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- 1 Marks
FA – May 2016 – L1 – SA – Q5 – Financial Statements Preparation
A question about the effect of taking a loan on an entity's financial statements.
Question
Which of the following will be the effect of taking a loan from the bank by an entity?
A. Increase in both liabilities and equity
B. Decrease in assets and increase in liabilities
C. Decrease in both liabilities and equity
D. Increase in both assets and liabilities
E. Increase in assets and decrease in liabilities
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- Tags: Assets, Liabilities, Loan
- Level: Level 1
- Topic: Financial Statements Preparation
- Series: MAY 2016
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- 20 Marks
MI – May 2015 – L1 – SB – Q1 – Budgeting
Prepare a cash budget for a three-month period based on sales, purchases, loan, and other projections.
Question
WHYME LIMITED is engaged in the manufacturing and sales of fast-moving consumer products. The following data are projections for a period of six months:
| Month | Sales (N’000) | Purchases (N’000) | Salaries (N’000) | Staff Salary Deductions (N’000) | Overheads (N’000) |
|---|---|---|---|---|---|
| Jan | 9,600 | 5,400 | 1,650 | 78 | 1,650 |
| Feb | 15,800 | 12,000 | 1,760 | 82 | 1,920 |
| March | 16,000 | 10,000 | 1,760 | 90 | 2,100 |
| April | 17,600 | 11,000 | 1,789 | 89 | 2,400 |
| May | 14,800 | 11,200 | 1,842 | 92 | 1,860 |
| June | 14,200 | 9,800 | 1,800 | 85 | 1,720 |
Other additional information:
- Sales are 25% on cash basis, 55% is collected in the month following sales, and the balance in the third month.
- All purchases are on 30 days credit while 20% of overheads are paid in the same month, with the balance in the following month.
- Net salaries will be paid in the same month, while statutory deductions are remitted on the 10th day of the following month.
- A N10 million loan will be released in March to finance the purchase of a new asset costing N12 million in the same month. The loan will be repaid equally over four months starting from April. (Ignore interest).
- An old asset will be disposed of in April for N1.5 million.
- Cash balance as at the end of February will be N6.5 million, with N2.5 million put into a short-term investment in March at a 2% monthly interest rate, credited at the beginning of the following month.
Required:
Prepare a cash budget for the period of March to May. (Ignore taxation).
(20 Marks)
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- 10 Marks
QT – Nov 2018 – L1 – Q3b – Mathematics of Business Finance
Calculate the maximum loan Kasuli can borrow at 15% interest with monthly payments of GH¢1,400 over 20 years.
Question
Kasuli, a Marketing Executive who could not recover any amount out of his investment, decided to take a mortgage at an interest rate of 15% over a 20-year term. If his income is enough to enable him to pay GH¢1,400 per month, what is the maximum amount he can borrow? (10 marks)
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- Tags: Interest Rate, Loan, Monthly Payments, Mortgage, Present Value
- Level: Level 1
- Topic: Mathematics of Business Finance
- Series: NOV 2018
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- 6 Marks
CR – May 2019 – L3 – Q2a – Financial instruments: Recognition and measurement corporate reporting
The question requires the accounting treatment for the issue of a subsidized loan granted by Chereponi Ltd to a charity, applying IFRS 9 Financial Instruments.
Question
Chereponi Ltd (Chereponi) is a listed manufacturing company. Chereponi granted a loan of GH¢25 million to a homeless charity for the building of a community centre. The loan was granted on 1 January 2018 and is repayable on maturity in four years’ time. Interest, which is subsidized, is to be charged one year in arrears at 4%, but Chereponi assesses that a normal rate for such a loan would have been 8%. Chereponi recorded a financial asset at GH¢25 million and reduced this by the interest received each year.
Required:
In accordance with IFRS 9: Financial Instruments, recommend with justification the required accounting treatment for the issue of the loan to the homeless charity in the financial statements of Chereponi for the year ended 31 December 2018. (6 marks)
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- 12 Marks
AT – July 2023 – L3 – Q1a – International taxation
Analyzing the tax implications of share capital, loan interest, revaluation reserves, and thin capitalization
Question
On 1 January 2022, Frost Ltd based in the United States of America acquired 100% shares in Nzungu Ltd in the Gambia. Also, Nzungu Ltd acquired 60% shares in Gyakye Ltd in Ghana.
Frost Ltd granted a loan equivalent of GH¢100 million to Nzungu Ltd. The loan was subsequently passed on to Gyakye Ltd in Ghana to strengthen its capital structure.
The interest equivalent on the loan from Frost Ltd to Nzungu Ltd was GH¢6,000,000. Gyakye Ltd ended up paying GH¢8,000,000 as interest to Nzungu Ltd. The difference in interest payment was a service charge for the role played in transferring the loan to Ghana by Nzunga.
Gyakye Ltd has the following extracts from its Statement of Financial Position as at 2022:
Required:
Evaluate the tax implications of the following:
- The movement in the Share Capital.
- The loan interest paid.
- The movement in the retained earnings.
- The movement in the revaluation reserves.
- Thin capitalization implications from the above.
Find Related Questions by Tags, levels, etc.
- Tags: Capital structure, Interest, International Taxation, Loan, Thin Capitalization
- Level: Level 3
- Topic: International taxation
- Series: JULY 2023
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- 1 Marks
FA – May 2016 – L1 – SA – Q5 – Financial Statements Preparation
A question about the effect of taking a loan on an entity's financial statements.
Question
Which of the following will be the effect of taking a loan from the bank by an entity?
A. Increase in both liabilities and equity
B. Decrease in assets and increase in liabilities
C. Decrease in both liabilities and equity
D. Increase in both assets and liabilities
E. Increase in assets and decrease in liabilities
Find Related Questions by Tags, levels, etc.
- Tags: Assets, Liabilities, Loan
- Level: Level 1
- Topic: Financial Statements Preparation
- Series: MAY 2016
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- 20 Marks
MI – May 2015 – L1 – SB – Q1 – Budgeting
Prepare a cash budget for a three-month period based on sales, purchases, loan, and other projections.
Question
WHYME LIMITED is engaged in the manufacturing and sales of fast-moving consumer products. The following data are projections for a period of six months:
| Month | Sales (N’000) | Purchases (N’000) | Salaries (N’000) | Staff Salary Deductions (N’000) | Overheads (N’000) |
|---|---|---|---|---|---|
| Jan | 9,600 | 5,400 | 1,650 | 78 | 1,650 |
| Feb | 15,800 | 12,000 | 1,760 | 82 | 1,920 |
| March | 16,000 | 10,000 | 1,760 | 90 | 2,100 |
| April | 17,600 | 11,000 | 1,789 | 89 | 2,400 |
| May | 14,800 | 11,200 | 1,842 | 92 | 1,860 |
| June | 14,200 | 9,800 | 1,800 | 85 | 1,720 |
Other additional information:
- Sales are 25% on cash basis, 55% is collected in the month following sales, and the balance in the third month.
- All purchases are on 30 days credit while 20% of overheads are paid in the same month, with the balance in the following month.
- Net salaries will be paid in the same month, while statutory deductions are remitted on the 10th day of the following month.
- A N10 million loan will be released in March to finance the purchase of a new asset costing N12 million in the same month. The loan will be repaid equally over four months starting from April. (Ignore interest).
- An old asset will be disposed of in April for N1.5 million.
- Cash balance as at the end of February will be N6.5 million, with N2.5 million put into a short-term investment in March at a 2% monthly interest rate, credited at the beginning of the following month.
Required:
Prepare a cash budget for the period of March to May. (Ignore taxation).
(20 Marks)
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- 10 Marks
QT – Nov 2018 – L1 – Q3b – Mathematics of Business Finance
Calculate the maximum loan Kasuli can borrow at 15% interest with monthly payments of GH¢1,400 over 20 years.
Question
Kasuli, a Marketing Executive who could not recover any amount out of his investment, decided to take a mortgage at an interest rate of 15% over a 20-year term. If his income is enough to enable him to pay GH¢1,400 per month, what is the maximum amount he can borrow? (10 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Interest Rate, Loan, Monthly Payments, Mortgage, Present Value
- Level: Level 1
- Topic: Mathematics of Business Finance
- Series: NOV 2018
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- 6 Marks
CR – May 2019 – L3 – Q2a – Financial instruments: Recognition and measurement corporate reporting
The question requires the accounting treatment for the issue of a subsidized loan granted by Chereponi Ltd to a charity, applying IFRS 9 Financial Instruments.
Question
Chereponi Ltd (Chereponi) is a listed manufacturing company. Chereponi granted a loan of GH¢25 million to a homeless charity for the building of a community centre. The loan was granted on 1 January 2018 and is repayable on maturity in four years’ time. Interest, which is subsidized, is to be charged one year in arrears at 4%, but Chereponi assesses that a normal rate for such a loan would have been 8%. Chereponi recorded a financial asset at GH¢25 million and reduced this by the interest received each year.
Required:
In accordance with IFRS 9: Financial Instruments, recommend with justification the required accounting treatment for the issue of the loan to the homeless charity in the financial statements of Chereponi for the year ended 31 December 2018. (6 marks)
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- 12 Marks
AT – July 2023 – L3 – Q1a – International taxation
Analyzing the tax implications of share capital, loan interest, revaluation reserves, and thin capitalization
Question
On 1 January 2022, Frost Ltd based in the United States of America acquired 100% shares in Nzungu Ltd in the Gambia. Also, Nzungu Ltd acquired 60% shares in Gyakye Ltd in Ghana.
Frost Ltd granted a loan equivalent of GH¢100 million to Nzungu Ltd. The loan was subsequently passed on to Gyakye Ltd in Ghana to strengthen its capital structure.
The interest equivalent on the loan from Frost Ltd to Nzungu Ltd was GH¢6,000,000. Gyakye Ltd ended up paying GH¢8,000,000 as interest to Nzungu Ltd. The difference in interest payment was a service charge for the role played in transferring the loan to Ghana by Nzunga.
Gyakye Ltd has the following extracts from its Statement of Financial Position as at 2022:
Required:
Evaluate the tax implications of the following:
- The movement in the Share Capital.
- The loan interest paid.
- The movement in the retained earnings.
- The movement in the revaluation reserves.
- Thin capitalization implications from the above.
Find Related Questions by Tags, levels, etc.
- Tags: Capital structure, Interest, International Taxation, Loan, Thin Capitalization
- Level: Level 3
- Topic: International taxation
- Series: JULY 2023
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