ACCA paper p5 advanced performance management EXAM KIT

In addition to the examiner’s technical answer, enhanced with key answer tips and tutorial notes in this exam kit, online you can find an answer debrief by a top tutor that: • works thro

Professional Examinations

Paper P5

Advanced Performance Management EXAM KIT

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Published by:

Kaplan Publishing UK

Unit 2 The Business Centre

Molly Millar’s Lane

Wokingham

Berkshire

RG41 2QZ

ISBN: 978-1-78415-236-9

© Kaplan Financial Limited, 2015

Printed and bound in Great Britain

The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties Please consult your appropriate professional adviser as necessary Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials

All rights reserved No part of this examination may be reproduced or transmitted in any form or

by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing

Acknowledgements

The past ACCA examination questions are the copyright of the Association of Chartered Certified Accountants The original answers to the questions from June 1994 onwards were produced by the examiners themselves and have been adapted by Kaplan Publishing

We are grateful to the Chartered Institute of Management Accountants and the Institute of Chartered Accountants in England and Wales for permission to reproduce past examination questions The answers have been prepared by Kaplan Publishing

CONTENTS

Page

Section

5 Pilot paper – questions and answers

In addition to providing a wide ranging bank of real past exam questions, we have also included

in this edition:

• An analysis of all of the recent examination papers

• Paper specific information and advice on exam technique

• Our recommended approach to make your revision for this particular subject as effective

as possible This includes step by step guidance on how best to use our Kaplan material (Complete text, pocket notes and exam kit) at this stage in your studies

• Enhanced tutorial answers packed with specific key answer tips, technical tutorial notes and exam technique tips from our experienced tutors

• Complementary online resources including full tutor debriefs and question assistance to point you in the right direction when you get stuck

You will find a wealth of other resources to help you with your studies on the following sites: www.mykaplan.co.uk

www.accaglobal.com/students/

Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details, or follow the link to the feedback form in MyKaplan

Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions

INDEX TO QUESTIONS AND ANSWERS

We have added the following enhancements to the answers in this exam kit:

Key answer tips

All answers include key answer tips to help your understanding of each question

Tutorial note

All answers include more tutorial notes to explain some of the technical points in more detail

Top tutor tips

For selected questions, we “walk through the answer” giving guidance on how to approach the questions with helpful ‘tips from a top tutor’, together with technical tutor notes

These answers are indicated with the “footsteps” icon in the index

ONLINE ENHANCEMENTS

Timed question with Online tutor debrief

For selected questions, we recommend that they are to be completed in full exam conditions (i.e properly timed in a closed book environment)

In addition to the examiner’s technical answer, enhanced with key answer tips and tutorial notes

in this exam kit, online you can find an answer debrief by a top tutor that:

• works through the question in full

• points out how to approach the question

• how to ensure that the easy marks are obtained as quickly as possible, and

• emphasises how to tackle exam questions and exam technique

These questions are indicated with the “clock” icon in the index

Online question assistance

Have you ever looked at a question and not know where to start, or got stuck part way through? For selected questions, we have produced “Online question assistance” offering different levels of guidance, such as:

• ensuring that you understand the question requirements fully, highlighting key terms and the meaning of the verbs used

• how to read the question proactively, with knowledge of the requirements, to identify the topic areas covered

• assessing the detail content of the question body, pointing out key information and explaining why it is important

• help in devising a plan of attack

With this assistance, you should then be able to attempt your answer confident that you know what is expected of you

These questions are indicated with the “signpost” icon in the index

Online question enhancements and answer debriefs will be available on MyKaplan at:

www.mykaplan.co.uk

SECTION A TYPE QUESTIONS

Note: (A) signifies that the question has been amended from the original, either to match the

current syllabus or, more usually, to match the current format of the exam

SECTION B TYPE QUESTIONS

STRATEGIC PLANNING AND CONTROL

Page number

Question Answer Past exam

EXTERNAL INFLUENCES ON ORGANISATIONAL PERFORMANCE

PERFORMANCE MEASUREMENT SYSTEMS AND DESIGN

STRATEGIC PERFORMANCE MEASUREMENT

PERFORMANCE EVALUATION AND CORPORATE FAILURE

Page number

Question Answer Past exam

CURRENT DEVELOPMENTS AND EMERGING ISSUES IN MANAGEMENT

ACCOUNTING AND PERFORMANCE MANAGEMENT

ANALYSIS OF PAST PAPERS

The table below summarises the key topics that have been tested in recent examinations to date

EXAM TECHNIQUE

• Use the allocated 15 minutes reading and planning time at the beginning of the exam:

– read the questions and examination requirements carefully, and

– begin planning your answers

See the Paper Specific Information for advice on how to use this time for this paper

• Divide the time you spend on questions in proportion to the marks on offer:

– there are 1.8 minutes available per mark in the examination

– within that, try to allow time at the end of each question to review your answer and address any obvious issues

Whatever happens, always keep your eye on the clock and do not over run on any part of any question!

• Spend the last five minutes of the examination:

– reading through your answers, and

– making any additions or corrections

• If you get completely stuck with a question:

– leave space in your answer book, and

– return to it later

• Stick to the question and tailor your answer to what you are asked

– pay particular attention to the verbs in the question

• If you do not understand what a question is asking, state your assumptions

Even if you do not answer in precisely the way the examiner hoped, you should be given some credit, if your assumptions are reasonable

• You should do everything you can to make things easy for the marker

The marker will find it easier to identify the points you have made if your answers are legible

• Computations:

It is essential to include all your workings in your answers

Many computational questions can be answered using a standard step by step approach e.g ABC computations, linear programming and variance calculations

Be sure you know these steps before the exam and practice answering a range of questions using the same step by step approach

• Reports, memos and other documents:

Some questions ask you to present your answer in the form of a report, a memo, a letter or other document

Make sure that you use the correct format – there could be easy marks to gain here

PAPER SPECIFIC INFORMATION

THE EXAM

FORMAT OF THE EXAM

Number of marks

Section B: Choice of 2 from 3 questions worth 25 marks each 50

There will be a mixture of written requirements and computational requirements

Total time allowed: 3 hours plus 15 minutes reading and planning time

Note that:

• All syllabus areas will be examined

• The exam may contain one question from each syllabus area However, some exam questions have examined more than one syllabus area in the same question, especially in section A

• Questions will be based around a short scenario It is important to refer back to this scenario when answering the question

• Earlier knowledge from previous papers will be drawn on at times

PASS MARK

The pass mark for all ACCA Qualification examination papers is 50%

READING AND PLANNING TIME

Remember that all three hour paper based examinations have an additional 15 minutes reading and planning time

ACCA GUIDANCE

ACCA guidance on the use of this time is as follows:

This additional time is allowed at the beginning of the examination to allow candidates to read the questions and to begin planning their answers before they start to write in their answer books

This time should be used to ensure that all the information and, in particular, the exam requirements are properly read and understood

During this time, candidates may only annotate their question paper They may not write anything

in their answer booklets until told to do so by the invigilator

• Skim through the whole paper, assessing the level of difficulty of each question

• Write down on the question paper next to the mark allocation the amount of time you should spend on each part Do this for each part of every question

• Decide the order in which you think you will attempt each question:

This is a personal choice and you have time on the revision phase to try out different approaches, for example, if you sit mock exams

A common approach is to tackle the question you think is the easiest and you are most comfortable with first

Psychologists believe that you usually perform at your best on the second and third question you attempt, once you have settled into the exam, so not tackling the most difficult question first may be advisable

It is usual however that students tackle their least favourite topic and/or the most difficult question in their opinion last

Whatever you approach, you must make sure that you leave enough time to attempt all questions fully and be very strict with yourself in timing each question

• For each question in turn, read the requirements and then the detail of the question

carefully

Always read the requirement first as this enables you to focus on the detail of the question with the specific task in mind

For computational questions:

Highlight key numbers/information and key words in the question, scribble notes to yourself on the question paper to remember key points in your answer

Jot down proformas required if applicable

For written questions:

Take notice of the format required (e.g letter, memo, notes) and identify the recipient of the answer You need to do this to judge the level of financial sophistication required in your answer and whether the use of a formal reply or informal bullet points would be satisfactory

Plan your beginning, middle and end and the key areas to be addressed and your use of titles and sub-titles to enhance your answer

For all questions:

Spot the easy marks to be gained in a question and parts which can be performed independently of the rest of the question For example, a definition of a variance or an explanation of the steps carried out in target costing

Make sure that you do these parts first when you tackle the question

Don’t go overboard in terms of planning time on any one question – you need a good measure of the whole paper and a plan for all of the questions at the end of the

15 minutes

By covering all questions you can often help yourself as you may find that facts in one question may remind you of things you should put into your answer relating to a different question

• With your plan of attack in mind, start answering your chosen question with your plan to

hand, as soon as you are allowed to start

Always keep your eye on the clock and do not over run on any part of any question!

DETAILED SYLLABUS

The detailed syllabus and study guide written by the ACCA can be found at:

www.accaglobal.com/students/

KAPLAN’S RECOMMENDED REVISION APPROACH

QUESTION PRACTICE IS THE KEY TO SUCCESS

Success in professional examinations relies upon you acquiring a firm grasp of the required knowledge at the tuition phase In order to be able to do the questions, knowledge is essential However, the difference between success and failure often hinges on your exam technique on the day and making the most of the revision phase of your studies

The Kaplan complete text is the starting point, designed to provide the underpinning knowledge

to tackle all questions However, in the revision phase, pouring over text books is not the answer

Kaplan Online knowledge check tests help you consolidate your knowledge and understanding

and are a useful tool to check whether you can remember key topic areas

Kaplan pocket notes are designed to help you quickly revise a topic area, however you then need

to practice questions There is a need to progress to full exam standard questions as soon as possible, and to tie your exam technique and technical knowledge together

The importance of question practice cannot be over-emphasised

The recommended approach below is designed by expert tutors in the field, in conjunction with their knowledge of the examiner and their recent real exams

The approach taken for the fundamental papers is to revise by topic area However, with the professional stage papers, a multi topic approach is required to answer the scenario based questions

You need to practice as many questions as possible in the time you have left

OUR AIM

Our aim is to get you to the stage where you can attempt exam standard questions confidently, to time, in a closed book environment, with no supplementary help (i.e to simulate the real examination experience)

Practising your exam technique on real past examination questions, in timed conditions, is also vitally important for you to assess your progress and identify areas of weakness that may need more attention in the final run up to the examination

In order to achieve this we recognise that initially you may feel the need to practice some questions with open book help and exceed the required time

The approach below shows you which questions you should use to build up to coping with exam standard question practice, and references to the sources of information available should you need to revisit a topic area in more detail

Remember that in the real examination, all you have to do is:

• attempt all questions required by the exam

• only spend the allotted time on each question, and

• get them at least 50% right!

Try and practice this approach on every question you attempt from now to the real exam

EXAMINER COMMENTS

We have included the examiners comments to the specific new syllabus examination questions in this kit for you to see the main pitfalls that students fall into with regard to technical content However, too many times in the general section of the report, the examiner comments that students had failed due to:

• “not answering the question”

• “a poor understanding of why something is done, not just how it is done”

• “simply writing out numbers from the question Candidates must understand what the numbers tell them about business performance”

• “a lack of common business sense” and

• “ignoring clues in the question”

Good exam technique is vital

THE KAPLAN PAPER P5 REVISION

PLAN

Stage 1: Assess areas of strengths and weaknesses

Stage 2: Practice questions

Follow the order of revision of topics as recommended in the revision table plan below and attempt the questions in the order suggested

Try to avoid referring to text books and notes and the model answer until you have completed your attempt

Try to answer the question in the allotted time

Review your attempt with the model answer and assess how much of the answer you achieved in the allocated exam time

Comfortable

with the technical content with the technical content Not comfortable

Read the relevant chapter(s) in Kaplan’s Complete Text Attempt the Test your understanding examples if unsure of an area Attempt appropriate Online Fixed

Fill in the self-assessment box below and decide on your best course of action

Stage 3: Final pre-exam revision

We recommend that you attempt at least one three hour mock examination containing a set of

previously unseen exam standard questions

It is important that you get a feel for the breadth of coverage of a real exam without advanced knowledge of the topic areas covered – just as you will expect to see on the real exam day

Ideally this mock should be sat in timed, closed book, real exam conditions and could be:

• a mock examination offered by your tuition provider, and/or

• the pilot paper in the back of this exam kit, and/or

• the last real examination paper (available shortly afterwards on MyKaplan with “enhanced walk through answers” and a full “tutor debrief”)

Comfortable with question attempt Not comfortable with question attempts

Only revisit when comfortable with

questions on all topic areas

Focus on these areas by:

• Reworking test your understanding examples in Kaplan’s Complete Text

• Revisiting the technical content from Kaplan’s pocket notes

• Working any remaining questions on that area in the exam kit

• Reattempting an exam standard question in that area, on a timed, closed book basis

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

attempted Self assessment

Introduction to strategic management accounting

Q36 This is a relatively straightforward technique but it is still important to practice at least one

question to ensure you have the required knowledge

Q51, Q73 A core area that is commonly examined It is important to complete a range of questions here

example, you may need to consider the impact of

a change in the mission statement on the KPIs of the organisation

classify its subsidiary companies in terms of their rate of market growth and relative market share

− Role of management

accountant 1 1 Q77, Q84 It’s important to consider the changes in the role

of the management accountant and the role of the management accountant in integrated reporting

Environmental influences

F5 but notice the change in emphasis of the questions – the calculations will be used to underpin your discussion rather than accounting for the majority of the marks

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

attempted Self assessment

examined, say, alongside the Performance Prism

Do not overlook this area Knowledge of the written areas of budgeting can help you to score relatively easy marks in the exam In addition, make sure that you can do the ABC calculations

Business structure and performance management

consider its impact on systems development and performance improvement

service and manufacturing organisations

question on this

complex in nature – these complex structures will present their own problems

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

attempted Self assessment

The impact of information technology

Q37 Think about the link between performance management and information systems In

particular, what information needs does the organisation have and what information systems should they implement as a result of these needs?

Performance reports for management

Q9, Q32 A commonly examined area Complete a number of questions to understand how it can be

examined in a variety of contexts It is important

to be able to evaluate a performance report

− Qualitative factors 6 6 Q47 Qualitative factors are subjective in nature and

are therefore often overlooked It is important

to stress the importance in your answer of considering these factors and you need to be ready to discuss how they can be best assessed

Human resource aspects of performance management

impact of a number of HR issues on performance management It is vital that managers are motivated to achieve the goals and KPIs of the organisation

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

attempted Self assessment

Financial performance measures in the private sector

− Assessing financial

performance 8 8 Q8, Q54, Q67 Don’t get too bogged down in the calculations You need to be ready to assess financial

performance in the context of the scenario given rather than simply calculating every single measure that you know

Divisional performance appraisal and transfer pricing

− Divisional

performance 9 9 Q46, Q67 Q5, Q30, A commonly examined area Be ready to calculate and evaluate RI, ROI and EVA and to

discuss VBM

divisions, or imposed by head office, can have a profound, but perhaps arbitrary, effect on the reported performance and subsequent decisions made

Performance management in not for-profit organisations

objectives and the different approaches to performance measurement in NFPs

− League tables 10 10 Q81, Q85 A very topical issue Be prepared to evaluate the

use of league tables (benchmarking) and targets

in the public sector

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

attempted Self assessment

Non-financial performance indicators

− Balanced scorecard 11 11 Q9, Q56 A number of tools are available for measuring

financial and non-financial performance A core area – practise a number of questions so that you understand how these models can be examined

in a range of contexts

Q64, Q71, Q75

− Performance Prism 11 11 Q4, Q73 A performance management tool that considers

all stakeholders rather than just shareholders

Know the step by step approach and be ready to apply it to a scenario

Corporate failure

− Corporate failure 12 12 Q3, Q58 Be ready to discuss corporate failure, assess the

likelihood of failure and discuss and evaluate models such as the Z score and Argenti

The role of quality in performance management

good idea to complete a range of questions on these

of quality and cost classification

good idea to complete a range of questions on these

step approach

Topic Complete

Text Chapter

Pocket note Chapter

Questions

to attempt

attempted Self assessment

Environmental management accounting (EMA)

area Be prepared to discuss the reasons for the implementation of EMA and to explain the techniques that can be used

Note that not all of the questions in the kit are referred to in the programme above We have recommended a large number of exam standard questions and successful completion of these should reassure you that you have a good grounding of most of the key topics and are well prepared for the exam

The remaining questions are available in the kit for extra practice for those who require more questions on some areas

FORMULAE AND MATHEMATICAL

TABLES

FORMULAE

Learning curve

Y = axb

Where y = average cost per batch

a = cost of first batch

x = total number of batches produced

b = learning factor (log LR/log 2)

LR = the learning rate as a decimal

Change

a = price when Q = 0

MATHEMATICAL TABLES

PRESENT VALUE TABLE

Present value of 1 i.e n

) 1 ( + − where r = discount rate, n = number of periods until payment

0.971 0.943 0.915 0.888 0.863

0.962 0.925 0.889 0.855 0.822

0.952 0.907 0.864 0.823 0.784

0.943 0.890 0.840 0.792 0.747

0.935 0.873 0.816 0.763 0.713

0.926 0.857 0.794 0.735 0.681

0.917 0.842 0.772 0.708 0.650

0.909 0.826 0.751 0.683 0.621

0.837 0.813 0.789 0.766 0.744

0.790 0.760 0.731 0.703 0.676

0.746 0.711 0.677 0.645 0.614

0.705 0.665 0.627 0.592 0.558

0.666 0.623 0.582 0.544 0.508

0.630 0.583 0.540 0.500 0.463

0.596 0.547 0.502 0.460 0.422

0.564 0.513 0.467 0.424 0.386

0.722 0.701 0.681 0.661 0.642

0.650 0.625 0.601 0.577 0.555

0.585 0.557 0.530 0.505 0.481

0.527 0.497 0.469 0.442 0.417

0.475 0.444 0.415 0.388 0.362

0.429 0.397 0.368 0.340 0.315

0.388 0.356 0.326 0.299 0.275

0.350 0.319 0.290 0.263 0.239

0.885 0.783 0.693 0.613 0.543

0.877 0.769 0.675 0.592 0.519

0.870 0.756 0.658 0.572 0.497

0.862 0.743 0.641 0.552 0.476

0.855 0.731 0.624 0.534 0.456

0.847 0.718 0.609 0.516 0.437

0.840 0.706 0.593 0.499 0.419

0.833 0.694 0.579 0.482 0.402

0.480 0.425 0.376 0.333 0.295

0.456 0.400 0.351 0.308 0.270

0.432 0.376 0.327 0.284 0.247

0.410 0.354 0.305 0.263 0.227

0.390 0.333 0.285 0.243 0.208

0.370 0.314 0.266 0.225 0.191

0.352 0.296 0.249 0.209 0.176

0.335 0.279 0.233 0.194 0.162

0.261 0.231 0.204 0.181 0.160

0.237 0.208 0.182 0.160 0.140

0.215 0.187 0.163 0.141 0.123

0.195 0.168 0.145 0.125 0.108

0.178 0.152 0.130 0.111 0.095

0.162 0.137 0.116 0.099 0.084

0.148 0.124 0.104 0.088 0.074

0.135 0.112 0.093 0.078 0.065

ANNUITY TABLE

Present value of an annuity of 1 i.e ( )

r r 1

1 − + −n where r = discount rate, n = number of periods

0.971 1.913

20829 3.717 4.580

0.962 1.886 2.775 3.630 4.452

0.952 1.859 2.723 3.546 4.329

0.943 1.833 2.673 3.465 4.212

0.935 1.808 2.624 3.387 4.100

0.926 1.783 2.577 3.312 3.993

0.917 1.759 2.531 3.240 3.890

0.909 1.736 2.487 3.170 3.791

5.417 6.230 7.020 7.786 8.530

5.242 6.002 6.733 7.435 8.111

5.076 5.786 6.463 7.108 7.722

4.917 5.582 6.210 6.802 7.360

4.767 5.389 5.971 6.515 7.024

4.623 5.206 5.747 6.247 6.710

4.486 5.033 5.535 5.995 6.418

4.355 4.868 5.335 5.759 6.145

9.253 9.954 10.63 11.30 11.94

8.760 9.385 9.986 10.56 11.12

8.306 8.863 9.394 9.899 10.38

7.887 8.384 8.853 9.295 9.712

7.499 7.943 8.358 8.745 9.108

7.139 7.536 7.904 8.244 8.559

6.805 7.161 7.487 7.786 8.061

6.495 6.814 7.103 7.367 7.606

0.885 1.668 2.361 2.974 3.517

0.877 1.647 2.322 2.914 3.433

0.870 1.626 2.283 2.855 3.352

0.862 1.605 2.246 2.798 3.274

0.855 1.585 2.210 2.743 3.199

0.847 1.566 2.174 2.690 3.127

0.840 1.547 2.140 2.639 3.058

0.833 1.528 2.106 2.589 2.991

3.998 4.423 4.799 5.132 5.426

3.889 4.288 4.639 4.946 5.216

3.784 4.160 4.487 4.772 5.019

3.685 4.039 4.344 4.607 4.833

3.589 3.922 4.207 4.451 4.659

3.498 3.812 4.078 4.303 4.494

3.410 3.706 3.954 4.163 4.339

3.326 3.605 3.837 4.031 4.192

5.687 5.918 6.122 6.302 6.462

5.453 5.660 5.842 6.002 6.142

5.234 5.421 5.583 5.724 5.847

5.029 5.197 5.342 5.468 5.575

4.836 4.988 5.118 5.229 5.324

4.656 4.793 4.910 5.008 5.092

4.486 4.611 4.715 4.802 4.876

4.327 4.439 4.533 4.611 4.675

PRACTICE QUESTIONS – SECTION A

Introduction

BSN is a public service radio and television broadcasting organisation Its Board of Directors stated in its latest annual report that the main objectives of the organisation are to:

• remain a public service broadcaster

• provide a comprehensive range of distinctive programmes and give excellence in providing a public broadcasting service

• make and broadcast television and radio programmes which inform, educate and entertain

BSN is mainly funded through television licence fees, which are paid by the residents of the country in which it is based The television signal is currently broadcast through transmitters located on land rather than via satellite The Board of Directors is held responsible by the government for ensuring that best value is obtained by the licence-fee payer

Competition

The main competition for BSN comes from commercial broadcasters who are funded through advertising revenue Some of these broadcasters use earth-bound transmission media for both television and radio programmes, and others transmit via satellite BSN has achieved an improvement in its market share of the viewing the viewing and listening audience in recent years despite this competition One of the most distinguished services provided by BSN is its world radio service, which is renowned for its unbiased and uncensored news broadcasts relating to national and international events None of its competitors is able to provide a parallel service of the same quality and reputation

Accountability and editorial policy

BSN is accountable through its Board of Directors to the licence-fee payers and to the government

It regularly consults with representatives of its audiences for both television and radio programmes and has established independent panels of viewers and listeners to review and advise on programmes

In terms of editorial policy the Board of Directors tries to ensure that there is as little interference as possible on the creativity of programme makers Nevertheless, the Board aims to ensure that programmes are fair, accurate and impartial, and meet the highest standards of good taste and decency

New developments

Recently, BSN has introduced a 24-hour television news service In addition, the organisation has entered a joint venture with a television subscription channel provider which allows the subscriber to access television programmes at any time to suit themselves rather than when they are broadcast The additional income earned through subscriptions

to this facility is re-invested by BSN in its main public service Another potential development is the connection of the television to the telecommunications network which would allow greater efficiency in the delivery of programmes

Financial efficiency

The Board of Directors has entered a four-year licence-fee agreement with the government The terms of this are that the licence fee will increase at a compound rate of 2% per annum both this year and next year The licence fee will then remain at this level for the remaining two years of the agreement

The total licence fee income received in the last financial year was $2,147 million The Board of Directors expects the number of licences sold to remain at the same level as last year for the full four-year period

The Board of Directors is proud that BSN exceeded the efficiency savings target set by the government by 2% in each of the last three years Over this period, BSN has out-sourced its financial processing functions and sold its transmission service to an independent company, which has guaranteed the maintenance of a high-quality service at a reduced cost The Board of Directors has placed much emphasis on the elimination of duplication of effort and reduction in waste from surplus capacity or over-staffing An internal market has been introduced into BSN with programme-makers given the freedom to buy from producers who may be employed by the organisation or who may be external and completely independent of it The savings achieved have been re-invested in programmes and services Despite these efficiency measures, BSN has experienced a steady average compound rate

of growth of 3.7% in its expenditure over the last five years, and this is expected to continue at the same level over the next four-year period

The following estimated levels of income and expenditure for the four-year period of the licence fee agreement are as follows:

Future targets and developments

The government has congratulated the Board of Directors on its record of achieving efficiency savings and has set a Return on Capital Employed (ROCE) target of 6% per annum Its current ROCE is 9%, which has been calculated as follows:

million

$1,195

million

$108employed

capital Average

100 eexpenditur

over income

of

It is assumed that the value of capital employed by BSN will change only by adjustments in its operating reserve

There has been continuing debate on the funding mechanism used for BSN through the licence fee Some members of the government have questioned the fairness of this They argue that commercial broadcasters cannot rely on a regular and guaranteed source of income and that the licence itself is a form of tax giving no discretion to the fee payer One suggestion being considered by the government to reduce BSN’s dependence on the licence fee is to separate the radio and television services The radio services may then be financed

by advertising revenue but would remain within the overall group alongside the television service The rationale for this is that the licence fee is charged only on television receivers and therefore BSN does not obtain any direct income to support its radio services

Financial extracts

Extracts from BSN’s accounts reveal an increase in the overall surplus transferred to the operating reserve in the last financial year Comparative extracts from the accounts over the last two years are as follows:

Last year

$ million Previous year $ million

Income and expenditure account

Statement of financial position

Last year

$ million Broadcast expenditure:

Required:

Write a report to the Board of Directors of BSN addressing the following:

(a) BSN’s major stakeholders are the public, the government, its employees and management

(i) Outline the main risk areas that will concern each stakeholder group

(ii) Explain how the Board of Directors can obtain the views of BSN’s major stakeholders in determining the future strategic development of the

P had intended and is frequently publicly criticised for providing services which do not run

on time

The Group has a distinctive brand name which was established when P’s charismatic founder and Chairman launched the first business venture The majority of the citizens in its home country have heard of the brand which has over time been applied to many diverse areas of business The Chairman believes the reputation of the brand name places a heavy burden of responsibility on P not to disappoint its customers The Chairman himself has impressed his own personality on P by pursuing personal publicity in business ventures and becoming involved in high-profile and sometimes dangerous 'leisure' activities

P has achieved a reputation for entering markets which are dominated by major companies, and has been successful in taking business from some major competitors by exposing their consistently poor service and complacency

The principal business approach which has been adopted is that of 'brand stretching' across different products and services Each company within the group runs its own affairs but they are all encouraged to help each other resolve their particular problems in a kind of family spirit

Key strategic factors

The Chairman has stated that P is in business 'to be different' and that the P brand name should be clearly associated with this

It is considered essential by the Directors that any products or services incorporated within the brand must help to build its good reputation, provide an opportunity to add value, and yield an appropriate trade-off between risk and rewards

The Chairman considers that there are a number of key factors which have contributed to the success of P The brand name is associated with being the consumer’s champion, and has been very successful in delivering what the Chairman refers to as a 'sense of excitement' in most ventures to which it has been applied In addition, the business contacts which have been established are important and he recognises that his own personality attracts customers and venture partners P also encourages talented staff within the group to interact with each other in order to solve problems The management style of P is therefore seen as a major contributory factor in its corporate success Much weight is placed on its corporate image The Chairman explains that the quality of a customer's experience when coming into contact with P is the most important item in determining its success

Management style

The Directors agree that the first priority in being able to achieve success is for P to ensure that the Group employs personnel of the best quality and calibre Their simple philosophy is that motivated staff lead to satisfied customers which results in repeat and new business, and provides benefit to the shareholders

P has a flat management structure with few authority levels within the hierarchy The Chairman himself is committed to providing good communication channels within and outside the group He believes very firmly that managers within the organisation must be prepared to listen both to the customers and also the staff

Financial performance

The business approach which has been developed is that the brand name is provided by P with a cash injection from a joint venture partner This has generally proved to be a very successful formula although this has not been the case with the latest venture into the domestic railway market The Directors consider that the performance of P Rail will improve following a programme to upgrade the infrastructure inherited from the previous nationalised rail network

Comparative financial information relating to P Airlines and P Rail for the last two years at

Other performance indicators

The following information is provided relating to P's airline and rail businesses:

Ratio of cabin staff to passengers (excluding aircrew, i.e pilots and navigators):

• P Airlines sells economy, business and first-class seats to passengers The prices reflect the level of comfort and service For example, first-class seats cost double the price of business class seats and ten times the price of economy seats

• Airline passenger numbers are expected to increase by 3% in the next two years in the long-distance economy-class market from which P attracts most of its customers

• There is an increasing level of alliances emerging among airlines whereby each carries the other's passengers as well as its own on designated routes P is engaged in such alliances for two of its routes

• A general survey of satisfaction among airline passengers carried out by independent representatives from the travel industry in P's home country ranks P as being within the top three for most services

Ratio of customer attendants to passengers:

• P Rail sells standard and first-class seats to its passengers The first-class seat is priced

at about double that of a standard priced seat

• An increase of 5% in total rail passengers is expected over the next four years

• P operates the railway services under a franchise agreement, which is due for renewal in five years' time

• The government has established a Railway Regulatory Authority to monitor the quality of the services provided by the P Group and other railway franchisees, and is constantly increasing pressure on the franchisees to improve their services

• A general survey of passenger satisfaction carried out by the Railway Regulatory Authority was highly critical of P's services with regard to its record relating to punctuality and service on its trains

Future development

P has enjoyed considerable success in its ventures within its domestic market However, the Directors believe there is much opportunity to develop the brand name within the emerging highly populated retail markets elsewhere in the world where currently it is relatively unknown

The other development that the Board want to address is the increasing importance of green and environmental issues to customers, Governments and potential investors While P’s record in these respects is not inferior to that of competitors, P does not have a focussed approach to defending and improving its green credentials One director has suggested that P should investigate the implementation of environmental management accounting (EMA)

Required:

Write a report to the Board of Directors of P Group addressing the following issues:

(a) Discuss the importance of the external forces that P faces in its worldwide business

(b) With reference to the comparative financial and other performance indicators, evaluate the performance of the P Airlines and P Rail companies Recommend ways

in which they may increase their individual contribution to the future development

(c) Explain the main factors which have contributed to P’s commercial success so far Comment on the Chairman’s personal responsibilities to the Group’s shareholders, employees, joint venture partners and customers (10 marks) (d) (i) Discuss the importance of environmental management accounting (EMA)

(ii) Explain, giving examples, how environmental management accounting (EMA)

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

(Total: 50 marks)

Assume that 'now' is December 20X3

The managing director of Snowwell plc has received an unsolicited letter from a reputable organisation specialising in the prediction of corporate failure, which suggests that Snowwell has been identified as a probable failing company The organisation has offered

to supply details of the full report on Snowwell for $100,000

Given the collapse of many companies’ share prices during the last few years, the managing director of Snowwell is concerned that if the contents of the report become public knowledge, Snowwell’s share price could also fall

He has also read about various models which use combinations of financial ratios to attempt to predict corporate failure, including a leading business school’s S0 model (developed in 20X1) which produces a score based upon the following equation:

S0 = 3.5S1 + 1.8S2 + 0.25S3 + 0.69S4

where:

S1 = Earnings before interest and tax/market value of equity

S2 = Working capital/medium and long term capital employed

S3 = Market value of equity/market value of debt

S4 = The present value to infinity of current operating free cash flow/turnover

According to the S0 system, a company scoring less than 1 has a high probability of failure; a score of 1 – 2 suggests remedial action is necessary to improve corporate financial performance; and a score of over 2 means that a company has a high probability of survival for at least three years, which is the maximum claimed prediction period for the model The latest summarised accounts of Snowwell plc are shown over the page:

Income statement for the years ending

Non-current assets $ million $ million $ million $ million