Question

After preparing the Accounts, the Accountant declared a profit of Gh926,800 for the period ended 31st December 2018. the Human Resource Manager said 'if we made so much as profit, why is our cash balance only Gh40,000?' Give any Three reasons for this reference.

CENTRAL UNIVERSITY MBA - FINANCIAL PLANNING TEST 1 ANSWER ALL QUESTIONS - February, 2020 After preparing the Accounts, the Accountant declared a profit of Ghe926,800 for the period ended 31 December 2018. The Human Resource Manager said "if we made so much as profit, why is our cash balance only Gho40,000?' Give any THREE reasons for this difference. 2. State any three importance and three challenges respectively, of insurance to a business 3. In terms of models, write down any FOUR of the types of financial planning 4. Identify any THREE types of assets, giving examples under each case 5. A colleague needs your financial counsel so he could put his money into an in Write down any FOUR questions you are likely to ask this colleague before h e before he invests his money? 6. What would you look out for in a good, achievable financial plan? Give any TWO. 7. A Client has tasked you to prepare a financial plan for her. She requires to see the process you will use. Itemise the first FOUR of the processes. 8. Distinguish between the following pairs with respect to insurance business: a. Insurance and gambling Pure risk and speculative risk Insurable and uninsurable risk Liquidated and unliquidated damages What THREE main decision-points will you expect to see in a financial strategy? n terms of time horizon, briefly explain the types of financial planning. planation should include the tenure and the emphasis. hur Branch manager argues that 'since we are spending a lot on the repairs o ed assets, we shall not depreciate them'. He wants your opinion. received your company's bank statement from Fidelity Bank showing a bala 735,000 in your company's favour. But your office cash book shows that yo osed to have Ghc1,500,000 at the bank. Identify any THREE factors that ma this difference. down the six principles/laws of insurance and explain any one.

Answer 1

1.Credit sales:

If Sales were made to customer on Credit basis, Profit and loss statement will account for it although there is no actual receipt of cash. This results in difference between Profit position and Cash Position.

For Example:

Sales on Credit Gh5000 X INC Company Customer Profit and loss Statement Cash Account Gh 50000 No Effect

2. Unsold Stock or High Closing Stock/Inventory:

If Closing Inventory is more then the Profit seems to be more where there is no effect in Cash Account.

For Example If Closing inventory is Gh10000, then under the head "Changes in inventories of finished goods, work in progress and stock in trade" in Profit and loss Statement increases profit and no effect to cash as the stock is unsold.

3.Accrual income and Pre Paid Expenses:

As per Accrual Concept, any Income/Expense will be accounted when they were earned/incurred but not when they were received/paid.

Example 1: Say Interest accrued but not received of Gh5000 will be accounted under head "Other Income" in Profit and loss Statement whereas there is no effect to Cash account as it is not received.

Example 2: Say Prepaid Insurance of Gh1000 paid in year 2019 for year 2020, as per concept of accrual it is not treated as expense in the current reporting year as the expense pertains to next reporting year which is a current asset. This doesn't effect Profit but effects cash Position due to which difference exists.

4. Purchase of Investments or Properties etc.:

If any Investments or Properties were purchased in cash, then the expense won't be recognized in the Profit and loss statement rather recognized as assets in Balance Sheet. This doesn't effect Profit but effects cash Position due to which difference exists.

5. Payment of Loans:

  If any repayment of loan is made in cash, then it has nothing to do with profit and loss statement as it is a payment towards Out standing liability.

For Example, say Gh10000 payment made towards loan, then there is no effect to profit but decreases Cash balance as payment was made.