• There is a contractual relationship between Kojo Mensah and the A&C company Limited
• From the scenario, there is a case of gross misconduct on the part of Kojo Mensah.
• Therefore, notwithstanding the existing contract between Kojo Mensah and A&B company, the company, could on disciplinary grounds terminate Kojo Mensah’s appointment for gross misconduct.
• The company was, therefore, justified in terminating Kojo Mansah’s appointment

• Kojo Mensah can seek redress in court because of the fact that the company did not give him a hearing, adding that in view of the fact that, the grounds for the termination of Kojo Mensah’s appointment were disciplinary, he ought to have been given a hearing: not giving Kojo Mansah a hearing offends the principle of natural justice.
• Kojo Mensah, therefore, has a bright chance of success in the court as he can sue A&B Company for damages for wrongful termination of his appointment.
• Kojo Mensah cannot sue for re-instatement because contractual relationship is not for servitude

Dismissal

• No benefits are payable
• No notice in lieu of salary
• Dismissal necessarily implies that it is a disciplinary action
  Termination
• One is entitled to accrued benefits.
• Termination requires notice or salary in lieu of notice
• Termination may be disciplinary or non disciplinary.

• The name of the company
• “ Limited” as last name for the Limited companies.
• .The nature of authorized business to be carried on by the company or, for non-profit companies, the nature of the objects for which the company is established.
• A statement that the company has all the powers of a natural person with full capacity.
• The name of the first directors. There shall be at least two foundation (or first) directors.
• A statement that the powers of the directors are limited by section 202.
• In the case of a limited liability company, the regulation must contain a statement that the liability of its members is limited.
• For companies with shares, Regulation, must state the number of shares with which the company is to be registered. This is referred to as the authorized shares, ie the maximum number of shares that the company is capable of issuing.
                                                                                                                                                                                  (Any 5 points)

• The term, pre-incorporation contract, is a contract that is made between persons other than the subject incorporated company, in connection with the company, before incorporation.

• Parties to the pre-incorporation contract,
• Subject- matter of the pre-incorporation contract,
• the chronology i.e every pre-incorporation contract is made before the company is formed

• Any contract or other transaction purported to be entered into by a company prior to its formation or by any person on behalf of the company before its formation, may be ratified by the company after its formation, whereupon the company shall assume rights and liabilities under the contracts or transaction as if it had been in existence at the dated of such contract or transaction, and had been a party to it.
• Before ratification the promoter or other person purporting to act on behalf of the company remains personally liable in the absence of any express agreement to the contrary, and its entitled to any benefit accruing under the contract or transaction.
• If the promoter does not wish to incur financial or other loss under such contracts, he should ensure that the contract is so drawn up as to permit him to abrogate in the event of the company failing to ratify it after its formation.
• The reason for the promoters’ inability to be regarded as an agent in respect of the pre-incorporation contract or transactions derives from the general legal principle that a person cannot derive the powers and authority of an agent of a non-existent principal.

• the item has become a protected item.
• the item can be recovered only by a court order.

• the seizure of the item breaches the hire- purchase agreement entered into between Kobi Jones and the Agaza motor company Limited.

• Kobi Jones can go to court for an order to reclaim his motor bike.

Issued Shares: represents the actual number of shares that have been issued to shareholders.  The   number   of  issued   shares  cannot    exceed   the   number    of authorized shares.                                                                                                     (3 marks)

Preference shares are shares which confer certain preferential rights on their It can be classified into Redeemable and Irredeemable preference shares. Redeemable preference shares means the company will redeem (repay) the nominal value of those shares at a later date whiles Irredeemable preference shares are treated just like other shares. They form part of the equity and their dividend are treated as appropriation of profit.                                                                                                   (4 marks)

Ordinary shares are shares which carry no right to a fixed dividend but are entitled to all profits left after payments of any preference dividends. Thus a holder only receives a dividend after fixed dividends have been paid to preference shareholders. The amount of ordinary dividends normally fluctuates although it is often expected that it will increase from year to year.     (3 marks)

Debenture: is a long-term security yielding a fixed rate of interest, issued by a A debenture is a type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond to secure capital.

Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk-free because governments, at worst, can print more money or raise taxes to pay these types of debts.                                                                                                               (4 marks)

Distinct Entity

A limited company is a completely separate entity from its owners. Everything from the company bank account, to ownership of assets and involvement in tenders and contracts is purely company business and separate from the interests of the company’s shareholders.

A sole trader and his/her business is treated as a single entity for tax and administrative purposes.

Limited Liability

Running your business as a limited company means you have the reassurance of ‘limited liability’. Assuming no fraud has taken place, your ‘limited liability’ means you will not be personally liable for any financial losses made by your business. A limited company can therefore give you added protection should things go wrong.

Those running a business as self-employed do not enjoy such protection from financial claims if things go wrong with their business.

Funding

Finding funding can be difficult for all types of businesses in the current climate. But because a limited company is a distinct entity from its owners it may be a little easier for a company to secure business finance than it is for their sole trader counterparts.

Naming

Once you register your company with the registrar generals department your company name is protected by law. No-one else can use the same name as you, or anything deemed to be too similar.

As a sole trader, it’s possible someone else could trade under the same name as you, and you couldn’t do anything about it. This could damage your business, and in some cases, result in you having to go through the costly and time-consuming effort of changing the name of your business.

Shareholders

A limited company can issue various classes of shares. This means you can easily sell stakes in the company, or transfer ownership of shares.

Pensions

A limited company can fund its employees’ executive pensions as a legitimate business expense. This can offer a tax advantage over those who are running their business as self-employed.

Succession

If a shareholder wishes to retire, sell his shareholding, or dies, it is far easier to transfer ownership of a limited company than a non-registered business structure.                                                                                                                                          (Any 4)

Achiaa Ltd.                                   Aspire Ltd.

2017 – GH¢’000                             2017 – GH¢’000

3,800/20,000 = 19%                      3,500/18,000 = 19.44%                                                                                                 (3 marks)

Achiaa Ltd.                                                       Aspire Ltd.

2017 – GH¢’000                                              2017 – GH¢’000

20,000/11,600*100 = 172.41%                   7,200/7,300*100 = 98.63%                                                                             (3 marks)

Achiaa Ltd.                                                       Aspire Ltd.

2017 – GH¢’000                                              2017 – GH¢’000

1,400/20,000*365 = 26 Days                     300/18,000*365 = 6 Days                                                                                (3 marks)

Achiaa Ltd.                                           Aspire Ltd.

2017 – GH¢’000                                  2017 – GH¢’000

6,400/2,000 = 3.2 Times                     4,800/800 = 6 Times                                                                                                (3 marks)

To: Managing Director of Oware Ltd

From: Financial Accountant

Re: Evaluation of potential purchase of either Achiaa Ltd or Aspire Ltd

Date: September 2013

Please find attached the results of a review of certain key ratios of the above companies for the year ended 31st December 2017.

Net Profit Ratio

The net profit ratio for both companies is broadly similar 19% for Achiaa versus 19.44% for Aspire. Aspire sales are 10% less than Achiaa Ltd and a review of results for prior years would be beneficial before making a definitive decision. Achiaa’s gross profit for 2017 is 40% versus Aspire’s 33.33%. Therefore, Achiaa has a more profitable business on their sales but leaks margin with higher administrative costs – 8% versus 6.67% and extra finance costs – 10% versus 4.44% due to their significant borrowings.

Debt to Equity Ratio

Both companies have a high debt to equity ratio with Achiaa’s in particular being at a dangerously high level. Are the high levels due to significant increases in non-current assets which may drive growth in the future – this needs to be investigated as well as review of the loan agreements to ensure that both companies can adequately cover repayments. Management at Achiaa should be asked whether an injection of capital/funds is needed to ensure its survival. Given the amount of debt in each company, it would appear that Achiaa is making repayments at a lower interest rate than Aspire.

Trade Receivable Days

Aspire’s result is significantly better than Achiaa but both results are within 30 days which is quite good provided both companies are not in an industry with lower normal receivable days than 30 days. Inquiries should be made to Aspire’s management as regards how they manage to keep their trade receivables as low because there may be an opportunity with other companies managed by Oware Ltd to capitalise on their approach.

Interest Cover

Aspire’s interest cover is nearly twice Achiaa’s level – 6 times versus 3.2 times and is at a comfortable level to satisfy banks. Achiaa’s level is at an acceptable level but it would need to be monitored closely for any signs of deterioration given the level of debt the company currently holds.

Recommendation

The most worrying aspect for both companies is the debt levels they currently hold and before purchase significantly questions need to be asked of management of companies re the sustainability of the debt levels and impact on future growth and profitability. Both companies have strong net profit margins. Achiaa has slightly better sales and excluding debt repayments has better profit margins and liquidity in its acid test ratio. Aspire appears to have strong working capital management and interest cover. Therefore, provided Aspire liquidity from a short and long term view is adequately managed, I would recommend it over Achiaa whose debts levels are very significant for Oware to accept as an investment proposition. I would urge that further due diligence be undertaken on both companies before investment proceeds.

I hope that the above responses clarify and answer your queries. If you have any further queries, please do not hesitate to ask.

Yours sincerely,

Financial Accountant

                                                                                                               (2 marks each for every ratio well analysed= 8 marks)

• Necessity for consideration: every simple contract must be supported by consideration, otherwise, it is void.
• Legality of consideration, the consideration must be legal. i.e not some illegal act, like paying someone to commit a crime.
• Consideration must move from the promise, i.e a person seeking to enforce a simple contract in court must prove that he himself has given consideration in return for the promise he is seeking to enforce.
• Consideration must be something beyond the promisee’s existing obligations to the promisor. The promisee must have undertaking to do something for the person whose promise he is seeking to enforce, beyond what he was already bound to do.
• Consideration must be real: it must not be vague, indefinite or illusory.
• Consideration must not be past: a promise made in return for some past service is unenforceable.
• Payment of a smaller sum will not discharge a liability to pay a larger (the rule in the Foakes vrs Beer [1884]): if A owes B $100 and B agrees to accept $ 50 in complete discharge of the debt, there is nothing to stop B later from changing his mind and suing for the remaining $50)
                                                                                                                                                                                 ( Any 5 points)

Paragraph 3 of IAS 10 states that events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. Two types of events can be identified i.e.

• Adjusting events are those events that provide evidence of conditions that existed at the end of the reporting period.
• Non-adjusting events are those events that are indicative of conditions that arose after the reporting period.

Per paragraph 19 of IAS 10, if a company receives information after the reporting period about conditions that existed at the end of the reporting period, it shall update disclosures that relate to these conditions, in the light of the new information.

Per paragraph 9 (c) of IAS 10, this is an adjusting event. The determination after the statement of financial position dates of the cost of assets purchased before the end of the reporting period is an adjusting event after the reporting period and the adjusting event needs to be recognised in its financial statements for the relevant year ended. Therefore, the full cost of the motor vehicle needs to be reflected in its financial statements for the year ended 31 December 2016.

Per paragraph 9 (a) of IAS 10, this is an adjusting event. The event took place during the reporting period and the settlement after the reporting period of the court case confirms that there was a present obligation at the end of the reporting period. Therefore, the previous provision should be reversed and the money received for legal fees should be netted against any legal costs that Kantanka Ltd bore in defending the case in the financial statements for the year ended 31st December 2016.

Per paragraph 9 (b i) of IAS 10, this is an adjusting event. The receipt of information after the reporting period indicating that an asset was impaired at the end of the reporting period for example the bankruptcy of a customer that occurs after the reporting period usually confirms that a loss existed at the end of the reporting period on a trade receivable. Therefore, Kantanka Ltd should write off the amount as a bad debt in its financial statements for the year ended 31 December 2016.

• The buyer may not reject all the goods just because there is excess in quantity
• May accept all the goods so delivered and pay for the extra goods at the contract rate.
• He may accept the goods which should have been delivered and reject the remainder and then recover damages from the seller representing the cost of separating the goods which should have been delivered from the remainder.

• The buyer may reject the goods.
• In the event he accepts the goods, he must pay for same at the contract rate.

• Accept all the goods so delivered and pay a reasonable price for the extra goods.
• Accept the goods included in the contract and reject the reminder and recover damages involving the cost of separating the remainder and for deficiency, if any, in the goods delivered.