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ASSESSMENT CRITERIA

Learner name: LALITESH SUTRAVE

Learners Registration No: DL11071

Course title: Unit 2: Managing Financial Resources and Decisions

Unit code: H/601/0548

QCF Level 5

Pass

Distinction

Assessor name : Dr.NEERAJA
Task

LO

Assessment criteria

1.1

1

1.2

1

1.3

1

1.3 evaluate appropriate sources of finance for a business
project

P

2.1

2

2.1 analyse the costs of different sources of finance

P

2.2

2

2.2 explain the importance of financial planning

P

2.3

2

2.4

2

3.1

3

3.2

3

3.3

3

4.1

4

4.2

4

4.3

4

1.1 identify the sources of finance available to a business

P

1.2 assess the implications of the different sources

P

2.3 assess the information needs of different decision
makers
2.4 explain the impact of finance on the financial
statements

P

P

M2

D1
M2
D2

P

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.

1:

M1

P

4.1 discuss the main financial statements

Review dates

D1

P

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

Hand-in date

M2

P

3.1 analyse budgets and make appropriate decisions

Date set:

Merit

P

M2

P

M2
Submitted Date:

2:

3:

4:

Learner declaration I, hereby confirm that this assignment is my own work and not copied or plagiarized. It
has not previously been submitted as part of any assessment for this qualification. All the sources, from
which information has been obtained for this assignment, have been referenced. (Harvard format). I further
confirm that I have read and understood the Roots Business School rules and regulations about plagiarism

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and copying and agree to be bound by them
Learner signature

Date

Tasks
Task
Evidence required for
No
(Include the grading statement from the published specifications)
learning outcome
ASSIGNMENT I
PONNI SUGARS & CHEMICALS LIMITED
1
Ascertain different sources of finance
1.1 identify the sources of finance available to
a business
available in the given case.
2
Enumerate the implications for each source of
1.2 assess the implications of the different
sources
finance
3
Evaluate different sources of finance for the
1.3 evaluate appropriate sources of finance
for a business project
project of Ponni Sugars and Chemicals Ltd
4
For different sources of finance evaluate by
2.1 analyse the costs of different sources of
finance
comparison
5
What is financial planning how does it help the
2.2 explain the importance of financial
planning
organisation
6
Evaluate the information needs of different
2.3 assess the information needs of different
decision makers
decision makers in a organisation
7
Assess the impact of finance on financial
2.4 explain the impact of finance on the
financial statements
statements
ASSIGNMENT II TESCO RETAIL OUTLET & Vishal Mega Mart
8
3.1 analyse budgets and make appropriate
Analyze budgets and recommend actions
decisions
9
3.2 explain the calculation of unit costs and
Assess costing and recommend pricing
make pricing decisions using relevant
decisions
information
10
Ascertain project viability by using investment
3.3 assess the viability of a project using
investment appraisal techniques
appraisal methods
11
Explain financial statements and their purpose.
4.1 discuss the main financial statements
12
Compare financial statements of different
4.2 compare appropriate formats of financial
statements for different types of business
businesses
13
4.3 interpret financial statements using
Compare financial statements both internal and
appropriate ratios and comparisons, both
external using financial ratios.
internal and external.

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ASSIGNMENT 1

Task 1.1
Identify the different sources of finance available to Ponni Sugars &
Chemicals Ltd.
Equity Share capital
Common stocks are equity share capital. It means you paid for a fixed amount of ownership by
buying stock company, and if that company's value and profitability goes up or down, so does
the value of that stock. In short, it means you have "an equal share" in that company's capital.
Equity capital is integral to a company's financing strategies, as it provides the lifeblood
necessary to fund short-term initiatives. Besides, equity helps senior leadership maintain healthy
working capital ratios. Working capital gauges an organization's short-term cash and equals
current assets minus current liabilities. Having a varied group of equity holders helps a company
diversify its financing sources, enabling corporate managers to seek additional funds for longterm expansion plans. (1)
Preference Share Capital
Preference Share Capital is often considered as a hybrid form of financing because it has many
features of both equity shares and debenture. It resembles equity capital in the following ways:
(i) The non-payment of dividend does not force the company to insolvency in other words,
(ii) Preference dividend is not an obligatory payment.
(iii) Dividends are not a tax-deductible payment.
(iv)In some cases, preference shares have no fixed maturity date.
On the other hand, it is similar to debentures are.
(i) Dividend rate of preference shares is usually fixed just like it is fixed on debentures,
(ii) Preference shares don't share in residual earnings,
(iii) Preference shareholders normally don't enjoy the voting right. (2)

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a long-term asset can be held for as little as one year or for as long as 30 years or more. if the corporation takes a loss. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure.g.to long-term debt instrument used by large companies to borrow money.Debentures A debenture is a document that either creates a debt or acknowledges it. Retained earnings and losses are cumulative from year to year with losses offsetting earnings. Similarly. was not all truly yours. on changes to the rights attached to the debentures. This is a very important source of funding for startups that do not have access MFRD Page 4 . (3) Long term Loan (LTL) Holding an asset for an extended period of time. but they may have separate meetings or votes e. retained earnings refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Retained earnings are reported in the shareholders' equity section of the balance sheet. then that loss is retained and called variously retained losses. accumulated losses or accumulated deficit. inventory or equipment which can then be used to create additional income for the business. (5) Venture Capital: Money provided by investors to startup firms and small businesses with perceived long-term growth potential. A form of debt that is paid off over an extended time frame that exceeds one year in duration. The interest paid to them is a charge against profit in the company's financial statements. Depending on the type of security. (4) Retained earning Retained earnings is an accounting term that means that the amount of money you though you earned. In corporate finance. the term is used for a medium. Senior debentures get paid before subordinate debentures. It's your net income minus the percentage "retained" by your employer In accounting. and there are varying rates of risk and payoff for these categories. Debentures are generally freely transferable by the debenture holder. Obtaining a long term loan provides a business with working capital that it can use to purchase assets. loan stock or note. and it is a debt without collateral. Companies with net accumulated losses may refer to negative shareholders' equity as a shareholders' deficit. Debenture holders have no rights to vote in the company's general meetings of shareholders. it does not become share capital. In some countries the term is used interchangeably with bond. A complete report of the retained earnings or retained losses is presented in the Statement of Retained Earnings or Statement of Retained Losses.

Law requires company to give existing equity shareholders the first opportunity to purchase additional equity shares. Financial implications: 1. like finance. 2.to capital markets. It typically entails high risk for the investor. but if the company skips paying dividends for a long time. This institution helps in identifying and combining pieces of companies. 3. Once integrated. It is also a way in which public and private actors can construct an institution that systematically creates networks for the new firms and industries. Preference share have an preference over equity for re-payment of capital in the event of winding-up. (6) TASK 2 1. preference shareholders acquire voting rights as per law. Claims arise only after satisfying the claims of preference shares. They do not have any preference for payment of dividend or repayment of capital. Equity shareholders are entitled to voting rights by the law. so that they can progress. preference shareholders are entitled to claim liquidation. 3. This makes the relative cost of equity more. Preference share capital Preference shares are more prior shares. Payment of dividends is not legal. The laws say that in case of bankruptcy. Hence dilution of ownership and control of the firm. Legal implications 1. Dividends are paid out of profit after tax. 2. Financial implications: MFRD Page 5 .2 assess the implications of the different sources Equity share capital Legal implications: 1. The cost of equity capital is high. They have a prior claim on the assets and earnings of the firm. but it has the potential for above Average returns. 2. these enterprises succeed by becoming nodes in the search networks for designing and building products in their domain. know-how of marketing and business models. technical expertise.

Company enjoys greater flexibility in designing the debenture issue but after the issue. Avoid issue of cost. Obtain clearance and licenses from various government agencies. This causes a sizeable amount of expenditure. MFRD Page 6 . Financial implications 1. A firm has to reduce the proportion of debt in its capital structure by issuing additional equity and preference capital. 2) Does not lead to payment of cash. Opportunity cost is quite high as it represents dividends foregone by equity shareholders. Redemption of debentures poses a financial distress. As per law. 3. Receives fixed rate of interest whether the company makes profit or loss.1. both present and future. 2. 2. the firm hardly has any freedom in re-negotiating the terms of the issue. Debentures Legal implications 1. Appointment of a trustee through a trust deed is must. 2. Retained earnings Legal implications: 1) Less legal implications as it is available internally and do not require talking to lenders. Financial implications 1. 3. 2. Financial distress on account of redemption obligation is not high. 2. it is a very expensive source of financing because dividend payable is not tax deductible. 2. Mortgage of all immovable properties of the borrower. Compared to debt capital. Long term loan Legal implications: 1. Financial implications: 1. Payment of interest. Financial institutions have a right to appoint nominee directors. Payment of interest is must but it is tax deductible.

70. Option I: Equity share Capital (208000 Equity shares of 100 each) Rs.000 6% Loan from IDBI.32.000) 97. 08.00. 12.08. 00. 2. 05.1000) Rs.07. 00.12. 6.000 10% Preference share Capital (605000 PS of 100 each) Rs.00.70. 00.50.000 Earnings per share (EPS) = Earning after interest and Tax Total Equity Shares Particulars Rs Earnings before Interest and Tax 100. 00. 00.TASK 3 1. 00.000 + 22. 05.000 x 6/100) (1.00.000 Less: Corporate tax(97.50.000 MFRD .00.000 x 40/100) (39. 50. 00.00.5 208000 Capital Gearing Ratio: Inside funds = 2.000 Less: Interest on Loan (22.000 EPS = 58. 82.67.Financial Institution Rs. 08. 00.00.30.00.000 Less: Interest on Debentures (12. 00.000 Retained Earnings Rs.62. 2788. 22.05. 00.3 evaluate appropriate sources of finance for a business project The most preferable option which gives appropriate sources of finance is Option I: This detail will help us to know which option would be better.000) 58.00. 2.00.67. 05.000 = Rs. Page 7 .000x10/100) Earnings after Interest.60. 00.00.000 Less: Dividends on Preference Shares (6. 82.000 8% Debentures (face value Rs. 05.000 x 8/100) (1. Tax and Dividends (60.05. 12.000 + 2.000) 58.000 Outside Funds 6.000+12.000) 99. 50.

000 = High Geared Option II: Equity share Capital (605000 Equity shares of 100 each) Rs.000 Retained Earnings Rs.000 6% Loan from IDBI.3 605000 MFRD Page 8 .23.08. 50.60.000 40. 60.16.00.48. 00. 82.000x10/100) Earnings after Interest.000 Less: Interest on Loan (12. 08.49.000 x 8/100) (1. 2.48.36.2. 00.05.000 = Rs. 00. 00.50.76.40.60.1000) Rs.000 EPS = 58.000 x 40/100) (38. 22.000 Less: Dividends on Preference Shares (2.28.00.000 10% Preference share Capital (208000 PS of 100 each) Rs.000 Less: Interest on Debentures (22. 12. 28.80. 05.000 Particulars Rs Earnings before Interest and Tax 100.000) 58.00.99. 00. 05.000) 98.000 8% Debentures (face value Rs. 6. Tax and Dividends (20.000) 97.Financial Institution Rs. 36. 963.000) 58.44.00.= 4.00.60.00. 00. 90. 00.000x 6/100) (75.000 Less: Corporate tax(97.

000 x 8/100) (1. 05. 00.2 Page 9 .000 Less: Interest on Loan (6.63. 00.00.00. 00.00. 72.63. 000x10/100) Earnings after Interest.000 Less: Interest on Debentures (12. 82. 00.000 = 8.000 Option III: Equity share Capital (208000 Equity shares of 100 each) Rs. 12.30.000 Retained Earnings Rs. 87. 2.20.50. 97.Capital Gearing Ratio= 6. Tax and Dividends EPS = 56. 00.70.000) 56. 00. 05. 22. 08.05.00. 05.45.18.000+12.97.000 = Rs.70.22. 00.00. 08.00.000+22. 00.000 8% Debentures (face value Rs.00.000) 98.000 Less: Dividends on Preference Shares (22.48. 00.00. 2739.000 Less: Corporate tax(98.000 Particulars Rs Earnings before Interest and Tax 100. 50.72.000x 6/100) (36.000 10% Preference share Capital (2205000 PS of 100 each) Rs. 50. 05.000) 59.000 + 2. 2.000 2.Financial Institution Rs.000) 99. 82.000 6% Loan from IDBI.50.000 MFRD (2.000 x 40/100) (39. 00. 05. 63.000 = High Geared = 36. 00. 00.1000) Rs. 00. 6.

000 Comment: Pooni and Sugars should go for option I which gives the highest amount of earning per share i. 05. In terms of capital gearing ratio is concerned all the three options are having high geared ratio. TASK 4 2. 08. 00. 00.000 = 4. 50. 00. 00. 00. 50. 25. 00.208000 Capital Gearing Ratio= 2.000 Cost of flotation (2%) = 25. Kda= Cost after tax and t= Tax Interest = 1. 00.40 Kda= I (1-t) NP =1.000 = 12.000 Cost of Preference shares: 12.000 x 2= 25.5. 50. 00.000 x 2= 25.Net Proceeds MFRD Page 10 . 00. 00. 90. 00. NP. In the option 1 we are getting more earnings so it is the appropriate choice to make.1 analyse the costs of different sources of finance Answer: Kda= I (1-t) NP Cost of debt= 12.000 100 Where I= Interest. 00.000 Tax = 40% = 0.000 22. D = Annual preference dividend.000 + 2. 00.000+ 12.000 = High Geared 40. 05. 00. 82. 50.000 100 Kp= Cost of preference shares. 00. Hence capital gearing ratio does not make much difference in taking a decision to choose an appropriate option of finance for Pooni and sugars company.000(1. NP = Net proceeds.000 Net proceeds = Principal – cost of flotation = 12.e. 60.000 – 25.000 + 6. Rs 2788. 00.0. 25. Thus by the above details we can find out the amount of dividend they get is dependent on the percentage of profit the company gains in the particular financial year.40) 12. 00. 00.

05. preference shares.000 D= 60. 10. 50. 00.000 6. NP = Net proceeds D = 20% annual dividend and Rs 100 per share value =20 x 100 = 20 100 NP = Rs 100 per share value – Rs 2 cost of issue = 98 Kes= 20 = 0.000 – 12. 05.4% Cost of retained earnings: D= Expected annual dividend per share.102 or 10.000 = 5. 10.1224 Comment: As per the above analysis the cost of retained earnings is lower compare to cost of debt.204 98 Kes = D (1 –t) NP = 20.0. Cost of equity is very high.2 % Kes = D NP Cost of equity shares: D= Expected annual dividend per share.204 X 0.000 59290000 = 0.40) 98 = 0.Cost of flotation (2%) = 12.000 100 Kda= I .000 x 2= 12.000 NP= 6. equity. 00.60 =0. 50. MFRD Page 11 . NP =60. 10. NP = Net proceeds D = 20% annual dividend and Rs 100 per share value NP = Rs 100 per share value – Rs 2 cost of issue = 98 = 20 x 100 = 20 100 K es= 20X (1. 90. 92.

. Here are ten powerful reasons of financial planning.2 explain the importance of financial planning Answer: Financial planning helps in determining short and long-term financial goals and create a balanced plan to meet those goals. MFRD Page 12 . But many assets come with liabilities attached. comes with the understanding of your finances. prudent spending and careful budgeting will help you keep more of your hard earned cash. other monthly expenditures and savings. it becomes important to determine the real value of an asset. the effects of decisions understood. Assets: A nice 'cushion' in the form of assets is desirable. 2. 4. For example. Cash Flow: Increase cash flows by carefully monitoring your spending patterns and expenses. 3. Family Security: Providing for your family's financial security is an important part of the financial planning process. objectives and risk tolerance. you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work. Allowing you to consider investments to improve your overall financial well-being. So. and goals. 8. 5. Giving you a whole new approach to your budget and improving control over your financial lifestyle. Financial Understanding: Better financial understanding can be achieved when measurable financial goals are set. 1. The knowledge of settling or canceling the liabilities. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones. It acts as a guide in helping choose the right types of investments to fit your needs. Investment: A proper financial plan considers your personal circumstances. Tax planning.TASK 5 2. 6. personality. Capital: An increase in cash flow. can lead to an increase in capital. Income: It's possible to manage income more effectively through planning. The overall process helps build assets that don't become a burden in the future. 7. and results reviewed. Managing income helps you understand how much money you'll need for tax payments. Standard of Living: The savings created from good planning can prove beneficial in difficult times.

finance. Director production. But sudden financial changes can still throw you off track. head organization methods and credit control. The managing director will be executing the directions given by the board of directors. which also may arise with the retirement. marketing and human resources. Recommendation to Ponni Sugar & Chemicals Ltd: These recommendations reflect the facts about the reality of new retirement system with a reduced pension rising in the state which in return is a problem for a normal person. The managing director who looks after day to day management of the company requires much more detail reports concerning production. internal auditor. 10. The management accountant directs management controller. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you. director personal. Savings: It used to be called saving for a rainy day. It is good to have some investments with high liquidity. Ongoing Advice: Establishing a relationship with a financial advisor you can trust is critical to achieving your goals. The above decision makers who are at different levels taking different decisions requires different reports to take appropriate decisions. Here the reports depending on the size of the organization may be prepared for monthly or forthnatly to find divisions from the planed budgets. the highest decision making authority for any company is basited on the board of the company.9. director marketing would be on the top making major decisions in their respective departments but taking the directions from managing director. director finance. MFRD Page 13 . The chief management account looks after the financial aspects concerning the organization. These investments can be utilized in times of emergency or for educational purposes. budget controller. There can be many problems for an individual and can also have related general insecurity with regard to individual financial situations.3 assess the information needs of different decision makers Answer: In an any organization we find different decision makers. The decisions taken at board are strategic in nature and requires the figures like sales growth and profitability figures for each quarter and comparative statements relating to the present and the past. TASK 6 2.

 Liabilities: Something a business owes to someone. specific reports relating to various responsibilities to control overall finances of the organization. also known as the Profit and Loss Statement. 2. presents the financial position of an entity at a given date. also known as the Balance Sheet.  Expense: The cost incurred by the business over a period. Financial Statements reflect the financial effects of business transactions and events on the entity. This represents the amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities. Page 14 . TASK 7 2. Statement of Financial Position Statement of Financial Position.  Equity: What the business owes to its owners. It is comprised of the following three elements:  Assets: Something a business owns or controls. reports the company's financial performance in terms of net profit or loss over a specified period.The directors concerning various departments who are heading different departments would like to get forthnatly reports on the actuals Vs budgeted figures to find divisions and take a appropriate decisions. Equity therefore represents the difference between the assets and liabilities. incomes. Income Statement Income Statement. Four Types of Financial Statements The four main types of financial statements are: 1. The chief management accountant will be the overall in-charge likes to have different statements reports concerning expenditures.4 explain the impact of finance on the financial statements Answer: Financial Statements represent a formal record of the financial activities of an entity. Income Statement is composed of the following two elements: MFRD  Income: What the business has earned over a period. performance and liquidity of a company. These are written reports that quantify the financial strength.

00.000 282. 00. 59. Net profit or loss is arrived by deducting expenses from income. The movement in owners' equity is derived from the following components: MFRD  Net Profit or loss during the period as reported in the income statement  Share capital issued or repaid during the period  Dividend payments  Gains or losses recognized directly in equity.000 445. 00.000 55. Statement of Changes in Equity Statement of Changes in Equity.  Investing Activities: Represents cash flow from the purchase and sale of assets other than inventories. 00.000 29.  Financing Activities: Represents cash flow generated or spent on raising and repaying share capital and debt together with the payments of interest and dividends. 00.000 210.  Effects of a change in accounting policy or correction of accounting error.000 Preference share capital Debentures Loan from IDBIFinancial Institution Retained earnings 605. 00. 00. 00. details the movement in owners' equity over a period. Capital + Liabilities Equity share capital Rs 208. 00. presents the movement in cash and bank balances over a period.000 Assets Land and site development Buildings Plant and Machinery Miscellaneous Fixed Assets Fees and Consultants Preliminary and Preoperative Expenses Provision for Rs 102. Cash Flow Statement Cash Flow Statement. 00.000 Page 15 . 4.000 1250. 00.000 176. also known as the Statement of Retained Earnings. The movement in cash flows is classified into the following segments:  Operating Activities: Represents the cash flow from primary activities of a business. 00.000 543.000 2205. 3.

com/terms/v/venturecapital.asp#ixzz2BFEoKaFy 5. en. 50. in.answers. en. businesscasestudies.org/wiki/Debenture 4. 50. The incremental cost of capital should have covered by increasing profitability of the firm.asp#ixzz2BFGV0ZIl Task 2.yahoo. investopedia.uk/business-theory/finance/financial-analysis-andplanning.co.The cost of capital will increase which is risky for the company.html#ixzz2BFU7bmpq 10. investopedia. businesscasestudies.000 45. References: Task1.co. publishyourarticles.com/3775/preference_shares.3 9.com/wiki/Retained_earnings 6.wikipedia. 000 60. ask.html#ixzz2BFLnT4wd 8. Returns should increase in proportion to the risk. 00.uk/business-theory/finance/financial-analysis-andplanning. 00.wikipedia.net/knowledge-hub/company-accounts/what-is-preference-sharecapital. 00.com/terms/l/longterm.contingences Margin money for working capital 45.1 1.org/wiki/Debenture MFRD Page 16 .com/question/index?qid=20120705235242AAjUybN 2.html#ixzz2BFKmN9U5 Task 2.2 7. 000 Comment: . investorwords.html 3.

15.000 x 5/100 = 7000 -Payments to creditors: Creditors are paid in the following month of supply. 10. Therefore June sales amount includes ½ of Apr and ½ of May sales. Similarly July collection includes ½ of May and ½ of June sales June collection: ½ Apr + ½ May = (1. June: 1. (Considering the due date to be in the same month. 40. 40.000 July: 15.e. June payment ¾ in June and ¼ in July) June: (9500x ¾) + (9500x ¼) = 7125 + 2375 = 9500 July: (12.000 of which Rs.ASSIGMENT 2: TASK 8 3.000 July Collection: ½ May + ½ June= (1. 20. 48.000 August Collection: ½ June + ½ July = (1.000 x 5/100 = 5000 July: 1. Similarly May’s commission is paid in July.40.000x ¾) + (12.000 -Wages paid ¾ on the due date while ¼ during next month. 20.000 June: 48. 30.00. 60.1 analyse budgets and make appropriate decisions Working: Collection from customers: June sale’s ½ is collected in July and ½ in August.000x ½) + (1.000 paid immediately and the balance Rs. i.000 x 5/100 = 6000 Aug: 1.000 -Plant purchased in the month of June Rs.000x ½) =70000 + 80000 =150000 Sales commission: Sales Commission on Apr sales will be paid in June. 20.000x ½) = 50000 + 60000= 1. 00. 30. 78. 00.000x ½) + (1.000 is paid in two equal installments Rs. June: 80000 July: 90000 August: 1.00x ¾) + (9500 x ¼) = 9000+ 2375 = 11375 August: (14. May purchases are paid in June.000x ½) = 60000 + 70000 = 1.000 August: 15.000x ¼) = 11500 + 3000 = 14500 MFRD Page 17 .000x ½) + (1.

After subtracting receipts and payment the cash balance at the end of the month is again a loss.500 -Selling expenses 3.5 Selling overheads 0.00.875 1.50.500 which means the company has incurred with loss of Rs. 9 MFRD Page 18 .2 explain the calculation of unit costs and make pricing decisions using relevant information Unit contribution for Rs.20.375) 1.000 11.10.000 15.000 -Wages 9.375 3.50.31.500 Total Payments (B) Comment: After subtracting the income from expenditure we get the closing balance of June as RS–30.5 Marginal Cost (Prime cost +Factory.000 7.500 1. Cash Budget: Particulars Opening Balance Receipts .625 6.Collection from customers Total receipts (A) June 10.500 6.500) August (32.375) (28.30.17.500 3. Apr payment in May and May in June.500 1.000 (Purchase) -Plant 48.500 -Overheads 4.-Selling expenses and overheads are one month lag.000 1.000 15.500 6.(30. 1500 units @ price of Rs 10/unit Direct Cost: Per unit Direct material 5 Direct Wages 3 Prime Cost ( Direct material + wages) 8 Variable Cost: Factory overheads 0.500.000 1.000 1.46.000 90.000 99.000 1.875) Payments: -Sales Commission 5.000 -Payment to credit 80.500 Closing Balance (A.500) B) (32.000 14. TASK 9 3.000 July (30.30.000 1.

00.000 37500 487500 37500 622500 600000 112500 750000 127500 Comment: They can their 15000 units of surplus goods to foreign and increase their profits.00.000 PV factor 0.000 32. By this the Tesco Company can spread the business in global market.000 Year I II MFRD Cash flow 50. TASK 10 3.Selling overheads) Selling price 10 Contribution/unit (Selling price – Marginal 1 Cost) Comparative analysis to accept or not to accept selling 15.95.000(65000x 3) Prime cost 400000 5.909 0.50.Mumbai (Worli) Initial Investment.10.000 Factory overheads Selling overheads Marginal Cost (PC Overheads) Fixed Cost Total Cost (MC + FC) Sales Profit (Sales – Cost) 25000 25000 + 4.826 PV 45450 82600 Page 19 .3 assess the viability of a project using investment appraisal techniques Project.500 32.20.000 units to foreign buyer Particulars Profit without accepting Profit for accepting Direct material 250000 (50000 x 5) 3.500 5.85.2.5 yrs Scrap.25.000 Estimated life.000( 65000x 5) Direct Wages 150000 (50000x 3) 1.000 1.

621 PV 181800 82600 37550 20490 12420 12420 347280 3.00.000 30.000 1.00.000 20. 20000 Year I II III IV V V (scrap) Present Value of all cash inflows Less: Initial Investment Profit Cash Flow 2.000 0.00.826 0.III IV V V (scrap) Present Value of all cash inflows Less: Initial Investment Profit 1.5 yrs Scrap.000 47280 x 100 Initial Investment Project Mumbai (Worli): 42270 x 100 =21.621 0.Rs.000 10.00.000 30.000 20.000 20.000 50.000 Project Mumbai (Virar): 47280 x 100 = 15.909 0.76% 300000 Comment: MFRD Page 20 .621 75100 20490 12420 6210 242270 200000 42270 Project. 00.621 0.000 Rate of Returns = Total profits PV factor 0.683 0.300000 Estimated Life.683 0.Mumbai (Virar) Initial Investment.135 % 2.751 0.751 0.

135 %Virar = 15. 2. and profits over a period of time.Project Worli and Project Virar they both are making high profits but project Worli is preferable for Tesco Co. particularly by accountants.000 where as project Virar has 3. investing and financing activities. For a business enterprise.76% Therefore taking up project Worli. But by comparing the rate to returns of both the projects it is found that project Worli is better than Project Virar. Both the projects resulted into positive figures. Statement of cash flows: reports on a company's cash flow activities. and ownership at a given point in time. Rate of returns: Worli =21. it will be profitable for Tesco Co.000 investment. MFRD Page 21 . let's consider an apparel manufacturer as an example in outlining the major components of the income statement:  Sales This is the gross revenue generated from the sale of clothing less returns and allowances (reduction in price for discounts taken by customers). 3. presented in a structured manner and in a form easy to understand. Statement of Financial Position: also referred to as a balance sheet. TASK 11 4. For Project Worli present value of all cash inflows is 242270 and for project Virar 347280 and benefits are 42270 and 47280. Statement of Changes in Equity: explains the changes of the company's equity throughout the reporting period 4. all the relevant financial information. although the term financial statement is also used. liabilities. particularly its operating. business expenses for a given time period. In British law including a financial statement is often referred to as an account.00. are called the financial statements. A Profit & Loss statement provides information on the operation of the enterprise. reports on a company's assets. Simply put. Investment on project Worli is 2. or other entity. accompanied by management: 1.1 discuss the main financial statements A financial statement is a formal record of the financial activities of a business. Statement of Comprehensive Income: also referred to as Profit and Loss statement reports on a company's income. These include sale and the various expenses incurred during the processing state. the income statement measures all your revenue sources vs. To help explain things easily.Though project Virar has more profit than project Worli but the initial investment is also greater. They typically include four basic financial statements. person. expenses.00.

Depreciation results when a company purchases a fixed asset and expenses it over the entire period of its planned use.         Cost of goods sold. A net figure is computed by subtracting other expenses from other income. Gross profit: The gross profit represents the amount of direct profit associated with the actual manufacturing of the clothing. Interest expense on debt is also included in this category. Examples include office salaries. but it is worthy of special mention due to its unusual nature. general and administrative expenses that are necessary to run the business. For instance. a clothing maker doesn't normally earn income from rental property or interest on investments. The number is computed by adding other income (or subtracting if other expenses exceed other income) to the operating profit. It is computed by subtracting the operating expenses from the gross profit. Income taxes: This is the total amount of state and federal income taxes paid. not just in the year purchased. utilities. advertising.2 compare appropriate formats of financial statements for different types of business Format for Retail Business: Trading and Profit and Loss A/c Particulars Rs To Opening Stock Xxx To purchases Xxx To Other Direct Expenses Xxx To Gross Profit Xxx Xxx To salaries Xxx To Trade expenses Xxx To Rent and taxes and interest Xxx MFRD Particulars By sales By Other direct Income By closing Stock Rs Xxx Xxx Xxx xxx By Gross Profit By Commission received By discount received Xxx Xxx Page 22 . plant manager salaries. Net profit before taxes: This figure represents the amount of income earned by the business before paying taxes. This is the direct cost associated with manufacturing the clothing.). direct labor. so these income sources are accounted for separately. It's calculated as sales less the cost of goods sold. insurance. Operating profit: This is the amount of profit earned during the normal course of operations. freight and other costs associated with operating a plant (for example. (1) TASK 12 4. Depreciation: Depreciation expense is usually included in operating expenses and/or cost of goods sold. sales commissions and rent. Net profit after taxes: This is the "bottom line" earnings of the business. etc. equipment repairs. These costs include materials used. Operating expenses: These are the selling. Other income and expenses: Other income and expenses are those items that don't occur during the normal course of business operation. It's computed by subtracting taxes paid from net income before taxes.

To Commission allowed To Other indirect expenses To Net profit Balance Sheet Capital + liabilities Capital: Opening capital Less: Drawings Add: interest on capital Less: interest on drawings Add: Net profit Long Term Loans Short Term loans Current liabilities Sundry creditors Outstanding items B/P Commission in advance Xxx Xxx Xxx By Interest on drawings By other indirect incomes Rs xxx xxx xxx xxx xxx Assets Fixed Assets Rs Xxx Investment Xxx Xxxx Xxx Xxx Xxx Xxx Xxx Xxx Current assets/Advances and loans A. Current assets Sundry debtors Cash in hand/bank Closing stock B/R B.Loans and advances Prepaid items Fictitious Assets Format for manufacturing business: Manufacturing. Trading and P & L account Particulars Rs To Raw material consumed Opening stock of RM xxx Add: Purchases of RM xxx Less: Closing stock of RM xxx Xxx To Wages Xxx PRIME COST Xxx To factory rent Xxx To factory salary Xxx Xxx To cost of goods manufactured Xxx To Opening stock of Finished Xxx goods To purchases of FG Xxx To gross profit Xxx Xxx To Office expenses Xxx Xxx Xxx Xxx Xxx xxx Xxx Xxx MFRD Xxx Xxx xxx Particulars By cost of goods manufactured Rs xxx By sales By Closing stock Xxx Xxx Xxx By Gross Profit Xxx Xxx Page 23 .

factory rent. The P&L statement is also known as a "statement of profit and loss".To Other indirect expenses To net profit Balance Sheet Capital + liabilities Capital: Opening capital Less: Drawings Add: interest on capital Less: interest on drawings Add: Net profit Long Term Loans Short Term loans Current liabilities Sundry creditors Outstanding items B/P Commission in advance By other indirect incomes Xxx Xxx Rs xxx xxx xxx xxx xxx Xxx Assets Fixed Assets Rs Xxx Investment Xxx Xxxx Xxx Xxx Xxx Xxx Xxx Xxx Current assets/Advances and loans A. an "income statement" or an "income and expense statement".usually a fiscal quarter or year. wages etc on the debit side and all the direct incomes like sales on the credit side. Further balance sheet is tallied. P& L account and Balance sheet. Current assets Sundry debtors Cash in hand/bank Closing stock B/R B.    Trading account includes Opening stock. After ascertaining the net profit. it is carried to the capital side in the balance sheet. costs and expenses incurred during a specific period of time . These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs.Loans and advances Prepaid items Fictitious Assets Xxx Xxx Xxx Xxx Xxx xxx Xxx Xxx In a retail business final accounts consist of trading. After Trading. P & L (profit and loss) account “a financial statement that summarizes the revenues. For manufacturing company. some like to ascertain the cost of goods manufactured by them during the year distinctly before they prepare the trading and ascertain the gross profit this kind MFRD Page 24 . purchases and all the direct expenses of the company like carriage inwards.

it indicates. The cost of work-in-progress at the end of the year is credited to this account. It has two part A.Manufacturing a/c is prepared by 2. and the manufacturing costs of finished goods.3__ (current year) As on 31. In the manufacturing concern there will always be some unfinished goods or work-in-progress. prime cost of manufacturing. 1949 requires every banking company to prepare a balance sheet and a profit and loss account in the forms set out in the Third Schedule to the Act or as near thereto as the circumstances admit. the total manufacturing cost. Format of both is as under Form of Bank Balance Sheet Balance Sheet of Bank Schedule As on 31. 2.of account is called the manufacturing account and is prepared in addition to the trading account. (2) Treatment of stock Raw material Work in progress Finished goods Opening Include as cost in calculation of material consumed Include as cost in manufacturing account Include as cost in trading account Closing Deduct from opening stock + purchases and include in balance sheet. Direct the cost of product is taken in consideration in manufacturing a/c trading a/c FORMAT OF BALANCE SHEET AND PROFIT & LOSS ACCOUNT Sub-section (1) of section 29 of the Banking Regulation Act. among other things. Deduct from manufacturing account and include in balance sheet Deduct from trading account and include in balance sheet Manufacturing A/c 1.3__ (previous year) Capital & Liabilities Capital 1 Reserves & Surplus 2 Deposits 3 MFRD Page 25 .Balance sheet and Part B Profit and loss account. “Manufacturing account is an accounting statement that is an integral part of the final accounts of a manufacturing organization. Trading a/c is one of the most important accounts of final account.Trading a/c is prepared by both productive industries only productive and non productive industries 3. shown in the balance sheet and debited to the manufacturing account of next year as on opening balance. Manufacturing a/c is part of trading a/c Trading A/c 1. manufacturing overhead.” This figure is obtained by adjusting the purchase of materials for the opening and closing stock of materials. For any particular period. Inventories a/c are taken into 3.

liquidity and solvency ratios. Profitability ratios: Tesco Co 1. To compare the financial statements of Tesco Co and Vishal Mega Mart we need to extract profitability. 00. Gross Profit Ratio: Gross Profit 100 Net Sales = 5. 15.Borrowings 4 Other liabilities and provisions 5 Total Assets Cash and Balances with Reserve Bank of India 6 Balances with banks and money at call and short notice 7 Investments 8 Advances 9 Fixed Assets 10 Other Assets 11 Total Contingent Liabilities Bills for Collection 12 TASK 13 4. both internal and external.00.3 interpret financial statements using appropriate ratios and comparisons.000 = 50% 2. 00. Net Profit Ratio: Net Profit after tax x 100 Net Sales = 4. Based on that ratios financial statement is determined.5% MFRD Page 26 .000 = 41.000 x 100 10.000 x 100 10.

000 (interest) = 4. 00. 50.000 10.000 1.000 = 207. 25.000 x 100 2. 15.000 = 42. 50.000 – 1. 00.000 (reserves) = 2.000 (equity capital) + 1.000 = 4. Return on share holders’ equity: x 100 Average amt of share holder’s equity Avgamt = 1.5 Net profit after tax 5. 50. 00. 00. 15. Current Ratio: MFRD Current Assets Current Liabilities = 4.5 Liquidity Ratios: 1. 00. 00. 50.3. Working Capital turnover: Net sales Working capital Working Capital= current assets – current liabilities (Tesco)= 4.000 2.000 = 2. 25.000 (profit after interest) + 10. Earnings per share: Profit after tax Total Equity shares = 4.000 = 10.000 1. Time Interest Earned Ratio: Interest expenses = 4.000 = 4:1 2.000 (profit before interest) = 4.000 Page 27 . 15.000 = Rs 415 Profit before Interest and Tax 4. 00.

50. Average receivable turnover: (debtors turnover ratio) = Net sales x 100 Debtors = 10. Inventory Turnover ratio: Cost of sales Avg Stock Cost of sales = Sales. 00. Quick Ratio: Quick Assets = All current assets except stock and prepaid =1.5 days 6.000 – 5.000 = 1000 = 10:1 5. 50. 00.Gross profit =10.000 1.000 = 1:1 4.000 =1. 50.Quick Assets Current Liabilities = 2.000 + 2. 00.000 2 MFRD Page 28 . 00.6:1 3. 50.000 = 5. The days sale in account receivable ratio: (Debtors conversion period) =No of days of yr Debtor’s turnover ratio = 365 10 = 36.000 Average Stock= Opening stock + Closing stock 2 = 1. 50.000 x 100 1. 00.

000 x 100 11.000 2.000 = 2.75:1 The following are Vishal Mega Mart Ratios: Profitability ratios: 1. 50. 00. 00.000 = 55.000 x 100 11. Gross Profit Ratio:Gross Profit 100 Net Sales = 7. Net Profit Ratio: Net Profit after tax x 100 Net Sales = 6.5 7.000 = 65.5 = 146 Solvency Ratios: 1. 00. Inventory Conversion Period: No of days in yr Inventory conversion ratio = 365 2.= 2. 00. 20.000 2000 MFRD Page 29 . Debt of equity ratio: Total Liabilities Equity share funds Total liabilities = current liabilities + long term loans = 1.000 = 1.000 = 3. 50. 00.000 2.000 = 5.9% 3. 15. 15. 00. Earnings per share:Profit after tax Total Equity shares = 6.000 =3.000 + 2. 50.45% 2. 00.

00.5 4.000 x 100 3. 00. 00. 00. 15. Time Interest Earned Ratio:Profit before Interest and Tax Interest expenses = 6. 00.000 35. 50. 50.000 2. 50.000 (profit after interest) + 35. 50. Return on share holders’ equity: Net profit after tax x 100 Average amt of share holder’s equity Avgamt (Vishal mega mart) = 2.000 = 11. Working Capital turnover:Net sales Working capital Working Capital= current assets – current liabilities (Vishal Mega Mart) = 5.000 (profit before interest) = 6.000 = 6.000 = 2:1 3. Quick Ratio: MFRD Quick Assets Current Liabilities Page 30 . 50.000 – 2. 00. 50.000(reserves) = 3.000(equity capital) + 1.000 (interest) = 6.000 2.000 = 4. Current Ratio: Current Assets Current Liabilities =5.000 = 2. 15.000 = 205 Liquidity ratios: 1.4: 1 2. 00.= Rs.57 5.000 = 18. 307.

000+3. Average receivable turnover: (debtors turnover ratio) = Net sales x 100 Debtors = 11. 10. 50. 50.000 – 7. 50.000 2.000 = 1. 00. 20.Quick Assets = All current assets except stock and prepaid =2. 00.000 =3. Inventory Turnover ratio: Cost of sales = Sales.000 = 1:1 4.000 = 2.Gross profit =11. 10. The days sale in account receivable ratio: (Debtors conversion period) =No of days of yr Debtor’s turnover ratio =Cost of sales = 365 Avg Stock 11 = 33.1 6.2 MFRD No of days in yr Inventory conversion ratio Page 31 .000 2 = 3.000 Average Stock= Opening stock + Closing stock 2 =2.000 x 100 1. 80. 00. 70.000 3. 50.000 = 1100 = 11:1 5.000 = 3. 80.

1 Solvency Ratios: Total Liabilities 1. 50.000 =5. current ratio of Tesco is more than Vishal Mega Mart which has an ideal ratio 2:1 but Tesco has 2. hence we can say that Vishal Mega Mart can convert account receivable into cash more than Tesco. 50. account receivable of Tesco is 10:1 and Vishal Mega Mart has 11:1. The relationship between quick asset and current liabilities shows the quick ratio.5 = 304. 00.000 = 5.83:1 Comment: After finding out all the ratios the following analysis done: 1. 2. 00. MFRD Page 32 . 3.e. Debt of equity ratio: Equity share funds Total liabilities = current liabilities + long term loans = 2. 00 +3. The funds for day to day activity which is termed as working capital of both Tesco and Vishal Mega Mart is equal. Inventory Conversion Period: = 365 2. hence we can say that both has same working capital. therefore 1:1 is consider as the ideal ratio and Tesco and Vishal Mega Mart both has 1:1 ratio which means they don’t have sufficient assets to meet the liabilities.7.000 = 1. 4. Account receivable ratio indicates the numbers of times the account receivable can be converted into cash.1:1. 50.000 3. The relationship between current assets and current liabilities i.

we come to this conclusion that: a) b) c) d) e) Tesco has more inventory conversation ratio Vishal Mega Mart has more current ratio and account receivable ratio. en.5.asp#axzz2BWImfLVV MFRD Page 33 . From the above analysis we can say that both Vishal Mega Mart and Tesco have almost similar liquid position. Inventory converted into sales is indicated through inventory turnover ratio from the case we can say that Tesco has better inventory turnover ratio than Vishal Mega Mart as the Tesco took 2. Day’s sales in inventory ratio indicate the number of days took to convert inventory into cash. Reference: Task 4. hence in the above cash Tesco took 146 days which is better than Vishal Mega Mart which took 304 days.1 1.1 days which means here also Vishal Mega Mart is more capable to convert their account receivables into cash.5 times and Vishal Mega Mart took 1.5 days and Vishal Mega Mart took 33. 7.2 2.com/terms/p/plstatement. Tesco has better solvency than Vishal Mega Mart. Comparatively Vishal Mega Mart has more gross profit and net profit ratio than Tesco. Earnings per share of Tesco are greater than Vishal Mega Mart.org/wiki/Financial_statement Task 4. investopedia.2 times. 6. The number of days required to convert accounts receivable into cash is indicated by day’s sales in this case Tesco took around 36.wikipedia.

2 assess the implications of the different sources 1.3 assess the information needs of different decision makers 2.1 analyse the costs of different sources of finance 2.4 explain the impact of finance on the financial statements LO3 Be able to make financial decisions based on financial information 3.3 evaluate appropriate sources of finance for a business project LO2 Understand the implications of finance as a resource within a business 2.FEEDBACK TO LEARNER Outcome/Grading Criteria LO1 Understand the sources of finance available to a business Comments on evidence produced Feedback 1.1 analyse budgets and make appropriate decisions MFRD Page 34 .1 identify the sources of finance available to a business 1.2 explain the importance of financial planning 2.

2 explain the calculation of unit costs and make pricing decisions using relevant information 3.3 interpret financial statements using appropriate ratios and comparisons.3.1 discuss the main financial statements 4.2 compare appropriate formats of financial statements for different types of business 4.3 assess the viability of a project using investment appraisal techniques LO4 Be able to evaluate the financial performance of a business 4. both internal and external MFRD Page 35 .