Series: DEC 2022

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  • 20 Marks

FR – Dec 2022 – L2 – Q3 – IAS 7 Statement of Cash Flows

Prepare Dompa Ltd.'s statement of cash flows for the year ended 31 December 2021, using the indirect method based on the IAS 7 framework.

Dompa Ltd prepares its financial statements in accordance with IFRSs. Below are the statement of profit or loss for the year ended 31 December 2021 and the statement of financial position as at that date, and the comparative statement of financial position as at 31 December 2020.

Statement of Profit or Loss for the year ended 31 December 2021

Description GH¢’000
Revenue 1,656,000
Cost of sales (745,200)
Gross profit 910,800
Other income 15,000
Admin expenses (409,860)
Distribution costs (136,620)
Profit before interest & tax 379,320
Finance cost (3,232)
Profit before tax 376,088
Tax expense (9,462)
Profit for the year 366,626

Statement of Financial Position as at 31 December

Description 2021 (GH¢’000) 2020 (GH¢’000)
Non-current assets:
Property, Plant & Equipment 33,210 23,260
Investment Property 28,500 28,000
Intangible Assets 124 155
Total Non-Current Assets 61,834 51,415
Current assets:
Inventory 15,700 5,680
Trade Receivables 82,800 10,765
Cash 16,712 152
Bank 304,437 5,950
Total Current Assets 419,649 22,547
Total Assets 481,483 73,962
Equity & Liabilities:
Equity:
Share capital 30,000 25,000
Retained earnings 373,526 11,300
Revaluation surplus 862 1,262
Total Equity 404,388 37,562
Non-current liabilities:
15% bond redeemable in 2024 20,432 20,200
Deferred tax 3,762 2,300
Current liabilities:
Trade & other payables 46,401 7,600
Current tax 6,500 6,300
Total Equity & Liabilities 481,483 73,962

Additional Information:

i) Depreciation expense on tangible non-current assets recognised for the year is GH¢8,804,000.
ii) An impairment review has been undertaken on one of the machines of the company that has a carrying value of GH¢1,500,000, but an estimated recoverable amount at the impairment review date was GH¢745,000.
iii) One of the company’s vehicles was involved in an accident in the year and was written off with a carrying value of GH¢562,000.
iv) The company sold a machine for GH¢850,000 with a carrying value of GH¢689,000.
v) The company also issued a 15% bond in January 2020 at a par value of GH¢20,000 with a tenure of 5 years.
vi) The company realized GH¢400,000 in revaluation surplus through excess depreciation charges.

Required:
Using IAS 7: Statement of Cash Flows, prepare the statement of cash flow for Dompa Ltd for the year ended 31 December 2021.

 

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  • 20 Marks

FR – Dec 2022 – L2 – Q4 – Financial Analysis & Ratios

Analyze and compare Madina Ltd.’s performance using key financial ratios for the years 2020 and 2021, including comparisons with industry standards.

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:

Statement of Profit or Loss for the year ended

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

Statement of Financial Position as at:

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:

  • Return on Equity (%) 23.52
  • Gross Profit Margin (%) 29.57
  • Net Profit Margin (%) 22.16
  • Current Ratio (times) 2.5
  • Acid Test Ratio (times) 1.8
  • Inventory Turnover (days) 20
  • Trade Receivables Collection (days) 68
  • Trade Payables Settlement (days) 32

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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  • 5 Marks

FR – Dec 2022 – L2 – Q5a – Intangible Assets Treatment for Employee Training

Analyze the treatment of employee training costs as an intangible asset under IAS 38.

Damba Ltd spent GH¢400,000 on training courses for its employees, which has resulted in increased efficiency and cost savings. The Assistant Accountant has recognized the training costs as an intangible asset and charged six months’ amortization based on the average time within which the training courses were completed.

Required:
Comment on the Assistant Accountant’s treatment of the aforementioned transaction in Damba Ltd’s financial statements for the year ended March 31, 2022, and advise on how it should be handled under International Financial Reporting Standards.

 

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  • 5 Marks

FR – Dec 2022 – L2 – Q5b – Definition of Liability and Provisions

This question asks candidates to define liabilities and describe circumstances under which provisions should be recognized.

The definition of a liability forms an important element of the International Accounting
Standards Board’s Framework for the Preparation and Presentation of Financial Statements
which, in turn, forms the basis for IAS 37: Provisions, Contingent Liabilities and Contingent
Assets.

Required

Define liability and describe the circumstances under which provisions should be recognized.

 

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  • 5 Marks

FR – Dec 2022 – L2 – Q5c – Calculation of EPS for the Year Ended December 31, 2021

This question requires the calculation of EPS for the year 2021, and restating the EPS for the year 2020 using a rights issue adjustment.

On January 1, 2021, Bayor Ltd had 10 million ordinary shares in issue. On 31 March 2021, the company issued at full market price, 2 million ordinary shares. On 31 August 2021, the company made a rights issue of 1 for 5 at GH¢3. The fair value of the shares on the last day before the rights issue was GH¢3.80. Profit for the current period is GH¢3.5 million. The reported Earnings Per Share (EPS) for the year ended December 31, 2020 was 0.33p.

Required: Calculate the EPS for the year ended December 31, 2021, and the restated EPS for the year ended December 31, 2020.

 

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  • 5 Marks

FR – Dec 2022 – L2 – Q5d – Distinction Between Joint Venture and Joint Operation

This question asks candidates to explain the distinction between joint ventures and joint operations under IFRS 11.

An investor entity can enter into a contractual arrangement with another entity in which unanimous consent of both parties is required in order to take decisions relating to operating and financial policies of the investee. Such an arrangement could either be a joint venture or a joint operation.

Required:
Explain the distinction between joint venture and joint operation under IFRS 11: Joint Arrangements.

 

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  • 5 Marks

SCS – Dec 2022 – L3 – Q8b – Controlling risk

Explanation of ways to embed risk awareness within an organisation.

The risks that TCWL automated systems could be exposed to can be controlled and managed through embedding risk awareness in the culture of the organisation. Creating a culture of risk awareness is the responsibility of the board of directors and senior management of TCWL.

Required:
Explain FOUR (4) ways by which the Board can create and embed risk awareness in the culture of TCWL to ensure that systems risks are controlled effectively. (5 marks)

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  • 5 Marks

SCS – Dec 2022 – L3 – Q8a – Controlling risk

Explanation of risks faced by automated systems and ways to embed risk awareness within an organisation.

TCWL production processes and operations are highly automated, and this may expose the company to major risks with high potential of negative consequences for the business.

Required:
Explain FOUR (4) major risks that TCWL automated systems could suffer. (5 marks)

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  • 10 Marks

SCS – Dec 2022 – L3 – Q7 – Strategy, stakeholders, and mission

Explanation of required corporate disclosures and measures to maximise shareholder engagement in a listed company.

The Ghana Code of Best Practices for Corporate Governance specifies a number of disclosures that should be included in an annual report of a listed company, in addition to those required by law or other regulations. The new CEO has presented a paper to the Board recommending that the company should go public to raise some equity capital to partially finance its expansion plans. The listing of the company would result in an increased number of shareholders.

Required:

a) Explain to the Board SIX (6) statements that must be disclosed in the annual report of TCWL after listing on the Ghana Stock Exchange. (6 marks)
b) The Code of Best Practices recommends measures that aim at maximising attendance and involvement by shareholders in the company. Briefly discuss FOUR (4) of those measures. (4 marks)

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  • 10 Marks

SCS – Dec 2022 – L3 – Q6b – Ethics and social responsibility

Analysis of child labour using deontological and teleological ethical theories.

The Board chairman and the CEO have disagreed on whether the use of child labour by the distributors and continuous supply of the company’s products to the affected distributors is ethically wrong. The two have approached you as an expert in ethics to determine which of the positions is correct.

Required:

Using the two main theories of ethics, deontological theory and teleological theory, determine whether child labour is ethically wrong. (10 marks)

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  • 8 Marks

CR – Dec 2022 – L3 – Q2b – IFRS 16: Leases

Calculate lease liabilities and right-of-use assets for Zigi Plc under IFRS 16 for the years ended 2020 and 2021.

On 1 January 2020, Zigi Plc (Zigi) entered into a 6-year lease of a manufacturing plant with annual lease payments of GH¢5.5 million, starting from 31 December 2020. The lease agreement specified that the lease payments (except yearly baseline payments of GH¢1 million included in the GH¢5.5 million) would increase every two years on the basis of the Consumer Price Index (CPI) for the preceding 24 months. The CPI at the commencement date was 125. Additionally, Zigi is required to pay GH¢500,000 every year once cost savings in that year reach at least GH¢6 million. Zigi’s cost savings achieved with its other assets had been averaging GH¢5.1 million prior to 1 January 2020. The initial direct non-reimbursable cost incurred by Zigi was GH¢350,000.

The rate implicit in the lease, which should have been 12% per annum, was not readily determinable by Zigi. Zigi’s incremental borrowing rate was 14% per annum. At 31 December 2021, the CPI was revised to 138. The actual cost savings achieved by Zigi in the years ended 31 December 2020 and 31 December 2021 were GH¢5.3 million and GH¢6.8 million, respectively.

The cumulative discount factors based on 12% and 14% are provided below:

Years 12% 14%
6 4.11 3.89
5 3.60 3.43
4 3.04 2.91

Required:
In accordance with IFRS 16: Leases, explain how the above lease would affect Zigi’s financial statements for the years ended 31 December 2020 and 2021.
(Total: 8 marks)

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  • 7 Marks

CR – Dec 2022 – L3 – Q2a – IAS 36: Impairment of assets

Calculate impairment loss and revised carrying amounts for Inaki Group in relation to goodwill and other assets.

Inaki Group (Inaki) has held a 90% interest in a subsidiary for over five years and prepares its consolidated financial statements to 31 March each year. The share consideration given for this investment was GH¢3,960 million and fair value increase in respect of non-depreciable land was GH¢200 million (this has not changed since acquisition). Due to the difficulties in determining reliable fair value of the investment in the subsidiary, Inaki measures the non-controlling interests at their proportion of the subsidiary’s net assets. The subsidiary’s net assets (excluding any fair value adjustment and goodwill) at acquisition and current reporting dates are provided below:

Reporting Acquisition
Properties GH¢2,300m GH¢1,800m
Plant & equipment GH¢1,500m GH¢1,400m
Net current assets GH¢680m GH¢600m
Total GH¢4,480m GH¢3,800m

Inaki has determined the recoverable amount of the subsidiary to be GH¢4,140 million at the reporting date. No impairment losses have previously been recognised for the goodwill. Net current assets above are stated below their recoverable amount.

Required:
From the above, determine how much impairment loss (if any) would be recognised by Inaki Group at the current reporting date and indicate the revised carrying amounts (if applicable) of the subsidiary in line with the applicable IFRS.
(Total: 7 marks)

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  • 20 Marks

CR – Dec 2022 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated financial statement for Blackstars Ltd, accounting for business combinations and pensions.

Blackstars Ltd is a very successful SME business operating in a very good commercial location in Accra. The following statements of financial position are as at 30 June 2022:

Blackstars Ltd Meteors Ltd Satellite Ltd
Assets:
Tangible non-current assets GH¢1,024m GH¢352m GH¢224m
Investment in Meteors Ltd GH¢320m – –
Investment in Satellite Ltd GH¢48m – –
Current assets GH¢435m GH¢152m GH¢104m
Total assets GH¢1,827m GH¢504m GH¢328m
Equity and liabilities:
Share capital GH¢760m GH¢208m GH¢184m
Revaluation reserve GH¢72m – –
Retained earnings GH¢312m GH¢168m GH¢75.2m
Total equity GH¢1,144m GH¢376m GH¢259.2m
Non-current liabilities GH¢512m GH¢24m GH¢12.8m
Current liabilities GH¢171m GH¢104m GH¢56m
Total equity and liabilities GH¢1,827m GH¢504m GH¢328m

Additional information:

  1. On 1 July 2019, Blackstars Ltd acquired 10% holding of Meteors Ltd when the fair value of the net assets was GH¢260 million at a purchase consideration of GH¢24 million. On 1 July 2021, Blackstars Ltd further acquired 70% holding in Meteors Ltd when the fair value of the net assets was GH¢368 million at a purchase consideration of GH¢296 million.
  2. The estimated fair value of the initial 10% investment in the shares of Meteors Ltd was GH¢32 million at 30 June 2021.
  3. Blackstars Ltd wishes to use the full fair value method of accounting for the acquisition of Meteors Ltd. At 1 July 2021, the estimated value of the non-controlling interests was GH¢76 million.
  4. The difference between the carrying amount of Meteors Ltd’s net assets and their fair value at the date of acquisition was due to land valued at cost, which on 1 July 2021 had a fair value of GH¢20 million in excess of its carrying value. There has been no subsequent significant change in that value.
  5. On 1 July 2021, Blackstars Ltd acquired 25% holdings in Satellite Ltd when the fair value of the net assets was GH¢160 million for a purchase consideration of GH¢48 million.
  6. On 1 July 2021, the fair value of Satellite Ltd’s land was GH¢12.8 million in excess of its carrying value. There has been no subsequent significant change in that value.
  7. Goodwill arising on acquisition is tested for impairment at each year end. The recoverable amount of goodwill in Meteors Ltd at 30 June 2022 was GH¢24 million. There has been no impairment of the investment in Satellite Ltd.
  8. During the year, the Directors of Blackstars Ltd decided to form a defined benefit pension scheme for its employees. The company contributed cash amounting to GH¢200 million to the scheme but the only accounting entry for this has been to include it in receivables at 30 June 2022. At 30 June 2022, the following details relate to the pension scheme:
GH¢’million
Present value of obligation 253.6
Fair value of plan assets 241.6

Required:
Prepare the consolidated statement of financial position of the Blackstars Ltd group as at 30 June 2022.
(Total: 20 marks)

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  • 10 Marks

BCL – Dec2022 – Q5b – Legal implications relating to companies in difficulty or in crisis

Discuss conditions that disqualify a person from being a liquidator and explain the powers that can be exercised by a liquidator.

Certain classes of persons are prohibited by the Companies Act, 2019 (Act 992) from acting as liquidators.

Required:
i) State FOUR (4) conditions that prohibit a person from being appointed as a liquidator. (4 marks)
ii) Explain FOUR (4) powers that can be exercised by a liquidator. (6 marks)

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  • 10 Marks

BCL – Dec2022 – Q5a – Company directors and other officers

Explain class rights, circumstances for their variation, and advice on the cancellation of special rights.

Kofi Manu set up a company and had a scholarship to pursue his PhD in Australia. He then transferred part of his share to Abena Mansa with special rights in their agreement including rights on new shares, transfer restrictions unless with consent, and the right to appoint a Director if holding is at least 10%. Now Kofi Manu is back and wants to cancel the special rights of Abena Mansa, but Abena Mansa has argued that the special rights she had were class rights that could only be varied with her consent and she was not ready to vary it.

Required:
i) What is meant by class rights? (3 marks)
ii) Under what TWO (2) circumstances can class rights be varied? (4 marks)
iii) Advise Kofi Manu. (3 marks)

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  • 10 Marks

BCL – Dec2022 – Q4b – Alternative forms and constitutions of business organisations

Discuss the requirements for incorporating a company and the implications of unpaid shares.

Lucy Kondomire and Adele Amaney have been engaged in the formation of a private company limited by shares to engage in a curtain business. They are very eager to win a contract to supply the new Parliament House with 3,000 yards of curtains as part of a planned refurbishment of the Chamber of Parliament. They are optimistic of being awarded the contract in view of the President’s campaign to promote locally produced and manufactured goods. They have already proposed the name of the company to be “Nyamenehene Curtains Plaza.” The company is to be registered with 1,000,000 ordinary shares of no-par value and fully subscribed 600,000 and 400,000 shares respectively. In view of this, they have approached you as a Consultant to take over the process of incorporating their company as quickly as possible to enable them to win the contract. They have expressed their desire to pay any fee possible if the process is completed within five days.

Required:
i) State EIGHT (8) requirements for the incorporation of a company to Lucy Kondomire and Adele Amaney. (6 marks)
ii) If it turned out later that Adele Amaney did not pay fully for the shares she subscribed to, and have not been issued with a share certificate, what would be the implication of this occurrence? (4 marks)

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  • 10 Marks

BCL – Dec2022 – Q4a – Employment law, Human Rights

Discuss the rights of an employee dismissed without a disciplinary hearing in the context of natural justice.

Adamu Larbi was an Officer Cadet in the Ghana Prisons Service. His conditions of service included a provision that in cases of misconduct or unsatisfactory service, disciplinary proceedings shall be conducted against him. On 24 July 2022, while Adamu Larbi was at a parade at Wa Prisons, his superintendent gave him a letter of dismissal signed by the Director of Prisons. He claimed that before receiving this letter, he had not been summoned to appear at any disciplinary proceedings to answer any charges preferred against him.

Required:
Explain the rights of Adamu Larbi in the context of TWO (2) principles of natural justice. (10 marks)

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  • 4 Marks

BCL – Dec2022 – Q3c – Accounts and audit

Define and explain the terms "retained earnings" and "unclaimed dividend" in a corporate context.

Explain the following:
i) Retained earnings (2 marks)
ii) Unclaimed dividend (2 marks)

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  • 6 Marks

BCL – Dec2022 – Q3b – Types of capital and the financing of companies

Explain the circumstances under which a company can acquire its own shares.

Required: Identify and explain TWO (2) circumstances in which a company can acquire its own shares. (6 marks)

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  • 10 Marks

BCL – Dec2022 – Q3a – Employment law

Discuss the classification of employment types and the rights and duties of both employers and employees.

Arko Kumi was contracted for the delivery of chippings to Ashville Estates. The contract identified him as an “independent contractor” with agreed wages and expenses. Arko Kumi was to use his own vehicle, yet with a requirement that the vehicle be sprayed in the company colors of Ashville Estates. He was to drive the vehicle himself but under compliance with certain company rules including, the nature of vehicle repairs and maintenance.

Required:
i) Describe the type of employment Arko Kumi is engaged in. (2 marks)
ii) State TWO (2) terms and essential clauses that can be used to differentiate the various types of employment. (2 marks)
iii) Explain TWO (2) rights and duties of both the employer and the employee. (6 marks)

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