ACCA F9 BOOK PDF
A catalogue record for this book is available from the British Library. Published by : . The aim of ACCA Paper F9, Financial management, is to develop the. Your market-leading BPP books, course materials and e-learning materials do not write and . F9 is a middle level paper in the ACCA qualification structure. Download free ACCA F9 Notes PDF, View on line ACCA notes and watch free F9 lectures. Hi, which text book best accompanies these F9 lectures? Log in to.
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ACCA F5 Study Text) for your access code. closely with ACCA to ensure this Study ACCA F3 - Financial Accounting (INT) Study Text - STIMUL. ACCA. Paper. F9. Financial management. Publishing. Welcome to You must not circulate this book in any other binding or cover and you. 22) PDF File Format: PDF (Portable document format) files can be viewed using free adobe reader. PRINTED BOOKS) ACCA F9 Financial Management Study.
Examples are given to explain technical theoretical knowledge in simple and understandable way. Technical jargons are used to prepare you for different technical terms used by the examiner to dodge you to ensure that you understood the text rather than rote learn the text.
These technical jargons are explained in parenthesis or as separate example to make you understand the technical term and syllabus area as whole. It also shows the application of knowledge into practice. It is especially useful when you are expected to apply your knowledge to answer scenario based questions. Processing information meaningfully and logically leads to better retention of information.
It will also motivate you to learn harder, as you will understand the benefits of technical knowledge in your career as chartered accountant. Diagrams are given to explain complex concepts and procedures, which are difficult to understand in words. Diagrams also lead to better memorization of knowledge. Diagrams lead to the use of right brain while text lead to the use of left brain.
Combination of text and diagrams enables you to learn ACCA papers using both brains to avoid getting overstressed left part of the brain due to excessive reading. Left brain is responsible for reading, calculation, analysis. Solutions are given in a format that will save time, while solving questions during the exams. Time management is important during exam, ability to solve question but taking more than time available is of no use.
Profit motive organizations must provide value for money to its customers if it has to achieve its financial objectives in short term such as profitability, liquidity as well as long term such as growth.
Exam Awareness This exam topic introduces students with basic terminologies relevant to subsequent study. If you are running short of time, then i recommend you to just skim read it in the end if you have extra time.
Macro-economics include all the economic activities of private as well as public sector. Micro-economics refers to study of one economics entity at a time. Macroeconomic policy has following objectives. Reduction in interest rates leads to increased activity in stock market and bullion market. Interest rate influences individual investment decisions. Reduction in interest rate changes public preference from savings to investment.
In practice. Government may decide to operate market without any regulation as free market in the hope that free movement of capital will result in best economic growth. Government has following two main policies to achieve its objectives. Government can encourage investment by reducing interest rates and conversely reduce investments by increasing interest rates. Level of spending influences demand for goods or services and prices of goods or services.
It influences public spending on consumer and capital goods by increasing or decreasing the level of disposable income for private sector. Government spending also influences the demand for goods or services and prices of goods or services. Taxation is the source of revenue for government. Disposable income is the earnings remaining after meeting all liabilities.
Reduction in exchange rate will make goods produced by the country cheaper to foreign countries. Increase in taxation results in decreased disposable income for spending on satisfaction of needs and capital investments.
If demand exceeds in relation to supply then prices of goods or services arises inflation. Increase in exchange rate will make goods more expensive to foreign countries. Government spending can be used to reduce the economic imbalance between rich and poor by providing basic goods or services to society at subsidised or free of charge. Confidence depends on expectation of political.
Government aim is to equal aggregate demand and aggregate supply at a level where workforce is fully employed. Full employment is one of the objectives of the macroeconomic policy of government.
Confidence among firms makes them invest more money in the business. Confidence is the expectation of future stability and growth of economic activities.
If interest rate will rise individual and firms will reduce their borrowings and individual will consume less and firms will abandon their investment projects. Resources can be used more efficiently by provision of training and use of advanced technology.
This can be done by making legislations and providing policing services. To promote maximum economic growth all the resources labour.
Financing decisions depend on the cost of using finance such as interest rate. Government can boost confidence by providing security to the assets of individuals.
As investment projects will be undertaken. Government can provide infrastructure transportation. As investment projects will reduce. It affects credit rating of a country in the long term.
Households with limited income pension. Inflation increases the economic imbalance between rich and poor by redistributing wealth in a society. Prices are increased to take the advantage of excess demand by providing goods or services to people that are able to pay more for limited goods or services. It is because demand is allowing the use of economic resources labour. Adverse balance of payments makes government to borrow foreign exchange for repayment. It increases the risk of foreign exchange gain or losses in assets of the firms when assets are translated in their home currency.
Exchange rates can impact balance of payment import versus export. Households require more money to continue consuming same quantity and quality of goods or services. Wide fluctuation in exchange rate also discourages investment by foreign firms in a country. Volatility in exchange rate increases risk of foreign exchange gains or losses and leads to increase in cost of Hedging Increase in prices inflation is considered as an indication of full employment of resources.
Inflation results in reduced purchasing power of money. Inflation will lead to depreciation of exchange rates. Government aim is to control inflation to reduce the uneven distribution of wealth. As the money borrowed will have lesser value purchasing power when making repayment. All these events will be beneficial for economic growth but benefits may not be evenly distributed among the members of society. Customers have to face frequently new prices.
Because keeping money in form of cash will erode the purchasing power of their earnings. It is possible to achieve economic growth in times of high inflation but this growth will not benefit all the members of the society in equal.
Individual tends consume less to save money for the future. This will make balance of payment favourable. Inflation has impact on other objectives of economic policy also. This will put additional cost burden on firms. Expensive imports will result in less demand for imported goods and cheaper exports will result in more demand for goods to export. Exchange rate depreciation will make imports expensive for a home country and exports cheaper for foreign countries.
In times of high inflation. More time have to spend on revising budgets and selling prices for goods or services. Inflation makes planning and budgeting difficult for individuals and firms. High inflation leads to uncertainty about future economic wellbeing for individuals and firms. Inflation has some additional drawbacks as well.
Quality may deteriorate to produce goods or services at reduced prices to attract price sensitive consumers. Loss of skilled workforce is the loss of human capital to the country. Unemployment for long period will result in loss of skill due to lack of work available to retain level of skill. As the level of unemployment increases.
Rate of unemployment is determined by dividing unemployed labours with total labours. This is put strain on business profitability and increase competition on the grounds of prices rather than quality among businesses.
Crime rates and illiteracy increases with the increase in unemployment rate. Unemployment increases the government expenditure for providing benefits support to unemployed people. Prices tend to remain constant or fall. It results in increased price. Boom accasupport. Inflationary gap can be reduced by either reducing demand or by importing goods to satisfy demand. Businesses tend to shut down and investors lose their confidence in the market.
Deficit results where total imports exceeds total exports. Supply cannot be increased using domestic factors of production men. Businesses launches new products and investors have optimistic view of the future economic growth. Recovery is generally considered a slower process than recession. If recession continues for long period time. This exam topic sets purpose of working capital management and its relevance toaccasupport. Working capital is the blood of any organization without it cannot continue its operations regardless of how much fixed assets are owned by the organization.
Failure to meet day-to-day expenses can force organization into dissolution or liquidation by the creditors. Liquidity is essential for survival and long-term profitability of the organization. Profitable organization may not have enough cash to day-to-day liabilities. It is due to the application of accrual accounting concept to arrive at profit for the year for financial reporting purpose. Working capital management has two main objectives. Business must be profitable in the short term to add shareholder value in the long term.
Profitability and liquidity are two conflicting objectives. Favourable performance at one objective inevitably leads to adverse performance at other objective. Maintaining higher cash balance will result in loss of sales to customers. Effective working capital management depends on achieving a balance between these two objectives. It is due to cash is not used for producing or purchasing accasupport. These are extremely interrelated. Please do not skip any ofaccasupport.
Contents of this topic can be examined as complete 25 marks question. You can use these relationships found out to write relevant points in order to answer requirements in the exams.
For HGR Co. Working capital is as important for organizations as blood for human body. Trading activities can be payment of wages to workers.
Your answer should include a discussion of relevant working capital policy and the nature of business operations. Comment on the forecast cash flow position of HGR Co and recommend a suitable course of action. Working capital cycle is also called cash management cycle. Working capital is excess of current assets over current liabilities.
Marks 6 10 7 Working capital is fund required to finance trading activities organization. Or accasupport. We will need working capital cash for ten days to meet day to day trading expenses between 10 days.
If we pay suppliers in 25 days but we receive payment from customers in 20 days. This need can be fulfilled through personal savings or raising finance.
We will have surplus cash for 5 days after settling all liabilities. Surplus cash can be invested elsewhere to earn interest income. Efficiency of working capital depends on efficient control over elements of working capital as above.
Working capital requirement depends on time taken to pay suppliers and time taken to receive payment from customers. Increase in trade receivables level increases working capital. Trade receivable balance given in the balance sheet is taken as accasupport.
Working capital cycle depends on the following: If we assume credit sales are made as constant rate. Inventory balance given in the balance sheet is taken as representative of balance of inventory held at any point in time during the accounting period. To find trade receivables level or amount. Calculate the change in trade receivable level if customers would have taken 45 days on average to pay their debts.
It is because of increase in trade receivable turnover from 40 to 45 days. Trade receivable turnover in days is 40 days. Increase in inventory levels increases working capital. Trade payable balance given in the balance sheet is taken as representative of balance owed to customers at any point in time during the accounting period.
Inventory is converted to trade receivables 5 days earlier. It is because of decrease in inventory turnover from 30 to 25 days. Inventory turnover in days is 30 days.
To find inventory level or amount. Calculate the change in inventory level if inventory is sold to customer after 25 days from the date of purchase.
It is because of increase in trade payable turnover from 50 to 60 days. Increase in trade payable leads to decrease in working capital requirement. Trade payable has inverse relationship with working capital. Account trade payables turnover in days is 50 days. Increase in trade receivables and inventory leads to increase in working capital requirement. If we assume credit purchases are made at constant rate. To find trade payable level or amount.
Calculate the change in trade payable level if trade payable is sold to customer after 60 days from the date of purchase. Trade receivables and inventory has direct relationship with working capital. If customers pay us more often.
We can arrange cash for payment to supplier in lesser time. Following ratios is calculated for determining liquidity position of the organization. If suppliers demand more often. It is used to makeup shortfall in working capital requirement. Using current liabilities for financing working capital needs may work well for increasing profitability and it will deteriorate liquidity of the organization.
We will have less time to arrange for payment. Trade payable turnover suggests how often suppliers demand their payment. There are four key areas of account receivable management. Inventory is excluded as it takes more time than other current assets to be converted into cash. Marks 6 7 4.
It means those customers who are reasonably likely to settle their debts within due date. Inventory is distant from cash in that it first has to be converted into receivables before it is converted into cash. Following sources of information would be helpful in performing credit analysis. Quality of credit analysis depends on the source and quality of information used to assess customer creditworthiness. An effective credit policy should consider following elements: In short. Sales ledger staff should ensure that customer understands the terms and conditions at the time of issuing invoice.
Sales ledger staff should follow up overdue debts. These are factors affecting the formulation of trade receivable management policy or credit policy. Following are the actions that can be taken: Cost of debt collection should not exceed the amount of debt.
Terms and conditions could include mode of payment. Issuing of invoice and collection of funds from customers is the responsibility of sales ledger staff. They should also deal with any issues raised by customers in timely manner. They should send monthly statements to customers and ensure that any differences are reconciled in timely manner. Points to consider for evaluating credit policy are as follows. Exam Support: Determining incremental cost of financing trade receivables is most complex calculation in the credit policy evaluation.
Giving extended credit terms requires more frequent monitoring of customers to reduce the increased risk of bad debts associated with longer credit terms. Trade receivables need to be financed just like inventory and noncurrent assets. Maintaining sales ledger and monitoring customers result in additional cost to the organization.
You will probably do not understand the text below. Reduction in financing cost is savings in cost of interest incurred due to reduction in credit term. Trade receivables are usually financed through shortterm source of finance such as overdraft and short-term bank loan.
Please keep reading till the end. It will probably attract highest marks in the evaluation. Financing trade receivables involve financing cost such as interest charge on overdraft and bank loan. Interest expense incurred in financing trade receivables will erode profitability. Reduction is credit term usually leads to savings in administration cost. Incremental contribution from additional sales needs to be taken account or loss of contribution from reduced sales should be taken into account.
Customer may attempt to claim discounts even if they are not entitled. It is done to improve working capital cycle. Only incremental contribution is relevant for the purpose of credit policy evaluation. Saving in financing cost is already accounted for when calculating incremental cost of financing. Early payment by customers results in savings in finance costs to the organization.
Incremental additional administration cost needs to be taken into account in the evaluation. Reduction in early settlement discount leads to savings in finance cost. Evaluate whether the proposed changes in credit policy will increase the profitability of Ulnad Co.
Ulnad Co plans to offer an early settlement discount of 1. Bad debt expense needs to be included in the evaluation of credit policy. Organization may have estimates available for range of credit terms. If reduction in credit term is proposed. Then these savings should be included in the evaluation of credit policy.
Bad debts estimates may be given as percentage of sales revenue. If not. New trade receivable level under new credit policy. Financial institution providing factoring services is known as factor.
Factor performs following tasks on behalf on organization: Factoring is of two types 7. Factoring transfers control of receivable management from organization to factor.
Factor also deducts its flat fee and percentage of interest on advanced payment made by factor. Factor can use its own policies and procedures. Factoring service is obtained to improve the account receivable turnover.
Factoring allows organization to direct their skills and resources toward core activities such as making sales to customer without having to worry for payment recovery. Factoring is suitable for small sized organizations that have not enough resources and expertise.
Performa for evaluating proposal for factoring: Savings in finance cost of trade receivables see working 1 Savings in administration cost of sales ledger per year Savings in bad debt expenses non-recourse per year Total benefit of factoring X Factoring fee per year see workings 2 x Interest cost on cash received in advanced see workings 3 x Total cost of factoring X accasupport.
Exam Support Look carefully in the exam which type of factoring with recourse or without recourse is under consideration by looking at the information accasupport. Shareholders may perceive factoring as lack of expertise of management in controlling trade receivables. Evaluate whether the proposal to factor trade receivables is financially acceptable. Assume an average cost of short-term finance in this part of the question only.
Factoring is always expected to decrease in trade receivables. As discussed earlier. That is why. It is possible to come across question in the exam in which factor would demand flat fee. If factoring is expected to increase trade receivable period then factoring is obviously worthless.
Invoice discounting is raising cash through pledging sales invoices. In other words. Average receivable balance means receivables balance during the year will rise and fall such as due to seasonal demand for goods or services. Invoice discounter pays rest of the amount when customers settle their debts and charges a percentage of interest on cash advanced.
It can be used by organization having cash flow problem. Each time. If the customer defaults.
Latest ACCA Financial Management (FM) KIT 2018-2019
Unlike factoring. Invoice discounting does not setup customers. Invoice discounting can be used to raise short-term finance. Customers only become aware of the arrangement when they default. To be benefit from invoice discounting. It is because invoices represent the security to the invoice discounter.
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It means cash received will be lower than the total value of invoices. Do not hesitate to write simple and obvious points. It is not frequently used credit instrument. Unconditional order means it does not require any action by the bearer to cash the bill of exchange. In the event of default. Even these points can attract marks in the exams.
Letter of credit is demanded by supplier from a customer. Bank guarantees to a beneficiary supplier to pay specified sum of money on completion of sales in accordance with agreed term and conditions on behalf on his client customer.
Bill of laden can be used as evidence of transfer of goods to customer. Issuing letter of credit is costly and time-consuming process. However, it is safer way to carry out foreign transaction.
It is not ideal for urgent sales orders. It covers the risk of default due to bankruptcy, death, deliberate non-payment etc. The cost of insurance is called premium. It can be continuous long-term contract or one off transaction insure against specific customer. Goods are exchanged despatched at the same time so it reduces the risk of bad debt. Barter trade does not involve goods in exchange of promise to supply goods.
Early settlement discount is different from trade discount. Early settlement discount is given to reduce finance cost of trade receivables and improve working capital cycle. It is given to those who pay early within specified period before usual credit period. WQZ Co is considering making the following changes in the area of working capital management: Inventory management It has been suggested that the order size for Product KN5 should be determined using the economic order quantity model EOQ.
A buffer inventory of 5. Credit sales are not expected to change as a result of the changes in receivables management. Calculate and comment on whether the proposed changes in receivables management will be acceptable.
Reduction in trade receivable turnover from 75 to As discussed earlier, trade receivables incurs finance cost, decrease in accasupport. Cost of early settlement discount is finance cost for the organization rather than admin or selling and distribution expense, because it is given for reducing the cost of financing trade receivables. Maximum Early Settlement Discount Maximum early settlement discount should be the rate at which savings from giving early settlement discount becomes zero.
It is because sales revenue could be lowered by 1,, or 4. Screen Tip: Calculate if ZPS Co will benefit financially by accasupport. ZPS Co places monthly orders with a supplier for 10, components that are used in its manufacturing processes. Annual demand is , components. Reduction in trade payables will require the use of other source of finance to makeup the short fall in working capital.
Short-term finance will now be used for refinancing working capital. Calculate if ZPS Co will benefit financially by accepting the offer of the early settlement discount. It is considered as finance income.
Trade payable is usually used as free source of finance because suppliers generally do not charge interest for late payment. Marks 7 4 6 14 Optimal or Economic Order Quantity EOQ Economic order quantity is the quantity order size at which combine cost of inventory ordering and holding is minimized. Organization will be better by not taking early settlement discount. The recently-appointed financial manager of PKA Co has been investigating the working capital management of the company and has gathered the following information: Inventory management The current policy is to order Forecast demand to meet production requirements during the next year is Total cost under current ordering policy: You should assume a week year and that demand is constant throughout the year.
Calculate the cost of the current ordering policy and determine the saving that could be made by using the economic order quantity model. Each unit will require of holding cost per year. If supplier takes 2 weeks. Inventory usage per week is Stock out of life saving drug in a hospital can be disastrous.
Each syllabus area seems to be unrelated to each other while studying. Trade payable has inverse relationship with working capital.
Profit related pay could lead to directors undertaking excessive risky investment projects. It is given to motivate directors so that work can be performed efficiently. You can use parts of this material provided you quote the appropriate reference to the author and material. Therefore, you must identify, which steps will be rewarded and which steps can be omitted without losing marks.
Directors are granted necessary authority through articles of association and accasupport.
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