QUESTION 1 A) Adom Ltd, is a private company in Ghana operating in the manufacturing sector. Below is a Statement of financial position and a summarized statement of income with comparatives for the year ended 31 December 2019. Statement of Financial Position as at 31 December 2019: 2019 2018 Non-Current Assets CU 250,000 Property, Plant & Equipment Research & Development CU. 200,000 40.000 240.000 250,000 Current Assets Available For Sale Investments Inventory Trade Receivables Cash and Cash equivalents 12.000 70,000 30,000 18,000 130,000 370.000 20,000 45,000 23,000 17.000 105,000 355,000 Equity Equity Share Capital(GH1 per Share) 10%PreferenceShareCapital Retained Earnings 150,000 50,000 60,000 260,000 100,000 50,000 55.000 205,000 Non-Current Liabilities 10% Loan Note 12% Debenture 50,000 5,000 55,000 90,000 3,000 93.000 Current Liabilities Trade & Other Payables Bank Overdraft 30,000 25,000 55,000 370,000 20,000 37.000 57.000 355,000 1 Statement of Financial Position as at 31 December 2019 2019 GH Sales 365.000 Cost of Sales (219.000) Gross profit 146,000 Operating expenses (55.000 Operating profit 91,000 Income Tax Expense (17,000) Finance Cost (9.000) Profit for the period 65,000 2018 GH 219,000 (156,000) 63,000 (4.000) 59,000 (8,000) (6,000) 45,000 Additional Information Industry Ratios Current Ratio: Acid test ratio: Debt to Equity Ratio: Gross Profit Margin: Net Profit Margin: Return on Capital Employed: 2.0 times 1.0 time 50% 32% 20% 22% Required: A) Prepare a report and address it to the Chief Executive Officer, analysing the financial performance and financial position of Adom Ltd based on the industry ratios above for the years 2018 and 2019. B) IAS 23 "Borrowing Costs" regulates the extent to which entities are allowed to capitalize borrowing costs incurred on money borrowed to finance the acquisition of certain assets. Required: State two (2) conditions to be met for: i) Capitalization of borrowing costs to commence ii) Capitalization of borrowing costs to cease. 5