ACCA培训讲义.doc

Contents pagePreface; 11. Working capital management; 3 2. Sources of finance; 8 3. Capital investment appraisal; 134. Performance measurement; 205. Costing system, standard cost and variance analysis; 246. Budgeting and budgetary control. 40Examiners approachThe syllabus for Paper 2.4 aims to develop knowledge and understanding in both financial management and management accounting. In financial management, the areas of analysing the benefits of various sources of finance and capital investment opportunities are the main focus of attention. In management accounting the focus is on the application of management accounting techniques to aid business planning and control.The objectives of the syllabusCandidates who successfully pass the examination are expected to be able to: explain the role and purpose of financial management evaluate the overall management of working capital evaluate appropriate sources of finance for particular situations appraise capital investment through the use of appropriate methods identify and implement appropriate costing systems and techniques prepare budgets and use them to control and evaluate organisational performance critically assess the tools and techniques of financial management and control Paper 2.4 builds on Paper 1.2, Financial Information for Management and candidates are expected to have thorough understanding of the Paper 1.2 syllabus.On completion, Paper 2.4 prepares candidates for more advanced study on Paper 3.3, Performance Management and Paper 3.7, Strategic Financial Management.Format of the examinationThe examination comprises two parts. Part A is a compulsory scenario-based question worth 50 marks. The emphasis in this question will usually be on financial management. As the Part A question is compulsory it is expected that all students will attempt it in the examination and allocate an appropriate amount of time.Part B contains four shorter questions worth 25 marks each. Candidates are required to answer any two of these. One of the questions will be entirely discursive. Two questions will be taken from the financial management part of the syllabus and two questions will be taken from the management accounting area. The discursive question may be taken from any part of the syllabus. In the examination, the balance between discussion and computation will be largely the same from diet to diet.There have now been several examinations under the new syllabus and recent papers are a useful guide to the format of questions in the examination.Key areasAs indicated in the Syllabus, the key or core areas are: financial management objectives management of working capital sources of finance capital expenditure and investment costing systems standard costing and variance analysis budgeting and budgetary control. ConclusionIn order to pass this examination candidates should: clearly understand the objectives of the exam as explained in the Syllabus and Study Guide have read and thoroughly studied a suitable financial management and control manual read relevant articles published in student accountant practice examination standard / style questions on a regular basis be able to communicate their understanding clearly in an examination context. 1. Working capital management.1.1 Management of stock1.1.1 Some basic formulaestock holding period = average stock held/ cost of sales365daysstock turnover = cost of sales/ average stock heldstock holding period= finished goods holding period + work in progress holding period + raw material holding period EOQ(how much stock should be reordered)= (2CD/H) C stands for fixed cost( order set-up costs) per order D stands for expected annual sales volume H stands for holding cost per stock unit per annumTotal annual cost of stock= holding cost + reordering cost =(average stockH)+( Number of reorders paC) average stock=EOQ/2, number of reorders( it can be not an integer)= D/ EOQ1.1.2 EOQ Application of EOQ A case : Hexicon plc manufactures and markets automatic washing machines. Among the many hundreds of components which it purchase each year from external suppliers for assembling into the finished article are drive belts, of which it uses 40,000 units pa. It is considering converting its purchasing, delivery and stock control of this item to a just-in-time system. This will raise the number of orders placed but lower the administrative and other costs of placing and receiving orders. Details of actual and expected ordering and carrying costs are given in the table below. Actual PropsedOrdering cost per order $ 100 $25Purchasing cost per item $2.50 $2.50Inventory holding cost 20% 20%(as a percentage of the purchase cost)To implement the new arrangements will require one-off reorganization costs estimated at $4,000 which will be treated as a revenue item for tax purposes. The rate of corporation tax is 33% and Hexicon can obtain finance at 12%. The effective life span of the new system can be assumed to be 8 years.(i) Determine the effect of the new system on EOQ;(ii) Determine whether the new system is worthwhile in financial terms.(i) Present EOQ =(2CD/H) =(2$10040,000)/(20%$2.50) =4,000 units/order Proposed EOQ = (2$2540,000)/(20%$2.50) =2,000 units/orderFrom this it can be seen that the EOQ is halved.(ii) First step: holding cost reduced=(4,000/2-2,000/2) $2.520% =$500 reordering cost reduced=40,000/4,000$100-40,000/2,000$25 =$500 total inventory cost reduced=$1,000 ( before tax) Considering tax shield,total inventory cost reduced=$1,00067%=$670 Second step: calculate NPV Cash Discount Present flow factor value 1-8 After tax savings $670 4.968 $3,329 0 cost of reorganization (4,000) 1.000 (4,000) 0 tax saving(again tax shield) 1,320 1.000 1,320 Net Present Value 649 As NPV is positive, this proposal is worthwhile.1.1.3 JIT The definition of JIT JIT is a work flow organization technique to allow rapid, high quality, flexible production whilst minimizing stock levels and manufacturing waste. The advantages of JIT, eliminating waste at following aspects: (1) WIP, by reducing batch sizes (2) Raw material stock, by the supplier delivering direct to the shop-floor just in time for use. (3) Scrap and rework, by an emphasis on total quality control of design, of the process, and of the material. (4) Finished goods stock, by reducing lead-times so that all products are made to order. (5) Material handling cost, by re-design of the shop-floor so that goods move directly between adjacent work centers. The combination of these advantages in JIT leads to:(1) A smooth flow of work through the manufacturing plant.(2) A flexible production process which is responsive to the customers requirements.(3) Customer makes a long-term commitment to future orders.(4) Reduction in capital tied up in stocks.1.2 Management of debtorA firm should establish a policy for credit terms given to its customers, and consider the harmony between sales improvement and cost of credit allowed.1.2.1 Credit Policy Establishment of credit policyThe period of credit extend will be set by reference to:(1) elasticity of demand for the companys products;(2) credit terms offered by competitors;(3) risk of bad debts resulting from extended credit periods;(4) financing costs and availability of finance;(5) costs of administrating the credit system. Implementation of credit policy(1) Assessing creditworthiness, sources of information are:Trade references.Bank references.Credit agencies and credit associations.Reports form salesmen.Information from competitors.Financial statements analysis.Credit scoring.(2)Monitoring the credit systemAge analysis RatiosStatistical data1.2.3 Financing from debtors FactoringFinance factoring is where the factors makes a cash advance to the client, as well as conducting sales ledger administration and debt collection services.(1) Comparison of the costs between existing policy and factoring offer.In general, cost of existing policy at least includes:funding cost for debtor.administrative cost.bad debts lossCost of factoring offer probably includes:service chargeinterest of advance payment(2) A case A company has monthly credit sales of $200,000, and it gives customers 60 days credit. All customers take the full credit allowed. It has bad debts each year amounting to about 2.5% of sales turnover. It operates with a bank overdraft and pays interest at 8% on its overdraft balance.The company s management is considering whether to use a factor to collect is debts, under a non-recourse factoring arrangement. A factor has indicated that it will take over the administration of the sales ledger and debt collection for a fee of 2% of annual credit sales turnover. This would save the company internal operating costs of $30,000 each year.The factor would also charge 1.5% of turnover for credit insurance.The factor will advance 80% of the value of invoices as soon as they are sent out, and charge interest at 7.75%.If the services of the factor are used, it is anticipated that there will be no change in annual sales turnover and no change in the collection period of 60 days.Required:Assess the financial consequences of using the factor for non-recourse factoring and factor finance. Step 1 Cost of existing policy Funding cost= 2$200,0008% =$32,000 Bad debts loss= 12$200,0002.5%=$60,000 Administrative cost=$30,000 Total cost of existing policy=$122,000Step 2 Cost of factoring offering Service charge= 12$200,0002%= $48,000 advance payment charge= 2$200,00080%7.75%= $24,800 Reduced funding cost=2$200,0008%20%=$6,400 Credit insurance charge= 12$200,0001.5%=$36,000 Total cost of factoring offering=$ 115,200Step 3 Make comparison Net benefit= factoring offering- Cost of factoring offering=$122,000-$ 115,200=$6,800(2) Pros and cons of factoring offer firms can have access to flexible source of finance and improve cash flows by getting the finance provided by factors.saving administrative cost.firms can use the factors credit control system to assess the creditworthiness of customers.factors have experts of debtor management, who can be professional in collecting overdue debtors.Economy of scale. However, factoring offer is still faced with some problems:endanger trading relationship and damage goodwill.when non-recourse factoring offer is selected, the firms lose control over decisions about granting favorable credit to its customers for the sake of other considerations.firms will possibly be questioned the financial stability. Invoice discounting (1) Definition: invoice discounting is a method of raising finance against the security of debtors without using the sales ledger administration services of a factor. (2) pros and cons 1.3 Management of trade creditors1.3.1 Costs associated with extending credit taken beyond the norm loss of discounts; (explicit cost) loss of supplier goodwill; (implicit cost) more stringent terms for future sales. (implicit cost)1.3.2 Cost of discounts lost. A Case A business is buying $1,000 worth of goods per moth and can take 2.5% discount if it settles accounts within one month. It will lose that source of supply if it delays payment for more than three months. An alternative supply of goods will be difficult to obtain in the event of the business getting a bad name.To work out the cost to the business of taking the extra two months credit and losing the discount, carry out the following steps: Step 1 discount available=2.5%$1,000=$25 Amount due if discount has been taken=$1,000-$25=$975 Step2 effective interesting cost of not taking the discount is: Discount available/Discounted amount due=$25/$975=0.0256 Effective annual interesting rate=(1+0.0256)6-1=16.4% Step 3 compared with the funding interest rate of the firms 1.4 Management of cash1.4.1 Investment of surplus cash Factors to be considered: liquidity: Available for use when needed; safety: No risk of loss must be taken; Profitability: Earn highest possible after tax returns. Ways of investments certificate of deposit (CD); local authority bonds; Bank deposits with various kinds; Treasury bills are short term debt instruments; Finance house deposits.1.4.2 Borrowing from the bank- overdraft This will be discussed later in combination with the source of finance.1.4.3 Cash management model Baumol cash management model x=2annual cash disbursements cost per sale of securities interest rate EOQ model can be applied to this situation, x means the optimum regular cashinjection into the current account. Miller-Orr management modelspread=3(transaction cost3/4variance)/interest cost1/3transaction cost=per sale or purchase of giltsvariance of cash flow= (standard deviation per day)2interest cost= interest cost per day This model controls irregular movements of cash and sets the spread between the upper and lower cash balance limits. Lower limit= set by the company; Upper limit= lower limit + spread Return point=lower limit + spread/3 1.5 cash operating cycle cash operating cycle=stock holding period + debtors collection period - creditors payment period Related ratio calculation and analysis will be discussed in combination with performance measurement.2 sources of financeA firm can generally approach finance through two alternative ways, which are debt finance and equity finance. These may be summarized as follows: Debt finance: (1) short-term; (2) medium-term;(3) long-term;(4) special purpose (1) short-term includes: trade credit, bank overdrafts (2) medium-term includes: bank loans, leasing, hire purchase(HP) (3) long-term includes: bonds, debentures (4) special purpose includes: government grants and loans, convertibles, warrantsEquity finance: (1) new issues; (2) internally generated(1) new issues include: rights issues, placing, issuing to the general public(2) internally generated: retained earningsnote: remember clearly the sources of finance and their category, it will be highly useful for you to answer the question related, such as if a firm is in financial deficit, the examiner will be apt to ask you the way to cope with the crisis, you should use the category above to avoid omitting some sources. 2.1 Sources of finance: debt2.1.1 Yield curve(1) Definition: A yield curve is a diagrammatic representation of the term structure of interest rates. The term structure of interest rates refer to the way in which the yield of a security varies according to the term of the security, also means to the length of time before the borrowing will be paid.(2) Shape: In general, redemption yields will rise as term to maturity increase. However, in order to curb economic growth or inflation the short-term rates will be higher than longer-term rates leading to a falling yield curve.(3) Function: financial manager should inspect the current shape of the yield curve when deciding on the term of borrowings or deposits, since the curve reflects the markets expectation of future movements in interest rates.For instance, a yield curve sloping steeply upwards suggests that interest rates will rise in the future, the manager may therefore prefer short-term variable rate borrowing or long-term fixed rate borrowing; a yield curve sloping steeply downwards suggests that interest rates will drop in the future, the manager may therefore prefer long-term variable rate borrowing.2.1.2 Characteristics of debts (1) Debts from the viewpoint of company: Pros: debt is cheap compared with equity. Debt is an allowable expense for tax, and the debt holder can accept a lower rate of return because the cost is fixed. no dilution of control. Cons: interest must be paid whatever the earnings of the company. high geared company will be required a higher dividend by the shareholder to compensate the risk they are faced with. with fixed maturity dates, provision must be made in advance. if the interest rates falls, it will be a burden for long-term debt. (2) Debts from the viewpoints of holders:Pros: risk is low. Holders income is fixed and has priority in interest paymentwhen liquidation. Cons: commonly has no voting rights.2.2 sources of finance: equity (including hybrids) 2.2.1 Some definitions of equity ordinary shares. Preference share is considered part of debt as it bears more resemblance to debt finance. rights issue. An offer to the existing shareholders to subscribe for more shares, isin proportion to their existing holding, usually at a relatively cheap price. bonus issue. A method of altering the share