Synoptic Exam

What is the formula for Return on Capital Employed?

Profit from Operations/ Capital Employed (TALCL)

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What is the formula for Asset Turnover (Net Assets)?

Revenue/Capital Employed (TALCL)

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What is the formula for Asset Turnover (Non-Current Assets)

Revenue/Non-Current Assets

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What is the formula for Interest Cover?

Profit from Operations/Finance Costs

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What is the formula for Gearing ratio?

Non-Current Liabilities/Equity + Non-current Liabilities

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What is the formula for Working Capital Cycle?

Inventory days + Receivable days - Payable days

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What are the Limitations of Ratio Analysis?

Non-Financial Information - Ratios only consider the financial impacts of a business, they do not consider qualitative aspects, staff morale, environment. Historical Information - Ratios are calculated based on past information.

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What are the Limitations of Ratio Analysis?

Comparison to other companies - Accounts may use a different basis so may not be comparing like for like information. Markets and Size - Businesses in the same industry may operate in different markets, therefore ratios are not comparable.

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What are the purposes of budgeting?

PRIME -Planning, Responsibility, Integration, Motivation, Evaluation and control.

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What are the advantages of Top-Down Budgeting?

Managers should be best placed to make decisions. Managers should have most skills/Experience. Gives managers greater control. Managers have a better grasp of Corporate objectives.

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What are the disadvantages of Top-Down Budgeting?

Senior management may lack local knowledge. Targets set may be unrealistic or unachievable. It is poor use of senior managers time. De-motivating to staff expected to achieve targets imposed on them.

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What is a rolling budget?

A rolling budget will be a continuous budgetary process where each month the budget is reviewed and updated for the next 12 month period.

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What are the advantages of Bottom-up budgeting?

Operational management are likely to have better local knowledge and have a better understanding on whats going on. Frees up time for senior management. More motivating for staff involved. Helps build skills of lower level managers.

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What are the disadvantages of Bottom-up budgeting?

Time-consuming as many managers in many different departments will need to be involved. May lack required skills. Too many conflicting views. Targets may be too easy to achieve. Budgets may lack consistency.

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Describe Return on Capital Employed?

Return on capital employed is an important calculation to appraise the performance of a business. This ratio measures how much net profit is generated for every £1 of assets employed and it indicates how efficiently the company uses its assets to generate

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Describe Incremental Budgeting?

This type of budgeting is based on the previous years results and is updated for any known changes and inflation.

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What are the reasons for using Incremental Budgeting?

 Simple to prepare
 Can be prepared quickly
 Little training or experience required
 Inexpensive as lower levels of staff can be involved in preparing the budgets
 A business operating efficiently will be suited to this approach since few changes wil

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What are the problems with Incremental Budgeting?

1. It assumes that activities and methods of working will continue in the same way from year to year. In reality they may change significantly.
2. There is no incentive to reduce costs in the budget as it is assumed that everything will increase each year

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Give 4 benefits of a sustainability strategy?

- Reduce your energy costs.
- Improve your brand reputation and public relations.
- Increase customer and staff loyalty.
- Manage risk.

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What is fraud?

Fraud is deliberately depriving somebody of something that is theirs by the way of deliberate deceit.
2 Types - Misappropriation of assets, Intentional misrepresentation of the financial statements.

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What is an advocacy threat?

An advocacy threat arises where you speak up on behalf of someone else and are seen to be promoting them or their business. If this happens people would not believe you would ever say anything negative about that particular client so would not trust your

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What is an intimidation threat?

An intimidation threat arises where you are pressured into doing or acting in a way that is not consistent with the ethical principles.

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What is a familiarity threat?

A familiarity threat arises where you do work for someone who you are closely connected to. This may be through a close family or business relationship.

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What is a self-review threat?

A self-review threat arises where you are reviewing your own work. 2 problems this causes is you may not review it properly as you think its been done correctly or if you do find a mistake or error you do not admit to it and try and cover it up.

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What is a self-interest threat?

A self-interest threat arises where as an accountant you have an interest in the transaction or client that you are working on. You should be objective but with a self-interest threat you may put this interest first and not act properly.

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What are general controls?

Controls relating to the overall system and covers all applications.

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Give examples of general controls?

- Limiting access to systems.
- Rotation of passwords
- Backups of data

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What is application controls?

Manual or automated procedures that relate to processing of transactions, specific to each application.

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Give examples of application controls?

- Initiate automated transactions
- Exception reports can check on completeness and accuracy at all stages i.e. checking that journals entered balance.

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What is segregation of duties?

Ensuring more than one person is involved in each transaction to deter fraud.

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What is collusion?

Collusion is an agreement between two or more parties sometimes illegal, to limit competition by defrauding or gaining an unfair advantage.

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Warning sign to detect fraud? People

- Management dominated by one person
- Frequent changes of legal advisors
- Excessive hours worked by key staff
-Failure to take holiday entitlement without a good reason.
- Rumours and/or evidence about lifestyle.

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Warning sign to detect fraud? Processes

- No enforcement of holidays and procedures during holidays.
- No checks over posting access to IT systems.
- Suggestions that internal controls are being overridden.

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Warnings to detect fraud? Profits

- Unusual transactions with related parties.
- Transactions where the profit is not consistent with the cash flow.
- Unusually high or unexpected levels of profits or losses.

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Warnings to detect fraud? Employee Behaviour

- Falsely claiming to be off sick.
- Getting a friend to clock on and off for you.
- Claiming for overtime not worked.
- Claiming for expenses not incurred.
- Claiming for time/work not done/completed.

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How fraud may affect an organisation?

Financial Impact - The theft of assets or cash affects its profitability and the level of reinvestment in the organisation.
Reputation - Internal and external reputation will be adversely affected.
Employees- Employee morale could be damaged by the reduct

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What is cost benefit analysis?

A cost benefit analysis is a process by which organisations can analyse decisions , systems or projects . The model is built by identifying the benefits of an action as well as the associated costs, and subtracting the costs from the benefits.

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What are the 4 aims of financial statements?

1- To identify how well the business has performed.
2- To help understand the cashflow position.
3 - To identify the value of the assets.
4 - To communicate these things to the users of the accounts.

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What are the advantages of trading as a limited company?

1-Limited Liability status.
2 - Easier to raise finance
3 - Company continues to operate regardless of the ownership
4 - Taxed under corporation tax

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What are the disadvantages of trading as a limited company?

Company accounts are submitted at companies house and anyone can access them/ More regulation to comply with/ Accounts of larger companies must be audited/ Issues of shares are highly regulated.

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What are ordinary shares?

These are shares which are in the equity section of our statement of financial position. Ordinary shareholders can receive a dividend . Holders of these shares are entitled to a vote.

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What are preference shares?

- Carry the right to a fixed rate dividend
- Do not have any voting rights.

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Define verifiability?

Verifiability helps to assure users that information represents faithfully the economic reality of the transaction

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What is the formula for return on shareholders funds?

Profit after tax/Total equity x 100%

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What is the formula for asset turnover?

Revenue/Capital Employed

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Describe Return on Capital Employed?

Measures how much profit is generated for every £1 of assets employed. Indicates how efficiently the company uses its assets

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Describe current ratio?

It gives an indication of liquidity by showing how many times the current liabilities are covered by the current assets.

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Describe inventory holding period?

It shows the average number of days inventory is held before it is sold.

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Describe gearing ratio?

This measures the percentage of total debt to the total financial. High gearing means there will be less profit available to distribute to shareholders as the profit will have been reduced by high interest charges. High gearing also means lenders are less

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What are the limitations of ratio analysis?

- Comparison to other companies
- Historical information
- Markets and Size
- Non-Financial Information
- Window dressing

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Advantages of Incremental Budgeting?

- The budget is stable and changes are gradual over time which will be easier for staff to cope with

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Advantages of Incremental Budgeting?

The system is relatively simple to operate and easy to understand.

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Advantages of Incremental Budgeting?

Co-ordination between department budgets is easier to achieve as their budgets will change at the same rate.

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Disadvantages of Incremental Budgeting?

Incremental budgeting encourages departments to spend the full amount of their cost budgets rather than to try to save money.

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What is an advantage of zero-based budgeting?

- Increases staff motivation by providing greater involvement and responsibility in decision making.

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What is priority based budgeting?

Priority based budgeting is a modification of the zero based approach . It focuses on organisational priorities and allocates growth and savings in the budgets accordingly. It is similar to zero-based budgeting but does not require a zero assumption.

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Examples of Sales Ledger Fraud?

- Stolen Cash receipts - not recording sale in cash book.
- Overcharging of sales - to take additional cash.
Inflating customer orders - to take goods for own use.
- Writing off debts - cash received and pocketed.
- Raising credit notes- pocketing cash re

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Examples of Purchase Ledger Fraud?

- Ordering goods for own use
- Payments to suppliers paid into own account
- Teeming and lading - Taking payment for supplier and keeping and then using later payments to pay balance.
- Fictious supplier - False invoices entered.

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Examples of Payroll Fraud?

- Ghost Employees
- Overstate overtime
- Expense claims falsely made and paid
- Leavers not processed
Adding new staff falsely

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What are the benefits of using non-financial performance indicators?

Anything can be measured to assess a wide range of objectives and the businesses’ ability to achieve them.They enable a forward focus as financial targets and measures can sometime result in cost cutting and a non financial focus can help with business im

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What are the challenges with using non-financial performance indicators to analyse performance? (2 marks)

Information overload – can measure anything can end up with too much information to analyse and make effective decisions. (1 mark)
The measurement can be subjective for example customer satisfaction and can be less reliable. (1 mark)
It can be difficult t

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Error of principle?

The double entry amount is correct, but the wrong type of account has been used.

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Error of commission?

The double entry amount is correct, but the wrong account of the same type has been used.

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Published
Financial
statements?

Content is determined by company law.Audited by external audit.Prepared from the trial balance

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What are the 4 sections of the balanced scorecard?

Financial, Internal, Innovation and learning, Customer.

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Explain the purpose of a SWOT Analysis?

A SWOT analysis is a strategic planning method that looks at the strengths, weaknesses, opportunities and threats of a business. The purpose of a SWOT Analysis is to understand what we are good and bad at, to help us spot opportunities and act on them, an

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Give an example of 1 strength and weakness that has been identified in relation to personnel at AEM Ltd? (1st Answer)

- All Directors previously worked for one of the largest motor vehicle retailers in the UK and have extensive knowledge of the motor vehicle industry. This benefits the business because they are likely to make better decisions, by learning from their past

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Give an example of 1 strength and weakness that has been identified in relation to personnel at AEM Ltd? (2nd Answer)

Formalised induction courses and a mentor system have been introduced for new staff. There is an extensive training programme asnd a staff suggestion scheme. This benefits the business because staff who have a supportive induction process and regular trai

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Give an example of one weakness that has been identified in relation to the companies finances? Explain how this could negatively impact the business and recommend how this can be improved?

With the recent acqusition of Weldon Vehicles Ltd, there is some concern that the business might be developing too quickly for its capital base. This means that they might not have enough long-term finance to meet their financial commitments. This can thr

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Give an example of one weakness that has been identified in relation to customer service at AEM Ltd. Explain how this could negatively impact the business and recommend how this can be improved?

Customer satisfaction data shows that ongoing aftercare performance is disappointing. Aftercare products include warranties, insurance products, breakdown cover, servicing and repairs. Customers do not have to purchase these from AEM, there are plenty of

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William has a meeting with Barbara Sinta, the sales and marketing director, to discuss the future of AEM Lt. Explain why Barbaras role as sales and marketing director is so important to the identification of opportunities and threats?

The electric car market is growing which makes it an attractive market for new businesses to enter into. As a result, one of the main threats to AEM Ltd comes from new competitors in the marketplace. Barbaras role will include making decisions about the p

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Discussion of how standard costing can aid the planning and control of AEM Ltd?

- The expected costs of carrying out a service will need to be estimated at the start of the financial year to help with the budgeting and planning process,so that AEM Ltd can plan resource requirements such as how much oil and spare parts to buy in, and

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More Disadvantages of Incremental Budgeting?

- If there is budgetary slack built into the budget for one year, it will automatically be put back into the budget for the following year.
- Incremental budgeting encourages departments to spend the full amount of their cost budgets rather than try to sa

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What is teeming and lading?

This is when cash or cheque receipts are stolen, with the theft being concealed by allocating subsequent receipts against the debt.

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Explain Target Costing?

Target costing is a market-driven approach to determine a cost of a product. It is a process for reducing costs at early stages of product planning and design, using techniques such as value analysis and value engineering.

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Steps to calculate target costing?

1. Start with the sales price per unit that has been determined.
2. Calculate the profit per unit that we want.
3. Deduct the profit from the sales price to give the total target cost that we can afford.
4. If you are given certain elements of cost you ca

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Give advantages of benchmarking?

- It gives a realistic target for results that we should be able to achieve. - We can learn lessons from other businesses that can help us to improve our own performance. - It encourages a more externally-facing culture in the business.

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Give disadvantages of benchmarking?

It can be hard to get the data. It can be time-consuming to undertake.

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Synoptic Exam

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