-recourse factoring contract, under which the factor takes up the receivables to be created from the credit sales under the contract (i.e., GH¢120,000 per month) for a fee of 2% of the credit sales. The average collection period for the credit sales will remain at 45 days. The factor will advance up to 80% of the face value of the average receivables at an annual interest rate of 16%. It has been estimated that the factor’s services will save the company GH¢1,500 per month in debt collection costs.
Option 3 – Bank loan: The company takes a loan of GH¢197,260 at 15% from its bankers. A 10% compensating balance will be required.

Required:

i) Recommend the best financing option to the managers of the company based on annualized percentage cost.
(11 marks)

ii) Distinguish between “without recourse” factoring agreement and “with recourse” factoring agreement.
(4 marks)

b) Explain THREE (3) differences between a forward currency contract and a futures currency contract.
(5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Loan, Factoring, Forward Contracts, Futures Contracts, Trade Credit, Working Capital
Level: Level 2

Topic: Working Capital Management
Series: MAR 2024

Question Tag: Bank Loan

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

AA – May 2018 – L2 – Q1a – Introduction to Audit and Assurance Engagements

Explains the concept of reasonable assurance and its advantages while addressing the role of auditors in assessing the integrity of a finance manager.

AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence

Defines analytical procedures and outlines substantive procedures for revenue, profit, inventory, payables, and bank loan verification.

AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

FM – May 2021 – L2 – Q5b – Inventory Management

Evaluate whether the company should continue using a bank loan to finance inventory purchases and take advantage of early payment discounts.

FM – DEC 2023 – L2 – Q5 – Cost of capital | Foreign exchange risk and currency risk management

Calculation of the effective cost of various financing options and explanation of internal strategies to manage foreign currency risk.

FM – MAR 2024 – L2 – Q5 – Working Capital Management

Evaluates different financing options for working capital requirements and compares forward and futures currency contracts.

AA – May 2018 – L2 – Q1a – Introduction to Audit and Assurance Engagements

Explains the concept of reasonable assurance and its advantages while addressing the role of auditors in assessing the integrity of a finance manager.

AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence

Defines analytical procedures and outlines substantive procedures for revenue, profit, inventory, payables, and bank loan verification.

AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

FM – May 2021 – L2 – Q5b – Inventory Management

Evaluate whether the company should continue using a bank loan to finance inventory purchases and take advantage of early payment discounts.

FM – DEC 2023 – L2 – Q5 – Cost of capital | Foreign exchange risk and currency risk management

Calculation of the effective cost of various financing options and explanation of internal strategies to manage foreign currency risk.

FM – MAR 2024 – L2 – Q5 – Working Capital Management

Evaluates different financing options for working capital requirements and compares forward and futures currency contracts.

Our offerings

Contact Info

Customer

Get In Touch

Question Tag: Bank Loan

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

AA – May 2018 – L2 – Q1a – Introduction to Audit and Assurance Engagements

Explains the concept of reasonable assurance and its advantages while addressing the role of auditors in assessing the integrity of a finance manager.

You're reporting an error for "AA – May 2018 – L2 – Q1a – Introduction to Audit and Assurance Engagements"

AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence

Defines analytical procedures and outlines substantive procedures for revenue, profit, inventory, payables, and bank loan verification.

You're reporting an error for "AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence"

AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

You're reporting an error for "AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital"

FM – May 2021 – L2 – Q5b – Inventory Management

Evaluate whether the company should continue using a bank loan to finance inventory purchases and take advantage of early payment discounts.

You're reporting an error for "FM – May 2021 – L2 – Q5b – Inventory Management"

FM – DEC 2023 – L2 – Q5 – Cost of capital | Foreign exchange risk and currency risk management

Calculation of the effective cost of various financing options and explanation of internal strategies to manage foreign currency risk.

You're reporting an error for "FM – DEC 2023 – L2 – Q5 – Cost of capital | Foreign exchange risk and currency risk management"

FM – MAR 2024 – L2 – Q5 – Working Capital Management

Evaluates different financing options for working capital requirements and compares forward and futures currency contracts.

You're reporting an error for "FM – MAR 2024 – L2 – Q5 – Working Capital Management"

AA – May 2018 – L2 – Q1a – Introduction to Audit and Assurance Engagements

Explains the concept of reasonable assurance and its advantages while addressing the role of auditors in assessing the integrity of a finance manager.

You're reporting an error for "AA – May 2018 – L2 – Q1a – Introduction to Audit and Assurance Engagements"

AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence

Defines analytical procedures and outlines substantive procedures for revenue, profit, inventory, payables, and bank loan verification.

You're reporting an error for "AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence"

AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital

Analyzing financing alternatives for working capital of GH¢100,000 through bank loan, promissory notes, and cash discount.

You're reporting an error for "AFM – Nov 2017 – L3 – Q1b – Sources of finance and cost of capital"

FM – May 2021 – L2 – Q5b – Inventory Management

Evaluate whether the company should continue using a bank loan to finance inventory purchases and take advantage of early payment discounts.

You're reporting an error for "FM – May 2021 – L2 – Q5b – Inventory Management"

FM – DEC 2023 – L2 – Q5 – Cost of capital | Foreign exchange risk and currency risk management

Calculation of the effective cost of various financing options and explanation of internal strategies to manage foreign currency risk.

You're reporting an error for "FM – DEC 2023 – L2 – Q5 – Cost of capital | Foreign exchange risk and currency risk management"

FM – MAR 2024 – L2 – Q5 – Working Capital Management

Evaluates different financing options for working capital requirements and compares forward and futures currency contracts.

You're reporting an error for "FM – MAR 2024 – L2 – Q5 – Working Capital Management"

Our offerings

Contact Info

Customer

Get In Touch

admin