Assignment
Question one Analysis and interpretation
Nyame Nsa Womu LTD (NNW) is a public entity that has expanded significantly in recent
years by acquiring established businesses. The following financial statements for two
potential acquisition targets, Aurelia LTD and Loycey LTD, are provided. Both companies
operate in the same industry, and Dukuly LTD believes that their shareholders would be
receptive to a takeover. The indicative price for acquiring 100% of either entity is GH¢12
million.
Statements of Profit or Loss for the year ended 30 September, 2024
Aurelia LTD Loycey LTD
GH¢000 GH¢000
Revenue 25,000 40,000
Cost of Sales (19,000) (32,800)
Gross Profit 6,000 7,200
Distribution and Administrative Expenses (1,250) (2,300)
Finance Costs (250) (900)
Profit Before Tax 4,500 4,000
Income Tax Expense (900) (1,000)
Profit for the Year 3,600 3,000
Statements of Financial Position as at 30 September, 2024
Aurelia LTD Loycey LTD
GH¢000 GH¢000
Non-Current Assets
Property - 3,000
Owned Plant 4,800 2,000
Right-of-Use Asset - 5,300
4,800 10,300
Current Assets
Inventory 1,600 3,400
Trade Receivables 2,100 5,100
Bank 1,100 200
4,800 8,700
Total Assets 9,600 19,000
Equity and Liabilities
Equity
Equity Shares of GH¢1 Each 1,000 2,000
Property Revaluation Surplus - 900
Retained Earnings 1,600 2,700
2,600 5,600
Non-Current Liabilities
Lease Liability - 4,200
5% Loan Notes (31 December 2025) 5,000 -
10% Loan Notes (31 December 2025) - 5,000
5,000 9,200
Current Liabilities
Trade Payables 1,250 2,100
Lease Liability - 1,000
Taxation 750 1,100
2,000 4,200
Total Equity and Liabilities 9,600 19,000
Additional Information:
i) Carrying Amount of Plant:
Aurelia LTD Loycey LTD
(GH¢000) (GH¢000)
Owned Plant – Cost 8,000 10,000
Less: Government Grant (2,000) -
Net Carrying Amount 6,000 10,000
Accumulated Depreciation (1,200) (8,000)
Carrying Amount after Depreciation 4,800 2,000
Carrying Amount of Leased Assets Nil 8,000
ii) The following ratios have been calculated for Aurelia LTD:
Return on Capital Employed (ROCE): 62.5%
Net Asset Turnover: 3.3 times
Gross Profit Margin: 24.0%
Profit Margin (Before Interest and Tax): 19.0%
Current Ratio: 2.4:1
Closing Inventory Holding Period: 31 days
Trade Receivables Collection Period: 31 days
Trade Payables Payment Period: 24 days
Gearing (Debt / (Debt + Equity)): 65.80%
Acid Test Ratio: 1.6:1
Required:
a) Calculate the comparable ratios for Loycey LTD. (All lease liabilities are treated as debt).
(10 marks)
b) Using the above information, assess the relative performance and financial position of
Aurelia LTD and Loycey LTD for the year ended 30 September 2024, in order to assist the
directors of Dukuly LTD in making an acquisition decision. (10 marks)
(Total: 20 marks)
Question Two -Final Accounts
Fahnbulleh LTD (Fahnbulleh) is a well-known company manufacturing thrill rides. During
the current economic climate, Fahnbulleh has experienced some difficulties and unfortunately
has had to close down its Merry Go Round division.
The company’s trial balance at 31 October 2023 is as follows:
GH¢000 GH¢000
Revenue 1,296,000
Cost of sales 546,480
Distribution costs 127,080
Administrative expenses 142,560
Investment income 28,080
Investment property 270,000
Interest paid 17,280
Income tax 10,800
Property, Plant & Equipment carrying value at 1 Nov.2022 1,620,000
Inventories – 31 October 2023 108,000
Trade receivables 135,000
Bank 64,800
Payables 43,200
Deferred tax – 1 November 2022 75,600
8% Loan note 432,000
Ordinary share capital GH¢1 540,000
Retained earnings – 1 November 2022 - 605,520
3,031,200 3,031,200
Additional Information
i) Revenue includes VAT of GH¢72 million.
ii) Included within Property, Plant and Equipment is a building with a carrying value of GH
¢54 million. On 1 November 2022, it was revalued to GH¢72 million. The building had an
estimated life of twenty-five years when it was purchased ten years prior to the revaluation
date, this has not changed as a result of the revaluation. The directors of Fahnbulleh wish to
incorporate this value in the financial statements for the year ended 31 October 2023. All
other Property, Plant and Equipment are to be depreciated at 20% per annum on the reducing
balance basis. All depreciation is to be charged to cost of sales.
iii) On 1 October 2023, Fahnbulleh closed down its Merry Go Round division. The results of
the division from 1 November 2022 to the date of closure are included in the above trial
balance as follows:
GH¢000
Revenue 58,800
Cost of sales 38,700
Distribution costs 12,240
Administrative expenses 11,880
The net assets of the division were sold at a loss of GH¢19.2 million and are currently
included within cost of sales
iv) The investment property owned by Fahnbulleh has risen in value during the year by 5%.
This rise is to be incorporated into the financial statements. Fahnbulleh uses the fair value
model to value investment property in accordance with IAS 40: Investment Property.
v) The provision for income tax for the year ended 31 October 2023 has been estimated at
GH¢140.4 million. For the deferred tax provision, the only temporary differences are
accelerated capital allowances. At 31 October, these were GH¢129.6 million. Income tax is
charged at 25%.
vi) At the year-end 31 October 2023, inventory worth GH¢46 million was damaged. These
could be reconditioned at a cost of GH¢12 million and sold for GH¢52 million.
Required:
Prepare and present a statement of comprehensive income for the year ended 31 October
2023 for Fahnbulleh LTD and a statement of financial position at that date.
Question three
Financial Instrument
(a)Akweley LTD issued GH¢20 million of GH¢100 9% bonds at par on 1 January 2023. The
maturity date of the bonds is 31 December 2026. At that date the bonds are redeemable at par
or convertible to ordinary shares on the basis of 14 ordinary shares for each GH¢100 bond.
The market interest rate for identical bonds with no conversion rights would have been 5.5%
every six months. Coupon interest is paid in two instalments of 4.5% in arrears on 30 June
and 31 December.
The following are cumulative discount factors (which you should use where appropriate):
4.5% 5.5% 9% 11%
3 periods 2.7490 2.6979 2.5313 2.4437
4 periods 3.5875 3.5052 3.2397 3.1024
7 periods 5.8927 5.6830 5.0330 4.7122
8 periods 6.5959 6.3346 5.5348 5.1461
Required:
i) Determine the value of the liability component and the equity component of the bonds at 1
January 2023 (to the nearest GH¢1).
ii) Determine the value of the liability component of the bonds at 31 December 2024 (to the
nearest GH¢1).
Intangible Asset- IAS 38
(b) God is Love LTD, a market leader in the Pharmaceutical industry incurred the following
expenditure during the financial year end December 2023.
GH¢000
Licence to operate in the pharmaceutical industry for 10 years from January 2023------- 200
Costs incurred in setting up a website for a new product.
The website will be set up in 2024 --------------------------------------------------------------- 20
Purchase of 295 personal computers on 1 July 2023 (three-year useful life).
Total cost:
295 PCs (excluding operating system)------------------------------------------------------------- 840
Windows operating system for each unit (licence for 295 PCs)------------------------------ 530
Microsoft Office software for each unit (licence for 295 PCs) --------------------------------- 24
Induction training for new staff ---------------------------------------------------------------------430
The company paid GH¢90,000 to acquire the rights to a popular series of novels from another
entity a few years ago. Since the rights have an endless useful life, they were not amortized.
The novels are still in high demand. As of December 31, 2023, an independent valuer valued
them at GH¢240,000.
The company's policy is to use the revaluation model for its intangible assets where a market
valuation is available and permitted.
Required:
Determine the carrying amount of intangible assets at the end of the year 31 December 2023
(insofar as the information permits). (7 marks)
