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a. Recording the substance of transactions, rather than their legal form, is an important principle in financial reporting. The use of off-statement of financial position financing arrangement enables companies to obtain financing without showing debts in their books.
Required:
Describe how the use of off-statement of financial position financing can mislead users of financial statements, making specific reference to THREE user groups and giving examples where recording the legal form of transactions may mislead them. (6 Marks)
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Ozoigbondu Nigeria Limited is a company that is into buying and selling of plastic containers. The company is financed by a capital of ₦15 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively.
The Company has been in trading business for the past six years and has consistently adhered to its corporate policy on sales, purchases, and inventory management.
The company’s policy on sales is to ensure that sales are collected as follows: (i) Cash sales is 40% of the monthly sales. (ii) The balance of the month’s sales is to be collected in the month following sales.
The policy on purchases is in agreement with the supplier’s policy which is to pay for all supplies in the month following. The company’s stock policy is to reserve 30% of the month’s purchases as closing inventory.
The following information is available for the five years 2010 to 2014:
| 2010 | 2011 | 2012 | 2013 | 2014 | |
|---|---|---|---|---|---|
| Monthly Sales | 3,400,000 | 3,600,000 | 4,200,000 | 4,800,000 | 7,200,000 |
| Monthly Purchases | 2,000,000 | 2,400,000 | 2,800,000 | 3,200,000 | 4,800,000 |
| Monthly Salaries | 350,000 | 350,000 | 430,000 | 430,000 | 480,000 |
| Monthly Rent | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 |
| Monthly Cash Expenses | 200,000 | 220,000 | 240,000 | 280,000 | 360,000 |
Additional Information: (i) The company purchased a motor vehicle in July 2013 which was paid for in September 2013. The cost of the motor vehicle was ₦5,000,000.
(ii) Annual depreciation for the motor vehicle is 20%.
(iii) The Cash Balance as at 31st December 2011 was ₦4,000,000.
(iv) The company’s salaries, rent, and expenses were paid in the month they were due.
Required: a. Prepare a Profitability Statement for 2012, 2013, and 2014. (10 Marks)
b. Prepare a Cash Flow Statement for 2012, 2013, and 2014. (7 Marks)
c. Determine and comment on the liquidity ratio (current ratio) for 2014. (2 Marks)
d. Compute the gearing ratio. (1 Mark)
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The summarized comparative financial statements of Odua Plc. for the years ended December 31, 2016, and 2015 are as follows:
Statement of Profit or Loss and Other Comprehensive Income for the Year Ended December 31
| 2016 (N’m) | 2015 (N’m) | |
|---|---|---|
| Revenue | 550 | 400 |
| Cost of Sales | (400) | (200) |
| Gross Profit | 150 | 200 |
| Operating Costs | (72) | (60) |
| Operating Profit | 78 | 140 |
| Investment Income | – | – |
| (Loss)/Gain on Revaluation of Investments | (10) | 20 |
| Finance Costs | (10) | (6) |
| Profit Before Taxation | 58 | 154 |
| Income Tax Expense | (8) | (30) |
| Profit for the Year | 50 | 124 |
| Other Comprehensive Income | ||
| Revaluation Losses on PPE | (90) | – |
| Total Comprehensive Income for the Year | (40) | 124 |
Statement of Financial Position as of December 31
| 2016 (N’m) | 2015 (N’m) | |
|---|---|---|
| Assets | ||
| Non-Current Assets | ||
| Property, Plant, and Equipment | 430 | 490 |
| Investments (Fair Value) | 70 | 80 |
| Total Non-Current Assets | 500 | 570 |
| Current Assets | ||
| Inventory | 80 | 38 |
| Trade Receivables | 104 | 56 |
| Bank | – | 20 |
| Total Current Assets | 184 | 114 |
| Total Assets | 684 | 684 |
| Equity and Liabilities | ||
| Equity | ||
| Equity Shares of N0.50 Each | 240 | 240 |
| Revaluation Reserve | 20 | 110 |
| Retained Earnings | 180 | 130 |
| Total Equity | 440 | 480 |
| Non-Current Liabilities | ||
| Bank Loan | 100 | 100 |
| Current Liabilities | ||
| Trade Payables | 100 | 78 |
| Bank Overdraft | 40 | – |
| Current Tax Payable | 4 | 26 |
| Total Current Liabilities | 144 | 104 |
| Total Equity and Liabilities | 684 | 684 |
Additional Information:
Required:
Evaluate and interpret the following ratios under the headings of profitability, efficiency, short-term liquidity, long-term solvency and stability, and stock market performance for each financial year:
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You are the Chief Accountant of Jolmarg Nigeria Limited. Pepeyoyo Limited is a competitor in the same industry as Jolmarg and has been operating for the past 20 years.
The following is the result of Pepeyoyo Limited for the last three years ended December 31:
| Ratios | 2016 | 2017 | 2018 |
|---|---|---|---|
| Gross profit margin (%) | 34 | 34.4 | 35.4 |
| ROCE (%) | 21.1 | 21.5 | 17.8 |
| Net profit margin (%) | 11.9 | 12.4 | 11.4 |
| Asset turnover (times) | 1.78 | 1.73 | 1.56 |
| Gearing ratio (%) | 15.6 | 24.3 | 23.6 |
| Debt ratio (%) | 18.5 | 32.0 | 30.9 |
| Interest cover (times) | 16.7 | 8.1 | 5.5 |
| Current ratio | 3:1 | 2.8:1 | 2.7:1 |
| Quick ratio | 1.2:1 | 1.1:1 | 1.1:1 |
| Receivable collection period (days) | 46 | 52 | 64 |
| Inventory turnover period (days) | 158 | 171 | 182 |
| Payable payment period (days) | 35 | 42 | 46 |
Required:
a. Write a report to the finance director of Jolmarg Nigeria Limited analyzing the performance (profitability, liquidity, and long-term financial stability) of Pepeyoyo Limited based on the information available.
(10 Marks)
b. Identify FIVE areas which require further investigation, including references to other pieces of information which would complement your analysis of the performance of Pepeyoyo Limited.
(10 Marks)
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Lamido Limited is a courier service company that operates in Nigeria and West Africa.
Initially, Lamido Limited experienced strong growth, but in recent periods the company has been criticised for under-investing in its non-current assets.
Lamido Limited statement of financial position as at December 31:
The following information is also relevant:
You are required to:
a. Calculate the following ratios for the years ended December 31, 2021, and 2022:
i. Operating profit margin
ii. Return on capital employed
iii. Net asset turnover
iv. Current ratio
v. Interest cover
vi. Gearing (Debt/equity)
(6 Marks)
b. Comment on the performance and position of Lamido Limited for the year ended December 31, 2022, and highlight any issues Lamido Limited should consider in the near future. (14 Marks)
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The summarized final accounts of Omosigho Ltd, manufacturer of Aluminum roofing sheets and its accessories, for two years ended December 31, 2013, and 2014 were as follows:
Required:
a. Calculate TWO accounting ratios each that will be of interest to the following stakeholders:
i. Creditors
ii. Management
iii. Shareholders
(15 Marks)
b. Comment briefly on the changes between the ratios arrived at in 2013 and 2014.
(5 Marks)
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The Board of Directors of Owerri PLC is planning to acquire a controlling interest in Warri Health PLC, a vaccine-producing company, to expand the profitability of the group. Both companies are quoted on the Nigerian Stock Exchange (NSE). The Chief Accountant of Owerri PLC has been given the industrial average and the financial statements of Owerri PLC and Warri Health PLC for the year ended December 31, 2020. This was done to enable the Chief Accountant compute the relevant ratios and evaluate the inherent potentials of the acquisition.
The following comparative ratios of Warri Health PLC and Owerri PLC with the industrial average are provided:
You are required to:
a. Compute the cost of sales ratio and earnings yield (EY) for both companies for the year ended December 31, 2020. (2 Marks)
b. Draft a technical report to the Chief Accountant of Owerri PLC, evaluating and advising on the desirability of acquiring a controlling interest in Warri Health PLC. (13 Marks)
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Find Related Questions by Tags, levels, etc.
Shop First Ltd operates supermarket chains across the sixteen (16) regions of Ghana. The firm has been in commercial operation for more than two decades, growing its operations through an effective supply chain and financial management. However, in the last few years, keen competition and worsening general economic performance have steadied the consistent growths experienced over the years, resulting in the entity disposing off part of its operations. Below are the financial statements of Shop First Ltd:
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Find Related Questions by Tags, levels, etc.
a. Recording the substance of transactions, rather than their legal form, is an important principle in financial reporting. The use of off-statement of financial position financing arrangement enables companies to obtain financing without showing debts in their books.
Required:
Describe how the use of off-statement of financial position financing can mislead users of financial statements, making specific reference to THREE user groups and giving examples where recording the legal form of transactions may mislead them. (6 Marks)
Find Related Questions by Tags, levels, etc.
Ozoigbondu Nigeria Limited is a company that is into buying and selling of plastic containers. The company is financed by a capital of ₦15 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively.
The Company has been in trading business for the past six years and has consistently adhered to its corporate policy on sales, purchases, and inventory management.
The company’s policy on sales is to ensure that sales are collected as follows: (i) Cash sales is 40% of the monthly sales. (ii) The balance of the month’s sales is to be collected in the month following sales.
The policy on purchases is in agreement with the supplier’s policy which is to pay for all supplies in the month following. The company’s stock policy is to reserve 30% of the month’s purchases as closing inventory.
The following information is available for the five years 2010 to 2014:
| 2010 | 2011 | 2012 | 2013 | 2014 | |
|---|---|---|---|---|---|
| Monthly Sales | 3,400,000 | 3,600,000 | 4,200,000 | 4,800,000 | 7,200,000 |
| Monthly Purchases | 2,000,000 | 2,400,000 | 2,800,000 | 3,200,000 | 4,800,000 |
| Monthly Salaries | 350,000 | 350,000 | 430,000 | 430,000 | 480,000 |
| Monthly Rent | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 |
| Monthly Cash Expenses | 200,000 | 220,000 | 240,000 | 280,000 | 360,000 |
Additional Information: (i) The company purchased a motor vehicle in July 2013 which was paid for in September 2013. The cost of the motor vehicle was ₦5,000,000.
(ii) Annual depreciation for the motor vehicle is 20%.
(iii) The Cash Balance as at 31st December 2011 was ₦4,000,000.
(iv) The company’s salaries, rent, and expenses were paid in the month they were due.
Required: a. Prepare a Profitability Statement for 2012, 2013, and 2014. (10 Marks)
b. Prepare a Cash Flow Statement for 2012, 2013, and 2014. (7 Marks)
c. Determine and comment on the liquidity ratio (current ratio) for 2014. (2 Marks)
d. Compute the gearing ratio. (1 Mark)
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The summarized comparative financial statements of Odua Plc. for the years ended December 31, 2016, and 2015 are as follows:
Statement of Profit or Loss and Other Comprehensive Income for the Year Ended December 31
| 2016 (N’m) | 2015 (N’m) | |
|---|---|---|
| Revenue | 550 | 400 |
| Cost of Sales | (400) | (200) |
| Gross Profit | 150 | 200 |
| Operating Costs | (72) | (60) |
| Operating Profit | 78 | 140 |
| Investment Income | – | – |
| (Loss)/Gain on Revaluation of Investments | (10) | 20 |
| Finance Costs | (10) | (6) |
| Profit Before Taxation | 58 | 154 |
| Income Tax Expense | (8) | (30) |
| Profit for the Year | 50 | 124 |
| Other Comprehensive Income | ||
| Revaluation Losses on PPE | (90) | – |
| Total Comprehensive Income for the Year | (40) | 124 |
Statement of Financial Position as of December 31
| 2016 (N’m) | 2015 (N’m) | |
|---|---|---|
| Assets | ||
| Non-Current Assets | ||
| Property, Plant, and Equipment | 430 | 490 |
| Investments (Fair Value) | 70 | 80 |
| Total Non-Current Assets | 500 | 570 |
| Current Assets | ||
| Inventory | 80 | 38 |
| Trade Receivables | 104 | 56 |
| Bank | – | 20 |
| Total Current Assets | 184 | 114 |
| Total Assets | 684 | 684 |
| Equity and Liabilities | ||
| Equity | ||
| Equity Shares of N0.50 Each | 240 | 240 |
| Revaluation Reserve | 20 | 110 |
| Retained Earnings | 180 | 130 |
| Total Equity | 440 | 480 |
| Non-Current Liabilities | ||
| Bank Loan | 100 | 100 |
| Current Liabilities | ||
| Trade Payables | 100 | 78 |
| Bank Overdraft | 40 | – |
| Current Tax Payable | 4 | 26 |
| Total Current Liabilities | 144 | 104 |
| Total Equity and Liabilities | 684 | 684 |
Additional Information:
Required:
Evaluate and interpret the following ratios under the headings of profitability, efficiency, short-term liquidity, long-term solvency and stability, and stock market performance for each financial year:
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You are the Chief Accountant of Jolmarg Nigeria Limited. Pepeyoyo Limited is a competitor in the same industry as Jolmarg and has been operating for the past 20 years.
The following is the result of Pepeyoyo Limited for the last three years ended December 31:
| Ratios | 2016 | 2017 | 2018 |
|---|---|---|---|
| Gross profit margin (%) | 34 | 34.4 | 35.4 |
| ROCE (%) | 21.1 | 21.5 | 17.8 |
| Net profit margin (%) | 11.9 | 12.4 | 11.4 |
| Asset turnover (times) | 1.78 | 1.73 | 1.56 |
| Gearing ratio (%) | 15.6 | 24.3 | 23.6 |
| Debt ratio (%) | 18.5 | 32.0 | 30.9 |
| Interest cover (times) | 16.7 | 8.1 | 5.5 |
| Current ratio | 3:1 | 2.8:1 | 2.7:1 |
| Quick ratio | 1.2:1 | 1.1:1 | 1.1:1 |
| Receivable collection period (days) | 46 | 52 | 64 |
| Inventory turnover period (days) | 158 | 171 | 182 |
| Payable payment period (days) | 35 | 42 | 46 |
Required:
a. Write a report to the finance director of Jolmarg Nigeria Limited analyzing the performance (profitability, liquidity, and long-term financial stability) of Pepeyoyo Limited based on the information available.
(10 Marks)
b. Identify FIVE areas which require further investigation, including references to other pieces of information which would complement your analysis of the performance of Pepeyoyo Limited.
(10 Marks)
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Lamido Limited is a courier service company that operates in Nigeria and West Africa.
Initially, Lamido Limited experienced strong growth, but in recent periods the company has been criticised for under-investing in its non-current assets.
Lamido Limited statement of financial position as at December 31:
The following information is also relevant:
You are required to:
a. Calculate the following ratios for the years ended December 31, 2021, and 2022:
i. Operating profit margin
ii. Return on capital employed
iii. Net asset turnover
iv. Current ratio
v. Interest cover
vi. Gearing (Debt/equity)
(6 Marks)
b. Comment on the performance and position of Lamido Limited for the year ended December 31, 2022, and highlight any issues Lamido Limited should consider in the near future. (14 Marks)
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The summarized final accounts of Omosigho Ltd, manufacturer of Aluminum roofing sheets and its accessories, for two years ended December 31, 2013, and 2014 were as follows:
Required:
a. Calculate TWO accounting ratios each that will be of interest to the following stakeholders:
i. Creditors
ii. Management
iii. Shareholders
(15 Marks)
b. Comment briefly on the changes between the ratios arrived at in 2013 and 2014.
(5 Marks)
Find Related Questions by Tags, levels, etc.
The Board of Directors of Owerri PLC is planning to acquire a controlling interest in Warri Health PLC, a vaccine-producing company, to expand the profitability of the group. Both companies are quoted on the Nigerian Stock Exchange (NSE). The Chief Accountant of Owerri PLC has been given the industrial average and the financial statements of Owerri PLC and Warri Health PLC for the year ended December 31, 2020. This was done to enable the Chief Accountant compute the relevant ratios and evaluate the inherent potentials of the acquisition.
The following comparative ratios of Warri Health PLC and Owerri PLC with the industrial average are provided:
You are required to:
a. Compute the cost of sales ratio and earnings yield (EY) for both companies for the year ended December 31, 2020. (2 Marks)
b. Draft a technical report to the Chief Accountant of Owerri PLC, evaluating and advising on the desirability of acquiring a controlling interest in Warri Health PLC. (13 Marks)
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Shop First Ltd operates supermarket chains across the sixteen (16) regions of Ghana. The firm has been in commercial operation for more than two decades, growing its operations through an effective supply chain and financial management. However, in the last few years, keen competition and worsening general economic performance have steadied the consistent growths experienced over the years, resulting in the entity disposing off part of its operations. Below are the financial statements of Shop First Ltd:
Find Related Questions by Tags, levels, etc.
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