QUESTION 2

Data Ltd is a listed company in Ghana and operates many super markets in Ghana. During the year 2014, there was speculation in the financial press that the entity was likely to be a takeover target for larger companies in Ghana. A recent newspaper publication has suggested that the directors are unlikely to resist a takeover. The seven member board members are all nearing retirement and all own significant minority shareholdings in the business. You have been approached by a private shareholder in Data Ltd. She is concerned that the directors have conflict of interests and that the financial statements for 2014 may have been manipulated. The income statement and summarized statement of changes in equity of Data together with comparatives for the year ended 31^st December 2014 and a statement of financial position as at that date are given below:

INCOME STATEMENT FOR THE YEAR ENDED 31^ST DECEMBER

	2014 GHm	2013 GHm
Revenue	1,255	1,220
Cost of sales	(1,177)	(1,145)
Gross profit	78	75
Operating expenses	(21)	(29)
Profit from operations	57	46
Finance cost	(10)	(10)
Profit before tax	47	36
Income tax	(14)	(13)
Net profit	33	23

SUMMARISED STATEMENT OF CHANGES IN EQUITY

	2014 GHm	2013 GHm
Opening balance	276	261
Profit for the period	33	23
Dividends	8	8
Closing balance	301	276

STATEMENT OF FINANCIAL POSITION AS AT 31STDECEMBER

	2014 GH	2013 GH
NON-CURRENT ASSETS
PPE	580	575
Goodwill	100	100
	680	675
CURRENT ASSETS
Inventory	47	46
Receivables	12	13
Cash	46	12
	105	71
TOTAL ASSETS	785	746
EQUITY
Share capital	150	150
Retained Earnings	151	126
	301	276
NON-CURRENT LIABILITIES
Interest-bearing borrowing	142	140
Deferred tax	25	21
	167	161
CURRENT LIABILITIES
Trade and other payables	297	273
Short-borrowing	20	36
	317	309
	785	746

The following additional information is relevant:

i) Non-current asset turnover (including both tangible and intangible non-current asset): 1.93

ii) Data Ltds directors have undertaken a reassessment of useful lives of non-current tangible assets during the year. In most cases they estimate that the useful lives have increased and the depreciation charges in 2014 have been adjusted accordingly.

iii) Six new stores have been opened during 2014, bringing the total to 42.

iv) Three key ratios for the supermarket sector (based on the latest available

financial statement of 12 listed entities in the sector) are as follows:

Annual sales per store: GH27.6m

Gross Profit margin: 5.9%

Net profit margin: 3.9%

Required:

Prepare a report and address to the investor, analyzing the performance and position of Data Ltd

based on the financial statements and supplementary information provided above. The report should also include comparisons with key sector ratios, and it should address the investors concerns about the possible manipulation of the 2014 financial statement.