Small Business Enterprise

Unit-2 Managing Financial Resources And Decisions

Unit-2 Managing Financial Resources And Decisions

                                                        ASSESSMENT  FRONT  SHEET                                                       AB118B2

Programme:                           BTEC Higher National Diploma in Business (Marketing)

Unit Title and Number:           Managing Financial Resources And Decisions (Unit 2)

QFC Level and Credit value: 4;   15 credits

Module Tutor:                         Mr Desh Raj Sharma

Email:                                     d.sharma@mrcollege.ac.uk

Date Set:                                04/02/2014

Learner’s name and statement of authenticity

Learner’s Name: ______________________________  Learner’s ID: ______  Date Handed-in: __/__/____

I certify that the work submitted for this assignment is my own. Where the work of others has been used to support my work then credit has been acknowledged.

Signature: ___________________                        Date:  ___/___/_____

LEARNER’S BRIEF

Programme:                           BTEC Higher National Diploma in Business (Marketing)

Unit Title and Number:           Managing Financial Resources and Decisions (Unit 2)

QFC Level and Credit value: 4;   15 credits

Module Tutor:                         Mr Desh Raj Sharma

Email:                                     d.sharma@mrcollege.ac.uk

Date Set:                                04.02.2014

Key Dates

Distribution Date                                        : 04/02/2014

LO1 Submission Date                              : 28/02/2014 (for formative feedback)

LO2 Submission Date                              : 28/02/2014 (for formative feedback)

LO3 Submission Date                              : 20/03/2014 (for formative feedback)

LO4 Submission Date                              : 20/03/2014 (for formative feedback)

Final Submission Date (Full Assignment): 20/03/2014

Introduction

“Accounting and finance have a language of their own with a variety of statements and techniques that can mystify non-accounting colleagues”. (Mott, 2012)

This unit had been designed to give learners a broad understanding of the sources and availability of finance for a business organisation. It is assumed that learners learnt how to evaluate these different sources and compare how they are used. They learnt 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 were also considered within the unit. Finally, learners learnt and applied techniques used to evaluate financial performance.

The aim of this assignment is to assess the learner’s knowledge of the all aspects of the unit

  • Task 1 covers AC1.1, AC1.2, AC1.3 and AC2.1.
  • Task 2 covers AC2.2, AC2.3 and AC2.4.
  • Task 3 covers AC3.1, AC3.2 and AC3.3.
  • Task 4 covers AC4.1, AC4.2 and AC4.3.

Specification of Assessment
Layout and referencing:

Present your work in a research report style which should include table of contents, reference list, foot or end notes and appendices if any

Include the reference code of this assignment on your assignment submission.

Each page must be numbered at the bottom right hand side.

Ensure your name is in the footer and the production date/version number of your assignment

All work should be word-processed, font size of 12 and font style of Times New Roman or Arial. Subtitles of the assignment / dissertation should be in the font size of 14.

1.5-line spacing is preferred

All paragraphs should be aligned in justified mode.

Spell-check the document and make sure there are no grammatical errors.

Complete all the tasks.

Produce clear specific reasoning and arguments in support of your answers.

Submit your work in a single work processed document of 3500 words. This word limit is only for guidelines, and is not applied to grading.

You must include a bibliography at the end to show where your information was sourced.

Your sources must be identified using the Harvard referencing system. The words used in your bibliography will not be included in your word count.

ASSESSMENT TASKS 
ASSIGNMENT

TASK 1

You are a tutor employed by a local Enterprise Agency to design and deliver a training package to medium enterprise organisations in the local area. The participants have been invited to attend by the local council, as they have indicated the need for support in the area of business finance.

You have been asked by the Director of the Enterprise Agency to design and develop the two day training programme in the form of a report to these organisations. Your report must address the following:

  • An outline of the various (at least 8) sources of finance that participants may choose from. (AC 1.1 Identification of the sources of finance available to a business)
  • The legal, dilution of control and bankruptcy implications of the various sources of finance identified (AC 1.2 Assessment of the implications of the different sources)
  • An analysis of the financial implications (e.g. tangible and opportunity costs), and tax effects of using the various sources of finance that you outlined in AC1.1 and AC1.2 above                                                                                                                          (AC 2.1 Analyse the costs of different sources of finance)
  • An approach that will assist participants in their choice of appropriate sources to finance various projects. Use relevant examples such as building expansion, working capital financing needs, etc… to justify your answer. (AC 1.3 Evaluation of appropriate sources of finance for a business project)
ASSIGNMENT

TASK 2

Note: This task consists of two parts (A and B)

Part A: AC 2.2 Explain the importance of financial planning and AC 2.3 Assess the information needs of different decision makers

As a management consultant for a manufacturing company, you are required to prepare a memorandum report for the attention of the management accountant explaining the importance of financial planning and the need to effectively disseminate information to various decision makers.

Your report should specifically highlight the need to identify shortages and surpluses (e.g. cash budgeting), the implications of failure to finance adequately; and an outline of the various decision makers within the organisation, with information requirements.

Part B: AC 2.4 Explain the impact of finance on the financial statements

The following is the balance sheet of R Riggs as at 28 February 2007

R Riggs Ltd

Balance Sheet as at 28 February 2007

£                        £

Fixed assets                                                                                      5,020

Current Assets                                                       35,974

Less current liabilities                                             5,657              30,317

Net current assets                                                                         35,337                                                 

Less long term liabilities                                                                      

Net assets                                                                                        35,337                                                                                                                   

Financed by

Capital

Share Capital (par value £1 per share)                                11,400

Add net profit                                                                       23,937

35,337 

You are required to identify the effects and related changes (if any) that obtaining the following sources of finance would have had on R Riggs Ltd balance sheet during the year. Provide illustrations and make reference to R Riggs profit and loss statement where appropriate.

Note: Each transaction is to be treated independently

  • Obtaining a 2-year interest free loan of £5,000 from the A Alex Ltd
  • Obtaining a 5-year loan of £10,000 at 10% interest per annum
  • Obtaining a 1-year line of credit with a major supplier for purchase amounting £1,500
  • Issuing additional 1,000 shares at £3.50 per share
  • Selling some office furniture worth £2,000 at their net realisable value, with no profit made on disposal
ASSIGNMENT

TASK 3

Note: This task consists of 3 parts (A, B and C) 

PART A: AC 3.1 Analyse budgets and make appropriate decisions

Yuri, a cutlery manufacturer, produces spoons. The market in which the business operates is highly competitive, as there is a shortage of steel of adequate quality. There is a good availability of labour, but not of those who are experienced in cutlery manufacture.

Required:

Outline the budgetary control cycle and review the variance analysis of Yuri’s budget. Suggest reasons for the results.

Budget                  Actual                      Variance

Units sold                              100,000                  75,000                       (25,000)

Materials                              £ 15,000                   22,500                        (7,500)

Direct labour                        £ 22,500                   24,375                        (1,875)

Material (£)         Labour (£)

Price/rate variance                        (4,500)                  3,750

Usage/efficiency  variance            (3,000)                 (5,625)

Total variance                                 (7,500)                    (1,875) 

PART B: AC 3.2 Explain the calculation of unit costs and make pricing decisions using relevant information 

A printing company receives an order for 100,000 leaflets of A5 size printed in black ink. The cost estimator has prepared the following estimate of resources required to do the job.

Direct costs:

Paper – 204 reams of A4 at £3 per reams

Ink – 2 litres at £9 per litre

Labour time – 2 hours at £15 per hour

Indirect costs:

Production overheads and machine utilization – 2 hours at £55 per hour

Selling, distribution and administration overheads are recovered by charging £20 per hour and the company requires a 10% mark-up on selling price.

You are require to

  1. Explain how you would arrive at the total cost for the job and the cost per leaflet.
  2. Calculate the total production cost
  3. Calculate the price that the company must quote for the job
  4. Re-estimate the price that the company must quote if
  5. The budgeted number of hour that the job requires is readjusted to 2.5 hours
  6. The budgeted number of hour that the job requires is readjusted to 1.5 hours 

PART C: AC 3.3 Assess the viability of a project using investment appraisal techniques 

The following data relate to two investment projects, only one of which may be selected:

                                                                          Project A                             Project B                                                                                                                                                  £                                                                              £                                            £

Initial Investment                                              50000                                   50000

Cash inflows year 1                                             35000                                   20000

2                                             30000                                   20000

3                                             25000                                   24000

4                                             20000                                   36000

At the end of year 4, project A and B will each have a resale value of £10,000. The cost of capital is 10%.

You are required to:

  1. Calculate for each project:
  1. The average annual rate of return on average capital invested (Accounting rate of return)
  2. The payback period
  • The net present value
  1. The profitability index
  1. Define the internal rate of return
  1. Briefly discuss the relative advantages and disadvantages of the four methods of evaluation mentioned in (1) above
  1. Explain which project you would recommend for acceptance
ASSIGNMENT

TASK 4

Note: This task consists of 3 parts (A, B and C)

PART A: AC 4.1 Discuss the main financial statements

“The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions” (International Accounting Standards Board, 2007).

Financial statements are intended to be understandable by readers who have “a reasonable knowledge of business and economic activities and accounting, and who are willing to study the information diligently”. They may be used by different users for different purposes.

You are required to discuss the main financial statements i.e. Profit and Loss account, Balance Sheet, Cash Flow Statement and Notes by explaining for each statement:

  1. Its purpose for the various users, e.g. investors, government (tax authority), etc…;
  2. Any changes, to reporting requirements under International Accounting Standards (IAS); e.g. ‘Statement of Comprehensive Income’ replacing ‘Profit and Loss account’. Provide reference to standards where appropriate (e.g. inventory – IAS2; Cash flow statement – FRS1)

PART B: AC 4.2 Compare appropriate formats of financial statements for different types of business

R Riggs and J & B Associates are two retailers in the fashion industry whose final drafts of financial statements are represented below.

  • What type of business are R Riggs and J & B Associates operating (e.g. Limited Liability Company, etc…)? For each business, justify your answer by identifying at least 3 factors that motivated your choice.
  • Which business appears to be the most profitable? Justify your answer.
  • Which business appears to be less liquid? Justify your answer. 

R Riggs

Profit and Loss Account for the year ended 28 February 2007

£                           £

Sales                                                                                                       157,165

Less Cost of goods sold:

Opening stock                                                               4,120

Add Purchases                                                             92,800

96,920

Less Closing stock                                                         2,400                  94,520

Gross profit                                                                                             62,645

Add discounts received                                                                                  160

62,805

Less Expenses:

Wages and salaries                                                    31,740

Rent                                                                             3,170

Discounts allowed                                                          820

Van running costs                                                           687

Bad debts                                                                        730

Doubtful debt provision                                                    91

Depreciation                                                                 1,630                   38,868

Net Profit                                                                                                     23,937

R Riggs

Balance Sheet as at 28 February 2007

£                        £                         £

Fixed assets

Office furniture                                                                               2,900

Less depreciation                                                                               380                   2,520

Delivery van                                                                                    3,750

Less depreciation                                                                             1,250                   2,500

5,020

Current Assets

Stock                                                                                                2,400

Debtors                                                                12,316

Less provision for doubtful debts                             496               11,820

Prepaid expenses                                                                                 230

Cash at bank                                                                                     4,100

Cash in hand                                                                                        324

18,874

Less current liabilities

Creditors                                                                 5,245

Expenses owing                                                         412                  5,657

Net current assets                                                                                                            13,217

Net assets                                                                                                                        18,237

Financed by

Capital

Opening balance                                                                                                  11,400

Add net profit                                                                                                       23,937

35,337

Less drawings                                                                                                               17,100

18,237

J & B Associates

Profit and Loss Account for the year ended 30 March 2007 

£                                 £

Sales                                                                                                                      363,111

Less Cost of goods sold:

Opening stock                                                                     62,740

Add purchases                                                                    210,000

272,740

Less closing stock                                                                74,210                       198,530

Gross profit                                                                                                           164,581

Add Reduction in provision for doubtful debt                                                              150

164,731

Less Expenses:

Salaries                                                                               58,529

Office expenses                                                                    4,975

Carriage outwards                                                                3,410

Discounts allowed                                                                   620

Bad debts                                                                              1,632

Loan interest                                                                         3,900

Depreciation                                                                          5,600                        78,666

Net Profit                                                                                                                  86,065

 

Add Interest on drawings:    J                                                    900

B                                                    600                            1,500

87,565

Less Interest on capital:       J                             5,000

B                            3,750              8,750

Salary:                         J                                                   30,000                       38,750

48,815 

Shared:                                 J                                                   29,289

B                                                  19,526                       48,815                                                                                        

J & B Associates

Balance Sheet as at 30 March 2007

£                        £                           £

Fixed assets

Buildings                                                                                     155,000

Fixtures                                                                                            3,400                   158,400

Current assets

Debtors                                                                                            60,150

Stock                                                                                                74,210

Bank                                                                                                   6,130

140,490

Current liabilities

Creditors                                                              26,590

Accruals                                                                    935                   27,525

Net current assets                                                                                                         112,965

271,365

Less loan from P Prince                                                                                                     65,000

Net assets                                                                                                                        206,365 

Financed by

Capital accounts:     J                                                                         100,000

B                                                                           75,000             175,000

Current accounts:                                                       J                           B

Opening balance                                                   4,100                   1,200

Add Interest on capital                                         5,000                   3,750

Salary                                                         30,000                       –

Balance of profit                                        29,289                  19,526

68,389                  24,476

Less drawings                                                     31,800                  28,200

Interest on drawings                                        900                       600

35,689                  (4,324)               31,365

206,365      

PART C: AC 4.3 Interpret financial statements using appropriate ratios and comparisons, both internal and external.

Jane has £40 000 to invest and is considering buying some ordinary shares in Staton plc.

The current market price of the ordinary shares is 80p.

The following information has been extracted from the published accounts of Staton plc. for the year ended 30 April 2008.

                                                                                                          £
Operating profit for the year                                                      1,144,000
Interest payable                                                                             394,000
Net profit for the year                                                                    750,000
Total dividends for the year                                                           200,000
Fixed assets: net book value                                                     13,800,000
Stock                                                                                              478,600
Other current assets                                                                       597,680
Creditors: amount falling due within one year                           1,187,600
Creditors: amounts falling due after more than one year           7,880,000
Issued ordinary shares of £1 each fully paid                              5,000,000
Reserves                                                                                        808,680

Additional information:

The following ratios relate to Staton plc for the year ended 30 April 2007.

Gearing                         68.65%

Earnings per share         12p

Dividend per share        3.75p

Dividend yield                6.25%

Dividend cover               3.2 times

Price/earnings ratio          5

(a) You are required to calculate the following ratios for the year ended 30 April 2008. State the formulae used.

(i) Gearing

(ii) Earnings per share (EPS)

(iii) Dividend per share

(iv) Dividend yield

(v) Dividend cover

(vi) Price/earnings ratio

(b) Write a brief report to Jane advising, with reasons, whether or not she should invest in Staton plc

Achievement of a pass grade

A pass grade is achieved by meeting all the requirements defined in the assessment criteria for each individual unit.

Achievement of a merit or distinction grade

All the assessment criteria and merit grade descriptors need to be completed within a unit to achieve a merit grade.

All the assessment criteria, merit and distinction grade descriptors must be completed within a unit to achieve a distinction grade.

Merit Description Distinction Description
M1       identify and apply strategies to find appropriate solutions

M2 select/design and apply appropriate methods/techniques

M3  present and communicate appropriate findings

D1  use critical reflection to evaluate own work and justify valid conclusions

D2 Take responsibility for managing and organising activities

D3 demonstrate   convergent /lateral /creative thinking

Extension and Late Submission

If an extension is necessary for a valid reason, requests can me made using a course work extension request form available from the college. Please note that the lecturers do not have the authority to extend the coursework deadlines and therefore do not ask them to award a coursework extension.

The completed form must be accompanied by evidence such as a medical certificate in the event of you being sick.

Plagiarism and Collusion

Any act of plagiarism and collusion will be seriously dealt with according to the regulations. In this context the definition and scope of plagiarism are presented below:

‘Plagiarism occurs when a student misrepresents, as his/her own work, the work, written or otherwise, of any other person (including another student) or of any institution. Examples of forms of plagiarism include[1]:

  • the verbatim (word for word) copying of another’s work without appropriate and correctly presented acknowledgement;
  • the close paraphrasing of another’s work by simply changing a few words or altering the order of presentation, without appropriate and correctly presented acknowledgement;
  • unacknowledged quotation of phrases from another’s work;
  • The deliberate and detailed presentation of another’s concept as one’s own.’

All types of work submitted by students are covered by this definition, including, written work, diagrams, designs, engineering drawings and pictures.

‘Collusion occurs when, unless with official approval (e.g. in the case of group projects), two or more students consciously collaborate in the preparation and production of work which is ultimately submitted by each in an identical, or substantially similar, form and/or is represented by each to be the product of his or her individual efforts. Collusion also occurs where there is unauthorised co-operation between a student and another person in the preparation and production of work which is presented as the student’s own. ’

Unit 2: Managing Financial Resources and Decisions

(H/601/0548) 

Textbooks         

Dyson J R – Accounting for Non-Accounting Students (Financial Times/Prentice

Hall, 2007) ISBN: 9780273709220

Journals and newspapers 

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 

The professional accounting bodies all have websites with lots of useful

information and links.

www.aat.co.uk The Association of Accounting Technicians

www.bized.co.uk Bized provides a selection of teaching and learning resources

www.ft.com The Financial Times

Programme:                             BTEC Higher National Diploma in Business (Marketing)

Unit Title and Number:           Managing Financial Resources and Decisions (Unit 2)

Module Tutor:

Learner’s Name :__________________________________Learner ID:____________

 

Assessment CriteriaMetEvidence 

Feedback

1.1identify the sources of finance available to a business
1.2assess the implications of the different sources
1.3evaluate appropriate sources of finance for a business

project

2.1analyse the costs of different sources of finance
2.2explain the importance of financial planning
2.3assess the information needs of different decision

makers

2.4explain the impact of finance on the financial statements
3.1analyse budgets and make appropriate decisions
3.2explain the calculation of unit costs and make pricing

decisions using relevant information

3.3assess the viability of a project using investment

appraisal techniques

4.1discuss the main financial statements
4.2compare appropriate formats of financial statements for

different types of business

4.3interpret financial statements using appropriate ratios and comparisons, both internal and external.

 


Merit Descriptors
Assessment Criteria for Merit.

The learner demonstrates that:

Met Y/NPage No.Assessor Comments
M1 Identify and apply strategies to find appropriate solutions.·         effective judgements have been  made

·         complex problems with more than one variable have been explored

·         an effective approach to study and research has   been applied

 

M2 Select/design and apply appropriate methods/techniques

·         relevant theories and techniques have been applied

·         a range of methods and techniques have been applied

·         a range of sources of information has been used

·         the selection of methods and techniques/sources has been justified

·         the design of methods/techniques has been justified

·         complex information/data has been synthesised and processed

·         appropriate learning methods/techniques have been applied

M3 Present and communicate appropriate findings·         the appropriate structure and approach has been used

·         coherent, logical development of principles/concepts for the intended audience

·         a range of methods of presentation have been used and technical language has been accurately used

·         communication has taken place in familiar and unfamiliar contexts

·         The communication is appropriate for familiar and unfamiliar audiences and appropriate media have been used.

Distinction Descriptors Assessment Criteria for Distinction.

The learner demonstrates that:

Met Y/NPage No.Assessor Comments
 

D1 Use critical reflection to evaluate own work and justify valid conclusions

·         conclusions have been arrived at through synthesis of ideas and have been justified

·         the validity of results has been evaluated using defined criteria

·         self-criticism of approach has taken place

·         realistic improvements have been proposed against defined characteristics for success

 

D2 Take responsibility for managing and organising activities

·         autonomy/independence has been demonstrated

·         substantial activities, projects or investigations have been planned, managed and organised

·         activities have been managed

·         the unforeseen has been accommodated

·         the importance of interdependence has been recognised and achieved

 

D3  Demonstrate convergent / lateral / creative thinking

·         ideas have been generated and decisions taken

·         self-evaluation has taken place

·         convergent and lateral thinking have been applied

·         problems have been solved

·         innovation and creative thought have been applied

·         receptiveness to new ideas is evident

·         effective thinking has taken place in unfamiliar contexts

 

Assessor’s General Comments:

Assessor’s Signature:……………………………………………………  Date: ……………………………………

Print Name:

Learner’s Comments: 

Signature:                                                                                                                           Date:

Print Name:

 

Maddox Smith

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