Case Stimulus
DIY Limited was incorporated on June 12, 2010, and commenced commercial activities on October 1, 2011. The primary activities of the company are the manufacture, distribution and sale of solar panels for domestic use. DIY Limited has its main factory in Daura, Katsina State, Northern Nigeria and distributors in Kaduna, Abeokuta, Onitsha and Ilorin. Extracts from the company’s audited financial statements for 2016 to 2018 are as follows: DIY Nigeria Limited Years ended 31 December 2018 N’000 2017 N’000 2016 N’000 Revenue 520,000 403,650 310,500 Cost of production (132,600) (110,500) (85,000) Research and development cost (85,800) (71,500) (55,000) Product promotion expenses (21,060) (23,400) (18,000) Damaged products written off (19,890) (22,100) (17,000) Other overheads (142,870) (102,050) (78,500) Profit before tax 117,780 74,100 57,000 Tax (17,500) (41,000) (17,500) Retained earnings 100,280 33,100 39,500 Dividend distributed and paid (80,000) (40,000) (30,000) Note: 20% of “other overheads” represent depreciation and amortisation for each of the years reported, while capital allowances for the respective years represent 150% of depreciation and amortisation. Chief Musa Jugula (MJ), the owner and founder of DIY Limited, owns 70% of the shares of the company while the remaining 30% shares are currently held by his three children and two wives. Chief MJ has just returned from a business trip to Ghana to explore opportunities for expansion of the business. He is considering either setting up a branch or a full-fledged subsidiary. While at the airport lounge in Accra awaiting for his flight back to Nigeria, he overheard two of his fellow passengers discussing a recently signed agreement that will integrate all the 55 countries in Africa, promote trade in goods and services by eliminating tariffs and non-tariff barriers. From the little conversation he heard, it seems like a welcome development but he is unsure if this will affect his business in Nigeria positively and its likely impact on his planned expansion into Ghana. The forecast financial performances for 2021 to 2023 are as follows: Nigeria 2023 N’000 2022 N’000 2021 N’000 Revenue 1,040,000 645,840 589,950 Cost of production (265,200) (176,800) (161,500) Research and development cost (171,600) (114,400) (104,500) Product promotion expenses (42,120) (37,440) (34,200) Damaged products written off (39,780) (35,360) (32,300) Other overheads (285,740) (163,280) (149,150) Profit before tax 235,560 118,560 108,300 Tax (35,000) (65,600) (33,250) Retained earnings 200,560 52,960 75,050 Ghana 2023 GH¢ 2022 GH¢ 2021 GH¢ Revenue 7,428.57 6,150.86 4,213.93 Cost of production (1,894.29) (1,683.82) (1,153.57) Research and development cost (1,225.71) (1,089.52) (746.43) Product promotion expenses (300.86) (356.57) (244.29) Damaged products written off (284.14) (336.76) (230.71) Other overheads (2,041.00) (1,555.05) (1,065.36) Profit before tax 1,682.57 1,129.14 773.57 Tax (250.00) (624.76) (237.50) Retained earnings 1,432.57 504.38 536.07 Note: The exchange rate of Ghana Cedi to Naira is ¢1 = N70.