Question Tag: Bonds

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 20 Marks

FM – Nov 2018 – L3 – Q4 – Strategic Performance Measurement

Evaluate Yemi John Plc’s financial performance and analyze financing options for expansion in line with shareholder wealth and earnings growth.

Yemi John Plc. (YJ) is planning to raise N30 million in new finance for a major expansion of its existing business and is considering a rights issue, a placing, or an issue of bonds. The corporate objectives of YJ, as stated in its annual report, are to maximize the wealth of its shareholders and to achieve continuous growth in earnings per share. Recent financial information on YJ is as follows:

Year 2017 2016 2015 2014
Turnover (Nm) 28.0 24.0 19.1 16.8
Earnings before interest and tax (EBIT) (Nm) 9.8 8.5 7.5 6.8
Profit after tax (PAT) (Nm) 5.5 4.7 4.1 3.6
Dividends (Nm) 2.2 1.9 1.6 1.6
Ordinary shares (Nm) 5.5 5.5 5.5 5.5
Reserves (Nm) 13.7 10.4 7.6 5.1
8% Bonds, redeemable 2024 (Nm) 20 20 20 20
Share price (N) 8.64 5.74 3.35 2.67

The par value of the shares of YJ is N1.00 per share. The general level of inflation has averaged 4% per year in the period under consideration. The bonds of YJ are currently trading at their par value of N100. The values for the business sector of YJ are as follows:

  • Average return on capital employed: 25%
  • Average return on shareholders’ fund: 20%
  • Average interest coverage: 20 times
  • Average debt/equity ratio (market value basis): 50%
  • Return predicted by the capital asset pricing model: 14%

EBIT/closing total capital employed

Required:

a. Evaluate the financial performance of YJ, analyzing and discussing the extent to which the company has achieved its stated objectives of:
i. maximizing the wealth of its shareholders; and
ii. achieving continuous growth in earnings per share. (13 Marks)

Note: Up to 8 marks are available for financial analysis.

b. Analyze and discuss the relative merits of a rights issue, a placing, and an issue of bonds as ways of raising finance for the expansion. (7 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2018 – L3 – Q4 – Strategic Performance Measurement"

  • 10 Marks

PSA&F – Nov 2019 – L2 – Q4b – Fiscal Policy and Public Finance

Discusses circumstances under which debt financing is appropriate and identifies four documents needed for the issuance of bonds.

Public projects can be financed through debt, taxation, and other related revenue. The choice of any one method depends on the objective and the overall long-term implications for the economy.

Required:

  • Discuss TWO circumstances under which debt financing is appropriate.
  • Identify FOUR documents required for the issuance of bonds to a state or local government.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PSA&F – Nov 2019 – L2 – Q4b – Fiscal Policy and Public Finance"

  • 5 Marks

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

Asamankese Ltd (Asamankese) purchased a 6% GH¢50 million bond on 1 August 2018 at a 10% discount to par value. Expenses of purchase were GH¢500,000. The bond is due for redemption on 31 July 2028 at par. The effective annual interest rate to maturity is 7.3%. Asamankese intends to hold the bond until its maturity date.

Required:
In accordance with IFRS 9: Financial Instruments, how much should be recognized in Asamankese’s financial statements in respect of the above transaction for the year ended 31 July 2019 (to two decimal places)?

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9"

  • 5 Marks

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

Asamankese Ltd (Asamankese) purchased a 6% GH¢50 million bond on 1 August 2018 at a 10% discount to par value. Expenses of purchase were GH¢500,000. The bond is due for redemption on 31 July 2028 at par. The effective annual interest rate to maturity is 7.3%. Asamankese intends to hold the bond until its maturity date.

Required:
In accordance with IFRS 9: Financial Instruments, how much should be recognized in Asamankese’s financial statements in respect of the above transaction for the year ended 31 July 2019 (to two decimal places)?

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9"

Has Case Study
  • 20 Marks

SCS – March 2023 – L3 – Q6 – International financial management

Explains the financial reporting implications of debt exchange and compares investing in bonds versus shares

LCH has invested GH¢1,000,000 in a 5-year Government of Ghana Bond with a coupon rate of 20%. As a result of the Government of Ghana DDE programme, LCH has no option but to exchange the old bond with the new bond.

Required:
a) Explain FIVE (5) financial reporting implications of the debt exchange on the financial statements of LCH as at 31 December 2022.
(10 marks)

b) Discuss FOUR (4) advantages and TWO (2) main disadvantages of investing in bonds rather than shares.
(10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "SCS – March 2023 – L3 – Q6 – International financial management"

  • 20 Marks

BMF – Nov 2021 – L1 – SB – Q1 – Management, Individual, and Organizational Behaviour

Question on the definition of group cohesion, factors impacting it, and advantages of convertible bonds for companies and investors.

According to Harold Koontz “management is an art of creating an environment in which people can perform and individuals can co-operate towards attainment of group goals.”

a. Define “group cohesion” and explain briefly FIVE factors that impact group cohesion. (10 Marks)

b. Define Commercial Paper (CP) and state THREE advantages of convertible bonds for companies and THREE advantages of convertible bonds for investors. (10 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "BMF – Nov 2021 – L1 – SB – Q1 – Management, Individual, and Organizational Behaviour"

  • 1 Marks

BMF – Nov 2021 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

Question about identifying incorrect statements related to bonds as debt instruments.

Bonds are debt instruments issued by governments, government agencies, international organizations, and companies. Which of the following is NOT true of bonds?

A. They may be issued for a fixed period of time
B. They can be classified either as domestic or international
C. They are redeemed by the issuer usually at their face value
D. The bond markets are accessible to small companies
E. While in issue, the issuer pays interest to the bondholders each year

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "BMF – Nov 2021 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets"

  • 5 Marks

FR – May 2017 – L2 – Q2d – Financial Reporting Standards and Their Applications

Recommend accounting treatments for equity shares and bonds in accordance with IFRS 9.

Bawaleshie Ltd controls the following financial assets at its reporting date of 31 January 2017:

i) An investment in the equity shares of Obojo Ltd was purchased during April 2016 for GH¢2.6 million. The fair value of this investment at 31 January 2017 was GH¢2.8 million. Bawaleshie Ltd decided at the date of purchase to recognize any fair value gains and losses through other comprehensive income.
(2 marks)

ii) An investment in a bond issued by Shiashie Ltd on 1 February 2016. This bond cost GH¢10 million (equal to its par value) and entitles Bawaleshie Ltd to 8% interest per annum on the anniversary of the bond’s issue. The principal is to be returned on 31 January 2021. It is the intention of Bawaleshie Ltd to retain the bond in order to collect the contracted cash flows on the due dates.
(3 marks)

Required:
Recommend how the above financial assets should be accounted for at 31 January 2017 in accordance with the requirements of IFRS 9 Financial Instruments.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – May 2017 – L2 – Q2d – Financial Reporting Standards and Their Applications"

  • 9 Marks

FR – March 2024 – L2 – Q2a – Financial Reporting Standards and Their Applications

Evaluate financial reporting treatment of Sikapa and Cocoa bonds in accordance with IFRS 9: Financial Instruments.

Kombra Ltd (Kombra) is a market leader in the printing and publishing industry. To benefit from a potential future decline in interest rates, Kombra invests in bonds and issues callable bonds. It occasionally trades these bonds by immediately flipping them for a profit. Others are held for the long term.

Kombra purchased two bonds on 1 January 2023. Details of the two particular bonds are as follows:

Sikapa Bond Cocoa Bond
Nominal value of bond GH¢47.25 million GH¢31.5 million
Coupon rate 4% 5%
Purchase price of bond GH¢40.425 million GH¢29.4 million
Effective yield to maturity 6.75% 7.8%

The Sikapa bond was bought with the intention of keeping it for a long time and withdrawing the interest and principal as they fall due.

The Cocoa bond was bought at a deep discount, and the aim is to wait until the market value increases, and then sell it at a profit. The Cocoa bond had a fair value of GH¢28.875 million as of December 31, 2023.

In both situations, the coupon, which is due on December 31 each year, has been paid as agreed.

Required:
In the case of each bond above, show the financial reporting treatment required by IFRS 9: Financial Instruments for the year ended 31 December 2023. Show all workings clearly.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – March 2024 – L2 – Q2a – Financial Reporting Standards and Their Applications"

  • 12 Marks

AFM – May 2017 – L3 – Q2a – Discounted cash flow techniques

Use Macaulay duration method to choose the best bond option for ABE based on recovery period.

ABE has surplus cash which can be invested for at least five years. The company has consulted you to help them choose an investment that gives the shortest recovery period. The company presented the information on two types of bonds as follows:

Bond Redemption Nominal Value (GH¢) Redemption Value Coupon Rate (%) Price (GH¢)
A 5 years 1,000 At par 7.00 950
B 6 years 1,000 5% premium 7.50 1,010

Required:
Use the Macaulay Duration method to advise ABE on the best bond option to select for their investment. (12 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AFM – May 2017 – L3 – Q2a – Discounted cash flow techniques"

  • 20 Marks

AFM – Nov 2017 – L3 – Q2 – Sources of finance and cost of capital

Calculation of the cost of capital using the WACC and CAPM methods for a company and discussing when to use the cost of equity or WACC for discounting.

Animal Farm Product Ltd, (AFP), a manufacturer of veterinary medicines for farm animals, wishes to estimate its current cost of capital.

The following figures have been extracted from their most recent accounts:

Other relevant data:

  • The current market value of AFP’s ordinary shares is GH¢12.50 per share cum-dividend. AFP’s beta is 1.4, the risk-free rate is 3%, and the return on the SEC index (the market proxy) is 8%. An annual dividend of GH¢800,000 is due for payment shortly.
  • The 8% debentures are irredeemable and are trading at a current market value of GH¢106.00, a GH¢6.00 premium over their issue price of GH¢100.00. Semi-annual interest of GH¢4 million has just been paid on the debentures.
  • The 6% preference shares are trading at a current market value of GH¢6.00, a GH¢1 above their issue price of GH¢5.00. Interest has just been paid on these preference shares.
  • There have been no issues or redemptions of ordinary shares or debentures during the past five years, and the corporation tax rate remains at 12.5%. Assume that tax relief on the debenture interest arises at the same time as the interest payment.

Required:

a) Calculate the cost of capital that AFP should use as a discount rate when appraising new marginal investment opportunities. (11 marks)

b) Explain when firms should discount projects using:

  • The cost of equity;
  • The WACC instead; and
  • When should they use neither? You may use the information and your results in part (a) as examples. (6 marks)

c) Discuss what type of covenants might be attached to bonds. (3 marks)

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AFM – Nov 2017 – L3 – Q2 – Sources of finance and cost of capital"

  • 5 Marks

CR – Nov 2019 – L3 – Q2c – Financial instruments: Presentation and disclosure 511

Explain the accounting treatment for bonds issued by Kaduna Ltd using the amortised cost method.

c) On 1 January 2018, Kaduna Ltd issued 10,000 bond instruments with a face value of GH¢100 at a market price of GH¢95. Bond brokers charged fees totalling GH¢18,000 in relation to the bond issue. The bonds carry a coupon rate of 5% and are redeemable in 3 years at face value.

Kaduna Ltd wishes to account for the bonds using IFRS 9: Financial Instruments amortised cost method. However, there was some confusion about how the bonds should be accounted for. Currently, the cash received from the bond issue of GH¢950,000 has been recognised as a non-current liability. The broker fees of GH¢18,000 were deducted from the non-current liability carrying amount, the coupon payment of GH¢50,000 has been expensed in arriving at profit before tax, and the effective rate of interest is 7.62%.

Required:
Justify the necessary accounting treatment of the above transaction relating to Kaduna Ltd for the year ended 31 December 2018. (5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2019 – L3 – Q2c – Financial instruments: Presentation and disclosure 511"

  • 5 Marks

CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement

Discuss the accounting treatment for the fair value movement of financial liabilities at fair value through profit or loss.

Abiba Limited is a company operating in Northern Ghana and provides loans to customers and funds the loans by selling bonds in the market. The financial liability is designated as fair value through profit or loss. The bonds have a fair value increase of GH¢100 million in the year to 31 December 2015, of which GH¢5 million relates to the reduction in Abiba’s creditworthiness. The directors of Abiba Ltd have contacted your consultancy firm for advice on how to account for this movement.

Required:
Discuss, with appropriate computations where necessary, the accounting treatment of the above transactions in the financial statements of Abiba Ltd for the year ended 31 December 2015.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement"

  • 10 Marks

CR – Mar 2023 – L3 – Q2a – Financial instruments: Recognition and measurement Corporate reporting

Discuss financial reporting treatment of Hamza Ltd bonds as at 31 December 2022 and 2023.

On 31 December 2022, Hamza Ltd purchased GH¢10 million 5% bonds in Jins Ltd at par value. The bonds are repayable on 31 December 2025, and the effective interest rate is 8%. Hamza Ltd’s business model is to collect contractual cash flows over the life of the asset. At 31 December 2022, the bonds were considered low risk, and the 12-month expected credit losses were estimated at GH¢10,000. On 31 December 2023, Jins Ltd paid the coupon interest, but the risks associated with the bonds increased significantly.

The present value of the cash shortfall for the year ended 31 December 2024 was estimated at GH¢462,963, with a 3% probability of default. At the end of 2023, it was anticipated that no further coupon payments would be received during the year ended 31 December 2025, and only a portion of the nominal value of the bonds would be repaid. The present value of the bonds was assessed to be GH¢6,858,710 with a 5% likelihood of default in the year ended 31 December 2025.

Required:
With reference to IFRSs, calculate and discuss the financial reporting treatment of the bonds in the financial statements of Hamza Ltd as of 31 December 2022 and for the year ended 31 December 2023, including any impairment losses.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Mar 2023 – L3 – Q2a – Financial instruments: Recognition and measurement Corporate reporting"

  • 4 Marks

BCL – July 2023 – L1 – Q5a – Types of Capital and the Financing of Companies

Explain the concepts of bonds and debentures as investment vehicles.

Yao Tsito has been paid his end of service benefit after retiring. He plans to invest the benefits in bonds and debentures.

Required:

Explain the following:

  • Bond (2 marks)
  • Debenture (2 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "BCL – July 2023 – L1 – Q5a – Types of Capital and the Financing of Companies"

  • 10 Marks

FM – April 2022 – L2 – Q1b – Capital structure

Calculate the capital structure of Boom Ltd and determine the earnings required to achieve a 25% return for equity holders.

Boom Ltd is into the provision of online conference call facilities which has become popular due to the rising trend in Covid-19 cases in Ghana. The company has 10 million issued shares currently at GH¢50 each, 3 million preference shares trading at GH¢25 each, and 5,000 bonds also trading at GH¢600 each.

Required:
i) Calculate the Capital Structure of the Company. (4 marks)
ii) How much should the company earn annually to achieve a return of 25% per annum on capital employed for equity holders if the dividend rate on preference shares per annum is 20% and the coupon on the bonds is 18%? In Ghana, interest paid on debt is tax deductible and corporate tax is at 25%. (6 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – April 2022 – L2 – Q1b – Capital structure"

  • 14 Marks

FM – MAY 2019 – L2 – Q2a – Capital structure

Calculate the current market capitalization of M&E Ltd and the Weighted Average Cost of Capital (WACC) prior to financing a new project.

Question:
M&E Ltd, recognized as the leader in steel manufacturing, has received an invitation to supply steel for the construction of rail lines to connect the ECOWAS countries, starting from Nigeria. The contract will be for 10 years, and management is considering appraising the investment to enable them to present their proposals for the contract. The following information was extracted from the recently published accounts of M&E Ltd:

GH¢ ‘000
Equity Shares (1,000,000 shares) 70,000
15% Preference shares 50,000
10% (Bonds irredeemable) 30,000
Total 150,000

The Treasury unit of M&E Ltd has estimated that it will require GH¢ 10 million to finance the new project. The total amount would be raised through 10% Irredeemable bonds at the current market price. The cost of Preference shares and Bonds will not change, but equity shareholders will demand an increase of 20% on the current cost of equity.

M&E Ltd has a beta of 0.8, the market risk premium for the steel industry is 6.25%, and the Government of Ghana Bond rate is 20%. The current market price for Irredeemable Bonds of GH¢1,000 nominal value is GH¢850.

M&E Ltd’s dividend policy is to pay constant dividends, and this policy will not change in the foreseeable future. The recent dividend paid was GH¢20 per share. M&E Ltd is a Free Zones Company and therefore pays tax at a rate of 8%.

Required:

i) Calculate the current market capitalization of M&E Ltd. (5 marks)

ii) Calculate the Weighted Average Cost of Capital (WACC) prior to the consideration of the finance for the proposed project. (9 marks)

(Total: 14 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – MAY 2019 – L2 – Q2a – Capital structure"

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@nbcinstitute.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan