更多“(c) Acting as an external consultant to Semer, discuss the validity of the proposed strategy to increase gearing, and explain whether or not the estimates produced in (b) above are likely to be accurate. (10 marks)”相关问题
  • 第1题:

    (c) Discuss the factors that might influence whether the initial bid is likely to be accepted by the shareholders of Wragger plc.


    正确答案:

    (c) The type of payment might influence the success of the bid. Paxis is proposing a share for share exchange which offers a continuation in ownership of the entity, albeit as part of the successful bidder. However, relative share prices will change during the period of the bid, and the owner of shares in the potential victim company will not know the precise postacquisition value of the bid. An alternative might be cash payments which provides a known, precise sum, and might be favoured for this reason. However, in some countries payment in cash might lead to an immediate capital gains tax liability for the investor.

    The effective price offered would of course be a major influence. Paxis would need to offer a premium over the existing share price, but the size of the premium that would be acceptable is unknown. Informal discussions with major shareholders of Wragger might assist in determining this (subject to such discussions being permitted by the regulatory authorities).

  • 第2题:

    (ii) Discuss whether gains and losses that have been reported initially in one section of the performance

    statement should be ‘recycled’ in a later period in another section and whether only ‘realised’ gains and

    losses should be included in such a statement. (9 marks)


    正确答案:
    (ii) Recycling is an issue for both the current performance statements and the single statement. Recycling occurs where an
    item of financial performance is reported in more than one accounting period because the nature of the item has in some
    way changed. It raises the question as to whether gains and losses originally reported in one section of the statement
    should be reported in another section at a later date. An example would be gains/losses on the retranslation of the net
    investment in an overseas subsidiary. These gains could be reported annually on the retranslation of the subsidiary and
    then again when the subsidiary was sold.
    The main arguments for recycling to take place are as follows:
    1. when unrealised items become realised they should be shown again
    2. when uncertain measurements become certain they should be reported again
    3. all items should be shown in operating or financing activities at some point in time as all items of performance are
    ultimately part of operating or financing activities of an entity.
    There is no conceptual justification for recycling. Once an item has been recognised in a statement of financial
    performance it should not be recognised again in a future period in a different part of that statement. Once an item is
    recognised in the statement there is an assumption that it can be reliably measured and therefore it should be recognised
    in the appropriate section of the statement with no reason to show it again.
    Gains and losses should not be based on the notion of realisation. Realisation may have been a critical event historically
    but given the current financial exposures of many entities, such a principle has limited value. A realised gain reflects the
    same economic gain as an unrealised gain. Items should be classified in the performance statement on the basis of
    characteristics which are more useful than realisation. The effect of realisation is explained better in the cash flow
    statement. Realisation means different things in different countries. In Europe and Asia it refers to the amount of
    distributable profits but in the USA it refers to capital maintenance. The amount of distributable profits is not an
    accounting but a legal issue, and therefore realisation should not be the overriding determinant of the reporting of gains
    and losses.
    An alternative view could be that an unrealised gain is more subjective than a realised gain. In many countries, realised
    gains are recognised for distribution purposes because of their certainty because this gives more economic stability to
    the payment of dividends.

  • 第3题:

    4 (a) A company may choose to finance its activities mainly by equity capital, with low borrowings (low gearing) or by

    relying on high borrowings with relatively low equity capital (high gearing).

    Required:

    Explain why a highly geared company is generally more risky from an investor’s point of view than a company

    with low gearing. (3 marks)


    正确答案:
    (a) A highly-geared company has an obligation to pay interest on its loans regardless of its profit level. It will show high profits if
    its overall rate of return on capital is greater than the rate of interest being paid on its borrowings, but a low profit or a loss if
    there is a down-turn in its profit such that the rate of interest to be paid exceeds the return on its assets.

  • 第4题:

    (b) Identify and explain THREE approaches that the directors of Moffat Ltd might apply in assessing the

    QUALITATIVE benefits of the proposed investment in a new IT system. (6 marks)


    正确答案:
    (b) One approach that the directors of Moffat Ltd could adopt would be to ignore the qualitative benefits that may arise on the
    basis that there is too much subjectivity involved in their assessment. The problem that this causes is that the investment will
    probably look unattractive since all costs will be included in the evaluation whereas significant benefits and savings will have
    been ignored. Hence such an approach is lacking in substance and is not recommended.
    An alternative approach would involve attempting to attribute values to each of the identified benefits that are qualitative in
    nature. Such an approach will necessitate the use of management estimates in order to derive the cash flows to be
    incorporated in a cost benefit analysis. The problems inherent in this approach include gaining consensus among interested
    parties regarding the footing of the assumptions from which estimated cash flows have been derived. Furthermore, if the
    proposed investment does take place then it may well be impossible to prove that the claimed benefits of the new system
    have actually been realised.
    Perhaps the preferred approach is to acknowledge the existence of qualitative benefits and attempt to assess them in a
    reasonable manner acceptable to all parties including the company’s bank. The financial evaluation would then not only
    incorporate ‘hard’ facts relating to costs and benefits that are quantitative in nature, but also would include details of
    qualitative benefits which management consider exist but have not attempted to assess in financial terms. Such benefits might
    include, for example, the average time saved by location managers in analysing information during each operating period.
    Alternatively the management of Moffat Ltd could attempt to express qualitative benefits in specific terms linked to a hierarchy
    of organisational requirements. For example, qualitative benefits could be categorised as being:
    (1) Essential to the business
    (2) Very useful attributes
    (3) Desirable, but not essential
    (4) Possible, if funding is available
    (5) Doubtful and difficult to justify.

  • 第5题:

    (ii) Briefly discuss FOUR non-financial factors which might influence the above decision. (4 marks)


    正确答案:
    (ii) Four factors that could be considered are as follows:
    (i) The quality of the service provided by NSC as evidenced by, for example, the comfort of the ferries, on-board
    facilities, friendliness and responsiveness of staff.
    (ii) The health and safety track record of NSC – passenger safety is a ‘must’ in such operations.
    (iii) The reliability, timeliness and dependability of NSC as a service provider.
    (iv) The potential loss of image due to redundancies within Wonderland plc.

  • 第6题:

    (ii) Briefly explain the extent to which the application of sensitivity analysis might be useful in deciding

    which refrigeration system to purchase and discuss the limitations inherent in its use. (3 marks)


    正确答案:
    (ii) Sensitivity analysis could be used to assess how responsive the NPV calculated in part (a) in respect of each decision
    option change is to changes in the variables used to calculate it. The application of sensitivity analysis requires that the
    net present values are calculated under alternative assumptions in order to determine how sensitive they are to changing
    conditions. In this particular example then a relatively small change in the forecast cash flows might lead to a change
    in the investment decision. The application of sensitivity analysis can indicate those variables to which the NPV is most
    sensitive and the extent to which these variables may change before an investment results in a negative NPV. Thus the
    application of sensitivity analysis may provide management with an indication of why a particular project might fail. The
    directors of Stay Cool Ltd should give consideration to the potential variations in the independent variables which feature
    in the decision-making process such as:
    – estimated revenues
    – estimated operating costs
    – estimated working lives
    – estimated repair costs
    – the estimated discount rate i.e. cost of capital of each alternative investment.
    Sensitivity analysis has some serious limitations. The use of the method requires changes in each variable under
    consideration are isolated. However management may be focused on what happens if changes occur in two or more
    critical variables. Another problem relating to the use of sensitivity analysis to forecast outcomes lies in the fact that it
    provides no indication of the likelihood of the occurrence of changes in critical variables.

  • 第7题:

    (c) Briefly discuss why the directors of HFL might choose contract D irrespective of whether or not contract D

    would have been selected using expected values as per part (a). (2 marks)


    正确答案:
    (c) The directors might select Contract D under which 360,000 kilograms of organic mushrooms would be supplied to HFL for
    each outlet. This is the entire capacity of HFL which would ensure that competitors would not be able to supply the same
    product and hence the competitive advantage held by HFL might be preserved.

  • 第8题:

    (c) Explain the reasons for the concerns of the government of Happyland with companies such as TMC and

    advise the directors of a strategy that might be considered in order to avoid being subject to any forthcoming

    legislation concerning the environment. (5 marks)


    正确答案:
    (c) The government of Happyland will be concerned by the negative impact on the environment. The growth in the number of
    children born in Happyland will have raised the demand for disposable nappies as is evidenced from the market size data
    contained in the question. In some countries disposable nappies make up around 4% of all household waste and can take
    up to five hundred years to decompose! The government will be concerned by the fact that trees are being destroyed in order
    to keep babies and infant children in nappies. The disposal costs incurred by the government in terms of landfill etc will be
    very high, hence its green paper on the effect of non-biodegradable products in Happyland. The costs of such operations as
    the landfill for such products will need to be funded out of increased taxation.
    It might be beneficial for the directors of TMC to develop more eco-friendly products such as washable nappies which, by
    definition, are recyclable many times over during the life of the ‘product’. Many parents are now changing to ‘real nappies’
    because they work out cheaper and better for the environment than disposables.

  • 第9题:

    (iii) Identify and discuss an alternative strategy that may assist in improving the performance of CTC with

    effect from 1 May 2009 (where only the products in (a) and (b) above are available for manufacture).

    (4 marks)


    正确答案:
    (iii) If no new products are available then CTC must look to boost revenues obtained from its existing product portolio whilst
    seeking to reduce product specific fixed overheads and the company’s other fixed overheads. In order to do this attention
    should be focused on the marketing activities currently undertaken.
    CTC should consider selling all of its products in ‘multi product’ packages as it might well be the case that the increased
    contribution achieved from increased sales volumes would outweigh the diminution in contribution arising from
    reductions in the selling price per unit of each product.
    CTC could also apply target costing principles in order to reduce costs and thereby increase the margins on each of its
    products. Value analysis should be undertaken in order to evaluate the value-added features of each product. For
    example, the use of non-combustible materials in manufacture would be a valued added feature of such products
    whereas the use of pins and metal fastenings which are potentially harmful to children would obviously not comprise
    value added features. CTC should focus on delivering ‘value’ to the customer and in attempting to do so should seek to
    identify all non-value activities in order that they may be eliminated and hence margins improved.

  • 第10题:

    (d) Explain whether or not Dovedale Ltd, Hira Ltd and Atapo Inc can register as a group for the purposes of value

    added tax. (3 marks)


    正确答案:
    (d) Dovedale Ltd and Hira Ltd can register as a group for the purposes of value added tax (VAT) because Dovedale Ltd controls
    Hira Ltd and both companies are established in the UK in that their head offices are in the UK.
    Dovedale Ltd will also control Atapo Inc. However, Atapo Inc cannot be part of a group registration unless it is established
    in the UK or has a fixed establishment in the UK. It will be regarded as established in the UK if it is centrally managed and
    controlled in the UK or if its head office is in the UK. A fixed establishment is a place where the company has staff and
    equipment and where its business is carried on.

  • 第11题:

    6 Certain practices have developed that threaten to damage the integrity and objectivity of professional accountants and

    the reputation of the accounting profession.

    Required:

    Explain the following practices and associated ethical risks and discuss whether current ethical guidance is

    sufficient:

    (a) ‘lowballing’; (5 marks)


    正确答案:
    6 CERTAIN PRACTICES
    Tutorial note: The answer which follows is indicative of the range of points which might be made. Other relevant material will
    be given suitable credit.
    (a) ‘Lowballing’
    Explanation of term
    ‘Lowballing’ is the ‘loss-leading’ practice in which auditors compete for clients by reducing their fees for statutory audits.
    Lower audit fees are then compensated by the auditor carrying out more lucrative non-audit work (e.g. consultancy and tax
    advice). Audits may even be offered for free.
    Such ‘predatory pricing’ may undercut an incumbent auditor to secure an appointment into which higher price consultancy
    services may be sold.
    Ethical risks
    There is a risk of incompetence if the non-audit work does not materialise and the lowballing firm comes under pressure to
    cut corners or resort to irregular practices (e.g. the falsification of audit working papers) in order to ‘keep within budget’.
    However, a lack of audit quality may only be discovered if the situation arises that the company collapses and the auditors
    are charged with negligence.
    If, rather than comprise the quality of the audit, an audit firm substantially increases audit fees, a fee dispute could arise. In
    this case the client might refuse to pay the higher fee. It could be difficult then for the firm to take the matter to arbitration
    if the client was misled. Thus an advocacy threat may arise.
    Financial dependence is a direct incentive that threatens independence. A self-interest threat therefore arises when, having
    secured the audit, the audit firm needs the client to retain its services in order to recoup any losses initially incurred.
    The provision of many other services gives rise to a self-review threat (as well as a self-interest threat).
    Sufficiency of current ethical guidance
    In current ethical guidance, the fact that an accountancy firm quotes a lower fee than other tendering firms is not improper,
    providing that the prospective client is not misled about:
    – the precise range of services that the quoted fee is intended to cover; and
    – the likely level of fees for any other work undertaken.
    This is clearly insufficient to prevent the practice of lowballing.
    Legal prohibitions on the provision of many non-audit services (e.g. bookkeeping, financial information systems design and
    implementation, valuation services, actuarial services, internal audit (outsourced), human resource services for executive
    positions, investment and legal services) should make lowballing a riskier pricing strategy. This may curb the tendency to
    lowball.
    Lowballing could be eliminated if, for example, auditors were required to act ‘exclusively as auditors’. Although regulatory
    environments have moved towards this there is not a total prohibition on non-audit services.

  • 第12题:

    (b) (i) Explain the matters you should consider to determine whether capitalised development costs are

    appropriately recognised; and (5 marks)


    正确答案:
    (b) (i) Materiality
    The net book value of capitalised development costs represent 7% of total assets in 2007 (2006 – 7·7%), and is
    therefore material. The net book value has increased by 13%, a significant trend.
    The costs capitalised during the year amount to $750,000. If it was found that the development cost had been
    inappropriately capitalised, the cost should instead have been expensed. This would reduce profit before tax by
    $750,000, representing 42% of the year’s profit. This is highly material. It is therefore essential to gather sufficient
    evidence to support the assertion that development costs should be recognised as an asset.
    In 2007, $750,000 capitalised development costs have been incurred, when added to $160,000 research costs
    expensed, total research and development costs are $910,000 which represents 20·2% of total revenue, again
    indicating a high level of materiality for this class of transaction.
    Relevant accounting standard
    Development costs should only be capitalised as an intangible asset if the recognition criteria of IAS 38 Intangible Assets
    have been demonstrated in full:
    – Intention to complete the intangible asset and use or sell it
    – Technical feasibility and ability to use or sell
    – Ability to generate future economic benefit
    – Availability of technical, financial and other resources to complete
    – Ability to measure the expenditure attributable to the intangible asset.
    Research costs must be expensed, as should development costs which do not comply with the above criteria. The
    auditors must consider how Sci-Tech Co differentiates between research and development costs.
    There is risk that not all of the criteria have been demonstrated, especially due to the subjective nature of the
    development itself:
    – Pharmaceutical development is highly regulated. If the government does not license the product then the product
    cannot be sold, and economic benefits will therefore not be received.
    – Market research should justify the commercial viability of the product. The launch of a rival product to Flortex
    means that market share is likely to be much lower than anticipated, and the ability to sell Flortex is reduced. This
    could mean that Flortex will not generate an overall economic benefit if future sales will not recover the research
    and development costs already suffered, and yet to be suffered, prior to launch. The existence of the rival product
    could indicate that Flortex is no longer commercially viable, in which case the capitalised development costs
    relating to Flortex should be immediately expensed.
    – The funding on which development is dependent may be withdrawn, indicating that there are not adequate
    resources to complete the development of the products. Sci-Tech has failed to meet one of its required key
    performance indicators (KPI) in the year ended 30 November 2007, as products valued at 0·8% revenue have
    been donated to charity, whereas the required KPI is 1% revenue.
    Given that there is currently a breach of the target KPIs, this is likely to result in funding equivalent to 25% of
    research and development expenditure being withdrawn. If Sci-Tech Co is unable to source alternative means of
    finance, then it would seem that adequate resources may not be available to complete the development of new
    products.

  • 第13题:

    (b) Explain how the process of developing scenarios might help John better understand the macro-environmental

    factors influencing Airtite’s future strategy. (8 marks)


    正确答案:

    (b) Carrying out a systematic PESTEL analysis is a key step in developing alternative scenarios about the future. Johnson and
    Scholes define scenarios as ‘detailed and plausible views of how the business environment of an organisation might develop
    in the future based on groupings of key environmental influences and drivers of change about which there is a high level of
    uncertainty’. In developing scenarios it is necessary to isolate the key drivers of change, which have the potential to have a
    significant impact on the company and are associated with high levels of uncertainty. Development of scenarios enables
    managers to share assumptions about the future and the key variables shaping that future. This provides an opportunity for
    real organisational learning. They are then in a position to monitor these key variables and amend strategies accordingly. It
    is important to note that different stakeholder groups will have different expectations about the future and each may provide
    a key input to the process of developing scenarios. By their very nature scenarios should not attempt to allocate probabilities
    to the key factors and in so doing creating ‘spurious accuracy’ about those factors. A positive scenario is shown below and

    should provide a shared insight into the external factors most likely to have a significant impact on Airtite‘s future strategy.
    For most companies operating in global environments the ability to respond flexibly and quickly to macro-environmental
    change would seem to be a key capability.
    The scenario as illustrated below, clearly could have a major impact on the success or otherwise of Airtite’s strategy for the
    future. The key drivers for change would seem to be the link between technology and global emissions, fuel prices and the
    stability of the global political environment. Through creating a process which considers the drivers which will have most
    impact on Airtite and which are subject to the greatest uncertainty, Airtite will have a greater chance of its strategy adaptingto changing circumstances.

  • 第14题:

    (c) Discuss the ethical and social responsibilities of the Beth Group and whether a change in the ethical and

    social attitudes of the management could improve business performance. (7 marks)

    Note: requirement (c) includes 2 professional marks for development of the discussion of the ethical and social

    responsibilities of the Beth Group.


    正确答案:
    (c) Corporate social responsibility (CSR) is concerned with business ethics and the company’s accountability to its stakeholders,
    and about the way it meets its wider obligations. CSR emphasises the need for companies to adopt a coherent approach to
    a range of stakeholders including investors, employees, suppliers, and customers. Beth has paid little regard to the promotion
    of socially and ethically responsible policies. For example, the decision to not pay the SME creditors on the grounds that they
    could not afford to sue the company is ethically unacceptable. Additionally, Beth pays little regard to local customs and
    cultures in its business dealings.
    The stagnation being suffered by Beth could perhaps be reversed if it adopted more environmentally friendly policies. The
    corporate image is suffering because of its attitude to the environment. Environmentally friendly policies could be cost effective
    if they help to increase market share and reduce the amount of litigation costs it has to suffer. The communication of these
    policies would be through the environmental report, and it is critical that stakeholders feel that the company is being
    transparent in its disclosures.
    Evidence of corporate misbehaviour (Enron, World.com) has stimulated interest in the behaviour of companies. There has
    been pressure for companies to show more awareness and concern, not only for the environment but for the rights and
    interests of the people they do business with. Governments have made it clear that directors must consider the short-term
    and long-term consequences of their actions, and take into account their relationships with employees and the impact of the
    business on the community and the environment. The behaviour of Beth will have had an adverse effect on their corporate
    image.
    CSR requires the directors to address strategic issues about the aims, purposes, and operational methods of the organisation,
    and some redefinition of the business model that assumes that profit motive and shareholder interests define the core purpose
    of the company. The profits of Beth will suffer if employees are not valued and there is poor customer support.
    Arrangements should be put in place to ensure that the business is conducted in a responsible manner. The board should
    look at broad social and environmental issues affecting the company and set policy and targets, monitoring performance and
    improvements.

  • 第15题:

    (b) Using the TARA framework, construct four possible strategies for managing the risk presented by Product 2.

    Your answer should describe each strategy and explain how each might be applied in the case.

    (10 marks)


    正确答案:
    (b) Risk management strategies and Chen Products
    Risk transference strategy
    This would involve the company accepting a portion of the risk and seeking to transfer a part to a third party. Although an
    unlikely possibility given the state of existing claims, insurance against future claims would serve to limit Chen’s potential
    losses and place a limit on its losses. Outsourcing manufacture may be a way of transferring risk if the ourtsourcee can be
    persuaded to accept some of the product liability.
    Risk avoidance strategy
    An avoidance strategy involves discontinuing the activity that is exposing the company to risk. In the case of Chen this would
    involve ceasing production of Product 2. This would be pursued if the impact (hazard) and probability of incurring an
    acceptable level of liability were both considered to be unacceptably high and there were no options for transference or
    reduction.
    Risk reduction strategy
    A risk reduction strategy involves seeking to retain a component of the risk (in order to enjoy the return assumed to be
    associated with that risk) but to reduce it and thereby limit its ability to create liability. Chen produces four products and it
    could reconfigure its production capacity to produce proportionately more of Products 1, 3 and 4 and proportionately less of
    Product 2. This would reduce Product 2 in the overall portfolio and therefore Chen’s exposure to its risks. This would need
    to be associated with instructions to other departments (e.g. sales and marketing) to similarly reconfigure activities to sell
    more of the other products and less of Product 2.
    Risk acceptance strategy
    A risk acceptance strategy involves taking limited or no action to reduce the exposure to risk and would be taken if the returns
    expected from bearing the risk were expected to be greater than the potential liabilities. The case mentions that Product 2 is
    highly profitable and it may be that the returns attainable by maintaining and even increasing Product 2’s sales are worth the
    liabilities incurred by compensation claims. This is a risk acceptance strategy.

  • 第16题:

    (b) Discuss FOUR factors that distinguish service from manufacturing organisations and explain how each of

    these factors relates to the services provided by the Dental Health Partnership. (5 marks)


    正确答案:
    (b) The major characteristics of services which distinguish services from manufacturing are as follows:
    – Intangibility.
    When a dentist provides a service to a client there are many intangible factors involved such as for example the
    appearance of the surgery, the personality of the dentist, the manner and efficiency of the dental assistant. The output
    of the service is ‘performance’ by the dentist as opposed to tangible goods.
    – Simultaneity.
    The service provided by the dentist to the patient is created by the dentist at the same time as the patient consumed it
    thus preventing any advance verification of quality.
    – Heterogeneity.
    Many service organisations face the problem of achieving consistency in the quality of its output. Whilst each of the
    dentists within the Dental Health Partnership will have similar professional qualifications there will be differences in the
    manner they provide services to clients.
    – Perishability.
    Many services are perishable. The services of a dentist are purchased only for the duration of an appointment.

  • 第17题:

    (c) Explain the term ‘target costing’ and how it may be applied by GWCC. Briefly discuss any potential

    limitations in its application. (8 marks)


    正确答案:
    (c) Target costing should be viewed as an integral part of a strategic profit management system. The initial consideration in target
    costing is the determination of an estimate of the selling price for a new product which will enable a firm to capture its required
    share of the market. In this particular example, Superstores plc, which on the face of it looks a powerful commercial
    organisation, wishes to apply a 35% mark-up on the purchase price of each cake from GWCC. Since Superstores plc has
    already decided on a launch price of £20·25 then it follows that the maximum selling price that can be charged by GWCC
    is (100/135) x £20·25 which is £15·00.
    This is clearly a situation which lends itself to the application of target costing/pricing techniques as in essence GWCC can
    see the extent to which they fall short of the required level of return with regard to a contract with Superstores plc which ends
    after twelve months. Thus it is necessary to reduce the total costs by £556,029 to this figure in order to achieve the desired
    level of profit, having regard to the rate of return required on new capital investment. The deduction of required profit from
    the proposed selling price will produce a target price that must be met in order to ensure that the desired rate of return is
    obtained. Thus the main theme that underpins target costing can be seen to be ‘what should a product cost in order to achieve
    the desired level of return’.
    Target costing will necessitate comparison of current estimated cost levels against the target level which must be achieved if
    the desired levels of profitability, and hence return on investment, are to be achieved. Thus where a gap exists between the
    current estimated cost levels and the target cost, it is essential that this gap be closed.
    The Directors of GWCC plc should be aware of the fact that it is far easier to ‘design out’ cost during the pre-production phase
    than to ‘control out’ cost during the production phase. Thus cost reduction at this stage of a product’s life cycle is of critical
    significance to business success.
    A number of techniques may be employed in order to help in the achievement and maintenance of the desired level of target
    cost. Attention should be focussed upon the identification of value added and non-value added activities with the aim of the
    elimination of the latter. The product should be developed in an atmosphere of ‘continuous improvement’. In this regard, total
    quality techniques such as the use of Quality circles may be used in attempting to find ways of achieving reductions in product
    cost.
    Value engineering techniques can be used to evaluate necessary product features such as the quality of materials used. It is
    essential that a collaborative approach is taken by the management of GWCC and that all interested parties such as suppliers
    and customers are closely involved in order to engineer product enhancements at reduced cost.
    The degree of success that will be achieved by GWCC via the application of target costing principles will be very much
    dependent on the extent of ‘flexibility’ in variable costs. Also the accuracy of information gathered by GWCC will assume
    critical importance because the use of inaccurate information will produce calculated ‘cost gaps’ which are meaningless and
    render the application of target costing principles of little value.

  • 第18题:

    (b) Explain how growth may be assessed, and critically discuss the advantages and issues that might arise as a

    result of a decision by the directors of CSG to pursue the objective of growth. (8 marks)


    正确答案:
    (b) Growth may be measured in a number of ways which are as follows:
    Cash flow
    This is a very important measure of growth as it ultimately determines the amount of funds available for re-investment by any
    business.
    Sales revenue
    Growth in sales revenues generated is only of real value to investors if it precipitates growth in profits.
    Profitability
    There are many measures relating to profit which include sales margin, earnings before interest, taxation, depreciation and
    amortisation (EBITDA) and earnings per share. More sophisticated measures such as return on capital employed and residual
    income consider the size of the investment relative to the level of profits earned. In general terms, measures of profitability
    are only meaningful if they are used as a basis for comparisons over time or in conjunction with other measures of
    performance. Growth rate in profitability are useful when compared with other companies and also with other industries.
    Return on investment
    A growing return upon invested capital suggests that capital is being used more and more productively. Indicators of a growing
    return would be measured by reference to dividend payment and capital growth.
    Market share
    Growth in market share is generally seen as positive as it can generate economies of scale.
    Number of products/service offerings
    Growth is only regarded as useful if products and services are profitable.
    Number of employees
    Measures of productivity such as value added per employee and profit per employee are often used by shareholders in
    assessing growth. Very often an increased headcount is a measure of success in circumstances where more people are
    needed in order to deliver a service to a required standard. However it is incumbent on management to ensure that all
    employees are utilised in an effective manner.
    It is a widely held belief that growth requires profits and that growth produces profits. Profits are essential in order to prevent
    a company which has achieved growth from becoming a target for a take-over or in a worse case scenario goes into
    liquidation. Hence it is fundamental that a business is profitable throughout its existence. Growth accompanied by growth in
    profits is also likely to aid the long-term survival of an organisation. CSG operates in Swingland which experiences fluctuations
    in its economic climate and in this respect the exploitation of profitable growth opportunities will help CSG to survive at the
    expense of its competitors who do not exploit such opportunities.
    Note: Alternative relevant discussion and examples would be accepted.

  • 第19题:

    (b) Identify and discuss the appropriateness of the cost drivers of any TWO expense values in EACH of levels (i)

    to (iii) above and ONE value that relates to level (iv).

    In addition, suggest a likely cause of the cost driver for any ONE value in EACH of levels (i) to (iii), and

    comment on possible benefits from the identification of the cause of each cost driver. (10 marks)


    正确答案:
    (b) A cost driver is the factor that determines the level of resource required for an activity. This may be illustrated by considering
    costs for each of the four levels in Order Number 377.
    Unit based costs:
    Direct material costs are driven by the quantity, range, quality and price of materials required per product unit according to
    the specification for the order.
    Direct labour costs are driven by the number of hours required per product unit and the rate per hour that has been agreed
    for each labour grade.
    Batch related costs:
    The number of machine set-ups per batch is the cost driver for machines used.
    The number of design hours per batch is the cost driver for design work.
    Product sustaining costs:
    The number of marketing visits to a client per order is the cost driver for marketing cost chargeable to the order.
    The number of hours of production line maintenance per order is the cost driver for production line cost.
    Business sustaining costs:
    These costs are absorbed at a rate of 30% of total cost excluding business sustaining costs. This is an arbitrary rate which
    indicates the difficulty in identifying a suitable cost driver/drivers for the range of residual costs in this category. Wherever
    possible efforts should be made to identify aspects of this residual cost that can be added to the unit, batch or product related
    analysis.
    The cost drivers are useful in that they provide a basis for an accurate allocation of the cost of resources consumed by an
    order. In addition, investigation of the cause(s) of a cost driver occurring at its present level allows action to be considered
    that will lead to a reduction in the cost per unit of cost driver.
    Examples of causes that might be identified are:
    Material price may be higher than necessary due to inefficient sourcing of materials. This may be overcome through efforts
    to review sourcing policy and possibly provide additional training to staff responsible for the sourcing of materials.
    The number of machine set-ups per batch may be due to lack of planning of batch sizes. It may be possible for batch sizes
    in this order to be increased to 1,250 units which would reduce the number of batches required to fulfil the order from five
    to four. This should reduce overall costs.
    The amount of production line maintenance (and hence cost) required per order may be reduced by examining causes such
    as level of skill of maintenance carried out – by GMB’s own staff or out-sourced provision. Action would involve re-training of
    own staff or recruitment of new staff or changing of out-source providers.
    (alternative relevant examples and discussion would be acceptable for all aspects of part (b))

  • 第20题:

    (iii) Whether or not you agree with the statement of the marketing director in note (9) above. (5 marks)

    Professional marks for appropriateness of format, style. and structure of the report. (4 marks)


    正确答案:

    (iii) The marketing director is certainly correct in recognising that success is dependent on levels of service quality provided
    by HFG to its clients. However, whilst the number of complaints is an important performance measure, it needs to be
    used with caution. The nature of a complaint is, very often, far more indicative of the absence, or a lack, of service
    quality. For example, the fact that 50 clients complained about having to wait for a longer time than they expected to
    access gymnasium equipment is insignificant when compared to an accident arising from failure to maintain properly a
    piece of gymnasium equipment. Moreover, the marketing director ought to be aware that the absolute number of
    complaints may be misleading as much depends on the number of clients serviced during any given period. Thus, in
    comparing the number of complaints received by the three centres then a relative measure of complaints received per
    1,000 client days would be far more useful than the absolute number of complaints received.
    The marketing director should also be advised that the number of complaints can give a misleading picture of the quality
    of service provision since individuals have different levels of willingness to complain in similar situations.
    The marketing director seems to accept the current level of complaints but is unwilling to accept any increase above this
    level. This is not indicative of a quality-oriented organisation which would seek to reduce the number of complaints over
    time via a programme of ‘continuous improvement’.
    From the foregoing comments one can conclude that it would be myopic to focus on the number of client complaints
    as being the only performance measure necessary to measure the quality of service provision. Other performance
    measures which may indicate the level of service quality provided to clients by HFG are as follows:
    – Staff responsiveness assumes critical significance in service industries. Hence the time taken to resolve client
    queries by health centre staff is an important indicator of the level of service quality provided to clients.
    – Staff appearance may be viewed as reflecting the image of the centres.
    – The comfort of bedrooms and public rooms including facilities such as air-conditioning, tea/coffee-making and cold
    drinks facilities, and office facilities such as e-mail, facsimile and photocopying.
    – The availability of services such as the time taken to gain an appointment with a dietician or fitness consultant.
    – The cleanliness of all areas within the centres will enhance the reputation of HFG. Conversely, unclean areas will
    potentially deter clients from making repeat visits and/or recommendations to friends, colleagues etc.
    – The presence of safety measures and the frequency of inspections made regarding gymnasium equipment within
    the centres and compliance with legislation are of paramount importance in businesses like that of HFG.
    – The achievement of target reductions in weight that have been agreed between centre consultants and clients.
    (Other relevant measures would be acceptable.)

  • 第21题:

    (c) Advise Alan on the proposed disposal of the shares in Mobile Ltd. Your answer should include calculations

    of the potential capital gain, and explain any options available to Alan to reduce this tax liability. (7 marks)


    正确答案:

     

    However, an exemption from corporation tax exists for any gain arising when a trading company (or member of a trading
    group) sells the whole or any part of a substantial shareholding in another trading company.
    A substantial shareholding is one where the investing company holds 10% of the ordinary share capital and is beneficially
    entitled to at least 10% of the
    (i) profits available for distribution to equity holders and
    (ii) assets of the company available for distribution to equity holders on a winding up.
    In meeting the 10% test, shares owned by a chargeable gains group may be amalgamated. The 10% test must have been
    met for a continuous 12 month period during the 2 years preceding the disposal.
    The companies making the disposals must have been trading companies (or members of a trading group) throughout the
    12 month period, as well as at the date of disposal. In addition, they must also be trading companies (or members of a trading
    group) immediately after the disposal.
    The exemption is given automatically, and acts to deny losses as well as eliminate gains.
    While Alantech Ltd has owned its holding in Mobile Ltd for 33 months, its ownership of the Boron holding has only lasted
    for 10 months (at 1 June 2005) since Boron was acquired on 1 July 2004. Selling the shares in June 2005 will fail the
    12 month test, and the gain will become chargeable.
    It would be better for the companies to wait for a further month until July 2005 before selling the amalgamated shareholding.
    By doing so, they will both be able to take advantage of the substantial shareholdings relief, thereby saving tax of £29,625
    assuming a corporation tax rate of 19%.

  • 第22题:

    (b) State the immediate tax implications of the proposed gift of the share portfolio to Avril and identify an

    alternative strategy that would achieve Crusoe’s objectives whilst avoiding a possible tax liability in the

    future. State any deadline(s) in connection with your proposed strategy. (5 marks)


    正确答案:
    (b) Gift of the share portfolio to Avril
    Inheritance tax
    The gift would be a potentially exempt transfer at market value. No inheritance tax would be due at the time of the gift.
    Capital gains tax
    The gift would be a disposal by Crusoe deemed to be made at market value for the purposes of capital gains tax. No gain
    would arise as the deemed proceeds will equal Crusoe’s base cost of probate value.
    Stamp duty
    There is no stamp duty on a gift of shares for no consideration.
    Strategy to avoid a possible tax liability in the future
    Crusoe should enter into a deed of variation directing the administrators to transfer the shares to Avril rather than to him. This
    will not be regarded as a gift by Crusoe. Instead, provided the deed states that it is intended to be effective for inheritance tax
    purposes, it will be as if Noland had left the shares to Avril in a will.
    This strategy is more tax efficient than Crusoe gifting the shares to Avril as such a gift would be a potentially exempt transfer
    and inheritance tax may be due if Crusoe were to die within seven years.
    The deed of variation must be entered into by 1 October 2009, i.e. within two years of the date of Noland’s death.

  • 第23题:

    (c) Critically discuss the likely effectiveness of standard questionnaires sent to other auditors as a means of

    obtaining information required. (5 marks)


    正确答案:
    (c) Likely effectiveness of standard questionnaires
    Most group auditors obtain information from other auditors through questionnaires in the form. of yes/no requests and/or
    detailed questions.
    Standard yes/no questionnaires are widely used because, for example, they:
    ■ can be completed more quickly by someone already familiar with their form. and content;
    ■ facilitate summarisation of responses from other auditors by the group auditor.
    However, a standard questionnaire may be less effective than a ‘bespoke’ one in that it is likely to ask unnecessary questions.
    This may result in the other auditor finding the questions to be ‘not applicable’ and regarding completion of the questionnaire
    as a form-filling exercise, rather than providing the group auditor with essential information.
    Nevertheless, there is a danger that questionnaires that are not based on some standard form. may overlook or otherwise omit
    some significant issues and therefore fail to alert the group auditor to a potential risk area.
    Thus a balance needs to be struck between requesting enough information for the group auditor to form. their own view
    without requesting meaningless ‘box-ticking’ questions that do not deal with the issues. Questionnaires that get longer and
    longer are likely to lose their effectiveness especially if they are to be used in different locations/jurisdictions.
    Questionnaires will cover a broad range of topics such as qualifications, competence/experience, compliance with ISAs (and
    ISQC 1), audit findings, subsequent events, etc. Therefore there will be a tendency to length (completeness) rather than
    quality (relevance).
    In conclusion, questionnaires should:
    ■ avoid over-use of yes/no questions which may encourage laxity;
    ■ not ask for information that has already been provided or which is unnecessary; and
    ■ be adequately tailored.