UNIVERSITY OF GHANA

(All rights reserved)

BACHELOR OF SCIENCE ADMINISTRATION 1
FIRST SEMESTER EXAMINATIONS, 2017/2018

DEPARTMENT OF ACCOUNTING
ACCT 401: CORPORATE REPORTING AND ANALYSIS (3 CREDITS)
INSTRUCTIONS: ATTEMPT ALL THE FOUR (4) QUESTIONS
ROUND OFF ALL DECIMALS [IF ANY] TO THE NEAREST CEDI
TIME ALLOWED: THREE (3) HOURS
Question 1 _

On 31S‘ December, 2014 Opana Ltd. paid GHS80,000 to acquire 120,000 ordinary and 5,000
preference shares of Onaapo Ltd (at par). On that date the retained earnings of Opana were
5 GHS100,000 and of Onaapo were GHS8,000, and all the assets and liabilities were shown at
fair values. Neither company has issued any share capital since Opana purchased the shares
in Onaapo.
S‘
The following are the Statement of Financial Position for Opana and Onaapo at 3 l
December, 2016.
Opana Ltd. Onaapo Ltd.
Non-current Assets GHS GHS
Property, Plant and Equipment 876,000 94,000
Investment in Onaapo Ltd. 80,000
956,000 94,000

Current Assets
Inventory 400,000 60,000
Receivables 300,000 20,000
Current Account with Onaapo 100,000 -
Cash 64,000 2,000

5 . .— ;4 wa, ·.;+;= =:;t; im .

 3 * 864,000 82,000

1,820,000 176,000
·

Equity
Ordinary Share Capital 50p shares 1,200,000 100,000
Preference Share Capital GHS1 shares - 20,000
Retained Earnings 238,000 18,000

1,438,000 138,000
Liabilities
·‘ Current Liabilities 382,000 8,000
Current Account with Opana - 30,000

1,820,000 176,000

You are given the following additional information:

A. On 30th December, 2016 Onaapo posted a31S‘ cheque for GHS70,000 to Opana, which has not
been included in Opana’s accounts as at December, 2016.
than this time
Ai B. Due to the ‘credit crunch’ orders from Onaapo’s customers are much lower overdraft the
last year and when Onaapo recently approached its bank to negotiate an believe that
interest rate was prohibitively high. As a consequence the directors of Opana by as
the goodwill arising on the consolidation of Onaapo may have become impaired
much as 50%.
purchase
C. On 1st January, 2017 Opana acquired Comfortablelead Ltd. This was an unusual are in a very
for Opana because Comfortab1e1ead’s products, markets and customers property
different sector of the economy, but Opana was interested in Comfortablelead’s
the
portfolio. The managing director believes that it will not be necessary to consolidate
the year
results from Comfortablelead, which are expected to be substantial losses, for
ending 31S‘ December 2017.
make sonre adjustments to
Hint: This is one typical kind of question involving the need to corrsolidate the two
the Statement of Financial Position as given before proceeding to
companies.

You are required to:

Marks: 4marks
i. Explain why consolidated financial statements should be prepared.

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ii. Prepare a Consolidated Statement of Financial Position for the Opana Group as at 31“
December, 2016 assuming that Opana prepares its accounts in accordance with IFRS.
Marks: 20marks
iii. Explain in your own words why companies need to consider whether their assets may have
become iinpaired. Marks: élmarks

iv. Explain in your own words what fair value means. Marks: 2marks

v. Again assuming that Opana prepares its accounts in accordance with IFRS, explain whether
it will be possible for Opana to exclude Comfortablelead from the consolidation in
e December, 2017. Marks: Smarks

Total Marks: 35marks

Question 2

In January 2016, four former executives and accountants of the British company, Symmetry
Medical Sheffield LTD, Thornton Precision Components (TPC), were charged for their roles in a
massive fictitious revenue scheme that took place between 2008 and 2011. TPC accounted for a
significant portion of the consolidated revenues of its parent company, U.S. - based Symmetry
Medical, Inc., a manufacturer of prosthetics, medical implants and instruments, and other
specialized products for the aerospace industry.
li Symmetry Medical acquired TPC in 2003 and had its IPO in December 2008. A timing scheme to
recognize revenue early had already been in place at TPC as early as 2003. This timing scheme
was initiated in response to TPC lagging behind its monthly sales targets. The shortfall was erased
by generating fraudulent sales invoices for manufactured products that were not yet completed.
These invoices were, of course, never sent to the customers, but were used internally to support
the revenue. This enabled TPC to recognize revenue before actually earning it. When the
associated products were finally completed and shipped, TPC credited the original invoice and
issued new ones, this time sending the invoices to the customers. This practice went on from 2003
to 2007, enabling TPC to achieve its sales targets by pulling future revenue into earlier accounting
periods—the proverbial borrowing from the future.
But things really got interesting in 2007, when the perpetrators’ strategy shifted from premature
revenue recognition to recording completely fictitious revenues. Beginning in 2008, one of TPC’s
executives would assess how much TPC fell short of its sales targets on a monthly and quarterly
basis. When shortfalls existed, a top-side journal entry would be made debiting accounts receivable
and crediting sales. These were internally referred to as "provisional" sales. In an atteinpt to
conceal the fictitious revenue, this individual then sent a record of the provisional sales to another
person, who calculated and recorded the fictitious cost of goods sold associated with the fictitious
sales. This made TPC’s gross margin remain comparable, at least temporarily. The top-side sales
entries made TPC’s accounts receivable subsidiary ledger out of balance with the general ledger
(which had the higher figure for receivables). To hide this from all parties not involved in the

. . > » r
 scheme (including the external and internal auditors), a fictitious sub—ledger was created in the
form of an Excel spreadsheet. This spreadsheet only reflected total accounts receivable and aging
by customer and not the details by sale and invoice number normally included in a sub-ledger. The
spreadsheet was created from a downloaded copy of a summary version of the real sub—ledger, ·
which was exported into Excel, and the fictitious receivables were then added to the schedule so
that it agreed with the general ledger balance.
These fictitious sales had a material impact on the financial statements of TPC. At the close of
fiscal year 2009, GHS12,440,000 (38 percent) of the total reported accounts receivable of
GHS32,737104 was fictitious. For 2010, GHS6,031,000 (48 percent) of the reported
GHS 1 2,440,000 was fictitious. Although the perpetrators of this fraud recorded cost of goods sold
to align with the fictitious sales, the scheme also involved a separate effort to inflate inventory
balances and, therefore, understate cost of goods sold. This was accomplished using a similar
6: approach to the fictitious accounts receivable——top-side journal entries supported by a falsified
inventory sub-ledger containing inserted lines of fictitious work in process inventory, all prepared
after the physical count. At the end of fiscal year 2009, only GHS3,531,000 (36 percent) of TPC’s
reported inventory of GHS9,753,000 actually existed. Cost of goods sold for 2009 was understated
(and, therefore, gross profit was overstated) by GHS2,505,000 as a result of the inventory inflation
scheme. At the end of 2010, just GHS3,692,000 (33 percent) of the reported inventory balance of
GHS10,973,000 was real, and cost of goods sold was understated by GHS 1 ,058,000. The incentive
behind the TPC schemes was nothing new—pure greed. The perpetrators received bonuses based
on the purported performance of TPC, and they profited handsomely from their sale of parent
company Symmetry stock.

You are required to:

i. ldentify the potential effects of using company’s profit as a basis of investment decision.
Marks: 5marks
ii. Discuss the effects of Thornton Precision Components actions on consolidated financial
statements of Symmetry Medical Sheffield LTD Marks: 12marks
iii. Choose a suitable title for the case above. Marks: 3marks
iv. ln your opinion, what actions should have been taken by Symmetry Medical Sheffield LTD
before the acquisition of Thornton Precision Components Marks: 5marks
v. What are the potential consequences of this revelation to the company, shareholders and
auditors associated with this company Marks: 5marks
Total Marks: 30marks

Question 3 .-

(a) ln July 201 1, many newspapers and radio stations discussed how a phannaceutical giant in
‘ Ghana: Aben wo ha, was reducing its use of Ghana-based materials in favour of cheap
Chinese imports. A review of Aben wo ha’s website (September, 2011) revealed a media
release entitled: ‘Setting the record straight on recent media coverage’. It was presented in
a question and answer format. The questions Aben wo ha posed to itself were:
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 ls Aben wo ha planning to dump Ghana-based suppliers?
l hear Aben wo ha is going to import its raw materials!
ls it true that Aben wo ha does not treat its Ghana-based suppliers fairly?
· The answers provided to each of these questions indicate that the various concerns in the media
were unfounded.
You are required to:
i. Explain Aben wo ha’s reaction in terms of Legitimacy Theory Marks: Smarks
ii. Explain why you think that Aben wo ha would be considered to have a great deal of
legitimacy to protect through such disclosures? Marks: Smarks
in Marks: l0marks
(b) Discuss how the ‘agency prob1em’ can be addressed

Total Marks: 20marks

Question 4

MM Ltd, producers of telecommunication equipment has been making losses in recent times.
The directors have proposed a scheme of reorganization, to take effect on 1st October, 2016.
The statement of financial position of the company at 30th September, 2016 is as follows:

Statement of Financial Position as at 30th September, 2016

Non-current assets GHS
Premises 80,000
‘ Plant & Equipment 190,000
Vehicles 30,000
300.000
Current assets
lnventory 40,000
Trade receivables 30,000
Bank 10.000
80,000
Current liabilities
Trade payables ( 140.000)
(60,000)
Net assets 240,000

Finaneed by:
Stated capital
lssued and fully paid
100,000 7% Preference shares of GHS1 Per share 100,000

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 400,000 ordinary shares of GHSO.75 fully paid 300.000
400,000
Retained Earnings g 160.000)
7 240.000 ·
Additional information.
i) The ordinary shares are to be written down to GHSO.25 per share and then to be converted
shareholders are to
into new ordinary shares of GHS10 per fully paid. ii) The preference for their preference
receive 40,000 ordinary shares of GHS1 per share, fally paid in exchange
shares.
of waiying
iii) Dividends of 7% preference shares are two years in arrears. ln consideration agreed to
their rights to arrears of preference dividend, the Preference shareholders have
accept 10,000 new ordinary shares of GHS1 .00 per share. fully paid in final settlement.
per share fully
iv) The creditors have agreed to take 100,000 new ordinary shares of GHS1
paid in part settlement of the amounts due them.
v) The balance on the retain earnings account is to be written off.
into the
vi) Some assets of the company have been revalued and are to be incorporated
accounts as follows:
GHS
• Freehold premises 100,000
• Plant and equipment 125,000
• Vehicles 25,000
• Inventories 36,000
vii) An allowance of GHS3,500 is to be made for doubtful debts
cash by
viii) The ordinary shareholders have agreed to inject additional GHS90,000
" acquiring 120,000 ordinary shares at GHSO.75 per share fully paid.
ix) Reorganization costs amounted to GHS7, 500.

You are required to:

account.
a) Prepare a capital reduction account, stated capital account and bank
Marks: 9marks
2016, after the
b) Prepare a statement of financial position of MM Ltd as at ist October,
reorganization. Marks: 61narks

Total Marks: 15 marks

Q =. 3;.;
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