Unit 3

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  • Created on: 25-01-18 13:02
Name 4 sources of external soruces of finances
Bank loans, Private equity capital, venture capital and business angles
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How does private equity capital work?
Company borrows from private equity company who ask for a percentage of shares within the business
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Who uses venture capital?
Public limited companies
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What is a business angle?
Wealthy angle
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How can the bank produce external sources of finance?
Loans, overdraft and mortgages
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Length of time for a mortgage?
25 years
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Name 2 sources of internal sources
Capital and funds generated from profits
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2 types of shares?
Ordinary and preference
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What does an ordinary share become?
Capital for the company
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How are preference shares repaid?
Fixed percentage rate dividend
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Why are preference shares used?
Obtain finance within the business
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Advantage of preference shares?
Budgeting
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Which shareholders are paid first?
Preference
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What does a debenture act as?
Act as loans against the company
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Disadvantage to debenture stock?
No profit, interest is still paid
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Advantage to debenture stock?
Unable to vote
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What is an AGM?
Annual general meeting
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Type of interest on a bank loan?
Fixed or variable
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Advantages to bank loans?
Easy to budget for and flexble payment
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Disadvantage to bank loan?
Long term
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What is a bank overdraft?
Flexible agreement with the bank that allows customers to borrow money on a current account up to a certain limit
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Advantages on bank overdraft?
Flexible and interest only charge on borrowed amount
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Disavantage to bank overdraft?
Interest rates higher than banks
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4 drawbacks of incomplete records?
Accountants time, lack of up to date information, innaccurate and loss or theft
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How can an accountants time be a drawback?
Additional costs
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What is statement of affairs used to calculate?
Capital
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Formula for statement of affairs?
Assets - liabilities
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How to get profit for the year using statement of affairs?
Capital at the end of year - capital at the beginning of year = retained profit - drawings = profit for the year
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What does the cash book summary use?
Cash and bank balance at the start and end of the year
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What goes on the debit side of a cash book summary?
Receipts
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What goes on the credit side of a cash book summary?
Payments, drawings and expenses
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What side is a overdraft on?
Credit
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Formula used to find expenses for the year?
Bank and cash payments during the year - accruals at the beginning of the year + prepayments at the start of year + accruals at the end of year - prepayments at the end of year = expenses for the year
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How to calculate inventory loss?
Opening inventory + purchases = cost of avaliable inventory. Sales - gross profit = cost of sales. Cost of avaliable inventory - cost of sales - value of remaining invenory = value of inventory lost
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Formula to calculate purchases for the year?
Payments to trade payables in year - trade payables at the beginning of the year + trade payable at the end = purchases for the year
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Formula to calculate sales for the year?
Receipts of trade receivables in a year - receipts at the beginning of year + receipts at the end of teh year = sales of the year
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Which side does purchases go on in the PLCA?
Credit
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Which side does sales go on in the SLCA?
Debit
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Which side does payments go on in the PLCA?
Debit
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Which side does receipts go on in the SLCA?
Credit
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Which side is an accrual on in DEBK?
Debit
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Which side is a prepayment on in DEBK?
Credit
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If mark up is 20% and Cost of sales in £20000, what is revenue?
£240000 (£200000/100X20)
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If margin is 20%, sales is £300000, opening inventory is £20000 and closing inventory is £30000 what is purchases?
GP = £300000/100X20=£60000. £300000-£60000=£2400000. £240000+£30000-£20000=£250000
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If sales is £450000, margin is 20%, opening inventory is £40000 and closing inventory is £50000 what is purchases?
£450000/100X20=£90000 (GP). £450000-£90000=£360000 (COS). £360000+£50000-£40000=£370000
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If mark up is 50% what is margin?
50/(100+50)X(100/1)=33.3%
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If margin is 33.3% what is mark up?
33.3/(100-33.3)/(100/1)
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What is the formula for inventory turnover?
(Opening inventory + closing inventory)/2 X inventory turnover
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What is IAS 1?
Presentation of financial statements
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What is IAS 2?
Inventories
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What is IAS 7?
Statement of cash flows
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What is IAS 8?
Accounting policies, changing in accouting estimates and errors
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What is IAS 10?
Events after the reporting period
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What is IAS 16?
Property, plant and equipment
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What is IAS 18?
Revenue
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What is IAS 36?
Impairement of assets
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What is IAS 37?
Provisions, contingment liabilities and assets
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What is IAS 38?
Intangible assets
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What does IAS 2 value at?
Lowest of net realisable or cost
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Formula for Net realisable?
Estimated selling price - cost of repairs
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What does IAS 2 measure?
Cost of purchase or converting
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What does IAS 7 show?
Overall view of money flowing in and out of a business
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What does IAS 8 say about policies?
They must be consistent
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What is an adjusting event?
Event after the reporting period but before being published
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What is a non-adjusting event?
Events after the reporting period but dont affect the final accounts
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What does IAS 16 recognise?
Assets, depreciation and measurement
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Name the sources of revenue for IAS 18
Sale of goods, interest, dividends and rent received
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How is revenue measured in IAS 18?
Fair value
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3 stages of IAS 36?
1) Assets carrying amount. 2) Assets recoverable amount. 3) Carrying amount higher than recoverable, asset is impaired
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What is a provision?
A liability with no know time or amount
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What is a contingment liability?
A possible obligation that are not probable
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What doesn't IAS 38 deal with?
Good will
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What dies IAS 38 value?
Future asset estimates
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Concepts that should be followed in IAS 1?
Going concern, accruals, consistency and materiality
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What is going concern?
Able to survice in the future, within a statement
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Concepts continued in IAS 1?
Prudence, business entity, money measurement, realisation, historical cost and duality
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What is realisation?
Transaction only recorded if happened
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What needs to be considered in IAS 1?
Offsetting and comparative information
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Why are annual reports produced?
For shareholders
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*** do directors run the company?
On shareholders behalf
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How directors get their position?
Elected by shareholders
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What do directors have?
Position of trust
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Year of the companies act?
2006
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What are directors duty under companies act 2006?
Act within power, promote success of business, exercise independent judgement, avoid conflicts of interest, don't accept benefits from 3rd parties, disclose an interest in any proposed transaction in that company and exercise any reasonable care
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What is the main criteria of Comapnies act 2006 that directors must follow?
Explain transactions fully, be able to report on financial position with reasonable accuracyy and income statement and balance sheet give fair and true value
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What does a directors report contain?
Details of key activites, review of previosu accounting periods, information on the future and directors and who they are
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What will directors comment on in the directotrs report?
Proposed dividend, why it's a fair dividend, siginificance between balance sheet and market values, donations, employee disputes (strikes) and new policies (ehtical issues - equality)
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What will auditors comment on in the auditors report?
Respective responsibilites, basis of auditors reports, how they conduct reports, which directors are responsible for accounts and opinion
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Whats included in the opinion of auditors report?
Financial statements prepared correctly, accoutns give fair and true value, consistency, comment on if its a going concern and issues with reports
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Whats the internal uses of published accounts?
Management accounting, could infuence share price and not audited
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Whats the limitations of published accounts?
Produced annually, PLC's have 6 months to publish statoury accounts, additional information may not be disclosed and reports on the past
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Why are shareholders interested in published accounts?
Any return on investment, profit reinvestments and if there is profit to fund dividends
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Why are trade payables interested in published accounts?
Liquidity of firm - can they pay short term debts
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Why are loan and debenture holders interested in published accounts?
See what other leaders need to be paid, if the company are making a profit to pay them back and gearing - more or less borrowings
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Why are managers and employees interested in published accounts?
Job security and financial strength
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What is a realisation account used for?
Dissolution of a business
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What goes on the debit side of a realisation account?
NCA, inventory, trade receivables and dissolution costs. And any trade payables paid
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What goes on teh credit side of a realisation account?
Trade payables. And any NCA, inventory and trade receivables paid
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What side is share of loss on in the realisation account?
Credit
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What side is share of profit on in the realisation account?
Debit
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Balance of capital figures in the capital account?
Credit
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What side does share of loss go on in the capital account?
Debit
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What side does share of profit go on in the capital account?
Credit
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What side does interest on loan go on in the current account?
Credit
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What side does interest on capital go on in the current account?
Credit
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What side does interest on drawings go on in the current account?
Debit
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What side does share of profit go on in the current account?
Credit
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What side does share of profit go on in the current account?
Debit
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What side does drawings go on in the current account?
Debit
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What side does salary go on in the capital account?
Credit
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If someone is leaving the partnership by death or retirement how should good will be dealt with?
Old profit sharing ratio, credit values. New profit sharing ration debit values
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When was the partnership act inplace?
1890
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What does the partnership act of 1890 say about loan interest?
5%
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What does the partnership act of 1890 say about salaries?
No partner is entitled to one
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What does the partnership act of 1890 say about capital interest?
None but 5% on addiitionally
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What does the partnership act of 1890 say about share of profit?
Equally between partners
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If a partner leaves but is unable to pay for any funds what happens within the business?
Split, first partners capital divided by first partners capital + second partners capital X amount needed to be paid
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List the benefits of a schedule of NCA?
True and fair value to meet IAS 1, more detail than IAS 1, used by shareholders to analyse performance and no bias - objective
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List the negatives of a schedule of NCA?
Not broken down, historical data, window dressing and depreciation is subjective
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If Cost of land and buildings is £200000, opening charge of depreciation is £55000, depreciation using straight line method is 2% and revaluation is £260000 what is the charge for the year?
£5,200. (£260000 X 2%)
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If Cost of land and buildings is £200000, opening charge of depreciation is £55000, depreciation using straight line method is 2% and revaluation is £260000 what is eliminated on revaluation?
£55000
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If plant and machinery opening cost is £75000, additions £25000, NBV is £39200 and depreciation is 25% using reducing balance, what is charge for the year?
£16050. ((39200+25000) X 25%)
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If fixtures and fittings opening cost is £50000, purchased is £10000 (2 years ago) but sold for £6000, purchased is £15000 and depreciation is 15%, what is charge for the year?
£8250. ((50000-10000+15000) X 15%)
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If fixtures and fittings opening cost is £50000, purchased is £10000 (2 years ago) but sold for £6000, purchased is £15000 and depreciation is 15%, what is eliminated on disposal?
£3000. ((10000 X 15%) X 2 years)
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What is the format for cash from operations in a cash flow statement?
Profit from operations+depreciation charge+loss on sale (-gain on sale)+decrease in inventory (-increase in inventory)+ decrease in TR (-increase in TR)+ increase in TP (-decrease in TP) = cash used in operatings- interest paid - tax paid = net cash
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What is the format for investing activities in a cash flow statement?
+ inflows (sale of NCA) - outflows (purchase of NCA) + dividends received
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What is the format for financing activies in a cash flow statement?
+ inflows (shares) - outflows (repayment of loan, dividends paid and debntures)
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How to calculate profit from operations?
C/D -B/D + tax + interest + dividends
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How to calculate dividends?
Ordinary share capital/nominal price X price
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How to calculate tax for the year?
Last years - this years + cost in notes
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What does FIFO mean?
First in first out
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What does FIFO assume?
The first product we buy is the first sold
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What does AVCO use?
Average cost
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What are the advantages of using FIFO?
Realisitic, easy to calculate, inventory compromises of actual costs, closing inventory is close to recent costs and acceptable for tex
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What are the disadvantages of using FIFO?
Costs not always latest, COS not representing current price, profit higher than when prices rise and cumbersome
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What are the advantages of using AVCO?
Purchases evened out equally, logical, closing inventory is close to current market value, computerised easierand acceptable for tax
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What are the disadvantages of using AVCO?
Weighed average after every receipt, cost never exsisted and issues not of current cost
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Other cards in this set

Card 2

Front

How does private equity capital work?

Back

Company borrows from private equity company who ask for a percentage of shares within the business

Card 3

Front

Who uses venture capital?

Back

Preview of the front of card 3

Card 4

Front

What is a business angle?

Back

Preview of the front of card 4

Card 5

Front

How can the bank produce external sources of finance?

Back

Preview of the front of card 5
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