MFRD FINANCIAL DECISIONS ASSIGNMENT

TASK 1: FINANCIAL DECISIONS BASED ON FINANCIAL INFORMATION
Outcome 3.1: Budgets and making appropriate decisions
3.1a. Flexible budget and budgetary control: variance analysis
Flexible budget (also called a variable budget) is based on predicted amounts of revenue and
expenses corresponding to actual level of output. It show differences between actual
performance and budgeted performance based on actual volume or other level of activity to
identify reasons for any differences (John, 2009)
My F05 Ltd manufactures a distinction product. Budget results and actual results for June 2011
are shown below.
Budget
4,000

Production (units)

Actual results
6,000
£

£
Direct materials
Direct labour
Maintenance
Depreciation
Rent and rates
Other costs
Total cost

12,000
8,000
2,000
4,000

3,000
9,500
38,500

10,500
8,500
2,500
4,500
3,500
5,000
34,500

Variance
2,000
£
(1,500)
500
500
500
500
(4,500)
(4,000)

a) Budget

Plan output of My F05 Ltd is 4,000 units and standard cost units: Direct materials £3.00/unit,
Labor £2.00/hr. Therefore, direct material is 4,000 x £3.00 = 12,000 and direct labor is 4,000 x
£2.00 = 8,000.
Standard cost includes maintenance: £2,000; depreciation: £4,000; and rent and rates: £3,000.
Other cost consists of fixed costs of 1,500 plus a variable cost of £2. Thus, other costs is 1,500 +

(4,000 x £2) = 9,500
b) Actual results

According to data from scenario: Production units

1

- £6,000; Direct Materials - £10,500; Direct


Labor - £8,500; Maintenance - £2,500; Depreciation - £4,500; Rent and rates - £3,500; Other
costs - £5,000
c) Variance

Variance is calculated by formula: Variance = Actual result - Budget
As can be seen, the difference between the projected budget and the actual performance. In this
case variance is negative, meaning the budgeted amount was greater than the actual amount
spent.
Budgetary control is the practice of establishing budgets which identify areas of responsibility
for individual managers (for example production managers, purchasing managers and so on) and
of regularly comparing actual results against expected results, the differences being variances
(John, 2009)
The budgetary control (variance) analysis should be as follows.

Production (units)
Variable cost
Direct materials
Direct labour
Maintenance
Semi-variable cost

Other costs
Fixed cost
Depreciation
Rent and rates
Total cost

Fixed
budget
(a)
4,000
£

Flexible
budget
(b)
6,000
£

Actual
result
(c)
6,000
£

Budget
variance
(b) – (c)

12,000
8,000

2,000

18,000
12,000
3,000

10,500
8,500
2,500

7,500(F)
3,500(F)
500(F)

9,500

13,500

5,000

8,500(F)

4,000
3,000
38,500

4,000
3,000
53,500

4,500
3,500
34,500

500(A)
500(A)
19,000(F)

£

Notes: (F) denotes a favourable variance (where less than expected was spent) and (A) an
adverse or unfavouable variance (where more than expected spent).
a) Flexible budget: (Actual production / Expected production) x variable (semi-variable)

cost in fixed budget.
Direct material: (6,000/4,000) x 12,000 = 18,000
2


Direct labour: (6,000/4,000) x 8,000 = 12,000
Maintenance: (6,000/4,000) x 2,000 = 3,000
Other costs: (6,000/4,000) x 6,000 = 13,500
b) Budget variance: Budget variance equal flexible budget minus actual result.

Decision making
Actual cost for 6000 units is £34,500
Fixed budget for 4000 units is £38,500
 Budget and actual costs is differ from each other too large  it is good for setting up
estimation
If flexible is too high, it will make to decrease competitiveness of business

 The company should consider again about production unit cost
 Give right prices for buying products into market to increase competitive advantages.
Other costs of the company is not good, standard is not correct, difference of 7,500  it is not
good for price decisions  The company also need consider again them.
The most important method of budgetary control is variance analysis, which in this context
involves the comparison of actual results achieved during a control period with a flexible budget.
Variance analysis
In producing 6000 units the expected costs should have been, not the fixed budget costs
of £38,500 but the flexible budget costs of £53,500. Instead, the actual costs were 34,500 and
£4,000 less than company’s expectation. The reason for improvement is when produce 6,000
units the cost were lower than what we expected (BPP, 2004).
Variable cost should have been greater than the £22,000 in the fixed budget because the
company produced 6,000 units instead of 4,000 units. Costs should have increase by ½ (12,000 +
8,000 + 2,000) = £11,000 which can budgeted as the variable cost of 2,000 units. This is
difference between the fixed and flexible budgets. Semi-variable costs should have risen by
£4,000 for the increase of production (BPP, 2004).

3


A full variance analysis statement would be as follow
£
Fixed budget costs
Budgeted difference due to increased production
level (£11,000 + £4,750)
Flexible budget cost
Variances
Direct materials cost
Direct labour cost
Maintenance cost

Other costs
Depreciation
Rent and rates

£
38,500
15,750
54,250

7,500(F)
3,500(F)
500(F)
9,250(F)
500(A)
500(A)
19,750 (F)
34,500

Actual costs

Such as statement could be prepared by the accountant and then circulated to senior management
and operational management in the periodically-prepared budgetary control report. Operational
management may then be asked to investigate the reason for large variances so that they can
decide whether a corrective action is necessary.
3.1b The summary of the possible cause of variance
a) Material price

- Material price increase due to inflation are raising, meaning that no matter the price for
raw material will steadily increase.
- Interest rate increase from loaning so the suppliers increase the material price to recoup

the losses.
- Changing material standard such as: add some new material
- Changes in transportation costs lead to the material price increase.
b) Material usage

- Material usage rate increase, for example the firm has some problem about the
machinery lead to large qualities of product is destroy totally.
- Material is defective so the firms need other material sources instead
- The firm needs many materials in order to produce large products for the partners.
c) Labor rate
4


- The company must pay more salary, have welfare policies such as bonus, reward for
their worker to motivate and encourage them contribute their best for the company’s
objective
- Rate increased resulted in increase of actual direct labor cost, for example, excess
overtime, the worker is pay more money for their efforts.
d) Idle time

- All operation of firms is stopped due to machine breakdown or non-available of
material
- Worker is injury in work process lead to the shortage of labor resources.
Outcome 3.2 Unit costs and makes pricing decisions using relevant information
3.2a Specification of F05 Ltd items
Specify items for My F05 Ltd items of expenditure which are classified as direct material cost,
direct labor, and production overhead and so on (Scenario, 2012).
a) Direct costs
•

Direct material costs: timber, bamboo (raw material); and cartons, boxes (primary
material).

•

Direct labor costs: salary, bonus, reward for carpenter, designer and employees

•

Direct expenses: salaries expenses, factory expenses…

b) Indirect cots
•

Production overheads
- Indirect material: glues, screws, glasses…
- Indirect wages: wage for stores staff, and foreman.
- Indirect expenses: rent, rate and insurances.

•

Administration overheads: telephone, internet, legal charges, and audit fee…

•

Selling overheads: advertising costs, and market research, website maintains costs.

•

Distribution overheads: warehousing, and delivery vehicles…

5


3.2b Decision making
In the case of F05 Ltd, it has many costs affect the decision making of company but below
is some kinds of cost that may be used in the decision making of F05 Ltd.
Pricing per unit = 54,500/6,000 = 9.083
Cost payment = 34,500/6,000 = 5.75
Cost according to budget = 38,500/4,000 = 9.625
If company has large different between budget and actual, it will not good for company.
But if budget similar to actual, company will prepare good sources for produce such as human
sources, financial sources, material sources and so on. It helps company save money and
avoidable the waste of sources in company.
In addition, company should care about standard unit cost to have the best decision making.
If the budget is too high, products of company will have high price in market. As a result, it
make product of company decrease competitive advantages when compare with other
competitors and company will not sell product.
TASK 2: INVESTMENT AND PROJECT APPRAISAL
Outcome 3.3 Assess the viability of a project using investment appraisal techniques
3.3a The average rate of return for each project
Estimated average profit x 100%
ARR =
Investment

According to data in scenario:

Project A
Year

Income from
operations

Project B

Net Cash Flow
£

£

Income from
Operations
£

6

Net Cash Flow
£


1

6,000

22,000

13,000

29,000

2

9,000

25,000

10,000

26,000

3

10,000

26,000

8,000

24,000

4

8,000

24,000

8,000

24,000

5

11,000

27,000

3,000

19,000

44,000

124,000

42,000

122,000

Total

Investment (in the start of project) + Investment (in the end of project)
Investment =
2
80,000 + 0
=

= £40,000
2

Project A

44,000 : 5
ARR A =

= 0.22
40,000

The total profit of project A in 5 year is total income from operations so the profit of project A in
5 year is £44,000. Therefore the Estimated average profit = total profit/5 = 44,000/5 = £8,800.
Investment of project A in the start of project is £80,000 and they use straight-line depreciation
will be used and no residual value is expected so the investment in the end of project is £0.
Therefore, Investment = (80,000 + 0)/2 = £40,000

Project B
ARR B = 42,000/5 = 0.21
40,000
The total profit of project B in 5 year is total income from operations so the profit of project A in
5 year is £42,000. Therefore the Estimated average profit = total profit/5 = 42,000/5 = £8,400.
7


Investment of project B in the start of project is £80,000 and they use straight-line depreciation
will be used and no residual value is expected so the investment in the end of project is £0.
Therefore, Investment = (80,000 + 0)/2 = £40,000
Compare the average rate of return of project A and project B:
ARR A = 0.22
ARR B = 0.21
 ARR A > ARR B
 Company should choose project A
3.3b The net present value for each project
The value of money in the future

FV t = PV
FV t: the value of money in year t
PV: the value of money in present
r: the interest
 PV =
Present value of cash flow in the future
PV =
Net PV = – C0
(C0 is the money invest when start project)
Project A:
The present value of cash flow in the next 1 year
PV = = £19,140
The present value of cash flow in the next 2 year
PV = = £18,900
The present value of cash flow in the next 3 year
8


PV = = £17,108
The present value of cash flow in the next 4 year
PV = = £13,728
The present value of cash flow in the next 5 year
PV = = £13,419
Net PV = – C0
= (19,140 + 18,900 + 17,108 + 13,728 + 13,419) – 80,000
= £2,295
Project B:
The present value of cash flow in the next 1 year
PV = = £25,230
The present value of cash flow in the next 2 year

PV = = £19,656
The present value of cash flow in the next 3 year
PV = = £15,792
The present value of cash flow in the next 4 year
PV = = £13,728
The present value of cash flow in the next 5 year
PV = = £9,334
Net PV = – C0
= (25,230+ 19,656+ 15,792 + 13,728 + 9,334) – 80,000
= £3,740
Both projects have Net PV > 0 so company can accept both two projects.
TASK 3: FINANCIAL PERFORMACE OF A BUSINESS
9


Outcome 4.1 Main financial statements
Financial statements are a collection of reports about an organization's financial results
and condition (Accoutingtools, 2012). There are 3 main financial statements: balance sheet,
income statement, and cash flow.
a) Balance sheet:
•

Purpose: A balance sheet prepares to show assets, liabilities, and owners’ or
stockholders’ equity. A balance sheet is a snapshot of a business’ financial
condition at a specific moment in time, usually at the close of an accounting
period.

•

The balance sheet is based on the following fundamental accounting model:

Assets = Liabilities + Equity
- Assets and liabilities are divided into short-term and long-term obligation
including cash accounts such as checking, money market, or government
securities.
+ Assets will be land and buildings, fixtures and fittings, property.
+ Liabilities are loans from bank or other sources.
- Equity is retained earnings from past contract to provide carpet.

b) Income statement
•

Purpose: An income statement is a summary of a company’s profit or loss during
any one given period of time, such as a month, three months, or one year. The
income statement records all revenues for a business during this given period, as
well as the operating expenses for the business.

•

The simplest equation to describe income is:
Net Income = Revenue - Expenses
- Revenue is all money that received from business contracts of organization
- Expenses include outflows incurred to produce revenue, such as salaries
expenses, water expenses, electricity expenses…
10


c) Statement of cash flows:
•

Purpose: Cash flow statements explains differences between profit and cash and

also show where a business gets its capital from and what uses it puts the capital
to. Only large companies are required to produce a cash flow statement, though
smaller companies can do so if they wish.

•

The statement of cash flow is separate into three sections:
- Cash Flows from operating activities: is a section of the cash flow statement that
provides information regarding the cash-generating abilities of a company's core
activities.
- Cash Flows from Investing Activities: represent the net change in cash from the
use or sale of income-generating assets
- Cash Flows from Financing Activities: reported on the statement of cash flows
(SCF) involve changes to the long-term liabilities and stockholders’ equity
(sections of the balance sheet) during the period shown in the heading of SCF.

Outcome 4.2 Financial statements for different types of business
There are 3 type of business: sole trade, partnership and company; the table below shows
the differentiation of financial statement in different type of business.

Balance sheet

Sole trader

Partnership

The profits (or
losses) each year
are
often

transferred into the
capital account.

The partners’ individual
stake in the business is
represented by capital
account (use for their
long-term
investment)
and sometime, current
account (use to record
profit share, drawing,
salaries,
interest
on
capital account).

11

Limited liability
company
The
owner
are
shareholder,
whose
initial stake is shown
as share capital and
subsequent
profits

earned shown as a
balance on the profit
on loss account


A sole trader would
prepare a simple
profit and loss
account

Income
statement

Cash flows from
operating activities,
from
trading
activities
of
a
business.

Statement of
cash flow

The interest must be paid
before profit and divided
among the partner and is
included in the income
statement as allocation of

net income.
Cash received
from
investment activities such
as capital and paid on
loans

Company will have to
prepare based on
International Financial
Reporting Standards
or Generally accepted
accounting principles.
Same as sole trader,
cash flow from all
operating activities.

a) Balance sheet

Sole trader: The profits (or losses) each year are often transferred into the capital
account.
Partnership: The partners’ individual stake in the business is represented by capital
account (use for their long-term investment) and sometime, current
account (use to record profit share, drawing, salaries, interest on capital
account).
Limited liability company: The owners are shareholder, whose initial stake is shown as
share capital and subsequent profits earned shown as a balance on the
profit on loss account
b) Income statement

Sole trader: A sole trader would prepare a simple profit and loss account.
Personal income tax
Partnership: The interest must be paid before profit and divided among the partner and is
included in the income statement as allocation of net income.
Interest on capital and Life-Policy Premiums
Limited liability: Company will have to prepare based on International Financial
Reporting Standards or generally accepted accounting principles.
12


Salary expenses, corporation tax, and insurance.
c) Statement of cash flow

Sole trader: Cash flows from operating activities, from trading activities of a business.
Partnership: Cash received from investment activities such as capital and paid on loans
Limited liability: Same as sole trader, cash flow from all operating activities.

Outcome 4.3 Financial statements using appropriate ratios and comparisons both internal
and external
Financial ratios are useful indicators of a firm’s performance and financial situation. Most ratios
can be calculated from information provided by the financial statements. Financial ratios can be
used to analyze trends and to compare the firm’s financials to those of other firms. In some
cases, ratio analysis can predict future bankruptcy (John, 2009).
4.3a Profitability and return on capital
1) Profitability Ratios

The most important profitability ratio is therefore return on capital employed (ROCE), which
states the profits as a percentage of the amount of capital employed (Anon, 2004) .
Profit before interest + Interest payable (PBIT)
ROCE =

Capital employed
Capital employed = Share capital + Reserves + Non - current liabilities
According to income statement of BAT:
•
•

Profit before interest: £4,931 (2011), £4,388 (2010), £4,080 (2009)
Interest payable:
£567 (2011), £583 (2010), £602 (2009)
 PBIT is calculated as follows
2011: £ (4,931 + 567) = £5,500
2010: £ (4,388 + 583) = £4,971
2009: £ (4,080 + 602) = £4,682

According to balance sheet of BAT:
13


•
•
•

Share capital:
£ 506 (2011),
£506 (2010), £506 (2011)
Reserves:
£5,025 (2011), £5,510 (2010), £4,939 (2011)
Non-current liabilities: £10,798 (2011), £10,667 (2010), £11,786 (2009)
 Capital employed is calculated as follows:
2011: £ (506 + 5,025 + 10,798) = £ 16,329

2010: £ (506 + 5,510 + 10,667) = £16,683
2009: £ (506 + 4,939 + 11,786) = £17,231
2011
5,500
16,329
= 33,68%

ROCE

2010
4,971
16,683
= 29,89%

2009
4,682
17,231
= 27,17%

As can be seen, ROCE of the company is quite high, and increased steadily in 3 years from 2009
to 2011. It proved that the company is operating very well and earned more profits.
2) Profit margin and asset turnover:

PBIT
Profit margin =
Sales
Sales
Asset turnover =
Capital employed
3) Gross profit margin

4.3b Borrowing
1) Liabilities ratio

The liabilities ratio is the ratio of a company’s total liabilities to its total assets
- Assets consists of fixed assets at their balance sheet value, plus current assets
- Liabilities consist of all creditors, whether amounts falling due within one year or after more
than one year (Anon, 2004)
Total debts
Liabilities ratio =

Current liabilities + non-current liabilities
=

Total assets

Total assets

14


According to Balance Sheet in annual report of British American Tobacco 2011, the current
liabilities of company are £7,847, including borrowings, income tax payable, other provisions for
liabilities and charges…The non-current liabilities are £10,798, including borrowings, retirement
benefit liabilities, deferred tax liabilities…Therefore, the total debts are £18,645. In addition, the
total assets are £27,119 (including the current assets are £8,495 and non-current assets are
£18,624)
Similar to 2011, the total debts of 2010 are £18,312 (including current liabilities are £7,645 and
non-current liabilities are £10,667), and the total assets are £27,860 (including current assets £8,657 and non-current assets - £19,203)
Accordingly, in 2009 the total debts are £18,702 (including current liabilities - £6,916 and noncurrent liabilities - £11,786), and the total assets are £26,614 (including current assets - £8,106

and non-current assets - £18,508)
From the data above, in the case of BAT the liabilities ratio is as follows.
Total debts
Total assets

2011
18,645
27,119
=

2010
18,312
27,860
=

2009
18,702
26,614
=

68,75%

68,18%

70,27%

In this case, the liabilities ratio is quite high, mainly because of the large amount of current
liabilities. The ratio has fallen from 70,27% to 65,86% between 2009 and 2010 despite of having
increased but slightly only about 0,57% in 2011. Therefore, the company appears to be
improving its positions

2) Interest cover

4.3c Liquidity and working capital ratios
1) Quick ratio
2) Current ratio
3) Efficiency ratio
• Debtor days
• Stock turnover period
• Creditors’ turnover

4.3d Shareholder’ investment ratio
15


Earnings per share (EPS)

Hoàn chình nốt phần còn thiếu ……….

APPENDIX

Cho thêm mấy bảng nữa vô đây hen…………….Đánh lại số các
appendix
Appendix 1: The income statement of British American Tobacco
British American Tobacco
Group Income Statement
For the year ended 31 December
Note
s

2011

2010

2009

£m

£m

£m

Gross turnover (including duty, excise and other taxes
of £30,724 million (2010: £28,972 million))
Revenue
Raw materials and consumables used
Changes in inventories of finished goods and work in
progress
Employee benefit costs
Depreciation, amortization and impairment costs
Other operating income
Other operating expenses
Profit from operations
Analyzed as:
– Adjusted profit from operations
– Restructuring and integration costs
16

2

3(a)

3(b)
3(c)
3(d)
2
2
3(e)

46,123
15,399
(3,507)

43,855 40,713
14,883 14,208
(3,695) (3,983)

81
(2,501)
(817)
233
(4,167)
4,721

(12) (3,983)
(2,550)
35
(897)
(611)
207
196
(3,618) (3,427)

4,318
4,101

5,519
(193)

4,984
(311)

4,461
(304)


– Amortization of trademarks
– Impairment of trademarks
– Goodwill impairment
– Fox River
– Gains on disposal of businesses and trademarks

3(f)
3(g)
3(g)
3(h)

(58)

(62)
(44)
(249)

(273)
(274)

(58)

4,721

4,318

2
4,101

4

117
(577)
(460)

27
(507)
(480)

77
(581)
(504)

ventures
Analyzed as:
– Adjusted share of post-tax results of associates and

5

670

550

483

joint ventures
– Issue of shares and change in shareholding
– Smoking cessation programme
– Gain on disposal of business
– Canadian settlements
– Trademark amortization and impairments
– Restructuring costs
– Health plan credit
– Other

2
5

659
28
(23)
22

622
(9)

541

Finance income
Finance costs
Net finance costs
Share of post-tax results of associates and joint

5
5
5

5

(16)
670

Profit before taxation
Taxation on ordinary activities
Profit for the year

6

Attributable to:
Owners of the parent
Non-controlling interests
Earnings per share
Basic
Diluted

(59)
(1)

(3)

7
7

4,931
(1,556)
3,375

4
550

17

483

4,388
4,080
(1,248) (1,124)
3,140
2,956

3,095
280
3,375

2,879
261
3,140

2.713
243
2,956

157.1p
156.2p

145.2p
144.4p

137.0p
136.3p

All of the activities during both years are in respect of continuing operations.
The accompanying notes are an integral part of the Group financial statements.
Appendix 2: Cash flow of British American Tobacco

(65)
(9)
16


British American Tobacco
Group Cash Flow Statement
For the year ended 31 December
Note
s
Cash flows from operating activities
Cash generated from operations
Dividends received from associates

Tax paid
Net cash used in operating activities
Cash flows from investing activities
Interest received
Dividends received from investments
Purchases of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Purchases of intangibles
Purchases and proceeds on disposals of investments
Purchase of Bentoel
Purchase of Tekel cigarette assets
Proceeds from associates’ share buy-backs
Proceeds from ST trademark disposals
Purchases of other subsidiaries and associates
Proceeds on disposal of subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Interest element of finance lease rental payments
Capital element of finance lease rental payments
Proceeds from issue of shares to owners of the parent

25

25

25

2011

2010

2009

£m

£m

£m

5,537
5,207
4,645
476
461
328
(1,447) (1,178) (1,095)
4,566
4,490
3,878
79
2
(510)
45
(107)
3

59
2
(497)

61
(87)
(1)

83
2
(450)
39
(104)
37
(370)
(12)

71
187

25
25

(295)

(1)
12
(451)

(589)

(578)
(2)
(17)

3

(576)
(2)
(35)
2

2
1,361
5
(755)

4
892
(179)

5
1,447
(267)

(123)
(10)

(66)
(12)

(94)

(712)
(580)

(13)
3

Proceeds from the exercise of options over own shares
held in employee share ownership trusts
Proceeds from increases in and new borrowings
Movements relating to derivative financial instruments
Purchases of own shares
Purchases of own shares held in employee share
ownership trusts
Purchases of non-controlling interests

25
25

25
18


Reductions in and repayments of borrowings
Dividends paid to owners of the parent
Dividends paid to non-controlling interests
Net cash used in financing activities
Net cash flows (used in)/from operating, investing

25
8

(1,304) (1,582) (1,853
(2,358) (2,093) (1,798)

(275)
(234)
(234)
(4,047) (3,864) (3,405)

and financing activities
Differences on exchange
(Decrease)/increase in net cash and cash

(193)
(48)

175
29

(116)
(125)

equivalents in the year
Net cash and cash equivalents at 1 January
Net cash and cash equivalents at 31 December

(241)
2,183
1,942

204
1,979
2,183

(241)
2,220
1,979

2011

2010

2009

£m

£m

£m

9
10
11
12
13
14
15
16

11,992
3,047
2,613
105
343

305
40
179
18,624

12,458
3,117
2,666
122
411
272
29
128
19,203

12,232
3,010
2,521
105
350
171
26
93
18,508

17
18
14
15

3,498
127
2,423
57

3,608
73
2,409
58

3,261
97
2,344
57

19

The accompanying notes are an integral part of the Group financial statements.

Appendix 3: Balance sheet of British American Tobacco
British American Tobacco
Group Cash Flow Statement
For the year ended 31 December
Note
s
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments in associates and joint ventures

Retirement benefit assets
Deferred tax assets
Trade and other receivables
Available-for-sale investments
Derivative financial instruments
Total non-current assets
Current assets
Inventories
Income tax receivable
Trade and other receivables
Available-for-sale investments
19


Derivative financial instruments
Cash and cash equivalents

16
19

Assets classified as held-for-sale
Total current assets
Total assets
Equity
Capital and reserves
Share capital
Share premium, capital redemption and merger

159
2,194

8,458
37
8,495
27,119

145
2,329
8,622
35
8,657
27,860

156
2,161
8,076
30
8,106
26,614

506

506

506

3,913
1,112
2,636
8,167

3,910
1,600
3,190
9,206

3,907
1,032
2,168
7,613

(1,539)
307
8,474

(750)
342
9,548

(772)
299
7,912

21
12
13
22
23
16

8,510

1,003
556
458
184
87
10,798

8,916
770
509
187
193
92
10,667

9,712
1,129
527
144
180
94
11,786

21
18
22
23
16

1,766

494
236
5,174
177

1,334
467
282
5,335
227

1,370
364
312
4,727
127

7,645
7,645
27,860

6,900
6,916
26,614

26(c)

reserves
Other reserves
Retained earnings

Owners of the parent
after deducting
– cost of treasury shares
Non-controlling interests
Total equity
Liabilities
Non-current liabilities
Borrowings
Retirement benefit liabilities
Deferred tax liabilities
Other provisions for liabilities and charges
Trade and other payables
Derivative financial instruments
Total non-current liabilities
Current liabilities
Borrowings
Income tax payable
Other provisions for liabilities and charges
Trade and other payables
Derivative financial instruments
Liabilities directly associated with assets classified as
held-for-sale
Total current liabilities
Total equity and liabilities

20

26
7,847
27,119

The accompanying notes are an integral part of the Group financial statements
Appendix 4: Net finance costs
20


2011
£m £m
Finance costs
– Interest payable
– Bank borrowings
– Finance leases
– Facility fees
– Other

2010
£m
£m

2009
£m £m
602

82
1
8
476

– Fair value changes on derivative financial
instruments

– Exchange differences on financial liabilities

81
2
8
492
567

583

12

209
(285
)
507

(2)
577

Finance income
– Interest and dividend income
– Interest income in respect of available-forsale investments
– Gains in respect of available-for-sale
investments
– Dividend income in respect of available-forsale investments
– Other interest income

602

(85)
(1)
(1)
(2)
(79)

(2)
(57)

(82
)
(60)
– Exchange differences on financial assets
(35)
33
8
(117)
(27)
(77)
Net finance costs
460
480
504
The Group manages foreign exchange gains and losses and fair value changes on a net basis,
as shown below. The derivatives that generate the fair value changes are detailed in note 16.
Fair value changes
– Cash flow hedges transferred from equity
– Fair value hedging instruments – exchange
related movements
– Fair value hedging instruments – net interest

income
– Fair value hedging instruments – interest
related movements (see note (i))
– Fair value changes on hedged items – interest
related movements (see note (i))
– Instruments held-for-trading (note (ii))

9

Finance costs – exchange differences on

16

86

4

(14)

(7)

(62)

(74)

(65)

(51)

(75)

(13)

39
73
12

54
302
209
(285

3
4
(17)

(2)
21


financial liabilities
Finance income – exchange differences on
financial assets

)
(35
)
(25
)

33
(4
3)

/>
22

(13)


23