Series: DEC 2022

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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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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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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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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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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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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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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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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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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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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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IMAC – DEC 2022 – L1 – Q4 – Accounting for Inventory and Labour

Explanation of inventory discrepancies, preparation of a FIFO inventory statement, sources of management information, and explanation of an investment center.

 

a) Inventory refers to the goods and materials that a business holds for the ultimate goal of resale, production, or utilization in the near future. Inventory could be in the form of raw materials, finished goods, work in progress, among others.

Required:
Identify FIVE (5) reasons actual inventory counted may be different from the balance in the inventory records. (5 marks)

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IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis

Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.

a) Responsibility Accounting is a system of accounting in which costs are identified with persons who are primarily responsible for making decisions about the costs in question. Responsibility Accounting classifies cost under two main headings.

Required:
Explain the TWO (2) classifications of cost under Responsibility Accounting. (2 marks)

b) Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services. Accountants use the term full cost to mean more than a product’s manufacturing or production costs (including fixed manufacturing overhead).

Required:
Explain FOUR (4) reasons full cost of a product or service may be calculated. (8 marks)

c) Afram Ltd has just introduced a standard marginal costing system to assist in the planning and control of the production activities for its single product, Amino. The system became operational on 1 January 2022. The Functional Director responsible for cost and management accounting had a discussion with the Production Manager, and both have agreed on the following standard cost information to manufacture one unit of product, Amino.

Budgeted cost:

  • Direct materials: 4kg @ GH¢1.75 per kg
  • Direct labour: 2 hours @ GH¢10 per hour
  • Variable overhead: 2 hours @ GH¢8.25 per hour.

Actual Results:
The actual results for January 2022 are as follows:

  • Sales: 22,000 units yielding a total revenue of GH¢1,276,000
  • Production: 23,000 units
  • Direct Materials: 90,000 kgs at a cost of GH¢162,000
  • Direct labour: 48,000 hours at a cost of GH¢576,000
  • Variable overhead: GH¢350,000

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

Required:
Calculate the following variances:
i) Direct Material Price
ii) Direct Material Usage
iii) Direct Labour Rate
iv) Direct Labour Efficiency
v) Variable Overhead Efficiency (10 marks)

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IMAC – DEC 2022 – L1 – Q2 – Budgeting

Preparation of a flexible budget and addressing negative cash balances in a cash budget.

a) A cash budget is an estimation of the cash flows of a business over a specific period of time. This budget is used to assess whether an entity has sufficient cash to continue operating over a given time frame. The cash budget provides a company with insight into its cash needs (and any surplus) and helps to determine an efficient allocation of cash.

Required:
Identify THREE (3) ways a business can address negative monthly cash balances in a cash budget. (6 marks)

b) The following budget report was prepared for the second quarter of 2022.

Budget Actual Variance
Production Level 6,000 units 7,200 units
Revenue and Cost: GH¢ GH¢ GH¢
Sales 120,000 140,600 20,600 F
Direct Material (30,000) (39,600) 9,600 A
Direct Labour (24,000) (25,920) 1,920 A
Variable Overheads (12,000) (21,600) 9,600 A
Semi-Variable Overheads (30,000) (34,600) 4,600 A
Profit 24,000 18,880 5,120 A

The budgeted fixed overhead cost in the semi-variable overhead cost was GH¢12,000.

Required:
Prepare a budget report using the flexible budget for the second quarter of 2022. (14 marks)

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IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

a) Services are the non-physical, intangible parts of the Ghanaian economy, as opposed to goods, which we can touch or handle. Services, such as banking, education, medical treatment, and transportation make up a significant percentage of the economy.

Required: State and explain THREE (3) features of a service. (6 marks)

b) Edwin Ltd manufactures aviation components and parts to order, and the following are budgeted overheads for the year based on normal activity levels:

Department Budgeted overhead Labour hours
Welding GH¢12,000 3,000
Assembly GH¢20,000 2,000

Selling and administration overheads are 25% of factory cost.

An order for 350 units of engine parts, Job X 01, incurred the following cost:

  • Material cost: GH¢24,000
  • Labour:
    • Welding: 200 hours @ GH¢5 per hour
    • Assembly: 400 hours @ GH¢2 per hour
  • GH¢1,000 was paid for the hiring of a special x-ray machine for testing the welds.

Required: i) Calculate the overhead absorption rate for each department. (2 marks)

ii) Calculate the production cost for Job X01. (10 marks)

iii) Calculate the total cost of Job X01. (2 marks)

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