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ACCA P5 Advanced Performance Management

Sample Study Note

For exams in DEC2014










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© Lesco Group Limited, April 2015
All rights reserved. No part of this publication may be reproduced, stored in a
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Sample Note Content:


Product Summary .............................................. Error! Bookmark not defined.
Live online course timetable: ............................... Error! Bookmark not defined.
Sample note: Corporate failure prediction ......................................................... 7








Please note:
This is just the sample study note extracted from the main study note in your tuition study
[This tuition study note is consistent in basic/super/gold package]. There would be more
chapters in the main study note covering the whole ACCA syllabus.
You can also take a look at the content within the main study note below:







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Product Summary














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Live online course timetable


Timetable: [Super+Gold package-additional revision would
be agreed between tutor and student]
Live Online Revision
Live revision1 Live revision2
F5 Performance management 25
th
Oct 7:00a.m.-14:00 22
nd
Nov 6:00a.m.-13:00
F7 Financial Reporting (INT) 2
nd
Nov 6:00a.m.-13:00 29
th
Nov 6:00a.m.-13:00
F8 Audit and Assurance (INT) 18
th
Oct 7:00a.m.-14:00 19
th
Oct 7:00a.m.-14:00
F9 Financial Management 4
th
Oct 7:00a.m.-14:00 5
th
Oct 7:00a.m.-14:00
P1 Governance, Risk and
Ethics
1
st
Nov 6:00a.m.-13:00 30
th
Nov 6:00a.m.-13:00
P2 Corporate Reporting (INT) 26
th
Oct 7:00a.m.-14:00 9
th
Nov 6:00a.m.-13:00
P3 Business Analysis 11
th
Oct 7:00a.m.-14:00 12
th
Oct 7:00a.m.-14:00
P4 Advanced Financial
Management
8
th
Nov 6:00a.m.-13:00 23
rd
Nov 6:00a.m.-13:00
P5 Advanced Performance
management
15
th
Nov 6:00a.m.-13:00 16
th
Nov 6:00a.m.-13:00
P7 Advanced Audit and
Assurance (INT)
27
th
Sept 7:00a.m.-14:00 28
th
Sept 7:00a.m.-14:00

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Last minute revision
Last minute revision Tutor
F5 Performance management 28
th
Nov 12:00-14:00 Ian
F7 Financial Reporting (INT) 1
st
Dec 12:00-14:00 Steve
F8 Audit and Assurance (INT) 22
nd
Nov 14:30-16:30 Alan
F9 Financial Management 22
nd
Oct 12:00-14:00 Steve
P1 Governance, Risk and Ethics 30
th
Nov 13:30-15:30 Alan
P2 Corporate Reporting (INT) 16
th
Nov 14:00-18:00(4hrs) Kieran
P3 Business Analysis 18
th
Oct 14:30-16:30 Alan
P4 Advanced Financial Management 19
th
Nov 12:00-14:00 Steve
P5 Advanced Performance management 21st Nov 12:00-14:00 Ian Janes
P7 Advanced Audit and Assurance (INT) 23
rd
Nov 13:30-15:30 Alan









*Please Note: This Timetable may be subjected to future changes.
Kindly check regularly for any possible updates.



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Sample note: Corporate failure prediction

Quantitative measure: Altman Z score

Z = 1·2X1 + 1·4X2 + 3·3X3 + 0·6X4 + X5

Where:
X1 is working capital/total assets (WC/TA);
X2 is retained earnings reserve/total assets (RE/TA);
X3 is Profit before interest and tax/total assets (PBIT/TA);
X4 is market value of equity/total long-term debt (Mve/total long-term debt);
X5 is Revenue/total assets (Revenue/TA).

Key to remember:
 If the score is 3 or above they are financially sound
 Between 1.81 and 2.99 they need further investigation [grey area]
 Below 1.81 they are in danger of bankruptcy

What to do to prevent failure?
 See the signs and take action.
 Seek external advice.
 Management accept there is a problem.
 Make strategic changes as necessary.
 Put in more controls and management systems.

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Qualitative measure: Argenti’s A score
Qualitative models such as Argenti use a variety of qualitative and some
nonaccounting factors such as management experience, dependence on one or a
few customers or suppliers, a history of qualified audit opinions and the business
environment including the industry and economic situation.
Argenti developed a model, which is intended to predict the likelihood of company
failure based on three connecting areas that indicate likely failure:
 defects,
 mistakes
 symptoms of failure
Which are all awarded a specific score.
















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Sources of
problems
Variable Score
A Management defects
 Chief Executive is an autocrat 8
 Chief Executive also holds position of Chairman 4
 Passive Board of Directors 2
 Unbalanced Board of Directors, not representing all business functions or
overweight in one discipline
2

 Weak Finance Director
2
 Poor management in team 1

Accounting defects
No budgets or budgetary controls

3
No cash flow forecasts, or not up to date 3

No costing system: costs and contribution of each product or service are not known
3

Poor response to change: old-fashioned product or service, obsolete production
facilities, out-of-date marketing methods; old directors
15
43
B Management mistakes(as a result from the above defects)
High gearing 15
Overtrading 15
Failure of a big project 15
45
C Symptoms of trouble(as a result from the above defects and mistakes)
Financial indicators forecasting poor results[poor Z-score]

4
Creative Accounting

4
Non-financial signs (eg high staff turnover). 4
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Score Maximum permitted
A 10
B 15
C 0
25

If any score which are more than 25 then it will need immediate action to avoid
company insolvency.

















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Strengths and weaknesses of quantitative and qualitative models for
predicting corporate failure

Quantitative models:
Advantages:
 Quantitative models such as the Altman Z-score use publicly available
financial information about a firm in order to predict whether it is likely to fail
within the two-year period.
 The advantages of such methods are that they are simple to calculate and
provide an objective measure of failure.

Disadvantages:
 However, they only give guidance below the danger level of 1·8 and there is
potential for a large grey area[1.81-2.99] in which no clear prediction can be
made.
 Additionally, the prediction of failure of those companies below 1·8 is only a
probabilistic one, not a guarantee. This means not every company with Z
score under 1.8 will go bankruptcy.
 These models are open to manipulation through creative accounting which
can be a feature of companies in trouble.
Qualitative models:

Advantages:
 The advantage of the method is the ability to use non-financial as well as
financial measures and the judgment of the investigator

Disadvantages:
 But this is subjective and will vary from different investigators.

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