Posted: July 8th, 2015

MANAGING FINANCIAL RESOURCES & DECISIONS

MANAGING FINANCIAL RESOURCES & DECISIONS

Order Description

Task Number
Evidence Page No. LO1: Understand the sources of finance available to a business.
1.1 Identify the sources of finance available to a business. 1.2 Assess the implications of the different sources. 1.3 Evaluate appropriate sources of finance for a business project.
Task 1
LO2: Understand the implications of finance as a resource within a business 2.1 Analyse the costs of different sources of finance. 2.2 Explain the importance of financial planning. 2.3 Assess the information needs of different decision makers. 2.4 Explain the impact of finance on the financial statements.
Task 2
LO3: Be able to make financial decisions based on financial information. 3.1 Analyse budgets and make appropriate decisions. 3.2 Explain the calculation of unit costs and make pricing decisions using relevant information. 3.3 Assess the viability of a project using investment appraisal techniques.
Task 3
LO4: Be able to evaluate the financial performance of a business. 4.1 discuss the main financial statements. 4.2 compare appropriate formats of financial statements for different types of business. 4.3 interpret financial statements using appropriate ratios and comparisons, both internal and external.
Task 4
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Assignment
Unit aim:
The unit aim is to provide learners with an understanding of where and how to access sources of finance for a business, and the skills to use financial information for decision making.
Unit introduction:
This unit is designed to give learners a broad understanding of the sources and availability of finance for a business organisation. Learners will learn how to evaluate these different sources and compare how they are used. They will learn how financial information is recorded and how to use this information to make decisions for example in planning and budgeting. Decisions relating to pricing and investment appraisal are also considered within the unit. Finally, learners will learn and apply techniques used to evaluate financial performance.
This unit provides opportunities for learners to develop their knowledge and understanding of the sources and availability of finance for organisations, taking into consideration the main financial issues that impact on the decision-making process in organisations.
Unit content
Task 1:
1.1 Range of sources: sources for different businesses; long term such as share capital; retained earnings; loans; third-party investment; short/medium term such as hire purchase and leasing; working capital stock control; cash management; debtor factoring
1.2 Implications of choices: legal, financial and dilution of control implications; bankruptcy
1.3 Choosing a source: advantages and disadvantages of different sources; suitability for purpose e.g. matching of term of finance to term of project
Task 2:
2.1 Finance costs: tangible costs e.g. interest, dividends; opportunity costs e.g. loss of alternative projects when using retained earnings; tax effects
2.2 Financial planning: the need to identify shortages and surpluses eg cash budgeting; implications of failure to finance adequately; overtrading
2.3 Decision making: information needs of different decision makers
2.4 Accounting for finance: how different types of finance and their costs appear in the financial statements of a business; the interaction of assets and liabilities on the balance sheet and on international equivalents under the International Accounting Standards (IAS)
Task 3:
3.1 Budgeting decisions: analysis and monitoring of cash and other budgets
3.2 Costing and pricing decisions: calculation of unit costs, use within pricing decisions; sensitivity analysis
3.3 Investment appraisal: payback period; accounting rate of return; discounted cash flow techniques ie net present value; internal rate of return. Nature of long-term decisions: nature of investment importance of true value of money; cash flow; assumptions in capital investment decisions; advantages and disadvantages of each method
Task 4:
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Terminology: introduction to debit, credit, books of prime entry, accounts and ledgers, trial balance, final accounts and international equivalents under the International Accounting Standards (IAS).
4.1, 4.2 Financial statements: basic form, structure and purpose of main financial statements i.e. balance sheet, profit and loss account, cash flow statement, notes, preparation not required; changes to reporting requirements under the International Accounting Standards (IAS) e.g. statement of comprehensive
income, statement of financial position; distinctions between different types of business i.e. limited company, partnership, sole trader
4.3 Interpretation: use of key accounting ratios for profitability, liquidity, efficiency and investment; comparison both external ie other companies, industry standards and internal ie previous periods, budgets
Tasks & Scenarios
Task 1 (this provides evidence for 1.1, 1.2, 1.3)
(LO-1 Understand the sources of finance available to a business)
Scenario: Mark’s Bakery
Mark, from the early years of his life developed an interest in Bakery. When he was 15 he attended a course in patisserie. He found the whole experience very interesting and he decided that the preparation of sweets and desserts was the job he wanted to do.
Over the next few years, Mark developed this experience into a small business. Working from home as a sole trader, he built up a respectable turnover, based on the preparation and sale of unconventionally designed and presented sweets and desserts.
Towards the end of the third year, he decided it was time to set up his business on a more permanent basis in separate premises. His family certainly agreed; they would be pleased to have their kitchen back for their own use when the piles of Mark’s products and patisserie books left.
Mark explained his plans to Maria, his accountant. ‘I want to set up from January1st next year as a limited company, under the name “Bakers’ Dream”. I have found some new premises for a small workshop and storage facilities, where I can employ the staff I need. I will have to buy some new equipment. We need to become more organised and efficient in our production. All the assets accumulated in the existing business would be transferred to the new company and I do not mind investing some more in the business expansion through my personal savings. However, I need much more capital to expand as per my plan.
1.1 Being Mark’s Accountant identify the various sources of finance available for the company.
(AC 1.1)
1.2 Assess and evaluate the implications of the different sources of finance on the business.
(AC 1.2)
1.3 Recommend the appropriate sources of financing to Mark for his proposed project “Baker’s Dream”. (AC 1.3)
Task 2 (this provides evidence for 2.1, 2.2, 2.3, 2.4)
(LO2 Understand the implications of finance as a resource within a business)
I have had a preliminary talk with my bank manager Mark said. He was encouraging, but said I had to produce a detailed forecast in order to apply for a bank loan. Unfortunately I’ve no idea where to start, although he did give me some leaflets, with outline headings for a forecast. He also recommended me to look for a reliable and user friendly financial planning software which could save me a time and money. Do you know anything about these things?’ He asked the accountant.
‘Yes, of course’, Maria replied, ‘but you will have to do quite a lot of work to gather the information for the correct forecast of sales, costs of labour, raw materials, fuels and energy etc. And a cash flow forecast is also required to know how much cash is coming in and going out of your business each month.’
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‘I have done a rough calculation of my profit for the year, and it looks as though I can more or less break even after paying myself some sort of salary. But that’s not the same as a cash flow forecast is it?’
‘No, it’s different’, replied Maria. In fact it’s usually easier to do forecasts of profit and cash at the same time. They use a lot of common information. The crucial difference is that a profit forecast looks at the difference between your sales and your costs at the moment those sales are made, or those costs incurred. It calculates a profit, or loss, based on invoices as they are sent, or received, not on when they are paid. The cash flow is only concerned with cash when sales and purchases are actually paid for.’
Then what types of forecasts do I need to make and what information exactly do I need to make these forecasts? asked Mark. Maria, the accountant replies: ‘I think I should spend a few days working on the set make detail presentation to you.
2.1 As an accountant prepare a report to present to Mark analysing the costs associated with different sources of finances. (AC 2.1)
2.2 Explain the importance of budgeting in managing the business successfully. (AC 2.2)
2.3 Describe in your report various information required for a reliable financial planning of different functions of the business. (AC 2.3)
2.4 Highlight the impact of different sources of finances to the financials of the company. (AC 2.4)
Task 3 (this provides evidence for 3.1, 3.2) Part A
(LO 3 Be able to make financial decisions based on financial information)
The following is a table of estimated revenues and related costs of Alpha Ltd for the period July 2009 to December 2009. Other costs are included in the notes below:
July
(£000)
Aug
(£000)
Sept
(£000)
Oct
(£000)
Nov
(£000)
Dec
(£000)
Sales
500
550
600
630
640
660
Purchase
250
260
280
300
320
330
Admin. Expenses
110
120
124
130
136
140
Packaging Costs
4
6
6
6
8
8
Misc Expenses
12
12
14
14
16
16
Loan Payments
100 100
Notes:
Stocks at 1 July 2009 will amount to £500,000. Stocks at 31 December 2009 are estimated at £340,000.
Suppliers allow one month’s credit. Purchases in June 2009 will total £120,000.
50% of sales are paid for in the month of sale. The remainder are paid for in the month following the month of sale. June 2009 sales are expected to be £280,000.
? Delivery costs are 1% of sales revenue each month, paid in the month in which they are incurred. Administration and miscellaneous expenses are also paid when they are incurred.
? Packaging expenses are paid two months after they are incurred. These costs were £2,000 in May 2009 and will be the same in June 2009.
? Current Account Overdraft at June 2009 is expected to be £310,000. There is no overdraft charge from the bank.
? Loan repayments refer to a bank loan which is interest free until January 2010.
? The business has no depreciable fixed assets.
3.1 Prepare Monthly Cash Budget from July to December and recommend for the short term borrowing analysing the results. (AC 3.1)
3.2 (a) Prepare Profit & Loss Account for Alpha Ltd for the six month period ending December 2009 based
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on the above given scenario. (AC 3.2)
3.2 (b) Explain the different types of costs involved in the production and the implications of such costs in pricing decisions in general. (AC 3.2)
Task 3 (this provides evidence for 3.3) Part B
(LO 3 Be able to make financial decisions based on financial information)
Pegg Ltd is considering investing in a machine in order to increase its profitability. Two machines, A and B, are under consideration.
The estimated annual cash flow (in £000) over the life of the machines is as follows;
Machine A B
Year1 205 130
2 205 130
3 200 180
4 170 230
5 80 220
Both machines have an initial cost of £700,000. There is dual value of Machine A is expected to be £60,000 and that of Machine B, £20,000.The chairman of the company has stated that, for therefore see able future, the liquidity situation of the company needs to be carefully monitored. The cost of the capital is assumed at 10%.
3.3 Use various investment appraisal tools to recommend the preferred machine on the financial grounds. (AC 3.3)
Task 4 (this provides evidence for 4.1, 4.2, 4.3)
(LO4 Be able to evaluate the financial performance of a business)
For the year ending 30 April 2008 the comparative summarised financial data for two Companies in the same commercial sector was as follows:
Heath Ltd Fork Ltd
£000 £000
Fixed assets (net) 52 54
Current assets:
Stock 48 64
Debtors 30 80
Cash 42 16
172 214
Less: Current liabilities 25 64
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Proposed dividends 7 30
140 120
Financed by:
Issued capital 70 120
6% Preference Shares 10 –
Revenue reserves 60 –
140 120
Heath
Fork
Average stock
50
60
Cost of sales
220
730
Sales
270
810
Gross profit
50
80
Net profit
30
30
4.1 Highlight the significance of main Financial Statements of the business. (AC 4.1)
4.2 Explain how do they differ in different types of business? (AC 4.2)
4.3 Comment and compare the performance of each company above on the basis of Profitability, Liquidity and Efficiency ratios. (AC 4.3)
What you must hand in for assessment
Task 1: Report
Task 2: Report
Task 3: Report
Task 4: Report
Submission Guidelines
Assignment must include: Assignment Front Sheet (filled assignment front sheet & filled evidence page number) + Assignment (answers to all assessment criteria and properly numbered) + Plagiarism Report (submit plagiarism report) + Declaration Form (student declaration, assessor feedback and result form)
Title Unit Name and Course Name. Presenter’s Full Name & Student Reference Number.
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information Submission Deadline Assignment Length No restriction on the word limit (suggested 3000 words) Methodology The student needs to demonstrate an awareness of the methodological tools in the form of documented process that contains procedures, definitions and explanations of techniques used to collect, store, analyze and present information. It may be that qualitative methods, including the analysis of interviews, are appropriate. Alternatively the student’s approach may involve forecasting or statistical, financial or econometric modelling. In other cases the student may be combining methodologies as his/her research is basically the analysis of the principles of methods, rules, and postulates employed by a discipline. Basically, the student needs to specify the approach he/she feels will be most appropriate. Bibliography/ References Please list down “works cited” within the framework of an enumerative bibliography — a list of references to key articles and texts. Verify each reference carefully; the references must correspond to the citations in the text. The list of references should start on a new page and be listed alphabetically by the last name of the author(s) and then by year, chronologically. Only the first author’s name is inverted. List all authors’ full names and avoid using et al. The name of each author and the title of the citation should be exactly as it appears in the original work. Tables/Charts Make sure all tables and charts are referenced in the text. Give each table and chart a title and number consecutive with the order it is mentioned in the text. Notes for tables and charts are independent of Notes in the rest of the paper and should be ordered using lowercase letters, beginning with the letter a (including the Source note, which should be listed first). The sequence runs from left to right, top to bottom. The order of the notes as they appear below the tables or charts are (1) Source, (2) general notes to the table or chart, if any and (3) letter notes. Times scale/Research Planning Please follow the classroom progress on the assignment brief to exercises. Since each student is encouraged to develop his/her own timescale the effort at the Assessor/ Faculty level is to subject them to random periodical checks in the view of their submission deadline. Style Sheet Harvard Reference /APA/ Chicago Manual of Style/ MLA Handbook Formatting Use Microsoft Word and keep your formatting very simple. Double-spaced, semi-block or full-block lay-out Arial/Times Roman (Italicize or boldface wherever necessary) Biographical notes If possible, please explain your background and credentials as it relates to the work you are presenting on. This is not a request for your résumé. Additional Details For specific questions on formatting, use the APA/ Chicago Manual of Style/ MLA Handbook as a guide for notes, citations, references, and table presentation.
Essential resources:
Indicative reading for learners:
www.businessbritainuk.co.uk Provides information about business in Britain and has extensive links to other business and business news sites.
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www.fsb.org.uk The Federation of Small Businesses provides information, support and guidance about small businesses in the UK.
Textbooks:
Atrill, P. and McLaney, E. (2012). Accounting and Finance for Non-Specialists. 8th edition. Pearson. ISBN 978-0273778035.
Uses minimal jargon to show how statements and financial information can be used to improve business decision making.
Dyson, J. R. (2010). Accounting for Non-Accounting Learners. 8th Edition. Financial Times/Prentice Hall. ISBN 978-0273722977.
Uses real-world examples and is suitable for learners with little or no prior knowledge of financial or management accounting.
Journals:
The financial and mainstream press can provide useful background reading, and can also be a useful source of case studies and financial information. Copies of published financial reports are available from companies themselves, or via The Financial Times (a free online ordering service is available).
Websites:
? www.aat.co.uk: The Association of Accounting Technicians
? www.bized.ac.uk: provides case studies appropriate for educational purposes
? www.ft.com: The Financial Times
? www.ifrs.org/Home.htm: International Financial Reporting Standard Foundation and the International Accounting Standards Board
? www.thetimes100.co.uk: Company case studies
Checklist
? Your assignment must be handed in with a Declaration Form (student declaration, assessor feedback and result form).
? Your work must be referenced and any quotations clearly sources. Assignment must be hand in with a Plagiarism Report.
? All Assessment Criteria must be answered and properly numbered. You must hand in your own work for assessment for all task (include group work tasks).
? You must include an Assignment Front Sheet (filled assignment front sheet and filled evidence page number).
Grade Descriptors
Pass Grade
A pass grade is achieved by meeting all the requirements defined in the assessment criteria for pass for each unit.
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Merit Grade
In order to achieve a merit the learner must need to achieve the following criteria as well as meeting all the requirements of pass grade:
Merit Descriptors Indicative Characteristics In order to achieve a merit the learner must: The learner’s evidence shows: Contextualisation
M1 – identify and apply strategies to find appropriate solutions
M1.1 – effective judgements have been made
M1.2 – complex problems with more than one variable have been explored
M1.3 – an effective approach to study and research has been applied
To achieve M1:
You will make effective judgements about fundamental concepts and principles in selected organisation.
You will provide supporting and contrasting examples to explain a complex issue.
You will also adopt an effective approach to study and research by integrating secondary and empirical examples in the report. In addition, you will use resources to support your arguments which are academically accredited, good quality, up-to-date, relevant and appropriate to the level of this course of study.
M2 – select/design and apply appropriate methods/techniques
M2.1 – relevant theories and techniques have been applied
M2.2 – a range of methods and techniques have been applied
M2.3 – a range of sources of information has been used
M2.4 – the selection of methods and techniques/sources has been justified
M2.5 – the design of methods/techniques has been justified
M2.6 – complex information/data has been synthesised and processed
M2.7 – appropriate learning methods/techniques have been applied
To achieve M2:
You will apply relevant theories of conducting academic research. You will also use range of sources of information including the internet, journals, books etc. You will also acknowledge all resources using correct Harvard Referencing System.
M3 – present and communicate appropriate findings
M3.1 – the appropriate structure and approach has been used
M3.2 – coherent, logical development of principles/concepts for the intended audience
M3.3 – a range of methods of presentation have been used and technical language has been accurately used
M3.4 – communication has taken place in familiar and unfamiliar contexts
To achieve M3:
You will use appropriate academic report format to present the work neatly and professionally maintaining highest academic and professional standard. Make sure arguments/theories provided are appropriate to the audience. You will also use technical language accurately in the context and check the work for spelling errors.
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M3.5 – the communication is appropriate for familiar and unfamiliar audiences and appropriate media have been used
Distinction grade
In order to achieve a distinction the learner must need to achieve the following criteria as well as meeting all the requirements of pass grade and merit grade:
Distinction Descriptors Indicative Characteristics In order to achieve a distinction the learner must: The learner’s evidence shows: Contextualisation
D1 – use critical reflection to evaluate own work and justify valid conclusions
D1.1 – conclusions have been arrived at through synthesis of ideas and have been justified
D1.2 – the validity of results has been evaluated using defined criteria
D1.3 – self-criticism of approach has taken place
D1.4 – realistic improvements have been proposed against defined characteristics for success
To achieve D1:
You will provide conclusion for each assignment that would derive directly from your analysis. You should justify the conclusion you have reached. Provide recommendation for further research.
D2 – take responsibility for managing and organising activities
D2.1 – autonomy/independence has been demonstrated
D2.2 – substantial activities, projects or investigations have been planned, managed and organised
D2.3 – activities have been managed
D2.4 – the unforeseen has been accommodated
D2.5 – the importance of interdependence has been recognised and achieved
To achieve D2:
You will have demonstrated an effective approach to independent research and study and will have met the deadline to submit the tasks and achieve the unit assessment criteria.
D3 – Demonstrate convergent/lateral/creative thinking
D3.1 – ideas have been generated and decisions taken
D3.2 – self-evaluation has taken place
D3.3 – convergent and lateral thinking have been applied
D3.4 – problems have been solved
D3.5 – innovation and creative thought have been applied
D3.6 – receptiveness to new ideas is evident
D3.7 – effective thinking has taken place in unfamiliar contexts
To achieve D3:
The originally of your work will be evident. You will critically analyse information. In addition, you will write a self-evaluation showing your ability to reflect upon your learning by identifying strengths and areas for improvement in relation to unit.