EXCEL PROFESSIONAL INSTITUTE

WEEKLY ASSIGNMENT

WEEK 14

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1.2 QUANTITATIVE TOOLS IN BUSINESS

ASSIGNMENT SET 12

NO ASSIGNMENT
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1.3 BUSINESS AND CORPORATE LAW

ASSIGNMENT SET 12

Question One

a)What are the legal principles underlying profit sharing in partnership per Act 152, 1962?

b) Addae has built a forty room hostel to serve a university community at Prampram in the
Greater Accra region of Ghana. The hostel is estimated to be 97% work-in-progress.
Addae who has run out of cash resources approached his friend Baah for some additional
financial resources to enable him complete the hostel building. Baah introduces Addae to NIB
Bank credit officer who travelled to Prampram to inspect the building and immediately agree to
advance a GH¢200,000 credit facility to enable Addae complete the building. To enable him
qualify for the loan, Addae has to register his building as a business entity and he opted for
partnership with his friend Baah. He becomes A&B Partnership business entity and opens
account with NIB bank in that business name.

The valuation report on the hostel prior to the approval for the loan, put the value at
GH¢500,000. Baah actually paid the GH¢1,500 to the valuation officer for the preparation of the
valuation report. That is his only financial contribution.
The loan amount with interest was paid from the rent income from the business and by the end of
the third year; Addae has repaid the entire loan to the Bank.
At the end of the fourth year he realizes a profit of GH¢68,000 from the business.
He is wondering how much of this profit should be given to Baah.
Addae has come to seek your professional advice on what to do in the light of the Partnership
law. Act 152, 1962.

Question Two

a) Does every employee have the right not to be unfairly dismissed? (10 marks)

b) Discuss five reasons which if one is established against the employee by the employer, may
make the dismissal fair.

QUESTION THREE
What are the reasons for which the courts are prepared to lift or pierce the ‘veil of incorporation’
of a limited liability company.
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2.1 FINANCIAL REPORTING

ASSIGNMENT SET 12

QUESTION ONE

Obeng, Ofori & Co. a firm of Chartered Accountants agreed to admit a new partner with effect
from 1st July 2013. The current partners of the firm and their Profit or Loss sharing ratios are as
follows:
Obeng - 3
Ofori - 3
Oko – 1
The new partner, Akoele has been offered one-eighth share of profits while the old partners
maintain their old profit sharing ratio. The partners do not receive interest on capital neither do
they receive salaries.
The following Assets of the firm are to be revalued as follows, following the admission of
Akoele:
GH¢
Land and Building 220,000
Fixtures and Fittings 80,000
Motor Vehicles 33,000
Investments 50,000
Trade and Other Receivables 60,000
Akoele is to introduce GH¢60,000 into the firm. The other partners are to introduce cash to make
up for any deficiencies in their Capital Accounts after adjusting for goodwill.
It was agreed that goodwill would be valued at the sum of three years’ purchase of profits
immediately preceding the date of admission.
The Profits for the previous five years are as follows:
GH¢
Year to 30/6/2008 12,000
Year to 30/6/2009 14,500
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Year to 30/6/2010 15,500

Year to 30/6/2011 18,000
Year to 30/6/2012 22,500
The Statement of Financial Position of the firm as at 30th June, 2012 is as follows:

Non-current Assets: GH¢ GH¢

Land & Building 165,000
Fixtures & Fittings 82,000
Motor Vehicles 44,000
291,000
Investments 24,000
315,000
Current Assets:
Work in progress 50,000
Trade and Other Receivables 65,000
Bank 50,000
Cash 5,000 170,000
485,000
Capital Accounts:
Obeng 140,000
Ofori 135,000
Oko 75,000 350,000
Current Accounts:
Obeng 25,000
Ofori (20,000)
Oko 10,000 15,000
Current Liabilities:
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Trade & Other Payables 120,000

485,000
Required:

(a) Calculate the value of goodwill as at 1st July, 2013. (2 marks)

(b) Prepare the Revaluation Account. (3 marks)

(c) Prepare a Statement of Financial Position as at 1st July, 2013. (6 marks)

(d) Prepare the Partners’ Capital and Current Accounts in Columnar form. (4 marks)
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MANAGEMENT ACCOUNTING

ASSIGNMENT SET 12

NO ASSIGNMENT
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FINANCIAL MANAGEMENT
ASSIGNMENT SET 12
QUESTION ONE

1.You have been appointed as the Finance Manager of Jaja Ltd and the expectation of the board
is for you to provide education and working solution to their foreign exchange losses problem
which your predecessor had no clue.
Your first task was to provide basic knowledge to the board on foreign exchange losses.
How will you explain the following?

i) Foreign Exchange Risk (2 marks)

ii) Transaction Risk (2 marks)
iii) Translation Risk (2 marks)
iv) Economic Risk (2 marks)

2. Brothers Limited enters into a forward rate agreement (FRA) with Bank of Frica in which
Brothers Limited will receive a fixed rate of 8% for nine (9) months on a loan of GH¢1million.
Bank of Frica agrees to receive a nine (9) months LIBOR rate to be determined in nine (9)
months’ time on the loan principal.
Required:
Determine the results of the FRA and the effective loan rate if the spot rate for the LIBOR in
nine (9) months is:
i) 5%
ii) 10% (6 marks)

3. Differentiate between currency futures and currency option.

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2.5. PUBLIC SECTOR ACCOUNTING

ASSIGNMENT SET 12

Below is the Trial Balance of the Consolidated Fund for the year ended 31 December, 2014.
Debit Credit
GH¢'million GH¢'million
Established post salaries 6,762
Non-establish post salaries 2,008
Casual labour cost 234
Administration cost 3,352
Conferences and seminars 1,255
Foreign travel cost 745
Direct taxes 6,941
Indirect taxes 7,716
Non tax revenues 1,156
Grants 825 1,258
Subsidies for consumption 641
Subsidies for production 361
Social benefits 38
Domestic debt interest 1,453
External debt interest 1,741
Purchase of motor vehicle 247
Purchase of equipment 42
Purchase of ship 367
Construction of infrastructure 560
Equity and security investment 560
Loans and advances 980
Cash and bank 67
Gold and other reserves 860
Treasury bills 11,120
Bonds on GSE 13,462
Euro bonds 7,456
Bilateral and multilateral debt 17,422
Trust fund and deposits 2,235
Other expenditures 910
Accumulated fund 44,758 -
68,766 68,766
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2.6 CORPORATE STRATEGY, ETHICS AND GOVERNANCE

ASSIGNMENT SET 12

1. RAABOAD LTD
Raaboad Ltd was established 30 years ago in Accra, Ghana. Its founder was a retired Marketing
Manager of a leading distribution company who decided to use his expertise to build a company that
would manufacture and distribute concrete products for the construction industry.
The company became a leader in the supply of roofing tiles and pavement blocks. Ten years ago,
Raaboad Ltd, added the production of concrete slabs and kerbs to its business portfolio. The
company has been successful in its operations because it relies on competent and dedicated
workforce.
The company has a head office and ten distribution depots across the country. It has a total
workforce of 300. The company provides haulage services to its customers who buy in bulk.
However, in recent times the management of the company has had difficulties controlling the haulage
aspect of the business and is contemplating to outsource the service.
Competition in the industry is becoming more intense as new entrants both foreign and local are
coming in with competitive prices and modern technology. The company has to act fast in order to
reposition itself as a leader in the industry.
The Managing Director and his team have decided to prepare a plan for the next five years to
address the challenges facing the company. At a meeting to discuss the first draft plan, the following
estimates were made:
(a) Sales in the current year (2013) should reach GHC10,000,000 and forecasts for the next five
years are GHC10,600,000; GHC11,400,000; GHC12,400,000; GHC13,600,000 and
GHC15,000,000.
(b) The ratio of net profit after tax to sales is 10%, and this is expected to continue throughout the
planning period.
(c) Total assets less current liabilities will remain around 125% of sales.
It was also suggested that
(i) If profits rise, dividends should rise by at least the same percentage
(ii) An earnings retention rate of 50% should be maintained.
(iii) The ratio of long term borrowing to long term funds (debt plus equity) is limited by the market
to 30%, which happens also to be the current gearing level of the company.
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The proposals have been referred to a team of which you are part to prepare the financial plan for the
consideration of management.

Required:
(a) (i) Draft a financial plan for the period 2013 – 2018 for Raaboad Ltd. (12 marks)
(ii) Comment on the plan and make recommendations for attention. (6 marks)

2. BIG DREAMS CONTEMPLATES NEW STRATEGIC MOVES

Background

Big Dreams Limited was established in Ghana in October 2005 to process fresh fruits into soft drinks for
sale in the domestic and foreign markets. To guarantee the supply of its main raw materials, the company
has established a large processing plant in the Central Region close to a cluster of pineapple farms
owned by individuals. The only product of the company is currently sold in 100 ml polythene sachets
mainly to children in basic schools.

Objectives

Big Dreams has one long-term objective to export its products to Europe. This will enable it to earn
foreign currency which could be used to import equipment and other components for expansion. Some of
its short term objectives are: to increase market share and to make the highest possible profit.

Strategic Options and Choice

There are large tracts of arable land for farming and a number of farmers have offered to sell their farms
because purchases are not guaranteed. Despite these alternatives, the company’s management believes
that it is cheaper and more convenient to buy pineapples from the farmers.

Strategy Implementation and Challenges

The company has outsourced the distribution of its products to another company – JCA Ltd. Despite the
frequent breakdown of the trucks of JCA Ltd and increases in their charges, the Chief Executive Officer
(CEO) of Big dreams is still convinced that the company is the best to do the distribution of the products.
JCA Ltd is owned by the son of the CEO of Big Dreams Ltd.

The company has other challenges. The supplies from the farmers are unreliable and inadequate
compared to the high demand for the product. The result is a frequent shortage of the raw materials and
interruptions in the production process. Some members of management have suggested that Big dreams
Ltd should establish its own plantation as a permanent solution to this problem. However, the Finance
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Manager who holds Higher National Diploma in Accountancy has warned that it would be wrong for the
company to get directly involved in farming because this would be in conflict with its mission. He has
proposed that instead, the company should focus on its core business – processing and distribution of the
product. He argued that this explains his reason for purchasing packaging materials to last for 10 years
and using some money to support the distribution company.

New Strategy

The company is considering introducing another brand of fruit drinks targeted at students in tertiary
institutions. Based on feasibility studies the Financial Controller has provided data on two options.

Option 1

To spend GHS5,000 on an equipment that will produce excess of income over cash expenditure of
GHS3,000 and GHS4,000 in the first and second year respectively.

Option 2

To spend GHS28,000 on an equipment which will earn GHS6,500 in the first year, GHS7,500 in the
second, GHS8,500 in the third, GHS9,500 in the fourth and GHS10,500 in the fifth.

The company would not invest in any project unless it offers a return of 15% per annum.

(a) You are required to evaluate the two options of introducing the new product and advise Big Dream
Ltd. (12 marks)

(b) Identify and explain two (2) weak corporate governance practices at Big Dreams Limited. (4 marks)
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3.1 CORPORATE REPORTING

ASSIGNMENT SET 12

The consolidated statement of financial position of SCANAS Ltd Group as at 31 December 2014
and the comparative for 2013 are shown below:
2014 2013
GH¢’000 GH¢’000
Assets
Non-current assets:
Property, plant and equipment 16,800 15,600
Goodwill 2,900 2,400
Investment in associate 8,000 7,800
27,700 25,800
Current assets:
Inventories 11,600 12,000
Account Receivables 9,400 8,200
Held for trading investment 2,200 1,800
Cash and cash equivalent 1,400 4,100
Total assets 52,300 51,900
Equity and Liabilities
Equity attributable to owners of the parent:
Ordinary shares (issued at GH¢1.00) 14,800 10,000
Capital surplus 400 400
Retained earnings 7,300 6,300
Non-controlling interest 6,500 6,100
Total equity 29,000 22,800
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Non-current liabilities:
Long term loans 14,000 18,000
Current liabilities:
Account Payables 8,700 10,200
Income tax 600 900
Total equity and liabilities 52,300 51,900
The consolidated income statement for SCANAS Ltd for the year ended 31 December 2014 is
shown below:
GH¢’000
Revenue 12,000
Cost of sales (8,400)
Gross profit 3,600
Distribution costs (400)
Administrative expenses (1,260)
Finance costs (450)
Share of profit of associate 500
Profit before tax 1,990
Income tax (600)
Profit for the year 1,390
Attributable to:
Owners of the parent 1,200
Non-controlling interest 190
1,390
Additional information:
(i) There were no disposals of property, plant and equipment in the year. Depreciation charged in
arriving at profits totaled GH¢1,800,000.
(ii) SCANAS Ltd acquired 90% of the ordinary shares of AT Ltd on 1 September 2014 for a cash
consideration of GH¢460,000 plus the issue of 1 million ordinary share of SCANAS which had a
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deemed value of GH¢3.60 per share at the date of acquisition. The fair values of the net assets
acquired were as follows:
GH¢’000
Property, plant and equipment 800
Inventories 2,200
Receivables 700
Cash and cash equivalents 200
Payables (500)
3,400
SCANAS Ltd made no other purchases or sales of investments in the year. The group policy is to
value the net assets.
(iii)Finance costs include interest on loans and any gains on held for trading investments. All
interest due was paid in the year.

Required:
Prepare the consolidated statement of cash flows for SCANAS Ltd for the year ended 31
December 2014
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3.2 ADVANCED AUDIT AND ASSURANCE

ASSIGNMENT SET 12

NO ASSIGNMENT
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3.3 ADVANCED FINANCIAL MANAGEMENT

ASSIGNMENT SET 12
Question One
You are the Finance Manager of a growing clothing company, Two-Pack Fashion Ltd (Two-
Pack). Two-Pack has enjoyed significant growth in recent years using an internal growth
strategy. Two-Pack is now seeking to acquire other companies to speed up its growth drive. It
has identified Anas-Expo Clothing Ltd (Anas-Expo) as a suitable candidate for takeover. Both
companies have the same level of risk.
Anas-Expo produces high quality handmade clothes, with which it has earned several awards.
The company has recorded considerable profits in the past, but its output has dwindled over the
past two years due to increasing labour costs. Labour unions have pressured policy makers into
amending labour regulations, particularly those relating to pension and minimum wage, to
provide more benefits and protection for workers. Directors of Two-Pack believe that production
and profitability of Anas-Expo will be enhanced if its production process is mechanised.
Below are summarised financial data for the two companies immediately before acquisition:

Two-Pack has 40 million shares and a P/E ratio of 18 while Anas-Expo has 25 million shares and
P/E ratio of 12. Directors of Two-Pack have decided that Two-Pack takes up all the equity shares
in Anas-Expo by offering to its shareholders one new share for every one share they hold. They
have also decided that Two-Pack mechanises Anas-Expo’s production process immediately at
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the cost of GHS18 million, and thus replace work currently done by hand. It is estimated that
operational efficiency that would arise from the acquisition and integration of the two companies
would rake in after-tax benefits of GHS25 million every year to perpetuity.
The cost of capital of Two-Pack is 25%.

Required:
(a) Evaluate the acquisition proposal, and recommend whether the acquisition should go ahead.

(b) Analyse the effect of the acquisition on the earnings per share of Two-Pack following the
successful acquisition of Anas-Expo.

(c) Analyse the effect of the acquisition on the wealth of the shareholders of each company.

(d) Advise the directors of Two-Pack on three likely sources of conflict in relation to the
acquisition of Anas-Expo and mechanization of its production process, and suggest ways through
which the conflict could be avoided or resolved.

Question Two
Plainview Farms Limited is considering acquiring Cottage Industries Limited. The extracts of the
financial statement of the two companies is as follows:
Statement of Financial Position

The two companies retain the same proportion of profits each year and this is expected to
continue into the future. Plainview Farms Limited return on investment is 16%, while that of
Cottage Industries Limited is 21%. One year after the post-acquisition period, Plainview Farms
will retain 60% of its earnings and expects to earn a return of 20% on new investment.
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The dividends of both companies have been paid. The required rate of return of ordinary
shareholders of Plainview Farms Limited is 12% and Cottage Industries Limited 18%. After the
acquisition, the required rate of return will become 16%.

Required:
a) If the acquisition is to proceed immediately, calculate the;
i) Pre-acquisition market values of both companies.
ii) Maximum price Plainview Farms Limited will pay for Cottage Industries Limited.
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3.4 TAXATION AND FISCAL POLICY

ASSIGNMENT SET 12
QUESTION ONE
a. The oil and gas discovery in Ghana and its subsequent exploration, development and
production has raised the hopes of the people of Ghana on the basis that revenue to the
Government is going to increase. Analysts, on the other hand have raised concerns as
regards the management of the expected revenues from the oil and gas sector.
You have been asked to present a paper at a Seminar on Oil and Gas discussing the
expected revenue inflows to the government from the oil and gas sector.
Required:
Identify and explain the expected revenue inflows from the oil and gas sector in Ghana.
b. You have been appointed as a Tax consultant in a firm in Nsuta Tamso, Tarkwa. A client
approached you one month after your appointment, and asked for your advice with their
business records and Value Added Tax and National Health Insurance Levy (VAT/NHIL)
returns.
i) One of their customers to whom they sold goods on credit worth GH¢12,500 inclusive of
VAT has gone officially bankrupt. The company had paid the VAT on the transaction
three months ago.
ii) In March 2017, the client in order to boost sales started selling to customers on 12
months equal instalments payment with some small interest. He is confused as to how to
determine the amount of the VAT/NHIL and when he should pay the VAT/NHIL.
iii) The company sold good worth GH¢17,000 in March 2017, on a sale-or return basis, but
the company is not clear as to when to account for the VAT/NHIL on the sale and what
happens to the VAT/NHIL paid if the customer returns the good.
iv) The company sold stationery and office equipment worth GH¢30,000 to a Jude Power
Manufacturing Company in Accra. The accountant of Jude Power informed them that
their company is relieved from paying VAT/NHIL, so they will not pay.
v) The company’s accountant is in possession of VAT invoice GHC 3,000 issued by a
restaurant for managing directors’ lunch for the month March, 2017
Required:
a. Advise your client on issues raised in “i-v” concerning VAT/NHIL returns. (10