1,720,420 1,720,420 · web viewpeace ltd sold goods to happy ltd at a price of ghc25,000 on 29...

EXCEL PROFESSIONAL INSTITUTE

WEEKLY ASSIGNMENT

WEEK 10

PRINT, WORK AND SUBMIT YOUR ASSIGNMENT AT NEXT LECTURE(Ignore assignment for courses you have not registered)

1.1 FINANCIAL ACCOUNTINGASSIGNMENT SET 7

Results, not excuses


QUESTION ONE

The following information was extracted from the records of Mama Constance, a Petty Trader as at 31st

December, 2014.

Balance as per Bank Statement as at 31st December, 2014 was GH¢10,000 credit.

Cash Book balance was GH¢40,000 credit in the Bank Account column.

The following had been reflected in the Bank Statement but not in the Cash Book.

i. Bank loan interest GH¢2,000ii. Bank Charges GH¢6,000

iii. Dividends from Investment GH¢10,000

iv. Interest from Treasury Bill GH¢4,000In addition, a cheque of GH¢ 20,000 issued to Madam Peace was dishonoured because of insufficient

fund. A cheque of GH¢25,000 from Stephen has not been credited. A cheque of GH¢49,000 issued to

Samuel remained unpresented.

You are required to prepare:

i. An adjusted Cash Book. (2 marks)

ii. Bank Reconciliation Statement as at 31st December, 2014. (6 marks)

QUESTION TWO

The following Trial Balance was extracted from the books of Danfo Enterprise, a second hand bags dealer as at 31st December, 2014.

DRGH¢

CRGH¢

Stock in Trade 120,000

Vehicle (Cost) 150,000

Trade Receivables 80,000

Accumulated Depreciation: Vehicle 30,000

Furniture & Fittings 10,120

Trade Payables 100,000



Drawings 120,000

General Expenses 65,000

Provision for doubtful debt 2,500

Rate & Rent 14,000

Insurance 5,000

Bad Debt 7,000

Discount Received 25,150

Discount Allowed 15,160

Bank Balance 165,240

Wages & Salaries 250,000

Sundry Expenses 6,150

Vehicle Running Expenses 15,650

Furniture & Fittings 50,600

Repairs to the shop 6,500

Purchases 650,120

Sales 1,079,130Capital 473,520

1,720,420 1,720,420 The following additional information are provided:

i. Provision for doubtful debts is to be reduced by 10%. ii. Rate and Rent has been paid in advance by two (2) months. Note that Danfo Enterprise pays GH

¢1,000 each month.

iii. Stock in trade as at 31st December, 2014 GH¢80,150.

iv. A bill of GH¢6,150 for vehicle running was outstanding as at 31st December, 2014. v. The

Enterprise provide depreciation as following.

• Vehicle 20% per annum on straight line bases.

• Furniture and Fittings 20% per annum on straight line basis. You are required to:

i. Prepare Income statement for the year ending 31st December 2014. (8marks)



ii. Prepare Statement of Financial Position as at 31st December 2014. (7 marks)

QUESTION THREE

Ato commenced business several years ago as a sole trader. Ato pays all the sales receipts into the business bank account. He has prepared the following bank account summary for the year ended 31st December 2015.

Bank account summary for the year ended 31st December 2015 GHȼ GHȼ

Cash sales 16,420 Balance b/d 4,820Receipt from customers 200,400 General expenses 20,000Rent received 14,500 Wages 30,180

Payments to suppliers 120,320

Motor vehicles 16,000 Equipment 15,000 Drawings 24,520

Balance c/f 480

231,320 231,320 The following information is also available:

i) The assets and liabilities of the business at the beginning and end of the year were: 1st January 2015 31st December 2015

GHȼ GHȼ Trade receivables 20,100 25,400 Trade payables 16,200 18,320 Inventory at cost 21,000 16,200 General expenses prepaid 1,000 800 Rent received prepaid

600 -

Rent received owing - 1,100 Wages owing 2,100 400 Premises 80,000 80,000 Equipment 25,200 23,800



Motor vehicles

62,500 66,100

ii) Discounts received from suppliers amounted to GHȼ2,500 for the year ended 31st December 2015. iii) Ato allowed his customers discounts of GHȼ3,000 during the year ended 31st December 2015. iv) An allowance of receivables of 3% of receivables is to be created. v) Ato has taken goods at a cost price of GHȼ2,800 for his personal use.

Required:

a) Prepare the Statement of Profit or Loss for Ato for the year ended 31st December 2015. (11 marks)

b) Prepare the Statement of Financial Position for Ato as at 31 December 2015. (9 marks)

(Total: 20 marks)

1.2 BUSINESS AND CORPORATE LAWASSIGNMENT SET 8

QS. With reference to Bill of Exchange Act 1961 (Act 55), outline and briefly explain the provisions relating to the protection of banker and drawer in relation to crossed cheque



1.4 QUANTITATIVE TOOLS IN BUSINESS

ASSIGNMENT SET 8

NO ASSIGNMENT

2.1 FINANCIAL REPORTINGASSIGNMENT 8

Question One

Peace Ltd acquired 450,000 ordinary shares of Happy Ltd on 1st January 2011 for GHC1,540,000. At that date the balance on the retained earnings of Happy Ltd was a credit of GHC140,000 and the balance on the capital surplus was a credit of GHC28,000.

The statement of financial position of Peace Ltd and Happy Ltd at 31 December 2012 is as follows:



Peace LtdGHC000

Happy Ltd GHC000

ASSETS: Non-current Assets: Property, Plant and Equipment Investment in Shares Current Assets: Inventories Trade Receivables Current Account of Happy Ltd Cash and Cash Equivalents Total Assets EQUITY AND LIABITLIES: Equity: Stated Capital Capital Surplus Retained Earnings Non-current Liabilities: Mortgage Loan Current Liabilities Trade Payables Current Account of Peace Ltd

6,7202,7409,460

3603707515

82010,280

5,000200

1,2106,410

3,200

670_____10,280

820-_

820

170230

- 10410

1,230

60040220860

50

27050

1,230

Additional information:

i) The investment in shares in the statement of financial position of Peace Ltd consists of the investment in Happy Ltd (at cost) and investments in Joy Ltd. The investment in Joy constitutes 10% of the Stated Capital of the investee entity.

ii) The fair value of the plant of Happy was GHC200,000 in excess of it carrying amount at 1 st January 2011. This plant is to be depreciated over five years from the acquisition date on a straight-line basis with no residual value. Happy Ltd has not reflected these adjustments in its financial statements.

iii) Peace Ltd sold a plant to Happy Ltd on 1st January 2012 for GHC96,000. The plant had cost GHC100,000 in January 2011 and had a carrying amount of GHC80,000 on 1 January 2012. The plant is to be depreciated over its estimated remaining useful life of four years.

iv) Peace Ltd sold goods to Happy Ltd at a price of GHC25,000 on 29 December 2012 which were not received by Happy Ltd until 3rd January 2013. Peace Ltd calculates selling price at a markup of 25% on cost.



v) A major customer of Happy Ltd with an outstanding balance of GHC20,000 went into receivership just prior to the end of the reporting period. It is unlikely that any part of the outstanding balance will be received. Happy Ltd’s financial accountant has forgotten to adjust for this.

vi) It is the policy of the group to value non-controlling interest at proportionate share of the net assets of the subsidiary.

vii) Peace Ltd undertakes annual review of goodwill impairment. At 31 December 2012, an impairment of GHC400,000 was identified in respect of Happy Ltd.

Required: Prepare the consolidated statement of financial position of Peace Ltd group as at 31 December 2012.

20 marks

Question Two

On 1 January 2012, VM Ltd acquired 18m of the equity shares of GR Ltd in a share exchange in which

VM Ltd issued two new shares for every three shares it acquired in GR Ltd. This gave VM Ltd a holding

of 90%. Additionally, on 31 December 2012, VM Ltd will pay the shareholders of GR Ltd GHS1.76 per

share acquired. VM Ltd’s cost of capital is 10% per annum.

At the date of acquisition, shares in VM Ltd and GR Ltd had market prices of GHS6.50 and GHS2.50

each respectively.

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPTEMBER 2012

VM GR GHS’000 GHS’000

Revenue 129,200 76,000

Cost of sales (102,400) (52,000)



Gross profit 26,800 24,000

Distribution costs (3,200) (3,600)

Administrative expenses (7,600) (4,800)

Investment income 1,000 -

Finance costs (840) -

Profit before tax 16,160 15,600

Income tax expense (5,600) (3,200)

Profit for the year

10,560 12,400

Equity as at 1 October 2011

Stated capital 120,000 30,000

Income surplus 108,000 70,000

The following information is relevant:

(i) At the date of acquisition the fair values of GR Ltd’s assets and liabilities were equal to their

carrying amounts with the exception of two items:

1. An item of plant had a fair value of GHS3.6million above its carrying amount. The remaining

life of the plant at the date of acquisition was three years. Depreciation is charged to cost of

sales.

2. GR Ltd had a contingent liability which VM Ltd estimated to have a fair value of GHS900,000.

This has not changed as at 30 September 2012.

GR Ltd has not incorporated these fair value changes into its financial statements.

(ii) VM’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this

purpose, GR Ltd’s share price at the date can be deemed to be representative of the fair value of the

shares held by the non-controlling interest.

(iii) Sales from VM Ltd to GR Ltd throughout the year ended 30 September 2012 had consistently been

GHS1.6million per month. VM Ltd made a mark-up of 25% on these sales. GR Ltd had

GHS3million of these goods in inventory as at 30 September 2012.



(iv) VM Ltd’s investment income is a dividend received from its investment in a 40% owned associate

which it has held for several years. The underlying earnings for the associate for the year ended 30

September 2012 were GHS4million.

(v) Although GR Ltd has been profitable since its acquisition by VM Ltd, the market for GR Ltd’s

product has been badly hit in recent months and VM Ltd had calculated that the goodwill has been

impaired by GHS4million as at 30 September 2012.

Required:

(a) Calculate the goodwill on acquisition of GR. (5 marks)

(b) Prepare the consolidated statement of profit or loss for VM Ltd for the year ended

30 September 2012. (15 marks)

(Total: 20

marks)

2.2 MANAGEMENT ACCOUNTINGASSIGNMENT SET 8

NO ASSIGNMENT



2.3 AUDIT AND ASSURANCEASSIGNMENT SET 8

Q1

a. What is audit documentation?

b. Outline FIVE objectives of audit documentation

c. Distinguish between current files and permanent files



Q 2 With reference to ISA 500, explain the following:

a. Audit evidenceb. Management Expert

Q3 State and briefly explain the financial statement assertions relating to classes of transactions and events for the period under audit, account balances at the end of the period and presentation and disclosures

2.4 FINANCIAL MANAGEMENTASSIGNMENT SET 8

QUESTION ONE

a. A good working capital policy should facilitate successful achievement of the key short term financing objectives of an organisation. Required Identify the three types of working capital policies of an organisation



b. God is King Ltd has been printing all its magazines from Dubai due to the comparative cost advantage. The company is considering establishing its own printing department, and the R&D team have identified a printing machine which will meet the quality and cost specifications of God is King Ltd. The machine also has the capacity to print to meet the market needs of the company. The machine, which has a useful life of 5 years, will cost GHS800,000 and immediate installation cost will be GHS50,000. Fixed cost for maintaining the machine will be 170,000 per annum over the machines useful life and additional working capital of 30,000 will be introduced in year 2. The use of this machine will generate a contribution of GHS 500,000 per annum for five (5) years. Corporate income tax rate, payable in areas, is 25% and the companies after tax cost of capital is 20%. No capital allowance is permitted.

Required: Calculate the NPV for the project and advise management on whether to accept or reject the project.

QUESTION TWO

a. Dinpa Supermarket is considering acquiring a loan of GH₵300,000 from Abrempong Bank Ltd. The loan is payable in five equal annual instalments at an interest rate of 25%. Dinpa Ltd has consulted you to determine their annual repayment amount and the interest thereon. Required: i. Prepare a repayment schedule for Dinpa indicating clearly the interest payment and the principal repayment

ii. State THREE (3) advantages of a term loan over an overdraft facility

QUESTION THREE

The Gomoa Chemical Limited has a capital budget for 2018 of GH¢1,000,000 The following capital investment proposals are submitted to the capital budget committee.



The company’s cost of capital is 5% Projects 2 and 8 are mutually exclusive: Projects 1 and 5 are mutually dependent

Required: As the chairman of the budget committee, which projects should the committee choose?

2.5. PUBLIC SECTOR ACCOUNTINGASSIGNMENT SET 8

NO ASSIGNMENT



2.6 CORPORATE STRATEGY, ETHICS AND GOVERNANCE

ASSIGNMENT SET 8

a) You have recently been appointed head of corporate affairs of a reputable company that

operates in the upstream sector of the petroleum industry in Ghana. In a recent management

meeting, a disagreement arose among executives regarding the nature of the company’s

philosophy and strategy towards social responsibility. In order to resolve the disagreement, you

have been asked by the company’s board of directors to submit a position paper that will enable

it to formulate an appropriate corporate social responsibility strategy for the company.

Required:

In a brief report to the board, make a clear case for Corporate Social Responsibility (CSR) to

help your company’s board formulate an appropriate CSR strategy.



b) Explain TWO strategies your company could adopt for managing its social responsibility.

c) You recently qualified as a professional accountant and received promotion in your company.

One of your key responsibilities is to prepare management accounts to facilitate management

decision making. You require important sales information from the sales department to

incorporate into the final figures. Unfortunately, due to staff sickness and other inefficiencies, the

sales report for the month has been delayed. Thus, you will not receive the information until few

hours before the accounts are due for presentation to the Chief Finance Officer.

In a related situation, while on lunch break, you overhead the marketing manager asking

another employee in the finance department to advise her on some investment decisions she

has to make. She has recently inherited a considerable sum of money and would like your

colleague to calculate her inheritance tax as well as capital gains tax liabilities.

Required:

Identify the fundamental ethical principle(s) that could be in breach and justify why they may

constitute a breach.

3.1 CORPORATE REPORTINGASSIGNMENT SET 8

NO ASSIGNMENT



3.2 ADVANCED AUDIT AND ASSURANCEASSIGNMENT SET 8

Read on Internal Audit from the ICA manual and set 10 multiple questions.



3.3 ADVANCED FINANCIAL MANAGEMENTASSIGNMENT SET 8

Question OneOne-Village Water Resources Ltd (One-Village) is considering a damming and irrigation project that will supply water to tomato farms around the Oti River. One-Village plans to commence the construction and installation phase of the project immediately and complete it in three years’ time. One-Village will invest GH¢3 million in new plants and equipment now. Mobilisation to the project site will cost GH¢0.5 million now. Development costs are expected to be GH¢3 million in the first year, GH¢4 million in the second year and GH¢2 million in the third year.

The commercial phase of the project will commence in the fourth year and run indefinitely. The project will generate after-tax net cash flows of GH¢6 million in the fourth year and GH¢8 million in the fifth year. Beyond the fifth year, cash flows will grow by 5% every year to perpetuity.

One-Village has 10 million shares outstanding, which are currently trading at GH¢3.5 each. The total value of its debt stock is GH¢20 million. One-Village plans to finance the investment requirements of the construction and installation phase of the project with new debt. Its borrowing cost is 20% while its cost of equity is 25%. Currently, the Government of Ghana is



promoting large-scale farming to provide food and jobs. The Government of Ghana is encouraged by this project, and so is willing to give a subsidised loan of up to GH¢10 million at 15% annual interest to One-Village to help finance the project. One-Village plans to take up the maximum of the subsidised loan from the Government of Ghana and finance the balance with a bank loan. Issue costs, which are tax-deductible outgoings, are expected to be GH¢0.6 million. Both loans will be repaid in five years’ time.

One-Village falls into the 22% corporate income tax category. The risk-free interest rate is 14% and the return on the market portfolio is 18%.

Required:Evaluate the project using the adjusted present value technique and recommend whether it should be implemented or not.

Question TwoABC Manufacturing Ltd (ABC) is an indigenous Ghanaian company that manufactures components used in air conditioners. The company now wants to manufacture air conditioners for sale in Ghana. Though the manufacture of air conditioners will be a completely new business, directors of ABC plan to integrate it into the company’s core business. ABC has premises it considers suitable for the project. This premises was acquired two years ago at the cost of GHS50,000. ABC will acquire and install the needed machinery immediately, so production and sales can commence during the first year. The directors of ABC intends to develop the project for five years and then sell it to a suitable investor for an after-tax consideration of GHS20 million.

The following data are available for the project: 1. The cost of acquiring and installing plant and machinery needed for the project will be GHS5 million at the start of the first year. Tax-allowable depreciation is available on the plant and machinery at the rate of 30% on reducing balance basis.

2. Working capital requirement for each year is equal to 10% of the year’s anticipated sales. ABC has to make working capital available at the beginning of the respective year. It is expected that 40% of working capital will be redeployed to other projects at the end of the fifth year when the project is sold.

3. It is expected that 2,000 units will be manufactured and sold in the first year. Unit sales will grow by 5% each year thereafter.

4. Unit sales price is estimated at GHS2,200 in the first year. Thereafter, the unit sales price is expected to be increased by 10% each year.

5. Unit variable cost will be GHS1,100 per unit in the first year. Unit variable cost is expected to increase by 8% each year after the first year.



6. Fixed overhead costs are estimated at GHS1·5 million in total in each year of production/sale. One-half of the total fixed overhead costs are head office allocated overheads. After the first year of production/sales, fixed overhead costs are expected to increase by 5% per year.

ABC Ltd.’s pays tax at 25% on taxable profits. Tax is payable in the same year the profit is earned. ABC Ltd uses 25% as its discount rate for new projects but the directors feels that this rate may not be appropriate for this new venture. Currently, ABC can borrow at 500 basis points above the five-year Treasury note yield rate. Ghana’s government is enthused by the venture and has offered ABC a subsidized loan of up to 60% of the investment funds required at an interest rate of 200 basis points above the five-year Treasury note yield rate. ABC plans to use debt capital to finance the project by taking advantage of the government’s subsidized loan and raising the balance through a fresh issue of 5-year debentures. Issues costs, which can be assumed to be tax-deductible expenses, will be 5% of the gross proceeds from the debenture offer. The financing strategy for the project is not expected to affect the company’s borrowing capacity in any way.

ABC Ltd will be the first indigenous Ghanaian company to manufacture air conditioners in Ghana. However, it will be competing with XYZ Ltd, a listed company with majority shares held by foreign investors. The cost of equity of XYZ Ltd is estimated to be 20% and it pays tax at 22%. XYZ has 10 million shares in issue that are trading at GHS5.5 each, and bonds with total market value of GHS40 million. The five-year Treasury note yield rate is currently 10% and the return on the market portfolio is 18%.

Required: Evaluate, on financial grounds, whether ABC should implement the project or not.



3.4 TAXATION AND FISCAL POLICYASSIGNMENT SET 8

QUESTION 1

a.



ABC Ltd runs a business with a basis period from January to December each year. The following information is relevant to its business operations for 2018 year of assessment. Chargeable Income from business operations GH¢120,000. The chargeable income was

arrived at after the following adjustments were made:

Financial cost incurred on hedged transactions GH¢450,000.

Financial gain from hedged transactions GH¢ 180,000.

Required:

i) Compute the financial cost to be allowed in 2018 year of assessment. (6 marks)

ii) Advise management on the above results

b. Following the government’s commitment to build one factory in each district in Ghana, an investor from Malaysia intends to invest in Pineapple Processing company to be located at Ekumfi in the Central region of Ghana or start ICT –Hardward in Takoradi in the Western region of Ghana in response to the investment drive of the government.As part of the investment, he intends to incur the following cost and start operation in 2019 on either proposal (Pineapple Processing or ICT hardware)

GHCBuilding 8,000,000Plant and Machinery 13,000,000Toyota Prado 250,000Delivery Vehicles 500,000Furniture and fittings 200,000Computers 300,000

Additionally, he intends to employ 120 locals as employees of the company out of which in each year 30 will be fresh graduate from newly converted technical universities. It is further projected that in the first 3 years that is 2019, 2020 and 2021, it will make (GHC 40,000), (GHC 36,000) and (GHC 20,000).The investor hopes to start making profits from year 2022. He intends to borrow a loan at 20% interest rate from his UK associates amounting to the equivalent of GHC 100,000,000. The equity he intends to start with is GHC 25,000,000.Required:As a tax adviser, evaluate the proposed investment by the Malaysia investor and the tax implication on the various activities highlighted in the scenario.

QUESTION 2



Northey Limited which was established in the year 2010 and located in Takoradi in the Western Region.

The company is required to file its annual returns for the assessment year 2018 and has approached you

for assistance. Below are the relevant details:

Statement of Financial Position (extract) as at 31 December 2018

Liabilities GH₵

Loan from shareholders 1,800,000

Trade creditors 250,000

Other creditors 60,000

Equity

Stated capital 250,000

Income surplus 30,000

Capital surplus 20,000

Statement of Profit and Loss and other Comprehensive Income for the year ending 31st December 2018

GH¢ GH¢

Turnover 2,400,000

Cost of sales (1,850,000)

Gross profit 350,000

Gross Dividend Received 24,000

Finance Gain 5,000

579,000

Less:

Selling and Administrative Expenses:

Salaries & wages 166,000

Electricity & water 23,000

Interest on shareholder loan 120,000

Depreciation 32,500

Finance Cost 152,000

Funeral donations 15,000

Insurance 32,500



Business promotion expense 14,000

Income tax 17,000

Legal fees 5,000

Loss on Assets Disposed 5,000

Repairs & maintenance 16,300

Bad debts 10,000 608,300

Net profit (29,300)

Additional information:

(i) All the shareholders are non-residents:

(ii) Bad debts:

General provision GH₵6,500

Specific provision GH₵ 3,500

(iii) Capital Allowance for the period GH₵75,000.00 after all the necessary adjustment.

(iv) Repairs & Maintenance relates to Class 1and Class 3 pool of assets with their respective written

value at 31st December 2017 as GHC 120,000 GHC 80,000.

(v) Included in the funeral expenses was a donation of GH¢3,500 the Managing Director

made during the final funeral rite of paramount chief of his home town . The remaining

was paid to staff as part of the welfare scheme of the company.

( vi) Northey Ltd supplies a major component of its product from its parent company in South Africa at

a selling price GHC8.50 even though the component is sold to other customers at a market price of GHC

12.50. During 2018 year of assessment 6,000 unit were sold to the parent company in South Africa.

(vii) Legal Fees: Amount of 3,600.00 was spent on court action taken against trade debtors and the rest

of the amount for non-payment of workers Social Security contribution for the year.

vii) Gross dividend received relates to 30% investment made in CDA Ltd.

Required

Compute the tax payable by the company for the assessment year 2018. Support your computation with

relevant explanations.

(20 marks)


1,720,420 1,720,420 · web viewpeace ltd sold goods to happy ltd at a price of ghc25,000 on 29...

Documents