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MFRD Managerial Accounting

   

Added on  2019-12-03

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MFRD

Table of ContentsINTRODUCTION......................................................................................................................3TASK 1......................................................................................................................................3AC 1.1 Finance sources available to the business organizations...........................................3AC 1.2 Implications of each finance source...........................................................................3AC 1.3 Three case study of finance sources..........................................................................4TASK 2......................................................................................................................................5AC 2.1 the cost of various sources of finance........................................................................5AC 2.2 Importance of financial planning...............................................................................5AC 2.3 Financial information requirement of various decision makers................................6AC 2.4 Cost of finance sources in company's accounts.........................................................6TASK 3 .....................................................................................................................................8AC 3.1 Evaluation of budget and statement of cash flow......................................................8AC 3.3 Application of investment appraisal methods............................................................9AC 3.2 Computation of profits, BEP and Contribution.......................................................11TASK 4....................................................................................................................................15AC 4.1 Accounting records; Purpose and uses....................................................................15AC 4.2 Purpose of the financial statements.........................................................................15AC 4.3 Financial statement analysis....................................................................................16CONCLUSION .......................................................................................................................17REFERENCES.........................................................................................................................18

INTRODUCTIONNeed for finance is arises for each and every business enterprises to run businesssuccessfully. It is required in all the business organization whether small or large and newbusiness start up or old that wants to expand its operations. Business requires finance formuch purpose in order to ensure its sustainability. This report will discuss different financesources that are available to every organization to fulfil its finance requirement. Moreover,the report describes the importance of financial planning for the enterprises. In addition to it,cash flow statement and capital appraisal techniques are also applied in this report. TASK 1AC 1.1 Finance sources available to the business organizations

Every business organization can collect finance sources from both internal andexternal sources. Internal finance sources are available in the organization while outsidefinance sources are considered as external sources that are described below:Large and small enterprises: The organization whether large or small can fulfil itsfinancial requirement by share capital. It can collect finance through issuing both equity andpreference shares. Moreover, they can take banks loans for different time period according totheir requirements (Bogan, 2012). As an internal source, the organizations can use retainedearnings that are concerned with undistributed profits to the shareholders. In addition to it,small business organizations can make delayed payments to the creditors and receive earlierfrom the debtors to fulfil its short term finance requirements. Furthermore, large businessorganization can use venture capitals of small and medium enterprises. New or old: It can collect its finance sources from taking bank loans to a limitedextent. Moreover, loan can be taken from other persons such as friends and family membersby new organizations. Personal savings can also be used by the persons to start new businessenterprises (Robb and Robinson, 2012). Further, both the companies can fulfil its finance

requirement through share capital. Moreover, when an existing company wants to expand itsbusiness operation then it can collect its finance from share capital. However, old companiesthat have availability of retained earnings can be used for such purpose but this sources arenot available to a new business start ups. Furthermore, disposable assets can be sold out andoverdraft facilities can be used for this purpose. AC 1.2 Implications of each finance sourceEvery finance source involves some cost and the legal aspects that must be followedby the organizations explained below:Loans: The advantage is that loans are available for all the time period short term,medium term and long term. However, disadvantage is that it has to pay interest and fulfilmany legal formalities (Houston and et.al, 2014). Moreover, the business has to give securityagainst the amount of loan taken. Share capital: The advantage is that large capital requirement can be fulfilled by thesesources. However, disadvantage is that the shareholders have legal voting right to thecompany therefore; dilution of control is existed in it. They can take part in the managementand can control its operations. Overdraft: The advantage is that immediate finance requirement can be accomplishby this facilities (Sources of Finance, n.d.). However, disadvantage is that bank charges ahigher rate of interest on the overdraft than loans. Retained earnings: The advantage of retained is that it is available to the companyfree of cost. Moreover, further return can be earned on the amount invested. However,disadvantage is that it can create dissatisfaction among the shareholders. AC 1.3 Three case study of finance sourcesStarting up new ventures: In case of Duncan Bannatyne; initially for starting thebusiness the company use its personal savings and take borrowings from family or friends.Both the sources does not involve any cost but only limited fund requirements can be fulfilthrough this sources. Expansion: For expanding the business operations of Duncan Bannatyne, the businessused both short term and long term finance sources. It use credit cards, bank overdrafts andbanks loans. However to fulfil its long term funds requirements it took mortgage on property,funds from shareholders and investors and took grants or loans from Government or otherorganizations. The company also reinvest the profits from ice cream vans to Dragon's Den.Moreover, it sale its car, TV and other assets such as stereo and bank loan for acquiring the

land for starting the nursing home. Furthermore, the company use venture capital forexpanding its operating activities. Acquiring a small or medium enterprise: In order to acquire any existed companybusiness organization can use loan capital and venture capital. Moreover, it can collect itsfunds through share capital. ABC Ltd. Company wants to acquire a medium scale enterpriseXYZ Ltd. Then it can take bank loans, issue shares and can provide venture capital. TASK 2AC 2.1 the cost of various sources of financeThe need of finance is not only require establishing or start up the business but alsofor expands its operations. Therefore, the organization has to timely raise its finance sourcesfor different purpose.Share Capital: It is a major financial instrument that is used by the companies to raisethe funds. The cost of share capital is that company has to pay return in terms of dividend tothe shareholders (Elsas, Flannery and Garfinkel, 2014). Preference shares dividend rates arepre decided while it is not fixed in case of equity shares. Loan Capital: The cost of loan capital is that the business has to pay interest andtimely instalment on respective loan amounts. Moreover, in case of default the security canbe sold out by banks to repay the loan amount.Retained earnings: The amount of remaining profits can also be used by thecompanies to raise the funds (Understanding Alternative finance, 2014). Moreover, it doesnot involve any cost factor as it is available to the company. Moreover, when an existing company wants to expand its business operation then it cancollect its finance from share capital.AC 2.2 Importance of financial planningEvery company needs to conduct an effective financial planning in order to assess thebusiness capital requirement, available finance sources and determine an appropriate capitalstructure. It helps the organizations to arrange the capital requirement by combining somefinance sources at minimum cost (Brooks and Mukherjee, 2013). Financial planning is theprocess of framing the financial policies in relation to procurement, investment andadministration in order to dividend and wealth maximization. Thus, it is important due to thefollowing reasons: Determining the capital requirement: Financial planning helps in identifying theamount of capital that is required for acquiring assets and run the business operations

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