acca test book Financial Management and Control pptx

PAGE 3
AIM
To develop knowledge and understanding
of financial management methods for
analysing the benefits of various sources of
finance and capital investment
opportunities, and of the application of
management accounting techniques for
business planning and control.
OBJECTIVES
On completion of this paper candidates
should be able to:
• explain the role and purpose of financial
management
• evaluate the overall management of
working capital
• evaluate appropriate sources of finance
for particular situations
• appraise capital investment through the
use of appropriate methods
• identify and discuss appropriate costing
systems and techniques
• prepare budgets and use them to
control and evaluate organisational
performance
• understand the basic principles of
performance management
• critically assess the tools and
techniques of financial management
and control
• demonstrate the knowledge,

understanding, skills, abilities and critical
evaluation expected in Part 2.
POSITION OF THE PAPER IN THE
OVERALL SYLLABUS
Students must have a thorough knowledge
of the material in Paper 1.2 Financial
Information for Management and a good
knowledge of other Part 1 papers.
Financial Management and Control is
integrated with other Part 2 papers by
providing a management decision
framework within which some aspects of
the Part 2 syllabus are developed. The
effects of capital allowances and
corporation tax on capital investment
appraisal are examinable. Knowledge
gained from Paper 2.3 Business Taxation
(UK) will be useful in this respect.
Financial Management and Control is
developed in Part 3 into advanced study of
Performance Management (Paper 3.3) and
Strategic Financial Management (Paper 3.7).
SYLLABUS CONTENT
1 Financial management objectives
(a) The nature, purpose and scope of
financial management.
(b) The relationship between financial
management, management
accounting and financial accounting.
(c) The relationship of financial

objectives and organisational
strategy.
(d) Problems of multiple stakeholders in
financial management and the
consequent multiple objectives.
(e) Objectives (financial and otherwise)
in not-for-profit organisations.
2 The financial management environment
(a) Financial intermediation and credit
creation.
(b) Money and capital markets
(i) Domestic and international
(ii) Stock markets (both major
markets and small firm markets).
3.3 Performance Management
3.7 Strategic Financial Management
2.4 Financial Management and Control
1.2 Financial Information for Management
Paper 2.4
Financial Management and Control
PAGE 4
(c) The Efficient Markets Hypothesis.
(d) Rates of interest and yield curves.
(e) The impact of fiscal and monetary
policy on business.
(f) Regulation of business (for example,
pricing restrictions, green policies
and corporate governance).
3 Management of working capital
(a) The nature and scope of working

capital management.
(b) Funding requirements for working
capital.
(c) Working capital needs of different
types of business.
(d) The relationship of working capital
management to business solvency.
(e) Management of stock, debtors, short
term funds, cash, overdrafts and
creditors.
(f) Techniques of working capital
management (including ratio
analysis, EOQ, JIT, credit evaluation,
terms of credit, cash discounts,
factoring and invoice discounting,
debtors cycles, efficient short-term
fund investing, cash forecasting and
budgets, Miller-Orr model, basic
foreign exchange methods,
probabilities and risk assessment,
terms of trade with creditors).
4 Sources of finance
(a) Sources and relative costs
(including issue costs) of various
types of finance and their suitability
to different circumstances and
organisations (large and small, listed
and unlisted) including:
(i) access to funds and the nature of
business risk

(ii) the nature and importance of
internally generated funds
(iii) capital markets (types of share
capital, new issues, rights issues,
loan capital, convertibles,
warrants)
(iv)the effect of dividend policy on
financing needs
(v) bank finance (short, medium and
long term, including leasing)
(vi) trade credit
(vii) government sources: grants,
regional and national aid
schemes and tax incentives.
(viii) problems of small company
financing (collateral, maturity
funding gap, risk)
(ix)problems of companies with low
initial earnings (R&D, Internet,
and other high-technology
businesses)
(x) venture capital and financial
sources particularly suited to the
small company
(xi)international money and capital
markets, including an introduction
to international banking and the
finance of foreign trade.
(b) Requirements of finance (for what
purpose, how much and for how

long) in relation to business
operational and strategic objectives.
(c) The importance of the choice of
capital structure: equity versus debt
and basic analysis of the term profile
of funds.
(d) Financial gearing and other key
financial ratios and analysis of their
significance to the organisation.
(e) Appropriate sources of finance,
taking into account:
(i) cost of finance
(ii) timing of cash payments
(iii) effect on gearing and other ratios
(iv)effect on company’s existing
investors.
5 Capital investment appraisal
(a) Discounted cash flow techniques
(i) simple and compound interest
(ii) net present value
(iii) annuities and perpetuities
(iv) internal rate of return
(v) future value
(vi)nominal interest.
(b) Appraisal of domestic capital
investment opportunities for profit
making and not-for-profit
organisations through the use of
appropriate methods and techniques
(i) the risk / return relationship

(ii) return on capital employed
(iii) payback
(iv)internal rate of return
(v) net present value
(vi)single and multi-period capital
rationing
(vii) lease or buy decisions
Financial Management and Control (Continued)
PAGE 5
Paper 2.4: Financial Management and Control (Continued)
(viii) asset replacement using
equivalent annual cost .
Including (in categories (i)-(viii))
the effects of taxation, inflation,
risk and uncertainty(probabilities,
sensitivity analysis, simulation).
6 Costing systems and techniques
(a) The purpose of costing as an aid to
planning, monitoring and control of
business activity.
(b) Different approaches to costing
(c) Costing information requirements
and limitations in not-for-profit
organisations.
(d) Behavioural implications of different
costing approaches including
performance evaluation.
(e) Implications of costing approaches
for profit reporting, the pricing of
products and internal activities/

services.
7 Standard costing and variance analysis
(a) Standard costing
(i) determination of standards
(ii) identification and calculation of
sales variances (including quantity
and mix), cost variances (including
mix and yield); absorption and
marginal approaches
(iii) significance and relevance of
variances
(iv)operating statements
(v) interpretation and relevance of
variance calculations to business
performance.
(b) Planning and operational variances.
(c) Behavioural implications of standard
costing and variance reporting.
8 Budgeting and budgetary control
(a) Objectives of budgetary planning and
control systems including aspects of
behavioural implications.
(b) Evaluation of budgetary systems
such as fixed and flexible, zero
based and incremental, periodic,
continuous and activity based.
(c) Development, implementation and
coordination of budgeting systems:
functional, subsidiary and master/
principal budgets (including cash

budgeting); budget review.
(d) Calculation and cause of variances
as aids to controlling performance.
(e) Quantitative aids to budgeting and
the concepts of correlation, basic
time series analysis (seasonality)
and forecasting; use of computer
based models.
(f) Behavioural implications of
budgeting and budgetary control.
9 Performance measurement
(a) Measurement of productivity, activity,
profitability and quality of service
(b) Relationship of measure to type of
entity and range of measures, both
monetary and non-monetary
(c) Indices to allow for price and
performace changes through time
(d) Evaluating performance against
objectives and plans, and identifying
areas of concern from the infomation
produced
(e) The impact of cost centres, revenue
centres, profit centres and
investment centres on management
appraisal
(f) Difference between business
performance and management
performance
(g) Benchmarking

EXCLUDED TOPICS
The following topics are specifically
excluded from the syllabus:
• Calculations involving the derivation of
cost of capital in discounting problems.
Candidates will always be supplied with
an appropriate discount rate.
• Calculations relating to Modigliani and
Miller propositions.
KEY AREAS OF THE SYLLABUS
The core of the syllabus is aimed at
developing the skills required in supporting
managerial decision making. They reflect
the core competencies needed for students
to satisfy the aim of the paper identified
above; The core areas are:
• financial management objectives
• management of working capital
• sources of finance
• capital investment appraisal
• costing systems
• standard costing and variance analysis
• budgeting and budgetary control
• performance management.
Financial Management and Control (Continued)
PAGE 6
APPROACH TO EXAMINING THE
SYLLABUS
The examination is a three hour paper in
two sections. Financial management

issues will always, but not exclusively, be
examined in Section A. The Section A
question will typically be a scenario based
question. Most of the Section B questions
will contain a mix of computation and
discursive elements although it is intended
that at least one question will be entirely
discursive. The balance between
computation and discursive elements will
remain largely constant from one
examination to the next.
Number
of marks
Section A: One compulsory
scenario-based question 50
Section B: Choice of 2 from 4
questions (25 marks each) 50
100
ADDITIONAL INFORMATION
Present value and annuity tables will be
provided in the examination. The Study
Guide provides more detailed guidance on
the syllabus.
RELEVANT TEXTS
There are a number of sources from which
you can obtain a series of materials written
for the ACCA examinations. These are
listed below:
Foulks Lynch – ACCA's official publisher
Contact number: +44 (0)20 8831 9990.

Website: www.foulkslynch.com
Accountancy Tuition Centre (ATC)
International
Contact number: +44 (0)141 880 6469.
Website: www.ptc-global.com
BPP
Contact number: +44 (0)20 8740 2211.
Website: www.bpp.com
The Financial Training Company
Contact number: +44 (0)174 785 4302.
Website: www.financial-training.com
Candidates may also find the following
texts useful:
C Drury Management and Cost
Accounting (5th Edition)
International Thomson Business Press
ISBN 1861525362
A Griffiths & D Wall
Applied Economics (9th Edition)
F T Prentice Hall
ISBN 0273651528
D Watson, A Head Corporate Finance:
Principles and Practice
FT Prentice Hall ISBN 0273651323
Wider reading is also desirable, especially
regular study of relevant articles in ACCA's
student accountant.
Financial Management and Control (Continued)
STUDY SESSIONS
1 The Economic Environment I

Macroeconomic objectives
(a) Identify and explain the main macro-
economic policy targets
(b) Explain how government economic
policy may affect planning and
decision-making in business
(c) Define and explain the role of fiscal,
monetary, interest rate and exchange
rate policy
Fiscal Policy
(d) Identify the main tools of fiscal
policy
(e) Explain how public expenditure is
financed and the meaning of PSBR
(f) Explain how PSBR and taxation
policy interact with other economic
indicators
(g) Identify the implications of fiscal
policy for business
2 The Economic Environment II
Monetary, inflation and exchange rate
policy
(a) Identify the main tools of monetary
policy
(b) Identify the factors which influence
inflation and exchange rates,
including the impact of interest rates
(c) Identify the implications of
monetary, inflation and exchange
rate policy for business

PAGE 7
Aspects of government intervention and
regulation
(d) Explain the requirement for and the
role of competition policy
(e) Explain the requirement for and the
role of official aid intervention
(f) Explain the requirement for and the
role of Green policies
(g) Identify examples of government
intervention and regulation
3 The nature and scope of financial
management
(a) Broadly describe the relationship
between financial management,
management accounting and
financial accounting
(b) Discuss the nature and scope of
financial objectives for private sector
companies in the context of
organisational objectives
(c) Discuss the role of social and non-
financial objectives in private sector
companies and identify their
financial implications
(d) Identify objectives (financial and
otherwise) in not-for-profit
organisations and identify the extent
to which they differ from private
sector companies

(e) Discuss the problems of multiple
stakeholders in financial
management and the consequent
multiple objectives and scope for
conflict
4 The financial management framework
(a) Identify the general role of financial
intermediaries
(b) Explain the role of commercial banks
as providers of funds (including the
creation of credit)
(c) Discuss the risk/return trade-off
(d) identify the international money and
capital markets and outline their
operation
(e) Explain the functions of a stock
market and corporate bond market
(f) Explain the key features of different
types of security in terms of the risk/
return trade-off
(g) Outline the Efficient Markets
Hypothesis and assess its broad
implications for corporate policy and
financial management
(h) Explain the Separation Theorem
(i) Explain the functions of, and identify
the links between, the money and
capital markets
5 Management of Working
Capital I

General issues
(a) Explain the nature and scope of
working capital management
(b) Distinguish between cash flow and
profits
(c) Explain the requirement for effective
working capital management
(d) Explain the relationship between
working capital management and
business solvency
(e) Distinguish between the working
capital needs of different types of
business
Management of stock
(f) Calculate and interpret stock ratios
(g) Explain the role of stock in the
working capital cycle
(h) Apply the tools and techniques of
stock management
(i) Analyse and evaluate the results of
stock management techniques
6 Management of Working
Capital II
Management of creditors
(a) Explain the role of creditors in the
working capital cycle
(b) Explain the availability of credit and
the role of the guarantee
(c) Identify the risks of taking increased
credit and buying under extended

credit terms
(d) Explain how methods of paying
suppliers may influence cash flows
of both parties
(e) Discuss the particular problems of
managing overseas accounts payable
(f) Calculate and interpret creditor ratios
(g) Apply the tools and techniques of
creditor management
(h) Analyse and evaluate the results of
creditor management techniques
Management of debtors
(i) Explain the role of debtors in the
working capital cycle
(j) Explain how the credit-worthiness of
customers may be assessed
Financial Management and Control (Continued)
PAGE 8
(k) Evaluate the balance of risks and
costs of customer default against the
profitability of marginal business
(l) Explain the role of factoring and
invoice discounting
(m) Explain the role of early settlement
discounts
(n) Discuss the particular problems of
managing overseas debtors
(o) Calculate and interpret debtor ratios
(p) Apply the tools and techniques of
debtor management

(q) Analyse and evaluate the results of
debtor management techniques
7 Management of Working
Capital III
Management of cash
(a) Explain the role of cash in the
working capital cycle
(b) Calculate optimal cash balances
(c) Describe the functions of, and
evaluate the benefits from,
centralised cash control and
Treasury Management
(d) Calculate and interpret cash ratios
(e) Apply the tools and techniques of
cash management
(f) Analyse and evaluate the results of
cash management techniques
8 Sources of finance I: small and medium
sized enterprises (SMEs)
(a) Explain financing in terms of the
risk/return trade-off
(b) Describe the requirements for
finance of SMEs (purpose, how
much, how long)
(c) Describe the nature of the financing
problem for small businesses in
terms of the funding gap, the
maturity gap and inadequate security
(d) Identify the role of risk and the lack
of information on small companies

to help explain the problems of SME
financing
(e) Explain the role of information provision
provided by financial statements
(f) Describe the particular financing
problems of low-earning/high growth
companies
(g) Describe the response of government
agencies and financial institutions to
the SME financing problem
(h) Explain what other measures may be
taken to ease the financial problems
of SMEs such as trade creditors,
factoring, leasing, hire purchase,
AIM listing, business angels and
venture capital
(i) Describe how capital structure
decisions in SMEs may differ from
larger organisations
(j) Describe appropriate sources of
finance for SMEs
(k) Calculate and interpret appropriate
ratios
9 Sources of finance II: equity financing
(a) Describe ways in which a company
may obtain a stock market listing
(b) Describe how stock markets operate,
including the AIM
(c) Explain the requirements of stock
market investors in terms of returns

on investment
(d) Calculate, analyse and evaluate
appropriate financial ratios (e.g.
EPS, PE ratio, dividend yield, etc.)
(e) Outline and apply the dividend
valuation model, including the
growth adjustment
(f) Explain the importance of internally
generated funds
(g) Describe the advantages and
disadvantages of rights issues
(h) Calculate the price of rights
(i) Explain the purpose and impact of a
bonus issue, scrip dividends and
stock splits
10 Sources of finance III: debt and near-
debt financing
(a) Explain the features of different types
of preference shares and the reasons
for their issue
(b) Explain the features of different
types of long-term straight debt and
the reasons for their issue
(c) Explain the features of convertible
debt and warrants and the reasons
for their issue
(d) Broadly describe the reasons for the
choice of financing between
preference shares, debt and near-
Financial Management and Control (Continued)

PAGE 9
debt instruments in terms of the risk/
return trade-off
(e) Assess the effect on EPS of
conversion and option rights
(f) Broadly describe international debt
markets and the financing of foreign
trade
(g) Calculate and interpret appropriate
ratios
11 Sources of finance IV: the capital
structure decision
(a) Explain and calculate the level of
financial gearing
(b) Distinguish between operational and
financial gearing
(c) Outline the effects of gearing on the
value of shares, company risk and
required return
(d) Explain how a company may
determine its capital structure in
terms of interest charges, dividends,
risk and redemption requirements
(e) Explain the role of short term
financing in the capital structure
decision
(f) Explain the relationship between the
management of working capital and
the long term capital structure decision
(g) Calculate and interpret appropriate

ratios
12 Investment decisions
(a) Define and distinguish between
capital and revenue expenditure
(b) Compare and contrast fixed asset
investment and working capital
investment
(c) Describe the impact of investment
projects on financial statements
(d) Calculate payback and assess its
usefulness as a measure of
investment worth
(e) Calculate ROCE and assess its
usefulness as a measure of
investment worth
13 Interest and discounting
(a) Explain the difference between
simple and compound interest
(b) Explain the relationship between
inflation and interest rates,
distinguishing between nominal and
real interest rates, and calculate
nominal interest rates
(c) Explain what is meant by future
values and calculate future values,
including application of the annuity
formula
(d) Explain what is meant by
discounting and calculate present
values, including the application of

the annuity and perpetuity formula,
and the use of present value and
annuity tables
(e) Explain the importance of the time
value of money and the role of the
cost of capital in appraising
investments
14 Investment appraisal using DCF
methods
(a) Explain the importance of the time
value of money and the role of the
cost of capital in appraising
investments
(b) Identify and evaluate relevant cash
flows of potential investments
(c) Calculate present values to derive
the NPV and IRR measures of
investment worth
(d) Explain the superiority of DCF
methods over payback and ROCE
(e) Assess the merits of IRR and NPV
(f) Apply DCF methods to asset
replacement decisions
15 Project appraisal allowing for inflation
and taxation
Inflation
(a) Distinguish general inflation from
specific price increases and assess
their impact on cash flows
(b) Evaluate capital investment projects

on a real terms basis
(c) Evaluate capital investment projects
on a nominal terms basis
Taxation
(d) Calculate the effect of capital
allowances and Corporation Tax on
project cash flows
(e) Evaluate the profitability of capital
investment projects on a post-tax
basis
Financial Management and Control (Continued)
PAGE 10
16 Project appraisal allowing for risk
(a) Distinguish between risk and
uncertainty
(b) Identify the sources of risk affecting
project profitability
(c) Evaluate the sensitivity of project
NPV to changes in key variables
(d) Apply the probability approach to
calculating expected NPV of a project
and the associated standard deviation
(e) Explain the role of simulation in
generating a probability distribution
for the NPV of a project
(f) identify risk reduction strategies for
projects
(g) Evaluate the usefulness of risk
assessment methods
17 Capital rationing

(a) Distinguish between hard and soft
capital rationing
(b) Apply profitability index techniques
for single period divisible projects
(c) Evaluate projects involving single
and multi-period capital rationing
18 Leasing decisions
(a) Distinguish between operating and
finance leases
(b) Apply DCF methods to projects
involving buy or lease problems
(c) Assess the relative advantages and
disadvantages of different types of
lease
(d) Describe the impact of leasing on
company gearing
19 Costing systems and techniques
(a) Outline and distinguish between the
nature and scope of management
accounting and the role of costing in
meeting the needs of management
(b) Describe the purpose of costing as
an aid to planning, monitoring and
controlling business activity
(c) Different approaches to costing
(i) marginal costing and absorption
costing
(ii) service costing
(iii) theory of constraints and
throughput accounting

(iv)activity based costing; use of cost
drivers and activities
(v) life cycle costing
(vi)target costing
(d) Describe the costing information
requirements and limitations in not-
for-profit organisations
(e) Broadly outline the behavioural
implications of different costing
approaches including performance
evaluation
(f) Explain the potential for different
costing approaches to influence
profit reporting and the pricing of
products and internal services
(g) Explain the role of costing systems in
decision making
20 Standard costing I
(a) Explain the uses of standard costs
and the methods by which they are
derived and subsequently reviewed
(b) Calculate and evaluate capacity
limitations when setting standards
(c) Describe the types of standard
(ideal, attainable, current and basic)
and their behavioural implications
(d) Calculate basic labour, material,
overhead (variable and fixed) and
sales variances, including problems
of labour idle time

(e) Explain the reasons for variances
(f) Assess appropriate management
action arising from the variances
identified
21 Standard costing II
(a) Prepare reconciliations using
operating statements which
(i) reconcile budgeted and actual
profit figures, and/or
(ii) reconcile the actual sales less the
standard cost of sales with the
actual profit
(b) Calculate and explain operational
and planning variances
(c) Demonstrate how absorption and
marginal approaches can be used in
standard costing
(d) Calculate mix and yield variances for
materials
(e) Calculate mix and quantity variances
for sales
(f) Demonstrate an understanding of the
inter-relationships between variances
(g) Explain the reasons for variances
(h) Assess appropriate management
action arising from the variances
identified
Financial Management and Control (Continued)
PAGE 11
22 Budgetary planning and control I

(a) Identify the purposes of budgetary
planning and control systems
(b) Describe the planning and control
cycle, and the control process
(c) Explain the implications of
controllability for responsibility
reporting
(d) Prepare, review and explain a budget
preparation timetable
(e) Prepare and evaluate functional,
subsidiary and master budgets,
including cash budgets
(f) Explain the processes involved with
the development and
implementation of budgets
(g) Explain the process of participation
in budget setting and how this can
address motivational problems
23 Budgetary planning and control II
(a) Prepare and evaluate fixed and
flexible budgets and evaluate the
resulting variances
(b) Prepare flexed budgets when
standard fixed overhead absorption
is employed
(c) Assess the behavioural implications
of budgetary control and
performance evaluation, including
participation in budget setting
24 Budgetary planning and control III

(a) Describe and evaluate the main
features of zero based budgeting
systems
(b) Describe the areas/organisations in
which zero based budgeting may be
applied
(c) Describe and evaluate incremental
budgeting and discuss the
differences with zero based
budgeting
(d) Describe and evaluate periodic and
continuous budgeting systems
25 Quantitative aids to budgeting
(a) Describe and apply the techniques of
(i) high-low method
(ii) least squares regression
(iii) scatter diagrams and correlation
(iv) forecasting with least squares
regression
(v) time series to identify trends and
seasonality
(vi) forecasting with time series
(b) Evaluate the results of quantitative
aids
26 Indices
(a) Explain the purpose of index
numbers, and calculate and interpret
simple index numbers for one or
more variables
(b) Deflate time-related data using an

index
(c) Construct a chained index series
(d) Explain the term 'average index',
distinguishing between simple and
weighted averages
(e) Calculate Laspeyres and Paasche
price and quantity indices
(f) Describe the relative merits of
Laspeyres and Paasche indices
27 Performance measurement
(a) Outline the essential features of
responsibility accounting for various
types of entiy
(b) Describe the range of management
performance measures available for
various types of entity
(c) Calculate and explain the concepts
of return on investment and residual
income
(d) Explain and give examples of
appropriate non-montary
performance measures
(e) Describe the various types of
responsibility centre and the impact
of these on management appraisal
(f) Discuss the potential conflict in the
use of a measure for both business
and management performance
(g) Analyse the application of financial
performance measures including

cost, profit and return on capital
employed
(h) Assess and illustrate the
measurement of profitability, activity
and productivity
(i) Discuss the measurement of quality
and service
(j) Identify areas of concern from
information supplied and
performance measures calculated
(k) Describe the features of
benchmarking and its application to
performance appraisal
28 Revision
Financial Management and Control (Continued)
PAGE 12
Financial Management and Control (Continued)