Other Flashcards
Investment Criteria
Maturity
Risk
Return
Liquidation
IAS 5
- available for immediate sale in current position.
- the sale is highly probable
- a reasonable price has been set
- the sale is expected to complete within one year from the date of classification.
Advantages of Decentralisation
- free up senior management time
- better local decision due to local expertise
- better motivation due to increase training and career path.
- quicker responses/flexibility due to smaller chain of command
Disadvantages of decentralisation.
- Loss of control by senior management
- dysfunctional decisions due to a lack of goal congruence
- poor decisions made by inexperienced managers
- training costs
- duplication of roles in the organisation
- extra costs in gaining information.
Intangible non-current assets : internally generated
- generally no (Goodwill no), because it can’t be reliably measured and therefor cannot be separately recognised.
- if it’s development costs, then maybe-if it meets criteria.
Definition of development and Development can be capitalised if:
Development is the application of knowledge to produce new or improved products.
Criteria:
- Able to sell/use
- Intend to complete
- Reliable measurement of costs
- Technically feasible
- Adequate resources
- Probable economic benefit
Def: impairment
a fall in the value of an asset, so that’s it’s “recoverable amount” is now less then it’s carrying value in the sofp.
Def of: IAS 10
E both favourable and unfavourable that occur between the end of the reporting period and the date on which the financial statements are authorised for issue. Two types:
- adjusting: the condition existed at the end of the reporting period.
- non-adjusting: condition arose after the reporting period.
Adjusting events
- if someone goes bankrupt, then their cash/debt would have never been collected. (Insolvency of a customer with balance at year end.)
- evidence of permanent diminution of property.
- sale of periphery after year end for less then carrying value in FS.
- amounts received or paid in respect to legal/insurance claims which were in negotiation at year end
- discovery of error or fraud.
Non adjusting events
Should be disclosed in notes if material
- acquisition of / disposal of sub.
- Announcement of a plan to discontinue an operation
- Major purchase or disposal of an asset
- Destruction of a production plant by fire after the reporting period
Disclosures-
- Nature of the event
- An estimate of financial impact (or one saying the estimate cannot be made)
Impairment disclosures:
- For each class of asset, need to say how much it has been impaired and how much has been recovered (reversal of impairment)
2 for each individual asset which has suffered a significant loss- details that need to be included:
- nature of loss
-amount
-event that led to recognition
-what the recoverable value was based (fair value or value in use?)
-how was the estimate calculated.
Process for impairment
3 things:
- How to identify?
- How to measure recoverable amount
- How should loss be treated?
- Entity should access at the end of each reporting period whether their are any indications of impairment to any asset.-(access if there are any indications)
- If indication of impairment them need to estimate recoverable amount.
- How to show in accounts?
- if at cost, then reduce cost and hit P&L
- if revalued amount, reduce value and then hit P&L
Credit policy
- Access credit worthiness
- Set credit limits and terms
- Invoice promptly and chase debt
- Monitor the credit system
Non-Controlling Asset
Def: equity in a sub not attributable directly, indirectly to a parent.
IFRS 3
Acc treatment of goodwill?
Methods for calculating NCI?
Goodwill calc:
- +ve then intangible asset
- -ve then P&L hit
Two ways of calc nci:
- Proportionate method (nci doesn’t have goodwill)
- Fair value ( full value) nci owns some good will.
Group FS
P&L: single:
Dividends received only.
Bal-single:
Investment under non current asset.
Group P&L Add line by line -unrealised profit -nci share of profit Bal Goodwill + Assets line by line -inter company -NCI Equity just parent equity RE this is parent plus post aqu. share of sub.
Stages of ZBB
- Determine activity objects and identify managers responsible.
- Look for alternatives for the above objects. One with under funding, same funding and more funding.
- Rank objects in order of contribution to organisations objectives.
- Fund objects in order of rank until funding is exhausted.
Advantages of ZBB
Identify and remove inefficient and obsolete operations
Forces employees to avoid wasteful expenditure
Increase motivation
Challenges status quo
Responds to changes in business needs.
Disadvantages of ZBB
Volume of extra work
Short term over long term benefits
Requires more skill (maybe don’t have)
Information can be difficult to acquire
Difficult to rank objects
Characteristics of a strong brand.
Consistency
A distinctive name
Distinctive product features.
Pros of entrepreneurial structure
Advantages
Quick decision (1 or two bosses who are available)
Goal congruence (clear leader and direction)
Close bond with teams and easy control.
Disadvantages of entrepreneurial structure
-Demotivating for staff as there is no progression.
-Loss of valuable talent due to above
-Exposes business to any lack of skill management may have
-Not good with growth
-
Advantages of functional
Economies of scale (standardising)
Specialisation in business functions
Career progression for lower levels of staff
Disadvantages of a functional structure
Functional competition
Slow decisions because they have to go through each function.
Not good for diversification-management outside their comfort zone
Divisional structure advantages
Clear
When to use ABC
Activity Based Costing
ABC-def and idea
ABC is linking
Activity causes cost
Demand of product causes activity
So cost can be allocated to product
example
Setup costs of 10,920 would be divided by production runs (14) instead of machine hours (440-which is unrelated)
So here linking setup costs to number of production runs instead of just how many machine hours used (traditional abs cost)
Absorption Costing
Where overheads are absorbed using an OAR.
So maybe electricity is absorbed £10/ unit of calculator. Based on budgeted level.
ABC pros and Cons
Merits:
ABC recognises complexity with multiple cost drivers
ABC facilitates a good understanding of what drives overhead costs.
ABC is concerned with all overhead costs
By controlling incident of cost driver, costs can be controlled.
Critics:
Still some arbitrary cost apportionment (rent,rates)
Can a cost driver explain all the cost behaviour of all items in pool?
Costs of ABC may out way benefits.
IT enables transformation
The type of product or service that are made and sold How products are made The way in which employees work How services are provided To enable change To aid communication As a source of unity
