Web viewThe total cost function ... A number of factors have been identified as encouraging globalisation of world trade ... Explain three reasons accounting for this trend

EXCEL PROFESSIONAL INSTITUTE

WEEKLY ASSIGNMENT

WEEK 6

PRINT, WORK AND SUBMIT YOUR ASSIGNMENT AT NEXT LECTURE(Ignore assignment for courses you have not registered)

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1.2 QUANTITATIVE METHODS IN BUSISNESSASSIGNMENT 6

1. A TV manufacturer finds that he can sell x units per week at a price P=250-0.5x each. His

cost of production of x TV sets per week is C=240+x².

Required:

(i) Determine, how many sets per week should he produce to maximize his profit.

(ii) Determine, the maximum profit.

2. At a selling price of GHC3.80 per unit, the expected sales of a particular product would be

GHC10,200, but would fall to GHC8,400 if the selling price was GHC4.70. The total cost

function (GHC) for the product is 15000 + 1.8x where x is the number of units.

Required:

(a) Derive the demand function, assuming it is linear.

(b) Derive an expression for total profit.

(c) Calculate the maximum profit and the level of sales at which the maximum is attained.

(d) What price is charged per unit at the maximum profit point?

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1.4 BUSNINESS MANAGEMENT AND ISQUESTION ONEa) Privatisation can refer to the act of transferring ownership of specified property or business operations from a government organisation to a privately owned entity, as well as the transition of ownership from a publicly traded, or owned, company to a privately owned company.

Required: i) Describe THREE potential benefits of privatisation. (3 marks) ii) State THREE disadvantages of privatisation (3 marks)

b) Identify TWO characteristics each of the following business set ups. i) Sole proprietorship. ii) Partnership. iii) Limited companies. (6 marks)

QUESTION TWO a) Charis Shoes Ltd has been in existence for 5 years. The Board of Charis Shoes Ltd needs a report on examination of the industry’s attractiveness. Attractiveness in this context according to the board refers to the overall industry profitability.

Required: Explain how the Porters Five Forces model can be used to assess the attractiveness of the industry in which Charis Shoes Ltd operates.

QUESTION THREE a) The concept of globalisation has become a major discussion theme in both professional and business environments. A number of factors have been identified as encouraging globalisation of world trade.

Required: i) Explain globalisation. (2 marks)

ii) Identify any FOUR features of globalisation. (4 marks)

iii) Explain any FOUR factors encouraging the globalisation of world trade. (6 marks)

b) Both service and manufacturing companies have goals of satisfying customer demand. However, service organisations differ from manufacturing organisations when considering capacity management. Maintaining sufficient capacity to meet demand is one of the great challenges of operations management.

Required: Identify FOUR differences between service and manufacturing organisations in relation to capacity management. (8 marks)

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1.3 BUSINESS AND CORPORATE LAWASSIGNMENT 6

QUESTION FOURKobi Jones, a porter, buys a tricycle motor to help him cart goods of his clients. The motor was purchased from Agaza Motor Company Limited on a hire purchase agreement. The hire purchase price was GH¢4,500.00 to be paid for in twenty equal instalments. By June, 2011, Kobi Jones had paid 60% of the purchase price, but was unable to pay the instalment due in July 2011. His plea to be given more time to pay fell on deaf ears. In August, 2011 while Kobi Jones was on his way to cart goods for customers, the agents of Agaza Motor Company seized the motor. Kobi Jones thus lost a very lucrative job from which he had hoped to make GH¢2,400.00. Kobi Jones is very upset and comes to you for advice.

a) Explain the effect that the payment of 60% of the purchase price had on the agreement. (6marks)

b) What does the seizure of the motor by the agents of Agaza Motor Company amount to? (10 marks)

c) What remedies, if any, are available to Kobi Jones? (4marks)(Total: 20 marks)

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2.1 FINANCIAL REPORTINGASSIGMENT 6

A Parent Company acquired 60% equity interest in a subsidiary company for GHC440million. The market value of the net assets of the subsidiary on acquisition date was GHC400million. The parent company estimates that the full 100% interest in the subsidiary company would have cost GHC640million.

Required: a. Calculate the goodwill at acquisition date where non-controlling interest is measured:

i. As a proportionate share of the net assets of the subsidiary company.

ii. At fair value (the full good will method). (5 Marks)

b. The statement of financial position of KAT and KIT as at December 31, 2015 were as follows:- KAT PLC KIT PLC

GHC'000 GHC'000 Property Plant & Equipment

9,000 5,000

Investment in KIT 5,000 Other Assets 2,000 1,500 16,000 6500 Share Capital 500 500 Retained Earnings 14,500 5,000 Other liabilities 1,000 1,000 16,000 6,500

KAT Plc acquired 80% equity interest in KIT Plc two (2) years ago.

At the date of acquisition KIT's retained earnings stood at GHC3million and the fair value of its net assets was GHC5million. This was GHC1.5million above the carrying amount of the net assets at this date. The fair value adjustment related to an asset that had a remaining useful economic life of 10 years as at the date of acquisition. The goodwill arising on consolidation has not suffered any impairment.

Required: Prepare consolidated statement of financial position of KAT Group as at December 31, 2015, on the assumption that non-controlling interest is valued at fair value (the full goodwill method).

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QUESTION 2

Haidar plc acquired 75% of Saqib Ltd’s ordinary shares on 1 April for an agreed consideration of GHC25 million when Saqib had retained earnings of GHC10,200,000.The draft statements of financial position of the two companies at 31 December are:

H (GHC000 ) S (GHC000)Non-current assets:Property, plant and equipment 78,540 27,180Investment in S 25,000 nilCurrent assetsInventory 7,450 4,310Accounts receivable 12,960 4,330Cash and bank nil 920Total assets 123,950 36,740EquityShare capital 50,000 10,000Retained earnings 64,060 15,200 114,060 25,200Bank loan 6,000Current liabilitiesAccounts payable and accruals 5,920 4,160Bank overdraft 2,100 NilTaxation 1,870 1,380 9,890 5,540 Total equity and liabilities 123,950 36,740

The following information is relevant

(i) The fair value of Saqib Ltd’s land at the date of acquisition was GHC4 million in excess of its carrying value. The fair value of Saqib Ltd’s other net assets approximated to their carrying values.(ii) During the year Haidar plc sold inventory to Saqib Ltd for GHC2.4 million. The inventory had originally cost Haidar plc GHC2.0 million. Saqib Ltd held 25% of these goods at the year-end.(iii) The two companies agreed their current account balances as GHC500,000 payable by Saqib Ltd to Haidar plc at the year-end. Inter-company current accounts are included in accounts receivable or payable as appropriate.(iv) An impairment test at 31 December on the consolidated goodwill concluded that it should be written down by GHC625,000.Prepare a consolidated statement of financial position as at 31 December. (15 marks).

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2.2 MANAGEMENT ACCOUNTINGATTEMPT ALL QUESTIONS

Question 1: Odontoid Process Ltd

The following information relates to process 3 of a three-stage production process for the month of January 2016

GHCOpening Inventory- 300 units complete as to:Materials from Process 2 100% 4,400Added material 90% 1,150Labour 80% 540Production Overhead 80% 810

6,900

In January 2016, a further 1800 units were transferred from Process 2 at a valuation of GHC27,000. Added materials amounted to GHC6,600 and direct labour to GHC3,270. Production overhead is absorbed at the rate of 150% of direct labour cost. Closing inventory at 31st January 2016 amounted to 450 units complete as to:

Materials from Process 2 100%Added material 60%Labour and overhead 50%

Required

a. Prepare process 3 account for January 2016 using the FIFO method [14 marks]b. Outline 3 reasons for labour high labour turnover in organisations [3 marks]c. In many instances, products once classified as by-products are now classified as joint product.

Explain three reasons accounting for this trend. [3 marks]

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Question 2: TechnoliveTechnolive Ltd manufactures a Bluetooth hands free device. The company is planning to introduce a new model that will have a 3 year life cycle. Cost estimate for the entire life cycle is presented as follows:

Year 0 Year 1 Year 2 Year 3Units manufactured and sold (Units) 25,000 100,000 75,000Research and development cost (GHC) 850,000 90,000Production costVariable cost per unit (GHC) 30 25 25Fixed Cost (GHC) 500,000 500,000 500,000Marketing costVariable cost per unit(GHC) 5 4 3Fixed Cost (GHC) 300,000 200,000 200,000Distribution cost (GHC)Variable cost per unit 1 1 1Fixed Cost (GHC) 190,000 190,000 190,000Customer service cost per unit (GHC) 3 2 2

Competitive market forces peg the optimum selling price at GHC62 per unit. The firm expects not less than 20% margin on their investment.

Required:

a. What is the unit target cost for the Bluetooth hands free device (3 marks)b. Compute the life cycle cost (total and per unit) for the device (5 marks)c. Advise if the product is worth making based on the given quantitative factors (5 marks)d. Explain the superiority of life cycle costing over traditional management accounting systems (4

marks)e. One critical term used in Activity based costing is cost driver. With an illustration, explain the

meaning of cost driver (3marks)[Total 20 marks]

2.3 AUDIT AND ASSURANCE

ASSIGNMENT

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No Assignment

2.4 FINANCIAL MANAGEMENT

ASSIGNMENT 6

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1. A capital project would involve the purchase of an item of equipment costing GHS 240,000.

The equipment will have a useful life of six years and would generate cash flows of GHS 66,000

each year for the first three years and GHS 42,000 each year for the final three years.

The scrap value of the equipment is expected to be GHS 24,000 after six years. An additional

investment of GHS 40,000 in working capital would be required.

The business currently achieves a return on capital employed, as measured from the data in its

financial statements, of 10%.

Required

(a) Calculate the ARR of the project, using the initial cost of the equipment to calculate capital

employed.

(b) Calculate the ARR of the project, using the average cost of the equipment to calculate capital

employed.

(c) Suggest whether or not the project should be undertaken, on the basis of its expected ARR.

2. A company is planning a long-term investment costing GHS 800,000. The project cash flows

would be GHS 100,000 each year for the first five years and then GHS 80,000 per year in

perpetuity, from Year 6 onwards. The cost of capital is 12%.

What is the NPV of this project, and should it be undertaken? (Ignore all other factors, including

risk and uncertainty).

2.5. PUBLIC SECTOR ACCOUNTINGASSIGMNENT 6

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QUESTION ONE Below is the Trial Balance of the Consolidated Fund for the year ended ended 31st December, 2015

Debit CreditGHC’Million’ GHC’Million’

Established post salaries 6,762Materials and office consumables 3,352Conferences and serminars 1,255Foreign travel 745Casual labour cost 234Non Established post salaries 2,008Corporate tax 4,500Grant 825 1,258Non tax revenue 1,156Taxes paid individuals 1,800Other Direct taxes 641Free school uniform cost 641School feeding programme cost 361Leap 38Excises 6,716Domestic Debt interest 1,453External Debt interest 1,741Acquisition of motor vehicle 247Acquisition of plant and equipment 42Purchase of Aircraft 367Treasury bills 11,120Bonds on Ghana Stock Exchange 13,462Euro bonds 7,456Bilateral multilateral debt 17,422Trust fund and deposit 2,235Other expenditures 910Accumulated fund 44,758Gold and other reserves 860Cash and bank 67Loans and advances 980Equity and security investment 560Taxes on imported Goods & Services 1,000Construction of infrastructure 560

68,766 68,766

Additional Information:

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i) It is the policy of Controller and Accountant General to adopt accrual basis of preparing the public accounts of the Consolidated Fund for the first time in compliance with the Financial Administration Regulation 2004 and the International Public Sector Accounting Standards (IPSAS). The effective date is 31 December 2015. ii) The current Chart of Accounts based on the GFS 2001 is used in the classification of revenues and expenditures. iii) Consumption of fixed capital charged on cost for the year has been computed as GH¢156, 000,000. iv) Corporate tax revenues due to government but were not received at 31st December 2015 amounted to GH¢49, 000,000. v) An established post salary in arrears as a result of salary increment in the fourth (4 th) quarter of 2015 was GH¢56,000,000 and goods and services outstanding at the end of the year amounted to GH¢12, 000, 000. vi) The grant shown in the trial balance as expenditure represents statutory transfer to the District Assembly Common Fund (DACF). Any arrears in the DACF should be treated as payable. The current rate of transfer is 7.5% on the amount received. vii) Public debt interest of GH¢14,000,000 was due to creditors but was not paid as at 31 December 2015.

Required: a) Prepare in a form suitable for publication and in accordance with the relevant Financial Laws and IPSAS: i) Statement of Financial Performance of the Consolidated Fund for the year ended 31 December 2015. ii) Statement of Financial Position of the Consolidated Fund as at 31 December 2015. (Show all workings clearly)

(18 marks) b) Disclose any TWO significant accounting policies as part of the notes to your accounts, as much as the information provided will permit. (2 marks)

(Total: 20 marks)

2.6 CORPORATE STRATEGY, ETHICS AND GOVERNANCE

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ASSIGNMENT 6

QUESTION ONEa) Strategic management is a cross-functional activity. The production function for example, has relationship with other functions of a company. Explain how the production function can be integrated with other functions in company. [4marks]

b) Explain the FOUR (4) different orientations organisations have towards customers. [8marks]

QUESTION TWO a) During strategy implementation, important management issues need to be reviewed for their appropriateness for the new strategy. Many organisations fail to achieve their strategic objectives not because they do not develop the right strategies but because many issues are not resolved during the implementation. They may not have the right organizational structure, a fitting culture, an efficient leadership while communication may be poor.

Required: Discuss the importance of each of the following in successful strategy implementation: i) Effective communication (5 marks) ii) Strategic leadership (5 marks)

b) You have been consulted by the CEO of Golden Voice Limited, a designing and publishing company, to clarify some strategic management terminologies to aid him to finish a proposal for consideration by the company’s board of directors.

Required: Using relevant examples, explain the following types of modular organisation structures. i) Outsourcing. ii) Offshoring. iii) Shared servicing. (6 marks)

c) Explain TWO limitations that are associated with offshoring. (4 marks)

QUESTION THREE

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Mr. Lord Manu is the Marketing Director of Peace Furniture Supplies, a medium-sized company which specializes in manufacturing office furniture. The company is located in Kumasi, because of the availability of timber. Mr. Manu has proposed to the managing director the need for the company to diversify into the manufacture of household furniture. If the proposal is accepted, the company would have to develop a suitable marketing strategy in order to match the competition.

Required: a) As a strategist, advise the company on FOUR marketing strategies it can adapt to market its new product. (12 marks) b) Discuss how strategies can be used to create and sustain competitive advantage. (8 marks)

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3.1 CORPORATE REPORTING

ASSIGNMENT 6

Question 1Alafia Limited issued a GH¢5,000,000 18% convertible loan note at par on 1 January 2012 with interest payable annually in arrears. Three years later, on 31 December 2014, the loan note becomes convertible into equity shares on the basis of GH¢100 of loan note for 50 equity shares or it may be redeemed at par in cash at the option of the loan note holder. The financial accountant of Alafia Limited has observed that the use of a convertible loan note was preferable to a non-convertible loan note as the latter would have required an interest rate of 24% in order to make it attractive to investors.

The present value of GH¢1 receivable at the end of the year, based on discount rates of 18% and 24% can be taken as: Year 18% 24%1 0.847 0.8062 0.718 0.6503 0.609 0.524

Required: (i) Show the accounting treatments for the convertible loan note in Alafia Limited’s income statement for the years ended 31 December 2012, 2013 and 2014; and the statement of financial position as at 31 December 2012, 2013 and 2014. (8 marks)

(ii) Pass journals to record entries at the end of 2014 assuming

(i) The share option is taken (1 mark)

(ii) The loan is repaid (1 mark)

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3.2 ADVANCED AUDIT AND ASSURANCEASSIGNMENT 6

Question 1: SonYou are a manager in Son & Co, responsible for the audit of the Jones Group (the Group), which is listed. The Group's main activity is steel manufacturing and it comprises a parent company and five subsidiaries. Son & Co currently audits all components of the Group. You are working on the audit of the Group's financial statements for the year ended 30 June 2015. The audit engagement partner left a note for you:'Hello,The audit senior has provided you with the draft consolidated financial statements and accompanying notes which summarise the key audit findings and some background information.At the planning stage, materiality was initially determined to be GHS900,000, and was calculated based on the assumption that the Jones Group is a high risk client due to its listed status. During the audit, a number of issues arose which meant that we needed to revise the materiality level for the financial statements as a whole. The revised level of materiality is now determined to be GHS700,000. One of the audit juniors was unsure as to why the materiality level had been revised.There are two matters you need to deal with:(i) Explain why auditors may need to reassess materiality as the audit progresses. (4 marks)(ii) Assess the implications of the key audit findings for the completion of the audit. Your assessment must consider whether the key audit findings indicate a risk of material misstatement. Where the key audit findings refer to audit evidence, you must also consider the adequacy of the audit evidence obtained, but you do not need to recommend further specificprocedures. (16 marks)

The Group's draft consolidated financial statements, with notes referenced to key audit findings, are shown below:

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DRAFT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes

30 June 2015 (Draft)

30 June 2014 (Actual)

GHC'000 GHC'000Revenue 1 98,795 103,100Cost of sales -75,250 -74,560Gross profit 23,545 28,540Operating expenses 2 -14,900 -17,500Operating profit 8,645 11,040Share of profit of associate 1,010 900Finance costs -380 -340Profit before tax 9,275 11,600Taxation -3,200 -3,500Profit for the year 6,075 8,100Other comprehensive income/expense for the year, Net of taxGains on property revaluation 3 800 0Actuarial losses on defined benefit plan 4 -1100 -200Other comprehensive income/expense -300 -200Total comprehensive income for the year 5,775 7,900

Notes. Key audit findings – Statement of profit or loss and other comprehensive income1. Revenue has been stable for all components of the Group with the exception of one

subsidiary, Geeta Co, which has recognised a 25% decrease in revenue.2. Operating expenses for the year to June 2015 is shown net of a profit on a property

disposal of GHS2m. Our evidence includes agreeing the cash receipts to bank statement and sale documentation, and we have confirmed that the property has been removed from the noncurrent asset register. The audit junior noted when reviewing the sale document, that there is an option to repurchase the property in five years time, but did not discuss the matter with management.

3. The property revaluation relates to the Group's head office. The audit team have not obtained evidence on the revaluation, as the gain was immaterial based on the initial calculation of materiality.

4. The actuarial loss is attributed to an unexpected stock market crash. The Group's pension plan is managed by Sanj Co–a firm of independent fund managers who maintain the necessary accounting records relating to the plan. Sanj Co has supplied written representation as to the value of the defined benefit plan's assets and liabilities at 30 June

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2015. No other audit work has been performed other than to agree the figure from the financial statements to supporting documentation supplied by Sanj Co.

DRAFT CONSOLIDATED STATEMENT OF FINANCIAL POSITION

NotesJune 30 2015 (Draft)

June 30 2014 (Actual)

GHC'000 GHC'000 ASSETS Non-current assets Property, plant and equipment 81,800 76,300 Goodwill 5 5,350 5,350 Investment in associate 6 4,230 4,230 Assets classified as held for sale 7 7,800 -

99,180 85,880 Current assets Inventory 8,600 8,000 Receivables 8,540 7,800 Cash and cash equivalents 2,100 2,420

19,240 18,220 Total assets 118,420 104,100 EQUITY AND LIABILITIES Equity Share capital 12,500 12,500 Revaluation reserve 3,300 2,500 Retained earnings 33,600 29,400 Non-controlling interest 8 4,350 4,000 Total equity 53,750 48,400 Non-current liabilities Defined benefit pension plan 10,820 9,250 Long-term borrowings 9 43,000 35,000 Deferred tax 1,950 1,350 Total non-current liabilities 55,770 45,600 Current liabilities Trade and other payables 6,200 7,300 Provisions 2,700 2,800

8,900 10,100 Total liabilities 64,670 55,700 Total equity and liabilities 118,420 104,100

Notes. Key audit findings – Statement of financial position

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5 The goodwill relates to each of the subsidiaries in the Group. Management has confirmed in writing that goodwill is stated correctly, and our other audit procedure was to arithmetically check the impairment review conducted by management.6 The associate is a 30% holding in James Co, purchased to provide investment income. The audit team have not obtained evidence regarding the associate as there is no movement in the amount recognised in the statement of financial position.7 The assets held for sale relate to a trading division of one of the subsidiaries, which represents one third of that subsidiary's net assets. The sale of the division was announced in May 2015, and is expected to be complete by 31 December 2015. Audit evidence obtained includes a review of the sales agreement and confirmation from the buyer, obtained in July 2015, that the sale will take place.8 Two of the Group's subsidiaries are partly owned by shareholders external to the Group.9 A loan of GHS8m was taken out in October 2014, carrying an interest rate of 2%, payable annually in arrears. The terms of the loan have been confirmed to documentation provided by the bank.Required

Respond to the note from the audit engagement partner. (20 marks)

Note. The split of the mark allocation is shown within the partner's note.

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3.3 ADVANCED FINANCIAL MANAGEMENT

ASSIGNMENT 6

a) XYZ has surplus cash which can be invested for at least five years. The company has consulted you to help them choose an investment that gives the shortest recovery period. The company presented the information on two types of bonds as follows;

Bond Redemption Nominal Value GH¢

Redemption value

Coupon Rate

Price GH¢

A Redeemable in 5 years

1,000 At par 7.00 950

B redeemable in 6 years

1,000 At 5% premium

7.50 1,010

Required: Use Macaulay Duration method to advise XYZ on the best Bond option to select for their investment. (12 marks)

b) XYZ Limited is considering the acquisition of a concession in the SOUTH REGION to enable it start a quarry business. The average industry beta is 1.6 with equity to debt ratio of 2:1.

The following information was extracted from the books of XYZ Limited Income statement GH¢’000 Profit before tax 42,000 Taxation (30%) (12,600) Profit after tax 29,400 Statement of Financial Position Net Fixed Assets 102,000 Working Capital 33,000 135,000 Financed By Share Capital 85,000 Retained earnings (Income Surplus) 15,000 100,000 Long Term Debt 35,000 135,000

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You are also informed that the Long Term Debt of the company is considered risk free with a gross redemption yield of 10% and the beta coefficient of the company’s equity is 1.2 while the average return on the stock market is 15%. Required:

i) Determine the cost of capital to apply for the appraisal of the quarry if XYZ Limited will maintain its capital structure after the implementation of the quarry project. (5 marks)

ii) Determine the cost of capital to apply if the company will change its capital structure to 20% debt and 80% equity. (3 marks)

(Total: 20 marks)

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3.4 TAXATION AND FISCAL POLICY

ASSIGNMENT 6

Question 0ne

Joe Terry was seconded to Super Gold in South Africa as a Mining Engineer to Fine Gold Ltd for a period of 18 months ( Fifteen months) commencing from 1st Sept, 2015. His conditions of service were as follows:

GHCi. Basic Salary 144,000.00 X 12,000 – GHC 200,0000ii. Expatriate allowance 36,000.00 p.a.iii. Risk allowance 48,000.00 p.a.iv. Professional allowance 24,000.00 p.a.v. Non accountable entertainment 15% of the basic salary

In addition, he was provided with a furnished bungalow and Toyota Pick- Up vehicle for both private and official used. He was also provided with a cook, househelp, security man and a garden assistant all of whom were paid GHS 800.00 each a month

He does not contribute to the Social Security Scheme.

a. Determine his chargeable income and tax liability for 2016 and 2017 year of assessment. 14marks

b. Produce the related notes guiding your determination. 6marks

Question 2

a. Sela was employed by Goldstar mining company as an Account Office on 1st January 2016 on a guarantee net salary of GHC 3,840.00 of which contributes 5.5% of his guaranteed net pay to Social Security and National Insurance Trust.Required:

Determine his gross Pay for 2016 year of Assessment.

b. Explain how mortgage interest is treated in accordance with ACT 896.

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Documents

Web viewThe total cost function ... A number of factors have been identified as encouraging globalisation of world trade ... Explain three reasons accounting for this trend