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NEW SYLLABUS BUSINESS TOPICS

Advantages and disadvantages of privatisation in a given situation:


Advantages
1. Improved Efficiency.

Disadvantages
1. Short-Termism of Firms.

If you work for a government run industry,


managers do not usually share in any profits.
However, a private firm is interested in making
profit and so it is more likely to cut costs and
be efficient.
2. Lack of Political Interference.

To please shareholders private firms may seek


to increase short term profits and avoid
investing in long term projects.

It is argued governments make poor economic


managers. They are motivated by political
pressures rather than sound economic and
business sense. Eg: a state enterprise may
employ surplus workers which is inefficient.
3. Shareholders

Privatisation creates private monopolies, such


as the water companies and rail companies.
These need regulating to prevent abuse of
monopoly power.

2. Problem of regulating private monopolies.

3. Government loses out on potential


dividends.

Private firms have pressure from shareholders


to perform efficiently. If the firm is inefficient
Many of the privatised companies in the UK
then the firm could be subject to a takeover. A
are quite profitable. This means the
state owned firm doesnt have this pressure
government misses out on their dividends,
and so it is easier for them to be inefficient.
instead going to wealthy shareholders.
Evaluation
-It depends on the industry in question. Telecom industry is a typical industry where the
incentive of profit can help increase efficiency. However, in health care or public transport
industries the profit motive is less important.
-Is the market contestable and competitive? Creating a private monopoly may harm consumer
interests, but if the market is highly competitive, there is greater scope for efficiency savings.

Impact of a merger/takeover on the various stakeholders


Negative impact:
1.Job losses in the acquired business (a direct result of cost synergies)
2. Uncertainty & more job insecurity particularly as organisational structures & systems are
integrated.
3. Potential closure and / or transfer of capacity to other international locations (e.g. to emerging
markets)
Positive impact:
1. Reduced competition both buyer and target (market more attractive)
2. Better market access.
3. Improve profits
Evaluation:
-Which stakeholder groups actually have the power to impact the eventual success or failure of
a takeover? Whilst there might be widespread opposition from media & local community are
other stakeholder groups (customers, employees) much more important?
-Too easy to assume that a takeover will have a negative effect on internal stakeholders like
employees. The transaction might actually benefit them in the long-run if their business is
stronger as a result.

Why a takeover may or may not achieve objectives (e.g synergy)


1. Cost synergies: cost savings that arise as a direct result of the transaction (in both the target and
buying business)
2. Revenue synergies: increased revenues (for both businesses) arising from the transaction
3. Due diligence: verifying the financial, legal and commercial position of the target business

1. The quality of the due diligence performed: did it highlight the key risks involved & support the
initial investment case for the transaction?
2. The complexity of the transaction: a more complex integration process often makes success
harder to achieve.

3 .The external environment: e.g. an adverse change in the economic environment can damage
the performance of the business taken over; competitor response is also difficult to anticipate
(they may see a takeover as a great opportunity)

The impact of and issues associated with CSR (e.g. accounting


practices, paying incentives for the award of contracts, social
auditing)
Social audit: A report on the impact a business has on society this can cover pollution levels,
health and safety record, sources of supplies, customer satisfaction and contribution to the
community.
Outcome: Identify and remove anti-social behaviour, better public image, increase customer
loyalty, clear direction and future improvements
Benefits: Identifies what social responsibilities are met and what need to be improved, set
targets for improvement by comparing audits results with the best-performing firms, improve
company image (help marketing)
Limitations: Not independently audited, time and money needed, most consumers are keen on
cheap goods and do not bother is the firm socially responsible.

The difference between hard and soft HRM

Flexibility e.g. advantages and disadvantages of temporary


contracts or flexible contracts, e.g. zero hours contracts and part-time
against full-time workers
Zero hours contracts: no minimum hours of work are offered and workers are called in and paid
when work is available.
Advantages of a part-time and flexible employment contracts for the business
1. Employees to work only at busy periods of the day. Reduce overhead and the flexibility offers
competitive advantage
2. More staffs are available in case of sickness or absenteeism
3. Employee efficiency can be assessed before offer full time contract
4. Teleworking (staff working from home but keep contact with the office by means of modern IT
communications)
5. Save costs. A business can make substantial savings on overheads if it does not have to
provide office for so many workers

Disadvantages of a part-time and flexible employment contracts for the business


1. More employees to manage
2. Communication difficulty
3. Lower motivation levels,
4. Lack of team work culture
Why zero contracts?
1. Demands of the job: where work is erratic and highly unpredictable, varying from day-to-day
and week-to-week, they can be the most effective and cost efficient way of matching labour
demand and supply;
2. Evading employment rights: firms may designate individuals as workers rather than
employees: workers are not entitled to protection against unfair dismissal, maternity rights,
redundancy rights;
3. Meeting individual flexibility: for some employees, a ZHC may be attractive in that they chose
when and where they work, or it is a supplement to a main job, or the potential insecurity of
income is not a major concern for example, a retired person who wants to do some occasional
work

The benefits to employers and employees of trade union


involvement in the workplace including their role in collective
bargaining
1. Trade Union Recognition: When an employee formally agrees to negotiation on
pay
2. Collective Bargaining: The process of negotiating for the terms of employment
between an employer and a group of workers who are usually represented by trade
union official.
Benefits of trade union involvement in the workplace to
EMPLOYEES
1. Collective bargaining for pay rises,
power through solidarity.
2. Collective industrial actions are more
influential 3. To protect and enforce
workers legal rights.
4. Improved working conditions

EMPLOYERS
1. Saves time as management have only
to deal with trade union instead of all
workers.
2. Additional useful communication
channels on workers problems and
management plans.

5. To protect against unfair dismissal


6. To pressurise employers to legal
requirements

3. Unions can impose discipline action on


members hasty industrial action
4. Growth of responsible partnership
unionism
5. Managers also need to work harder
due to the pressure of trade unions.
6. Workers work harder / more
motivated.

The reasons and ways structures change e.g. with growth or


delayering.
Organisational structure change with growth:
- Multiple levels of authority
- The structure is designed so that staff can fill multiple roles.
- Resources may also not be adequate,
- Most data collection or reporting is designed to satisfy customer or national requirements.
Organisational structure change with delayering:
- Increasing the average span of control of senior managers within the business
- Frequently, layers removed are those containing middle managers.
- Seen as a way of reducing operating costs ( response to the economic downturn)

Advantages of delayering

Disadvantages of delayering

1. Opportunities for better delegation,


empowerment and motivation as authority
passed down the hierarchy

1. Not all organisations are suited to flatter


organisational structures - mass production
industries with low-skilled employees may not
adapt easily

2. Improve communication within the business


- fewer levels of hierarchy
3. Remove departmental rivalry if department
heads are removed and the workforce is

2. A negative impact on motivation due to job


losses
3. Disruption as people take on new

organised in teams

responsibilities and fulfill new roles

4. Reduce costs as fewer managers are


required

4. Wider span of control which, if too wide, can


damage communication within the business.

5. It can encourage innovation

5. Increasing workload.

6. Closer contact with the business


customers- result in better customer service

6. Skills shortages within the business

The implications for marketing of increased globalisation and


economic collaboration, e.g. BRICS
BRIC: The acronym for five rapidly developing economies with great market opportunities
Brazil, Russia, India, China and South Africa.
The rapid development of major developing countries the BRICS is leading to huge
marketing opportunities.
Advantages and Disadvantages of Increased Globalisation:
ADVANTAGES
i. Greater opportunities selling in other
countries; new markets for higher sales,
economies of scales and improved profitability

DISADVANTAGES
i. Increased domestic competition. Non
competitive local firms may force to close
down.

ii. Increased competition makes the firm more


globally competitive. Proton hiding behind
trade barriers breeds inefficiency.

ii. More efficient competitors firms due to


global competition

iii. Create global brand through pan-global


marketing strategies

iii. Cultural and taste differences in different


countries. Need to think local and act local
global localisation

iv. Wider choice of location. Provides lower


costs, direct local market assess for better
market information

iv. Significant transport & communication


problems. Risk of unethical practices due to
decentralisation.

v. Greater freedom for mergers and take overs

v. Risks of foreign takeovers.


vi. Anti-globalisation pressure groups on
environment impact on emerging economies
vii. Government has less influence on
business decisions on factories closure or
relocation

Differences between full and contribution costing

Main Use

How does it work?

Main focus

Usefulness

Limitations

Marginal costing
(Contribution costing)
To help with short-term
decisionmaking in the
forms of:
-break-even analysis
-margin of safety
-target profit
-contribution sales ratio
-limiting factors
-special order pricing
costs are classified as
either fixed or variable
contribution to fixed
costs is calculated as
selling priceless variable
costs
marginal cost
contribution

concept of contribution
is easy to understand
useful for short-term
decisionmaking, but no
consideration of
overheads
costs have to be
identified as either fixed
or variable
all overheads have to be
recovered, otherwise a
loss will be made
calculation of selling
prices may be less
accurate than other
costing methods

Absorption costing
(Full costing)
-calculating profit
-calculating inventory
values valuation for
financial statements

overheads are charged


to output through an
overhead absorption rate,
often on the basis of direct
labour hours or machine
hours
all overheads charged to
output
calculating profit
calculating inventory
values
appropriate for traditional
industries where
overheads are charged to
output on the basis of
direct labour hours or
machine hours
not as useful in shortterm decision-making as
marginal costing
may provide less
accurate basis for
calculation of selling
prices where overheads
are high and complex in
nature

Measuring performance (Budgets)


Performance Budgets
Decisions made on these types of budgets focus more on outputs or outcomes of services than
on decisions made based on inputs. In other words, allocation of funds and resources are based
on their potential results. Performance budgets place priority on employees' commitment to
produce positive results, particularly in the public sector.

Amendment of a statement of financial position from given data

The relationships between items in the income statement and the


statement of financial position
In financial accounting, the statement of financial position and income statement are the two
most important types of financial statements.
A statement of financial position lists assets and liabilities of the organisation as of a specific
moment in time, i.e. as of a certain date.
An income statement also called a profit and loss account or P&L statement is a report for
income and expenses over a specific time period, usually a quarter or year. A company with
strong income statements year over year will generally build a healthy statement of financial
position.
The income statement reports a company's financial performance while the statement of
financial position reports its financial health.

A company's financial performance regulates its financial health. Performance and health are
linked through the net income account on the income statement and the equity account on the
statement of financial position.
The statement of financial position reports financial health of a company on a specific date in
time "as of Dec. 31, 2015," for example. The basic accounting equation informs that assets,
the resources employed to conduct business operations, are acquired through either borrowing
or through owner's equity Assets = Liabilities + Owner's Equity.
Change in the owner's equity account from the previous period is the principal marker of the
company's financial health. An increase in owner's equity is a sign of good health. It shows that
the company is relying less on debt to its fund operations. Conversely, a decrease in owner's
equity shows the opposite. The statement of financial position reports the financial health of a
company as of a specific date; the income statement reports income and expense activity for a
specific period of time. It shows how much money the company made after accounting for all
expenses. The bottom line figure represents its profit or its loss.
The company can either distribute the profit directly to the owner as an owner's draw, or it can
reinvest the profit in the business. In either case, the profit is reflected in the owner's equity
section of the statement of financial position by using the "expanded accounting equation." The
expanded accounting equation is an affirmation of the interrelationship between the income
statement and the statement of financial position.

The impact on the statement of financial position of a given


change in valuing non-current assets or inventories
-Non-current assets are company's long-term investments, in the case that the full value will not
be realised within the accounting year.
-Non-current assets are capitalized rather than expensed, meaning that the company allocates
the cost of the asset over the number of years for which the asset will be in use, instead of
allocating the entire cost to the accounting year in which the asset was purchased.
-Noncurrent assets appear on the company's statement of financial position
-Examples: investments in another company, intangible assets such as goodwill, brand
recognition and intellectual property, and property, plant and equipment.

Further Amendments To The Published Accounts


1, Goodwill
arises when a business is valued at or sold for more than the statement of financial position
value of its assets
-Will appear on statement of financial position only when the business is prepared for sale or
just after the firm has been purchased
-It is written off (get rid of) ASAP because it is difficult to value and can change or disappear
rapidly
-It will appear on the business that has bought another firm and has paid for goodwill under noncurrent intangible asset and will be taken off ASAP
2. Intangible Assets
Examples of intangible assets, goodwill, copyrights, brand names and capital spent on R & D
How Intangible Assets are treated in the Statement of financial position
- Intangible assets are difficult to place a value on it
-Statement of financial positions does not record these assets
-Source of future earnings knowledge-based economy
-Market value (the estimated total value of a company if it were taken over) is higher than the
statement of financial position or book value

3. Capital Expenditure & Revenue Expenditure


Capital Expenditure :Any item bought by a business and retained for more than one year, that is
the purchased of fixed or non-current assets. (eg purchase of a forklift) (Recorded as
depreciation)
Revenue Expenditure: Any expenditure on costs other than non-current asset expenditure (eg:
diesel spent on running the forklift)

-Capital expenditure is recorded as depreciation


-All revenue expenditure is on assets and expenses that give short term benefit to business.
-They will recorded in full in income statement and reduce profit of that year.
-Exception unsold inventories which will be entered under closing balance
4. Depreciation of Assets
Depreciation is the decline in the estimated value of a fixed or non-current asset over time
5. Valuation of Inventories

Inventory turnover, days sales in receivables