SE w * Question 2 (a) With reference to the case study above. You are required to calculate for Kofi and Olamide Limited, two ratios of significance to: (1) Management (3 marks) (ii) Creditors. (3 marks) (iii) Shareholders. (3 marks) (iv) Comment on the profitability ratios, liquidity ratios and efficiency ratios calculated between Kofi Limited and Olamide Limited for the period under review. (6 marks) (v) Explain three (3) advantages for using ratio analysis. (3 marks) (vi) Explain two (2) disadvantages associated with the use ratio analysis. (2 marks) (Total marks 20) 4 Question 3: Depreciation is considered as accounting policy and operational expense for the accounting period. The value to be included in the financial statement is calculated based on the decision of the Board. (a) You are required to: (1) Explain the difference between capital expenditure and revenue expenditure, and how each type of expenditure will affect the financial statements of a business. (6 marks) (ii) Explain why it is important to distinguish between capital expenditure and revenue expenditure, and briefly explain the accounting treatment of each type of expenditure. (6 marks) (iii) Under what circumstances will you consider the reducing balance method as the most appropriate method in calculating depreciation? (3 marks) (b) Does depreciation decrease cash in a business? Explain your answer. (5 marks) (Total marks 20) A Case Study of Brother and Olamide Limited You are the Group Chief Accountant of Kofi Limited and Olamide Limited. Kofi Limited is a holding company while Olamide Limited is a subsidiary company registered in Nigeria Kofi Limited is a medium-sized retailer of imported and retailer of hand sanities in Gham. Due to numerous requests from the customers in Nigere for the company's product, Kofi Limited decided to expand its operations to Nigeria to increase sales and make more profits for the shareholders. In 2016 the business registered a new company in Nigeria and named it Olamide Limited. The sok purpose of incorporating Olamide Limited in Nigerian was to boost the company's market share and make more profits for the shareholders. But the frucial performance of Olamide Limited has not been encouraging to the management of the business, and shareholders have complained about the decision to expand into the Nigerian Market. Shareholders have noted with dismay that Olamide Limited has reported continuous bosses for the business for the past two years. The financial statements show that the Nigeria espansion strategy was extremely had and management is blamed for the bad decision to expand into the Nigerian market. Management explained the past performance at the Amul General Meeting and provide forecast to the future performance of the business. At the meeting the management assured the shareholders that measures taken in 2019 going to put an end to the kiss making of Olamide Limited. The Managing Director explained that the losses recorded were temporal and that the future financial performance will be better. Contrary to the promise made to the shareholders, 2019 francial performance was abonat encouraging, because Olamide Limited has recorded a net loss of GH GHE 100,000 for the year ended 31 December, 2019. The Managing Director argued that unless something drastie is done to the figures in the 2019 financial reports for the period under review, the going concem assumption for Olamide Limited has to be revoked. This net loss recorded for 2019 was due to high expenditure on advertisement incurred for that period, while sales fell below the expected target. The Managing Director is concerned about Olamide Limited continuous reporting of losses to the group and called for an emergency meeting to be held to decide on the figures to be included in the 2019 financial statements. At the Board meeting to discuss the figure to be included in the financial statements, the following key managers made some statements for the consideration of the Managing Director Notable among them were reprinted for the consideration of the board. The Group General Manager argued and was quoted here that Figures to be included in the francial statement are always grey and that there are very little absolute figures in the facial statement. A smart manager is able to save the reputation of the business in times of financial difficulties by simply changing accounting policies to boost performance of the business. Just a change of the company's depreciation policy from straight line method to reducing balance method is enough to change the company's net kas to net prol for the business. The Group Operational Manager sided with the comment made to change net kas to net profit using the company's policy and defended his position that "Managers are engaged to maximize profits for the shareholders, therefore, any financial performance that does not show prolt, simply means that management has failed. Therefore, there is the need to adjust the company's policy on depreciation in order to maximire profile for shareholders" The Group Marketing Director contributed to the discussion and said that "He knows of companies that have manipulated their financial statements and the reputations of the managers invoed were enhanced due to better performance recorded by the business. Therefore, to boost the financial performance of Olamide Limited, there is the need to double the company's sales figures and reduce the operating expenses by half to boost met profit of the business. He commented further that the stakeholders will not know that the figures in the financial statements were manipulated unless they are informed about ir As the Group Chief Accountant and a young professional accountant in the making you tried to object to some of the comments made by your colleagues at the meeting. You reiterated the concerns of International Financial Reporting Standards (IFRS) regarding the issues of qualitative characteristics of financial statement at the meeting. Your concems were due to several seminars you attended on IFRS on the conceptual and repulitory framework used to prepare financial statements by businesses. IFRS requires that the financial statements prepared should comply with accounting concepts, assumpties that are commonly referred to as qualitative characteristics Desple your worries, the Managing Director deliberately refused to take your advice into consideratice and prepared the final accounts of Olumide Limited against the ethical and moral considerations that show Kofi Limited Calc 300 Statement of Financial Position as at 31 December, 2019 Clamide Limited GH000 GH000 GOO Asus Noncurent assets Note) Current assets Invey 2000 20 Trade revelables 2,000 10 SO Total Assets 14,400 Equity and lilities Equity Stated capital Gel cach kendar 300 NOO 720 14.00 200 Naturrently Lebenture Current lubilles Bank credit Trades 100 10 Total equity and alities 14.00 3 Statement of Comprehensive Incomes for the year ended 31 December, 2019 Olamide Keli Limited Limited GH000 GH000 Reven TUTO Cost of sales TOS 17.000 Crosspoli 150 3300 Operating per 300 Operating de 3 France on 210 000 Profit 1050 150 ax Profiller 00 Dividend paid for the year 200 Note 1? There were no disposal plant reg the year by ciher company Question As a professional accountant who is concemed about the qualitative characteristics of preparing financial statements (a) You are required to Explain fine (5) qualitative characteristics of IFRS that is used to prepare funcil statements to your colleagues at the meeting Explain the difference between profit and profitability Explain the concept of going comcem and the implication of revocative of going concem assumption when francial statements are prepared (Total marks 20) Question 2 (a) Wah reference to the case study above. You are required to cakulate for Koli and Olamide Limited, two tatis of significance Management (3) Shareholders (3 marks) iv) Comment on the profitability rates, quidity ratios and efficiency ratios calculated between Koti Limited and Olamide Limited for the period under review, () Explain three (1) advantages for using rate analysis (3 marks) (vi) Explain two () disadvantages associated with the use ratio analysis marks) Total marks 20) Question 3: Depreciation is considered as accounting policy and operational expense for the accounting period. The value to be included in the financial statement is calculated based on the decision of the Board. (a) You are required to: (1) Explain the difference between capital expenditure and revenue expenditure, and how each type of expenditure will affect the financial statements of a business. (6 marks) (ii) Explain why it is important to distinguish between capital expenditure and revenue expenditure, and briefly explain the accounting treatment of each type of expenditure. (6 marks) (i) Under what circumstances will you consider the reducing balance method as the most appropriate method in calculating depreciation? (3 marks) (b) Does depreciation decrease cash in a business? Explain your answer. (5 marks) (Total marks 20) SE w * Question 2 (a) With reference to the case study above. You are required to calculate for Kofi and Olamide Limited, two ratios of significance to: (1) Management (3 marks) (ii) Creditors. (3 marks) (iii) Shareholders. (3 marks) (iv) Comment on the profitability ratios, liquidity ratios and efficiency ratios calculated between Kofi Limited and Olamide Limited for the period under review. (6 marks) (v) Explain three (3) advantages for using ratio analysis. (3 marks) (vi) Explain two (2) disadvantages associated with the use ratio analysis. (2 marks) (Total marks 20) 4 Question 3: Depreciation is considered as accounting policy and operational expense for the accounting period. The value to be included in the financial statement is calculated based on the decision of the Board. (a) You are required to: (1) Explain the difference between capital expenditure and revenue expenditure, and how each type of expenditure will affect the financial statements of a business. (6 marks) (ii) Explain why it is important to distinguish between capital expenditure and revenue expenditure, and briefly explain the accounting treatment of each type of expenditure. (6 marks) (iii) Under what circumstances will you consider the reducing balance method as the most appropriate method in calculating depreciation? (3 marks) (b) Does depreciation decrease cash in a business? Explain your answer. (5 marks) (Total marks 20) A Case Study of Brother and Olamide Limited You are the Group Chief Accountant of Kofi Limited and Olamide Limited. Kofi Limited is a holding company while Olamide Limited is a subsidiary company registered in Nigeria Kofi Limited is a medium-sized retailer of imported and retailer of hand sanities in Gham. Due to numerous requests from the customers in Nigere for the company's product, Kofi Limited decided to expand its operations to Nigeria to increase sales and make more profits for the shareholders. In 2016 the business registered a new company in Nigeria and named it Olamide Limited. The sok purpose of incorporating Olamide Limited in Nigerian was to boost the company's market share and make more profits for the shareholders. But the frucial performance of Olamide Limited has not been encouraging to the management of the business, and shareholders have complained about the decision to expand into the Nigerian Market. Shareholders have noted with dismay that Olamide Limited has reported continuous bosses for the business for the past two years. The financial statements show that the Nigeria espansion strategy was extremely had and management is blamed for the bad decision to expand into the Nigerian market. Management explained the past performance at the Amul General Meeting and provide forecast to the future performance of the business. At the meeting the management assured the shareholders that measures taken in 2019 going to put an end to the kiss making of Olamide Limited. The Managing Director explained that the losses recorded were temporal and that the future financial performance will be better. Contrary to the promise made to the shareholders, 2019 francial performance was abonat encouraging, because Olamide Limited has recorded a net loss of GH GHE 100,000 for the year ended 31 December, 2019. The Managing Director argued that unless something drastie is done to the figures in the 2019 financial reports for the period under review, the going concem assumption for Olamide Limited has to be revoked. This net loss recorded for 2019 was due to high expenditure on advertisement incurred for that period, while sales fell below the expected target. The Managing Director is concerned about Olamide Limited continuous reporting of losses to the group and called for an emergency meeting to be held to decide on the figures to be included in the 2019 financial statements. At the Board meeting to discuss the figure to be included in the financial statements, the following key managers made some statements for the consideration of the Managing Director Notable among them were reprinted for the consideration of the board. The Group General Manager argued and was quoted here that Figures to be included in the francial statement are always grey and that there are very little absolute figures in the facial statement. A smart manager is able to save the reputation of the business in times of financial difficulties by simply changing accounting policies to boost performance of the business. Just a change of the company's depreciation policy from straight line method to reducing balance method is enough to change the company's net kas to net prol for the business. The Group Operational Manager sided with the comment made to change net kas to net profit using the company's policy and defended his position that "Managers are engaged to maximize profits for the shareholders, therefore, any financial performance that does not show prolt, simply means that management has failed. Therefore, there is the need to adjust the company's policy on depreciation in order to maximire profile for shareholders" The Group Marketing Director contributed to the discussion and said that "He knows of companies that have manipulated their financial statements and the reputations of the managers invoed were enhanced due to better performance recorded by the business. Therefore, to boost the financial performance of Olamide Limited, there is the need to double the company's sales figures and reduce the operating expenses by half to boost met profit of the business. He commented further that the stakeholders will not know that the figures in the financial statements were manipulated unless they are informed about ir As the Group Chief Accountant and a young professional accountant in the making you tried to object to some of the comments made by your colleagues at the meeting. You reiterated the concerns of International Financial Reporting Standards (IFRS) regarding the issues of qualitative characteristics of financial statement at the meeting. Your concems were due to several seminars you attended on IFRS on the conceptual and repulitory framework used to prepare financial statements by businesses. IFRS requires that the financial statements prepared should comply with accounting concepts, assumpties that are commonly referred to as qualitative characteristics Desple your worries, the Managing Director deliberately refused to take your advice into consideratice and prepared the final accounts of Olumide Limited against the ethical and moral considerations that show Kofi Limited Calc 300 Statement of Financial Position as at 31 December, 2019 Clamide Limited GH000 GH000 GOO Asus Noncurent assets Note) Current assets Invey 2000 20 Trade revelables 2,000 10 SO Total Assets 14,400 Equity and lilities Equity Stated capital Gel cach kendar 300 NOO 720 14.00 200 Naturrently Lebenture Current lubilles Bank credit Trades 100 10 Total equity and alities 14.00 3 Statement of Comprehensive Incomes for the year ended 31 December, 2019 Olamide Keli Limited Limited GH000 GH000 Reven TUTO Cost of sales TOS 17.000 Crosspoli 150 3300 Operating per 300 Operating de 3 France on 210 000 Profit 1050 150 ax Profiller 00 Dividend paid for the year 200 Note 1? There were no disposal plant reg the year by ciher company Question As a professional accountant who is concemed about the qualitative characteristics of preparing financial statements (a) You are required to Explain fine (5) qualitative characteristics of IFRS that is used to prepare funcil statements to your colleagues at the meeting Explain the difference between profit and profitability Explain the concept of going comcem and the implication of revocative of going concem assumption when francial statements are prepared (Total marks 20) Question 2 (a) Wah reference to the case study above. You are required to cakulate for Koli and Olamide Limited, two tatis of significance Management (3) Shareholders (3 marks) iv) Comment on the profitability rates, quidity ratios and efficiency ratios calculated between Koti Limited and Olamide Limited for the period under review, () Explain three (1) advantages for using rate analysis (3 marks) (vi) Explain two () disadvantages associated with the use ratio analysis marks) Total marks 20) Question 3: Depreciation is considered as accounting policy and operational expense for the accounting period. The value to be included in the financial statement is calculated based on the decision of the Board. (a) You are required to: (1) Explain the difference between capital expenditure and revenue expenditure, and how each type of expenditure will affect the financial statements of a business. (6 marks) (ii) Explain why it is important to distinguish between capital expenditure and revenue expenditure, and briefly explain the accounting treatment of each type of expenditure. (6 marks) (i) Under what circumstances will you consider the reducing balance method as the most appropriate method in calculating depreciation? (3 marks) (b) Does depreciation decrease cash in a business? Explain your answer. (5 marks) (Total marks 20)