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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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Madina Ltd is engaged in the processing of palm fruits to produce palm oil and palm kernel oil. The financial statements of the company for the years ended 31st December 2020 and 2021 are as follows:
| Description | 2021 (GH¢’000) | 2020 (GH¢’000) |
|---|---|---|
| Revenue | 123,817 | 95,620 |
| Cost of sales | (84,940) | (76,240) |
| Net gains from changes in fair value of biological assets | 84 | 754 |
| Gross profit | 38,961 | 20,134 |
| Administrative expenses | (11,727) | (8,494) |
| Other income | 1,267 | 927 |
| Operating profit | 28,501 | 12,567 |
| Finance income | 888 | 508 |
| Profit before income tax | 29,389 | 13,075 |
| Income tax expense | (4,692) | (3,422) |
| Profit for the year | 24,697 | 9,653 |
| Description | 2021 (GH¢’000) | 2020 (GH¢’000) |
|---|---|---|
| Non-current assets | ||
| Property, Plant & Equipment | 57,909 | 49,471 |
| Financial assets | 5,221 | 5,137 |
| Current assets | ||
| Inventories | 8,490 | 9,370 |
| Trade Receivables | 24,663 | 18,304 |
| Cash and cash equivalents | 22,832 | 10,618 |
| Total Assets | 119,115 | 92,900 |
The following ratios have been gathered from the food and processing industry for the year ended 31 December 2021:
Required:
Write a report to the Board of Directors of Madina Ltd, assessing the company’s performance for the year ended 31 December 2021 in relation to the industry and the comparative year.
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You are the Financial Controller of Konka Ltd. Zeus Ltd is a competitor in the same industry, and it has been operating for 20 years. Summaries of Zeus Ltd’s statements of profit or loss and financial position for the previous three years are given below.
Summarised Statement of Profit or Loss For the year ended 31 December
| 2018 | 2019 | 2020 | |
|---|---|---|---|
| Revenue | 840 | 981 | 913 |
| Cost of sales | (554) | (645) | (590) |
| Gross profit | 286 | 336 | 323 |
| Administration and selling expenses | (186) | (214) | (219) |
| Profit before interest and taxes | 100 | 122 | 104 |
| Finance cost | (6) | (15) | (19) |
| Profit before taxation | 94 | 107 | 85 |
| Taxation | (45) | (52) | (45) |
| Profit after taxation | 49 | 55 | 40 |
| Dividends | 24 | 24 | 24 |
Summarised Statement of Financial Position as at 31 December
| 2018 | 2019 | 2020 | |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Intangible assets | 36 | 40 | 48 |
| Tangible assets at net book value | 176 | 206 | 216 |
| Total Non-current assets | 212 | 246 | 264 |
| Current assets | |||
| Inventories | 237 | 303 | 294 |
| Receivables | 105 | 141 | 160 |
| Bank | 52 | 58 | 52 |
| Total Current Assets | 394 | 502 | 506 |
| Total Assets | 606 | 748 | 770 |
| Equity and Liabilities | |||
| Equity | |||
| Stated capital | 100 | 100 | 100 |
| Retained earnings | 299 | 330 | 346 |
| Total Equity | 399 | 430 | 446 |
| Non-current liabilities | |||
| Long-term loans | 74 | 138 | 138 |
| Current liabilities | |||
| Trade payables | 53 | 75 | 75 |
| Other payables | 80 | 105 | 111 |
| Total Current Liabilities | 133 | 180 | 186 |
| Total Equity and Liabilities | 606 | 748 | 770 |
Required:
a) Analyzing the performance and position of Zeus Ltd and showing any calculations in an appendix to this report.
(15 marks)
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Peterpan Nigeria Limited is a holding company with two subsidiaries manufacturing similar products in different regions of the country. These are Peterpan (Eastern) Nigeria Limited and Peterpan (Western) Nigeria Limited. Return on capital employed (ROCE) is used as the group’s performance measure and is also used to determine divisional managers’ bonuses. The results of the two companies and of the holding company for the year ended 31 December, 2018, and the statement of financial position as at that date are as follows:
| Item | Western (₦000) | Eastern (₦000) | Peterpan (₦000) |
|---|---|---|---|
| Revenue | 400,000 | 440,000 | 792,941 |
| Cost of sales | (340,000) | (330,000) | (630,000) |
| Gross profit | 60,000 | 110,000 | 162,941 |
| Administrative costs | (20,000) | (60,000) | (80,000) |
| Interest payable | (20,000) | – | (20,000) |
| Pre-tax profit | 20,000 | 60,000 | 62,941 |
Non-current assets:
| Item | |||
|---|---|---|---|
| Original cost | 2,000,000 | 300,000 | 3,000,000 |
| Accumulated depreciation | (1,180,800) | (320,000) | (2,213,568) |
| Net book value | 819,200 | 120,000 | 786,432 |
| Net current assets | 100,000 | 120,000 | 906,432 |
| Total assets | 919,200 | 906,432 | 1,825,632 |
| Non-current borrowings | 300,000 | – | 300,000 |
| Shareholders’ fund | 619,200 | 786,432 | 1,525,632 |
| Capital employed | 919,200 | 906,432 | 1,825,632 |
Additional Information:
Required:
a. Calculate the return on capital employed (ROCE) ratios for each of the two subsidiaries for the year and analyze these into their secondary ratio components of: i. Pre-Tax Profit % ii. Asset Turnover (3 Marks)
b. i. Calculate Eastern Limited’s gross profit margin on its internal sales and compare this to the gross profit margin on its external sales. (2 Marks)
ii. Discuss the performance of the two subsidiaries excluding the effects of the intra-group transactions. (9 Marks)
c. Explain THREE factors that management should consider when setting the transfer pricing policy. (6 Marks)
(Total 20 Marks)
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Omegboeji Nigeria Limited is a trading company that specialises in buying and selling of bulk oil. The company is financed by a capital base of N24 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively. The company has been in the 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 proceeds are collected as follows:
(i) Cash Sales is 30% of the monthly sales.
(ii) The balance of the month’s sales is to be collected in the month following sales.
The policy on monthly purchases, which is in agreement with the supplier’s policy, is to pay for all supplies in the month following the month of purchase. The general policy of the company is that purchase cost for bulk oil represents 60% of the corresponding annual sales value while its inventory policy is to reserve 30% of the month’s purchases as closing inventory.
The following information is available for the five years 2013 to 2017:
| Year | Monthly Sales (N’000) | Monthly Salaries (N’000) | Monthly Rent (N’000) | Monthly Expenses (N’000) |
|---|---|---|---|---|
| 2013 | 12,000 | 800 | 400 | 350 |
| 2014 | 15,000 | 800 | 400 | 370 |
| 2015 | 16,800 | 960 | 400 | 390 |
| 2016 | 18,000 | 960 | 400 | 390 |
| 2017 | 24,000 | 1,080 | 400 | 380 |
Additional information:
(i) The company will purchase a motor vehicle in July 2016, which will be paid for in two instalments as follows:
(ii)Annual depreciation for the motor vehicle will be 20% on a straight-line basis. Monthly expenses include annual depreciation for the motor vehicle.
(iii) The cash balance as of December 31, 2014, was N2,500,000.
(iv) The company’s salaries, rent, and expenses will be paid in the month during which they are due.
Required:
a. Prepare a cash forecast for 2015, 2016, and 2017, showing the closing cash balance at each year-end. (10 Marks)
b. Prepare a forecast profitability statement for 2015, 2016, and 2017. (7 Marks)
c. Determine and comment on the forecast liquidity ratio (current ratio) for 2017. (3 Marks)
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The following financial statements were extracted from the books of Adebayo Trading Company Plc for the relevant years:
Statement of Profit or Loss and Other Comprehensive Income for the year ended March 31:
| Item | 2018 (N’000) | 2017 (N’000) |
|---|---|---|
| Revenue | 250,000 | 400,000 |
| Cost of sales | (137,500) | (225,000) |
| Gross profit | 112,500 | 175,000 |
| Administrative expenses | (36,050) | (44,500) |
| Distribution expenses | (20,200) | (24,250) |
| Finance cost | (3,125) | (3,125) |
| Profit before tax | 53,125 | 103,125 |
| Taxation expense | (20,000) | (40,000) |
| Profit for the year | 33,125 | 63,125 |
Statement of Financial Position as at March 31:
| Item | 2018 (N’000) | 2017 (N’000) |
|---|---|---|
| Non-current assets: | ||
| At cost | 136,500 | 196,000 |
| Accumulated depreciation | (36,500) | (52,250) |
| Net non-current assets | 100,000 | 143,750 |
| Current assets: | ||
| Inventory | 79,250 | 20,750 |
| Trade receivables | 50,000 | 12,500 |
| Bank balance | 12,000 | 91,750 |
| Total current assets | 141,250 | 125,000 |
| Equity and Liabilities: | ||
| Equity | ||
| Ordinary shares of 50 kobo each | 57,500 | 57,500 |
| Retained earnings | 43,000 | 25,000 |
| Total equity | 100,500 | 82,500 |
| Non-current liabilities: | ||
| 10% Loan notes | 31,250 | 31,250 |
| 12% Redeemable preference shares | – | 5,000 |
| Total non-current liabilities | 31,250 | 36,250 |
| Current liabilities: | ||
| Trade payables | 18,750 | 26,875 |
| Taxation | 60,000 | 40,000 |
| Bank overdraft | 30,750 | 83,125 |
| Total current liabilities | 109,500 | 150,000 |
| Total equity and liabilities | 241,250 | 268,750 |
Additional Information:
(i) Dividend paid to Equity holders: N15,125,000 (2018) and N21,375,000 (2017).
(ii) Drop in market price per share: 36 kobo (2017) to 24 kobo (2018).
(iii) Finance cost relates to interest paid on 10% loan notes.
Required:
(a) Calculate in columnar form, for the two relevant years the following financial ratios:
(b) Comment on the profitability and short-term liquidity of the company based on the ratios calculated.
(4 Marks)
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(b) THREE commonly-used financial objectives of a firm are to maximise shareholders’ wealth, profitability, and growth in earnings per share. However, these three objectives have some limitations hence the saying ‘no financial target on its own is ideal’.
(i) Explain the limitations of these THREE financial objectives of the firm. (6 Marks)
(ii) State and explain THREE ways by which financial performance of a firm might be assessed. (6 Marks)
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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.
Find Related Questions by Tags, levels, etc.
Madina Ltd is engaged in the processing of palm fruits to produce palm oil and palm kernel oil. The financial statements of the company for the years ended 31st December 2020 and 2021 are as follows:
| Description | 2021 (GH¢’000) | 2020 (GH¢’000) |
|---|---|---|
| Revenue | 123,817 | 95,620 |
| Cost of sales | (84,940) | (76,240) |
| Net gains from changes in fair value of biological assets | 84 | 754 |
| Gross profit | 38,961 | 20,134 |
| Administrative expenses | (11,727) | (8,494) |
| Other income | 1,267 | 927 |
| Operating profit | 28,501 | 12,567 |
| Finance income | 888 | 508 |
| Profit before income tax | 29,389 | 13,075 |
| Income tax expense | (4,692) | (3,422) |
| Profit for the year | 24,697 | 9,653 |
| Description | 2021 (GH¢’000) | 2020 (GH¢’000) |
|---|---|---|
| Non-current assets | ||
| Property, Plant & Equipment | 57,909 | 49,471 |
| Financial assets | 5,221 | 5,137 |
| Current assets | ||
| Inventories | 8,490 | 9,370 |
| Trade Receivables | 24,663 | 18,304 |
| Cash and cash equivalents | 22,832 | 10,618 |
| Total Assets | 119,115 | 92,900 |
The following ratios have been gathered from the food and processing industry for the year ended 31 December 2021:
Required:
Write a report to the Board of Directors of Madina Ltd, assessing the company’s performance for the year ended 31 December 2021 in relation to the industry and the comparative year.
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You are the Financial Controller of Konka Ltd. Zeus Ltd is a competitor in the same industry, and it has been operating for 20 years. Summaries of Zeus Ltd’s statements of profit or loss and financial position for the previous three years are given below.
Summarised Statement of Profit or Loss For the year ended 31 December
| 2018 | 2019 | 2020 | |
|---|---|---|---|
| Revenue | 840 | 981 | 913 |
| Cost of sales | (554) | (645) | (590) |
| Gross profit | 286 | 336 | 323 |
| Administration and selling expenses | (186) | (214) | (219) |
| Profit before interest and taxes | 100 | 122 | 104 |
| Finance cost | (6) | (15) | (19) |
| Profit before taxation | 94 | 107 | 85 |
| Taxation | (45) | (52) | (45) |
| Profit after taxation | 49 | 55 | 40 |
| Dividends | 24 | 24 | 24 |
Summarised Statement of Financial Position as at 31 December
| 2018 | 2019 | 2020 | |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Intangible assets | 36 | 40 | 48 |
| Tangible assets at net book value | 176 | 206 | 216 |
| Total Non-current assets | 212 | 246 | 264 |
| Current assets | |||
| Inventories | 237 | 303 | 294 |
| Receivables | 105 | 141 | 160 |
| Bank | 52 | 58 | 52 |
| Total Current Assets | 394 | 502 | 506 |
| Total Assets | 606 | 748 | 770 |
| Equity and Liabilities | |||
| Equity | |||
| Stated capital | 100 | 100 | 100 |
| Retained earnings | 299 | 330 | 346 |
| Total Equity | 399 | 430 | 446 |
| Non-current liabilities | |||
| Long-term loans | 74 | 138 | 138 |
| Current liabilities | |||
| Trade payables | 53 | 75 | 75 |
| Other payables | 80 | 105 | 111 |
| Total Current Liabilities | 133 | 180 | 186 |
| Total Equity and Liabilities | 606 | 748 | 770 |
Required:
a) Analyzing the performance and position of Zeus Ltd and showing any calculations in an appendix to this report.
(15 marks)
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Peterpan Nigeria Limited is a holding company with two subsidiaries manufacturing similar products in different regions of the country. These are Peterpan (Eastern) Nigeria Limited and Peterpan (Western) Nigeria Limited. Return on capital employed (ROCE) is used as the group’s performance measure and is also used to determine divisional managers’ bonuses. The results of the two companies and of the holding company for the year ended 31 December, 2018, and the statement of financial position as at that date are as follows:
| Item | Western (₦000) | Eastern (₦000) | Peterpan (₦000) |
|---|---|---|---|
| Revenue | 400,000 | 440,000 | 792,941 |
| Cost of sales | (340,000) | (330,000) | (630,000) |
| Gross profit | 60,000 | 110,000 | 162,941 |
| Administrative costs | (20,000) | (60,000) | (80,000) |
| Interest payable | (20,000) | – | (20,000) |
| Pre-tax profit | 20,000 | 60,000 | 62,941 |
Non-current assets:
| Item | |||
|---|---|---|---|
| Original cost | 2,000,000 | 300,000 | 3,000,000 |
| Accumulated depreciation | (1,180,800) | (320,000) | (2,213,568) |
| Net book value | 819,200 | 120,000 | 786,432 |
| Net current assets | 100,000 | 120,000 | 906,432 |
| Total assets | 919,200 | 906,432 | 1,825,632 |
| Non-current borrowings | 300,000 | – | 300,000 |
| Shareholders’ fund | 619,200 | 786,432 | 1,525,632 |
| Capital employed | 919,200 | 906,432 | 1,825,632 |
Additional Information:
Required:
a. Calculate the return on capital employed (ROCE) ratios for each of the two subsidiaries for the year and analyze these into their secondary ratio components of: i. Pre-Tax Profit % ii. Asset Turnover (3 Marks)
b. i. Calculate Eastern Limited’s gross profit margin on its internal sales and compare this to the gross profit margin on its external sales. (2 Marks)
ii. Discuss the performance of the two subsidiaries excluding the effects of the intra-group transactions. (9 Marks)
c. Explain THREE factors that management should consider when setting the transfer pricing policy. (6 Marks)
(Total 20 Marks)
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Omegboeji Nigeria Limited is a trading company that specialises in buying and selling of bulk oil. The company is financed by a capital base of N24 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively. The company has been in the 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 proceeds are collected as follows:
(i) Cash Sales is 30% of the monthly sales.
(ii) The balance of the month’s sales is to be collected in the month following sales.
The policy on monthly purchases, which is in agreement with the supplier’s policy, is to pay for all supplies in the month following the month of purchase. The general policy of the company is that purchase cost for bulk oil represents 60% of the corresponding annual sales value while its inventory policy is to reserve 30% of the month’s purchases as closing inventory.
The following information is available for the five years 2013 to 2017:
| Year | Monthly Sales (N’000) | Monthly Salaries (N’000) | Monthly Rent (N’000) | Monthly Expenses (N’000) |
|---|---|---|---|---|
| 2013 | 12,000 | 800 | 400 | 350 |
| 2014 | 15,000 | 800 | 400 | 370 |
| 2015 | 16,800 | 960 | 400 | 390 |
| 2016 | 18,000 | 960 | 400 | 390 |
| 2017 | 24,000 | 1,080 | 400 | 380 |
Additional information:
(i) The company will purchase a motor vehicle in July 2016, which will be paid for in two instalments as follows:
(ii)Annual depreciation for the motor vehicle will be 20% on a straight-line basis. Monthly expenses include annual depreciation for the motor vehicle.
(iii) The cash balance as of December 31, 2014, was N2,500,000.
(iv) The company’s salaries, rent, and expenses will be paid in the month during which they are due.
Required:
a. Prepare a cash forecast for 2015, 2016, and 2017, showing the closing cash balance at each year-end. (10 Marks)
b. Prepare a forecast profitability statement for 2015, 2016, and 2017. (7 Marks)
c. Determine and comment on the forecast liquidity ratio (current ratio) for 2017. (3 Marks)
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The following financial statements were extracted from the books of Adebayo Trading Company Plc for the relevant years:
Statement of Profit or Loss and Other Comprehensive Income for the year ended March 31:
| Item | 2018 (N’000) | 2017 (N’000) |
|---|---|---|
| Revenue | 250,000 | 400,000 |
| Cost of sales | (137,500) | (225,000) |
| Gross profit | 112,500 | 175,000 |
| Administrative expenses | (36,050) | (44,500) |
| Distribution expenses | (20,200) | (24,250) |
| Finance cost | (3,125) | (3,125) |
| Profit before tax | 53,125 | 103,125 |
| Taxation expense | (20,000) | (40,000) |
| Profit for the year | 33,125 | 63,125 |
Statement of Financial Position as at March 31:
| Item | 2018 (N’000) | 2017 (N’000) |
|---|---|---|
| Non-current assets: | ||
| At cost | 136,500 | 196,000 |
| Accumulated depreciation | (36,500) | (52,250) |
| Net non-current assets | 100,000 | 143,750 |
| Current assets: | ||
| Inventory | 79,250 | 20,750 |
| Trade receivables | 50,000 | 12,500 |
| Bank balance | 12,000 | 91,750 |
| Total current assets | 141,250 | 125,000 |
| Equity and Liabilities: | ||
| Equity | ||
| Ordinary shares of 50 kobo each | 57,500 | 57,500 |
| Retained earnings | 43,000 | 25,000 |
| Total equity | 100,500 | 82,500 |
| Non-current liabilities: | ||
| 10% Loan notes | 31,250 | 31,250 |
| 12% Redeemable preference shares | – | 5,000 |
| Total non-current liabilities | 31,250 | 36,250 |
| Current liabilities: | ||
| Trade payables | 18,750 | 26,875 |
| Taxation | 60,000 | 40,000 |
| Bank overdraft | 30,750 | 83,125 |
| Total current liabilities | 109,500 | 150,000 |
| Total equity and liabilities | 241,250 | 268,750 |
Additional Information:
(i) Dividend paid to Equity holders: N15,125,000 (2018) and N21,375,000 (2017).
(ii) Drop in market price per share: 36 kobo (2017) to 24 kobo (2018).
(iii) Finance cost relates to interest paid on 10% loan notes.
Required:
(a) Calculate in columnar form, for the two relevant years the following financial ratios:
(b) Comment on the profitability and short-term liquidity of the company based on the ratios calculated.
(4 Marks)
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(b) THREE commonly-used financial objectives of a firm are to maximise shareholders’ wealth, profitability, and growth in earnings per share. However, these three objectives have some limitations hence the saying ‘no financial target on its own is ideal’.
(i) Explain the limitations of these THREE financial objectives of the firm. (6 Marks)
(ii) State and explain THREE ways by which financial performance of a firm might be assessed. (6 Marks)
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